# EDGAR Filing Document

**Accession Number:** 0001725262
**File Stem:** 0001641172-25-015271
**Filing Date:** 2025-6
**Character Count:** 1373002
**Document Hash:** 602d3710131469f8e08707222bd85264
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001641172-25-015271.hdr.sgml**: 20250616

**ACCESSION NUMBER**: 0001641172-25-015271

**CONFORMED SUBMISSION TYPE**: S-1

**PUBLIC DOCUMENT COUNT**: 252

**FILED AS OF DATE**: 20250616

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Tri-County Financial Group, Inc.
- **CENTRAL INDEX KEY:** 0001725262

**ORGANIZATION NAME:**
- **EIN:** 363412522
- **STATE OF INCORPORATION:** DE
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** S-1
- **SEC ACT:** 1933 Act
- **SEC FILE NUMBER:** 333-288087
- **FILM NUMBER:** 251050770

**BUSINESS ADDRESS:**
- **STREET 1:** 706 WASHINGTON STREET
- **CITY:** MENDOTA
- **STATE:** IL
- **ZIP:** 61342
- **BUSINESS PHONE:** 815-538-2265

**MAIL ADDRESS:**
- **STREET 1:** 706 WASHINGTON STREET
- **CITY:** MENDOTA
- **STATE:** IL
- **ZIP:** 61342

**As filed with the Securities and Exchange Commission on June 16, 2025**

**Registration No. 333-**

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

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**FORM S-1**

**REGISTRATION STATEMENT**

***UNDER***

***THE SECURITIES ACT OF 1933***

 ****

 ****

**TRI-COUNTY FINANCIAL GROUP, INC.**

**(Exact name of registrant as specified in its charter)**

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| | | |
|:---|:---|:---|
| **Delaware** | **6022** | **36-3412522** |
| **(State or other jurisdiction of**<br> **incorporation or organization)** | **(Primary Standard Industrial**<br> **Classification Code Number)** | **(I.R.S. Employer**<br> **Identification Number)** |

---

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**706 Washington Street**

**Mendota, Illinois 61342**

**(815) 538-2265**

**(Address, including zip code and telephone number, including area code, of registrant's principal executive offices)**

**Timothy McConville**

**President and Chief Executive Officer**

**Tri-County Financial Group, Inc.**

**706 Washington Street**

**Mendota, Illinois 61342**

**(815) 538-2265**

**(Name, address, including zip code and telephone number, including area code, of agent for service)**

***Copies to:***

 ****

**Robert M. Fleetwood**

**Barack Ferrazzano Kirschbaum & Nagelberg LLP**

**200 West Madison Street, Suite 3900**

**Chicago, Illinois 60606**

**(312) 984-3100**

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**Approximate date of commencement of proposed sale to the public:** As soon as practicable after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). (Check one):

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company) Smaller reporting company ☒ Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☒

The information in this prospectus is not complete and may be changed. The Selling Shareholder may not and sell these securities until the registration statement filed with the Securities and Exchange Commission (the "SEC") is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any state where the offer or sale is not permitted.

**SUBJECT TO COMPLETION**

**PROSPECTUS**

**563,064 Shares**

**Common Stock**

$1.00 Par Value Per Share

This prospectus relates to the sale of up to 563,064 shares of our voting common stock which may be offered by the selling shareholder, Castle Creek Capital Partners VI, LP, which we refer to as "Castle Creek," or the "Selling Shareholder." Unlike an initial public offering, the resale by the Selling Stockholder is not being underwritten by any investment bank. The shares of common stock offered by the Selling Shareholder are subject to a Registration Rights Agreement, dated October 6, 2017, as subsequently amended, which we refer to as the "Rights Agreement." See "The Selling Shareholder" for a description of the Rights Agreement. Such registration does not mean that the Selling Shareholder will actually offer or sell any of these shares. We are not selling any shares of our common stock under this prospectus and will not receive any proceeds from the sales of the above shares of our common stock by the Selling Shareholder.

All references to "common stock" in this prospectus relate to our shares of voting common stock, unless otherwise noted. We also have a class of nonvoting common stock authorized by our certificate of incorporation. No shares of nonvoting common stock are currently issued and we do not anticipate issuing any shares of nonvoting common stock in the future.

Shares of our common stock are quoted on the OTC Market Group, Inc. OTCQX Marketplace under the symbol "TYFG". On June 13, 2025, the last reported sale price of our common stock on the OTCQX was $43.00 per share. Please see "Market Price and Dividend Information" for more information.

As of the date of this prospectus, we had 2,388,443 shares of common stock outstanding, of which 707,356 shares were held by affiliates, including the Selling Shareholder. As of the date of this prospectus, there are no shares of any other class of securities issued.

The Selling Shareholder may sell all or a portion of these shares from time to time in market transactions through any market on which our common stock is then traded, if any, in negotiated transactions or otherwise, and at prices and on terms that will be determined by the then prevailing market price or at negotiated prices, directly or through a broker or brokers, who may act as agent or as a principal or by a combination of such methods of sale. The Selling Shareholder will receive all proceeds from the sale of the common stock.

**Investing in our common stock involves risks. We encourage you to read and carefully consider this prospectus in its entirety, in particular, the "Risk Factors" beginning on page 7 as well as other information in any documents we incorporate by reference into this prospectus, for a discussion of factors that you should consider with respect to this prospectus.**

**The shares of common stock offered are not savings accounts, deposits or other obligations of any of our bank or non-bank subsidiaries and are not insured by the Federal Deposit Insurance Corporation (the "FDIC") or any other governmental agency.**

**Neither the SEC, any state securities commission, the FDIC, the Board of Governors of the Federal Reserve System (the "Federal Reserve"), nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.**

The date of this prospectus is June 16, 2025.

**TABLE OF CONTENTS**

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| | |
|:---|:---|
|  | **Page** |
| [ABOUT THIS PROSPECTUS](#SSS_001) | 1 |
| [INDUSTRY AND MARKET DATA](#SSS_002) | 1 |
| [IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY](#SSS_003) | 2 |
| [SUMMARY](#SSS_004) | 3 |
| [SELECTED FINANCIAL DATA](#SSS_006) | 5 |
| [RISK FACTORS](#SSS_007) | 7 |
| [CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](#SSS_008) | 22 |
| [USE OF PROCEEDS](#SSS_009) | 24 |
| [MARKET PRICE AND DIVIDEND INFORMATION](#SSS_010) | 25 |
| [BUSINESS OVERVIEW](#SSS_011) | 26 |
| [MANAGEMENT DISCUSSION AND ANALYSIS](#SSS_012) | 45 |
| [SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT](#SSS_013) | 91 |
| [DESCRIPTION OF OUR CAPITAL STOCK](#SSS_014) | 93 |
| [SELLING SHAREHOLDER](#SSS_015) | 96 |
| [PLAN OF DISTRIBUTION](#SSS_016) | 97 |
| [LEGAL MATTERS](#SSS_017) | 100 |
| [EXPERTS](#SSS_018) | 100 |
| [AUDITED FINANCIAL INFORMATION](#SSS_019) | F-1 |
| [INFORMATION NOT REQUIRED IN PROSPECTUS](#RMa_001) | II-1 |

---

i

**ABOUT THIS PROSPECTUS**

As used in this prospectus, the terms "Company" "we," "our," and "us" refer to Tri-County Financial Group, Inc., and its consolidated subsidiaries unless the context indicates otherwise. When we refer to the "Bank" or "our Bank" in this prospectus, we are referring to First State Bank, an Illinois state-chartered bank and wholly-owned subsidiary of the Company.

This prospectus is an offer to sell only the shares offered by this prospectus, but only under circumstances and in jurisdictions where it is lawful to do so. You should only rely on the information contained in this prospectus. We have not, and the Selling Shareholder has not, authorized anyone to provide you with additional information or information different from that contained or incorporated by reference in this prospectus. If anyone provides you with different or inconsistent information, you should not rely on it. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of the delivery of this prospectus or any sale of our common stock. Our business, financial condition, results of operations and prospects may have changed since the date of this prospectus. The Selling Shareholder is offering to sell common stock only in jurisdictions where those sales are permitted. Any references to our website herein are not intended to be active links and the information on, or that can be accessed through, our website is not, and you must not consider the information to be, a part of this prospectus or any other filings we make with the SEC.

This prospectus describes the specific details regarding the sale of our common stock by the Selling Shareholder, the terms of the common stock being offered and the risks of investing in our common stock. You should read this prospectus before making your investment decision. You should not interpret the contents of this prospectus to be legal, business, investment or tax advice. You should consult with your own advisors for that type of advice and consult with them about the legal, tax, business, financial and other issues that you should consider before investing in our common stock.

**INDUSTRY AND MARKET DATA**

Unless otherwise indicated, information contained in this prospectus concerning our industry and the markets in which we operate, including our general expectations, market position, market opportunity and market size is based on information from various sources, including information obtained from various independent, third-party industry sources, publications, government reports, trade and business organizations and other contacts in the markets in which we operate and our own internal data, estimates and forecasts, as well as assumptions that we have made that are based on such data and other similar sources, and on our knowledge of the market for our products and services.

Although we believe that this information (including the industry publications and third-party research surveys and studies) is generally reliable, information of this sort is inherently imprecise. This information involves a number of assumptions and limitations. In addition, estimates, forecasts and assumptions of our future performance and the performance of the industry in which we operate are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled "Risk Factors" and elsewhere in this prospectus. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.

**IMPLICATIONS OF BEING AN EMERGING GROWTH COMPANY**

As a company with less than $1.235 billion in revenues during our last fiscal year, we qualify as an "emerging growth company" under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. An emerging growth company may take advantage of reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable to public companies. As an emerging growth company:

● we may present as few as two years of audited financial statements and two years of related management discussion and analysis of financial condition and results of operations;

● we are exempt from the requirement to obtain an attestation and report from our auditors on management's assessment of our internal control over financial reporting under the Sarbanes-Oxley Act of 2002;

● we are permitted to provide reduced disclosure regarding our executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, which means we do not have to include a compensation discussion and analysis and certain other disclosures regarding our executive compensation; and

● we are not required to give our stockholders non-binding advisory votes on executive compensation or golden parachute arrangements.

In this prospectus, we have elected to take advantage of the reduced disclosure requirements and other relief described above, and in the future we may take advantage of any or all of these exemptions for as long as we remain an emerging growth company. We will remain an emerging growth company until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1.235 billion or more, (ii) the end of the fiscal year following the fifth anniversary of the date of this prospectus, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the end of the first fiscal year in which (A) the market value of our equity securities that are held by non-affiliates exceeds $700 million as of June 30 of that year, (B) we have been a public reporting company under the Securities Exchange Act of 1934, as amended, or Exchange Act, for at least twelve calendar months and (C) we have filed at least one annual report on Form 10-K.

In addition to the relief described above, the JOBS Act permits us to take advantage of an extended transition period for complying with new or revised accounting standards affecting public companies. We have elected to use this extended transition period, which means that the financial statements included in this prospectus, as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act. As a result, our financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards on a non-delayed basis.

**SUMMARY**

*This summary is not complete and does not contain all of the information that may be important to you or that you should consider before investing in our common stock. This summary is qualified in its entirety by the more detailed information included or incorporated by reference in this prospectus. Before making your investment decision, you should read this entire prospectus, including the "Risk Factors" section and those documents incorporated by reference. Unless otherwise expressly stated or the context otherwise requires, all information in this prospectus assumes that the underwriters do not exercise their option to purchase additional shares of our common stock to cover any over-allotments.*

***Our Business***

The Company is a bank holding company that was incorporated under the laws of the State of Delaware in 1986. The Company conducts a majority of its business through its wholly-owned subsidiary, First State Bank. The Bank has two wholly-owned subsidiaries: First State Mortgage Services, LLC ("FSM") and Tri-County Insurance Services, Inc. (d/b/a First State Insurance) ("FSI"). As of March 31, 2025, the Company had approximately $1.54 billion in consolidated total assets. The Company and the Bank are headquartered in Mendota, Illinois. Currently, the Bank has 19 branch offices in 18 communities located primarily in north central Illinois.

The Bank was founded in 1940 and has focused on providing comprehensive banking services to the communities it serves. For the first several decades, the Bank conducted its business through its headquarters in Mendota. In the 1980s and 1990s, the Bank began expanding to nearby communities, including facilities in LaMoille, Peru, Streator, Ottawa and McNabb. During the early 2000s, the Bank focused on expanding its service offerings and established FSI, a full-serve insurance agency. As the Bank increased its branch locations, it also developed FSM, a full-service mortgage lending operation. Over the next several years, the Bank engaged in the acquisition of several smaller banks and grew to over $1.0 billion in assets.

The Bank focuses primarily on the origination and servicing of (i) commercial loans, including commercial and industrial loans; (ii) real estate loans, including commercial real estate, agricultural real estate and one-to-four family residential mortgage loans; and (iii) agricultural loans, including agricultural operating loans. Demand, savings (including money market), and time deposits are the Bank's primary funding sources. The funding mix also includes securities sold under agreement to repurchase and borrowings from the Federal Home Loan Bank of Chicago.

The Bank's primary deposit gathering and lending markets consist of communities throughout north central Illinois. We are headquartered in Mendota, Illinois, and have branches in Batavia, Bloomington, Champaign, Geneva, LaMoille, McNabb, North Aurora, Ottawa, Peru, Princeton, Rochelle, Shabonna, St. Charles, Streator, Sycamore, Waterman and West Brooklyn, Illinois. The primary industries within these respective markets are also diverse and dependent upon a wide array of industry and governmental activity for their economic base.

 ****

The Company faces strong competition both in attracting deposits and making real estate, commercial and other loans. Its most direct competition for deposits and loans comes from large national and regional banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions, financial technology (fintech) companies and other non-bank financial service providers located in its principal market areas, including many larger financial institutions which have greater financial and marketing resources available to them. The Bank competes for loans principally through the interest rates and loan fees it charges and the efficiency and quality of services it provides borrowers.

The Bank strives to provide a full range of financial products and services to individuals as well as to small- and medium-sized businesses in each market area it serves. The Bank targets consumers for their mortgage needs as well as owner-operated businesses for small business and commercial real estate. The Bank has a loan committee with authority to approve credits within established guidelines. Concentrations in excess of those guidelines must be approved by either a corporate loan committee comprised of the Bank's Chief Executive Officer, the Chief Credit Officer, and other senior commercial lenders or the Bank's board of directors. When lending to an entity, the Bank generally obtains a guaranty from the principals of the entity. The loan mix is subject to the discretion of the Bank's board of directors and the demands of the local marketplace.

***The Selling Shareholder***

On October 6, 2017, we sold 95,564 shares of our voting common stock and 46,750 shares of our nonvoting series B preferred stock to Castle Creek. Castle Creek later converted its holdings of nonvoting series B preferred stock into holdings of our common stock. In connection with this transaction, we entered into a Securities Purchase Agreement, dated as of October 6, 2017, and the Rights Agreement with Castle Creek. Under these agreements, we have agreed to comply with certain continuing obligations with respect to Castle Creek which are described in more detail in "Selling Shareholder" beginning on page 96. Pursuant to the Rights Agreement, and certain amendments thereto, the Company must file a registration statement with the SEC by June 16, 2025, so that Castle Creek may resell its shares of common stock. The Company has filed this Registration Statement pursuant to the Rights Agreement.

 

 

***The Offering***

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| | |
|:---|:---|
| **Shares of Common Stock Offered by Us** |  |
| Shares of Common Stock Offered by the Selling Shareholder<br>| 563,064 shares |
| Common Stock Outstanding After the Offering<sup>(1)</sup><br>| 2,388,443 shares |
| **Use of Proceeds** | We will not receive any proceeds for the sale of shares of common stock by the Selling Shareholder pursuant to this prospectus. |
| **Offering Price** | The Selling Shareholder may sell all or a portion of the Shares being offered pursuant to this prospectus at fixed prices, at prevailing market prices at the time of sale, at varying prices, or at negotiated prices. |
| **Market Trading** | Our common stock is currently quoted on the OTC Markets Group, Inc. OTCQX under the symbol "TYFG." The last reported closing price of our common stock on June 13, 2025, was $43.00 per share. |
| Risk Factors <br>| See "Risk Factors" and other information included in this prospectus (including information incorporated by reference) for a discussion of factors you should consider before investing in our common stock. |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) The
number of our shares outstanding as of the date of this prospectus is based on 2,388,443 shares of our common stock outstanding as of
May 31, 2025.

**SELECTED FINANCIAL DATA**

The following tables set forth selected consolidated financial data for us at and for each of the years in the three-year period ended December 31, 2024 and at and for the three-month periods ended March 31, 2025 and 2024. Historical results are not necessarily indicative of future results and the results for the three months ended March 31, 2025 are not necessarily indicative of our expected results for the full year ending December 31, 2025 or any other period.

You should read this information in conjunction with our consolidated financial statements and related Notes, from which this information is derived. See the section entitled "Incorporation of Certain Information by Reference" included elsewhere herein.

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| | | | | |
|:---|:---|:---|:---|:---|
| **(Dollars in thousands, except per share data)** | **At or For the Years Ended December 31,** | **At or For the Years Ended December 31,** | **At or For the Three Months Ended March 31,** | **At or For the Three Months Ended March 31,** |
|  | **2024** | **2023** | **2025** | **2024** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** |
| **Selected Balance Sheet Data** |  |  |  |  |
| Cash and cash equivalents | $44976 | $28018 | $45534 | $22725 |
| Debt securities available-for-sale | 143735 | 174846 | 147398 | 169149 |
| Mortgage loans held for sale | 9011 | 10189 | 15578 | 10504 |
| Loans (not including loans held for sale) | 1276409 | 1273602 | 1262756 | 1280143 |
| Allowance for credit losses | (14444) | (15990) | (14504) | (15005) |
| Loans, net | 1261965 | 1257612 | 1248252 | 1265138 |
| Cash surrender value of life insurance | 20269 | 19728 | 20409 | 19858 |
| Goodwill and other intangible assets | 8700 | 8723 | 8694 | 8717 |
| Other assets | 50628 | 53779 | 50627 | 53879 |
| Total assets | $1539284 | $1552895 | $1536492 | $1549970 |
| Deposits | $1273296 | $1246731 | $1302944 | $1284784 |
| Securities sold under agreement to repurchase | 22679 | 22488 | 22266 | 21107 |
| Federal Home Loan Bank advances | 67917 | 116000 | 32917 | 74500 |
| Subordinated debt | 9834 | 9810 | 9840 | 9816 |
| Other liabilities | 22364 | 21723 | 22471 | 22311 |
| Total liabilities | 1396090 | 1416752 | 1390438 | 1412518 |
| Stockholders' equity | 143194 | 136143 | 146054 | 137452 |
| Total liabilities and stockholders' equity | $1539284 | $1552895 | $1536492 | $1549970 |
| Average earning assets | $1465309 | $1454959 | $1461302 | $1480132 |
| Average total assets | $1530408 | $1515831 | $1523355 | $1549062 |
| Average stockholders' equity | $140057 | $131189 | $144834 | $136475 |
| **Statement of Income Data** |  |  |  |  |
| Interest income | $77896 | $69319 | $19530 | $18989 |
| Interest expense | 34988 | 26570 | 7892 | 8510 |
| Net interest income | 42908 | 42749 | 11638 | 10479 |
| Credit loss expense (recovery) | (1284) | (850) | 501 | (1287) |
| Noninterest income | 15632 | 15522 | 3596 | 3013 |
| Noninterest expense | 45967 | 45744 | 11300 | 11189 |
| Income tax expense | 3428 | 3332 | 879 | 915 |
| Net Income | $10429 | $10045 | $2554 | $2675 |

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| | | | | |
|:---|:---|:---|:---|:---|
| **(Dollars in thousands, except per share data)** | **At or For the Years Ended December 31,** | **At or For the Years Ended December 31,** | **At or For the Three Months Ended March 31,** | **At or For the Three Months Ended March 31,** |
|  | **2024** | **2023** | **2025** | **2024** |
| **Per Share Data** |  |  |  |  |
| Basic earnings | $4.32 | $4.09 | $1.07 | $1.10 |
| Diluted earnings | $4.28 | $4.05 | $1.06 | $1.09 |
| Dividends declared | $0.85 | $0.90 | $0.25 | $0.20 |
| Book value at period end | $59.81 | $56.20 | $61.15 | $56.72 |
| Weighted average shares outstanding: |  |  |  |  |
| Basic earnings per share | 2412573 | 2454027 | 2388888 | 2423785 |
| Diluted earnings per share | 2438755 | 2481343 | 2407526 | 2443076 |
| Shares outstanding at period end | 2394193 | 2422358 | 2388443 | 2423518 |
| **Selected Financial Ratios** |  |  |  |  |
| Return on average assets | 0.68% | 0.66% | 0.71% | 0.69% |
| Return on average equity | 7.45% | 7.66% | 7.15% | 7.88% |
| Net interest margin (1) | 2.96% | 2.97% | 3.26% | 2.88% |
| Loans/deposits | 100.24% | 102.16% | 96.92% | 99.64% |
| Allowance for credit losses to total loans (2) | 1.13% | 1.26% | 1.15% | 1.17% |
| Nonperforming loans to total loans (2) | 0.33% | 0.55% | 0.41% | 0.64% |
| Allowance for credit losses to nonperforming loans (2) | 346.88% | 226.52% | 283.06% | 179.93% |
| Nonperforming assets to total assets | 0.33% | 0.46% | 0.35% | 0.54% |
| Tier 1 leverage capital ratio of subsidiary Bank | 10.30% | 9.80% | 10.30% | 9.80% |
| Risk-based total capital ratio of subsidiary Bank | 14.50% | 14.00% | 15.00% | 14.10% |
| Stockholders' equity to total assets | 9.30% | 8.77% | 9.51% | 8.87% |
| Dividend payout ratio | 19.66% | 21.93% | 23.38% | 18.13% |

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(1) Reflects tax equivalent adjustment for federal tax exempt income based on a 21% tax rate.

(2) The ratio excludes loans held for sale.

**RISK FACTORS**

*Investing in our common stock involves a high degree of risk. The material risks and uncertainties that management believes affect us are described below. Before you decide to invest, you should carefully review and consider the risks described below, together with all other information included in this prospectus. Any of the following risks, as well as risks that we do not know or currently deem immaterial, could have a material adverse effect on our business, financial condition, results of operations and growth prospects. As a result, the trading price of our common stock could decline, and you could experience a partial or complete loss of your investment. Further, to the extent that any of the information in this prospectus constitutes forward-looking statements, the risk factors below are cautionary statements identifying important factors that could cause actual results to differ materially from those expressed in any forward-looking statements made by us or on our behalf. See "Cautionary Note Regarding Forward-Looking Statements" on page 22.*

**Credit Risks**

***We must effectively manage our credit risk.***

There are risks inherent in making any loan, including risks inherent in dealing with individual borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and risks resulting from changes in economic and industry conditions. In general, these risks have increased as a result of sustained elevated interest rates, uncertainties associated with inflation, and uncertainties associated with new economic policies being announced by the Trump Administration and Congress, including, in particular, tariff policy and implementation. These factors and uncertainties potentially increased the risk of a near-term decline in growth or an economic downturn. We attempt to minimize our credit risk through prudent loan application approval procedures, careful monitoring of the concentration of our loans within specific industries and periodic independent reviews of outstanding loans by our credit review department and external consultants. However, we cannot assure you that such approval and monitoring procedures will reduce these credit risks.

Most of our loans are commercial, real estate or agricultural loans or residential real estate loans each of which is subject to distinct types of risk. To reduce the lending risks we face, we generally take a security interest in borrowers' property for all four types of loans. Nevertheless, the risk of non-payment is inherent in all types of loans, and if we are unable to collect amounts owed, it may materially affect our operations and financial performance.

***Our business is subject to domestic and, to a lesser extent, international economic conditions and other factors, many of which are beyond our control and could materially and adversely affect us.***

Our financial performance generally, and in particular the ability of customers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is highly dependent upon the business environment not only in the markets where we operate, but also in the state of Illinois generally and in the United States as a whole. A favorable business environment is generally characterized by, among other factors: economic growth; efficient capital markets; low inflation; low unemployment; high business and investor confidence; and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by: declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; high unemployment; uncertainty in U.S. trade policies, legislation, treaties and tariffs; natural disasters; acts of war or terrorism, including the current conflicts in Israel and Ukraine; widespread disease or pandemics; or a combination of these or other factors.

Economic conditions in the state of Illinois are generally impacted by commodity prices, which may adversely impact the Illinois economy, specifically the agricultural sector. Declines in commodity prices could materially and adversely affect our results of operations. The agricultural economy in the Midwest, including Illinois, has generally weakened over the previous several years. A prolonged period of weakness in the agricultural economy could result in a decrease in demand for loans or other products and services offered by us, an increase in agricultural loan delinquencies and defaults, an increase in impaired assets and foreclosures, a decline in the value of our loans secured by real estate, and an inability to sell foreclosed assets. The effects of a prolonged period of a weakened agricultural economy could have a material adverse effect on our business, financial condition and results of operations.

***Elevated levels of inflation could adversely impact our business and results of operations.***

The United States is experiencing elevated levels of inflation. Continued levels of inflation could have complex effects on our business and results of operations, some of which could be materially adverse. For example, elevated inflation harms consumer purchasing power, which could negatively affect our retail customers and the economic environment and, ultimately, many of our business customers, and could also negatively affect our levels of non-interest expense. When interest rates rise in response to, or as a result of, elevated levels of inflation, the value of our securities portfolio would be negatively impacted. Continued elevated levels of inflation could also cause increased volatility and uncertainty in the business environment, which could adversely affect loan demand and our clients' ability to repay indebtedness. It is also possible that governmental responses to inflation could adversely affect our business, such as changes to monetary and fiscal policy that are too strict, or the imposition or threatened imposition of price controls. The duration and severity of an inflationary period cannot be estimated with precision.

***Our allowance for credit losses may prove to be insufficient to absorb losses in our loan portfolio.***

As of January 1, 2023, the Company was required to adopt accounting standard update ("ASU") 2016-13, Financial Instruments – Credit Losses (Topic 326), commonly referred to as "CECL". CECL changed how the Company calculates its allowance for credit losses by requiring the Company to determine periodic estimates of lifetime expected credit losses on loans and recognize the expected credit losses as allowances for credit losses. This is a change from the previous method of providing allowances for credit losses that are probable.

We maintain our allowance for credit losses at a level considered appropriate by management to absorb all expected future losses in the loan portfolio and off balance sheet exposures at the balance sheet date. Additionally, our Board of Directors regularly monitors the appropriateness of our allowance for credit losses. The allowance is also subject to regulatory examinations and a determination by the regulatory agencies as to the appropriate level of the allowance. The amount of future credit losses is susceptible to changes in economic, operating and other conditions, including changes in interest rates and the value of the underlying collateral, which may be beyond our control, and such losses may exceed current estimates. At December 31, 2024, our allowance for credit losses as a percentage of total loans, was 1.13%, and as a percentage of total non-performing loans was 346.9%. Although management believes that the allowance for credit losses is appropriate to absorb future losses on any existing loans and off balance sheet exposures that may become uncollectible, we cannot predict credit losses with certainty, nor can we assure you that our allowance for credit losses will prove sufficient to cover actual credit losses in the future. Credit losses in excess of our reserves will adversely affect our business, financial condition and results of operations.

***Our loan portfolio has a large concentration of real estate loans, which involve risks specific to real estate value.***

Real estate lending (including commercial and agricultural real estate, construction and land and residential real estate) is a large portion of our loan portfolio. These categories totaled $1.1 billion, or approximately 87.6% of our total loan portfolio, as of December 31, 2024. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. Although a significant portion of commercial real estate, agricultural real estate and construction and land loans are secured by a secondary form of collateral, adverse developments affecting real estate values in one or more of our markets could increase the credit risk associated with our loan portfolio. Additionally, real estate lending typically involves higher loan principal amounts, and the repayment of the loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic events or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flow and market values of the affected properties, (i) declines in the rents or decreases in occupancy and, therefore, in the cash flows generated by those real properties on which the borrowers depend to fund their loan payments to us, (ii) decreases in the values of those real properties, which make it more difficult for the borrowers to sell those real properties for amounts sufficient to repay their loans in full, and (iii) job losses of residential home buyers, which makes it more difficult for these borrowers to fund their loan payments. Adverse changes affecting real estate values, including decreases in office occupancy due to the shift to remote working environments, and the liquidity of real estate in one or more of our markets could increase the credit risk associated with the our loan portfolio, significantly impair the value of property pledged as collateral on loans and affect the our ability to sell the collateral upon foreclosure without a loss or additional losses or the our ability to sell those loans on the secondary market.

If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then we may not be able to realize the amount of security that we anticipated at the time of originating the loan, which could cause us to increase our provision for credit losses and adversely affect our operating results and financial condition. In light of such risks as discussed above, the uncertainty that exists in the economy and credit markets nationally, there can be no guarantee that we will not experience additional deterioration in credit performance by our real estate loan customers.

***Our construction and land loans expose us to increased lending risks.***

Construction and land loans comprised $21.8 million, or 1.7% of our loan portfolio at December 31, 2024. A majority of these loans are made to contractors and builders to finance the construction of single and multifamily homes, subdivisions, as well as commercial properties. Land loans include the purchase or refinance of unimproved land held for future residential development, improved residential lots held for speculative investment purposes, lines of credit secured by land, and land development loans. We originate these loans regardless of whether the borrower has a sales contract for the property used as collateral. Therefore, ultimate repayment of the loan is dependent on finding end-purchasers for finished projects.

Construction lending involves inherent risks due to estimating costs in relation to project values. Uncertainties in construction costs, market value, the timing of project completion and regulatory impacts make accurately evaluating total project funds and loan-to-value ratios challenging. Moreover, certain construction loans do not require borrower payments during the term, accumulating interest into the principal. Therefore, repayment depends heavily on project success and the borrower's ability to sell, lease, or secure permanent financing, rather than their ability to repay principal and interest directly. Misjudging a project's value could leave us with inadequate security and potential losses upon completion. Additionally, factors like shifts in housing demand and unexpected building costs can significantly deviate actual results from estimates. A downturn of real estate in the markets we serve could escalate delinquencies, defaults, foreclosures, and compromise collateral value.

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***Our concentration of one-to-four family residential mortgage loans may result in lower yields and profitability.***

We originate one-to-four family loans through our traditional banking operations as well as through FSM, the Bank's wholly-owned mortgage subsidiary. One-to-four family residential mortgage loans, excluding $9.0 million of loans held for sale, comprised $386.5 million, or 30.3%, of our loan portfolio at December 31, 2024. These loans are secured primarily by properties located in the state of Illinois. Our concentration of these loans results in lower yields relative to other loan categories within our loan portfolio. While these loans generally possess higher yields than investment securities, their repayment characteristics are not as well defined, and they generally possess a higher degree of interest rate risk versus other loans and investment securities within our portfolio. This increased interest rate risk is due to the repayment and prepayment options inherent in residential mortgage loans which are exercised by borrowers based upon the overall level of interest rates. These residential mortgage loans are generally made on the basis of the borrower's ability to make repayments from his or her employment and the value of the property securing the loan. Thus, as a result, repayment of these loans is also subject to general economic and employment conditions within the communities and surrounding areas where the property is located.

A decline in residential real estate market prices or home sales has the potential to adversely affect our one-to-four family residential mortgage portfolio in several ways, such as a decrease in collateral values and an increase in non-performing loans, each of which could adversely affect our operating results and/or financial condition. Additionally, the profitability of FSM, our mortgage subsidiary, is dependent upon its ability to originate loans and sell them to investors. Loan production levels are sensitive to changes in the level of interest rates and changes in economic conditions. Loan production levels may suffer if we experience a slowdown in housing markets, tightening credit conditions or increasing interest rates. Any sustained period of decreased activity caused by fewer refinancing transactions, higher interest rates, housing price pressure, or loan underwriting restrictions would adversely affect our mortgage originations and, consequently, could significantly reduce our income from mortgage activities. Operating FSM as a separate mortgage subsidiary adds a layer of costs associated with our mortgage activities, including operational, regulatory and compliance costs. With the recent interest rate environment, mortgage volume has been muted, and FSM, as a stand-alone subsidiary, has not been profitable since 2021. If mortgage volume does not improve, then FSM's profitability will continue to lag and will adversely affect our financial condition and results of operations.

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***The Company's loan portfolio has a large concentration of commercial real estate loans, which involve risks specific to real estate values and the health of the real estate market generally.***

As of December 31, 2024, the Company had $538.8 million of commercial real estate loans, consisting of $182.1 million of non-owner occupied loans, $173.7 million of owner occupied loans, and $183.0 million of loans secured by multifamily residential properties. Commercial real estate loans represented 42.2% of the Company's total loan portfolio and 321.6% of the Bank's total capital at December 31, 2024. The market value of real estate can fluctuate significantly in a short period of time as a result of interest rates and market conditions in the area in which the real estate is located and some of these values have been negatively affected by the rise in prevailing interest rates. Adverse developments affecting real estate values in the Company's market areas could increase the credit risk associated with the Company's loan portfolio. Additionally, the repayment of commercial real estate loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then the Company may not be able to realize the full value of the collateral that the Company anticipated at the time of originating the loan, which could force the Company to take charge-offs or require the Company to increase the Company's provision for credit losses, which could have a material adverse effect on the Company's business, financial condition, results of operations and growth prospects.

***Commercial loans make up a significant portion of our loan portfolio.***

Commercial loans comprised $69.7 million, or 5.5%, of our loan portfolio at December 31, 2024. Our commercial loans are made based primarily on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, this collateral consists of accounts receivable, inventory, or machinery. Credit support provided by the borrower for most of these loans, and the probability of repayment is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any exists. As a result, in the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing other loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. Due to the larger average size of each commercial loan as compared with other loans such as consumer and residential real estate loans, as well as collateral that is generally less readily marketable, losses incurred on a small number of commercial loans could have a material adverse impact on our financial condition and results of operations.

***Our agricultural loans and the ability of the borrower to repay may be affected by many factors outside of the borrower's control.***

Agricultural operating loans comprised $80.6 million, or 6.3%, of our loan portfolio at December 31, 2024. The repayment of agricultural operating loans is dependent on the successful operation or management of the farm property. Likewise, agricultural operating loans involve a greater degree of risk than lending on residential properties, particularly in the case of loans that are unsecured or secured by rapidly depreciating assets such as farm equipment, livestock or crops. We generally secure agricultural operating loans with a blanket lien on livestock, equipment, feed, hay, grain and crops. Nevertheless, any repossessed collateral for a defaulted loan may not provide an adequate source of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation.

We also originate agricultural real estate loans. At December 31, 2024, agricultural real estate loans totaled $170.4 million, or 13.4% of our total loan portfolio. Agricultural real estate lending involves a greater degree of risk and typically involves larger loans to single borrowers than lending on single-family residences. As with agricultural operating loans, payments on agricultural real estate loans are dependent on the profitable operation or management of the farm property securing the loan. The success of the farm may be affected by many factors outside the control of the farm borrower, including adverse weather conditions that prevent the planting of a crop or limit crop yields (such as hail, drought and floods), loss of livestock due to disease or other factors, declines in market prices for agricultural products (both domestically and internationally) and the impact of government regulations (including changes in price supports, tariffs, trade agreements, subsidies and environmental regulations). In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the farm. If the cash flow from a farming operation is diminished, the borrower's ability to repay the loan may be impaired. The primary crops in our market areas are wheat, corn and soybeans. Accordingly, adverse circumstances affecting wheat, corn and soybean crops could have an adverse effect on our agricultural real estate loan portfolio.

***Our business is concentrated in and dependent upon the continued growth and welfare of the markets in which we operate, including north-central Illinois and the far west suburbs of Chicago.***

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We operate primarily in north central Illinois and the far west suburbs of Chicago, and as a result, our financial condition, results of operations and cash flows are subject to changes in the economic conditions in those areas. Although each market we operate in is geographically and economically diverse, our success depends upon the business activity, population, income levels, deposits and real estate activity in each of these markets. Although our customers' business and financial interests may extend well beyond our market area, adverse economic conditions that affect our specific market area could reduce our growth rate, affect the ability of our customers to repay their loans to us and generally affect our financial condition and results of operations. Because of our geographic concentration, we are less able than other regional or national financial institutions to diversify our credit risks across multiple markets.

***Non-performing assets take significant time to resolve and adversely affect our results of operations and financial condition, and could result in further losses in the future.***

As of December 31, 2024, our non-performing loans (which consist of non-accrual loans and loans past due 90 days or more and still accruing interest) totaled $4.2 million, or 0.33% of our loan portfolio, and our non-performing assets (which include non-performing loans plus other real estate owned) totaled $5.1 million, or 0.33% of total assets. In addition, we had $5.3 million in accruing loans that were 30-89 days delinquent as of December 31, 2024.

Our non-performing assets adversely affect our net income in various ways. We do not record interest income on non-accrual loans or other real estate owned, thereby adversely affecting our net income and returns on assets and equity, increasing our loan administration costs and adversely affecting our efficiency ratio. When we take collateral in foreclosure and similar proceedings, we are required to mark the collateral to its then-fair market value less the cost to sell, which may result in a loan charge off. These non-performing loans and other real estate owned also increase our risk profile and may affect the capital our regulators believe is appropriate in light of such risks. The resolution of non-performing assets requires significant time commitments from management and can be detrimental to the performance of their other responsibilities. If we experience increases in non-performing loans and non-performing assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity.

**Interest Rate Risks**

***Monetary policies and regulations of the Federal Reserve could adversely affect our business, financial condition and results of operations.***

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the Federal Reserve. An important function of the Federal Reserve is to regulate the money supply and credit conditions. Among the instruments used by the Federal Reserve to implement these objectives are open market operations in U.S. government securities, adjustments of the discount rate and changes in reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

The Federal Reserve has indicated that it is working to avoid abrupt or unpredictable changes in economic or financial conditions so as not to disrupt the financial systems, also known as "shocks;" despite this, the impact of these changes cannot be certain. Vulnerabilities in the financial system can amplify the impact of an initial shock following rate increases, potentially leading to unintended volatility, as well as to disruptions in the provision of financial services, such as clearing payments, the provision of liquidity, and the availability of credit. Furthermore, asset liquidation pressures can be amplified by liquidity mismatches and the leverage of certain nonbank financial intermediaries such as hedge funds. The financial crisis in March 2020, closely related to the COVID-19 pandemic, also demonstrated that pressures on dealer intermediation can limit the availability of liquidity during times of market stress. Given the interconnectedness of the global financial system, these vulnerabilities could impact the Company's business operations and financial condition.

***Interest rates and other conditions impact our results of operations.***

Our profitability is in part a function of the spread between the interest rates earned on investments and loans and the interest rates paid on deposits and other interest-bearing liabilities. Like most banking institutions, our net interest spread and margin are affected by general economic conditions and other factors, including fiscal and monetary policies of the federal government that influence market interest rates and our ability to respond to changes in such rates. At any given time, our assets and liabilities will be such that they are affected differently by a given change in interest rates. Some observers expect that during 2025, and perhaps beyond, the FOMC may decrease interest rates. In September 2024, the FOMC began lowering interest rates with the target range for the federal funds rate decreasing by 100 basis points to a range of 4.25% to 4.50% by the end of 2024. The decrease was expressly made in response to inflation moderating and the labor market weakening. The FOMC has not lowered its target range for the federal funds rate since its December 2024 meeting. These effects from interest rate changes or from other sustained economic stress or a recession, among other matters, could have a material adverse effect on our business, financial condition, liquidity, and results of operations. We measure interest rate risk under various rate scenarios and using specific criteria and assumptions. Although we believe our current level of interest rate sensitivity is reasonable and effectively managed, significant fluctuations in interest rates may have an adverse effect on our business, financial condition and results of operations.

High interest rates may result in a further decline in value of our fixed-rate debt securities. The unrealized losses resulting from holding these securities would be recognized in other comprehensive income and reduce total stockholders' equity. Unrealized losses, unrelated to credit, on available for sale debt securities, do not negatively impact our regulatory capital ratios, unless we are required to or plan to sell the security before its fair value is recovered; however, tangible common equity and the associated ratios would be reduced. If debt securities in an unrealized loss position are sold, such losses become realized and will reduce our regulatory capital ratios.

***Declines in value may adversely impact the carrying amount of our investment portfolio and result in credit losses.***

We may be required to record an allowance for credit loss on our investment securities if they suffer declines in value that relate to a permanent decline in credit quality. If the credit quality of the securities in our investment portfolio deteriorates, we may also experience a loss in interest income from the suspension of either interest or dividend payments. Numerous factors, including lack of liquidity for resales of certain investment securities, absence of reliable pricing information for investment securities, adverse changes in business climate or adverse actions by regulators could have a negative effect on our investment portfolio in future periods.

***The value of the financial instruments we own may decline in the future.***

An increase in market interest rates may affect the market value of our securities portfolio, potentially reducing accumulated other comprehensive income and/or earnings. Additionally, an increase in market interest rates may reduce the value of our loan portfolio, although, in accordance with U.S. generally accepted accounting principles ("GAAP"), such a decline in value may not be reflected in the carrying balance of our loans in the same manner as our debt securities available-for-sale. The market value of these investments may be affected by factors other than the underlying performance of the servicer of the securities or the mortgages underlying the securities, such as changes in the interest rate environment, negative trends in the residential and commercial real estate markets, ratings downgrades, adverse changes in the business climate and a lack of liquidity in the secondary market for certain investment securities. In addition, we may determine to sell securities in our available for sale investment securities portfolio, and any such sale could cause us to realize currently unrealized losses that resulted from increases in prevailing interest rates.

***Downgrades in the credit rating of one or more insurers that provide credit enhancement for our state and municipal securities portfolio may have an adverse impact on the market for and valuation of these types of securities.***

We invest in tax-exempt and taxable state and local municipal investment securities, some of which are insured by monoline insurers. As of December 31, 2024, we had $60.0 million of municipal securities, which represented 38.0% of our total securities portfolio. Even though management generally purchases municipal securities on the overall credit strength of the issuer, the reduction in the credit rating of an insurer may negatively impact the market for and valuation of our investment securities. Such downgrade could adversely affect our liquidity, financial condition and results of operations.

**Legal, Accounting and Compliance Risks**

***Legislative and regulatory reforms applicable to the financial services industry may have a significant impact on our business, financial condition and results of operations.***

The laws, regulations, rules, policies and regulatory interpretations governing us are constantly evolving and may change significantly over time as Congress and various regulatory agencies react to adverse economic conditions or other matters. The implementation of any current, proposed or future regulatory or legislative changes to laws applicable to the financial industry may impact the profitability of our business activities and may change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs. These regulations and legislation may be impacted by the political ideologies of the executive and legislative branches of the U.S. government as well as the heads of regulatory and administrative agencies, which may change as a result of elections.

***The Company and the Bank are subject to stringent capital and liquidity requirements****.*

The Basel III Rule imposes stringent capital requirements on bank holding companies and banks. In addition to the minimum capital requirements, banks and bank holding companies are also required to maintain a capital conservation buffer of 2.5% of Common Equity Tier 1 Capital on top of minimum risk-weighted asset ratios to make capital distributions (including for dividends and repurchases of stock) and pay discretionary bonuses to executive officers without restriction. Banking institutions that do not maintain capital in excess of the Basel III Rule standards including the capital conservation buffer face constraints on the payment of dividends, equity repurchases and compensation based on the amount of the shortfall. Accordingly, if the Bank fails to maintain the applicable minimum capital ratios and the capital conservation buffer, distributions from the Bank to the parent Company may be prohibited or limited.

Future increases in minimum capital requirements could adversely affect our net income. Furthermore, our failure to comply with the minimum capital requirements could result in our regulators taking formal or informal actions against us, which could restrict our future growth or operations.

***We are subject to changes in accounting principles, policies or guidelines.***

Our financial performance is impacted by accounting principles, policies and guidelines. Some of these policies require the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results. Some of our accounting policies are critical because they require management to make difficult, subjective and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements are incorrect, we may experience material losses.

From time to time, the FASB and the SEC change the financial accounting and reporting standards or the interpretation of those standards that govern the preparation of our financial statements, such as the implementation of CECL. In addition, trends in financial and business reporting, including environmental social and governance (ESG) related disclosures, could require us to incur additional reporting expense. These changes are beyond our control, can be difficult to predict and could materially impact how we report our financial condition and results of operations. Changes in these standards are continuously occurring, and more drastic changes may occur in the future. The implementation of such changes could have a material adverse effect on our financial condition and results of operations.

***We may be required to pay higher FDIC insurance premiums in the future.***

Future bank failures may prompt the FDIC to increase its premiums above the current levels or to issue special assessments. The Bank generally is unable to control the amount of premiums or special assessments that it or its subsidiary is required to pay for FDIC insurance. Any future changes in the calculation or assessment of FDIC insurance premiums may have a material adverse effect on the Bank's results of operations, financial condition, and the ability to continue to pay dividends on common stock at the current rate or at all.

**Operational, Strategic and Reputational Risks**

***We face intense competition in all phases of our business from other banks and financial institutions.***

The banking and financial services business in our market is highly competitive. Our competitors include large national and regional banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions, fintech companies, and other non-bank financial service providers, many of which have greater financial, marketing and technological resources than us. Many of these competitors are not subject to the same regulatory restrictions that we are and may be able to compete more effectively as a result. Increased competition in our market may result in a decrease in the amounts of our loans and deposits, reduced spreads between loan rates and deposit rates or loan terms that are more favorable to the borrower. Any of these results could have a material adverse effect on our ability to grow and remain profitable. If increased competition causes us to significantly discount the interest rates we offer on loans or increase the amount we pay on deposits, our net interest income could be adversely impacted. If increased competition causes us to relax our underwriting standards, we could be exposed to higher losses from lending activities. Additionally, many of our competitors are much larger in total assets and capitalization, have greater access to capital markets and offer a broader range of financial services than we can offer.

Technology and other changes are allowing consumers and businesses to complete financial transactions that historically have involved banks through alternative methods. For example, the wide acceptance of internet-based commerce has resulted in a number of alternative payment processing systems and lending platforms in which banks play only minor roles. Customers can also maintain funds in prepaid debit cards or digital currencies and pay bills and transfer funds directly without the direct assistance of banks. The diminishing role of banks as financial intermediaries has resulted and could continue to result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the potential loss of lower cost deposits as a source of funds could have a material adverse effect on our business, financial condition and results of operations.

While we do not offer products relating to digital assets, including cryptocurrencies, stablecoins and other similar assets, there has been a significant increase in digital asset adoption globally over the past several years. Certain characteristics of digital asset transactions, such as the speed with which such transactions can be conducted, the ability to transact without the involvement of regulated intermediaries, the ability to engage in transactions across multiple jurisdictions, and the anonymous nature of the transactions, are appealing to certain consumers notwithstanding the various risks posed by such transactions. Accordingly, digital asset service providers—which, at present are not subject to the same degree of scrutiny and oversight as banking organizations and other financial institutions—are becoming active competitors to more traditional financial institutions. The process of eliminating banks as intermediaries, known as "disintermediation," could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. Potential partnerships with digital asset companies, moreover, could also entail significant investment.

The financial services industry continues to undergo rapid technological changes with frequent introductions of new technology-driven products and services, including internet services, cryptocurrencies and payment systems. In addition to better serving customers, the effective use of technology increases efficiency as well as enables financial institutions to reduce costs. Our future success will depend in part upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in our operations as we continue to grow and expand our market area. Many of our larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to offer additional or superior products to those that we will be able to offer, which would put us at a competitive disadvantage. Accordingly, we cannot provide you with assurance that we will be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to our customers.

***Issues with the use of artificial intelligence in our marketplace may result in reputational harm or liability, or could otherwise adversely affect the Company's business.***

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Artificial intelligence, including generative artificial intelligence, is or may be enabled by or integrated into the Company's products or those developed by its third party partners. As with many developing technologies, artificial intelligence presents risks and challenges that could affect its further development, adoption, and use, and therefore our business. Artificial intelligence algorithms may be flawed, for example datasets may contain biased information or otherwise be insufficient, and inappropriate or controversial data practices could impair the acceptance of artificial intelligence solutions and result in burdensome new regulations. If the analyses that products incorporating artificial intelligence assist in producing for the Company or its third party partners are deficient, biased or inaccurate, the Company could be subject to competitive harm, potential legal liability and brand or reputational harm. The use of artificial intelligence may also present ethical issues. If the Company or its third party partners offer artificial intelligence enabled products that are controversial because of their purported or real impact on human rights, privacy, or other issues, the Company may experience competitive harm, potential legal liability and brand or reputational harm. In addition, the Company expects that governments will continue to assess and implement new laws and regulations concerning the use of artificial intelligence, which may affect or impair the usability or efficiency of products and services and those developed by the Company's third party partners.

***Our community banking strategy relies heavily on our management team, and the unexpected loss of key managers may adversely affect our operations.***

Much of our success to date has been influenced strongly by our ability to attract and to retain senior management experienced in banking and financial services and familiar with the communities in our market area. Our ability to retain executive officers, the current management teams, branch managers and loan officers will continue to be important to the successful implementation of our strategy. It is also critical, as we grow, to be able to attract and retain qualified additional management and loan officers with the appropriate level of experience and knowledge about our market area to implement our community-based operating strategy. The unexpected loss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, financial condition and results of operations.

***Labor shortages and failure to attract and retain qualified employees could negatively impact our business, results of operations and financial condition.***

A number of factors may adversely affect the labor force available to us or increase labor costs, including high employment levels, and decreased labor force size and participation. Although we have not experienced any material labor shortage to date, we have recently observed an overall tightening and increasingly competitive local labor market. As of December 31, 2024, Illinois' unemployment rate was 4.9%. A sustained labor shortage or increased turnover rates within our employee base could lead to increased costs, such as increased compensation expense to attract and retain employees.

In addition, if we are unable to hire and retain employees capable of performing at a high-level, or if mitigation measures we may take to respond to a decrease in labor availability have unintended negative effects, our business could be adversely affected. An overall labor shortage, lack of skilled labor, increased turnover or labor inflation, could have a material adverse impact on our operations, results of operations, liquidity or cash flows.

***The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial condition, results of operations and growth prospects.***

As a bank, we are susceptible to fraudulent activity, information security breaches and cybersecurity-related incidents that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. Such fraudulent activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Information security breaches and cybersecurity-related incidents may include fraudulent or unauthorized access to systems used by us or our clients, denial or degradation of service attacks and malware or other cyber-attacks.

In recent periods, there continues to be a rise in electronic fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially in the commercial banking sector due to cyber criminals targeting commercial bank accounts. Moreover, several large corporations, including financial institutions and retail companies, have suffered major data breaches, in some cases exposing not only confidential and proprietary corporate information, but also sensitive financial and other personal information of their customers and employees and subjecting them to potential fraudulent activity. Some of our clients may have been affected by these breaches, which could increase their risks of identity theft and other fraudulent activity that could involve their accounts with us.

Information pertaining to us and our clients is maintained, and transactions are executed, on networks and systems maintained by us and certain third party partners, such as our online banking, mobile banking or accounting systems. The secure maintenance and transmission of confidential information, as well as execution of transactions over these systems, are essential to protect us and our clients against fraud and security breaches and to maintain the confidence of our clients. Breaches of information security also may occur through intentional or unintentional acts by those having access to our systems or the confidential information of our clients, including employees. In addition, increases in criminal activity levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third party technologies (including browsers and operating systems) or other developments could result in a compromise or breach of the technology, processes and controls that we use to prevent fraudulent transactions and to protect data about us, our clients and underlying transactions, as well as the technology used by our clients to access our systems. Our third party partners' inability to anticipate, or failure to adequately mitigate, breaches of security could result in a number of negative events, including losses to us or our clients, loss of business or clients, damage to our reputation, the incurrence of additional expenses, disruption to our business, additional regulatory scrutiny or penalties or our exposure to civil litigation and possible financial liability, any of which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

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***We depend on information technology and telecommunications systems of third parties, and any systems failures, interruptions or data breaches involving these systems could adversely affect our operations and financial condition.***

Our business is highly dependent on the successful and uninterrupted functioning of our information technology and telecommunications systems, third party servicers, accounting systems, mobile and online banking platforms and financial intermediaries. We outsource to third parties many of our major systems, such as data processing and mobile and online banking. The failure of these systems, or the termination of a third party software license or service agreement on which any of these systems is based, could interrupt our operations. Because our information technology and telecommunications systems interface with and depend on third party systems, we could experience service denials if demand for such services exceeds capacity or such third party systems fail or experience interruptions. A system failure or service denial could result in a deterioration of our ability to process loans or gather deposits and provide customer service, compromise our ability to operate effectively, result in potential noncompliance with applicable laws or regulations, damage our reputation, result in a loss of customer business or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse effect on business, financial condition, results of operations and growth prospects. In addition, failures of third parties to comply with applicable laws and regulations, or fraud or misconduct on the part of employees of any of these third parties, could disrupt our operations or adversely affect our reputation.

It may be difficult for us to replace some of our third party vendors, particularly vendors providing our core banking and information services, in a timely manner if they are unwilling or unable to provide us with these services in the future for any reason and even if we are able to replace them, it may be at higher cost or result in the loss of customers. Any such events could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Our operations rely heavily on the secure processing, storage and transmission of information and the monitoring of a large number of transactions on a minute-by-minute basis, and even a short interruption in service could have significant consequences. We also interact with and rely on retailers, for whom we process transactions, as well as financial counterparties and regulators. Each of these third parties may be targets of the same types of fraudulent activity, computer break-ins and other cyber security breaches described above, and the cyber security measures that they maintain to mitigate the risk of such activity may be different than our own and may be inadequate.

As a result of financial entities and technology systems becoming more interdependent and complex, a cyber-incident, information breach or loss, or technology failure that compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including ourselves. As a result of the foregoing, our ability to conduct business may be adversely affected by any significant disruptions to us or to third parties with whom we interact.

***We are subject to certain operational risks, including, but not limited to, customer or employee fraud, losses related to our depositors and data processing system failures and errors.***

Employee errors and misconduct could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our customers or improper use of confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence. We are also subject to losses related to our depositors, whether due to simple errors or mistakes, circumvention of controls, or unauthorized override of controls by our employees, other financial institutions or other third parties.

We maintain a system of internal controls and insurance coverage to mitigate against operational risks, including data processing system failures and errors and customer or employee fraud. Should our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.

***Our framework for managing risks may not be effective in mitigating risk and loss to us.***

Our risk management framework seeks to mitigate risk and loss to us. We have established processes and procedures intended to identify, measure, monitor, report and analyze the types of risk to which we are subject, including liquidity risk, credit risk, market risk, interest rate risk, operational risk, compensation risk, legal and compliance risk, cyber risk, and reputational risk, among others. However, as with any risk management framework, there are inherent limitations to our risk management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified. Our ability to successfully identify and manage risks facing us is an important factor that can significantly impact our results. If our risk management framework proves ineffective, we could suffer unexpected losses and could be materially adversely affected.

***Financial services companies depend on the accuracy and completeness of information about customers and counterparties.***

In deciding whether to extend credit or enter into other transactions, we may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports and other financial information. We may also rely on representations of those customers, counterparties or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate or misleading financial statements, credit reports or other financial information could have a material adverse impact on our business, financial condition and results of operations.

**Liquidity and Capital Risks**

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***Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed.***

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We anticipate that our existing capital resources will satisfy our capital requirements for the foreseeable future. However, we may at some point need to raise additional capital to support continuing growth. Our ability to raise additional capital depends on conditions in the capital markets, economic conditions and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental activities, and on our financial condition and performance. In particular, if we were required to raise additional capital in the current environment, we believe the pricing and other terms investors may require in such an offering may not be attractive to us. Accordingly, we cannot assure you of our ability to raise additional capital if needed on terms acceptable to us. If we cannot raise additional capital when needed, our ability to further expand our operations through internal growth and acquisitions could be materially impaired.

**Risks Related to our Common Stock**

***An active, liquid trading market for our common stock does not currently exist and may not develop, and as a result, you may not be able to sell your common stock at or above the price you paid for them, or at all.***

Our shares are not listed for trading on any exchanges, and the trading in our common shares has substantially less liquidity than publicly traded companies. As a result, an active trading market for shares of our common stock may never develop or be sustained. If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price, or at all. A trading market for our stock depends on the individual decisions of investors and general economic and market conditions over which we have no control. Our stock will not be listed on an exchange following this registration and will continue to be quoted on OTCQX, which provides limited liquidity. Consequently, you may not be able to sell your common stock at or above the price you paid for them or any other price or at the time that you would like to sell. As we are not a public company, we do not raise capital by selling our common stock and do not currently have the ability to expand our business by using our common stock as consideration in an acquisition.

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***The stock market can be volatile, and fluctuations in our operating results and other factors could cause our stock price to decline.***

The stock market has experienced, and may continue to experience, fluctuations that significantly impact the market prices of securities issued by many companies. Market fluctuations could adversely affect our stock price. These fluctuations have often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations, as well as general economic, systemic, political and market conditions, such as recessions, loss of investor confidence, interest rate changes, tariffs, government shutdowns, Brexit, or international currency fluctuations, may negatively affect the market price of our common stock. Moreover, our operating results may fluctuate and vary from period to period due to the risk factors set forth herein. As a result, period-to-period comparisons should not be relied upon as an indication of future performance. Our stock price could fluctuate significantly in response to our quarterly or annual results, annual projections and the impact of these risk factors on our operating results or financial position.

***The price of our common stock could be volatile, and you could lose some or all of your investment as a result.***

Stock price volatility may make it more difficult for you to resell your common stock when you want and at prices you find attractive. The market price of our common stock may be volatile and could be subject to wide fluctuations in price in response to various factors, some of which are beyond our control. These factors include, among other things:

● actual or anticipated variations in our quarterly results of operations;

● recommendations or research reports about us or the financial services industry in general published by securities analysts;

● operating and stock price performance of other companies that investors or analysts deem comparable to us;

● news reports relating to trends, concerns and other issues in the financial services industry;

● perceptions in the marketplace regarding us, our competitors or other financial institutions;

● future sales of our common stock;

● departures of members of our executive management team or other key personnel;

● new technologies used, or services offered, by competitors;

● significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors;

● the effects of, and changes in, trade, monetary and fiscal policies, including the interest rate policies of the Federal Reserve;

● changes or proposed changes in laws or regulations, or differing interpretations of existing laws and regulations, affecting our business, or enforcement of these laws and regulations;

● litigation and governmental investigations; and

● geopolitical conditions such as acts or threats of terrorism or military conflicts.

If any of the foregoing occurs, it could cause our stock price to fall and may expose us to lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

In addition, the stock market and, in particular, the market for financial institution stocks have experienced substantial fluctuations in recent years, which in many cases have been unrelated to the operating performance and prospects of particular companies. If the market for stocks in our industry, or the stock market in general, experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition, results of operations or growth prospects. In addition, significant fluctuations in the trading volume in our common stock may cause significant price variations to occur. Increased market volatility may materially and adversely affect the market price of our common stock, which could make it difficult to sell your shares at the volume, prices and times desired.

***An investment in our common stock is not an insured deposit and is subject to risk of loss.***

An investment in our common stock is not a bank deposit and, therefore, is not insured against loss by the FDIC, the deposit insurance fund or by any other public or private entity. Investment in our common stock is inherently risky for the reasons described in this prospectus and is subject to the same market forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you could lose some or all of your investment.

***Our dividend policy may change.***

Although we have historically paid dividends to our stockholders and currently intend to maintain or increase our current dividend levels in future quarters, we have no obligation to continue doing so and may change our dividend policy at any time without notice to our stockholders. Holders of our common stock are only entitled to receive such cash dividends as our board of directors, in its discretion, may declare out of funds legally available for such payments. Further, consistent with our strategic plans, growth initiatives, capital availability, projected liquidity needs, and other factors, we have made, and will continue to make, capital management decisions and policies that could adversely impact the amount of dividends paid to our common stockholders.

In addition, we are a bank holding company, and our ability to declare and pay dividends is dependent on certain federal regulatory considerations, including the guidelines of the Federal Reserve regarding capital adequacy and dividends. It is the policy of the Federal Reserve that bank and bank holding companies should generally pay dividends on capital stock only out of earnings, and only if prospective earnings retention is consistent with the organization's expected future needs, asset quality and financial condition.

We are a separate and distinct legal entity from our subsidiaries, including the Bank. We receive substantially all of our revenue from dividends from the Bank, which we use as the principal source of funds to pay our expenses. Various federal and state laws and regulations limit the amount of dividends that the Bank and certain of our non-bank subsidiaries may pay us. Such limits are also tied to the earnings of our subsidiaries. If the Bank does not receive regulatory approval or if its earnings are not sufficient to make dividend payments to us while maintaining adequate capital levels, our ability to pay our expenses and our business, financial condition or results of operations could be materially and adversely impacted.

***Future sales of our common stock in the public market, including by our current stockholders, could lower our stock price, and any increase in shares issued as part of our equity-based compensation plans or for other purposes may dilute your ownership in us.***

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock available for sale pursuant to this prospectus or from the perception that such sales could occur. The shares sold pursuant to this prospectus will be freely tradable without restriction or further registration under the Securities Act, except that any shares purchased or held by our affiliates as that term is defined under Rule 144 of the Securities Act, may be sold only in compliance with the certain limitations imposed by the securities laws.

We cannot predict the size of future issuances or sales of our common stock or the effect, if any, that future issuances or sales of shares of our common stock may have on the market price of our common stock. Sales or distributions of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception that such sales could occur, may cause the market price of our common stock to decline or to be more volatile.

***This prospectus is for the resale of stock held by a current shareholder, we will not receive the net proceeds from common stock sold under this prospectus and have no discretion in the use of the net proceeds.***

The net proceeds of this sale will go to the Selling Shareholder, and will not be reinvested in the Company. You should therefore be aware that the net proceeds from common stock sold under this prospectus will not be used in a manner that increases our market value or enhances our profitability.

***We are an emerging growth company within the meaning of the Securities Act and because we have decided to take advantage of certain exemptions from various reporting and other requirements applicable to emerging growth companies, our common stock could be less attractive to investors.***

For as long as we remain an emerging growth company, as defined in the Jumpstart Our Business Act of 2012 (the "JOBS Act"), we will have the option to take advantage of certain exemptions from various reporting and other requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, being permitted to have an extended transition period for adopting any new or revised accounting standards that may be issued by the FASB or the SEC, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We have elected to, and expect to continue to, take advantage of certain of these and other exemptions until we are no longer an emerging growth company. We will remain an emerging growth company until the earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1.235 billion or more, (ii) the end of the fiscal year following the fifth anniversary of the completion of this offering, (iii) the date on which we have, during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the end of the first fiscal year in which (A) the market value of our equity securities that are held by non-affiliates exceeds $700 million as of June 30 of that year, (B) we have been a public reporting company under the Exchange Act for at least twelve calendar months and (C) we have filed at least one annual report on Form 10-K. Further, it is possible that the Company will not continue to file Exchange Act reports after its contractual obligations with the Selling Shareholder expire and, if that is the case, the amount of publicly available information about the Company will be limited.

***Future issuances of common stock could result in dilution, which could cause our common stock price to decline.***

We are generally not restricted from issuing additional shares of stock, and may issue up to 5,000,000 shares of common stock, 467,500 shares of non-voting common stock and 100,000 shares of preferred stock authorized in our amended and restated certificate of incorporation, which in each case could be increased by a vote of the holders of a majority of our shares of common stock. We may issue additional shares of our common stock in the future pursuant to current or future equity compensation plans, upon conversions of preferred stock or debt, or in connection with future acquisitions or financings. If we choose to raise capital by selling shares of our common stock for any reason, the issuance would have a dilutive effect on the holders of our common stock and could have a material negative effect on the market price of our common stock.

***Certain banking laws and certain provisions of our certificate of incorporation and bylaws may have an anti-takeover effect.***

Provisions of federal banking laws, including regulatory approval requirements, could make it difficult for a third party to acquire us, even if doing so would be perceived to be beneficial to our stockholders. In general, acquisitions of 10% or more of any class of voting stock of a bank holding company or depository institution, including shares of our common stock following completion of this offering, generally creates a rebuttable presumption that the acquirer "controls" the bank holding company or depository institution. Also, a bank holding company must obtain the prior approval of the Federal Reserve before, among other things, acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, including the Bank.

There are also provisions in our certificate of incorporation and bylaws that could have the effect of delaying, deferring or discouraging another party from acquiring control of us, even if such acquisition would be viewed by our stockholders to be in their best interests. These include requirements relating to stockholder meetings and nominations or proposals. Upon the completion of this offering, we will also be subject to a statutory antitakeover provision included in the General Corporation Law of the State of Delaware, or DGCL. In addition, our board of directors is authorized under our certificate of incorporation to issue shares of preferred stock, and determine the rights, terms conditions and privileges of such preferred stock, without stockholder approval. These provisions may effectively inhibit a non-negotiated merger or other business combination, which, in turn, could have a material adverse effect on the market price of our common stock.

**CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS**

This prospectus contains, and future oral and written statements by us and our management may contain, forward-looking statements, within the meaning of such term in the Private Securities Litigation Reform Act of 1995, with respect to our financial condition, results of operations, plans, objectives, future performance and business. Forward-looking statements, which may be based upon beliefs, expectations and assumptions of our management and on information currently available to management, are generally identifiable by the use of words such as "believe," "expect," "anticipate," "plan," "intend," "estimate," "may," "will," "would," "could," "should" or other similar expressions. These statements are based upon information available to us as of the date of this prospectus, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and you are cautioned not to unduly rely upon these statements Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and we undertake no obligation to update any statement in light of new information or future events.

A number of important factors could cause our actual results to differ materially from those indicated in these forward-looking statements, including those factors identified in "Risk Factors" or "Management's Discussion and Analysis of Financial Condition and Results of Operations" or the following:

● The effects of changes in interest rates (including the effects of changes in the rate of prepayments of our assets) and the policies of the Federal Reserve (including and the recent and potential additional rate increases by the Federal Reserve) including on our net interest income and the value of our security portfolio.

● The strength of the United States economy in general and the strength of the local economies in which we conduct our operations, including the effects of inflationary pressures and supply chain constraints on such economies, which may be less favorable than expected and may result in, among other things, a deterioration in the credit quality and value of our assets.

● The economic impact of any future terrorist threats and attacks, widespread disease or pandemics, acts of war or other threats thereof (including the Russian invasion of Ukraine and ongoing conflicts in the Middle East), or other adverse events that could cause economic deterioration or instability in credit markets, and the response of the local, state and national governments to any such adverse external events.

● New and revised accounting policies and practices, as may be adopted by state and federal regulatory banking agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board.

● The effects of, and changes in, federal, state and local laws, regulations and policies affecting banking, securities, consumer protection, insurance, tax, trade and monetary and financial matters, including any changes in response to the recent failures of other banks.

● Our ability to compete with other financial institutions due to increases in competitive pressures in the financial services sector, including from non-bank competitors such as credit unions and "fintech" companies.

● Our inability to obtain new customers and to retain existing customers.

● The timely development and acceptance of products and services.

● Technological changes implemented by us and by other parties, including third-party vendors, which may be more difficult to implement or more expensive than anticipated or which may have unforeseen consequences to us and our customers.

● Our ability to develop and maintain secure and reliable electronic systems.

● Our access to sources of liquidity and capital to address our liquidity needs.

● Our inability to receive dividends from the Bank, pay dividends to our common stockholders or satisfy obligations as they become due.

● The effectiveness of our risk management framework.

● The effects of problems encountered by other financial institutions.

● The occurrence of fraudulent activity, breaches or failures of our information security controls or cybersecurity-related incidents and our ability to identify and address such incidents.

● Interruptions involving our information technology and telecommunications systems or third-party servicers.

● The effects of severe weather, natural disasters, widespread disease or pandemics and other external events.

● Our ability to retain key executives and employees and the difficulty that we may experience in replacing key executives and employees in an effective manner.

● Consumer spending and saving habits which may change in a manner that affects our business adversely.

● Our ability to successfully integrate acquired businesses and future growth.

● The costs, effects and outcomes of existing or future litigation.

● Our ability to maintain our reputation.

● Our ability to effectively manage our credit risk.

● Our ability to forecast probable credit losses and maintain an adequate allowance for credit losses.

● Fluctuations in the value of securities held in our securities portfolio.

● Credit risks and risks from concentrations (by type of borrower, geographic area, collateral and industry) within our loan portfolio (including commercial real estate loans) and large loans to certain borrowers.

● The concentration of large deposits from certain clients who have balances above current FDIC insurance limits and may withdraw deposits to diversify their exposure.

● The level of non-performing assets on our balance sheets.

● Our ability to raise additional capital if needed.

● The overall health of the local and national real estate market.

● The effects of fraudulent activity on the part of our employees, customers, vendors, or counterparties.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this prospectus, in particular, the risk factors beginning on page 7. Because of these risks and other uncertainties, our actual future results, performance or achievement, or industry results, may be materially different from the results indicated by the forward-looking statements in this prospectus. In addition, our past results of operations are not necessarily indicative of our future results. You should not rely on any forward-looking statements, which represent our beliefs, assumptions and estimates only as of the dates on which they were made, as predictions of future events. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New factors emerge from time to time, and it is not possible for us to predict which will arise. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

**USE OF PROCEEDS**

This prospectus relates to the sale of our voting common stock by the Selling Shareholder. The Selling Shareholder may, or may not, elect to sell shares of our common stock covered by this prospectus. To the extent the Selling Shareholder chooses to sell shares of our common stock covered by this prospectus, we will not receive any proceeds from any such sales of our common stock.

**MARKET PRICE AND DIVIDEND INFORMATION**

Our common stock is currently quoted on the OTCQX under the symbol "TYFG." As of May 31, 2025, we had 2,388,443 shares of our common stock outstanding, which were held by approximately 469 shareholders of record. The following table sets forth the high and low sales prices for shares of our common stock for the periods indicated, as obtained from the OTCQX and as adjusted for dividends. These reported market quotations reflect interdealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions. Also presented are the cash dividends declared for our common stock during the periods indicated.

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| | | | |
|:---|:---|:---|:---|
|  | **Low** | **High** | **Dividends Declared<sup>(1)</sup>** |
| **2025** |  |  |  |
| Second Quarter (through June 13, 2025) | $42.50 | $44.50 | $0.25 |
| First Quarter ended March 31, 2025 | $43.36 | $45.34 | $0.25 |
| **2024** |  |  |  |
| Fourth Quarter ended December 31, 2024 | $41.34 | $45.00 | $0.25 |
| Third Quarter ended September 30, 2024 | $38.88 | $43.31 | $0.20 |
| Second Quarter ended June 30, 2024 | $37.17 | $40.16 | $0.20 |
| First Quarter ended March 31, 2024 | $40.45 | $42.89 | $0.20 |
| **2023** |  |  |  |
| Fourth Quarter ended December 31, 2023 | $42.59 | $45.50 | $0.30 |
| Third Quarter ended September 30, 2023 | $42.41 | $45.50 | $0.20 |
| Second Quarter ended June 30, 2023 | $38.63 | $43.14 | $0.20 |
| First Quarter ended March 31, 2023 | $40.40 | $45.85 | $0.20 |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Dividends are generally declared at the end of each quarter
and paid in the first two weeks of the following quarter.

On June 13, 2025, the last reported sales price of our common stock on the OTCQX was $43.00 per share.

**Dividend Policy**

It has been our policy to pay quarterly dividends to holders of our common stock. Our dividend policy and practice may change in the future, however, and our board of directors may change or eliminate the payment of future dividends at its discretion, without notice to our stockholders. Any future determination to pay dividends to holders of our common stock will depend on our results of operations, financial condition, capital requirements, banking regulations, contractual restrictions and any other factors that our board of directors may deem relevant.

**Dividend Restrictions**

As a Delaware corporation, we are subject to certain restrictions on dividends under the DGCL. In general, a Delaware corporation may only pay dividends either out of surplus (as defined and computed in accordance with the provisions of the DGCL) or out of the current or the immediately preceding year's net profits. Surplus is defined as the excess, if any, at any given time, of the total assets of a corporation over its total liabilities and statutory capital. The value of a corporation's assets can be measured in a number of ways and may not necessarily equal their book value.

In addition, we are subject to certain restrictions on the payment of cash dividends as a result of banking laws, regulations and policies. See "Supervision and Regulation—Supervision and Regulation of the Company—Dividend Payments." Because we are a holding company and do not engage directly in business activities of a material nature, our ability to pay dividends to our stockholders depends, in large part, upon our receipt of dividends from the Bank, which is also subject to numerous limitations on the payment of dividends under federal banking laws, regulations and policies. See "Supervision and Regulation—Supervision and Regulation of the Bank—Dividend Payments."

**BUSINESS OVERVIEW**

**Business**

The Company is a bank holding company that was incorporated under the laws of the State of Delaware in 1986. The Company conducts a majority of its business through its wholly-owned subsidiary, First State Bank. As of March 31, 2025, the Company had approximately $1.54 billion in consolidated total assets. The Company and the Bank are headquartered in Mendota, Illinois.

The Bank was founded in 1940 and has focused on providing comprehensive banking services to the communities it serves. For the first several decades, the Bank conducted its business through its headquarters in Mendota. In the 1980s and 1990s, the Bank began expanding to nearby communities, including facilities in LaMoille, Peru, Streator, Ottawa and McNabb. During the early 2000s, the Bank focused on expanding its service offerings and established First State Insurance, a full-serve insurance agency. As the Bank increased its branch locations, it also developed a full-service mortgage lending operation in 2007, now referred to as First State Mortgage. Over the next several years, the Bank engaged in the acquisition of several smaller banks and grew to over $1.0 billion in assets. Currently, the Bank has 19 branch offices in 18 communities located primarily in north central Illinois.

The Bank focuses primarily on the origination and servicing of three categories of loans: (i) commercial loans, including commercial and industrial loans; (ii) real estate loans, including commercial real estate, agricultural real estate and one-to-four family residential mortgage loans; and (iii) agricultural loans, including agricultural operating loans. Demand, savings (including money market), and time deposits are the Bank's primary funding sources. The funding mix also includes securities sold under agreement to repurchase and borrowings from the Federal Home Loan Bank of Chicago.

Our results of operations are dependent primarily upon net interest income and, to a lesser extent, upon other income derived from sales of one-to-four family residential mortgage loans, loan servicing, trust and insurance services, and customer deposit services. Significant non-interest expenses include salaries and employee benefits, data processing, occupancy and equipment expense, professional services, and deposit and other insurance coverage.

Deposits of the Bank are insured by the Deposit Insurance Fund (the "DIF") of the FDIC up to the maximum amount allowable under applicable federal laws and regulations. The Bank is regulated by the Illinois Department of Financial and Professional Regulation (the "IDFPR"), as the chartering authority for state banks in Illinois, and the FDIC, as the administrator of the DIF. The Bank is also subject to regulation by the Federal Reserve with respect to reserves required to be maintained against deposits and certain other matters.

The Bank also owns one mortgage subsidiary, FSM, and one insurance subsidiary, FSI. FSM, headquartered in Bloomington, Illinois, has lending capabilities in most states and offers a wide range of residential mortgage loan products. Operations began in 2007, and the entity became a wholly-owned subsidiary of the Bank in 2011. FSM's revenues and profitability vary greatly based on the mortgage interest rates. First State Insurance, an independent insurance agency headquartered in Mendota, Illinois, has been serving clients in North Central Illinois since 2000. Home, auto, motorcycle, health, life insurance coverage is offered to consumers and businesses. The agency also serves the agricultural community with farm policies, crop hail and multi-peril insurance.

The Company's executive office and the Bank's main office are located at 706 Washington Street, Mendota, Illinois 61342. The telephone number is (815) 538-2265. Our website address is www.firststatebank.biz. The information contained on our website is not a part of, or incorporated by reference into, this prospectus.

***Market Areas***

The Bank's primary deposit gathering and lending markets are geographically diversified throughout north central Illinois. We are headquartered in Mendota, Illinois, and have branches in Batavia, Bloomington, Champaign, Geneva, LaMoille, McNabb, North Aurora, Ottawa, Peru, Princeton, Rochelle, Shabonna, St. Charles, Streator, Sycamore, Waterman and West Brooklyn, Illinois. The primary industries within these respective markets are also diverse and dependent upon a wide array of industry and governmental activity for their economic base. The Bank has a designated a community president to oversee the northern market areas and southern market areas (Bloomington and Champaign). FSM and FSI operate out of our bank branches or ancillary facilities. Additionally, FSM has one loan production office located in Sussex, Wisconsin, which is our only office location outside of Illinois.

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***Competition***

The Company faces strong competition both in attracting deposits and making real estate, commercial and other loans. Its most direct competition for deposits and loans comes from large national and regional banks, local community banks, savings and loan associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market mutual funds, credit unions, financial technology (fintech) companies and other non-bank financial service providers located in its principal market areas, including many larger financial institutions which have greater financial and marketing resources available to them. The ability of the Bank to attract and retain deposits generally depends on its ability to provide a rate of return, service levels, liquidity and risk comparable to or better than those offered by competing investment opportunities. The Bank competes for loans principally through the interest rates and loan fees it charges and the efficiency and quality of services it provides borrowers.

***Human Capital Resources***

***Employees.*** The Company is a relationship driven company and its ability to attract and retain exceptional employees is key to its success. At December 31, 2024, the Bank, FSI and FSM had a total of 288 full-time equivalent employees. The Company has one employee, President and Chief Executive Officer, Timothy McConville. Employees are provided with a comprehensive benefits program, including basic and major medical insurance, life and disability insurance, sick leave, and a 401(k) profit sharing plan. Employees are not represented by any union or collective bargaining group, and the Bank considers its employee relations to be excellent.

***Diversity, Equity and Inclusion.*** The Company believes that a diverse workforce is critical to achieving its strategic goals. The Company strives to foster a strong and inclusive culture that is committed to delivering extraordinary service to our clients and communities by meeting the financial needs of families and businesses across Illinois.

***Talent development and retention.*** The Company utilizes various processes to recruit employees with values that align with the Company's vision of providing exceptional services to the local communities we serve. The long-term success of the Company revolves around the ability to continue to develop and retain these employees. The Company encourages and supports the growth and development of its employees and, wherever possible, seeks to fill positions by promotion and transfer from within the organization. Continual learning and career development is advanced through ongoing performance and development conversations with employees, internally developed training programs and external training opportunities.

***Properties***

The Company's headquarters is located at 706 Washington Street, Mendota, Illinois. The Company maintains numerous other facilities, including Bank branch locations. The Bank owns 17 properties, and leases two branch locations throughout Illinois. FSM also operates various loan production offices. Additional information regarding our locations is set forth below.

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| | |
|:---|:---|
| **Address** | **Ownership** |
| **<u>Main Office</u>:** |  |
| 706 Washington St., Mendota, IL 61342 | Owned |
| **<u>Branch Locations</u>:** |  |
| 1403 13th Ave., Mendota, IL 61342 | Owned |
| 825 N. Randall Rd., Batavia, IL 60510 | Owned |
| 502 N. Hershey Rd., Bloomington, IL 61704 | Owned |
| 2911 Crossing Ct, Suite 100, Champaign, IL 61822 | Leased |
| 323 W. State St., Geneva, IL 60134 | Leased |
| 90 N. Main St., LaMoille, IL 61330 | Owned |
| 411 W. Main St., McNabb, IL 61335 | Owned |
| 75 S. Randall Rd., North Aurora, IL 60542 | Owned |
| 1212 LaSalle St., Ottawa, IL 61350 | Owned |
| 4351 Venture Dr., Peru, IL 61354 | Owned |
| 1693 N. Main St., Princeton, IL 61356 | Owned |
| 304 E. Highway 38, Rochelle, IL 61068 | Owned |
| 203 W. Comanche Ave., Shabbona, IL 60550 | Owned |
| 2601 Oak St., St. Charles, IL 60175 | Owned |
| 115 Plaza Dr., Streator, IL 61364 | Owned |
| 1940 DeKalb Ave., Sycamore, IL 60178 | Owned |
| 10001 U.S. Route 30, Waterman, IL 60556 | Owned |
| 752 2<sup>nd</sup> Street, West Brooklyn, IL 61378 | Owned |
| N64 W24678 Main St., Suite 5, Sussex, WI 53089 | Leased |
| 2203 E. Empire Unit K., Bloomington, IL 61704<br> 3210 Court St., Pekin, IL 61554<br> 5230: 17W662 Butterfield Rd., Suites 203 & 205, Oakbrook Terrace, IL 60181<br> 713 Washington St., Mendota, IL 61342<br> 715 Washington St., Mendota, IL 61342<br> 719 Washington St., Mendota, IL 61342<br> 721 Washington St., Mendota, IL 61342<br> 114 W. Railroad St., Earlville, IL 60518 | Leased<br> Leased<br> Leased<br> Owned<br> Owned<br> Owned<br> Owned<br> Owned |

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***Legal Proceedings***

In the normal course of business, we are named or threatened to be named as a defendant in various lawsuits. Management, following consultation with legal counsel, does not expect the ultimate disposition of any or a combination of these matters to have a material adverse effect on our business, financial condition, results of operations, cash flows or growth prospects. However, given the nature, scope and complexity of the extensive legal and regulatory landscape applicable to our business (including laws and regulations governing consumer protection, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism laws), we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk.

***Lending Activities***

*General.*

The Bank strives to provide a full range of financial products and services to individuals as well as to small- and medium-sized businesses in each market area it serves. The Bank targets consumers for their mortgage needs as well as owner-operated businesses for small business and commercial real estate. The Bank has a loan committee with authority to approve credits within established guidelines. Concentrations in excess of those guidelines must be approved by either a corporate loan committee comprised of the Bank's Chief Executive Officer, the Chief Credit Officer, and other senior commercial lenders or the Bank's board of directors. When lending to an entity, the Bank generally obtains a guaranty from the principals of the entity. The loan mix is subject to the discretion of the Bank's board of directors and the demands of the local marketplace.

The following is a description of each major category of the Bank's lending activity.

 

*Real Estate Lending.*

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<u>Commercial Real Estate Lending</u>. Commercial real estate loans, including multi-family loans, generally have amortization periods of 15 or 20 years. Commercial real estate and multi-family loans are generally limited, by policy, to 80% of the appraised value of the property and are subject to strict underwriting guidelines. Commercial real estate loans are also supported by an analysis demonstrating the borrower's ability to repay. The Bank continues to focus on generating additional commercial real estate loans, which are part of an overall banking relationship with the customer and does not focus on originating transactional type loans where the borrower does not have other financial relationships with the Bank. This focus results in more owner-occupied commercial real estate loans that are diversified by borrower type and geography. The Bank monitors the commercial real estate loan portfolio closely for concentrations in loan types as well as the financial performance of the borrowers. Currently, the Bank has not identified any negative trends related to the commercial real estate loan portfolio. The Bank's loan growth over the past few years has been driven in large part by commercial real estate loans.

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<u>One-to-Four Family Residential Real Estate Lending.</u> The Bank originates one-to-four family residential real estate loans with both fixed and variable rates. One-to-four family residential real estate loans are typically priced and originated following underwriting standards that are consistent with guidelines established by the major buyers in the secondary market. Generally, residential real estate loans retained in the Bank's loan portfolio have fixed or variable rates with adjustment periods of seven years or less and amortization periods of typically either 15, 20 or 30 years. A significant portion of these loans prepay prior to maturity. The Bank has no potential negative amortization loans. While the origination of fixed-rate, one-to-four family residential loans continues to be a key component of our business, the majority of these loans are sold in the secondary market. One-to-four family residential real estate loans that exceed 90% of the appraised value of the real estate generally are required, by policy, to be supported by private mortgage insurance, although on occasion the Bank will retain non-conforming residential loans to known customers. The balances of one-to-four family residential real estate loans increased as of December 31, 2024 compared to December 31, 2023 primarily due to increasing mortgage rates, which increased demand for the Bank's 7/1 ARM loans. These loans are retained in portfolio and were the primary factor for the increase in balances during 2022 and 2023. While the Bank retains some of the new fixed rate mortgage loan originations, most of the new fixed rate mortgage loans continue to be sold.

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<u>Construction and Land Lending</u>*.*** Loans in this category include loans to facilitate the development of both residential and commercial real estate. Construction and land loans generally have terms of less than 18 months, and the Bank will retain a security interest in the borrower's real estate. Construction loans are generally limited, by policy, to 80% of the appraised value of the property. Land loans are generally limited, by policy, to 65% of the appraised value of the property. The origination of construction and land loans has not been a primary strategy of the Bank over the past few years to reduce risk in the Bank's loan portfolio. The balances of construction and land loans decreased as of December 31, 2024, compared to December 31, 2023 primarily due to lower demand from the Bank's loan customers and lack of Bank's strategic focus for these types of loans.

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*Commercial Lending.*

Commercial loans include loans to service, retail, wholesale and light manufacturing businesses. Commercial loans are made based on the financial strength and repayment ability of the borrower, as well as the collateral securing the loans. The Bank targets owner-operated businesses as its customers and makes lending decisions based upon a cash flow analysis of the borrower as well as a collateral analysis. Accounts receivable loans and loans for inventory purchases are generally on a one-year renewable term, and loans for equipment generally have a term of seven years or less. The Bank generally takes a blanket security interest in all assets of the borrower. Equipment loans are generally limited to 75% of the cost or appraised value of the equipment. Inventory loans are generally limited to 50% of the value of the inventory, and accounts receivable loans are generally limited to 75% of a predetermined eligible base.

*Agricultural Lending.*

 

Agricultural real estate loans generally have amortization periods of 20 years or less, during which time the Bank generally retains a security interest in the borrower's real estate. The Bank also provides short-term credit for operating loans and intermediate-term loans for farm product, livestock and machinery purchases and other agricultural improvements. Farm product loans generally have a one-year term, and machinery, equipment and breeding livestock loans generally have five to seven year terms. Extension of credit is based upon the borrower's ability to repay, as well as the existence of crop insurance coverage. These loans are generally secured by a blanket lien on livestock, equipment, feed, hay, grain and growing crops. Equipment and breeding livestock loans are generally limited to 75% of appraised value. The Bank continues to focus on generating additional agricultural loan relationships in each of its market areas.

*Consumer and Other Lending.*

Loans classified as consumer and other loans include automobile, boat, home improvement and home equity loans. With the exception of home improvement loans and home equity loans, the Bank generally takes a purchase money security interest in collateral for which it provides the original financing. Home improvement loans and home equity loans are principally secured through second mortgages. The terms of the loans typically range from one to seven years, depending upon the use of the proceeds, and generally range from 75% to 90% of the value of the collateral. The majority of these loans are installment loans with fixed interest rates. Home improvement and home equity loans are generally secured by a second mortgage on the borrower's personal residence and, when combined with the first mortgage, limited to 90% of the value of the property unless further protected by private mortgage insurance. Home improvement loans are generally made for terms of five to seven years with fixed interest rates. Home equity loans are generally made for terms of seven years on a revolving basis with adjustable monthly interest rates tied to the national prime interest rate. While the Bank primarily provides consumer loans to its existing customers, consumer lending is not a category the Bank targets for organic growth.

***Loan Origination and Processing***

Loan originations are derived from a number of sources. Residential loan originations result from real estate broker referrals, direct solicitation by the Bank and FSM's loan officers, present depositors and borrowers, referrals from builders and attorneys, walk-in customers and, in some instances, other lenders. Consumer and commercial real estate loan originations generally emanate from many of the same sources.

Residential loan applications are underwritten and closed based upon standards which generally meet secondary market guidelines. The loan underwriting procedures followed by the Bank and FSM conform to regulatory specifications and are designed to assess both the borrower's ability to make principal and interest payments and the value of any assets or property serving as collateral for the loan. Generally, as part of the process, a loan officer meets with each applicant to obtain the appropriate employment and financial information as well as any other required loan information. The Bank and FSM obtain reports with respect to the borrower's credit record, and on real estate loans, orders and reviews an appraisal of any collateral for the loan (prepared for the Bank and FSM by an independent appraiser).

Loan applicants are notified promptly of the decision of the Bank or FSM. Prior to closing any long-term loan, the borrower must provide proof of fire and casualty insurance on the property serving as collateral, and such insurance must be maintained during the full term of the loan. Title insurance is required on loans collateralized by real property.

The Bank is focusing on the generation of commercial, commercial real estate and agricultural loans to grow and diversify the loan portfolio. In 2023, the Bank was able to generate loan growth across the geographic markets that it serves, primarily in commercial, commercial real estate and one-to-four residential real estate loans. The substantial growth in 2023 was in commercial real estate, agricultural real estate, and consumer real estate. Total portfolio loan growth was essentially flat in 2024, increasing 0.2% from year-end 2023.

***Deposits***

The Bank has a diversified deposit base. The deposit base consists of retail, commercial and public fund customers located in the markets in which the Bank operates. The Bank provides a diverse financial suite of products to its deposit customers and seeks to be the primary financial service provider for these customers. The Bank considers these deposit relationships to be its core deposit base. If the Bank requires funding that exceeds these customers' deposit balances, non-core or brokered deposits may be utilized. The balance of these non-core or brokered deposits at December 31, 2024 was $49.2 million, or 3.9% of total deposits.

In order for the Bank to attract and retain stable deposit relationships, the Bank offers business cash management solution services to help local companies better manage their cash flow. The Bank also offers InterFi and CDARS to provide customers with FDIC insurance coverage for deposit balances that exceed the insurance limit of $250,000. The expertise and experience of the Bank's management coupled with the latest technology accessed through third party providers enables the Bank to maximize the growth of business-related deposits.

As for consumers, deposit growth is driven by a variety of factors including, but not limited to, population growth, bank and non-bank competition, local bank mergers and consolidations, increases in household income, interest rates, accessibility of location and the sales efforts of Bank personnel. Time deposits can be attracted and increased by paying an interest rate higher than that offered by competitors, but are the costliest type of deposit. The most profitable type of deposits are non-interest bearing demand (checking) accounts, which can be attracted by offering free checking. However, both high interest rates and free checking accounts generate certain expenses for a bank and the desire to increase deposits must be balanced with the need to be profitable and the extent of banking relationships with the customers. The deposit services of the Bank are generally comprised of demand deposits, savings deposits, money market deposits, time deposits and Individual retirement accounts.

**Supervision and Regulation**

***General***

FDIC-insured institutions, their holding companies, and their affiliates are extensively regulated under federal and state law. As a result, our growth and earnings performance may be affected not only by management decisions and general economic conditions, but also by the requirements of federal and state statutes, and by the regulations and policies of various banking agencies, including the IDFPR, the Federal Reserve, the FDIC, and the Consumer Financial Protection Bureau (the "CFPB"). Furthermore, taxation laws administered by the Internal Revenue Service (the "IRS") and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board ("FASB"), securities laws administered by the SEC and state securities authorities, and anti-money laundering and sanctions laws enforced by the U.S. Department of the Treasury (the "Treasury") have an impact on our business. The effect of these statutes, regulations, regulatory policies, and accounting rules are significant to our operations and results.

We are subject to federal and state banking laws that impose a comprehensive system of supervision, regulation, and enforcement on our operations that is intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than shareholders. These laws, and the regulations of the banking agencies issued under them, affect, among other things, the scope of our business, the kinds and amounts of investments that the Company and the Bank may make, required capital levels relative to assets, the nature and amount of collateral for loans, the establishment of branches, the ability of the Company and the Bank to merge, consolidate and acquire, dealings with the Company's and the Bank's insiders and affiliates, and our payment of dividends.

In reaction to the global financial crisis, and particularly following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), we experienced heightened regulatory requirements and scrutiny. Although the reforms primarily targeted large banking organizations and systemically important financial institutions, their influence filtered down in varying degrees to community banking organizations over time and caused our compliance and risk management processes, and the costs thereof, to increase. The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018 ("Regulatory Relief Act") eliminated questions about the applicability of certain Dodd-Frank Act reforms to community banking systems, including relieving us of any requirement to engage in mandatory stress tests, maintain a risk committee or comply with the Volcker Rule's complicated prohibitions on proprietary trading and ownership of private funds. These reforms have been favorable to our operations. It is anticipated that the Trump Administration and the current U.S. Congress likely will not increase the regulatory burden on community banking organizations, and instead appear poised to reduce and streamline certain prudential and regulatory requirements applicable to these banking organizations at a federal level based on statements made by relevant congressional leaders, the Secretary of the Treasury and the leaders of the federal banking agencies. At this time, however, it is not possible to predict with any certainty the actual impact that the Trump Administration may have on the regulation of the banking industry or our operations.

The supervisory framework for U.S. banking organizations subjects banks and bank holding companies to regular examination by their respective banking agencies, which results in examination reports and ratings that are not publicly available, and that can impact the conduct and growth of their business. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. The banking agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law, or are otherwise inconsistent with laws and regulations. As a result, the approach to supervision adopted by each banking agency may have significant impacts on the operations and results of the Company and the Bank, as well as the banking industry in general. Based on statements made and actions taken by congressional leaders, the Secretary of the Treasury and the current leaders of the federal banking agencies, there have been and are likely to continue to be changes in the supervisory processes and approach made by the federal banking agencies.

The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and our subsidiary bank. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described. The descriptions are qualified in their entirety by reference to the particular statutory and regulatory provision.

***The Role of Capital***

Regulatory capital represents the net assets of a banking organization available to absorb losses. Because of the risks attendant to their business, FDIC-insured institutions, such as banks, as well as their holding companies (*i.e.*, banking organizations) generally are required to hold more capital than other businesses, which directly affects our earnings capabilities. Although capital historically has been one of the key measures of the financial health of both bank holding companies and banks, its role became fundamentally more important in the wake of the global financial crisis, as the federal banking agencies determined that the amount and quality of capital held by banking organizations prior to that crisis was insufficient to absorb losses during periods of severe stress.

<u>Capital Levels</u>*.* Banking organizations have been required to hold minimum levels of capital based on guidelines established by the federal banking agencies since 1983. The minimum capital levels for banking organizations have been expressed in terms of ratios of "capital" divided by "total assets." The capital guidelines for U.S. banking organizations beginning in 1989 have been based upon international capital accords (known as the "Basel" accords) adopted by the Basel Committee on Banking Supervision, a committee of central banks and bank supervisors that acts as the primary global standard-setter for prudential regulation, as implemented by the U.S. federal banking agencies on an interagency basis. The accords recognized that bank assets, for the purpose of the capital ratio calculations, needed to be risk weighted (the theory being that riskier assets should require more capital), and that off-balance sheet exposures needed to be factored in the calculations. Following the global financial crisis, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced an agreement on a strengthened set of capital requirements for banking organizations around the world, known as the Basel III accords, to address deficiencies recognized in connection with the global financial crisis.

<u>The Basel III Rule</u>. The federal banking agencies adopted the U.S. Basel III regulatory capital reforms, and, at the same time, effected changes required by the Dodd-Frank Act, in regulations that were effective (with certain phase-ins) in 2015 (the "Basel III Rule"). The Basel III Rule established capital standards for banks and bank holding companies that are meaningfully more stringent than those in place previously. The Basel III Rule is applicable to all banking organizations that are subject to minimum capital requirements, including national and state banks and savings and loan associations, as well as to most bank and savings and loan holding companies. The Bank is subject to the Basel III Rule.

The Basel III Rule also increased the required quantity and quality of capital. Not only did it increase most of the required minimum capital ratios in effect prior to January 1, 2015, but, in requiring that forms of capital be of higher quality to absorb loss, it introduced the concept of Common Equity Tier 1 Capital, which consists primarily of common stock, related surplus (net of Treasury stock), retained earnings, and Common Equity Tier 1 minority interests subject to certain regulatory adjustments. The Basel III Rule also changed the definition of capital by establishing more stringent criteria that instruments must meet to be considered Additional Tier 1 Capital (primarily non-cumulative perpetual preferred stock that meets certain requirements) and Tier 2 Capital (primarily other types of preferred stock and subordinated debt, subject to limitations). The Basel III Rule also constrained the inclusion of minority interests, mortgage-servicing assets, and deferred tax assets in capital, and it required deductions from Common Equity Tier 1 Capital if such assets exceeded a percentage of a banking organization's Common Equity Tier 1 Capital.

The Basel III Rule requires banking organizations to maintain minimum capital ratios as follows:

● A ratio of Common Equity Tier 1 Capital equal to 4.5% of risk-weighted assets;

● A ratio of Tier 1 Capital equal to 6% of risk-weighted assets;

● A continuation of the minimum required amount of Total Capital (Tier 1 plus Tier 2) at 8% of risk-weighted assets; and

● A leverage ratio of Tier 1 Capital to total quarterly average assets equal to 4% in all circumstances.

In addition, banking organizations that want to make capital distributions (including for dividends and repurchases of stock), and pay discretionary bonuses to executive officers without restriction, also must maintain 2.5% in Common Equity Tier 1 Capital attributable to a capital conservation buffer. The purpose of the conservation buffer is to ensure that banking organizations maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. Factoring in the conservation buffer increases the minimum ratios depicted above to 7% for Common Equity Tier 1 Capital, 8.5% for Tier 1 Capital and 10.5% for Total Capital.

In July 2023, the Biden Administration federal banking agencies had proposed wide-ranging and significant changes to the Basel III Rule (the "Basel III Endgame Proposal"), which would have, among other requirements, imposed structural changes to the calculation of capital requirements and risk-weighted assets in an effort to finish the implementation of the Basel III accords. The Basel III Endgame Proposal would generally have impacted the capital requirements applicable to banking organizations with $100 billion or more in total assets, and, as a general matter, would not have had a significant impact on the Company or the Bank. The Basel III Endgame Proposal has not been, and is not expected to be, adopted in a form substantially similar to the Basel III Endgame Proposal. Based on statements made by the current leaders of the federal banking agencies, as well as the Secretary of the Treasury, the agencies may issue a new version of this proposal.

<u>Well-Capitalized Requirements</u>. The capital ratios described above are minimum standards for banking organizations to be considered "adequately capitalized." Banking agencies uniformly encourage banking organizations to hold more capital and be "well-capitalized" and, to that end, federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a banking organization that is well-capitalized may: (i) qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities; (ii) qualify for expedited processing of other required notices or applications; and (iii) accept, roll-over, or renew brokered deposits. Higher capital levels also could be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve's capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities, or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 Capital less all intangible assets), well above the minimum levels.

Under the capital regulations of the Federal Reserve and FDIC, in order to be well capitalized, a banking organization must maintain:

● A ratio of Common Equity Tier 1 Capital to risk-weighted assets of 6.5% or more;

● A ratio of Tier 1 Capital to total risk-weighted assets of 8% or more;

● A ratio of Total Capital to total risk-weighted assets of 10% or more; and

● A leverage ratio of Tier 1 Capital to total adjusted average quarterly assets of 5% or more.

It is possible under the Basel III Rule to be well-capitalized while remaining out of compliance with the capital conservation buffer discussed above.

As of March 31, 2025: (i) the Bank was not subject to a directive from the FDIC or the IDFPR to increase its capital; and (ii) the Bank was well-capitalized, as defined by FDIC regulations.

<u>Prompt Corrective Action</u>. The concept of a banking organization being "well-capitalized" is part of a regulatory enforcement regime that provides the federal banking agencies with broad power to take "prompt corrective action" to resolve the problems of depository institutions based on the capital level of each particular institution. The extent of the banking agencies' powers depends on whether the banking organization in question is "adequately capitalized," "undercapitalized," "significantly undercapitalized" or "critically undercapitalized," in each case as defined by regulation. Depending on the capital category to which a banking organization is assigned, the banking agencies' corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution's asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate that the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.

<u>Community Bank Capital Simplification</u>*.* Community banking organizations have long raised concerns with the federal banking agencies about the regulatory burden, complexity, and costs associated with certain provisions of the Basel III Rule. In response, the U.S. Congress provided an "off-ramp" for institutions, like the Company, with total consolidated assets of less than $10 billion as part of the Regulatory Relief Act. Section 201 of the Regulatory Relief Act specifically instructed the federal banking agencies to establish a single "Community Bank Leverage Ratio" ("CBLR") of between 8% and 10%. Under the final rule, a community banking organization is eligible to elect to comply with its capital requirements under the CBLR framework if it has (i) less than $10 billion in total consolidated assets, (ii) limited amounts of certain assets and off-balance sheet exposures, and (iii) a CBLR greater than 9%. The Company and the Bank may elect the CBLR framework at any time, but have not currently determined to do so.

***Supervision and Regulation of the Company***

<u>General</u>*.* As the sole shareholder of the Bank, we are a bank holding company. As a bank holding company, we are registered with, and are subject to regulation, supervision and enforcement by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the "BHCA"). We are legally obligated to act as a source of financial strength to the Bank, and to commit resources to support the Bank in circumstances where we might not otherwise do so. Under the BHCA, we are subject to periodic examination by the Federal Reserve. We are required to file with the Federal Reserve periodic reports of our operations, and such additional information regarding us and our subsidiaries as the Federal Reserve may require.

<u>Acquisitions and Activities</u>*.* The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company, or any acquisition by a bank holding company of another bank or bank holding company. Subject to certain conditions (including deposit concentration limits established by the BHCA), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its FDIC-insured institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company. Furthermore, in accordance with the Dodd-Frank Act, bank holding companies must be well-capitalized and well-managed in order to effect interstate mergers or acquisitions. For a discussion of the capital requirements, see "—The Role of Capital" above.

The BHCA and implementing regulations generally prohibit us from acquiring direct or indirect ownership or control of more than 5% a class of the voting shares of any company that is not a bank, and from engaging in any business other than that of banking, managing and controlling banks, or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be "so closely related to banking ... as to be a proper incident thereto." This authority permits the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage services. The BHCA does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies. In addition to approval from the Federal Reserve that may be required in certain circumstances to make acquisitions or engage in additional activities, the Company also may need to seek prior approval from other agencies, such as the IDFPR or other agencies that regulate the target company involved in an acquisition.

Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as bank holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking, and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity, or that the Federal Reserve determines by order to be complementary to any such financial activity, as long as the activity does not pose a substantial risk to the safety or soundness of FDIC-insured institutions or the financial system generally. The Company has not elected to operate as a bank holding company at this time.

<u>Change in Control</u>. Federal law prohibits any person or company from acquiring "control" of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal banking agency. "Control" is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership.

<u>Capital Requirements</u>*.* Bank holding companies are required to maintain capital in accordance with Federal Reserve capital adequacy requirements. For a discussion of capital requirements, see "—The Role of Capital" above.

<u>Dividend Payments</u>*.* The Company's ability to pay dividends to its stockholders may be affected by both general corporate law considerations and the policies and capital requirements of the Federal Reserve applicable to bank holding companies. As a Delaware corporation, the Company is subject to the limitations of the Delaware General Corporation Law ("DGCL"), which allow the Company to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if the Company has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.

As a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to shareholders if: (i) the company's net income available to shareholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (ii) the prospective rate of earnings retention is inconsistent with the company's capital needs and overall current and prospective financial condition; or (iii) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.

The Federal Reserve also possesses enforcement powers over bank holding companies and their nonbank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. In addition, under the Basel III Rule, banking organizations that want to pay unrestricted dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See "—The Role of Capital" above.

<u>Incentive Compensation</u>. There have been a number of developments in recent years focused on incentive compensation plans sponsored by bank holding companies and banks, reflecting a determination by the federal banking agencies and the U.S. Congress that flawed incentive compensation practices in the financial industry were one of many factors contributing to the global financial crisis. To address such concerns, the federal banking and financial services agencies released interagency guidance on sound incentive compensation practices for banking organizations.

The interagency guidance recognized three core principles. Effective incentive plans should: (i) provide employees incentives that appropriately balance risk and reward; (ii) be compatible with effective controls and risk-management; and (iii) be supported by strong corporate governance, including active and effective oversight by the organization's board of directors. Much of the guidance is directed at large banking organizations and, because of the size and complexity of their operations, the federal banking agencies expect those organizations to maintain systematic and formalized policies, procedures, and systems for ensuring that the incentive compensation arrangements for all executive and non-executive employees covered by this guidance are identified and reviewed, and appropriately balance risks and rewards. Smaller banking organizations that use incentive compensation arrangements, like us, are expected to implement less extensive, formalized, and detailed policies, procedures, and systems than those of larger banks.

In addition, Section 956 of the Dodd-Frank Act directs the federal banking and other financial services agencies to implement formal regulations regarding incentive-based compensation arrangements at certain financial institutions. In the latest attempt to address this statutory requirement, a subset of the required agencies released a proposed rule regarding incentive-based compensation arrangements at certain financial institutions with at least $1 billion in assets in May 2024. The Federal Reserve and the SEC, however, did not join this proposal and it was not published in the Federal Register, signaling potential interagency misalignment. In March 2025, the FDIC withdrew its support for this proposed rule, making it unlikely that any rule in a substantially similar form will be finalized.

<u>Monetary Policy</u>*.* The monetary policy of the Federal Reserve has a significant effect on the operating results of bank holding companies and their subsidiaries. Among the tools available to the Federal Reserve to affect the money supply are open market transactions in U.S. government securities, and changes in the discount rate on bank borrowings. These means are used in varying combinations to influence overall growth and distribution of bank loans, investments and deposits, and their use may affect interest rates charged on loans or paid on deposits, which may impact the Company's and the Bank's business and operations.

<u>Corporate Governance</u>. The Dodd-Frank Act addressed many investor protection, corporate governance, and executive compensation matters that will affect most U.S. publicly traded companies. The Dodd-Frank Act increased shareholder influence over boards of directors by requiring companies to give shareholders a nonbinding vote on executive compensation and so-called "golden parachute" payments, and authorizing the SEC to promulgate rules that would allow shareholders to nominate and solicit voters for their own candidates using a company's proxy materials. As discussed in the "—Incentive Compensation" section above, the Dodd-Frank Act also directed the Federal Reserve, together with the other federal banking and financial services agencies, to promulgate rules prohibiting excessive compensation paid to executives of bank holding companies, regardless of whether such companies are publicly traded. Despite several proposed rules regarding incentive compensation arrangements, these agencies have not yet adopted any such rules at this time.

***Supervision and Regulation of the Bank***

<u>General</u>*.* The Bank is an Illinois-chartered bank. The deposit accounts of the Bank are insured by the FDIC's DIF to the maximum extent provided under federal law and FDIC regulations, currently $250,000 per insured depositor category. As an Illinois-chartered FDIC-insured bank, the Bank is subject to the examination, supervision, reporting and enforcement requirements of the IDFPR, the chartering authority for Illinois banks. Because the Bank is not a member of the Federal Reserve, it is subject to the examination, supervision, reporting and enforcement requirements of the FDIC, as the Bank's primary federal regulator.

<u>Deposit Insurance</u>. As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system, whereby FDIC-insured institutions pay insurance premiums at rates based on their risk classification. For institutions like the Bank that are not considered large and highly complex banking organizations, the risk-based assessment is now based on examination ratings and financial ratios. The total base assessment rates for most institutions currently range from 2.5 basis points to 32 basis points.

At least semi-annually, the FDIC updates its loss and income projections for the DIF and, if needed, increases or decreases the assessment rates, following notice and comment on proposed rulemaking. For this purpose, the reserve ratio is the DIF balance divided by estimated insured deposits. In response to the global financial crisis, the Dodd-Frank Act increased the minimum reserve ratio from 1.15% to 1.35% of the estimated amount of total insured deposits. In its May 2025 semiannual update, the FDIC stated that the reserve ratio likely will reach the statutory minimum by the September 30, 2028 deadline, and no adjustments to the base assessment rates is currently projected.

In addition, because the total cost of the failures of Silicon Valley Bank, Signature Bank and First Republic Bank to the DIF in 2023 was significant, the FDIC adopted a special assessment applicable to banking organizations with $5 billion or more of total assets. Because the Company is a banking organization with less than $5 billion in total assets, this special assessment does not apply to the Bank.

<u>Supervisory Assessments</u>. All Illinois-chartered banks are required to pay supervisory assessments to the IDFPR to fund the operations of that agency. The amount of the assessment is calculated on the basis of the Bank's total assets. During the year ended December 31, 2024, the Bank paid supervisory assessments to the IDFPR totaling $154,972.

<u>Capital Requirements</u>*.* Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of capital requirements, see "—The Role of Capital" above.

<u>Liquidity Requirements</u>*.* Liquidity is a measure of the ability and ease with which bank assets may be converted to meet financial obligations to pay deposits or other funding sources. Banks are required to implement liquidity risk management frameworks that ensure they maintain sufficient liquidity, including a cushion of unencumbered, high-quality liquid assets, to withstand a range of stress events. The level and speed of deposit outflows contributing to the failures of Silicon Valley Bank, Signature Bank and First Republic Bank in the first half of 2023 was unprecedented and contributed to acute liquidity and funding strain. These events have further underscored the importance of liquidity risk management and contingency funding planning by insured depository institutions like the Bank, as highlighted in a 2023 addendum to existing interagency guidance on funding and liquidity risk management.

The primary role of liquidity risk management is to: (i) prospectively assess the need for funds to meet obligations; and (ii) ensure the availability of cash or collateral to fulfill those needs at the appropriate time by coordinating the various sources of funds available to the institution under normal and stressed conditions. The Basel III Rule includes a liquidity framework that requires the largest insured institutions to measure their liquidity against specific liquidity tests. One test, referred to as the Liquidity Coverage Ratio, or LCR, is designed to ensure that the banking organization has an adequate stock of unencumbered high-quality liquid assets that can be converted easily and immediately in private markets into cash to meet liquidity needs for a 30-calendar day liquidity stress scenario. The other test, known as the Net Stable Funding Ratio, or NSFR, is designed to promote more intermediate and long-term funding of the assets and activities of FDIC-insured institutions over a one-year horizon. These tests provide an incentive for banks and bank holding companies to increase their holdings in Treasury securities and other sovereign debt as a component of assets, increase the use of long-term debt as a funding source and rely on stable funding like core deposits (in lieu of brokered deposits).

Although these tests do not, and are not expected to, apply to the Bank, we continue to review our liquidity risk management policies in light of regulatory requirements and industry developments. For instance, in July 2024, the FDIC released a request for information on deposits, soliciting information on whether and to what extent certain types of deposits may behave differently from each other (particularly during periods of economic or financial stress), the results of which could impact liquidity monitoring and risk management expectations for FDIC-insured institutions going forward.

<u>Dividend Payments</u>*.* The Company's primary source of funds is dividends from the Bank. Under Illinois banking law, Illinois-chartered banks generally may pay dividends only out of undivided profits. The IDFPR may restrict the declaration or payment of a dividend by an Illinois-chartered bank, such as the Bank. Moreover, the payment of dividends by any FDIC-insured institution is impacted by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank exceeded its capital requirements under applicable guidelines as of March 31, 2025.

Notwithstanding the availability of funds for dividends, however, the FDIC and the IDFPR may prohibit the payment of dividends by the Bank if either or both determine that such payment would constitute an unsafe or unsound practice. In addition, under the Basel III Rule, banking organizations that want to pay unrestricted dividends have to maintain 2.5% in Common Equity Tier 1 Capital attributable to the capital conservation buffer. See "—The Role of Capital" above.

<u>State Bank Investments and Activities</u>. The Bank is permitted to make investments and engage in activities directly or through subsidiaries as authorized by Illinois law. However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines that the activity would not pose a significant risk to the DIF. These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Bank.

The Bank may be required to seek approval from the IDFPR, the FDIC and other banking or financial services agencies before engaging in certain acquisitions or mergers under applicable state and federal law. In 2024, the OCC and the FDIC separately released updated policy statements—and in the case of the OCC, a final rule—regarding how each banking agency reviews applications submitted pursuant to the Bank Merger Act based on statutory factors. In March 2025, the FDIC issued a notice of proposed rulemaking to repeal its 2024 policy statement and reinstate its prior policy statement on bank mergers, while it considers wider changes to its bank merger review practices. The OCC may follow suit, and there also are Congressional Review Act resolutions introduced in both chambers of U.S. Congress seeking to overturn the OCC's final rule.

 

<u>Insider Transactions</u>*.* The Bank is subject to certain restrictions imposed by federal law on "covered transactions" between the Bank and its "affiliates." The Company is an affiliate of the Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to us, investments in our stock or other securities, and the acceptance of our stock and other securities as collateral for loans made by the Bank. The Dodd-Frank Act enhanced the requirements for certain transactions with affiliates, including an expansion of the definition of "covered transactions" and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.

Certain limitations and reporting requirements also are placed on extensions of credit by the Bank to its directors and officers, to directors and officers of the Company and its subsidiaries, to principal shareholders of the Company, and to "related interests" of such directors, officers and principal shareholders. In addition, federal law and regulations may affect the terms on which any person who is a director or officer of the Company or the Bank, or a principal shareholder of the Company, may obtain credit from banks with which the Bank maintains a correspondent relationship.

<u>Safety and Soundness Standards/Risk Management</u>*.* The federal banking agencies have adopted operational and managerial standards to promote the safety and soundness of FDIC-insured institutions. The standards apply to internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality, and earnings.

In general, the safety and soundness standards prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. Although regulatory standards do not have the force of law, if an institution operates in an unsafe and unsound manner, the FDIC-insured institution's primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an FDIC-insured institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the banking agency is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the banking agency's order is cured, the agency may restrict the FDIC-insured institution's rate of growth, require the FDIC-insured institution to increase its capital, restrict the rates that the institution pays on deposits, or require the institution to take any action that the agency deems appropriate under the circumstances. Noncompliance with safety and soundness also may constitute grounds for other enforcement action by the federal banking agencies, including cease and desist orders and civil money penalty assessments.

During the past decade, the banking agencies have increasingly emphasized the importance of sound risk management processes and strong internal controls when evaluating the activities of the FDIC-insured institutions that they supervise. Properly managing risks has been identified as critical to the conduct of safe and sound banking activities and has become even more important as new technologies, new third-party relationships, product innovation, and the size and speed of financial transactions have changed the nature of banking markets. The agencies have identified a spectrum of risks facing a banking organization including, but not limited to, credit, market, liquidity, operational, legal, and reputational risk. The Bank is expected to have active board and senior management oversight; adequate policies, procedures, and limits; adequate risk measurement, monitoring, and management information systems; and comprehensive internal controls. The federal banking agencies also have released specific risk management guidance on certain topics, including third-party relationships, in response to the proliferation of relationships between banking organizations and financial technology companies (although the guidance applies more broadly).

<u>Privacy and Cybersecurity</u>. The Bank is subject to many U.S. federal and state laws and regulations governing requirements for maintaining policies and procedures to protect non-public personal and confidential information of their customers. These laws require the Bank to periodically disclose its privacy policies and practices relating to sharing such information, and permit consumers to opt out of their ability to share information with unaffiliated third parties under certain circumstances. They also impact the Bank's ability to share certain information with affiliates and non-affiliates for marketing and/or non-marketing purposes, or to contact customers with marketing offers. In addition, the Bank is required to implement a comprehensive information security program that includes administrative, technical, and physical safeguards to ensure the security and confidentiality of customer records and information. These security and privacy policies and procedures are in effect across all businesses and geographic locations.

Risks and exposures related to cybersecurity require financial institutions to design multiple layers of security controls to establish lines of defense and to ensure that their risk management processes also address the risk posed by compromised customer credentials, including security measures to reliably authenticate customers accessing internet-based services of the financial institution. Bank management is expected to maintain sufficient business continuity planning processes to ensure the rapid recovery, resumption and maintenance of the institution's operations after a cyber-attack involving destructive malware. The Bank and the Company also are subject to a number of federal and state laws and regulations requiring notifications and disclosures regarding certain cybersecurity incidents.

<u>Branching Authority</u>. Illinois banks, such as the Bank, have the authority under Illinois law to establish branches anywhere in the State of Illinois, subject to receipt of all required regulatory approvals. The Dodd-Frank Act permits well-capitalized and well-managed banks to establish new interstate branches or acquire individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) without impediments.

In addition, federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger.

<u>Community Reinvestment Act Requirements</u>*.* The Community Reinvestment Act of 1977 ("CRA") requires the Bank to have a continuing and affirmative obligation in a safe and sound manner to help meet the credit needs of the entire community that it serves, including low- and moderate-income neighborhoods. The FDIC regularly assesses the Bank's record of meeting the credit needs of its communities in dedicated examinations. The Bank's CRA ratings derived from these examinations can have significant impacts on the activities in which the Bank and the Company may engage. For example, a low CRA rating may impact the review of regulatory applications made by the Bank.

In April 1995, the federal banking agencies, including the FDIC, issued a regulation clarifying how they would evaluate banks' compliance with the CRA (the "1995 CRA Rule"), which has been amended several times. In October 2023, the federal banking agencies issued a final rule representing a significant overhaul of the 1995 CRA Rule intended to strengthen and modernize the agencies' CRA regulations (the "2023 CRA Rule"). However, the 2023 CRA Rule has been subject to ongoing litigation claiming that the federal banking agencies exceeded their statutory authority in promulgating this rule. In March 2025, this ongoing lawsuit, as well as an administration change, led the federal banking agencies to announce their intention to rescind the 2023 CRA Rule and continue using the 1995 CRA Rue (as amended) in conducting their CRA evaluations. The federal banking agencies are expected to release a notice of proposed rulemaking to this effect.

In 2022, the Bank, like all Illinois chartered banks, became subject to state-level CRA standards, following passage of the Illinois Community Reinvestment Act (the "Illinois CRA"). This means that, in addition to the federal CRA review, the Bank will be reviewed by the IDFPR to assess the Bank's record of meeting the credit needs of its communities. Like the potential impact under the federal CRA, applications for additional acquisitions or activities would be affected by the evaluation of the Bank's effectiveness in meeting its Illinois CRA requirements.

<u>Anti-Money Laundering</u>*.* The Bank Secrecy Act ("BSA") is the common name for a series of laws and regulations enacted in the United States to combat money laundering and the financing of terrorism. They are designed to deny terrorists and criminals the ability to obtain access to the U.S. financial system and have significant implications for FDIC-insured institutions and other businesses involved in the transfer of money. The so-called Anti-Money Laundering / Countering the Financing of Terrorism ("AML/CFT") regime under the BSA provides a foundation to promote financial transparency and deter and detect those who seek to misuse the U.S. financial system to launder criminal proceeds, finance terrorist acts, or move funds for other illicit purposes.

The laws mandate financial services companies to have policies and procedures with respect to measures designed to address: (i) customer identification programs; (ii) money laundering; (iii) terrorist financing; (iv) identifying and reporting suspicious activities and currency transactions; (v) currency crimes; and (vi) cooperation between FDIC-insured institutions and law enforcement authorities. The Bank also must comply with stringent economic and trade sanctions regimes administered and enforced by the Office of Foreign Assets Control.

<u>Federal Home Loan Bank Membership</u>. The Bank is a member of a Federal Home Loan Bank ("FHLB"), which serves as a central credit facility for its members. The FHLB is funded primarily from proceeds from the sale of obligations of the FHLB system. It makes loans to member banks in the form of FHLB advances. All advances from the FHLB are required to be fully collateralized as determined by the FHLB.

<u>Concentrations in Commercial Real Estate</u>. Concentration risk exists when FDIC-insured institutions deploy too many assets to any one industry or segment. A concentration in commercial real estate ("CRE") is one example of regulatory concern, which has been subject to additional scrutiny by federal banking agencies as well as the SEC (for publicly-traded banking organizations) in recent years. The Interagency Concentrations in Commercial Real Estate ("CRE") Lending, Sound Risk Management Practices guidance ("CRE Guidance") provides supervisory criteria, including the following numerical indicators, to assist bank examiners in identifying banks with potentially significant CRE loan concentrations that may warrant greater supervisory scrutiny: (i) CRE loans exceeding 300% of capital and increasing 50% or more in the preceding three years, or (ii) construction and land development loans exceeding 100% of capital. The CRE Guidance does not limit banks' levels of CRE lending activities, but rather guides institutions in developing risk management practices and levels of capital that are commensurate with the level and nature of their CRE concentrations. On December 18, 2015, and again in recent years, the federal banking agencies issued statements to reinforce prudent risk-management practices related to CRE lending, having observed substantial growth in many CRE asset and lending markets, increased competitive pressures, rising CRE concentrations in banks, and an easing of CRE underwriting standards. The federal banking agencies have reminded FDIC-insured institutions to maintain underwriting discipline and exercise prudent risk-management practices to identify, measure, monitor, and manage the risks arising from CRE lending. In addition, FDIC-insured institutions must maintain capital commensurate with the level and nature of their CRE concentration risk. On December 18, 2023, the FDIC issued a statement to reemphasize the importance of strong capital, appropriate credit loss allowance levels, and robust credit risk-management practices for institutions with CRE concentrations. As of March 31, 2025, the Bank did not exceed the CRE guidelines.

<u>Consumer Financial Services</u>*.* The historical structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011, when the CFPB commenced operations to supervise and enforce consumer protection laws. The CFPB has broad rulemaking authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including the Bank, as well as the authority to prohibit "unfair, deceptive or abusive" acts and practices. The CFPB has examination and enforcement authority over providers with more than $10 billion in assets. FDIC-insured institutions with $10 billion or less in assets, like the Bank, continue to be examined by their applicable primary federal regulators.

Because abuses in connection with residential mortgages were a significant factor contributing to the global financial crisis, many rules issued by the CFPB, as required by the Dodd-Frank Act, addressed mortgage and mortgage-related products, their underwriting, origination, servicing and sales. The Dodd-Frank Act significantly expanded underwriting requirements applicable to loans secured by one-to-four family residential real property and augmented federal law combating predatory lending practices. In addition to numerous disclosure requirements, the Dodd-Frank Act and the CFPB's enabling rules imposed new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower's ability to repay, while also establishing a presumption of compliance for certain "qualified mortgages."

The current acting leader of the CFPB has indicated that the CFPB will adopt a deregulatory approach, and the CFPB has recently announced that it plans to roll back certain rulemakings adopted over the last several years. The U.S. Congress is also pursuing Congressional Review Act resolutions or otherwise taking steps to overturn certain recent CFPB rulemaking. While some of the CPFB's recent rulemakings did not impact the Bank directly, the CFPB's retreat from the aggressive approach to regulation (and supervision, where applicable) that it has previously adopted may benefit the operations of the Bank.

The CFPB's rules have not had a significant impact on the Bank's operations, except for higher compliance costs. The Bank must also comply with certain state consumer protection laws and requirements in the states in which it operates.

***Regulation and Supervision of Bank Subsidiaries***

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The Bank has two wholly-owned subsidiaries, FSI and FSM. FSI offers insurance agency services and maintains a state insurance licenses in Illinois. FSM offers mortgage banking services. As operating subsidiaries of the Bank, both FSI and FSM are subject to the supervision, examination and enforcement authority of the IDFPR and the FDIC as part of the operation of their parent bank.

**Management**

***Board of Directors***

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Our board of directors currently consists of ten members. Our certificate of incorporation provides that our board is authorized to have not less than nine nor more than 15 directors. The number of directors may be changed only by resolution of our board within the range set forth in our certificate of incorporation. We have a classified board of directors, with each director elected to serve a three year term.

The following table sets forth information as of the date of this prospectus regarding the members of our board of directors. Ages are given as of the date of this prospectus and the expiration year is when the director's current term will expire at that year's annual meeting of stockholders.

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| | | | | |
|:---|:---|:---|:---|:---|
| **Name** | **Age** | **Position** | **Director Since** | **Expiration**<br> **Year**<br>|
| Spencer T. Cohn | 37 | Director | 2023 | 2027 |
| Matthew P. Faber | 42 | Director | 2018 | 2028 |
| John Holland III | 51 | Director | 2020 | 2027 |
| Timothy J. McConville | 70 | Director, President and Chief Executive Officer of the Company | 1991 | 2026 |
| Kenneth D. Otterbach | 60 | Vice Chairman of the Board | 2004 | 2028 |
| Thomas K. Prescott | 64 | Chairman of the Board | 2005 | 2027 |
| Kirk L. Ross | 58 | Director, President and Chief Executive Officer of the Bank | 2024 | 2028 |
| Julie Setchell | 68 | Director | 2005 | 2027 |
| Kathleen Stevensen | 45 | Director | 2019 | 2026 |
| Goodwin W. Toraason | 72 | Director | 1995 | 2026 |

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The following is a brief discussion of the business and banking background and experience of each of our directors for at least the past five years. The biographies contain information regarding the person's experience, qualifications, attributes or skills that led to the conclusion that the person should serve as a director. No director has any family relationship, as defined in Item 401 of Regulation S-K, with any other director or with any of our executive officers.

***Spencer T. Cohn***. Mr. Cohn is a director of Castle Creek Capital, which he joined in 2014. Mr. Cohn serves on our board under an agreement that we made with Castle Creek Capital Partners VI, LP. Castle Creek Capital Partners VI, LP has the right to designate a representative to serve on our board for so long as Castle Creek Capital Partners VI, LP beneficially owns at least 4.9% of our common stock then outstanding. Castle Creek Capital is an asset management firm focused on the community banking industry. Located in San Diego, California and Dallas, Texas, Castle Creek Capital has been an investor in community banking since the firm's inception in 1990.

Mr. Cohn is a director of Bancorp 34, Inc. and subsidiary Southwest Heritage Bank, each headquartered in Scottsdale, Arizona, since January 27, 2023. Mr. Cohn is a director of Lincoln Bancorp and subsidiary Lincoln Savings Bank, each of Reinbeck, Iowa, since August 2022. Mr. Cohn has been a director at CNB Bank Shares, Inc., headquartered in Carlinville, Illinois, since January 2022. Previous board experience includes director service with Aquesta Financial Holdings, Inc. and subsidiary Aquesta Bank, each of Cornelius, North Carolina, from 2019 to October 1, 2021, and Citizens Bancshares Company, Kansas City, Missouri, and its subsidiary Citizens Bank & Trust from 2019 through January 1, 2023.

Prior to joining Castle Creek Capital, Mr. Cohn worked at Keefe, Bruyette & Woods as an investment banking associate in the Financial Institutions Group where he concentrated on mergers and acquisitions and capital markets transactions. Since April 2019, Mr. Cohn is a Director of the Cystic Fibrosis Foundation (San Diego Chapter) and serves as Co-Chair of the Cystic Fibrosis Foundation's Tomorrow's Leaders program (San Diego Chapter). In addition to his charitable involvement, Mr. Cohn is a Senior Mentor and Resume Reviewer for Wall Street Oasis. Mr. Cohn holds dual Bachelor of Science degrees in Finance and Accountancy from The University of Illinois and is both a graduate and Capstone Advisor of the ABA Stonier Graduate School of Banking at The Wharton School at the University of Pennsylvania.

***Matthew P. Faber.*** Mr. Faber is a sixth generation farmer who began operating alongside his father in 2006. He took over the farm management in 2018. He graduated from Illinois State University in 2005 with a Bachelor of Science Degree where he majored in Business Administration and minored in Agriculture. He has been involved in many community outreach clubs and projects, previously served as president of the Mendota Optimist Club and is currently a member of the Mendota Lions Club.

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***John Holland III.*** Mr. Holland is currently the Corporate Controller at HCC, Inc., a manufacturing firm specializing in agricultural equipment, with 24 years of experience in various industries including manufacturing and services. Mr. Holland also serves as Treasurer for the Mendota Golf Club and Alderman on the Mendota, Illinois city council. He is a United States Air Force veteran with 9 years of service.

***Timothy J. McConville.*** Mr. McConville is currently the Chief Executive Officer of Tri-County Financial Group, Inc., a role which he has held since 2024. Prior to his current position, Mr. McConville served as the Chief Executive Officer and President of First State Bank from 1994 to 2024, when he transitioned to his current role. Mr. McConville began his banking career in 1978 after graduating from Illinois State University, where he majored in Agri-Business. He worked in the loan department until he became President of First State Bank in 1994. He retired from that position in 2024.

***Kenneth D. Otterbach.*** Ken Otterbach is a lifelong farmer in the Mendota area. He also owns and operates an excavating business based in Mendota that specializes in excavation, demolition, and trucking. He has been a director since 2004 and is currently Vice Chairman of the Board.

***Thomas K. Prescott.*** Mr. Prescott is the President and Dealer Principal of Prescott Brothers Inc., a Chrysler Dodge Jeep Ram dealership in Mendota, Illinois, and Prescott Brothers Ford Inc., a Ford dealership in Rochelle Illinois. Mr. Prescott has served as a Dealer Council Member of the Stellantis Midwest Business Center since 2019. From 1998 to 2008, he served as a member Chrysler Jeep Dealer Advertising Board and from 1998 to 2002 he served on the Board of the Mendota Chamber of Commerce.

***Kirk L. Ross.*** Mr. Ross began his banking career in 1989 and has worked for First State Bank since 1994 with his primary responsibilities in the commercial lending area. He served as Executive Vice President prior to being named Chief Executive Officer and President of First State Bank in 2024. Mr. Ross is a graduate of the University of Illinois with a bachelor's degree in Agricultural Economics.

***Julie Setchell.*** Ms. Setchell began her career in 1979 as a self-employed business owner with the acquisition of a retail clothing business. Through dedication, hard work and commitment, she and her husband successfully expanded their business to additional locations. Ms. Setchell has been involved in the Mendota Chamber of Commerce and has served on its Board of Directors and as its President. Along with her retail experience, she has been involved in agriculture through the management of the family farm since 1983. Throughout her career, she has been responsible for all aspects of her business, including the purchasing of merchandise, marketing, accounts payable and receivable, payroll, human resources, tax preparation and ensuring full regulatory compliance.

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***Kathleen Stevenson.*** Ms. Stevenson is an attorney licensed to practice law in the State of Illinois since 2005 and State of Florida since 2004. Ms. Stevenson focuses her practice on real estate transactions, title searches, title work and real estate settlement services, estate planning and probate. She was born and grew up in the Mendota community and has relationships and familiarity with the community and surrounding communities.

***Goodwin W. Toraason.*** Mr. Toraason began his career in 1976 and has worked at various Illinois community banks holding positions as Controller, Senior Lender, Executive Vice President, board member, and Community President. He joined First State Bank as Executive Vice President and Board member in 1994. Mr. Toraason retired from First State Bank in July 2022.

The board also appointed several former directors to serve as Director Emeritus to the full board of directors. The board believes that the Company benefits from having these individuals remain affiliated with the Company in an informal capacity so the board can use their knowledge and experience in business, banking and the community. Such individuals may attend board meetings upon the board's invitation, but they are not entitled to vote on matters requiring the board's approval.

***Executive Officers***

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The following table sets forth certain information regarding our executive officers, including their names, ages and positions:

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| | | |
|:---|:---|:---|
| **Name** | **Age** | **Position** |
| Timothy J. McConville | 70 | President and Chief Executive Officer |
| Kirk L. Ross | 58 | President and Chief Executive Officer of the Bank |
| Lana Eddy | 44 | Chief Financial Officer |
| Rene Shaffer | 64 | President and Chief Executive Officer of FSM |

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The business and banking background and experience of each of our executive officers, other than Mr. McConville and Mr. Ross, who also serve as a director of the Company and the Board, for at least the past five years is set forth below. No executive officer has any family relationship, as defined in Item 401 of Regulation S-K, with any other executive officer or any of our current directors. There are no arrangements or understandings between any of the officers and any other person pursuant to which he or she was selected as an officer.

***Lana Eddy.*** Ms. Eddy began her career in public accounting in 2004, specializing in audits of financial institutions, credit unions, and healthcare facilities. In 2015, she joined a local community bank, which was later acquired by First State Bank. She joined First State Bank in 2019 and held positions as Assistant Controller and Controller before becoming Chief Financial Officer in 2021.

***Rene Shaffer.*** Ms. Shaffer began her banking career in November 1986 as a Mortgage Banking Officer. Over the years, she held various roles at a community bank, gaining extensive experience in the industry. In 2007, Rene joined First State Mortgage as an Account Executive and subsequently progressed through several key positions within the company. In 2015, she was appointed President and Chief Executive Officer of FSM, a role she continues to hold today.

***Director Independence***

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Because shares of our stock are not listed on a national securities exchange, such as Nasdaq or NYSE, we are not subject to many of the independence requirements that other "public" companies are required to meet. The OTCQX does not impose the same requirements regarding many of the corporate governance items.

In applying these standards, and based on information provided by each director concerning his background, employment and affiliations, our board of directors has affirmatively determined that, with the exception of Messrs. McConville and Ross, each of our current directors is an "outside" director and "independent of management", as defined under the FDICIA and as under the OTCQX rules. The board determined that Messrs. McConville and Ross do not qualify because of their roles as executive officers of either the Company or the Bank.

***Board Committees***

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The standing committees of our board of directors consist of an Audit Committee and an Executive Committee.

<u>Audit Committee</u>. Mr. Faber, Mr. Otterbach, Mr. Holland, Ms. Stevenson, Ms. Setchell, Mr. Prescott and Mr. Cohn, serve on our audit committee. Our audit committee is composed solely of members who satisfy the applicable independence, financial literacy and other requirements of the FDIC, which requires that our audit committee be made up of "outside" directors who are independent from management. The board has determined that each member of our audit committee meets the requirements for the service on the committee.

Our Audit Committee is generally responsible for the following duties and responsibilities:

● determining the adequacy and effectiveness of the systems of internal controls;

● determining the adequacy and effectiveness of internal control over financial reporting as required by the FDIC Improvement Act;

● reviewing the reliability and integrity of financial information, as well as the means needed to identify, measure, classify, and report such information;

● evaluating the means of safeguarding assets, including a review of procedures and controls and verification of a selection of assets;

● reviewing existing operations and procedures to ascertain compliance with bank policies, laws, and regulations;

● observing and evaluating the use of resources in meeting objectives, goals, and standards of the board of directors and management;

● assisting external auditors as necessary;

● communicating the results of the internal audits to appropriate levels of management and the board of directors;

● participating in the planning stages of new policies, procedures, and control systems for new product offerings and for new laws and regulations affecting operations to offer input on strengthening control and compliance factors;

● maintaining a Whistleblower Policy to encourage and administrate appropriate claims made thereunder; and

● performing testing in the end stage of new policy and procedure implementation to help ensure that goals and objectives are met and that compliance with laws and regulations is achieved.

<u>Executive Committee</u>. Mr. Ross, Mr. Otterbach, Mr. Prescott, Mr. Holland and Mr. McConville serve on our Executive Committee, which also serves as the Nominating and Governance Committee and the Compensation Committee. The Executive Committee consists of the president, the chairman of the board and three other directors appointed by the chairman of the board and ratified by the board at the first regularly scheduled meeting following the annual meeting of the stockholders. In decisions regarding compensation, no member of the Executive Committee participates in the decision making process of his or her own compensation.

***Board Oversight of Risk Management***

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Our board of directors believes that effective risk management and control processes are critical to our safety and soundness, our ability to predict and manage the challenges that we face and, ultimately, our long-term corporate success. Our board of directors, both directly and through its committees, is responsible for overseeing our risk management processes, with each of the committees of our board of directors assuming a different and important role in overseeing the management of the risks we face.

**MANAGEMENT DISCUSSION AND ANALYSIS**

**Results of Operations**

The following discussion provides information about our results of operations, financial condition, liquidity, and capital resources. This information is intended to facilitate the understanding and assessment of significant changes and trends related to our results of operations and financial condition. This discussion should be read in conjunction with our consolidated financial statements and the accompanying Notes, as of December 31, 2024 and 2023 and for the years then ended, and our unaudited condensed, consolidated financial statements for the three months ended March 31, 2025 and 2024, presented elsewhere in this document.

The consolidated Company is referred to as "we" or "our" or "the Company" in the following discussion.

***Critical Accounting Policies***

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The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

Critical accounting policies are those that are both most important to the portrayal of our financial condition and results of operations, and require management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Our critical accounting policies relate to the determination of the allowance for credit losses and valuation of goodwill, both of which involves significant judgment by management.

***Allowance for Credit Losses***

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As a result of our January 1, 2023, adoption of Accounting Standards Update 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASC 326), our methodology for estimating the allowance for credit losses changed significantly from prior years. ASC 326 replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. In addition to loans, the CECL methodology is applicable to our off-balance sheet credit exposures such as loan commitments, unused customer credit lines, and standby letters of credit.

The CECL approach requires an estimate of credit losses expected over the life of a financial instrument. The CECL methodology replaces the incurred loss method of recognizing credit losses. Under the incurred loss methodology, recognition of a credit loss was delayed until it became probable that a loss event had occurred.

Our Company adopted ASC 326 using the modified retrospective method. Consequently, results for reporting periods beginning on or after January 1, 2023 are presented under ASC 326 while prior period amounts are reported under previously applicable GAAP.

Our methodologies for estimating the allowance for expected credit losses (ACL) consider available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. We also consider whether historical loss experience should be adjusted for asset-specific risk characteristics or current conditions that did not exist during the respective historical period.

We use third-party software in our quarterly ACL calculations, primarily to estimate credit losses on pools of loans with similar risk characteristics. We have also engaged independent consultants to validate the model, including its construction and our implementation, ongoing maintenance, and governance. When appropriate, refinements to the model's inputs and calculations are made to arrive at a better estimate of future losses.

Substandard loans are individually analyzed to determine the expected credit loss, if any. Expected credit losses on pools of loans and individually analyzed loans are then totaled to arrive at the allowance for credit losses on loans.

Our accounting policies and related disclosures about credit losses are discussed in more detail in the Notes to our consolidated financial statements for the years ended December 31, 2024 and 2023. Please refer to Note 1 – Significant Accounting Policies and Note 4 – Loans.

*Goodwill*

 

Goodwill results from business acquisitions that we made in prior years. The acquisition method of accounting requires that assets and liabilities acquired in a business combination are recorded at fair value as of the acquisition date, typically resulting in goodwill. The valuation of assets and liabilities in a business combination involves estimates that are inherently subjective. Goodwill represents the excess of the consideration we paid over the fair value of identifiable assets and liabilities acquired.

Our accounting policy for goodwill and other intangible assets is disclosed in Note 1 – Significant Accounting Policies to the year-end financial statements. We evaluate goodwill for impairment at the reporting unit level annually, or more often if impairment indicators are present. In addition to our internal, qualitative evaluations, goodwill recorded at FSM is supported by annual third party valuations indicating that the fair value of the reporting unit exceeds its carrying value.

***Emerging Growth Company***

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Pursuant to the JOBS Act, an emerging growth company is provided the option to adopt new or revised accounting standards that may be issued by the Financial Accounting Standards Board or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. We have irrevocably elected to adopt new accounting standards within the same time periods as private companies.

***Selected Consolidated Financial Information – Years Ended December 31, 2024 and 2023***

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Selected consolidated financial information for the Company at or for the years ended December 31, 2024 and 2023, follows:

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| | | | |
|:---|:---|:---|:---|
|  | **At or For the Years Ended December 31,** | **At or For the Years Ended December 31,** | **Increase (Decrease)** |
|  | **2024** | **2023** | **%** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | |
| **Selected Balance Sheet Data** |  |  |  |
| Cash and cash equivalents | $44976 | $28018 | 60.5% |
| Debt securities available-for-sale | 143735 | 174846) | (17.8)% |
| Mortgage loans held for sale | 9011 | 10189) | (11.6)% |
| Loans (not including loans held for sale) | 1276409 | 1273602 | 0.2% |
| Allowance for credit losses | (14444) | (15990) | (9.7)% |
| Loans, net | 1261965 | 1257612 | 0.3% |
| Cash surrender value of life insurance | 20269 | 19728 | 2.7% |
| Goodwill and other intangible assets | 8700 | 8723) | (0.3)% |
| Other assets | 50628 | 53779) | (5.9)% |
| Total assets | $1539284 | $1552895) | (0.9)% |
| Deposits | $1273296 | $1246731 | 2.1% |
| Securities sold under agreement to repurchase | 22679 | 22488 | 0.8% |
| Federal Home Loan Bank advances | 67917 | 116000) | (41.5)% |
| Subordinated debt | 9834 | 9810 | 0.2% |
| Other liabilities | 22364 | 21723 | 3.0% |
| Total liabilities | 1396090 | 1416752) | (1.5)% |
| Stockholders' equity | 143194 | 136143 | 5.2% |
| Total liabilities and stockholders' equity | $1539284 | $1552895) | (0.9)% |
| Average earning assets | $1465309 | $1454959 | 0.7% |
| Average total assets | $1530408 | $1515831 | 1.0% |
| Average stockholders' equity | $140057 | $131189 | 6.8% |
| **Statement of Income Data** |  |  |  |
| Interest income | $77896 | $69319 | 12.4% |
| Interest expense | 34988 | 26570 | 31.7% |
| Net interest income | 42908 | 42749 | 0.4% |
| Credit loss expense (recovery) | (1284) | (850) | 51.1% |
| Noninterest income | 15632 | 15522 | 0.7% |
| Noninterest expense | 45967 | 45744 | 0.5% |
| Income tax expense | 3428 | 3332 | 2.9% |
| Net Income | $10429 | $10045 | 3.8% |

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| | | |
|:---|:---|:---|
|  | **At or For the Years Ended December 31,** | **At or For the Years Ended December 31,** |
|  | **2024** | **2023** |
| **Selected Financial Ratios** |  |  |
| Return on average assets | 0.68% | 0.66% |
| Return on average equity | 7.45% | 7.66% |
| Net interest margin (1) | 2.96% | 2.97% |
| Loans/deposits | 100.24% | 102.16% |
| Allowance for credit losses to total loans (2) | 1.13% | 1.26% |
| Nonperforming loans to total loans (2) | 0.33% | 0.55% |
| Tier 1 leverage capital ratio of subsidiary Bank | 10.30% | 9.80% |
| Risk-based total capital ratio of subsidiary Bank | 14.50% | 14.00% |
| Stockholders' equity to total assets | 9.30% | 8.77% |
| Dividend payout ratio | 19.66% | 21.93% |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Reflects tax equivalent adjustment for federal tax exempt income
based on a 21% tax rate.

(2) The ratio excludes loans held for sale.

*Financial Condition*

 

Our primary investing activities are the origination of real estate, commercial, and agricultural loans and the purchase of debt securities. Assets are funded primarily by deposits, borrowings such as FHLB advances, and stockholders' equity.

Total assets were $1.54 billion at December 31, 2024, representing a decrease of $13.6 million, or 1%, from the prior year-end. The most significant change in assets was the $31.1 million decrease in securities available-for-sale. Debt security maturities and paydowns, together with $26.6 million of deposit growth, were used primarily to reduce our reliance on FHLB borrowing.

Our primary earning assets and funding sources are discussed below, including significant changes in our assets, liabilities, and stockholders' equity during the year ended December 31, 2024 and the first quarter of 2025.

*Securities Portfolio*

 

The securities portfolio serves the following purposes: (i) it provides a source of pledged assets for securing certain deposits and borrowed funds, as may be required by law or by specific agreement with a depositor or lender; (ii) it provides liquidity to even out cash flows from the loan and deposit activities of customers; (iii) it can be used as an interest rate risk management tool, since it provides a large base of assets, the maturity and interest rate characteristics of which can be changed more readily than the loan portfolio to better match changes in the deposit base and other funding sources of the Company; and (iv) it is an alternative interest-earning use of funds when loan demand is weak or when deposits grow more rapidly than loans.

Consistent with our investment policy, our portfolio consists of (i) U.S. Treasury securities and U.S. Government sponsored entities' debt securities for liquidity and pledging; (ii) mortgage-backed securities and collateralized mortgage obligations, which in many instances can also be used for pledging, and which generally enhance the yield of the portfolio; and (iii) municipal obligations, which provide tax free income and limited pledging potential.

All debt securities are classified as available-for-sale. Accounting guidance requires available-for-sale securities to be marked to fair value with an offset to accumulated other comprehensive income (loss), which is a component of stockholders' equity. Monthly adjustments are made to reflect changes in the fair value of our available-for-sale securities.

The following table sets forth the carrying value of our investment securities as of December 31, 2024 and 2023.

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | **December 31,** | **December 31,** | |
|  | **2024** | **2024** | **2023** | **2023** |<br>**Dec. 31, 2024** |
|  | **Amortized**<br>**Cost** | **Fair**<br>**Value** | **Amortized**<br>**Cost** | **Fair**<br>**Value** | **% of Total**<br>**Portfolio** |
|  | (Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) | |
| **Securities available for sale** |  |  |  |  |  |
| U.S. Treasury and government-sponsored entities | $39650 | $37479 | $61318 | $58501 | 26.1% |
| State and municipal | 59958 | 56264 | 65125 | 62214 | 39.1% |
| Mortgage-backed - residential | 42520 | 36331 | 45943 | 39775 | 25.3% |
| Collateralized mortgage obligations (CMOs) | 15881 | 13661 | 16655 | 14356 | 9.5% |
| &nbsp;&nbsp;&nbsp;Total securities available for sale | $158009 | $143735 | $189041 | $174846 | 100.0% |

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The amortized cost and fair value of our Treasury securities were $25.8 million and $24.6 million, respectively, at December 31, 2024. Our federal agency obligations consist of securities issued by U.S. government-sponsored enterprises, primarily the FHLB. We also invest in SBA guaranteed loan participations.

Our agency mortgage-backed securities and CMO portfolio consist of securities predominantly underwritten to the standards of and guaranteed by the following government-sponsored agencies: Federal Home Loan Mortgage Corporation; Federal National Mortgage Association; and Government National Mortgage Association.

At December 31, 2024 and 2023, approximately 72% of our state and municipal securities were issued by entities located in Illinois.

The following table sets forth certain information regarding the amortized cost, weighted average yields, and maturities of our investment securities portfolio as of December 31, 2024. Yields on tax-exempt obligations have been computed on a tax equivalent basis, using the 21% federal tax rate. Mortgage-backed investment securities include scheduled principal payments and estimated prepayments based on observable market inputs. Actual prepayments will differ from contractual maturities because borrowers have the right to prepay obligations with or without prepayment penalties.

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| | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| | **Maturities and Average Yields as of December 31, 2024** | **Maturities and Average Yields as of December 31, 2024** | **Maturities and Average Yields as of December 31, 2024** | **Maturities and Average Yields as of December 31, 2024** | **Maturities and Average Yields as of December 31, 2024** | **Maturities and Average Yields as of December 31, 2024** | **Maturities and Average Yields as of December 31, 2024** | **Maturities and Average Yields as of December 31, 2024** | **Maturities and Average Yields as of December 31, 2024** | **Maturities and Average Yields as of December 31, 2024** |
| <br>**(Dollars in thousands)** | **One year or less** | **One year or less** | **One to five years** | **One to five years** | **Five to ten years** | **Five to ten years** | **Over ten years** | **Over ten years** | **Total** | **Total** |
| **Securities**<br> **available-for-sale** | **Amortized**<br>**Cost** | **Average**<br>**Yield** | **Amortized**<br>**Cost** | **Average**<br>**Yield** | **Amortized**<br>**Cost** | **Average**<br>**Yield** | **Amortized**<br>**Cost** | **Average**<br>**Yield** | **Amortized**<br>**Cost** | **Average**<br>**Yield** |
| U.S. Treasury & Government-sponsored agencies | $7938 | 2.41% | $31712 | 2.16% | $- |  | $- |  | $39650 | 2.22% |
| State and municipal | 2661 | 3.06% | 19444 | 3.84% | 16364 | 3.10% | 21489 | 2.97% | 59958 | 3.29% |
| Mortgage-backed - residential | 28 | 1.93% | 17182 | 2.01% | 21330 | 2.39% | 3980 | 1.56% | 42520 | 2.16% |
| Collateralized mortgage obligations | 29 | 1.94% | 9904 | 2.12% | 5948 | 1.47% | - |  | 15881 | 1.90% |
| &nbsp;&nbsp;&nbsp;Total | $10656 | 2.57% | $78242 | 2.54% | $43642 | 2.53% | $25469 | 2.75% | $158009 | 2.58% |
| Percent of total amortized cost | 6.7% |  | 49.5% |  | 27.6% |  | 16.1% |  | 100.0% |  |
| Cumulative % of total am. cost | 6.7% |  | 56.3% |  | 83.9% |  | 100.0% |  |  |  |

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The following factors may be particularly relevant when comparing our investment portfolio with the performance of other financial institutions:

● all our debt security investments are classified as available-for-sale;

● all our debt securities are carried at fair value on the balance sheet;

● unrealized losses on debt securities, net of deferred tax, are already reflected in stockholders' equity; and

● based on amortized cost as of December 31, 2024, 56% of our debt securities have contractual maturities within five years.

The following table sets forth the amortized cost and fair value of debt securities as of March 31, 2025 and December 31, 2024.

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **March 31, 2025** | **March 31, 2025** | **December 31, 2024** | **December 31, 2024** | **March 31, 2025** |
|  | **Amortized**<br>**Cost** | **Fair**<br>**Value** | **Amortized**<br>**Cost** | **Fair**<br>**Value** | **% of Total**<br>**Portfolio** |
|  | (Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) | |
| **Securities available for sale** |  |  |  |  |  |
| U.S. Treasury and government-sponsored entities | $37719 | $36039 | $39650 | $37479 | 24.5% |
| State and municipal | 59335 | 55381 | 59958 | 56264 | 37.5% |
| Mortgage-backed - residential | 45017 | 39790 | 42520 | 36331 | 27.0% |
| Collateralized mortgage obligations (CMOs) | 17971 | 16188 | 15881 | 13661 | 11.0% |
| &nbsp;&nbsp;&nbsp;Total securities available for sale | $160042 | $147398 | $158009 | $143735 | 100.0% |
| Net unrealized losses |  | $12644 |  | $14274 |  |
| Net unrealized losses % to amortized cost |  | (7.9)% |  | (9.0)% |  |

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As shown above, the fair value of our debt securities recovered in the first quarter of 2025 compared to year-end 2024. Unrealized losses in our securities portfolio are due to increases in interest rates rather than credit deterioration. None of our securities has had a past due payment. As discussed earlier, we incurred significant net unrealized losses due to rapidly rising interest rates in 2022 and first half of 2023.

We did not sell any securities in 2024, 2023 or the first quarter of 2025. Absent credit quality concerns or further increases in market interest rates, unrealized losses on debt securities generally recover as the maturity date approaches.

*Loan Portfolio*

 

Loans represent the largest portion of our earning assets and typically provide higher yields than other assets. The quality and diversification of the loan portfolio is an important consideration when reviewing our financial condition. Our loan policy provides consistent standards and direction to achieve goals and objectives, which include maximizing earnings over the short and long term by managing risks. Internal concentration limits exist on all loan types, including commercial and agricultural real estate. We have established strong underwriting practices and procedures to assess borrower credit risk, including review of debt service ability and collateral values and evaluation of guarantors. Appropriate actions are taken when a borrower is past due on payments or no longer able to service its debt.

Our loan portfolio consists of various types of loans. The three segments of our loan portfolio are: commercial (including agricultural production); real estate; and consumer. At December 31, 2024 and 2023, the real estate segment comprised 88% and 87%, respectively, of our loan portfolio. The real estate segment primarily consists of commercial and consumer loans. Smaller portions of the real estate segment are agricultural loans and construction and land loans. Our loans are primarily to borrowers in the Illinois markets where we operate.

Commercial real estate loans are primarily secured by office and industrial buildings, warehouses, small retail shopping centers, single family and multi-family residential buildings, and various other properties including restaurants and hotels. None of our loans are secured by, or dependent on, office buildings in large urban centers such as downtown Chicago. Agricultural real estate loans are primarily for land acquisition and other long-term farm financing.

At December 31, 2024 and 2023, approximately 90% of our consumer real estate loans are secured by first liens on one-to-four family residential properties. The rest of the portfolio are home equity loans and other loans secured by junior liens. At origination, evaluation of borrower repayment ability includes a review of debt to income, credit scores, and certain other information. Collateral coverage is based on appraisals.

Construction and land development loans are secured by vacant land and/or property in the process of improvement, including (1) land development preparatory to erecting vertical improvements, and (2) the construction of industrial , commercial, residential, or farm buildings. Repayment of these loans typically depends on the sale of the property to third parties or the successful and timely completion of the improvements by the builder for the end user.

Commercial and agricultural loans are primarily for working capital, asset acquisition or expansion, and other business purposes. Underwriting of these loans is based primarily on the historical and projected cash flow of the borrower and secondarily on the underlying collateral. Financial information obtained from borrowers is used to evaluate debt service sufficiency. Such financial information and evaluations are updated periodically during the life of the loan.

Consumer loans for household, family, and other personal expenditures are less than 1% of our total loan portfolio. At the time of origination, we evaluate the borrower's repayment ability primarily through a review of debt to income and credit scores.

Loan characteristics and risks and underwriting are described in more detail in our December 31, 2024 consolidated financial statements, primarily in accompanying Notes 1 and 4.

The following table sets forth loans within each segment of our portfolio at year-end 2024 and 2023, including their percentage of total loans and increase (decrease) during 2024:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | **December 31,** | **December 31,** | |
|  | **2024** | **2023** | **2024** | **2023** | **Increase (Decrease)**<br>**in 2024** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **Percent of Total Loans** | **Percent of Total Loans** | **Percentage** |
| Commercial |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | $69720 | $78118 | 5.5% | 6.1% | (10.8)% |
| &nbsp;&nbsp;&nbsp;Agricultural | 80577 | 75334 | 6.3% | 5.9% | 7.0% |
| &nbsp;&nbsp;&nbsp;Other |  | 32 | 0.0% | 0.0% | (100.0)% |
| Real estate |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 538810 | 509688 | 42.2% | 40.0% | 5.7% |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 170401 | 178549 | 13.4% | 14.0% | (4.6)% |
| &nbsp;&nbsp;&nbsp;Consumer real estate | 386475 | 373998 | 30.3% | 29.4% | 3.3% |
| &nbsp;&nbsp;&nbsp;Construction and land | 21841 | 48381 | 1.7% | 3.8% | (54.9)% |
| Consumer |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 4196 | 4592 | 0.3% | 0.4% | (8.6)% |
| &nbsp;&nbsp;&nbsp;Vehicle | 3119 | 3654 | 0.2% | 0.3% | (14.6)% |
| &nbsp;&nbsp;&nbsp;Credit cards | 1270 | 1256 | 0.1% | 0.1% | 1.1% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total loans | 1276409 | 1273602 | 100.0% | 100.0% | 0.2% |
| Allowance for credit losses | (14444) | (15990) | (1.1)% | (1.3)% | (9.7)% |
| &nbsp;&nbsp;&nbsp;Loans, net | $1261965 | $1257612 |  |  | 0.3% |

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The following table sets forth contractual maturities by loan portfolio segment. This table does not include unscheduled prepayments:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** |
| | (Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) |
| <br>**Loans, maturing in** | **1 Year or less** | **1 - 5 Years** | **6 -15 Years** | **After 15 Years** | **Total** |
| Commercial, including agricultural | $83887 | $50541 | $13078 | $2791 | $150297 |
| Real estate | 83106 | 264852 | 233481 | 536088 | $1117527 |
| Consumer | 2178 | 4524 | 1802 | 81 | $8585 |
| Total | $169171 | $319917 | $248361 | $538960 | $1276409 |
| Percentage of total loans | 13.3% | 25.1% | 19.5% | 42.1% | 100.0% |

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The following table presents loans that mature after one year, set forth by loan segment and fixed or adjustable interest rate:

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| | | | |
|:---|:---|:---|:---|
| | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** |
| | (Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) |
| <br>**Loans, maturing after 1 year** | **Fixed Rate** | **Adjustable Rate** | **Total** |
| Commercial, including agricultural | $50452 | $15958 | $66410 |
| Real estate | 317151 | 717270 | 1034421 |
| Consumer | 6407 | - | 6407 |
| Total | $374010 | $733228 | $1107238 |
| Percentage of loans maturing >1 year | 33.8% | 66.2% | 100.0% |

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Loan volume in the first quarter of 2025 was slightly less compared to year-end 2024 and the first quarter of 2024. Total loans were approximately 1% less at March 31, 2025 compared to year-end 2024. Similarly, average loan balances were approximately 1% less in the first quarter of 2025 compared to the first quarter of 2024.

The following table sets forth loans within each segment of our portfolio at March 31, 2025 and year-end 2024, including their percentage of total loans and increase (decrease) during the first quarter of 2025:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **March 31,**<br>**2025** | **Dec. 31,**<br>**2024** | **March 31,**<br>**2025** | **Dec. 31,**<br>**2024** | **Increase (Decrease)**<br>**in 2025** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **Percent of Total Loans** | **Percent of Total Loans** | **Percentage** |
| Commercial |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | $69908 | $69720 | 5.5% | 5.5% | 0.3% |
| &nbsp;&nbsp;&nbsp;Agricultural | 62548 | 80577 | 5.0% | 6.3% | (22.4)% |
| &nbsp;&nbsp;&nbsp;Other |  |  | 0.0% | 0.0% |  |
| Real estate |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 546777 | 538810 | 43.3% | 42.2% | 1.5% |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 166965 | 170401 | 13.2% | 13.4% | (2.0)% |
| &nbsp;&nbsp;&nbsp;Consumer real estate | 384150 | 386475 | 30.4% | 30.3% | (0.6)% |
| &nbsp;&nbsp;&nbsp;Construction and land | 24643 | 21841 | 2.0% | 1.7% | 12.8% |
| Consumer |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 3889 | 4196 | 0.3% | 0.3% | (7.3)% |
| &nbsp;&nbsp;&nbsp;Vehicle | 2684 | 3119 | 0.2% | 0.2% | (13.9)% |
| &nbsp;&nbsp;&nbsp;Credit cards | 1192 | 1270 | 0.1% | 0.1% | (6.1)% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total loans | 1262756 | 1276409 | 100.0% | 100.0% | (1.1)% |
| Allowance for credit losses | (14504) | (14444) | (1.1)% | (1.1)% | 0.4% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loans, net | $1248252 | $1261965 |  |  | (1.1)% |

---

*Credit Quality and the Allowance For Credit Losses On Loans*

 

Credit Quality Indicators

As disclosed more fully in Note 4 – Loans to the financial statements, we generally monitor credit quality indicators for all loans following internal ratings of either pass, watch, special mention, substandard, or doubtful. Credit ratings are updated as we receive and review new financial statements from borrowers, collateral appraisals, and independent loan review reports. Especially for commercial and agricultural borrowers, the debt service coverage ratio is a key factor in the credit rating that we assign to the loan.

"Pass" ratings are assigned to loans with adequate collateral and debt service ability such that collectability of the contractual loan payments is highly probable.

"Watch" loans are credits that are fundamentally sound but warrant close attention by management. Borrowers in this category may have acceptable asset quality but may face challenges due to market conditions, economic conditions, management changes, or other forces that could adversely affect operations. Factors contributing to adverse conditions are expected to be temporary.

"Special mention" ratings are assigned to loans where management has some concern that the collateral or debt service ability may not be adequate, though the collectability of the contractual loan payments is still probable.

"Substandard" ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that the collectability of the contractual loan payments is no longer probable.

"Doubtful" ratings are assigned to loans that do not have adequate collateral and/or debt service ability, and collectability of the contractual loan payments is unlikely.

The following tables summarize our risk ratings as of December 31, 2024 and 2023, and March 31, 2025 and 2024:

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **December 31, 2024 Credit Risk Ratings** | | | | | |
|  |<br>**Pass** |<br>**Watch** |<br>**Special Mention** |<br>**Substandard** |<br>**Total** |
| **Commercial loan segment** |  |  |  |  |  |
| Commercial and industrial | $64692 | $3343 | $999 | $686 | $69720 |
| Agricultural | 76243 | 2985 | 1349 |  | 80577 |
| Other | - | - | - | - | - |
| &nbsp;&nbsp;&nbsp;Total | $140935 | $6328 | $2348 | $686 | $150297 |
| Percentage to total loans | 93.8% | 4.2% | 1.5% | 0.5% | 100.0% |
| **Real estate loan segment** |  |  |  |  |  |
| Commercial | $480526 | $51637 | $1258 | $5389 | $538810 |
| Consumer | 363382 | 21901 | 242 | 950 | 386475 |
| Agricultural | 160005 | 8076 | 2178 | 142 | 170401 |
| Construction and land | 19518 | 2323 | - | - | 21841 |
| &nbsp;&nbsp;&nbsp;Total | $1023431 | $83937 | $3678 | $6481 | $1117527 |
| Percentage to total loans | 91.6% | 7.5% | 0.3% | 0.6% | 100.0% |
| **Consumer loan segment** | $8470 | $41 | $- | $74 | $8585 |
| Percentage to total loans | 98.6% | 0.5% | 0.0% | 0.9% | 100.0% |
| **Total loan portfolio** | $**1172836** | $**90306** | $**6026** | $**7241** | $**1276409** |
| Percentage to total loans | 91.9% | 7.1% | 0.4% | 0.6% | 100.0% |

---

 ****

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **December 31, 2023 Credit Risk Ratings** | | | | | |
|  |<br>**Pass** |<br>**Watch** |<br>**Special Mention** |<br>**Substandard** |<br>**Total** |
| **Commercial loan segment** |  |  |  |  |  |
| Commercial and industrial | $67290 | $9852 | $524 | $452 | $78118 |
| Agricultural | 70858 | 3485 | 991 |  | 75334 |
| Other | - | - | - | 32 | 32 |
| &nbsp;&nbsp;&nbsp;Total | $138148 | $13337 | $1515 | $484 | $153484 |
| Percentage to total loans | 90.0% | 8.7% | 1.0% | 0.3% | 100.0% |
| **Real estate loan segment** |  |  |  |  |  |
| Commercial | $468406 | $35600 | $1166 | $4516 | $509688 |
| Consumer | 360129 | 12873 | 153 | 843 | 373998 |
| Agricultural | 163299 | 9717 | 943 | 4590 | 178549 |
| Construction and land | 47070 | 1311 | - | - | 48381 |
| &nbsp;&nbsp;&nbsp;Total | $1038904 | $59501 | $2262 | $9949 | $1110616 |
| Percentage to total loans | 93.5% | 5.4% | 0.2% | 0.9% | 100.0% |
| **Consumer loan segment** | $9412 | $41 | $- | $49 | $9502 |
| Percentage to total loans | 99.1% | 0.4% | 0.0% | 0.5% | 100.0% |
| **Total loan portfolio** | $**1186464** | $**72879** | $**3777** | $**10482** | $**1273602** |
| Percentage to total loans | 93.2% | 5.7% | 0.3% | 0.8% | 100.0% |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **March 31, 2025 Credit Risk Ratings** | | | | | |
|  |<br>**Pass** |<br>**Watch** |<br>**Special Mention** |<br>**Substandard** |<br>**Total** |
| **Commercial loan segment** |  |  |  |  |  |
| Commercial and industrial | $64603 | $3758 | $996 | $551 | $69908 |
| Agricultural | 54726 | 5651 | 2171 | - | 62548 |
| &nbsp;&nbsp;&nbsp;Total | $119329 | $9409 | $3167 | $551 | $132456 |
| Percentage to total loans | 90.1% | 7.1% | 2.4% | 0.4% | 100.0% |
| **Real estate loan segment** |  |  |  |  |  |
| Commercial | $470253 | $69379 | $897 | $6248 | $546777 |
| Consumer | 357337 | 25346 | 241 | 1226 | 384150 |
| Agricultural | 156370 | 8160 | 2293 | 142 | 166965 |
| Construction and land | 21613 | 3030 | - | - | 24643 |
| &nbsp;&nbsp;&nbsp;Total | $1005573 | $105915 | $3431 | $7616 | $1122535 |
| Percentage to total loans | 89.6% | 9.4% | 0.3% | 0.7% | 100.0% |
| **Consumer loan segment** | $7728 | $28 | $- | $9 | $7765 |
| Percentage to total loans | 99.5% | 0.4% | 0.0% | 0.1% | 100.0% |
| **Total loan portfolio** | $**1132630** | $**115352** | $**6598** | $**8176** | $**1262756** |
| Percentage to total loans | 89.7% | 9.1% | 0.5% | 0.7% | 100.0% |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| **March 31, 2024 Credit Risk Ratings** | | | | | |
|  |<br>**Pass** |<br>**Watch** |<br>**Special Mention** |<br>**Substandard** |<br>**Total** |
| **Commercial loan segment** |  |  |  |  |  |
| Commercial and industrial | $70976 | $9043 | $1011 | $820 | $81850 |
| Agricultural | 55406 | 4007 | 986 | - | 60399 |
| &nbsp;&nbsp;&nbsp;Total | $126382 | $13050 | $1997 | $820 | $142249 |
| Percentage to total loans | 88.8% | 9.2% | 1.4% | 0.6% | 100% |
| **Real estate loan segment** |  |  |  |  |  |
| Commercial | $483681 | $33560 | $3320 | $4955 | $525516 |
| Consumer | 363340 | 16410 | 151 | 574 | 380475 |
| Agricultural | 167150 | 9537 | 929 | 4590 | 182206 |
| Construction and land | 39430 | 1167 | - | - | 40597 |
| &nbsp;&nbsp;&nbsp;Total | $1053601 | $60674 | $4400 | $10119 | $1128794 |
| Percentage to total loans | 93.3% | 5.4% | 0.4% | 0.9% | 100.0% |
| **Consumer loan segment** | $9019 | $37 | $- | $44 | $9100 |
| Percentage to total loans | 99.1% | 0.4% | 0.0% | 0.5% | 100.0% |
| **Total loan portfolio** | $**1189002** | $**73761** | $**6397** | $**10983** | $**1280143** |
| Percentage to total loans | 92.9% | 5.8% | 0.5% | 0.8% | 100.0% |

---

Pass rated loans approximated 90% and 94% of the total portfolio at March 31, 2025 and year-end 2024, respectively. The decrease in Pass rated loans during the first quarter of 2025 was primarily due to the increase in Watch rated loans. At March 31, 2025, 9.4% of the real segment was rated Watch, compared to 7.5% at year-end 2024. Watch loans in each class of the real estate segment increased in the first quarter of 2025. Watch loans have less credit quality concerns than Special Mention or Substandard loans.

Special Mention and Substandard loans also increased in the first quarter of 2025 from their year-end levels, although they were less than their respective totals at March 31, 2024.

Pass rated loans approximated 92% and 93% of the total portfolio at December 31, 2024 and 2023, respectively. The change was primarily due to Watch rated loans in the real estate segment, which increased to $83.9 million at December 31, 2024, from $59.5 million at the prior year-end.

Total Substandard loans in the portfolio decreased to $7.2 million at December 31, 2024, from $10.5 million at December 31, 2023. Loans rated Special Mention and Substandard were each less than 1% of the total portfolio at December 31, 2024 and 2023.

Classified loans are those rated Substandard or Doubtful. No loans were classified as doubtful at March 31, 2025 or 2024, or at December 31, 2024 or 2023.

Total classified loans in the portfolio are summarized in the following table as of the dates indicated:

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **March 31,** | **March 31,** | **December 31,** | **December 31,** |
|  | **2025** | **2024** | **2024** | **2023** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** |
| Total substandard loans | $8176 | $10983 | $7241 | $10482 |

---

Five loan relationships comprised 71% of total substandard loans at March 31, 2025. Approximately 90% of the collateral for these five loan relationships is secured by owner-occupied commercial real estate, and approximately 10% is secured by apartment buildings.

The largest substandard loan relationship approximates $2.4 million and was not past due or in nonaccrual loan status as of March 31, 2025. We expect that collateral coverage and/or personal guarantees will prevent any significant loss if the business does not operate successfully.

Substandard loans are individually reviewed to estimate whether a credit loss is expected. Specific allocations within the allowance for credit losses are made for individually reviewed loans as needed. The number and dollar amount of substandard loans remain at manageable levels.

To summarize, the decrease in credit quality indicators during the first quarter of 2025 were largely driven by the following factors:

● review of updated financial information, such as financial statements provided by borrowers as of December 31, 2024;

● results of current loan review reports provided by third party consultants; and

● lower debt service coverage ratios due to factors such as the following:

○ inflationary effects on input costs, both for agricultural and commercial borrowers,

○ lower agricultural commodity prices, such as for corn and soybeans, and

○ higher debt service costs for borrowers (for example, borrowers with interest rates that reset annually or every three or five years).

Although credit quality indicators decreased in the first quarter of 2025, we continue to believe that the overall credit quality of the loan portfolio is satisfactory.

*Past Due Loans*

 

Loans past due are summarized in the following table.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** | **Percentage of Total Loans** | **Percentage of Total Loans** | **Percentage of Total Loans** |
| | | **December 31,** | **December 31,** | | **December 31,** | **December 31,** |
| <br>**Loans past due** | **March 31,**<br>**2025** | **2024** | **2023** | **March 31,**<br>**2025** | **2024** | **2023** |
| 30-89 days past due | $6423 | $5318 | $4439 | 0.51% | 0.42% | 0.35% |
| 90 or more days past due | 4288 | 3784 | 6731 | 0.34% | 0.30% | 0.53% |
| &nbsp;&nbsp;&nbsp;Total loans past due 30 days or more | $10711 | $9102 | $11170 | 0.85% | 0.71% | 0.88% |

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Past due loans remain at manageable levels. At March 31, 2025, three loans comprise 71% of total loans past due 90 days or more. The largest two loans each had a balance of approximately $1.2 million each and are secured by owner-operated commercial real estate. The other loan is an agricultural real estate loan that became 90 days past due in late March of 2025. Management believes collateral coverage will prevent or mitigate losses on these loans.

For more information about past due loans, please refer to Note 4 – Loans to our consolidated financial statements.

Non-Performing Assets. The following table sets forth information about non-performing assets, including non-accrual loans and real estate acquired through foreclosure or by deed in lieu of foreclosure ("other real estate owned"). The accrual of interest on non-performing loans is generally discontinued at the time the loan is ninety days delinquent unless the credit is well secured and in the process of collection.

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| | | | |
|:---|:---|:---|:---|
|  | | **December 31,** | **December 31,** |
|  | **March 31,**<br>**2025** | **2024** | **2023** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | |
| **Non-performing assets** |  |  |  |
| Nonaccrual loans | $3482 | $3569 | $1777 |
| Loans past due 90 days or more and accruing interest | 1642 | 595 | 5282 |
| Total non-performing loans | 5124 | 4164 | 7059 |
| Other real estate owned | 241 | 920 | 101 |
| **Total non-performing assets** | $5365 | $5084 | $7160 |
| Non-performing loans to total loans | 0.41% | 0.33% | 0.55% |
| Non-performing assets to total assets | 0.35% | 0.33% | 0.46% |
| Allowance for credit losses on loans to non-performing loans | 283.06% | 346.88% | 226.52% |
| Allowance for credit losses on loans to total loans | 1.15% | 1.13% | 1.26% |

---

Non-performing loans increased in the first quarter of 2025 but remain at a manageable level. Eighteen loans were in nonaccrual status at March 31, 2025. The two largest loans, as discussed above, each had a balance approximating $1.2 million, and both are secured by owner-occupied commercial real estate. Together, these two loans comprise 70% of total nonaccrual loans. The other 16 nonaccrual loans had an average balance of $66,000 at March 31, 2025. Commercial or consumer real estate secure 92% of the total nonaccrual loan balances.

At March 31, 2025, sixteen loans were past due 90 days or more and still accruing interest. The largest loan, as discussed above, had a balance of $600,000 which we believe is adequately secured by agricultural real estate. The other fifteen loans are to separate borrowers, and all the loan balances were less than $250,000. Most of these fifteen smaller loans are secured by commercial or consumer real estate.

The allowance for credit losses on loans was well in excess of total nonperforming loans at March 31, 2025 and 2024, and December 31, 2024 and 2023.

The following tables summarize activity in the allowance for credit losses on loans by portfolio segment (dollars in thousands):

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| | | | | |
|:---|:---|:---|:---|:---|
| **Year Ended December 31, 2024** | **Commercial** | **Real Estate** | **Consumer** | **Total** |
| Balance at beginning of year | $1177 | $14688 | $125 | $15990 |
| Credit loss expense | (77) | (1489) | 120 | (1446) |
| Recoveries on loans previously charged off | 24 | 30 | 10 | 64 |
| Loans charged off | (23) | (28) | (113) | (164) |
| (Net loan charge offs) / recoveries | 1 | 2 | (103) | (100) |
| Balance at end of year | $1101 | $13201 | $142 | $14444 |

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---

| | | | | |
|:---|:---|:---|:---|:---|
| **Year Ended December 31, 2023** | **Commercial** | **Real Estate** | **Consumer** | **Total** |
| Balance at beginning of year | $2488 | $10399 | $202 | $13089 |
| Impact of adopting ASC 326 | (824) | 4463 | (83) | 3556 |
| Credit loss expense | (526) | (442) | 61 | (907) |
| Recoveries on loans previously charged off | 40 | 416 | 30 | 486 |
| Loans charged off | (1) | (148) | (85) | (234) |
| (Net loan charge offs) / recoveries | 39 | 268 | (55) | 252 |
| Balance at end of year | $1177 | $14688 | $125 | $15990 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Quarter Ended March 31, 2025** | **Commercial** | **Real Estate** | **Consumer** | **Total** |
| Balance at beginning of year | $1101 | $13201 | $142 | $14444 |
| Credit loss expense (recovery) | (47) | 284 | (6) | 231 |
| Recoveries on loans previously charged off | 6 | 10 | 13 | 29 |
| Loans charged off | (3) | (173) | (24) | (200) |
| (Net loan charge offs) / recoveries | 3 | (163) | (11) | (171) |
| Balance at quarter end | $1057 | $13322 | $125 | $14504 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Quarter Ended March 31, 2024** | **Commercial** | **Real Estate** | **Consumer** | **Total** |
| Balance at beginning of year | $1177 | $14688 | $125 | $15990 |
| Credit loss expense | (116) | (864) | (9) | (989) |
| Recoveries on loans previously charged off | 6 | 1 | 20 | 27 |
| Loans charged off | - | - | (23) | (23) |
| (Net loan charge offs) / recoveries | 6 | 1 | (3) | 4 |
| Balance at quarter end | $1067 | $13825 | $113 | $15005 |

---

Annualized net charge offs were 0.05% of average loans in the first quarter of 2025. Similarly, net charge-offs were 0.01% of average loans in 2024, and we had net recoveries in 2023.

The following table sets forth the allocation of the allowance to our three loan segments, together with average net loan charge-offs / recoveries for each year (dollars in thousands).

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | **At or for the Year Ended December 31,** | **At or for the Year Ended December 31,** | **At or for the Year Ended December 31,** | **At or for the Year Ended December 31,** | **At or for the Year Ended December 31,** | **At or for the Year Ended December 31,** |
| | **2024** | **2024** | **2024** | **2023** | **2023** | **2023** |
| <br>**Loan Portfolio Segment** | **Allowance Allocation** | **Percentage of Loan Category to Total Loans** | **Net (Charge-offs) / Recoveries to Average Loans** | **Allowance Allocation** | **Percentage of Loan Category to Total Loans** | **Net (Charge-offs) / Recoveries to Average Loans** |
| Commercial | $1101 | 11.8% | 0.00% | $1177 | 12.1% | 0.02% |
| Real estate | 13201 | 87.6% | 0.00% | 14688 | 87.2% | 0.03% |
| Consumer | 142 | 0.6% | -1.11% | 125 | 0.7% | -0.57% |
| Total | $14444 | 100.0% | -0.01% | $15990 | 100.0% | 0.02% |

---

At December 31, 2024, the real estate loan segment comprises approximately 88% of our total loans, comparable to its 91% allocation of the allowance for credit losses.

Adoption of the CECL Accounting Model. As discussed in the Critical Accounting Policies section, we adopted ASC 326, which requires the CECL methodology to account for expected credit losses, on January 1, 2023. Through December 31, 2022, we applied the incurred loss model to determine the allowance for credit losses.

Adopting ASC 326 was a required change in accounting principle, the cumulative effect of which was recorded on January 1, 2023. The resulting increases to credit loss allowances and the decrease to retained earnings are summarized below:

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| | |
|:---|:---|
| **Impact of Adopting ASC 326 on January 1, 2023**<br>**Increase (Decrease) to Retained Earnings (Dollars in thousands)** | |
| Increase in the allowance for credit losses on loans | $(3556) |
| Increase in the allowance for credit losses on off-balance sheet commitments to extend credit | (769) |
| Pre-tax decrease to retained earnings | (4325) |
| Increase in deferred tax assets | 1233 |
| Cumulative-effect decrease to retained earnings | $(3092) |

---

The cumulative-effect adjustment equals 2.32% of total stockholders' equity as of December 31, 2022, or $1.24 per common share. The CECL model may result in more volatility in credit loss accounting.

As part of our credit risk management, we continue to actively manage the loan portfolio to identify problem loans. As of March 31, 2025 and December 31, 2024 and 2023, we believe the allowance for credit losses on loans is adequate based our evaluation of the portfolio.

***Funding Sources***

 ****

Our primary sources of funds are deposits, FHLB borrowings, proceeds from principal and interest payments on loans and investment securities and proceeds from the sale of mortgage loans. While maturities and scheduled amortization of loans are a predictable source of funds, deposit flows and mortgage prepayments are influenced by market interest rates, economic conditions, and customer behavior, all of which can change over time.

***Deposits***

 ****

The composition and cost of our deposit base are important components in analyzing our net interest margin and balance sheet liquidity. Our liquidity is impacted by the volatility of deposits, given the risk of that money leaving our Bank for rate-related or other reasons. Deposits can be adversely affected if economic conditions weaken, especially in the markets where we operate.

Due to well publicized bank failures in 2023, concerns about uninsured deposits have risen. Potentially, our most volatile deposits are those that exceed the FDIC deposit insurance limit. Rate sensitivity is another potential cause of deposit volatility, as customers may seek more attractive interest rates on their balances. Customers with higher balances may be more rate-sensitive than customers with smaller balances.

Deposits at year-end are set forth in the following table.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **December 31,** | **December 31,** | **December 31,** | **December 31,** | | |
|  | **2024** | **2023** | **2024** | **2023** | **Increase (Decrease)** | **Increase (Decrease)** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **Percent of Total Deposits** | **Percent of Total Deposits** | **Amount** | **Percentage** |
| **Deposit Category** |  |  |  |  |  |  |
| Demand, non-interest bearing | $176978 | $181082 | 13.9% | 14.5% | $(4104) | (2.3)% |
| Demand, interest bearing | 263600 | 274494 | 20.7% | 22.0% | (10894) | (4.0)% |
| Savings, including money market | 331480 | 331161 | 26.0% | 26.6% | 319 | 0.1% |
| Time, $250 and over | 131874 | 125609 | 10.4% | 10.1% | 6265 | 5.0% |
| Time, under $250 | 369364 | 334385 | 29.0% | 26.8% | 34979 | 10.5% |
| &nbsp;&nbsp;&nbsp;Total deposits | $1273296 | $1246731 | 100.0% | 100.0% | $26565 | 2.1% |

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Total deposits increased $26.6 million, or 2%, in 2024. The increase in total deposits partially offset the $48.1 million decrease in FHLB advances during 2024. In 2024 and 2023, demand and savings accounts decreased as a percent of total deposits as customer preferences shifted to time deposits. At year-end 2024, time deposits comprised 39% of total deposits, compared to 24% at year-end 2022. We believe the shift in our deposit mix during 2022 and 2023 is largely due to rising interest rates, as time deposits generally offer significantly higher interest yields than demand and savings accounts.

In 2023, we began using brokered certificates of deposit as a funding source. Brokered certificates were $49.2 million and $71.1 million at December 31, 2024 and 2023, respectively. We have not used listing service deposits as a funding source.

Also in 2023, we began participating in a program offered by the State of Illinois, whereby we obtain time deposit funding in exchange for commitments to make a certain amount of agricultural loans. The average balance of State of Illinois time deposits was $65.0 million and $49.2 million in 2024 and 2023, respectively.

Year-end total deposits increased 2% in 2024 while average deposits increased 4%. In absolute terms, the 29% increase in average time deposits in 2024 exceeded the average balance declines in all the other deposit categories.

The following table presents average deposit balances and the average rate paid on those balances for the years indicated.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **For the Years Ended December 31,** | **For the Years Ended December 31,** | **For the Years Ended December 31,** | **For the Years Ended December 31,** |
|  | **2024** | **2024** | **2023** | **2023** |
|  | **Average Deposits** | **Average Interest Rate** | **Average Deposits** | **Average Interest Rate** |
| **Deposit Category (Dollars in thousands)** |  |  |  |  |
| Non-interest bearing demand | $173159 | 0.00% | $190024 | 0.00% |
| Demand, interest bearing | 263885 | 1.32% | 284874 | 1.12% |
| Savings, including money market | 321348 | 1.63% | 343215 | 1.24% |
| Time | 506421 | 4.17% | 398795 | 2.97% |
| Total average deposits / rate | $1264813 | 2.36% | $1216909 | 1.58% |

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The rate on total average deposits increased 78 basis points in 2024, to 2.36%, compared to 1.58% in 2023. The average rate on each of our interest-bearing deposit categories increased significantly in 2024. The steepest increase was in the cost of time deposits, which increased to 4.17% in 2024, compared to 2.97% in 2023 and 0.68% in 2022. Our cost of funds reflects the rise in market interest rates and customer preferences for higher yielding time deposits.

Total average deposits were $1.29 billion and $1.28 billion in the first quarter of 2025 and 2024, respectively. Total deposits as of March 31, 2025 were $1.30 billion, representing a 2% increase from year-end 2024.

Deposits as of March 31, 2025 and year-end 2024 are presented below, together with the percentage increase in the first quarter:

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| | | | |
|:---|:---|:---|:---|
|  | **March 31,**<br>**2025** | **December 31,**<br>**2024** | **Q1 2025**<br> **Increase**<br>**(Decrease)** |
| **Deposit Category (Dollars in thousands)** |  |  |  |
| Demand, non-interest bearing | $184244 | $176978 | 4.1% |
| Demand, interest bearing | 283958 | 263600 | 7.7% |
| Savings, including money market | 331927 | 331480 | 0.1% |
| Time, $250 and over | 134379 | 131874 | 7.2% |
| Time, under $250 | 368436 | 369364 | (2.1%) |
| &nbsp;&nbsp;&nbsp;Total deposits | $1302944 | $1273296 | 2.3% |

---

Maturities of time deposits as of March 31, 2025 are shown below:

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| | | |
|:---|:---|:---|
| | **March 31, 2025** | **Percentage of Total** |
| <br>**Maturing Period (Dollars in thousands)** | | |
| Within one year | $427656 | 85.1% |
| Over one year through two years | 42224 | 8.4% |
| Over two years through three years | 29914 | 5.9% |
| Over three years through four years | 1789 | 0.4% |
| Over four years through five years | 1232 | 0.2% |
| &nbsp;&nbsp;&nbsp;Total time deposits | $502815 | 100.0% |

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Core deposits are defined by the banking regulators as all deposit accounts of $250,000 and less, minus any fully insured brokered deposits of $250,000 or less. Our core deposits have been relatively stable, while our use of brokered deposits has declined in 2024 and the first quarter of 2025. Information about our core deposits and brokered deposits follows as of the dates indicated:

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| | | | |
|:---|:---|:---|:---|
| | | **December 31,** | **December 31,** |
| **Core and Brokered Deposits**<br>**(Dollars in thousands)** | **March 31,**<br>**2025** | **2024** | **2023** |
| Core deposits | $1131830 | $1093886 | $1051166 |
| % of total deposits | 86.9% | 85.9% | 84.3% |
| Change from prior balance sheet date | $37944 | $42720 | $(43208) |
| % Change from prior balance sheet date | 3.5% | 4.1% | -3.9% |
| Brokered deposits | $37522 | $49223 | $71088 |
| % of total deposits | 2.9% | 3.9% | 5.7% |

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A portion of our deposits are from state, county, and municipal customers. In general, public deposits exceed the FDIC insurance limits so, as allowed by law, we have specifically pledged a portion of our debt securities to collateralize these deposits. The banking regulators refer to collateralized public deposits as "preferred deposits."

As shown below, uninsured and preferred deposit balances have been relatively stable. Estimated uninsured deposits and preferred deposits and their percentage to total deposits follow as of the dates indicated:

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| | | | |
|:---|:---|:---|:---|
| | | **December 31,** | **December 31,** |
| **Uninsured and Preferred Deposits**<br>**(Dollars in thousands)** | **March 31,**<br>**2025** | **2024** | **2023** |
| Estimated amount of uninsured deposits | $318007 | $320972 | $321276 |
| Preferred deposits | 102552 | 107613 | 109149 |
| Estimated uninsured deposits, net of preferred deposits | $215455 | $213359 | $212127 |
| **As a percent of total deposits** |  |  |  |
| Estimated uninsured deposits | 24.4% | 25.2% | 25.8% |
| Estimated uninsured deposits, net of preferred deposits | 16.5% | 16.8% | 17.0% |

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***Other Borrowings***

 ****

We also used repurchase agreements as a funding source. Repurchase agreements provide secured borrowings from customers whose funds exceed FDIC deposit insurance limits. To repay these borrowings, we are required to repurchase identical securities to those that are sold. The average balance of securities sold under agreement to repurchase was $22.6 million and $21.8 million in 2024 and 2023, respectively.

We also maintain a borrowing arrangement with the FHLB. FHLB advances totaled $67.9 million at December 31, 2024, compared to $116 million and $220 million at year-end 2023 and 2022, respectively. The reductions in FHLB advances in 2024 and 2023 occurred as less expensive funding became available through brokered deposits, State of Illinois time deposits, and cash provided by maturities and paydowns of debt securities, net of new securities purchased.

***Off-Balance Sheet Arrangements***

 ****

As a provider of financial services, we issue standby letters of credit. Standby letters of credit are conditional commitments issued by the Bank generally to guarantee the payment or performance obligation of a customer to a third party. While these standby letters of credit represent a potential outlay by us, a significant amount of the commitments may expire without being drawn upon. We have recourse against the customer for any amount the customer is required to pay to a third party under a standby letter of credit. The letters of credit are subject to the same credit policies, underwriting standards, and approval process as loans made by us. Most of the standby letters of credit are secured, and in the event of nonperformance by the customers, we have the right to the underlying collateral, which could include commercial real estate, physical plant and property, inventory, receivables, cash, and marketable securities. The contract amount of these standby letters of credit, which represents the maximum potential future payments guaranteed by us, was $6.7 million and $2.1 million at December 31, 2024 and 2023, respectively.

At March 31, 2025 and December 31, 2024 and 2023, we had outstanding loan commitments, including letters of credit, totaling $235.5 million, $232.0 million and $250.9 million, respectively. These commitments consist primarily of unfunded lines of credit and commitments to make loans.

We anticipate that sufficient funds will be available to meet current loan commitments. Commitments generally have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

As required by ASC 326, we maintain an allowance for expected credit losses on off-balance sheet commitments. The allowance balance is included with other liabilities on our balance sheet. The allowance balance is calculated in the same manner as our allowance for credit losses on loans, except we estimate the percentage of off-balance sheet commitments that we will actually fund in the future. Our allowance for credit losses on off-balance sheet commitments was $1.3 million at March 31, 2025 and $1.0 million at December 31, 2024. There were no charge-offs of any off-balance sheet commitments in 2024 or 2023 or the first quarter of 2025.

***Funding at the Company Level***

 ****

At December 31, 2024 and 2023 and March 31, 2025, the Company had $10.0 million of subordinated debentures outstanding. These unsecured subordinated debentures mature in 2031.

In 2022, the Company obtained a $10 million operating line of credit from Bankers' Bank. The line of credit was most recently renewed in 2024 with a maturity date of October 29, 2026. The line of credit is secured by all the stock of the Bank and has covenants specific to capital and other financial ratios. The Company was in compliance with these covenants at March 31, 2025 and December 31, 2024 and 2023. There were no borrowings on the line of credit during the first quarter of 2025 or during 2024 and 2023.

The Company primarily depends on dividends from the Bank for its cash needs. The Bank must maintain profitable operations and satisfy its capital requirements in order to pay dividends to its parent company. In addition to debt service, the parent company uses cash to pay dividends to its stockholders.

***Capital Requirements***

 ****

The Basel III Capital Rules require the Bank to maintain: 1) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5%, plus a 2.5% "capital conservation buffer" (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0%); 2) a minimum Tier 1 capital ratio of 8.5% to risk-weighted assets; 3) a minimum ratio of total capital to risk-weighted assets of 8.0%, plus the capital conservation buffer resulting in a minimum total capital ratio of 10.5%); and 4) a minimum leverage ratio of Tier 1 Capital to average total assets of 4.0%. The net unrealized gain or loss on available-for-sale debt securities is not included in computing regulatory capital.

The Bank must also satisfy the capital requirements of the regulatory framework for prompt corrective action. The risk-weighted capital ratio requirements to be categorized as "well capitalized" under the prompt corrective action provisions are less than the minimum requirements of the Basel III Capital Rules. However, the leverage ratio required to be well capitalized under the prompt correction action provisions (5%) is higher than the minimum required under the Basel III Rules (4%).

The following table shows that the Bank's capital, as of December 31, 2024, exceeded the greater of the minimum capital requirements under the Basel III Rules or the minimum to be categorized as well capitalized under the prompt corrective action provisions.

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| | | | | |
|:---|:---|:---|:---|:---|
| | **Capital Ratios** | **Capital Ratios** | **Capital Amounts** | **Capital Amounts** |
| <br>**Capital ratios of the Bank, as of December 31, 2024** | **Minimum Required** | **Actual** | **Minimum Required** | **Actual** |
|  | | | **(Dollars in thousands)** | **(Dollars in thousands)** |
| Common Equity Tier 1 capital to risk-weighted assets (1) | 7.0% | 13.4% | $81153 | $155252 |
| Total capital to risk-weighted assets (1) | 10.5% | 14.5% | $97384 | $167534 |
| Tier 1 Capital to risk-weighted assets (1) | 8.5% | 13.4% | $98543 | $155252 |
| Tier 1 Capital to average assets (leverage ratio) (2) | 5.0% | 10.3% | $75648 | $155252 |

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&nbsp;&nbsp;&nbsp;&nbsp;(1) Minimum required, including the capital conservation buffer,
under the Basel III Capital Rules

(2) Minimum required to be categorized as "well capitalized"
under the prompt corrective action provisions

Our capital increased slightly during the first quarter of 2025. At March 31, 2025, the Bank's Tier 1 Capital to average assets (leverage ratio) was 10.2% and its total capital to risk-weighted assets ratio was 15.0%. The total capital ratio increased due to retained earnings growth, as well as a 2.3% decrease in risk-weighted assets during the first quarter of 2025.

The payment of dividends by the Bank would be restricted if the Bank does not meet the minimum Capital Conservation Buffer as defined by Basel III regulatory capital guidelines and/or if, after payment of the dividend, the Bank would be unable to maintain satisfactory regulatory capital ratios. Bank dividends are similarly restricted by the prompt corrective action provisions.

Consolidated capital amounts and ratios are not presented because they are not required for consolidated entities with less than $3 billion in total assets and the Bank comprises over 90% of the consolidated assets of the Company. Nonetheless, regulators expect bank holding companies to be a "source of strength" to their subsidiary banks and we follow that principle in managing capital at both the Bank and Company levels.

FSM is subject to capital requirements in connection with its mortgage banking activities. Failure to maintain minimum capital requirements could result in the FSM's inability to originate mortgage loans for the respective investor and therefore could have a direct material effect on FSM's financial results.

FSM's actual adjusted capital amounts and the minimum amounts required for capital adequacy purposes by the U.S. Department of Housing and Urban Development ("HUD") for non-supervised mortgagees follow:

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| | | |
|:---|:---|:---|
| | **December 31,** | **December 31,** |
| **FSM Capital**<br>**(Dollars in thousands)** | **2024** | **2023** |
| Actual Adjusted Capital | $10234 | $11933 |
| Minimum Capital Requirements | $1013 | $1060 |

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***Dividends and Share Buybacks***

 ****

In 2024, we continued our history of paying cash dividends to stockholders. Dividends were $0.85 and $0.90 per share in 2024 and 2023, respectively. Our ratio of dividends declared to net income was 20% and 22% in 2024 and 2023, respectively.

From time to time, our Board of Directors authorizes the purchase of the Company's outstanding common stock, subject to a dollar amount limit over a specified period. The number of shares purchased, and the timing, manner, price, and amount of the purchases are determined at the Company's discretion. Among other factors, we consider stock price, trading volume, general market conditions, and our capital and liquidity needs.

We purchased and retired 45,175 shares in 2024 and 77,850 shares in 2023 for approximately $1.9 million and $3.6 million, respectively. In the first quarter of 2025, we purchased and retired 5,800 shares for approximately $264,000. Our most recent share buyback program has been substantially completed as of March 31, 2025.

***Liquidity***

 ****

Liquidity management is a daily function. Excess funds are generally invested in short-term investments. Cash inflows are typically generated from earnings, loan payments, mortgage loan sales, maturing securities, and increased deposit balances and borrowings. Debt securities can also be sold to provide funds. The Bank's cash outflows are primarily for loan advances, security purchases, deposit withdrawals, and maturities of other borrowings.

In the event we require funds beyond our ability to generate them internally, additional funds are generally available from FHLB advances and the Federal Reserve Discount Window. Brokered deposits and deposits obtained through listing services are other potential sources of funds. Our parent company also has a $10 million line of credit that could be used for Bank liquidity.

We maintain significant capacity to borrow from the FHLB and the Federal Reserve. The Bank's pledged collateral, related borrowings, and additional borrowings available are summarized below.

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| | | | |
|:---|:---|:---|:---|
|  | | **December 31,** | **December 31,** |
|  | **March 31,**<br>**2025** | **2024** | **2023** |
| **Collateral pledged to** |  | **(Dollars in thousands)** | **(Dollars in thousands)** |
| Federal Home Loan Bank | $874057 | $892193 | $874982 |
| Federal Reserve Discount Window | 91007 | 111238 | 112754 |
|  | $965064 | $1003431 | $987736 |
| **Borrowings from the** |  |  |  |
| Federal Home Loan Bank | $32917 | $67917 | $116000 |
| Federal Reserve Discount Window | - | - | - |
|  | $32917 | $67917 | $116000 |
| **Additional borrowing available from the** |  |  |  |
| Federal Home Loan Bank | $513952 | $483639 | $426815 |
| Federal Reserve Discount Window | 76816 | 85839 | 86546 |
| &nbsp;&nbsp;&nbsp;Total borrowing available | $590768 | $569478 | $513361 |

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Our most liquid assets are cash and cash equivalents and securities available-for-sale. The levels of these assets are dependent on the operating, financing, lending, and investing activities during any given year. These liquid assets totaled $192.9 million at March 31, 2025, and $188.7 million and $202.9 million at December 31, 2024 and 2023, respectively.

Note 12 – Federal Home Loan Bank Advances and Other Borrowings to the consolidated financial statements provides more information about borrowing arrangements with the FHLB and the Federal Reserve Discount Window at year-end 2024 and 2023.

Management believes the Bank's liquid assets and unused borrowing capacity are sufficient for our operations, including the ability to fund loan originations and meet deposit outflows.

***Comparison of Operating Results For The Years Ended December 31, 2024 and 2023***

*Summary of Performance*

Interest rates remained elevated in 2024, including an inverse yield curve for most of the year. The rapid increase in interest rates during 2022 and 2023 significantly increased funding costs in the banking industry and diminished mortgage loan originations. Higher rates have also negatively affected the fair value of debt securities.

Despite these economic headwinds, we continue to be profitable. Net income was $10.4 million in 2024, compared to $10.0 million in 2023. The 4% earnings improvement in 2024 was primarily due to continued recoveries of credit loss expense. The recovery of credit loss expense (i.e., a credit to pre-tax earnings) was $1.3 million in 2024 compared to a recovery of $850,000 in 2023.

*Net Interest Income* 

Our profitability depends primarily on net interest income. Net interest income represents the difference between income derived from interest-earning assets and the expense incurred on interest-bearing liabilities. Net interest income is affected by the difference between the rates of interest earned on interest-earning assets and the rates paid on interest-bearing liabilities ("interest rate spread") as well as the relative volumes of interest-earning assets and interest-bearing liabilities during the reporting period.

The following table sets forth information relating to average balances of interest-earning assets and interest-bearing liabilities for the years ended December 31, 2024 and 2023. Average balances are derived primarily from daily average balances. Non-accrual loans are included in average balances. The yields in the table below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense. This table reflects the average yields on assets and average costs of liabilities (derived by dividing income or expense by the average balance of assets or liabilities, respectively) as well as the "net interest margin" for the periods shown.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Year Ended December 31** | **Year Ended December 31** | **Year Ended December 31** | **Year Ended December 31** | **Year Ended December 31** | **Year Ended December 31** |
|  | **2024** | **2024** | **2024** | **2023** | **2023** | **2023** |
|  | **Average Balance** | **Interest Income / Expense** | **Average Yield / Rate** | **Average Balance** | **Interest Income / Expense** | **Average Yield / Rate** |
|  | | | **(Dollars in thousands)** | **(Dollars in thousands)** | | |
| **Assets** |  |  |  |  |  |  |
| Loans (1) (2) | $1280465 | $72990 | 5.70% | $1232426 | $63738 | 5.17% |
| Debt securities - taxable | 114132 | 2444 | 2.14% | 152615 | 3224 | 2.11% |
| Debt securities - tax-exempt (3) | 53469 | 1939 | 3.63% | 58543 | 2109 | 3.60% |
| Interest-bearing balances at banks | 11177 | 490 | 4.38% | 3011 | 153 | 5.08% |
| Federal funds sold | 1625 | 48 | 2.95% | 2012 | 43 | 2.14% |
| Federal Home Loan Bank stock | 4441 | 392 | 8.83% | 6352 | 495 | 7.79% |
| Total interest-earning assets | 1465309 | 78303 | 5.34% | 1454959 | 69762 | 4.79% |
| Cash and due from banks - noninterest bearing | 20213 |  |  | 21223 |  |  |
| Cash surrender value of life insurance | 19992 |  |  | 19479 |  |  |
| Premises and equipment, net | 25570 |  |  | 26643 |  |  |
| Unrealized gains (losses) on securities | (14394) |  |  | (17467) |  |  |
| Allowance for credit losses on loans | (15014) |  |  | (16628) |  |  |
| Other assets | 28732 |  |  | 27622 |  |  |
| Total assets | $1530408 |  |  | $1515831 |  |  |
| **Liabilities and stockholders' equity** |  |  |  |  |  |  |
| Deposits |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Demand, interest-bearing | $263885 | $3473 | 1.32% | $284874 | $3195 | 1.12% |
| &nbsp;&nbsp;&nbsp;Savings and money market | 321348 | 5252 | 1.63% | 343215 | 4254 | 1.24% |
| &nbsp;&nbsp;&nbsp;Time deposits | 506421 | 21123 | 4.17% | 398795 | 11825 | 2.97% |
| Total interest-bearing deposits | 1091654 | 29848 | 2.73% | 1026884 | 19274 | 1.88% |
| Federal Home Loan Bank advances | 75136 | 3821 | 5.09% | 114633 | 5822 | 5.08% |
| Securities sold under agreement to repurchase | 22551 | 945 | 4.19% | 21821 | 832 | 3.81% |
| Federal funds purchased and other borrowings | 229 | 24 | 10.48% | 5225 | 292 | 5.59% |
| Subordinated debt | 9823 | 350 | 3.56% | 9799 | 350 | 3.57% |
| Total interest-bearing liabilities | 1199393 | 34988 | 2.92% | 1178362 | 26570 | 2.25% |
| Non-interest bearing demand deposits | 173159 |  |  | 190024 |  |  |
| Other noninterest bearing liabilities | 17799 |  |  | 16256 |  |  |
| Total liabilities | 1390351 |  |  | 1384642 |  |  |
| Stockholders' equity | 140057 |  |  | 131189 |  |  |
| Total liabilities and stockholders' equity | $1530408 |  |  | $1515831 |  |  |
| **Net interest income / margin (3)** |  | $43315 | 2.96% |  | $43192 | 2.97% |
| Less tax equivalent adjustment |  | (407) |  |  | (443) |  |
| **Net interest income** |  | $42908 |  |  | $42749 |  |

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(1) Includes loans held for sale and nonaccrual loans.

(2) Yield amounts on loans include fees.

(3) Reflects tax equivalent adjustment for federal tax exempt income based on a 21% tax rate.

The volume and rate variances table below indicates the difference in interest earned and interest expense for each major category of interest-earning assets and interest-bearing liabilities, and the amount of such change attributable to changes in average balances (volume) or average interest rates. Volume variances are equal to the increase or decrease in average balance multiplied by the average rate in the prior period. Changes attributable to rate variances are equal to the increase or decrease in the average interest rate multiplied by the prior period average balance. Variances attributable to both rate and volume changes are equal to the change in rate multiplied by the change in average balance and are included below in the average volume column:

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| | | | |
|:---|:---|:---|:---|
|  | **Year Ended December 31, 2024** | **Year Ended December 31, 2024** | **Year Ended December 31, 2024** |
|  | **Average Volume** | **Average Rate** | **Net Change** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** |
| **Income from interest-earning assets** |  |  |  |
| Loans | $2738 | $6514 | $9252 |
| Debt securities - taxable | (824) | 44 | (780) |
| Debt securities - tax-exempt (1) | (184) | 14 | (170) |
| Interest-bearing balances at banks | 358 | (21) | 337 |
| Federal funds sold | (11) | 16 | 5 |
| Federal Home Loan Bank stock | (169) | 66 | (103) |
| &nbsp;&nbsp;&nbsp;Total interest income | $1908 | $6633 | $8541 |
| **Expense from interest-bearing liabilities** |  |  |  |
| Demand deposits, interest-bearing | $(276) | $554 | $278 |
| Savings and money market deposits | (357) | 1355 | 998 |
| Time deposits | 4489 | 4809 | 9298 |
| Total interest expense on deposits | 3856 | 6718 | 10574 |
| Federal Home Loan Bank advances | (2009) | 8 | (2001) |
| Securities sold under agreement to repurchase | 31 | 82 | 113 |
| Federal funds purchased and other borrowings | (524) | 256 | (268) |
| Subordinated debt | 1 | (1) | - |
| &nbsp;&nbsp;&nbsp;Total interest expense | $1355 | $7063 | $8418 |
| **Net interest income (1)** | $553 | $(430) | $123 |
| Less tax equivalent adjustment |  |  | 36 |
| **Net interest income** |  |  | $159 |

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(1) Reflects tax equivalent adjustment for federal tax exempt income based on a 21% tax rate.

In 2024, net interest income was $42.9 million, an increase of $159, or less than 1%, from 2023. The $8.6 million increase in interest income was substantially offset by higher funding costs in 2024.

Net interest margin is an important measure of profitability, and it represents net interest income divided by average earning assets. On a full-tax equivalent ("FTE") basis, using the 21% statutory federal income tax rate, our net interest margin was 2.96% in 2024 and 2.97% in 2023.

Individual components of interest income and expense are discussed below.

*Interest Income*

On a fully-taxable equivalent basis, total interest income increased to $78.3 million in 2024, an increase of $8.5 million, or 12%, over 2023. The average balance of interest-earning assets increased by less than 1% in 2024. However, the yield on average interest-earning assets increased significantly, to 5.34% in 2024 compared to 4.79% in 2023.

Significant changes in individual components of interest income are discussed below. References to interest income are on a fully-taxable equivalent basis. Debt security balances refer to amortized cost.

Total interest income increased primarily due to a 4% increase in average loan volume and a significant improvement in loan yields due to general increases in mortgage interest rates.

Interest income on loans increased $9.3 million, or 15%, to $73.0 million in 2024. The improvement was primarily due to significantly higher loan yields. The yield on average loan volume was 5.70% in 2024 compared to 5.17% in 2023, as loans that originated at lower rates in prior years were renewed or replaced with new volume at higher, current rates in 2024.

The 4% increase in average loan volume also improved interest income in 2024. Average loans outstanding were $1.3 billion in 2024. Loan growth in the real estate segment of the portfolio exceeded a slight decline in commercial loan segment during 2024. In some cases, real estate and agricultural loans granted at promotional rates renewed at higher rates in 2024, thus improving our interest income.

The average balance of our entire debt securities portfolio decreased by $43.5 million in 2024 and $37.9 million in 2023. We purchased $3 million and $20 million of debt securities in 2024 and 2023, respectively. In comparison, we purchased $158 million of debt securities in 2022. Ninety percent of our security purchases in 2022 occurred in the first quarter of the year. In mid-March 2022, the Federal Reserve began to raise interest rates aggressively. To illustrate the effect, selected market rates at the dates indicated are scheduled below, according to the Federal Reserve Economic Data website.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** |
| <br>**Interest Rate** | **March 31,**<br>**2025** | **2024** | **2023** | **2022** | **2021** | **2020** |
| 30-Year Fixed Rate Mortgage | 6.65% | 6.85% | 6.61% | 6.42% | 3.11% | 2.67% |
| 10-Year Treasury Rate | 4.23% | 4.58% | 3.88% | 3.88% | 1.52% | 0.93% |
| 5-Year Treasury Rate | 3.96% | 4.38% | 3.84% | 3.99% | 1.26% | 0.36% |

---

Unrealized holding losses on available-for-securities, before deferred tax effects, were $18.9 million in 2022, due to rapidly rising interest rates during the year. The fair value of our debt securities recovered to some degree in 2023, as we had $1.9 million of net unrealized, pre-tax gains. During 2024, net unrealized losses, before tax effects, were $79,000.

Beginning with the Federal Open Market Committee ("FOMC") meeting in March 2022, the Federal Reserve raised the federal funds rate seven times, from a range of zero to 0.25% to a range of 4.25% to 4.50% by December 2022. The FOMC continued to raise rates in 2023, but at a slower pace. The federal funds rate was raised by 0.25% at each of the FOMC's meetings in February, March, May, and July of 2023. Since its July 2023 meeting, the FOMC held the federal funds target rate range at 5.25% to 5.50% until September 2024. The FOMC lowered rates at its September, November, and December 2024 meetings. Since its December 2024 meeting, and through its May 2025 meeting, the FOMC has held its federal funds target range steady at 4.25% to 4.50%.

Interest income on taxable debt securities was $2.4 million in 2024, a decrease of $780,000, or 24%, from the prior year. The decrease in interest income was consistent with the 25% decrease in the average balance of taxable debt securities. Our yield on taxable debt securities was 2.14% in 2024 and 2.11% in 2023, significantly below the market yield for comparable securities.

The FTE yield on debt securities exempt from federal income tax increased to 3.63% in 2024, compared to 3.60% in 2023. The higher yield in 2024 partially offset a 9% decline in average balances. The average balance decreased by $5.1 million in 2024 due to maturing securities. FTE interest income on tax exempt securities was $1.9 million in 2024 and $2.1 million in 2023.

Average interest-bearing balances at other banks increased by $8.2 million in 2024, resulting in higher interest income despite a decrease in yield. Interest income on balances at other banks was $490,000 in 2024 and $153,000 in 2023. The yield was 4.38% in 2024 and 5.08% in 2023. The lower yield in 2024 reflects rate cutting by the FOMC.

Dividends on FHLB stock decreased to $392,000 in 2024 from $495,000 in 2023. The decrease is primarily due to a 30% decrease in average balance, as we were able to redeem stock because we borrowed considerably less from the FHLB in 2024. The timing of dividend payments and stock purchases and redemptions may distort the yield on average balances.

*Interest Expense*

The entire banking industry has experienced significantly higher funding costs in 2024, 2023 and 2022 compared to prior years. Our total interest expense has increased substantially over the years, from $6.4 million in 2021 to $35.0 million in 2024. Except for the Company's subordinated debt, all our interest-bearing funding sources became significantly more expensive in both 2024 and 2023.

In 2024, total interest expense increased 32% from the 2023 level. Average total interest-bearing liabilities increased 2% in 2024 while average non-interest bearing demand deposits decreased 9%.

Reflecting customer preferences, average interest-bearing demand deposits declined 7% in both 2024 and 2023. Similarly, average savings deposits and money market accounts declined 6% in 2024 and 12% in 2023. In contrast, time deposit average balances increased by 27% in 2024, following an increase of 29% in 2023. Historically, interest-bearing demand deposits, as well as savings and money market accounts, have been less expensive funding sources than time deposits (i.e., certificates of deposit).

To remain competitive, we increased deposit account interest rates in 2024 and 2023. The rate on average interest-bearing deposits increased to 2.73% in 2024, compared to 1.88% in 2023 and 0.51% in 2022. To help right-size our deposit rates, we closely monitor interest rates offered by competitors. This process includes the use of an outside service to keep us informed about current rates offered by competitors.

The cost of interest-bearing demand deposits increased 20 basis points to 1.32 % in 2024, after more than doubling to 1.12% in 2023 from 0.52% in 2022. The interest rate on savings and money market deposits was 1.63% in 2024 and 1.24% in 2023. The cost of savings and money market accounts in 2024 was more than four times our average cost of 0.37% in 2022.

The average rate on our time deposits was 4.17% and 2.97% in 2024 and 2023, respectively, compared to 0.68% in 2022.

Our funding strategy in 2024 relied less on FHLB advances. The 2024 year-end balance of FHLB advances was $67.9 million compared to $116 million at December 31, 2023. Similarly, the average balance of FHLB advances was $75.1 million in 2024, a decrease of $39.5 million from 2023. The average rate on FHLB advances was 5.09% in 2024, virtually the same as 2023. Consequently, interest expense on FHLB advances decreased $2.0 million in 2024.

The average balance of securities sold under repurchase agreements increased 3% in 2024. Like most short-term rates, the cost of repurchase agreements was higher in 2024, increasing to 4.19% from 3.81% in 2023. The maturities of our repurchase agreements are overnight and continuous.

In general, our increased funding costs in 2024, 2023, and 2022 were directionally consistent with average market rates during those years.

In October 2021, we redeemed $16 million of subordinated debt at 7.00% and issued $10 million of new subordinated debt with a fixed rate of 3.50%. The fixed rate will be in effect until October 15, 2026, at which time the rate will reset quarterly to the SOFR plus 266 basis points until the October 15, 2031 maturity date. The Company may redeem the subordinated debentures, in whole or in part, on or after October 15, 2026 at 100% of principal amount plus accrued interest. Interest expense on subordinated debt includes amortization of the debt issuance costs.

Yields on earning assets, especially fixed rate loans and debt securities, have lagged the increase in funding costs. The Federal Reserve's very rapid increases in short-term interest rates in 2023 and 2022 have affected our funding sources much faster, and to a greater degree, than our ability to reprice earning assets.

*Credit Loss Expense* 

Credit risk is inherent in the business of making loans. As discussed in the Critical Accounting Policies section, we maintain an allowance for credit losses on loans through charges or credits to earnings, which are presented in the statements of income as credit loss expense or recovery of credit loss expense. Determining the appropriate level of the allowance involves a high degree of management judgment and is based upon historical and projected losses in the loan portfolio, including the fair value of collateral or discounted cash flows of specifically identified impaired loans. This process, by its nature, creates variability in the amount and frequency of charges or credits to the Company's earnings. Specifically identifiable and quantifiable known losses are promptly charged off against the allowance. Subsequent recoveries, if any, are credited to the allowance.

As required by new accounting principles, we changed our method of accounting upon the January 1, 2023 adoption of ASC 326. Under the modified retrospective method of adopting ASC 326, our calculations using the new CECL methodology resulted in a $3.6 million increase to the allowance for credit losses on loans. As disclosed in Notes 1 and 4 to our December 31, 2024, financial statements, most of the adoption date adjustment was applicable to the real estate segment of our loan portfolio. Within the real estate loan segment, almost all the adjustment was attributable to the following two loan classes: (1) commercial real estate loans; and (2) construction and land loans.

In 2024, our recovery of credit loss expense on loans was $1.4 million, partially offset by $162,000 of credit loss expense on off-balance sheet commitments. The expense recovery was largely due to decreases in the loss factors applied to certain loan pools. We refined the loss factors in our CECL model to include more current and relevant data, The changes reflect faster loan paydown experience and a more favorable economic climate than previously expected. Consequently, the loss factors applied to some of our loan pools, primarily in the real estate segment, decreased, while these adjustments increased the estimated loss factors applied to other loan pools, such as construction and commercial loans. The net effect was a recovery of credit loss expense.

Our total provision for credit losses in 2023 was a net recovery of $850,000, consisting of a $907,000 recovery of credit loss expense on loans and $57,000 of credit loss expense on off-balance sheet commitments.

Under the CECL methodology, we use reasonable and supportable forecasts to help determine expected credit losses. The key economic factors in our forecasts are gross national product and unemployment levels. In 2023, the forecast was adjusted to reflect more favorable economic conditions than previously expected. Among other factors, the recession that many had expected, due to higher interest rates and inflation, did not occur. Forecast adjustments resulted in lower expected loss factors applied to our pools of loans, which in turn led to the decrease in the allowance and a favorable impact on earnings.

In 2023, recoveries on previously charged-off loans exceeded charge-offs, resulting in net recoveries of $252,000. Net recoveries also contributed to the recovery of credit loss expense in 2023.

*Non-Interest Income*

The following table sets forth the Company's various components of non-interest income.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Increase (Decrease) in 2024** | **Increase (Decrease) in 2024** |
|  | **2024** | **2023** | **Amount** | **Percentage** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** | |
| **Non-interest income** |  |  |  |  |
| Service charges on deposits | $1091 | $1096 | $(5) | (0.5)% |
| Mortgage banking income | 9924 | 9295 | 629 | 6.8% |
| Debit card and ATM fees | 1834 | 1855 | (21) | (1.1)% |
| Insurance services | 1406 | 1321 | 85 | 6.4% |
| Trust fees | 268 | 276 | (8) | (2.9)% |
| Other customer service fees | 153 | 170 | (17) | (10.0)% |
| Earnings on Bank-owned life insurance | 542 | 497 | 45 | 9.1% |
| Gains (losses) on sales of securities |  |  |  |  |
| Other non-interest income | 414 | 1012 | (598) | (59.1)% |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total non-interest income | $15632 | $15522 | $110 | 0.7% |

---

Total non-interest income was approximately the same in 2024 and 2023.

Insurance services revenue is generated by FSI, a wholly-owned subsidiary of the Bank. FSI had revenue of $1.4 million in 2024, a 6% increase from the prior year. FSI continues to be profitable, with net income of $380,000 and $342,000 in 2024 and 2023, respectively.

The average balance of our investment in life insurance policies was $20.0 million and $19.5 million in 2024 and 2023, respectively. The increase in cash surrender value resulted in a tax exempt yield of 2.71% in 2024 and 2.55% in 2023. No death benefits were received in either year. As an investment, the policies are designed to be held until death of the insured.

Other non-interest income in 2023 includes a casualty insurance settlement resulting from tornado damage to one of our branches. The extensive damage led to the demolition of an old building that had a low carrying value.

Most of our mortgage banking activity occurs at FSM, a wholly-owned subsidiary of the Bank. Mortgage banking income improved by $629,000, or 7%, in 2024. Loan originations increased by 1.7% in 2024, following significant loan volume declines in 2023, 2022, and 2021. FSM's condensed balance sheets as of December 31, 2024 and 2023, and condensed income statements for the years then ended, follow.

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| | | | | |
|:---|:---|:---|:---|:---|
| | **At or for the Year Ended December 31,** | **At or for the Year Ended December 31,** | **Increase (Decrease)** | **Increase (Decrease)** |
| **First State Mortgage**<br>**Condensed Financial Statements** | **2024** | **2023** | **Amount** | **Percentage** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** |  |
| **Balance Sheets** |  |  |  |  |
| Cash on deposit at the Bank | $10265 | $11655 | $(1390) | (11.9)% |
| Loans held for sale | 7743 | 9973 | (2230) | (22.4)% |
| Portfolio loans | 1698 | 1621 | 77 | 4.8% |
| Allowance for credit losses |  |  |  | 0.0% |
| Goodwill | 2193 | 2193 |  | 0.0% |
| Other assets | 1306 | 1318 | (12) | (0.9)% |
| Total assets | $23205 | $26760 | $(3555) | (13.3)% |
| Warehouse line of credit payable to the Bank | $7436 | $9422 | $(1986) | (21.1)% |
| Other liabilities | 2139 | 1937 | 202 | 10.4% |
| Owner's equity | 13630 | 15401 | (1771) | (11.5)% |
| Total liabilities and equity | $23205 | $26760 | $(3555) | (13.3)% |
| **Income Statements** |  |  |  |  |
| Interest income on loans | $1306 | $1417 | $(111) | (7.8)% |
| Interest expense charged by the Bank | 969 | 941 | 28 | 3.0% |
| Net interest income | 337 | 476 | (139) | (29.2)% |
| Credit loss expense | - | - | - |  |
| Net interest income after credit loss expense | 337 | 476 | (139) | (29.2)% |
| Mortgage banking income | 8869 | 8599 | 270 | 3.1% |
| Non-interest expense |  |  |  |  |
| Salaries and benefits | 9480 | 10157 | (677) | (6.7)% |
| Occupancy and equipment | 428 | 400 | 28 | 7.0% |
| Other non-interest expense | 1778 | 1575 | 203 | 12.9% |
| Total non-interest expense | 11686 | 12132 | (446) | (3.7)% |
| Income (loss) before income taxes | (2480) | (3057) | 577 | (18.9)% |
| Income tax expense (benefit) | (709) | (838) | 129 | (15.4)% |
| Net income (loss) | $(1771) | $(2219) | $448 | (20.2)% |

---

FSM is structured to provide conventional and government-sponsored financing on 1-4 family residences. FSM's profitability and mortgage loan volume are greatly affected by market interest rates. Rising interest rates, beginning in March 2022, have substantially ended mortgage refinancing activity and slowed the pace of home sales. Demand for single family homes still exists, but the supply of existing homes on the market has been reduced.

The rise in three key interest rates affecting the mortgage industry, according to the Federal Reserve Economic Data website, is summarized below.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| | | **December 31,** | **December 31,** | **December 31,** | **December 31,** | **December 31,** |
| <br>**Interest Rate** | **March 31,**<br>**2025** | **2024** | **2023** | **2022** | **2021** | **2020** |
| 30-Year Fixed Rate Mortgage | 6.65% | 6.85% | 6.61% | 6.42% | 3.11% | 2.67% |
| 10-Year Treasury Rate | 4.23% | 4.58% | 3.88% | 3.88% | 1.52% | 0.93% |
| 5-Year Treasury Rate | 3.96% | 4.38% | 3.84% | 3.99% | 1.26% | 0.36% |

---

The higher rate environment greatly diminished our mortgage loan originations and sales, as shown in the table below for our consolidated Company (in thousands of dollars, for the calendar years presented).

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| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** | **Years Ended December 31,** |
| **Mortgage loans held for sale**<br>**(Dollars in thousands)** | **2024** | **2023** | **2022** | **2021** | **2020** |
| Origination of loans held for sale | $308635 | $303475 | $345362 | $707119 | $948127 |
| Increase (decrease) in originations | 1.7% | (12.1)% | (51.2)% | (25.4)% |  |

---

Consistent with the rise in interest rates and the decline in revenue, FSM incurred net losses of $1.8 million, $2.2 million, and $2.3 million in 2024, 2023 and 2022, respectively, compared to net income of $3.1 million in 2021.

FSM's compensation expense decreased 7% in 2024. At December 31, 2024, FSM had 70 full-time equivalent employees, compared to 88 and 105 at year end 2023 and 2022, respectively. We continue to try and adjust the scale of mortgage operations without significantly reducing our capacity to serve our markets when the supply and demand issue is resolved.

 

*Non-Interest Expense*

The following table sets forth the Company's various components of non-interest expense, in thousands of dollars.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Year Ended December 31,** | **Year Ended December 31,** | **Increase (Decrease)** | **Increase (Decrease)** |
| **Non-interest expense** | **2024** | **2023** | **Amount** | **Percentage** |
| **(Dollars in thousands)** |  |  |  |  |
| Salaries and employee benefits | $31063 | $31416 | $(353) | (1.1)% |
| Occupancy | 2744 | 2781 | (37) | (1.3)% |
| Furniture and equipment | 1164 | 1295 | (131) | (10.1)% |
| Data processing | 3870 | 3531 | 339 | 9.6% |
| FDIC insurance assessments | 710 | 687 | 23 | 3.3% |
| Insurance | 790 | 864 | (74) | (8.6)% |
| Advertising and public relations | 652 | 715 | (63) | (8.8)% |
| Professional fees | 1558 | 1243 | 315 | 25.3% |
| Other non-interest expense | 3416 | 3212 | 204 | 6.4% |
| Total non-interest expense | $45967 | $45744 | $223 | 0.5% |
| Efficiency ratio | 78.5% | 78.5% |  |  |

---

Despite inflationary pressures, we were largely successful in controlling non-interest expense in 2024 and 2023. Total non-interest expense increased less than 1% in 2024, following a decrease of 1% in 2023 from the 2022 level.

Salaries and employee benefits are our largest non-interest cost, totaling $31.1 million in 2024. We reduced personnel expense by approximately 1% in both 2024 and 2023. These annual reductions followed a more substantial decrease in 2022. On a consolidated basis, salaries and employee benefits decreased by $4.5 million, or 13%, in 2022 from our 2021 level. The consolidated expense decline in 2022 correlates to the $4.9 million decrease in compensation costs at FSM alone. Substantially lower mortgage volume has decreased expenses at FSM, especially for commissions, bonuses, and other incentive pay tied to loan sales.

Our consolidated full-time equivalent employees numbered 288 and 318 at year-end 2024 and 2023, respectively. Most of the staff reduction was at FSM, including a layoff of some mortgage employees in 2024. The rest of the staff reduction was primarily through attrition.

Professional fees increased $315,000, or 25%, in 2024. The cost increase reflects our preparations to file a registration statement with the SEC pursuant to our contractual obligations with the Selling Shareholder. Going forward, we expect audit, accounting, legal, and other related professional fees to increase because of our new status as an SEC registrant.

The efficiency ratio equals total non-interest expense divided by the sum of net interest income and total non-interest income. In general, the efficiency ratio is a measure of operating efficiency (the lower the ratio the better). Our efficiency ratio was 79% in both 2024 and 2023, even though total non-interest expense decreased in both years. The efficiency ratio remained the same primarily because our net interest income and non-interest income were approximately the same in 2024 and 2023.

*Income Taxes*

Income tax expense was $3.4 million and $3.3 million in 2024 and 2023, respectively. The 3% increase in income tax expense was directionally consistent with the 4% increase in pre-tax income. Our effective income tax rate (income tax expense divided by pre-tax income) was 24.7% and 24.9% in 2024 and 2023, respectively, compared to the combined federal and state statutory income tax rate of approximately 28.5%. The difference between the combined federal and state statutory rate and our effective tax rate is primarily due to tax-exempt interest income and earnings on Bank-owned life insurance.

 

*Return on Equity and Assets*

Net income divided by average assets and net income to average stockholders' equity are important performance indicators. The following table presents information on our return on average assets, return on average equity, equity to total assets, and dividend payout ratio, as of or for the years ended December 31.

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| | | |
|:---|:---|:---|
|  | **At or For the Years Ended <br> December 31,** | **At or For the Years Ended <br> December 31,** |
|  | **2024** | **2023** |
| **Selected Financial Ratios** |  |  |
| Return on average assets | 0.68% | 0.66% |
| Return on average equity | 7.45% | 7.66% |
| Stockholders' equity to total assets | 9.30% | 8.77% |
| Dividend payout ratio | 19.66% | 21.93% |

---

The improved return on average assets reflects our 4% increase in earnings. Average assets were approximately the same in both 2024 and 2023. The decrease in return on average equity results from the 7% increase equity while average assets only increased 1%.

The year-end ratio of stockholders' equity to total assets increased in 2024 because equity increased 5% while total assets decreased 1%.

Stockholders' equity increased in 2024 primarily due to the following:

● net income of $10.4 million, less dividends paid of $2.1 million, and

● purchase and retirement of common shares totaling $1.9 million, partially offset by $482,000 of stock options exercised.

***Comparison of Operating Results – Three Months Ended March 31, 2025 and 2024***

*Summary of Performance*

Interest rates have been affected by the FOMC's rate cuts. These rate cuts, totaling 100 basis points, occurred at the FOMC's meetings in September, November, and December, 2024. Since then, the FOMC has maintained its target rate for federal funds at 4.25-4.50% through its May 2025 meeting.

Net income for the three months ended March 31, 2025 was $2.6 million, a 5% decrease compared to $2.7 million in the first quarter of 2024. Net interest income increased by $1.2 million, or 11%, compared to the first quarter of 2024. Quarterly earnings decreased, however, due to a $1.8 million unfavorable variance in our accounting for expected credit losses. Credit loss expense was $501,000 in the first quarter of 2025 compared to a $1.3 million recovery of credit loss expense in the first quarter of 2024.

The following tables summarize our consolidated financial position as of March 31, 2025 and December 31, 2024, and results for the quarters ended March 31, 2025 and 2024.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | | | **Increase (Decrease)** | **Increase (Decrease)** |
|  | **March 31,**<br>**2025** | **December 31,**<br>**2024** | **Amount** | **%** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | | |
| **Selected Balance Sheet Data** |  |  |  |  |
| Cash and cash equivalents | $45534 | $44976 | $558 | 1.2% |
| Debt securities available-for-sale, at fair value | 147398 | 143735 | 3663 | 2.5% |
| Mortgage loans held for sale | 15578 | 9011 | 6567 | 72.9% |
| Loans (not including loans held for sale) | 1262756 | 1276409 | (13653) | (1.1)% |
| Allowance for credit losses | (14504) | (14444) | (60) | 0.4% |
| Loans, net | 1248252 | 1261965 | (13713) | (1.1)% |
| Cash surrender value of life insurance | 20409 | 20269 | 140 | 0.7% |
| Goodwill and other intangible assets | 8694 | 8700 | (6) | (0.1)% |
| Other assets | 50627 | 50628 | (1) | (0.0)% |
| Total assets | $1536492 | $1539284 | $(2792) | (0.2)% |
| Deposits | $1302944 | $1273296 | $29648 | 2.3% |
| Securities sold under agreement to repurchase | 22266 | 22679 | (413) | (1.8)% |
| Federal Home Loan Bank advances | 32917 | 67917 | (35000) | (51.5)% |
| Subordinated debt | 9840 | 9834 | 6 | 0.1% |
| Other liabilities | 22471 | 22364 | 107 | 0.5% |
| Total liabilities | 1390438 | 1396090 | (5652) | (0.4)% |
| Stockholders' equity | 146054 | 143194 | 2860 | 2.0% |
| Total liabilities and stockholders' equity | $1536492 | $1539284 | $(2792) | (0.2)% |

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| | | | | |
|:---|:---|:---|:---|:---|
| | **Quarter Ended March 31,** | **Quarter Ended March 31,** | **Increase (Decrease)** | **Increase (Decrease)** |
| <br>**Statement of Income Data** | **2025** | **2024** | **Amount** | **%** |
| Interest income | $19530 | $18989 | $541 | 2.8% |
| Interest expense | 7892 | 8510 | (618) | (7.3)% |
| Net interest income | 11638 | 10479 | 1159 | 11.1% |
| Credit loss expense (recovery) | 501 | (1287) | 1788 | (138.9)% |
| Noninterest income | 3596 | 3013 | 583 | 19.3% |
| Noninterest expense | 11300 | 11189 | 111 | 1.0% |
| Income tax expense | 879 | 915 | (36) | (3.9)% |
| Net Income | $2554 | $2675 | $(121) | (4.5)% |

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Quarter Ended March 31,** | **Quarter Ended March 31,** | **Increase (Decrease)** | **Increase (Decrease)** |
|  | **2025** | **2024** | **Amount** | **%** |
| **Average Balances (Dollars in thousands)** |  |  |  |  |
| Average earning assets | $1461302 | $1480132 | $(18830) | (1.3)% |
| Average total assets | 1523355 | 1549062 | (25707) | (1.7)% |
| Average stockholders' equity | 144834 | 136475 | 8359 | 6.1% |
| **Selected Financial Ratios** |  |  |  |  |
| Return on average assets | 0.71% | 0.69% | 0.0% | 2.1% |
| Return on average equity | 7.15% | 7.88% | (0.7)% | (9.3)% |
| Net interest margin (1) | 3.26% | 2.88% | 0.4% | 13.3% |
| Dividend payout ratio | 23.38% | 18.13% | 5.2% | 28.9% |

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(1) Reflects tax equivalent adjustment for federal tax exempt income based on a 21% tax rate.

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| | | |
|:---|:---|:---|
| <br>**Balance Sheet and Capital Ratios** | **March 31,**<br>**2025** | **December 31,**<br>**2024** |
| Loans/deposits | 96.92% | 100.24% |
| Allowance for credit losses on loans to total loans | 1.15% | 1.13% |
| Nonperforming loans to total loans | 0.41% | 0.33% |
| Tier 1 leverage capital ratio of subsidiary Bank | 10.30% | 10.30% |
| Risk-based total capital ratio of subsidiary Bank | 14.99% | 14.45% |
| Stockholders' equity to total assets | 9.51% | 9.30% |

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<u>Net Interest Income</u>

Net interest income was $11.6 million and $10.5 million for the three months ended March 31, 2025 and 2024, respectively. In 2025, on a full-tax equivalent basis, our net interest margin was 3.26% and 2.88% in the first quarter of 2025 and 2024, respectively. The improvement was due primarily to higher loan yields and a decrease in the cost of time deposits and FHLB advances.

On a full-tax equivalent basis, total interest income improved by $535,000, or 3%, in the first quarter of 2025 compared to the first quarter of 2024. The increase was primarily due to higher loan yields. Loan pricing improved as older loans were renewed or replaced with new volume at higher, current rates. The increase in loan yields, to 5.77% from 5.53%, more than offset the 1% decrease in average loan volume.

Quarterly Interest expense decreased by $618,000 in the first quarter of 2025 compared to the first quarter of 2024. Interest expense on deposits was nearly the same in the first quarter of 2025 and 2024. The cost of total interest-bearing deposits decreased by one basis point in 2025 due to lower rates on time deposits. The cost of FHLB advances and repurchase agreements also decreased in the first quarter of 2025 compared to the first quarter of 2024. Deposit and borrowing costs in 2025 were influenced by the FOMC short-term rate cuts, totaling 100 basis points, during the last four months of 2024.

Average interest-bearing deposits in the first quarter of 2025 and 2024 were little changed. Average time deposits increased by 2% while average interest-bearing demand deposits increased 1%. Average savings and money market accounts were virtually the same in the first quarters of 2025 and 2024.

We continued to reduce FHLB advances, from $67.9 million at year-end 2024 to $32.9 million at March 31, 2025. The 4.58% rate on FHLB advances was considerably less in 2025 than the 5.40% cost in 2024. Consequently, due to favorable volume and rate variances, interest expense was $631,000 less in the first quarter of 2025 compared to the first quarter of 2024.

The following table sets forth average balances of interest-earning assets and interest-bearing liabilities for the three months ended March 31, 2025 and 2024. This table reflects the average yields on assets and average costs of liabilities (derived by dividing income or expense by the average balance of assets or liabilities, respectively) as well as the net interest margin for the periods shown.

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| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Three Months Ended March 31,** | **Three Months Ended March 31,** | **Three Months Ended March 31,** | **Three Months Ended March 31,** | **Three Months Ended March 31,** | **Three Months Ended March 31,** |
|  | **2025** | **2025** | **2025** | **2024** | **2024** | **2024** |
|  | **Average Balance** | **Interest Income / Expense** | **Average Yield / Rate** | **Average Balance** | **Interest Income / Expense** | **Average Yield / Rate** |
|  | | | **(Dollars in thousands)** | **(Dollars in thousands)** | | |
| **Assets** |  |  |  |  |  |  |
| Loans (1) (2) | $1271296 | $18228 | 5.77% | $1281646 | $17637 | 5.53% |
| Debt securities - taxable | 108281 | 582 | 2.16% | 131104 | 780 | 2.39% |
| Debt securities - tax-exempt (3) | 50986 | 470 | 3.70% | 55041 | 497 | 3.64% |
| Interest-bearing balances at banks | 24816 | 255 | 4.13% | 5667 | 56 | 3.97% |
| Federal funds sold | 2429 | 10 | 1.66% | 1624 | 12 | 2.97% |
| Federal Home Loan Bank stock | 3494 | 84 | 9.67% | 5050 | 111 | 8.84% |
| Total interest-earning assets | 1461302 | 19629 | 5.40% | 1480132 | 19093 | 5.19% |
| Cash and due from banks - noninterest bearing | 16323 |  |  | 20527 |  |  |
| Cash surrender value of life insurance | 20341 |  |  | 19793 |  |  |
| Premises and equipment, net | 25185 |  |  | 25583 |  |  |
| Unrealized gains (losses) on securities | (14135) |  |  | (15015) |  |  |
| Allowance for credit losses on loans | (14424) |  |  | (15980) |  |  |
| Other assets | 28763 |  |  | 34022 |  |  |
| Total assets | $1523355 |  |  | $1549062 |  |  |
| **Liabilities and stockholders' equity** |  |  |  |  |  |  |
| Deposits |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Demand, interest-bearing | $283720 | $955 | 1.35% | $280528 | $881 | 1.26% |
| &nbsp;&nbsp;&nbsp;Savings and money market | 322288 | 1351 | 1.69% | 322432 | 1256 | 1.57% |
| &nbsp;&nbsp;&nbsp;Time deposits | 502512 | 4826 | 3.86% | 492167 | 4938 | 4.04% |
| Total interest-bearing deposits | 1108520 | 7132 | 2.59% | 1095127 | 7075 | 2.60% |
| Federal Home Loan Bank advances | 43361 | 494 | 4.58% | 83808 | 1125 | 5.40% |
| Securities sold under agreement to repurchase | 20215 | 178 | 3.54% | 20568 | 220 | 4.30% |
| Federal funds purchased and other borrowings |  |  |  | 334 | 3 | 3.61% |
| Subordinated debt | 9838 | 88 | 3.60% | 9813 | 87 | 3.57% |
| Total interest-bearing liabilities | 1181934 | 7892 | 2.69% | 1209650 | 8510 | 2.83% |
| Non-interest bearing demand deposits | 178802 |  |  | 185672 |  |  |
| Other noninterest bearing liabilities | 17785 |  |  | 17265 |  |  |
| Total liabilities | 1378521 |  |  | 1412587 |  |  |
| Stockholders' equity | 144834 |  |  | 136475 |  |  |
| Total liabilities and stockholders' equity | $1523355 |  |  | $1549062 |  |  |
| Net interest income / margin (3) |  | $11737 | 3.26% |  | $10583 | 2.88% |
| Less tax equivalent adjustment |  | (99) |  |  | (104) |  |
| Net interest income |  | $11638 |  |  | $10479 |  |

---

(1) Includes loans held for sale and nonaccrual loans.

(2) Yield amounts on loans include fees.

(3) Reflects tax equivalent adjustment for federal tax exempt income based on a 21% tax rate.

The following volume and rate variances table indicates the difference in interest earned and interest expense for each major category of interest-earning assets and interest-bearing liabilities, and the amount of such change attributable to changes in average balances (volume) or average interest rates. Volume variances are equal to the increase or decrease in average balance multiplied by the average rate in the prior period. Changes attributable to rate variances are equal to the increase or decrease in the average interest rate multiplied by the prior period average balance. Variances attributable to both rate and volume changes are equal to the change in rate multiplied by the change in average balance and are included below in the average volume column.

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| | | | |
|:---|:---|:---|:---|
|  | **Three Months Ended March 31, 2025** | **Three Months Ended March 31, 2025** | **Three Months Ended March 31, 2025** |
|  | **Increase (Decrease) Due to** | **Increase (Decrease) Due to** | |
|  | **Average Volume** | **Average Rate** |<br>**Net Change** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** |
| **Income from interest-earning assets** |  |  |  |
| Loans | $(142) | $733 | $591 |
| Debt securities - taxable | (123) | (75) | (198) |
| Debt securities - tax-exempt (1) | (37) | 9 | (28) |
| Interest-bearing balances at banks | 197 | 2 | 199 |
| Federal funds sold | 3 | (5) | (2) |
| Federal Home Loan Bank stock | (37) | 10 | (27) |
| &nbsp;&nbsp;&nbsp;Total interest income | $(139) | $674 | $535 |
| **Expense from interest-bearing liabilities** |  |  |  |
| Demand deposits, interest-bearing | $11 | $63 | $74 |
| Savings and money market deposits | 0 | 95 | 95 |
| Time deposits | 98 | (210) | (112) |
| Total interest expense on deposits | 109 | (52) | 57 |
| Federal Home Loan Bank advances | 54 | (685) | (631) |
| Securities sold under agreement to repurchase | 114 | (156) | (42) |
| Federal funds purchased and other borrowings | 9 | (12) | (3) |
| Subordinated debt | (2) | 3 | 1 |
| &nbsp;&nbsp;&nbsp;Total interest expense | 284 | (902) | (618) |
| Net interest income (1) | $(423) | $1576 | $1153 |
| Tax equivalent adjustment |  |  | 6 |
| **Net interest income** |  |  | $1159 |

---

(1) Reflects tax equivalent adjustment for federal tax exempt income based on a 21% tax rate.

<u>Credit Loss Expense</u>

Estimating expected credit losses is inherently subjective and involves estimates and assumptions about future events. In determining the allowance for expected credit losses, we update our economic forecasts and other estimates and assumptions at least quarterly.

During the first quarter of 2024, we updated our pre-payment speed and forecast assumptions to reflect faster loan paydown experience and a more favorable economic climate than previously expected. These changes reduced the expected loss factors applied to pools of loans and off-balance sheet commitments and resulted in a $1.3 million credit to earnings, with $988,000 and $298,000 attributable to loans and off-balance sheet commitments, respectively. The credit to earnings was offset by corresponding decreases to the allowances for expected losses on loans and off-balance sheet commitments.

Expected losses on individual problem loans were approximately $800,000 at both March 31, 2025 and December 31, 2024, so approximately 95% of our allowance was allocated to pools of loans.

The provision for credit losses on loans was $231,000 in the first quarter of 2025, directionally consistent with net charge-offs of $171,000. The expense was primarily driven by higher loss factors applied to pools of loans, due to a less optimistic economic forecast.

The provision for credit losses on off-balance sheet commitments was $270,000 in the first quarter of 2025, compared to a $298,000 recovery of credit loss expense in prior year first quarter. Credit loss expense in the first quarter of 2025 was driven by the same loss factors applied to the loan portfolio. The recovery in the first quarter of 2024 was due to the changes in loss factors applied to pools of loans, as discussed earlier.

 ****

<u>Non-Interest Income</u>

Non-interest income was $3.6 million in the first quarter of 2025 and $3.0 million in the same quarter of 2024, representing a 19% improvement. The table below provides information about the major components of our non-interest income and changes from quarter to quarter.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Quarter Ended March 31,** | **Quarter Ended March 31,** | **Increase (Decrease)** | **Increase (Decrease)** |
|  | **2025** | **2024** | **Amount** | **Percentage** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** |
| **Non-interest income** |  |  |  |  |
| Service charges on deposits | $253 | $240 | $13 | 5.4% |
| Mortgage banking income | 2178 | 1765 | 413 | 23.4% |
| Debit card and ATM fees | 427 | 436 | (9) | (2.1)% |
| Insurance services | 409 | 230 | 179 | 77.8% |
| Trust fees | 37 | 44 | (7) | (15.9)% |
| Other customer service fees | 52 | 37 | 15 | 40.5% |
| Earnings on Bank-owned life insurance | 139 | 130 | 9 | 6.9% |
| Gains (losses) on sales of securities |  |  |  |  |
| Other non-interest income | 101 | 131 | (30) | (22.9)% |
| Total non-interest income | $3596 | $3013 | $583 | 19.3% |

---

Originations of mortgage loans held for sale were $55.7 million in the first quarter of 2025 compared to $48.3 million in the first quarter of 2024. The 15% increase in originations correlates to the 23% increase in our mortgage banking income.

Higher mortgage rates and less inventory of homes for sale, at least compared to 2020 and 2021, have continued to suppress mortgage loan volume. Consequently, FSM, our mortgage company, continued to incur net losses in the first quarter of 2025. However, due higher loan volume, FSM's net loss decreased from $657,000 in the first quarter of 2024 to $494,000 in the first quarter of 2025.

To help scale its operations, FSM continued to reduce headcount. FSM's full-time equivalent employees numbered 68 and 83 at March 31, 2025 and 2024, respectively, compared to 105 at December 31, 2022.

FSM's condensed financial statements follow.

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| | | | | |
|:---|:---|:---|:---|:---|
| **First State Mortgage** | **March 31,** | **Dec. 31,** | **Increase (Decrease)** | **Increase (Decrease)** |
| **Condensed Financial Statements** | **2025** | **2024** | **Amount** | **Percentage** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** |
| **Balance Sheets** |  |  |  |  |
| Cash on deposit at the Bank | $8800 | $10265 | $(1465) | (14.3)% |
| Loans held for sale | 14625 | 7743 | 6882 | 88.9% |
| Portfolio loans | 1966 | 1698 | 268 | 15.8% |
| Allowance for credit losses |  |  |  |  |
| Goodwill | 2193 | 2193 |  | 0.0% |
| Other assets | 1691 | 1306 | 385 | 29.5% |
| Total assets | $29275 | $23205 | $6070 | 26.2% |
| Warehouse line of credit payable to the Bank | $14186 | $7436 | $6750 | 90.8% |
| Other liabilities | 1954 | 2139 | (185) | (8.6)% |
| Owner's equity | 13135 | 13630 | (495) | (3.6)% |
| Total liabilities and equity | $29275 | $23205 | $6070 | 26.2% |

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Quarter Ended March 31,** | **Quarter Ended March 31,** | **Increase (Decrease)** | **Increase (Decrease)** |
| **Income Statements** | **2025** | **2024** | **Amount** | **Percentage** |
| Interest income on loans | $258 | $290 | $(32) | (11.0)% |
| Interest expense charged by the Bank | 152 | 161 | (9) | (5.6)% |
| Net interest income | 106 | 129 | (23) | (17.8)% |
| Provision for credit losses | - | - | - |  |
| Net interest income after provision for credit losses | 106 | 129 | (23) | (17.8)% |
| Mortgage banking income | 1828 | 1575 | 253 | 16.1% |
| Non-interest expense |  |  |  |  |
| Salaries and benefits | 2124 | 2111 | 13 | 0.6% |
| Occupancy and equipment | 89 | 106 | (17) | (16.0)% |
| Other non-interest expense | 412 | 406 | 6 | 1.5% |
| Total non-interest expense | 2625 | 2623 | 2 | 0.1% |
| Income (loss) before income taxes | (691) | (919) | 228 | (24.8)% |
| Income tax expense (benefit) | (197) | (262) | 65 | (24.8)% |
| Net income (loss) | $(494) | $(657) | $163 | (24.8)% |

---

Insurance service revenue also contributed to the increase in non-interest income. The timing of premium payments received from customers may skew insurance revenue from one quarter to the next.

<u>Non-Interest Expense</u>

The following table sets forth the various components of non-interest expense for the quarters ended March 31, 2025 and 2024.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Quarter Ended March 31,** | **Quarter Ended March 31,** | **Increase (Decrease)** | **Increase (Decrease)** |
|  | **2025** | **2024** | **Amount** | **Percentage** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** | |
| **Non-interest expense** |  |  |  |  |
| Salaries and employee benefits | $7552 | $7575 | $(23) | (0.3)% |
| Occupancy | 669 | 719 | (50) | (7.0)% |
| Furniture and equipment | 283 | 298 | (15) | (5.0)% |
| Data processing | 990 | 882 | 108 | 12.2% |
| FDIC insurance assessments | 167 | 180 | (13) | (7.2)% |
| Insurance | 31 | 54 | (23) | (42.6)% |
| Advertising | 156 | 148 | 8 | 5.4% |
| Professional fees | 372 | 290 | 82 | 28.3% |
| Other non-interest expense | 1080 | 1043 | 37 | 3.5% |
| Total non-interest expense | $11300 | $11189 | $111 | 1.0% |
| Efficiency ratio | 74.2% | 82.9% | (8.8)% | (10.6)% |
| FTE employees at quarter-end | 288 | 322 | (34) | (10.6)% |

---

In the first quarter of 2025, we continued to effectively control non-interest expense. Total non-interest expense increased 1%, considerably less than the rate of inflation, in the first quarter of 2025 compared to the first quarter of 2024.

Salaries and employee benefits continue to be our largest non-interest cost, and they were virtually unchanged at approximately $7.6 million for the quarters ended March 31, 2025 and 2024. Cost control was primarily due to continuing head count reduction. Most of the staff reduction was at FSM.

Professional fees increased 28% in the first quarter of 2025 compared to 2024, primarily due to preparatory work regarding our registration statement on Form S-1. Going forward, we expect audit, accounting, legal, and other related professional fees to increase because of our new status as an SEC registrant.

The efficiency ratio equals total non-interest expense divided by the sum of net interest income and total non-interest income. In general, the efficiency ratio is a measure of operating efficiency (the lower the ratio the better). Our efficiency ratio decreased to 74% in the first quarter of 2025 from 83% a year ago. The lower efficiency ratio results from significantly higher net interest income and non-interest income, up 11% and 19%, respectively, in the first quarter of 2025 while non-interest expense was nearly the same in both quarters.

<u>Income Tax Expense</u>

Income tax expense was $879,000 and $915,000 in the first quarter of 2025 and 2024, respectively. The 4% decrease in tax expense was directionally consistent with the 4% decrease in our pre-tax income. Our effective income tax rate (income tax expense divided by pre-tax income) was 25.6% and 25.5% in the first quarter of 2025 and 2024, respectively, compared to the combined federal and state statutory income tax rate of approximately 28.5%. The difference between the combined federal and state statutory rate and our effective tax rate is primarily due to tax-exempt interest income and earnings on Bank-owned life insurance.

 ****

<u>Return on Equity and Assets</u>

Net income divided by average assets and net income to average stockholders' equity are important performance indicators. The following table presents information on our return on average assets, return on average equity, equity to total assets, and dividend payout ratio, as of or for the quarters ended March 31, 2025 and 2024.

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| | | |
|:---|:---|:---|
|  | **Quarter Ended March 31,** | **Quarter Ended March 31,** |
|  | **2025** | **2024** |
| Return on average assets | 0.71% | 0.69% |
| Return on average equity | 7.15% | 7.88% |
| Stockholders' equity to total assets | 9.51% | 8.87% |
| Dividend payout ratio | 23.38% | 18.13% |

---

The return on average assets increased slightly in 2025 because the 2% decrease in average assets offset the 5% decline in net income. The return on average equity decreased in 2025 because earnings were down while average stockholders' equity increased 6% over the first quarter of 2024.

The quarter end ratio of stockholders' equity to total assets was greater at March 31, 2025, primarily due to the following.

● Total stockholders' equity was $146.1 million and $137.5 million at March 31, 2025 and 2024, respectively. The increase was primarily due to retained earnings and other comprehensive income, offset by dividends and the purchase and retirement of common shares.

● Total assets were approximately 1% less at March 31, 2025 compared to March 31, 2024.

Dividends per share were $0.25 and $0.20 in the first quarter of 2025 and 2024, respectively. The higher dividend payout ratio in 2025 is due the increased dividend and the 5% decrease in net income compared to the first quarter of 2024.

***Interest Rate Management***

Our market risk exposure is primarily that of interest rate risk, and we have established policies and procedures to monitor and limit earnings and balance sheet exposure to changes in interest rates. We do not engage in the trading of financial instruments, nor do we have exposure to currency exchange rates.

The principal objective of interest rate risk management (often referred to as "asset/liability management") is to manage the financial components of the Company in a manner that will optimize the risk/reward equation for earnings and capital in relation to changing interest rates. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. Management realizes certain risks are inherent, and that the goal is to identify and manage the risks. We use two methodologies to manage interest rate risk: (i) a standard GAP analysis; and (ii) an interest rate shock simulation model.

The planning of asset and liability maturities is an integral part of the management of a bank's net interest margin. To the extent maturities of assets and liabilities do not match in a changing interest rate environment, the net interest margin may change over time. Even with perfectly matched repricing of assets and liabilities, risks remain in the form of prepayment of loans or securities or in the form of delays in the adjustment of rates of interest applying to either earning assets with floating rates or to interest-bearing liabilities.

Interest rate changes do not affect all categories of assets and liabilities equally or at the same time. Varying interest rate environments can create unexpected changes in prepayment levels of assets and liabilities, which may have a significant effect on the net interest margin and are not reflected in the interest sensitivity analysis table. Because of these factors, an interest sensitivity GAP report may not provide a complete assessment of the exposure to changes in interest rates.

We use modeling software for asset/liability management to simulate the effects of potential interest rate changes on the Bank's net interest margin, and to calculate the estimated fair values of the Bank's financial instruments under different interest rate scenarios. The program imports current balances, interest rates, maturity dates and repricing information for individual financial instruments, and incorporates assumptions on the characteristics of embedded options along with pricing and duration for new volumes to project the effects of a given interest rate change on the Bank's interest income and interest expense. Rate scenarios consisting of key rate and yield curve projections are run against our investment, loan, deposit and borrowed fund portfolios. These rate projections can be shocked (an immediate and parallel change in all base rates, up or down) and ramped (an incremental increase or decrease in rates over a specified time), based on current trends and econometric models or stable economic conditions (unchanged from current actual levels). Critical assumptions in the Bank's interest rate risk model, like deposit betas, deposit rate change lags and decay rate assumptions, are reviewed and updated regularly to reflect current market conditions.

The following tables set forth the estimated changes in the Bank's annual net interest income, on a full-tax equivalent basis, and economic value of equity that would result from the designated instantaneous parallel shift in interest rates noted, and assuming a constant balance sheet with consistent product mix as of March 31, 2025.

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| | | |
|:---|:---|:---|
| | **Increase (Decrease) in** | **Increase (Decrease) in** |
| | **Estimated Net Interest Income (1)** | **Estimated Net Interest Income (1)** |
| | **(Dollars in thousands)** | **(Dollars in thousands)** |
| <br>**Change in Interest Rates**<br>**(basis points)** | **Amount** | **Percent** |
| +300 | $(1872) | (3.6)% |
| +200 | (395) | (0.8)% |
| +100 | 1438 | 2.8% |
| 0 |  | 0.0% |
| -100 | 2991 | 5.8% |
| -200 | 2099 | 4.0% |
| -300 | (504) | (1.0)% |

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---

| | | |
|:---|:---|:---|
| | **Increase (Decrease) in** | **Increase (Decrease) in** |
| | **Estimated Economic Value** | **Estimated Economic Value** |
| | **of Equity (1)** | **of Equity (1)** |
| | **(Dollars in thousands)** | **(Dollars in thousands)** |
| <br>**Change in Interest Rates**<br>**(basis points)** | **Amount** | **Percent** |
| +300 | $(48691) | (22.3)% |
| +200 | (28399) | (13.0)% |
| +100 | (11361) | (5.2)% |
| 0 |  | 0.0% |
| -100 | 5292 | 2.4% |
| -200 | 2590 | 1.2% |
| -300 | (5177) | (2.4)% |

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&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Computations of prospective effects of hypothetical interest rate changes are for illustrative purposes only, are based on numerous assumptions including relative levels of market interest rates, loan prepayments and deposit decay, and should not be relied upon as indicative of actual results. These projections are forward-looking and should be considered in light of the Cautionary Note Regarding Forward-Looking Statements appearing earlier in this document. Actual rates paid on deposits may differ from the hypothetical interest rates modeled due to competitive or market factors, which could reduce any actual impact on net interest income.

As with any method of gauging interest rate risk, there are certain shortcomings inherent to the methodology noted above. The model assumes interest rate changes are instantaneous parallel shifts in the yield curve. In reality, rate changes are rarely instantaneous. The use of the simplifying assumption that short-term and long-term rates change by the same degree may also misstate historic rate patterns, which rarely show parallel yield curve shifts. Further, the model assumes that certain assets and liabilities of similar maturity or period to repricing will react in the same way to changes in rates However, certain types of financial instruments may react in advance of changes in market rates, while the reaction of other types of financial instruments may lag the change in general market rates. Additionally, the methodology noted above does not reflect the full impact of annual and lifetime restrictions on changes in rates for certain assets, such as adjustable rate loans. When interest rates change, actual loan prepayments and actual early withdrawals from certificates of deposit may deviate significantly from the assumptions used in the model. Finally, this methodology does not measure or reflect the impact that higher rates may have on adjustable-rate loan customers' ability to service their debt. All these factors are considered in monitoring the Company's exposure to interest rate risk.

***Cash Flows***

Operating activities provided $13.5 million and $8.8 million of cash in 2024 and 2023, respectively. Net income is a primary source of operating cash, as adjusted for certain items including gains on sales of assets, changes in income and expense accruals, and non-cash expenses such as depreciation and the provision for credit losses

Mortgage banking activity was another important source of cash from operating activities, as shown in the following table.

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| | | |
|:---|:---|:---|
| **Cash flows from mortgage loans held for sale** | **2024** | **2023** |
| **(Dollars in thousands)** |  |  |
| Proceeds from loan sales | $320103 | $309116 |
| Gains on sales of loans | $(10290) | $(8930) |
| Origination of loans held for sale | (308635) | (303475) |
| Net cash provided (used) | $1178 | $(3289) |

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Net cash provided by investing activities was $28.4 million in 2024. The primary use of investing cash flows was loan originations, net of principal collections, of $4.0 million in 2024.

Investing cash flows related to debt securities provided significant cash in both 2024 and 2023, as summarized below.

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| | | | |
|:---|:---|:---|:---|
| **Cash flows from security purchases and maturities** | **2024** | **2023** | **Increase (Decrease)** |
| **(Dollars in thousands)** |  |  |  |
| Proceeds from maturities, paydowns, and calls | $34247 | $69042 | $(34795) |
| Purchases of available-for-sale securities | (3264) | (20136) | 16872 |
| &nbsp;&nbsp;&nbsp;Net cash provided | $30983 | $48906 | $(17923) |

---

In 2023, net cash used by investing activities was $15.1 million, primarily due to loan originations, net of principal collections, of $71.0 million.

Financing activities used $24.9 million and $2.5 million of net cash in 2024 and 2023, respectively. Net increases in deposits were $26.6 million in 2024 and $108.0 million 2023. Reductions of FHLB advances used $48.1 million and $104.0 million of financing cash in 2024 and 2023, respectively, as management relied more on other funding sources.

Less significant sources and uses of cash from financing activities include cash dividends paid, purchases and retirement of our common stock, and proceeds from stock options exercised. Netted together, these equity transactions used $3.6 million and $5.5 million of cash in 2024 and 2023, respectively

Cash and cash equivalents increased $17.0 million in 2024 and decreased $8.8 million in 2023. At year-end 2024 and 2023, cash and cash equivalents totaled $45.0 million and $28.0 million, respectively. We consider cash and cash equivalents, in combination with other liquidity sources, to be adequate for our operations.

In the first quarter of 2025, operating activities used $4.5 million of cash, primarily to fund the $5.1 million increase in mortgage loans held for sale. Timing of loan sales can cause significant fluctuations in net cash flows from operating activities. For example, in the first quarter of 2024, loan sale proceeds exceeded originations by $1.5 million. Gains on the sales of mortgage loans were $1.7 million and $1.8 million in the quarters ended March 31, 2025 and 2024, respectively. In reporting cash provided by operating activities, gains are included in the proceeds from mortgage loan sales.

Net cash flows from operations were $749,000 in the first quarter of 2024. Net income in the first quarter of 2024 included $1.3 million from the recovery of credit loss expense, a non-cash item.

In the first quarter of 2025, net cash flows from investing activities totaled $11.6 million, primarily because portfolio loan collections exceeded originations by $13.2 million. Cash flows from lending activities were partially offset by debt security purchases.

Investing activities resulted in a net use of cash totaling $461,000 in the first quarter of 2024, as loan originations were offset by net redemptions of FHLB stock and proceeds from debt security maturities, paydowns, and calls. No securities were purchased in the first quarter of 2024.

The net change in deposits provided $29.7 million and $38.1 million of cash in the first quarters of 2025 and 2024, respectively. Net cash from deposits was used primarily to reduce FHLB borrowings in both quarters. Net cash used in financing activities was $6.6 million and $5.6 million in the quarters ended March 31, 2025 and 2024, respectively.

Cash and cash equivalents increased by $558,000 in the first quarter of 2025, compared to a decrease of $5.3 million in the first quarter of 2024. Cash and cash equivalents totaled $45.5 million at March 31, 2025, a 1% increase from December 31, 2024. We believe liquidity, including available funding sources, is sufficient for our operating needs.

***Effects of Inflation***

Our consolidated financial statements and accompanying footnotes have been prepared in accordance with GAAP, which generally require the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation.

Because our assets and liabilities are primarily monetary, interest rates have a greater impact on our performance than the effects of inflation. However, inflation can affect certain aspects of our operations, such as non-interest expense. Inflation may also affect our customers' operations, including their ability to repay loans. Accordingly, inflation is one of the factors we consider in determining the allowance for expected credit losses on loans and off-balance sheet commitments.

***Market Risk***

 ****

Market risk is the risk of loss of future earnings, fair values, or future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change because of changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market risk sensitive instruments. Market risk is attributed to all market risk sensitive financial instruments, including securities, loans, deposits and borrowings, as well as the Bank's role as a financial intermediary in customer-related transactions. The objective of market risk management is to avoid excessive exposure of earnings and equity to loss and to reduce the volatility inherent in certain financial instruments.

***Reconciliation of Non-GAAP Financial Measures***

Our accounting and reporting policies conform to GAAP and prevailing practices in the banking industry. However, certain non-GAAP performance measures and ratios are used by management to evaluate our performance. We believe these non-GAAP financial measures are common in the banking industry and may enhance comparability for peer comparison purposes. These non-GAAP measures should be supplemental to primary GAAP financial measures and should not be read in isolation or relied upon as a substitute for primary GAAP financial measures.

Management reviews yields on tax exempt debt securities and the net interest margin on an FTE basis. In this non-GAAP presentation, net interest income is adjusted to reflect tax-exempt interest income on an equivalent before-tax basis using tax rates effective as of the end of the period. This measure ensures comparability of net interest income arising from debt securities exempt from federal income tax. The following table summarizes components of FTE net interest income for the periods indicated.

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| | | | | |
|:---|:---|:---|:---|:---|
|  | **Quarter Ended March 31,** | **Quarter Ended March 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2025** | **2024** | **2024** | **2023** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** |
| Net interest income (GAAP) | $11638 | $10479 | $42908 | $42749 |
| Tax-equivalent adjustment on securities exempt from federal income tax | 99 | 104 | 407 | 443 |
| Net interest income, FTE (non-GAAP) | $11737 | $10583 | $43315 | $43192 |
| Average balance of total interest-earning assets | $1461302 | $1480132 | $1465309 | $1454959 |
| Net interest margin (annualized net interest income divided by the average balance of total interest-earning assets) (GAAP) | 3.23% | 2.85% | 2.93% | 2.94% |
| Net interest margin, FTE (annualized net interest income, FTE, divided by the average balance of total interest earning assets) (non-GAAP) | 3.26% | 2.88% | 2.96% | 2.97% |

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The efficiency ratio is a non-GAAP financial measure that is calculated by dividing non-interest expense by total revenue (net interest income plus non-interest income), and measures how much it costs to produce one dollar of revenue. The following table summarizes components of our efficiency ratio for the periods indicated.

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **Quarter Ended March 31,** | **Quarter Ended March 31,** | **Year Ended December 31,** | **Year Ended December 31,** |
|  | **2025** | **2024** | **2024** | **2023** |
|  | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** | **(Dollars in thousands)** |
| Non-interest expense | $11300 | $11189 | $45967 | $45744 |
| Net interest income | $11638 | $10479 | $42908 | $42749 |
| Non-interest income | 3596 | 3013 | 15632 | 15522 |
| Total Revenue | $15234 | $13492 | $58540 | $58271 |
| Efficiency ratio (non-interest divided by total revenue) (non-GAAP) | 74.2% | 82.9% | 78.5% | 78.5% |

---

**Executive Compensation**

As an emerging growth company under the JOBS Act, we have opted to comply with the executive compensation disclosure rules applicable to "smaller reporting companies" as such term is defined in the rules promulgated under the Securities Act, which permit us to limit reporting of executive compensation to our principal executive officer and our two other most highly compensated executive officers, which are collectively referred to as our "named executive officers."

***Summary Compensation Table***

The following table sets forth information concerning the compensation paid to, awarded to, or earned by our named executive officers for the fiscal year ended December 31, 2024:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **Name and Principal Position(s)** | **Year** | **Salary**<br> **($)** |  | **Bonus**<br> **($)<sup>(1)</sup>** | **All Other**<br> **Compensation** <br> **($)<sup>(2)</sup>** | **Total**<br> **($)** |
| Tim McConville | 2024 | 352547 | (3) |  | 182887 | 535434 |
| *President, Chief Executive Officer, and Director of the Company* |  |  |  |  |  |  |
| Kirk Ross | 2024 | 350000 |  | 20000 | 86064 | 456064 |
| *President and Chief Executive Officer of the Bank and Director of the Company* |  |  |  |  |  |  |
| Rene Shaffer | 2024 | 313500 |  | 57 | 15662 | 329219 |
| *President and Chief Executive Officer of First State Mortgage* |  |  |  |  |  |  |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) The
 amounts set forth in the "Bonus" column reflect an annual discretionary cash
 bonuses paid to Mr. Ross in December and an annual birthday bonus paid to Ms. Shaffer.

&nbsp;&nbsp;&nbsp;&nbsp;(2) The
 amounts set forth in the "All Other Compensation" column are summarized below:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Description** | | **Tim McConville** | **Kirk Ross** | **Rene Shaffer** |
| Country Club Dues | ($) |  | 1040 |  |
| Imputed Income Attributable to Life Insurance | ($) | 586 | 4902 |  |
| Personal Use of Company Automobile | ($) | 38272 | 3250 |  |
| Employer 401(k) Profit Sharing Contribution | ($) | 8444 | 17922 |  |
| Employer 401(k) Matching Contribution | ($) | 2118 | 17250 | 15662 |
| Tri-County Financial Group Board Fees | ($) | 41800 | 41700 |  |
| Salary Continuation Plan Payments | ($) | 91667 |  |  |
| Total | ($) | 182887 | 86064 | 15662 |

---

&nbsp;&nbsp;&nbsp;&nbsp;(3) This
 amount includes $136,298 of accrued but unused sick time that was paid out to Mr. McConville
 upon his retirement from his position as President and Chief Executive Officer of the Bank
 on January 10, 2024.

***Outstanding Equity Awards at 2024 Fiscal Year-End***

The following table sets forth information concerning the unexercised options held by each of our named executive officers as of December 31, 2024:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | **Option Awards<sup>(1)</sup>** | **Option Awards<sup>(1)</sup>** | **Option Awards<sup>(1)</sup>** | **Option Awards<sup>(1)</sup>** | **Option Awards<sup>(1)</sup>** |
| <br>**Name** | **Grant Date** | **Number of**<br> **Securities**<br> **Underlying**<br> **Unexercised**<br> **Options (#)**<br> **Exercisable** | **Number of**<br> **Securities**<br> **Underlying**<br> **Unexercised**<br> **Options (#)**<br> **Unexercisable**  | **Option**<br> **Exercise**<br> **Price** <br> **($)** | **Option**<br> **Expiration**<br> **Date** |
| Tim McConville | 12/01/22 |  | 6000 | 47.50 | 01/10/2027 |
|  | 12/01/20 | 3200 |  | 34.00 | 01/10/2027 |
|  | 12/01/18 | 3600 |  | 42.20 | 01/10/2027 |
|  | 12/01/16 | 4500 |  | 26.00 | 12/01/2026 |
| Kirk Ross | 12/01/22 |  | 4000 | 47.50 | 12/01/2032 |
|  | 12/01/20 | 1050 |  | 34.00 | 12/01/2030 |
|  | 12/01/18 | 1200 |  | 42.20 | 12/01/2028 |
|  | 12/01/16 | 1500 |  | 26.00 | 12/01/2026 |
| Rene Shaffer |  |  |  |  |  |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) Each
 option award vests in its entirety on the third anniversary of the date listed in the respective
 "Grant Date" column.

***Our Executive Compensation Program***

Our executive compensation program is designed to achieve the following objectives:

● attract and retain the highly qualified executives needed to achieve our goals and to maintain a stable executive management group; and

● drive performance relative to our financial goals, balancing short-term and intermediate operational objectives with long-term strategic goals.

Our total compensation package is designed to align our executives' interests with those of our shareholders and does not promote or reward taking excessive risk to generate individual executive gains while creating higher financial and market risk for us.

*Option Plan*

We have historically provided equity-based incentives through the Tri-County Financial Group, Inc. Stock Option Plan, as amended from time to time (the "Option Plan"). The purpose of the Option Plan is to focus our directors, executive officers and employees on long-term strategic goals and the creation of shareholder value.

Pursuant to the Option Plan, the Board of Directors of the Company is allowed to grant stock option awards to eligible persons. Awards vest, become exercisable and contain such other terms and conditions as determined by our Board of Directors and set forth in individual agreements with the individuals receiving the awards. The plan enables our Board of Directors to set specific performance criteria that must be met before an award vests under the plan. Upon a change in control of the Company, all option awards under the Option Plan become fully exercisable. The Option Plan allows for the acceleration of option award vesting at the discretion of our Board of Directors. Upon certain terminations of employment, participants will have a period of time to exercise their vested options in accordance with the terms of the Option Plan and their applicable award agreements. Up to 200,000 shares of common stock may be issued under the Option Plan.

***Employment Agreements***

The Company has entered into employment agreements with Messrs. McConville and Ross and has not entered into an employment agreement with Ms. Shaffer. Each employment agreement generally describes the position and duties of each named executive officer; provides for a specified term of employment; describes base salary, bonus opportunity and other benefits to which the executive officer is entitled; and sets forth the duties and obligations of each party in the event of a termination of employment in connection with a change in control.

**Mr. McConville**. Our employment agreement with Mr. McConville was entered into in December 2017 and provides that Mr. McConville will serve as the President and Chief Executive Officer of the Company and President and Chief Executive Officer of the Bank, with an initial term of two years and automatic one-year extensions on each anniversary of the effective date, unless either party provides 30 days' prior written notice of non-extension. The agreement also provides for a base salary, subject to annual review and increase in accordance with the Company's established management compensation policies and practices, and eligibility to receive a discretionary annual performance bonus. Under the agreement, Mr. McConville is eligible to participate in benefit plans generally available to similarly situated employees. In the event Mr. McConville's employment is terminated within one year following a change in control or Mr. McConville terminates his employment within 180 days following a change in control, he will be entitled to a payment equal to 200% of the sum of his salary plus the average of his bonus payments for the prior three years. In this instance, Mr. McConville and his immediate family will also be entitled to health insurance coverage at employee rates for a period following his termination, subject to the terms of his employment agreement. Mr. McConville's agreement includes a 280G cutback. In January 2024, Mr. McConville voluntarily retired as the Bank's President and Chief Executive Officer. Mr. McConville continues to serve as the Company's President and Chief Executive Officer on a part-time basis.

**Mr. Ross**. Our employment agreement with Mr. Ross was entered into in February 2024 and provides that Mr. Ross will serve as the President and Chief Executive Officer of the Bank for an initial term of two years, with an automatic extension for an additional one-day period for each day that passes during the term, so that the term will always be two years. The agreement also provides for a base salary, subject to annual review and increase in accordance with the Company's established management compensation policies and practices, and eligibility to receive a discretionary annual performance bonus. Under the agreement, Mr. Ross is eligible to participate in benefit plans generally available to similarly situated employees. In the event Mr. Ross' employment is terminated without cause, excluding a termination due to death or disability, he will be entitled to a lump sum payment equal to 200% of his base salary. Mr. Ross' agreement includes a 280G cutback.

Our obligation to pay any severance under each of these employment agreements is conditioned on the execution by each named executive officer of a general release and waiver of any and all claims with respect to their employment with the Company.

***Other Compensation Arrangements***

**Salary Continuation Agreements**. We have entered into salary continuation agreements with certain executives, including Messrs. McConville and Ross. Upon a separation of service after attaining age 65, each of Messrs. McConville and Ross are entitled to receive an annual benefit of $100,000, payable in equal monthly installments for 15 years following such separation from service. Upon a separation from service, other than due to a termination for cause, death, or disability, prior to attaining age 65, each of Messrs. McConville and Ross are entitled to a reduced annual benefit. Additionally, upon a termination due to disability or prior to attaining age 65 and within 24 months of a change in control, Messrs. McConville and Ross would be entitled to a reduced annual benefit. Any payment under the salary continuation agreements made in connection with a change in control are subject to a Section 280G cutback. Following Mr. McConville's voluntary retirement as President and Chief Executive Officer of the Bank, he began receiving his full annual benefit under his salary continuation agreement.

**First State Bank 401(k) Profit Sharing Plan.** The First State Bank 401(k) Profit Sharing Plan (the "401(k) Plan") is designed to provide retirement benefits to all eligible full-time and part-time employees of the Bank and Tri-County Insurance Services, Inc. d/b/a First State Insurance who have attained age 21 and completed at least one year of service. The 401(k) Plan provides employees with the opportunity to save for retirement on a tax-favored basis. Named executive officers may elect to participate in the 401(k) Plan on the same basis as all other employees. Employees may defer a portion of their compensation to the 401(k) Plan up to the applicable statutory limit. We currently match 100% of employee deferrals on the first 5% of employee compensation. The Company has the authority to make an annual discretionary profit sharing contribution to the 401(k) Plan and made such contributions in 2024. All participant deferrals and employer contributions to the 401(k) Plan are immediately fully vested. Participants may direct the investment of their entire 401(k) Plan account balances.

**Health & Welfare Benefits**. Our named executive officers are generally eligible to participate in our standard health and welfare benefits program, which offers medical, dental, vision, life, accident, and disability insurance, on the same basis as our other part-time and full-time employees. In addition, Mr. Ross is eligible for a $250,000 supplemental life insurance benefit beyond the $550,000 maximum group term life insurance benefit available to our full-time employees. Except for Mr. Ross' supplemental life insurance benefit, we do not provide our named executive officers with any health and welfare benefits that are not generally available to our other employees.

**Perquisites**. We provide our named executive officers with certain perquisites that we believe are reasonable and consistent with our overall compensation program to better enable us to attract and retain highly qualified executives. Perquisites are awarded or adjusted on an individual basis. For 2024, Messrs. McConville and Ross were allowed the personal use of a Company automobile, and we paid for country club dues for Mr. Ross.

**Board Fees**. Messrs. McConville and Ross received fees for their service on our board of directors in 2024, as discussed further below under the "Director Compensation" heading.

***Director Compensation***

<u>Overview</u>

The following table sets forth information regarding the compensation we paid to the non-employee directors who served on our Board of Directors during 2024:

---

| | | | |
|:---|:---|:---|:---|
| **Name<sup>(1)</sup>** | **Fees Earned or**<br> **Paid in Cash ($)<sup>(2)</sup>** | **Nonqualified Deferred Compensation Earnings**<br> **($)<sup>(3)</sup>** | **Total** <br> **($)** |
| Matt Faber | 43000 |  | 43000 |
| Goodwin Toraason | 41800 |  | 41800 |
| Ken Otterbach | 41800 | 3945 | 45745 |
| John Holland | 43400 |  | 43400 |
| Spencer Cohn | 27000 |  | 27000 |
| Julie Setchell | 43000 | 2877 | 45877 |
| Kathleen Stevenson | 43000 |  | 43000 |
| Tom Prescott | 50800 | 4737 | 55537 |
| Doug Fitzgerald | 40600 | 1585 | 42185 |

---

&nbsp;&nbsp;&nbsp;&nbsp;(1) The
 following table lists the aggregate number of shares of our common stock subject to outstanding
 unexercised stock option awards at fiscal year-end for each non-employee director:

---

| | |
|:---|:---|
| **Name** | **Option Awards** |
| Matt Faber | 5400 |
| Goodwin Toraason | 2400 |
| Ken Otterbach | 7400 |
| John Holland | 3800 |
| Spencer Cohn |  |
| Julie Setchell | 7400 |
| Kathleen Stevenson | 3800 |
| Tom Prescott | 7400 |
| Doug Fitzgerald | 5400 |

---

&nbsp;&nbsp;&nbsp;&nbsp;(2) Messrs.
 McConville's and Ross' fees are reflected in the "All Other Compensation"
 column of the Summary Compensation Table.

&nbsp;&nbsp;&nbsp;&nbsp;(3) Amounts
 represents above-market earnings credited to each directors' deferral account in 2024
 under the Director Deferred Compensation Agreements.

&nbsp;&nbsp;&nbsp;&nbsp;(4) Mr.
 Fitzgerald retired from our Board of Directors on February 13, 2024.

<u>Director Compensation Program</u>

<u>Cash Compensation</u>. During 2024, we paid each of our non-employee directors an annual retainer of $12,000 for service on the board of directors of First State Bank. Additionally, the chairman of the board of directors of First State Bank received a supplemental annual retainer of $8,000 for serving in such role. Each non-employee director also received fees for each meeting of the board of directors of First State Bank ($600), our Board of Directors ($600), and each committee of the board of directors of First State Bank ($400) that the director attended.

<u>Equity Compensation</u>. No equity awards were granted to our non-employee directors in 2024.

<u>Director Deferred Compensation Agreements</u>. We have entered into a deferred compensation agreement with each of our non-employee directors other than Messrs. Toraason and Cohn (collectively, the "Director Deferred Compensation Agreements"). While each Director Deferred Compensation Agreement allows for the director to annually defer director fees, which are subsequently credited at a 6% interest rate, only Messrs. Otterbach, Prescott and Fitzgerald and Ms. Setchell have deferred fees under their agreements. Upon the director's disability or separation from service, other than for cause or due to death, each of Messrs. Otterbach, Prescott and Fitzgerald and Ms. Setchell will receive their respective deferral account balance at the time of such event, paid in 120 monthly installments starting on the first day of the month following such event; however, if the separation of service is within 24 months following a change in control, the director is paid out their deferral account balance within 30 days of such termination in a lump sum. Each non-employee director that has entered into a Director Deferred Compensation Agreement is entitled to a death benefit of at least $150,000 within 30 days following such director's death if such director dies prior to a separation from service.

**SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT**

The following table sets forth information regarding the beneficial ownership of our common stock, as of March 31, 2025, by:

● each stockholder known by us to beneficially own more than 5% of our outstanding common stock;

● each of our named executive officers;

● each of our directors; and

● all of our directors and executive officers as a group.

We have determined beneficial ownership in accordance with the rules of the SEC. These rules generally provide that a person is the beneficial owner of securities if such person has or shares the power to vote or direct the voting of securities, or to dispose or direct the disposition of securities, or has the right to acquire such powers within 60 days, including any right to acquire such securities (i) through the exercise of any option, warrant or right, (ii) through the conversion of a security, (iii) pursuant to the power to revoke a trust, discretionary account or similar arrangement or (iv) pursuant to the automatic termination of a trust, discretionary account or similar arrangement. For purposes of calculating each person's percentage ownership, common stock issuable pursuant to options exercisable within 60 days are included as outstanding and beneficially owned for that person or group, but are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as disclosed in the footnotes to this table and subject to applicable community property laws, we believe that each person identified in the table has sole voting and investment power over all of the shares shown opposite such person's name.

The percentage of beneficial ownership is based on 2,388,443 shares of our common stock outstanding as of May 31, 2025.

Except as otherwise indicated, the address for each stockholder listed in the table below is: c/o Tri-County Financial Group, Inc., 706 Washington St., Mendota, Illinois 61342.

---

| | | |
|:---|:---|:---|
| | **Number of Shares Beneficially Owned**<sup>(1)</sup>** | **Number of Shares Beneficially Owned**<sup>(1)</sup>** |
| <br>**Name** | **#** | **%** |
| **5% stockholders:** |  |  |
| Castle Creek Capital Partners VI, LP<sup>(2)</sup> | 563064 | 23.6% |
| Robert F. Vickrey | 143100 | 5.9% |
| **Directors and named executive officers:** |  |  |
| Spencer T. Cohn<sup>(3)</sup> | 0 |  |
| Matthew P. Faber <sup>(4)</sup> | 4500 | \* |
| John Holland III<sup>(5)</sup> | 1916 | \* |
| Timothy J. McConville<sup>(6)</sup> | 54550 | 2.3% |
| Kenneth D. Otterbach | 8250 | \* |
| Thomas K. Prescott<sup>(7)</sup> | 19526 | \* |
| Kirk L. Ross<sup>(8)</sup> | 9350 | \* |
| Julie Setchell<sup>(9)</sup> | 8600 | \* |
| Rene Shaffer | 0 | \* |
| Kathleen Stevenson<sup>(10)</sup> | 2500 | \* |
| Goodwin W. Toraason<sup>(11)</sup> | 35100 | 1.5% |
| All directors and executive officers as a group (12 persons) | 144292 | 6.0% |

---

\* Indicates one percent or less.

(1) Beneficial
 ownership includes shares of unvested restricted stock that stockholders are entitled to
 vote but does not include shares underlying performance based restricted stock units that
 are subject to vesting to the extent performance objectives are achieved.

(2) Consists
 of 563,064 shares of voting common stock held by Castle Creek. The address of Castle Creek
 is 11682 El Camino Road, Suite 320, San Diego, California 92130. The natural persons who
 have or share voting and/or dispositive powers over the shares held are the managing principals
 of Castle Creek's general partner.

(3) Excludes
 the 563,064 shares of voting common stock held by Castle Creek. Mr. Cohn, a director of an
 affiliate of Castle Creek, is not deemed to beneficially own the shares held by Castle Creek
 pursuant to applicable SEC rules.

(4) This
 includes 3,000 shares underlying options that are either (i) currently exercisable or (ii)
 exercisable on or before December 31, 2025.

(5) This
 includes 516 shares owned by Mr. Holland and his spouse jointly; and 1,400 shares are underlying
 options that are either (i) currently exercisable or (ii) exercisable on or before December
 31, 2025.

(6) This
 includes 17,300 shares underlying options that are either (i) currently exercisable or (ii)
 exercisable on or before December 31, 2025.

(7) This
 includes 3,278 shares owned by Mr. Prescott and his spouse jointly and 7,400 shares underlying
 options that are either (i) currently exercisable or (ii) exercisable on or before December
 31, 2025.

(8) This
 includes 3,750 shares underlying options that are either (i) currently exercisable or (ii)
 exercisable on or before December 31, 2025, and 700 shares owned by Mr. Ross through a tax-deferred
 account (e.g., in an IRA, 401(k) plan or ESOP).

(9) This
 includes 8,600 shares owned by Mrs. Setchell and her spouse jointly.

(10) This
 includes 1,400 shares underlying options that are either (i) currently exercisable or (ii)
 exercisable on or before December 31, 2025.

(11) This
 includes 750 shares owned by Mr. Toraason and his spouse jointly; and 1,200 shares owned
 by Mr. Toraason through a tax-deferred account.

**DESCRIPTION OF OUR CAPITAL STOCK**

*The following section is a summary and does not describe every aspect of our capital stock. In particular, we urge you to read our certificate of incorporation and bylaws, which describe the rights of holders of our capital stock. Our certificate of incorporation and bylaws are exhibits to the registration statement filed with the SEC of which this prospectus is a part.*

*The following is a summary of the material rights of our equity securities and related provisions of our amended and restated certificate of incorporation, or certificate of incorporation, and our bylaws. The following description of our common stock does not purport to be complete and is subject to, and qualified in its entirety by, our certificate of incorporation and bylaws, which we have included as exhibits to the registration statement of which this* prospectus *is a part. We urge you to read these documents for a more complete understanding of stockholder rights.* 

***General***

Our certificate of incorporation authorizes the issuance of up to 5,000,000 shares of voting common stock, par value $1.00 per share, 467,500 shares of non-voting common stock, par value $1.00 per share, and 100,000 shares of preferred stock, no par value per share. Generally, the shares of voting common stock and non-voting common stock are identical, with exception of voting rights and certain rights upon the dissolution of the Company. All other preferences and economic rights are the same between the voting and the non-voting common stock. As of May 31, 2025, there were 2,388,443 shares of our voting common stock issued and outstanding and no shares of non-voting common stock or our preferred stock were issued or outstanding.

***Common Stock***

*Governing Documents.* Holders of shares of our common stock have the rights set forth in our certificate of incorporation, our bylaws and the DGCL.

*Dividends and Distributions.* The holders of our common stock, both voting and non-voting shares, are entitled to share equally in any dividends that our board of directors may declare from time to time out of funds legally available for dividends, subject to limitations under the DGCL, the banking regulations and any preferential rights of holders of any then outstanding shares of preferred stock.

*Ranking.* Our common stock, both voting and non-voting, ranks junior to all other securities and indebtedness of the Company with respect to rights upon liquidation, dissolution or winding up of the Company. The voting and non-voting common stock are *pari passu* with one another with respect to rights upon liquidation, dissolution or winding up of the Company.

*No Conversion Rights.* Our voting common stock is not convertible into any other shares of our stock. Pursuant to certain limitations sent forth in the certificate of incorporation, shares of non-voting common stock are convertible into voting common stock on a one-for-one basis.

*No Preemptive Rights.* Holders of our common stock do not have any preemptive rights.

*Voting Rights.* The holders of our voting common stock are entitled to one vote per share on any matter to be voted on by the stockholders under the DGCL, the Company's certificate of incorporation and its bylaws. However, the holders of voting common stock are not entitled to vote on any amendment to the certificate of incorporation that relates solely to the terms of the non-voting common or one or more outstanding series of preferred stock if the holders of such affected series are entitled, either separately or as a class with the holders of one or more other such series, to vote pursuant to the certificate of incorporation or DGCL. Only the holders of our voting common stock are entitled to vote for directors and the holders are not entitled to cumulative voting rights with respect to the election of directors. A plurality of the shares voted shall elect all of the directors then standing for election at a meeting of stockholders at which a quorum is present.

The holders of non-voting shares have no right to vote on any matter requiring a stockholder vote under the DGCL, the Company's certificate of incorporation or its bylaws, except for matters affecting the terms of the non-voting common stock, at which time the holders of our non-voting shares are entitled to one vote per share on such matters.

*No Redemption.* We have no obligation or right to redeem our common stock.

*Stock Exchange Listing**.*** We have not applied to list our common stock on any exchange. The shares of voting common stock are eligible for quotation on the OTCQX under the symbol "TYFG".

***Preferred Stock***

Subject to limitations under the DGCL, our board of directors is authorized to issue, from time to time and without stockholder approval, up to an aggregate of 100,000 shares of preferred stock in one or more series and to fix the designations, powers, preferences, and relative, participating, optional or other special rights, if any, and any qualifications, limitations or restrictions of the shares of each such series, including the dividend rights, conversion rights, voting rights, redemption rights (including sinking fund provisions), liquidation preferences and the number of shares constituting any series. The issuance of preferred stock with voting and conversion rights could adversely affect the voting power of the holders of shares of our voting common stock and non-voting common stock.

***Anti-Takeover Considerations and Special Provisions of Our Certificate of Incorporation, Bylaws and Applicable Law***

Applicable law and certain provisions of our certificate of incorporation and bylaws could have the effect of delaying, deferring or discouraging another party from acquiring control of us, even if such acquisition would be viewed by our stockholders to be in their best interests. We believe that these provisions are beneficial because they encourage negotiation with our board of directors, which could result in improved terms of any unsolicited proposal.

*Delaware Law.* The Company is subject to Section 203 of the DGCL. Subject to certain exceptions, Section 203 of the DGCL prohibits a public Delaware corporation from engaging in a business combination (as defined in such section) with an "interested stockholder" (defined generally as any person who beneficially owns 15% or more of the outstanding voting stock of such corporation or any person affiliated with such person) for a period of three years following the time that such stockholder became an interested stockholder, unless: (i) prior to such time the board of directors of such corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of such corporation at the time the transaction commenced (excluding for purposes of determining the voting stock of such corporation outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (A) by persons who are directors and also officers of such corporation and (B) by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer); or (iii) on or subsequent to such time the business combination is approved by the board of directors of such corporation and authorized at a meeting of stockholders (and not by written consent) by the affirmative vote of at least 66<sup>2</sup>/3% of the outstanding voting stock of such corporation not owned by the interested stockholder.

*Federal Banking Law.* The ability of a third party to acquire our stock is also limited under applicable U.S. banking laws, including regulatory approval requirements. The Bank Holding Company Act of 1956, as amended, or BHCA, requires any "bank holding company" to obtain the approval of the Federal Reserve before acquiring, directly or indirectly, more than 5% of our outstanding common stock. Federal law also prohibits any person or company from acquiring "control" of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. "Control" is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership.

*Approval of a Change in Control.* Our certificate of incorporation includes a provision that makes it more difficult to complete a merger, sale or transfer of control of our Company. Article V, Section 6 requires the affirmative vote of the holders of at least 75% of the voting stock of the Company to approve such a transaction if more than 25% of the board of directors recommends against voting to approve the transaction.

*Special Meetings of Stockholders.* Our certificate of incorporation provides that special meetings of our stockholders may be called only by our President or at the request of a majority of our board of directors.

*Requirements for Advance Notification of Stockholder Nominations.* Our bylaws contain an advance notice provision regarding director nominations. Generally, to be timely, notice of director nominations and other stockholder proposals must be received by our corporate secretary not less than 14 days prior to any meeting of the stockholders called for the election of directors, provided, however, that if less than 21 days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the secretary of the corporation not later than the close of the 7th day following the day on which notice of the meeting was mailed to stockholders. The stockholder nomination must include certain information regarding the nominee, as set forth in the bylaws.

***Sole and Exclusive Forum***

Our stockholders approved this provision at our annual stockholders' meeting held on May 13, 2014. Any person purchasing or otherwise acquiring any interest in any shares of our capital stock shall be deemed to have notice of and to have consented to this provision of our certificate of incorporation. This choice of forum provision, if enforced, may have the effect of discouraging lawsuits against us and our directors, officers, employees and agents. The enforceability of similar choice of forum provisions in other companies' charter documents has been challenged in legal proceedings, and it is possible that, in connection with one or more actions or proceedings described above, a court could find the provision of our bylaws to be inapplicable or unenforceable.

***Limitation on Liability and Indemnification of Officers and Directors***

The DGCL authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors' fiduciary duties. Our certificate of incorporation and bylaws include a provision that eliminates the personal liability of directors for monetary damages for breach of fiduciary duty as a director, except:

● for breach of duty of loyalty;

● for acts or omissions not in good faith or involving intentional misconduct or knowing violation of law;<br>

● under Section 174 of the DGCL (unlawful dividends or unlawful stock repurchases or redemptions); or

● for transactions from which the director derived an improper personal benefit.

Our certificate of incorporation and bylaws provide that we must indemnify our directors and officers to the fullest extent authorized by the DGCL, subject to the limits of applicable federal banking laws and regulations. We are expressly authorized to, and do, carry directors' and officers' insurance providing coverage for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive directors.

The limitation on liability and indemnification provisions in our certificate of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duties. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions.

***Transfer Agent and Registrar***

The transfer agent and registrar for our common stock is Continental Stock Transfer & Trust Company.

**SELLING SHAREHOLDER**

The Selling Shareholder may offer and sell up to an aggregate amount of 563,064 shares of common stock. We are registering the shares in order to permit the Selling Shareholder to offer the shares for resale from time to time. Because the Selling Shareholder may not offer or sell all of the shares it owns pursuant to this prospectus, we cannot give you an estimate as to the number of shares of common stock the Selling Shareholder will own upon termination of this offering, if any. Additionally, it is possible that the Selling Shareholder may acquire additional shares of Common Stock during, or following, the time that this registration statement of which this prospectus is part of is effective with the SEC.

***Selling Shareholder Agreements***

On October 6, 2017, we sold 95,564 shares of our voting common stock and 46,750 shares of our nonvoting series B preferred stock to Castle Creek. On June 24, 2024, Castle Creek converted its holdings of nonvoting series B preferred stock into holdings of our common stock. In connection with this transaction, we entered into a Securities Purchase Agreement, dated as of October 6, 2017, with Castle Creek. Under these agreements, we have agreed to comply with certain continuing obligations with respect to Castle Creek which are described in more detail below.

*Securities Purchase Agreement.*

We have agreed to nominate one person designated by Castle Creek to our board of directors, subject to satisfaction of the legal and governance requirements regarding service as a member of our board of directors and to the reasonable approval of the Company. We have also agreed that we will recommend to our stockholders that the Castle Creek representative is elected to our board of directors at all of the Company's meetings of stockholder as which members of the board of directors are to be elected. In addition, subject to limited exceptions, we have agreed that, if at any time Castle Creek does not have a representative on our board of directors, to invite one person designated by Castle Creek to attend all meetings of our board of directors and all meetings of the board of directors of the Bank.

The above-described board representation and board observation rights will continue with respect to Castle Creek for so long as Castle Creek, together with its affiliates, continues to hold 4.9% or more of our issued and outstanding voting common stock. If Castle Creek ceases to hold the required ownership percentage, Castle Creek will no longer have any further board representation rights, and Castle Creek will use all reasonable best efforts to cause its board representative to promptly resign from our board of directors and from the board of directors. Currently, Spencer Cohn serves on our board of directors as the representative of Castle Creek.

*Registration Rights Agreement.*

In connection with the transactions above, we entered into the Registration Rights Agreements providing for demand and piggyback registration rights. Pursuant to the Registration Rights Agreement and certain amendments thereto, the Company must file a registration statement with the SEC by June 16, 2025, so that Castle Creek may resell its shares of common stock. If the Company is unable to file a registration statement or cause the registration statement to become effective within specified timeframes, the Company must, subject to certain limitations, pay Castle Creek an amount in cash equal to 2.0% of their aggregate original purchase price of the common stock and nonvoting series B preferred stock held by Castle Creek each month until the default is cured. Such payment will bear interest of 1.0% per month on an annualized basis if such payment is not made within 10 business days of the due date.

If the Company files a registration statement for a primary or secondary offer of its securities (other than a registration statement related to equity compensation plans or mergers and acquisitions), the Company must give notice to Castle Creek at least 10 business days' prior to the anticipated registration statement filing date, and Castle Creek may elect to have their securities included in a piggyback registration statement for resale. The Company must effect registration of all securities that Castle Creek requests to be included in the piggyback registration within 5 business days following the notice given by the Company.

In any of the foregoing registration statements, the Company will pay the fees and expenses of such registration statements, including all registration and filing fees, printing expenses, trading market fees, fees and disbursements of counsel for the Company and fees and expenses of the Company reasonably incurred.

**<u>Board Representation and Observer Rights.</u>**

We have agreed to nominate one person designated by Castle Creek to our board of directors, subject to satisfaction of the legal and governance requirements regarding service as a member of our board of directors and to the reasonable approval of the Company, and to the board of directors of the Bank. We have also agreed that we will recommend to our stockholders that the Castle Creek representative is elected to our board of directors at all of the Company's meetings of stockholder as which members of the board of directors are to be elected. In addition, subject to limited exceptions, we have agreed that, if at any time Castle Creek does not have a representative on our board of directors, to invite one person designated by Castle Creek to attend all meetings of our board of directors and all meetings of the board of directors of the Bank.

The above-described board representation and board observation rights will continue with respect to Castle Creek for so long as Castle Creek, together with its affiliates, continues to hold 4.9% or more of our issued and outstanding voting common stock. If Castle Creek ceases to hold the required ownership percentage, Castle Creek will no longer have any further board representation rights, and Castle Creek will use all reasonable best efforts to cause its board representative to promptly resign from our board of directors and from the board of directors of the Bank. Currently, Spencer Cohn serves on our board of directors as the representative of Castle Creek.

**PLAN OF DISTRIBUTION**

We are registering 563,064 shares of common stock, referred to as the "Shares", to permit the resale of the Shares under the Securities Act from time to time after the date of this prospectus at the discretion of the Selling Shareholder. We will not receive any of the proceeds from the sale by the Selling Shareholder of the Shares.

The Selling Shareholder and any of its pledgees, assignees and successors-in-interest may, from time to time, sell any or all of its Shares on the OTCQB, or any other stock exchange, market, quotation service or trading facility on which the Shares are traded or in private transactions, provided that all applicable laws are satisfied. The Selling Shareholder may also sell their Shares directly or through one or more underwriters, broker-dealers, or agents. If the Shares are sold through underwriters or broker-dealers, the Selling Shareholder will be responsible for underwriting discounts or commissions or agent's commissions. The Shares may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. A Selling Shareholder may use any one or more of the following methods when selling its Shares:

● on any national securities exchange or quotation service on which the securities may be listed or quoted at the time of sale;

● in the over-the-counter market;

● in transactions otherwise than on these exchanges or systems or in the over-the-counter market;

● ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

● block trades in which the broker-dealer will attempt to sell the Shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

● purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

● an exchange distribution in accordance with the rules of the applicable exchange;

● privately negotiated transactions;

● settlement of short sales entered into after the effective date of the registration statement of which this prospectus is a part;

● broker-dealers may agree with the Selling Shareholder to sell a specified number of such Shares at a stipulated price per share;

● through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

● a combination of any such methods of sale; and

● any other method permitted pursuant to applicable law.

The Selling Shareholder may also sell the Shares pursuant to Rule 144 under the Securities Act, if available, rather than under this prospectus. In addition, the Selling Shareholder may transfer the Shares by other means not described in this prospectus.

If the Selling Shareholder effects such transactions by selling Common Stock to or through underwriters, broker-dealers, or agents, such underwriters, broker-dealers, or agents may receive commissions in the form of discounts, concessions, or commissions from the Selling Shareholder or commissions from purchasers of the Common Stock for whom they may act as agent or to whom they may sell as principal (which discounts, concessions, or commissions as to particular underwriters, broker-dealers, or agents may be in excess of those customary in the types of transactions involved). Broker-dealers engaged by the Selling Shareholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Shareholder (or, if any broker-dealer acts as agent for the purchaser of Shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a principal transaction a markup or markdown in compliance with FINRA IM-2440.

In connection with sales of Common Stock or interests therein, the Selling Shareholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Stock in the course of hedging in positions they assume. A Selling Shareholder may also sell Common Stock short and deliver Common Stock covered by this prospectus to close out its short positions and to return borrowed shares in connection with such short sales. A Selling Shareholder may also loan or pledge Common Stock to broker-dealers that in turn may sell such Common Stock. The Selling Shareholder may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities which require the delivery to such broker-dealer or other financial institution of Common Stock offered by this prospectus, which Common Stock such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The Selling Shareholder may pledge or grant a security interest the Shares owned by them, as applicable, and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the Shares from time to time pursuant to this prospectus or any amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act amending, if necessary, the Selling Shareholder to include the pledgee, transferee or other successors in interest as Selling Shareholders under this prospectus. The Selling Shareholder also may transfer and donate the Shares in other circumstances in which case the transferees, donees, pledgees or other successors in interest will be the selling beneficial owners for purposes of this prospectus.

To extent required by the Securities Act and the rules and regulations thereunder, the Selling Shareholder and any broker-dealers or agents that are involved in selling the Shares may be deemed to be "underwriters" within the meaning of the Securities Act, in connection with such sales. In such event, any commissions received by, or any discounts or concessions allowed to, any such broker-dealer or agent and any profit on the resale of any Shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. At the time a particular offering of the Shares is made, a prospectus supplement, if required, will be distributed that will set forth the aggregate amount of Shares being offered and the terms of the offering, including the name or names of any broker-dealers or agents, any discounts, commissions, and other terms constituting compensation from the Selling Shareholder and any discounts, commissions, or concessions allowed or re-allowed or paid to broker-dealers.

The Selling Shareholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the Shares.

Once this registration statement becomes effective, we intend to file the final prospectus with the SEC in accordance with SEC Rules 172 and 424. Provided we are not the subject of any SEC stop orders and we are not subject to any cease and desist proceedings, the obligation to deliver a final prospectus to a purchaser will be deemed to have been met.

There is currently no underwriter or coordinating broker acting in connection with the proposed sale of the resale Shares by the Selling Shareholder.

Under the securities laws of some states, the Shares may be sold in such states only through registered or licensed brokers or dealers. In addition, in some states the Shares may not be sold unless such shares have been registered or qualified for sale in such state, or an exemption from registration or qualification is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the Shares may not simultaneously engage in market making activities with respect to the Shares for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Shareholder will be subject to applicable provisions of the Exchange Act, and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of Shares by the Selling Shareholder or any other person. All of the foregoing provisions may affect the marketability of the Shares and the ability of any person or entity to engage in market- making activities with respect to the Shares.

We will pay all expenses of the registration of the Shares, estimated to be approximately $491,453 in total, including, without limitation, SEC filing fees, expenses of compliance with state securities or "blue sky" laws, and legal and accounting fees; provided, however, that the Selling Shareholder will pay all underwriting discounts and selling commissions, if any. We will indemnify the Selling Shareholder against liabilities, including some liabilities under the Securities Act, in accordance with applicable registration rights agreements, if any, or the Selling Shareholder will be entitled to contribution. We may be indemnified by the Selling Shareholder against civil liabilities, including liabilities under the Securities Act, that may arise from any written information furnished to us by the Selling Shareholder specifically for use in this prospectus, in accordance with the applicable definitive documents entered into with the Selling Shareholder, or we may be entitled to contribution.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the Common Stock may be resold by the Selling Shareholder without registration and without the requirement to be in compliance with Rule 144(c)(1) and otherwise without restriction or limitation pursuant to Rule 144 or (ii) all of the Shares have been sold by Selling Shareholder pursuant to this prospectus or Rule 144 under the Securities Act or any other rule of similar effect.

Once sold under the registration statement of which this prospectus forms a part, the Shares will be freely tradable in the hands of persons other than our affiliates.

**LEGAL MATTERS**

The validity of the shares of common stock offered hereby will be passed upon for us by our legal counsel, Barack Ferrazzano Kirschbaum & Nagelberg LLP, Chicago, Illinois.

**EXPERTS**

The financial statements incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 2024, have been so incorporated in reliance on the report of Forvis Mazars LLP, independent registered public accounting firm, given on their authority as experts in auditing and accounting.

**AUDITED FINANCIAL INFORMATION**

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTS**

---

| | |
|:---|:---|
|  | **Page** |
| [REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM](#vi_001) | F-2 |
| [CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2024 AND 2023](#vi_002) | F-3 |
| [CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023](#vi_003) | F-4 |
| [CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023](#vi_004) | F-5 |
| [CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023](#vi_005) | F-6 |
| [CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2024 AND 2023](#vi_006) | F-7 |
| [NOTES TO CONSOLIDATED FINANCIAL STATEMENTS](#SSS_020) | F-9 |
| [INTERIM (UNAUDITED) CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2025](#ro_002) | F-62 |
| [INTERIM (UNAUDITED) CONSOLIDATED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024](#ro_003) | F-63 |
| [INTERIM (UNAUDITED) CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024](#ro_004) | F-64 |
| [INTERIM (UNAUDITED) CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024](#ro_005) | F-65 |
| [INTERIM (UNAUDITED) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2025 AND 2024](#ro_006) | F-66 |
| [NOTES TO CONSOLIDATED FINANCIAL STATEMENTS](#ro_007) | F-68 |

---

![](audit_001.jpg)

**Report of Independent Registered Public Accounting Firm**

To the Shareholders, Board of Directors, and Audit Committee

Tri-County Financial Group, Inc. and Subsidiaries

**Opinion on the Consolidated Financial Statements**

We have audited the accompanying consolidated balance sheets of Tri-County Financial Group, Inc. and Subsidiaries (the "Company") as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in stockholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years then ended, in conformity with accounting principles generally accepted in the United States of America.

**Basis for Opinion**

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company's auditor since 2019.

![](audit_002.jpg)

**St. Louis, Missouri**

**March 3, 2025**

Forvis Mazars, LLP is an independent member of Forvis Mazars Global Limited

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

December 31, 2024 and 2023

(000s omitted except share data)

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| **ASSETS** |  |  |
| Cash and due from banks | $42418 | $26905 |
| Federal funds sold | 2558 | 1113 |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | 44976 | 28018 |
| Debt securities available-for-sale, at fair value (amortized cost $158,009 and $189,041, respectively) | 143735 | 174846 |
| Federal Home Loan Bank stock, at cost | 3420 | 5765 |
| Mortgage loans held for sale | 9011 | 10189 |
| Loans, net of allowance for credit losses of $14,444 and $15,990, respectively | 1261965 | 1257612 |
| Bank-owned life insurance | 20269 | 19728 |
| Foreclosed assets, net | 920 | 101 |
| Bank premises and equipment, net | 25344 | 25785 |
| Goodwill and other intangibles | 8700 | 8723 |
| Accrued interest receivable | 7474 | 7572 |
| Other assets | 13470 | 14556 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | $1539284 | $1552895 |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |
| Liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Deposits: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Noninterest-bearing | $176978 | $181082 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest-bearing | 1096318 | 1065649 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total deposits | 1273296 | 1246731 |
| Federal Home Loan Bank advances and other borrowings | 67917 | 116000 |
| Securities sold under agreements to repurchase | 22679 | 22488 |
| Dividends payable | 611 | 737 |
| Accrued interest payable and other liabilities | 21753 | 20986 |
| Subordinated debt, net of debt issuance costs of $166 and $190, respectively | 9834 | 9810 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 1396090 | 1416752 |
| Commitments and Contingencies |  |  |
| Stockholders' equity: |  |  |
| &nbsp;&nbsp;&nbsp;Common stock, $1 par value; 5,000,000 shares authorized; 2,394,193 and 1,954,858 shares issued and outstanding, respectively | 2394 | 1955 |
| &nbsp;&nbsp;&nbsp;Non-voting common stock, $1 par value; 467,500 shares authorized; 0 and 467,500 shares issued and outstanding, respectively | 0 | 468 |
| &nbsp;&nbsp;&nbsp;Additional paid-in-capital | 21212 | 22455 |
| &nbsp;&nbsp;&nbsp;Retained earnings | 129793 | 121414 |
| &nbsp;&nbsp;&nbsp;Accumulated other comprehensive loss | (10205) | (10149) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity | 143194 | 136143 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and stockholders' equity | $1539284 | $1552895 |

---

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF INCOME**

For the years ended December 31, 2024 and 2023

(000s omitted except share data)

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Interest income: |  |  |
| &nbsp;&nbsp;&nbsp;Loans, including fees | $71553 | $62209 |
| &nbsp;&nbsp;&nbsp;Debt securities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxable | 2444 | 3224 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax-exempt | 1532 | 1666 |
| &nbsp;&nbsp;&nbsp;Mortgage loans held for sale, including fees | 1437 | 1529 |
| &nbsp;&nbsp;&nbsp;Dividends | 392 | 495 |
| &nbsp;&nbsp;&nbsp;Other | 538 | 196 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total interest income | 77896 | 69319 |
| Interest expense: |  |  |
| &nbsp;&nbsp;&nbsp;Deposits | 29848 | 19274 |
| &nbsp;&nbsp;&nbsp;Federal Home Loan Bank advances and other borrowings | 4196 | 6464 |
| &nbsp;&nbsp;&nbsp;Securities sold under agreements to repurchase | 944 | 832 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total interest expense | 34988 | 26570 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net interest income | 42908 | 42749 |
| Recovery of credit loss expense on loans | (1446) | (907) |
| Credit loss expense on off-balance sheet credit exposures | 162 | 57 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net interest income after credit loss expense | 44192 | 43599 |
| Non-interest income: |  |  |
| &nbsp;&nbsp;&nbsp;Trust department | 268 | 276 |
| &nbsp;&nbsp;&nbsp;Customer-service fees | 1244 | 1266 |
| &nbsp;&nbsp;&nbsp;Mortgage banking | 9924 | 9295 |
| &nbsp;&nbsp;&nbsp;Insurance services | 1406 | 1321 |
| &nbsp;&nbsp;&nbsp;Other | 2790 | 3364 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total non-interest income | 15632 | 15522 |
| Non-interest expenses: |  |  |
| &nbsp;&nbsp;&nbsp;Salaries and employee benefits | 31063 | 31416 |
| &nbsp;&nbsp;&nbsp;Occupancy | 2744 | 2781 |
| &nbsp;&nbsp;&nbsp;Furniture and equipment | 1164 | 1295 |
| &nbsp;&nbsp;&nbsp;Other | 10996 | 10252 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total non-interest expenses | 45967 | 45744 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income before income taxes | 13857 | 13377 |
| Income tax expense | 3428 | 3332 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income | $10429 | $10045 |
| Earnings per common share: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic | $4.32 | $4.09 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted | $4.28 | $4.05 |

---

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME** 

For the years ended December 31, 2024 and 2023

(000s omitted except share data)

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Net income | $10429 | $10045 |
| Other comprehensive income (loss): |  |  |
| &nbsp;&nbsp;&nbsp;Unrealized holding gains (losses) on available-for-sale debt securities | (79) | 1901 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax effect | 23 | (542) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other comprehensive income (loss) | (56) | 1359 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total comprehensive income | $10373 | $11404 |

---

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**

For the years ended December 31, 2024 and 2023

(000s omitted except share data)

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | | | | **Accumulated** | **Accumulated** | |
|  | | | | **Other** | **Other** | |
|  | | | | **Comprehensive** | **Comprehensive** | |
|  | **Common Stock**<br>**and Non-Voting**<br>**Common**<br>**Stock <sup>(1)</sup>** |<br>**Additional**<br>**Paid-in-**<br>**Capital** |<br>**Retained**<br>**Earnings** | **Loss** | **Loss** |<br><br>**Total** |
| Balance, December 31, 2022 | $2491 | $25437 | $116664 | ($| 11508) | $133084 |
| Cumulative change in accounting principle (Note 1) |  |  | (3092) |  |  | (3092) |
| Balance at January 1, 2023 (as adjusted for change in accounting principle) | 2491 | 25437 | 113572 |  | (11508) | 129992 |
| Net income |  |  | 10045 |  |  | 10045 |
| Other comprehensive income |  |  |  |  | 1359 | 1359 |
| Cash dividends on common stock ($0.90 per share) |  |  | (2203) |  |  | (2203) |
| Purchases and retirement of 77,850 Shares of common stock | (78) | (3521) |  |  |  | (3599) |
| Stock-based compensation expense |  | 247 |  |  |  | 247 |
| Stock options, exercised (9,585 shares) | 10 | 292 |  |  |  | 302 |
| Balance, December 31, 2023 | 2423 | 22455 | 121414 |  | (10149) | 136143 |
| Net income |  |  | 10429 |  |  | 10429 |
| Other comprehensive loss |  |  |  |  | (56) | (56) |
| Cash dividends on common stock ($0.85 per share) |  |  | (2050) |  |  | (2050) |
| Purchases and retirement of 45,175 Shares of common stock | (46) | (1869) |  |  |  | (1915) |
| Stock-based compensation expense |  | 161 |  |  |  | 161 |
| Stock options exercised (17,010 shares) | 17 | 465 |  |  |  | 482 |
| Balance, December 31, 2024 | $2394 | $21212 | $129793 | ($| 10205) | $143194 |

---

<sup>(1)</sup> The Company's stock previously included 467,500 shares of nonvoting stock, all of which converted into voting stock during 2024. See Consolidated Balance Sheets for further information.

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

For the years ended December 31, 2024 and 2023

(000s omitted except share data)

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;Net income | $10429 | $10045 |
| &nbsp;&nbsp;&nbsp;Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation | 1535 | 1645 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of intangibles | 23 | 35 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net amortization (accretion) of securities | 49 | (273) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of debt issuance costs | 24 | 25 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Recovery of credit loss expense | (1284) | (850) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax | (229) | (1364) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net gain on sales of foreclosed assets | (31) | (21) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net gain on sales of bank premises and equipment | (21) | (642) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net gain on sale of loans | (10290) | (8930) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense | 161 | 247 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net mortgage servicing rights amortization | 447 | 813 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Origination of loans held for sale | (308635) | (303475) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from loans held for sale | 320103 | 309116 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in accrued interest receivable | 98 | (1621) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in bank-owned life insurance | (541) | (497) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in other assets | 891 | 1350 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in accrued interest payable and other liabilities | 767 | 3174 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by operating activities | 13496 | 8777 |
| **CASH FLOWS FROM INVESTING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from maturities, paydowns and calls of available-for-sale debt securities | 34247 | 69042 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of available-for-sale debt securities | (3264) | (20136) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net redemptions of FHLB stock | 3314 | 4376 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of FHLB stock | (969) | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loan (originations) and principal collections, net | (3955) | (70954) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sales of foreclosed assets | 98 | 1902 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sales of bank premises and equipment | 138 | 1033 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of bank premises and equipment, net | (1211) | (377) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) investing activities | 28398 | (15114) |

---

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(CONTINUED)**

For the years ended December 31, 2024 and 2023

(000s omitted except share data)

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| **CASH FLOWS FROM FINANCING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;Net change in deposits | $26565 | $107950 |
| &nbsp;&nbsp;&nbsp;Net change in securities sold under agreements to repurchase | 191 | (886) |
| &nbsp;&nbsp;&nbsp;Cash dividends paid | (2176) | (2223) |
| &nbsp;&nbsp;&nbsp;Purchases and retirement of common stock | (1915) | (3599) |
| &nbsp;&nbsp;&nbsp;Net change in short-term FHLB advances and other borrowings | (31000) | (104000) |
| &nbsp;&nbsp;&nbsp;Advances on long-term FHLB advances and other borrowings | 32917 | 0 |
| &nbsp;&nbsp;&nbsp;Payments on long-term FHLB advances and other borrowings | (50000) | 0 |
| &nbsp;&nbsp;&nbsp;Proceeds from stock options exercised | 482 | 302 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in financing activities | (24936) | (2456) |
| Increase (decrease) in cash and cash equivalents | 16958 | (8793) |
| Cash and cash equivalents: |  |  |
| &nbsp;&nbsp;&nbsp;Beginning of the year | 28018 | 36811 |
| &nbsp;&nbsp;&nbsp;Ending of the year | $44976 | $28018 |
| **SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:** |  |  |
| &nbsp;&nbsp;&nbsp;Cash payments for interest paid: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deposits | $29599 | $17646 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Securities sold under agreements to repurchase | 945 | 732 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FHLB advances and other borrowings | 3909 | 6573 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total | $34453 | $24951 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes paid | $2853 | $3312 |
| **SUPPLEMENTAL DISCLOSURES OF NONCASH AND FINANCING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;Foreclosed assets acquired in settlement of loans | $886 | $1850 |
| &nbsp;&nbsp;&nbsp;Dividends payable | $611 | $737 |
| &nbsp;&nbsp;&nbsp;Lease liabilities arising from obtaining right-of-use assets | $0 | $74 |

---

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies</u>** :

Principles of consolidation:

The accompanying consolidated financial statements include the accounts of Tri-County Financial Group, Inc. (Company) and its wholly owned subsidiaries, First State Bank (Bank), Tri-County Insurance Services, Inc. (Insurance Company), and First State Mortgage (Mortgage Banking Company). The Bank consolidates subsidiaries in which it holds more than 50-percent ownership. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and conform to general practices within the banking industry. All significant intercompany transactions have been eliminated.

Nature of operations:

The Company provides a variety of banking and mortgage banking services and insurance services to individuals and businesses principally through its main facilities in Mendota and branches in Peru, LaMoille, McNabb, Streator, Ottawa, Earlville, Bloomington, St. Charles, Geneva, Batavia, North Aurora, Shabbona, Waterman, Sycamore, Rochelle, Princeton, West Brooklyn, and Champaign, Illinois, with additional mortgage banking offices in Illinois and Wisconsin. The Company's primary deposit products are demand deposits and certificates of deposit and its primary lending products are agribusiness, commercial, real estate mortgage and installment loans and secondary market mortgage activities.

The Company is divided into two reportable segments: Commercial Banking and Mortgage Banking. Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses in all markets through retail lending, deposit services, online banking, mobile banking, private banking, commercial lending, commercial real estate lending, agricultural lending, and other banking services. Mortgage banking provides residential mortgage banking products through five offices in Illinois and one office in Wisconsin through our Mortgage Banking Company. The majority of the loans are sold with servicing released.

Use of estimates:

The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for credit losses and valuation of goodwill.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Significant group concentrations of credit risk:

Most of the Company's activities are with customers located in the area and communities noted above. Note 3 details the types of securities in which the Company invests. Note 4 details the types of lending in which the Company engages. A substantial portion of the Company's loans are with entities involved in the agricultural industry.

Cash and cash equivalents:

For purposes of reporting cash flows, cash and cash equivalents are defined as those amounts included in cash and due from banks and federal funds sold, which are sold overnight.

Trust assets:

Assets of the trust department, other than trust cash on deposit at the Bank, are not included in these consolidated financial statements because they are not assets of the Company.

Debt securities available-for-sale:

Debt securities are classified as available for sale (AFS) and recorded at fair value, with unrealized gains or losses excluded from earnings and reported in other comprehensive income (loss).

Purchase premiums are recognized in interest income using the interest method over the terms of the debt securities and are amortized/accreted to the earliest of call or maturity date. Discounts are recognized in interest income using the interest method over the term of the securities. Gains and losses on the sale of debt securities are recorded on the trade date and are determined using the specific identification method.

When the fair value of securities is below the amortized cost and the Company will not be required to sell the security before recovery of its amortized cost basis, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. If the present value of cash flows expected to be collected from the security are less than the amortized cost basis of the security, an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss).

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Debt securities available-for-sale (continued):

---

| | | |
|:---|:---|:---|
| | **Accounting Treatment** | **Accounting Treatment** |
| <br>**Circumstances of Impairment Considerations** | **Credit Component** | **Remaining Portion** |
| Not intended for sale or more likely than not that the Bank will not have to sell before recovery of cost basis | Recognized as an allowance for credit loss | Recognized in other comprehensive income (loss) |
| Intended for sale or more likely than not that the Bank will be required to sell before recovery of cost basis | Recognized in earnings | Recognized in earnings |

---

Allowance for Credit Losses – available-for-sale debt securities:

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether (1) there is intention to sell or (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. The Company excludes accrued interest receivable on available-for-sale securities from the estimate of credit losses. Available-for-sale securities are charged off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.

Federal Home Loan Bank stock:

The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is required to own a certain amount of stock based on the level of borrowings and may invest in additional amounts. FHLB stock is carried at cost since no ready market exists and it has no quoted market value. FHLB stock is periodically evaluated for impairment based on the ultimate recovery of par value.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Mortgage loans held for sale and loan servicing:

Mortgage loans held for sale are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. The majority of the Company's mortgage loans held for sale are generated through the Mortgage Banking Company. Changes in fair value are recorded in mortgage banking income in the consolidated statements of income.

The Company does retain some of the servicing on the loans sold through the Mortgage Banking Company within the Company's markets.

Mortgage loans held for sale through the Bank are sold with the mortgage servicing rights retained by the Bank. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. These gains or losses are included in mortgage banking income in the consolidated statements of income.

Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans. Generally, for sales of mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available. The Company subsequently measures each class of servicing asset using the amortization method. Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income of the underlying loans. Capitalized mortgage servicing assets are reported in other assets and are assessed for impairment at least annually.

Servicing fee income is recorded for fees earned from servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as mortgage banking income when earned.

Mortgage loan sales:

The Company generally sells mortgage loans held for sale without recourse. However, the Company's agreements to sell residential mortgage loans in the normal course of business usually require certain representations and warranties on the underlying loans sold, related to credit information, loan documentation, collateral, and insurability, which if subsequently are untrue or breached, could require the Company to repurchase certain loans affected. The potential liability under these representations and warranties is estimated as a liability and any losses incurred and resulting expense are netted with mortgage banking income.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Mortgage banking income:

Mortgage banking income includes the fees generated from the underwriting and origination of mortgage loans held for sale along with the gains or losses realized from the sale of these loans, net of origination costs, the changes in fair values of mortgage loan derivatives, servicing right income, amortization, and servicing fee income.

Loans:

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost basis, which is the unpaid principal balance outstanding, net of unearned income and deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in the consolidated balance sheets.

Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the life of the loan without anticipating prepayments.

Loans are considered past due or delinquent when the contractual principal and/or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. The accrual of interest income on loans is typically discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection, or if full collection of interest or principal becomes doubtful. All interest accrued but not received for a loan placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for credit losses (ACL) - Loans:

The Company adopted ASU 2016-13 *Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2023* (CECL). Under the CECL model, the allowance for credit losses (ACL) on loans represents a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans' amortized cost basis to represent the net amount expected to be collected on the loan portfolio.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Allowance for credit losses (ACL) – Loans (continued):

The Company estimates the ACL on loans based on the underlying assets' amortized cost basis, which is the amount at which the receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of payment, and partial charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of the ACL on loans.

Expected credit losses are reflected in the ACL on loans through a charge to provision for credit losses on loans. When the Company deems all or a portion of a financial asset to be uncollectible, the appropriate amount is written-off and the ACL on loans is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts of collection have been exhausted and the collateral, if any, has been liquidated. Subsequent recoveries, if any, are credited to the ACL on loans when received.

The Company's methodologies for estimating the ACL on loans consider available relevant information about the collectability of cash flows, including information about past events, current conditions and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company's methodologies may revert to historical loss information on a straight-line basis over a number of quarters when it can no longer develop reasonable and supportable forecasts.

Loans are predominantly segmented by FDIC Call Report Codes into loan pools that have similar risk characteristics, similar collateral type and are assumed to pose consistent risk of loss to the Company.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Allowance for credit losses (ACL) - Loans (continued):

The Company measures expected credit losses for its loan portfolio segments as follows:

---

| | |
|:---|:---|
| **Loan Portfolio Segment** | **ACL Methodology** |
| Commercial and industrial | Discounted cash flow |
| Commercial agricultural | Discounted cash flow |
| Commercial other | Discounted cash flow |
| Real estate – commercial | Discounted cash flow |
| Real estate – consumer | Discounted cash flow |
| Real estate – agricultural | Discounted cash flow |
| Real estate – construction and land | Discounted cash flow |
| Consumer installment | Remaining life |
| Consumer vehicle | Remaining life |
| Credit cards | Other |

---

*<u>Discounted cash flow method (DCF)</u>* – The DCF methodology is used to develop cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed and curtailments and expected losses are calculated via a gross loss rate and recovery rate assumption. The modeling of expected prepayment speeds and curtailment rates are based on industry data.

The Company uses regression analysis on historical internal and peer data to determine suitable loss drivers to utilize when modeling expected losses. For all loan pools utilizing the DCF method, management utilizes a forecast unemployment rate and gross domestic product as its primary loss drivers, as these were determined to best correlate to historical losses.

With regard to the DCF model, management determined that four quarters represented a reasonable and supportable forecast period with reversion back to historical loss rate over four quarters on a straight-line basis.

The combination of adjustments for credit expectations (expected losses) and timing expectations (prepayment and curtailment) produces an expected cash flow stream at the instrument level. An ACL is established for the difference between the instrument's NPV and amortized cost basis.

*<u>Remaining life method</u>* – The remaining life methodology is a type of loss rate methodology that uses an average loss rate and applies it to future expected outstanding balances of the pool.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Allowance for credit losses (ACL) - Loans (continued):

*<u>Collateral dependent loans</u>* – Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent loans where the Company has determined that the liquidation or foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation of the business or sale of the collateral, the ACL is measured based on the difference between the estimated fair value of the collateral and amortized cost basis of the assets as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized costs basis of the loan. The Company's estimate of the ACL reflects losses expected over the remaining contractual life of the loan and the contractual term does not consider extensions, renewals, or modifications.

The Company's qualitative factors are considered by qualitatively adjusting model results for risk factors that are not considered within the modeling processes but are nonetheless relevant in assessing the expected credit losses within the loan pools. These qualitative factors and other qualitative adjustments may increase or decrease the Company's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making qualitive adjustments include among other things the impact of the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i. Changes
 in lending policies and procedures, including changes in underwriting standards and collections,
 charge offs, and recovery practices

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ii. Changes
 in international, national, regional, and local economic and business conditions

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;iii. Changes
 in the nature and volume of the portfolio and in the terms of the underlying loans

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;iv. Changes
 in the experience, depth, and ability of the lending management and staff

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;v. Changes
 in volume and severity of past due loans and other similar conditions

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;vi. Changes
 in the quality of the organization's loan review system

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Allowance for credit losses (ACL) - Loans (continued):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;vii. Changes
 in the value of the underlying collateral for loans that are non-collateral dependent

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;viii. The
 existence and effect of any concentrations of credit and changes in the levels of such concentrations

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ix. The
 effect of other external factors such as regulatory, legal and technological environments;
 competition; and events such as natural disasters or health pandemics

The following portfolio segments have been identified: commercial, real estate and consumer.

Management considers the following when assessing the risk in the loan portfolio:

Commercial and industrial and agricultural loans are primarily for working capital, physical asset expansion, asset acquisition and other. These loans are made based primarily on historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Financial information is obtained from the borrowers to evaluate cash flows sufficiency to service debt and are periodically updated during the life of the loan.

Agricultural real estate and commercial real estate loans are dependent on the industries tied to these loans. Agricultural real estate loans are primarily for land acquisition. Commercial real estate loans are primarily secured by office and industrial buildings, warehouses, small retail shopping facilities, single family rental, multifamily loans, and various special purpose properties, including hotels and restaurants. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service debt and is periodically updated during the life of the loan. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Allowance for credit losses (ACL) - Loans (continued):

Commercial real estate loans also include construction and land development loans. These loans are secured by vacant land and/or property that are in the process of improvement, including (a) land development preparatory to erecting vertical improvements or (b) the on-site construction of industrial, commercial, residential or farm buildings. Repayment of these loans can be dependent on the sale of the property to third parties or the successful completion of the improvements by the builder for the end user. In the event a loan is made on property that is not yet improved for the planned development, there is the risk that necessary approvals will not be granted or will be delayed. Construction loans also run the risk that improvements will not be completed on time or in accordance with specifications and projected costs.

Consumer real estate loans are affected by the local residential real estate market, the local economy, and, for variable rate mortgages, movement in indices tied to these loans. At the time of origination, the Company evaluates the borrower's repayment ability through a review of debt to income and credit scores. Appraisals are obtained to support the loan amount. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service debt at the time of origination.

Consumer and other loans may take the form of installment loans, demand loans or single payment loans and are extended to individuals for household, family and other personal expenditures. At the time of origination, the Company evaluates the borrower's repayment ability through a review of debt to income and credit scores.

Allowance for Credit Losses – Off-Balance-Sheet Credit Exposures

The allowance for credit losses on off-balance-sheet credit exposures is a liability account, representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if the Company has the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in the consolidated balance sheets. Adjustments to the allowance are reported in the consolidated income statement as a component of credit loss expense. The allowance for credit losses on off-balance-sheet credit exposures is described more fully in Note 4.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Loan commitments:

The Bank enters into off-balance-sheet financial instruments consisting of commitments to extend credit and letters of credit issued to meet customer financing needs. Loan commitments are recorded when they are funded. Standby letters of credit are considered financial guarantees in accordance with GAAP and are recorded at fair value, if material.

Loan servicing:

Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans and are reported in other assets. When the originating mortgage loans are sold into the secondary market, the Company allocates the total cost of the mortgage loans between mortgage servicing rights and the loans, based on their relative fair values. The cost of originated mortgage-servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. The amount of impairment is the amount by which the capitalized mortgage servicing rights exceed their fair value. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions.

Mortgage loan derivatives:

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are to be accounted for as free-standing derivatives. The Company enters into these best efforts forward commitments and mandatory delivery forward commitments in order to hedge the change in interest rates resulting from its commitments to fund the loans. The Company also enters into over-the-counter contracts for the future delivery of mortgage backed securities. These contracts are fair value hedges, which are also used to offset the interest rate risk related to granting interest rate locks. The fair values of these derivatives are estimated based on the expected net future cash flows related to the associated servicing of the loans and changes in mortgage interest rates from the date of the commitments. In estimating fair value, the Company assigns a probability to the commitment based on an expectation that it will be exercised and the loan will be funded. These derivatives are included in other assets and other liabilities with changes in fair values on these derivatives included in net gains on sales of mortgage loans.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Foreclosed assets:

Assets acquired through or in lieu of loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair market value less estimated cost to sell. At the date of acquisition losses are charged to the allowance for credit losses, and subsequent write downs are charged to expense in the period incurred. Operating costs after acquisition are expensed.

Bank premises and equipment:

Land is carried at cost. Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally by using the straight-line method over the estimated useful lives. Building and improvements are depreciated from five to forty years and furniture and equipment from three to fifteen years.

Goodwill and other intangibles:

The premium paid on the assumption of deposit liabilities and the fair value of net assets acquired is accounted for as goodwill and other intangibles. Goodwill and other intangible assets determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. Intangible assets with definite useful lives are amortized over their estimated useful lives, which is ten years. Goodwill is the only intangible asset with an indefinite useful life on the balance sheet.

Goodwill is evaluated at the reporting unit level annually for impairment or more frequently if impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements.

Bank owned life insurance:

The Bank has purchased life insurance policies on certain key employees. The Bank- owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Transfers of financial assets:

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Comprehensive income:

Comprehensive income consists of net income and other comprehensive income (loss). Accumulated other comprehensive loss includes unrealized gains and losses on securities available for sale, and is recognized as separate components of stockholders' equity.

Reclassification adjustments out of other comprehensive income (loss) for gains realized on sales and calls of securities available for sale comprise the entire balance of "Net gain on sales of available-for-sale securities" on the consolidated statements of income.

Stock compensation plans:

The Company records stock-based employee compensation cost using the fair value method. Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of grant. The Company begins to record compensation expense in the subsequent calendar year as options are historically issued every two years in December. A Black-Sholes model is used to estimate the fair value of stock options. The Company assumes no projected forfeitures on its stock based compensation, since actual historical forfeiture rates on its stock-based incentive awards have been negligible.

Income taxes:

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Income taxes (continued):

The Company may also recognize a liability for unrecognized tax benefits from uncertain tax positions. Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured in the financial statements. Interest and penalties related to unrecognized tax benefits are classified as income taxes, if applicable. No liabilities for unrecognized tax benefits from uncertain tax positions have been recorded.

Earnings per share:

Basic earnings per common share are computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under the Company's stock options.

Recent Accounting Pronouncements:

In November 2023, the FASB issued ASU 2023-07, *Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures.* The amendments in ASU 2023-07 provide for new disclosures which: (1) require that a public entity disclose on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss; (2) require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition; (3) require that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by Topic 280 in interim periods; (4) allows more than one measure of segment profit or loss used by the CODM when assessing segment performance and deciding how to allocate resources to be disclosed; (5) require disclosure of title and position of CODM and explain how the CODM uses the disclosed reported measurers to assess segment performance; and (6) require that a public entity that has a single reportable segment provide all the disclosures required by the amended Topic 280. The amendments in this update are effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments in this update are required to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories and the amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company adopted this accounting standard effective January 1, 2024, and the Company's financial condition, results of operations and cash flows were not impacted by this guidance. The Company has provided the required disclosures for its reportable segments.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(2)**  **<u>Cash and Due from Banks</u>:** 

The Bank is required to maintain reserve balances, in cash or on deposit with the Federal Reserve Bank, based upon a percentage of deposits. The total required reserve balances as of December 31, 2024 and 2023 were $0.

In the normal course of business, the Company maintains cash and due from bank balances with correspondent banks. Balances in these accounts may exceed the Federal Deposit Insurance Corporation's (FDIC's) insured limit of $250. Management believes these financial institutions have strong credit ratings and the credit risk related to these deposits is minimal. At December 31, 2024, the Company's cash accounts exceeded federally insured limits by $888. The Company also had $26,564 at the Federal Home Loan Bank and Federal Reserve Bank, which are government-sponsored entities not insured by the FDIC.

**(3)**  **<u>Debt Securities Available for Sale</u>:** 

The following tables reflect the amortized cost and fair value of debt securities available for sale as of December 31:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2024** | **2024** | **2024** | **2024** | **2024** |
|  | **Amortized Cost** | **Gross Unrealized Gains** | **Gross Unrealized (Losses)** | **Fair Value** |
| U.S. Treasuries & Govt. - sponsored agencies | $39650 | $0 | $(2171) | $37479 |
| State and municipal | 59958 | 172 | (3866) | 56264 |
| Mortgage-backed - residential | 42520 | 0 | (6189) | 36331 |
| Collateralized mortgage |  |  |  |  |
| Obligations (CMOs) | 15881 | 0 | (2220) | 13661 |
|  | $158009 | $172 | $(14446) | $143735 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2023** | **2023** | **2023** | **2023** | **2023** |
|  | **Amortized Cost** | **Gross Unrealized Gains** | **Gross Unrealized (Losses)** | **Fair Value** |
| U.S. Treasuries & Govt. - sponsored agencies | $61318 | $0 | $(2817) | $58501 |
| State and municipal | 65125 | 411 | (3322) | 62214 |
| Mortgage-backed - residential | 45943 | 0 | (6168) | 39775 |
| Collateralized mortgage |  |  |  |  |
| Obligations (CMOs) | 16655 | 0 | (2299) | 14356 |
|  | $189041 | $411 | $(14606) | $174846 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(3)**  **<u>Debt Securities Available for Sale (continued)</u>:** 

Debt securities with a carrying amount of approximately $67,149 and $84,650 at December 31, 2024 and 2023, respectively, were pledged as collateral on public deposits, debt securities sold under agreements to repurchase and for other purposes as required or permitted by law.

At December 31, 2024 and 2023, there were no holdings of debt securities of any one issuer, other than the U.S. Government and its sponsored agencies, in an amount greater than 10% of stockholders' equity.

As of December 31, 2024 and 2023, accrued interest on debt securities available-for-sale of $629 and $751, respectively, was excluded from CECL evaluation. Accrued interest on debt securities available-for-sale is recorded within accrued interest receivable on the consolidated balance sheet.

The amortized cost and approximate fair value of debt securities at December 31, 2024 by contractual maturity are shown below. Expected maturities may differ from contractual maturities on mortgage-backed and collateralized mortgage obligation debt securities because the underlying mortgages may be called or prepaid without any penalties.

---

| | | |
|:---|:---|:---|
|  | **Amortized Cost** | **Fair Value** |
| Due in one year or less | $10599 | $10520 |
| Due after one year through five years | 51156 | 48839 |
| Due after five years through ten years | 16364 | 15305 |
| Due after ten years | 21489 | 19079 |
|  | 99608 | 93743 |
| Mortgage-backed – residential | 42520 | 36331 |
| Collateralized mortgage obligations | 15880 | 13661 |
|  | $158008 | $143735 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(3)**  **<u>Debt Securities Available-for-Sale (continued)</u>:** 

Debt securities with unrealized losses as of December 31 not recognized in income are as follows:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **2024** | **2024** | **2024** | **2024** | **2024** | **2024** | **2024** |
|  | **Less than 12 Months** | **Less than 12 Months** | **12 Months or More** | **12 Months or More** | **Total** | **Total** |
|  | **Fair**<br> **Value** | **Unrealized Loss** | **Fair**<br> **Value** | **Unrealized Loss** | **Fair**<br> **Value** | **Unrealized Loss** |
| U.S Treas. & Gov't - sponsored agencies | $0 | $0 | $37479 | $2171 | $374791 | $2171 |
| State and municipal | 9719 | 65 | 33978 | 3801 | 436977 | 3866 |
| CMOs | 961 | 41 | 12699 | 2178 | 136601 | 2219 |
| Mortgage-backed –residential | 943 | 8 | 34094 | 6181 | 350375 | 6189 |
| Total temporarily impaired | $11623 | $114 | $118250 | $14331 | $1298733 | $14445 |

---

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **2023** | **2023** | **2023** | **2023** | **2023** | **2023** | **2023** |
|  | **Less than 12 Months** | **Less than 12 Months** | **12 Months or More** | **12 Months or More** | **Total** | **Total** |
|  | **Fair**<br> **Value** | **Unrealized Loss** | **Fair**<br> **Value** | **Unrealized Loss** | **Fair**<br> **Value** | **Unrealized Loss** |
| U.S Treas. & Gov't - sponsored agencies | $19763 | $73 | $38738 | $2744 | $585011 | $2817 |
| State and municipal | 7727 | 51 | 30660 | 3271 | 383877 | 3322 |
| CMOs | 0 | 0 | 14356 | 2299 | 143567 | 2299 |
| Mortgage-backed–residential | 0 | 0 | 39775 | 6168 | 397755 | 6168 |
| Total temporarily impaired | $27490 | $124 | $123529 | $14482 | $1510199 | $14606 |

---

At December 31, 2024 and 2023, the investment portfolio included 173 and 155 debt securities that were in an unrealized loss position, respectively. Unrealized losses have not been recognized as an allowance for credit losses because the Company does not intend to sell the securities prior to their anticipated recovery and the decline in fair value is largely due to changes in interest rates and other market conditions.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans</u>:** 

The following table presents total loans at December 31 by portfolio segment and class of loan:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Commercial: |  |  |
| &nbsp;&nbsp;&nbsp;Commercial and industrial | $69720 | $78118 |
| &nbsp;&nbsp;&nbsp;Agricultural | 80577 | 75334 |
| &nbsp;&nbsp;&nbsp;Other | 0 | 32 |
| Real estate: |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | 538810 | 509688 |
| &nbsp;&nbsp;&nbsp;Consumer | 386475 | 373998 |
| &nbsp;&nbsp;&nbsp;Agricultural | 170401 | 178549 |
| &nbsp;&nbsp;&nbsp;Construction and land | 21841 | 48381 |
| Consumer: |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 4196 | 4592 |
| &nbsp;&nbsp;&nbsp;Vehicle | 3119 | 3654 |
| &nbsp;&nbsp;&nbsp;Credit cards | 1270 | 1256 |
| Total loans | 1276409 | 1273602 |
| Allowance for credit losses | (14444) | (15990) |
| Loans, net | $1261965 | $1257612 |

---

Detailed analysis of the allowance for credit losses by portfolio segment for the year ended December 31, 2024 follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2024** | <br>**Commercial** | **Real**<br> **Estate** | <br>**Consumer** | <br>**Total** |
| Balance at beginning of year | $1177 | $14688 | $125 | $15990 |
| &nbsp;&nbsp;&nbsp;Credit loss expense | (77) | (1489) | 120 | (1446) |
| &nbsp;&nbsp;&nbsp;Recoveries on loans previously charged-off | 24 | 30 | 10 | 64 |
| &nbsp;&nbsp;&nbsp;Less loans charged-off | (23) | (28) | (113) | (164) |
| Balance at end of year | $1101 | $13201 | $142 | $14444 |

---

Detailed analysis of the allowance for credit losses by portfolio segment for the year ended December 31, 2023 follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2023** | <br>**Commercial** | **Real**<br> **Estate** | <br>**Consumer** | <br>**Total** |
| Balance at beginning of year | $2488 | $10399 | $202 | $13089 |
| &nbsp;&nbsp;&nbsp;Impact of adopting ASC 326 | (824) | 4463 | (83) | 3556 |
| &nbsp;&nbsp;&nbsp;Credit loss expense | (526) | (442) | 61 | (907) |
| &nbsp;&nbsp;&nbsp;Recoveries on loans previously <br>charged-off | 40 | 416 | 30 | 486 |
| &nbsp;&nbsp;&nbsp;Less loans charged-off | (1) | (148) | (85) | (234) |
| Balance at end of year | $1177 | $14688 | $125 | $15990 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

Detailed analysis of the allowance for unfunded commitments for the year ended December 31, 2024 follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2024** | **Commercial** | **Real**<br> **Estate** | **Consumer** | **Total** |
| Balance at beginning of year | $201 | $621 | $3 | $825 |
| Credit loss expense (benefit) | (105) | 268 | (1) | 162 |
| Balance at end of year | $96 | $889 | $2 | $987 |

---

Detailed analysis of the allowance for unfunded commitments for the year ended December 31, 2023 follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2023** | **Commercial** | **Real**<br> **Estate** | **Consumer** | **Total** |
| Balance at beginning of year | $0 | $0 | $0 | $0 |
| &nbsp;&nbsp;&nbsp;Impact of adopting ASC 326 | 338 | 427 | 3 | 768 |
| &nbsp;&nbsp;&nbsp;Credit loss expense (benefit) | (137) | 194 | 0 | 57 |
| &nbsp;&nbsp;&nbsp;Less loans charged-off | 0 | 0 | 0 | 0 |
| Balance at end of year | $201 | $621 | $3 | $825 |

---

The Bank has no commitments to loan additional funds to the borrowers of collateral dependent or non-accrual loans.

Certain purchased loans as later discussed in Note 4 are not considered impaired or non-accrual loans if the expected cash flows as of December 31, 2024 and 2023 exceed the carrying amount and accretion income is being recorded.

The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for credit losses. The Company generally monitors credit quality indicators for all non-consumer loans using the following internally prepared ratings:

● 'Pass' ratings are assigned to loans with adequate collateral and debt service ability such that collectability of the contractual loan payments is highly probable.

● 'Special Mention' ratings are assigned to loans where management has some concern that the collateral or debt service ability may not be adequate, though the collectability of the contractual loan payments is still probable.

● 'Substandard' ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that collectability of the contractual loan payments is no longer probable.

● 'Doubtful' ratings are assigned to loans that do not have adequate collateral and/or debt service ability, and collectability of the contractual loan payments is unlikely.

As of December 31, 2024 and 2023, accrued interest on loans of $6,902 and $6,883, respectively, were excluded from CECL evaluation. Accrued interest on loans is recorded within accrued interest receivable on the consolidated balance sheet.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

The following table presents the credit risk profile of the Company's loan portfolio (excluding loans in process and deferred loan fees) based on rating category and year of origination as of December 31, 2024:

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**December 31,** | <br>**2024** | <br>**2023** | <br>**2022** | <br>**2021** | <br>**2020** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| **Commercial:** |  |  |  |  |  |  |  |  |
| Commercial and industrial |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | 17359 | $9286 | $8665 | $2960 | $2604 | $7774 | $16044 | $64692 |
| &nbsp;&nbsp;&nbsp;Watch | 899 | 390 | 345 | 65 | 169 | 0 | 1475 | 3343 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 506 | 22 | 0 | 0 | 0 | 471 | 999 |
| &nbsp;&nbsp;&nbsp;Substandard | 353 | 54 | 0 | 270 | 9 | 0 | 0 | 686 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total Commercial and industrial** | $18611 | $10236 | $9032 | $3295 | $2782 | $7774 | $17990 | $69720 |
| Agricultural: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $3008 | $3096 | $6427 | $6235 | $261 | $196 | $57020 | $76243 |
| &nbsp;&nbsp;&nbsp;Watch | 32 | 70 | 74 | 168 | 0 | 524 | 2117 | 2985 |
| &nbsp;&nbsp;&nbsp;Special Mention | 148 | 782 | 0 | 90 | 0 | 0 | 329 | 1349 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Agricultural | $3188 | $3948 | $6501 | $6493 | $261 | $720 | $59466 | $80577 |
| Other |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | **0** | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Other | $0 | $— | $0 | $0 | $0 | $0 | $0 | $0 |
| **Real Estate** |  |  |  |  |  |  |  |  |
| Commercial |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $58904 | $68080 | $125841 | $64969 | $47115 | $104386 | $11231 | $480526 |
| &nbsp;&nbsp;&nbsp;Watch | 3765 | 3857 | 9916 | 12514 | 1792 | 13332 | 6460 | 51636 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 215 | 0 | 1008 | 35 | 1258 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 2525 | 0 | 1341 | 460 | 687 | 377 | 5390 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Commercial | $62669 | $74462 | $135757 | $79039 | $49367 | $119413 | $18103 | $538810 |
| Consumer |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $48876 | $65610 | $89293 | $49563 | $24547 | $61346 | $24147 | $363382 |
| &nbsp;&nbsp;&nbsp;Watch | 5687 | 4325 | 828 | 3950 | 2460 | 3337 | 1314 | 21901 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 97 | 67 | 0 | 78 | 0 | 0 | 242 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 423 | 43 | 0 | 464 | 20 | 950 |
| &nbsp;&nbsp;&nbsp;Doubtful | **0** | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Consumer | $54563 | $70032 | $90611 | $53556 | $27085 | $65147 | $25481 | $386475 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**December 31,** | <br>**2024** | <br>**2023** | <br>**2022** | <br>**2021** | <br>**2020** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| **Real Estate Continued):** |  |  |  |  |  |  |  |  |
| Agricultural |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $12755 | $15988 | $30714 | $28249 | $11761 | $44010 | $16528 | $160005 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 1393 | 1800 | 0 | 1323 | 3560 | 0 | 8076 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 340 | 1148 | 690 | 2178 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 142 | 0 | 0 | 0 | 0 | 0 | 142 |
| &nbsp;&nbsp;&nbsp;Doubtful | **0** | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Agricultural | $12755 | $17523 | $32514 | $28249 | $13424 | $48718 | $17218 | $170401 |
| Construction and land: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $9734 | $4020 | $938 | $603 | $578 | $3426 | $219 | $19518 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 507 | 1740 | 0 | 0 | 0 | 76 | 2323 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total Construction and land** | $9734 | $4527 | $2678 | $603 | $578 | $3426 | $295 | $21841 |
| **Consumer** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $1416 | $910 | $507 | $514 | $313 | $449 | $47 | $4156 |
| &nbsp;&nbsp;&nbsp;Watch | 7 | 0 | 9 | 22 | 0 | 2 | 0 | 40 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;**Doubtful** | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Consumer | $1423 | $910 | $516 | $536 | $313 | $451 | $47 | $4196 |
| Vehicle |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $1225 | $948 | $670 | $165 | $36 | $0 | $0 | $3044 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 0 | 1 | 0 | 0 | 1 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 64 | 10 | 0 | 0 | 0 | 0 | 74 |
| &nbsp;&nbsp;&nbsp;**Doubtful** | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Vehicle | $1225 | $1012 | $680 | $165 | $37 | $0 | $0 | $3119 |
| Credit cards |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $1270 | 0 | 0 | 0 | 0 | 0 | 0 | $1270 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;**Doubtful** | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Credit Cards | $1270 | $0 | $0 | $0 | $0 | $0 | $0 | $1270 |
| **Total Loans** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $154547 | $167938 | $263055 | $153258 | $87215 | $221587 | $125236 | $1172836 |
| &nbsp;&nbsp;&nbsp;Watch | 10390 | 10542 | 14712 | 16719 | 5746 | 20755 | 11442 | 90306 |
| &nbsp;&nbsp;&nbsp;Special Mention | 148 | 1385 | 89 | 305 | 418 | 2156 | 1525 | 6026 |
| &nbsp;&nbsp;&nbsp;Substandard | 353 | 2785 | 433 | 1654 | 469 | 1151 | 396 | 7241 |
| &nbsp;&nbsp;&nbsp;Doubtful | **0** | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total** | $**165438** | $**182650** | $**278289** | $**171936** | $**93848** | $**245649** | $**138599** | $**1276409** |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

The following table presents the credit risk profile of the Company's loan portfolio (excluding loans in process and deferred loan fees) based on rating category and year of origination as of December 31, 2023.

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**December 31,** | <br>**2023** | <br>**2022** | <br>**2021** | <br>**2020** | <br>**2019** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| **Commercial:** |  |  |  |  |  |  |  |  |
| Commercial and industrial |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $19492 | $12939 | $5555 | $4739 | $4657 | $5003 | $14905 | $67290 |
| &nbsp;&nbsp;&nbsp;Watch | 1418 | 943 | 207 | 171 | 102 | 18 | 6993 | 9852 |
| &nbsp;&nbsp;&nbsp;Special Mention | 11 | 0 | 0 | 53 | 0 | 0 | 460 | 524 |
| &nbsp;&nbsp;&nbsp;Substandard | 136 | 0 | 316 | 0 | 0 | 0 | 0 | 452 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total Commercial and industrial** | $21057 | $13882 | $6078 | $4963 | $4759 | $5021 | $22358 | $78118 |
| Agricultural: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $4129 | $8787 | $9187 | $491 | $609 | $116 | $47539 | $70858 |
| &nbsp;&nbsp;&nbsp;Watch | 60 | 100 | 350 | 3 | 45 | 603 | 2324 | 3485 |
| &nbsp;&nbsp;&nbsp;Special Mention | 811 | 0 | 0 | 0 | 0 | 0 | 180 | 991 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | **0** | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Agricultural | $5000 | $8887 | $9537 | $494 | $654 | $719 | $50043 | $75334 |
| Other |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 32 | 0 | 0 | 0 | 0 | 32 |
| &nbsp;&nbsp;&nbsp;Doubtful | **0** | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Other | $0 | $— | $32 | $0 | $0 | $0 | $0 | $32 |
| **Real Estate** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $82468 | $130636 | $72322 | $50202 | $23306 | $98019 | $11453 | $468406 |
| &nbsp;&nbsp;&nbsp;Watch | 4882 | 5118 | 9649 | 565 | 3588 | 9706 | 2092 | 35600 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 224 | 460 | 0 | 442 | 40 | 1166 |
| &nbsp;&nbsp;&nbsp;Substandard | 1202 | 162 | 1685 | 0 | 434 | 932 | 101 | 4516 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Commercial | $88552 | $135916 | $83880 | $51227 | $27328 | $109099 | $13686 | $509688 |
| Consumer |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $81704 | $95716 | $57205 | $27779 | $11633 | $63789 | $22303 | $360129 |
| &nbsp;&nbsp;&nbsp;Watch | 3226 | 826 | 2425 | 2285 | 309 | 3178 | 624 | 12873 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 71 | 0 | 82 | 0 | 0 | 0 | 153 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 65 | 0 | 0 | 0 | 778 | 0 | 843 |
| &nbsp;&nbsp;&nbsp;Doubtful | **0** | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Consumer | $84930 | $96678 | $59630 | $30146 | $11942 | $67745 | $22927 | $373998 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**December 31,** | <br>**2023** | <br>**2022** | <br>**2021** | <br>**2020** | <br>**2019** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| **Real Estate Continued):** |  |  |  |  |  |  |  |  |
| Agricultural |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $18163 | $34193 | $30433 | $12464 | $6517 | $42944 | $18585 | $163299 |
| &nbsp;&nbsp;&nbsp;Watch | 1422 | 1184 | 14 | 1404 | 733 | 4880 | 80 | 9717 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 354 | 418 | 171 | 0 | 943 |
| &nbsp;&nbsp;&nbsp;Substandard | 4590 | 0 | 0 | 0 | 0 | 0 | 0 | 4590 |
| &nbsp;&nbsp;&nbsp;**Doubtful** | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Agricultural | $24175 | $35377 | $30447 | $14222 | $7668 | $47995 | $18665 | $178549 |
| Construction and land: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $13463 | $14058 | $7891 | $3747 | $1750 | $6161 | $0 | $47070 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 815 | 0 | 0 | 366 | 130 | 1311 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total Construction and land** | $13463 | $14058 | $8706 | $3747 | $1750 | $6527 | $130 | $48381 |
| **Consumer** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $1905 | $773 | $698 | $423 | $275 | $430 | $37 | $4541 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 4 | 27 | 0 | 0 | 4 | 0 | 35 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 13 | 0 | 0 | 2 | 1 | 0 | 16 |
| &nbsp;&nbsp;&nbsp;**Doubtful** | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Consumer | $1905 | $790 | $725 | $423 | $277 | $435 | $37 | $4592 |
| Vehicle |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $1835 | $1233 | $384 | $119 | $28 | $16 | $0 | $3615 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 6 | 0 | 0 | 0 | 6 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 33 | 0 | 0 | 0 | 0 | 33 |
| &nbsp;&nbsp;&nbsp;**Doubtful** | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Vehicle | $1835 | $1233 | $417 | $125 | $28 | $16 | $0 | $3654 |
| Credit cards |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $1256 | 0 | 0 | 0 | 0 | 0 | 0 | $1256 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Credit Cards | $1256 | $0 | $0 | $0 | $0 | $0 | $0 | $1256 |
| **Total Loans** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $224415 | $298335 | $183675 | $99964 | $48775 | $216478 | $114822 | $1186464 |
| &nbsp;&nbsp;&nbsp;Watch | 11008 | 8175 | 13487 | 4434 | 4777 | 18755 | 12243 | 72879 |
| &nbsp;&nbsp;&nbsp;Special Mention | 822 | 71 | 224 | 949 | 418 | 613 | 680 | 3777 |
| &nbsp;&nbsp;&nbsp;Substandard | 5928 | 240 | 2066 | 0 | 436 | 1711 | 101 | 10482 |
| &nbsp;&nbsp;&nbsp;Doubtful | **0** | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total** | $**242173** | $**306821** | $**199452** | $**105347** | $**54406** | $**237557** | $**127846** | $**1273602** |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of December 31, 2024:

---

| | | | |
|:---|:---|:---|:---|
| <br>**2024** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Nonaccrual** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Nonaccrual With No ACL** | **Loans Past Due Over 89 Days and Still Accruing** |
| Commercial: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | $279 | $9 | $0 |
| &nbsp;&nbsp;&nbsp;Agricultural | 0 | 0 | 0 |
| Real estate: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 2974 | 477 | 353 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Consumer real estate | 292 | 292 | 193 |
| Consumer: |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 24 | 0 | 49 |
| Total | $3569 | $778 | $595 |

---

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of December 31, 2023:

---

| | | | |
|:---|:---|:---|:---|
| <br>**2023** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Nonaccrual** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Nonaccrual With No ACL** | **Loans Past Due Over 89 Days and Still Accruing** |
| Commercial: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | $316 | $0 | $7 |
| &nbsp;&nbsp;&nbsp;Agricultural | 0 | 0 | 0 |
| Real estate: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 1355 | 1355 | 510 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 0 | 0 | 4590 |
| &nbsp;&nbsp;&nbsp;Consumer real estate | 105 | 103 | 144 |
| Consumer: |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 1 | 1 | 31 |
| Total | $1777 | $1459 | $5282 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

Loan aging information by class of loan for the years ended December 31:

---

| | | | |
|:---|:---|:---|:---|
| **2024** | **Loans Past Due**<br>**30-89 Days** | **Loans Past Due**<br>**90+ Days** | **Total**<br>**Past Due** |
| Commercial: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | $97 | $9 | $106 |
| &nbsp;&nbsp;&nbsp;Agricultural | 211 | 0 | 211 |
| Real estate: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 385 | 3327 | 3712 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 1613 | 0 | 1613 |
| &nbsp;&nbsp;&nbsp;Consumer real estate | 2848 | 375 | 3223 |
| Consumer: |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 164 | 73 | 237 |
| Total | $5318 | $3784 | $9102 |

---

---

| | | | |
|:---|:---|:---|:---|
| **2023** | **Loans Past Due**<br>**30-89 Days** | **Loans Past Due**<br>**90+ Days** | **Total**<br>**Past Due** |
| Commercial: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | $191 | $141 | $332 |
| &nbsp;&nbsp;&nbsp;Agricultural | 22 | 0 | 22 |
| Real estate: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 1396 | 1825 | 3221 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 490 | 4590 | 5080 |
| &nbsp;&nbsp;&nbsp;Consumer real estate | 2216 | 144 | 2360 |
| Consumer: |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 124 | 31 | 155 |
| Total | $4439 | $6731 | $11170 |

---

The following table represents collateral dependent loans. A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and the repayment is expected to be provided substantially through the operation or sale of collateral. The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2024** | **Commercial** | **Real**<br> **Estate** | **Vehicle** | **Total** |
| &nbsp;&nbsp;&nbsp;Commercial and industrial | $324 | $0 | $0 | $324 |
| &nbsp;&nbsp;&nbsp;Commercial other | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Consumer vehicle | 0 | 0 | 74 | 74 |
| &nbsp;&nbsp;&nbsp;Consumer other | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 0 | 142 | 0 | 142 |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 375 | 5303 | 0 | 5678 |
| &nbsp;&nbsp;&nbsp;Residential real estate | 0 | 1040 | 0 | 1040 |
| Totals | $699 | $6485 | $74 | $7258 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of December 31:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2023** | <br>**Commercial**  | <br>**Real**<br> **Estate** | <br>**Vehicle** | <br>**Total** |
| &nbsp;&nbsp;&nbsp;Commercial and industrial | $353 | $99 | $0 | $452 |
| &nbsp;&nbsp;&nbsp;Commercial other | 0 | 0 | 33 | 33 |
| &nbsp;&nbsp;&nbsp;Consumer vehicle | 0 | 0 | 33 | 33 |
| &nbsp;&nbsp;&nbsp;Consumer other | 0 | 0 | 16 | 16 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 0 | 4590 | 0 | 4590 |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 0 | 4516 | 0 | 4516 |
| &nbsp;&nbsp;&nbsp;Residential real estate | 0 | 843 | 0 | 843 |
| Totals | $353 | $10048 | $82 | $10483 |

---

The Company had no loans modified to borrowers experiencing financial difficulty as of and during the year ended December 31, 2024 and 2023.

The current fiscal year-to-date gross charge-offs by loan class and year of origination is presented in the following table:

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**December 31,** | <br>**2024** | <br>**2023** | <br>**2022** | <br>**2021** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| Commercial and industrial | $0 | $22 | $1 | $0 | $0 | $0 | $23 |
| Commercial agricultural | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Commercial other | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate commercial | 0 | 0 | 28 | 0 | 0 | 0 | 28 |
| Real estate consumer | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate agricultural | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate construction and land | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Consumer vehicle | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Consumer other | 82 | 5 | 3 | 0 | 0 | 0 | 90 |
| Credit cards | 0 | 1 | 1 | 3 | 18 | 0 | 23 |
| &nbsp;&nbsp;&nbsp;Total current- period gross charge-offs | $82 | $28 | $33 | $3 | $18 | $0 | $164 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

The December 31, 2023 fiscal year-to-date gross charge-offs by loan class and year of origination is presented in the following table:

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**December 31,** | <br>**2023** | <br>**2022** | <br>**2021** | <br>**2020** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| Commercial and industrial | $0 | $0 | $0 | $0 | $1 | $0 | $1 |
| Commercial agricultural | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Commercial other | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate commercial | 0 | 148 | 0 | 0 | 0 | 0 | 148 |
| Real estate consumer | 58 | 3 | 2 | 0 | 0 | 0 | 63 |
| Real estate agricultural | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate construction and land | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Consumer vehicle | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Consumer other | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Credit cards | 0 | 0 | 9 | 2 | 11 | 0 | 22 |
| &nbsp;&nbsp;&nbsp;Total current- period gross charge-offs | $58 | $151 | $11 | $2 | $12 | $0 | $234 |

---

**(5)**  **<u>Servicing</u>:** 

Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates.

Mortgage loans serviced for others as of December 31, 2024 and 2023 were approximately $487,578 and $511,688, respectively. Custodial escrow balances maintained in conjunction with serviced loans and included in cash and due from banks were approximately $3,152 and $2,921 at December 31, 2024 and 2023, respectively.

At December 31, 2024 and 2023, mortgage servicing rights, net of amortization, totaled approximately $790, and $1,237, respectively, and are carried as other assets. The fair value of mortgage servicing rights approximated $5,274, $5,776, and $5,930 at December 31, 2024, 2023, and 2022, respectively. The mortgage servicing rights are applicable only to the Bank and evaluated and measured for impairment as a single class.

The following summarizes the activity pertaining to mortgage servicing rights, which is included in other assets, for the years ended December 31:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Mortgage servicing rights: |  |  |
| &nbsp;&nbsp;&nbsp;Balance at beginning of year | $1237 | $2050 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage servicing rights new/capitalized | 218 | 181 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage servicing rights amortized | (665) | (994) |
| &nbsp;&nbsp;&nbsp;Balance at end of year | $790 | $1237 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(6)**  **<u>Mortgage Banking Commitments</u>:** 

The Company enters into commitments to fund residential mortgage loans (interest rate lock commitments, or IRLC) at specified times in the future, with the intention that these loans will be subsequently sold to third-party investors. A mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the interest rate lock. These mortgage loan commitments are considered to be derivatives. As of December 31, 2024 and 2023, the Company had approximately $16,121 and $16,626, respectively, in interest rate lock commitments outstanding.

To protect against the price risk inherent in derivative loan commitments, the Company utilizes both "mandatory delivery" and "best efforts" forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. During 2024 and 2023, the Mortgage Banking Company used both "best efforts" and "mandatory delivery" and the Bank used "mandatory delivery" forward loan sale commitments. To facilitate the hedging of the loans, the Company has elected the fair value option for loans held for sale. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company's policy on loans held for investment. None of these loans are 90 days or more past due nor on non-accrual as of December 31, 2024.

As of December 31, 2024 and 2023, the aggregate fair value, contractual balance, and gain or loss were as follows:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| &nbsp;&nbsp;&nbsp;Aggregate fair value | $9010 | $10189 |
| &nbsp;&nbsp;&nbsp;Contractual balance | 8825 | 9759 |
| Gain | $185 | $430 |

---

Changes in the fair value of loans held for sale, interest rate lock commitments and forward contracts are recorded in mortgage banking income in noninterest income.

Best efforts sale commitments are contracts to deliver certain mortgage loans to third-party investors at a specified date and price only if the underlying loan is funded. At December 31, 2024 and 2023, the Company had approximately $4,050 and $2,787, respectively, in best effort forward sale commitments outstanding.

Mandatory forward sale commitments are contracts to deliver a certain principal amount of mortgage loans to a third-party investor at a specified date and price. If the contractual amount of mortgages are not delivered, then a "pair-off fee" is assessed based on then-current market prices. At December 31, 2024 and 2023, the Company had approximately $19,814 and $23,812, respectively, in mandatory forward sale commitments outstanding.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(6)**  **<u>Mortgage Banking Commitments (continued)</u>:** 

The following table provides the components of income from mortgage banking activities for the year ended December 31, 2024 and 2023:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Gain on loans sold | $10290 | $8930 |
| Gain (loss) resulting from the change in fair value of loans held-for-sale | (245) | 277 |
| Gain (loss) resulting from the change in fair value of derivatives | (183) | 217 |
| Gain (loss) resulting from the change in forward contracts | 62 | (129) |
| Total | $9924 | $9295 |

---

The fair value of mortgage banking derivatives reported as assets and included in other assets was approximately $188 and $371 at December 31, 2024 and 2023, respectively. Changes in the fair values of these mortgage banking derivatives are included in mortgage banking income.

The Company also enters into over-the-counter contracts for the future delivery of mortgage-backed securities. These contracts are fair value hedges, which are also used to offset the interest rate risk related to granting interest rate locks. It is the Company's practice not to deliver on these contracts for future delivery of mortgage-backed securities. Instead, these contracts are settled with a "pair-off" that is assessed based on then-current market prices. The notional amounts of these contracts were $31,000 and $43,000 as of December 31, 2024 and 2023, respectively. The fair value of these contracts included in other assets and liabilities was approximately $62 and $(129) as of December 31, 2024 and 2023, respectively. Changes in the fair values of these mortgage banking derivatives are included in mortgage banking income.

The IRLCs and forward contracts are not designed as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in other assets in the consolidated balance sheets, while derivative instruments with a negative fair value are reported in other liabilities in the consolidated balance sheets.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(6)**  **<u>Mortgage Banking Commitments (continued)</u>:** 

The following table presents the notional amount and fair value of IRLCs and forward contracts utilized by the Company at December 31:

**Asset Derivatives**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2024** | **2024** | **2023** | **2023** |
|  | **Notional**<br> **Amount** | **Fair**<br> **Value** | **Notional**<br> **Amount** | **Fair**<br> **Value** |
| <u><u>Derivatives not designated as hedging instruments:</u></u> |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IRLCs | $16121 | $188 | $16626 | $371 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | 31000 | 62 | 0 | 0 |

---

**Liability Derivatives**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2024** | **2024** | **2023** | **2023** |
|  | **Notional**<br> **Amount** | **Fair**<br> **Value** | **Notional**<br> **Amount** | **Fair**<br> **Value** |
| <u>Derivatives not designated as hedging instruments:</u> |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | $0 | $0 | $43000 | $(129) |

---

Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the balance sheet date.

The following table summarizes the periodic changes in the fair value of the derivative financial instruments on the consolidated statements of income for the twelve months ended December 31:

Amount of (loss)/gain recognized in the twelve months ended:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| **Asset Derivatives** |  |  |
| <u>Derivatives not designated as hedging instruments</u> |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IRLCs | $(183) | $217 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | (191) | 171 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(7)**  **<u>Bank Premises and Equipment:</u>** 

The cost of bank premises and equipment and the total accumulated depreciation at December 31 is as follows:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Land | $7993 | $7993 |
| Buildings and improvements | 28754 | 27984 |
| Furniture and equipment | 7254 | 7113 |
|  | 44001 | 43090 |
| Less accumulated depreciation | (18657) | (17305) |
|  | $25344 | $25785 |

---

**(8)**  **<u>Foreclosed Assets:</u>** 

Foreclosed assets consist of the following at December 31:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Commercial real estate | 920 | 101 |
| Total | $920 | $101 |

---

Residential real estate loans that are in the process of foreclosure totaled $221 and $137 at December 31, 2024 and 2023, respectively. Commercial real estate loans that are in the process of foreclosure totaled $611 and $4,590 at December 31, 2024 and 2023, respectively.

**(9)**  **<u>Income Taxes</u>:** 

The following table reflects the allocations of federal and state income taxes between current and deferred portions for the years ended December 31:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Federal tax expense (benefit): |  |  |
| &nbsp;&nbsp;&nbsp;Current tax expense | $2470 | $2303 |
| &nbsp;&nbsp;&nbsp;Deferred tax (benefit) | (171) | (97) |
|  | 2299 | 2206 |
| State tax expense: |  |  |
| &nbsp;&nbsp;&nbsp;Current tax expense | 1187 | 1161 |
| &nbsp;&nbsp;&nbsp;Deferred tax (benefit) | (58) | (35) |
|  | 1129 | 1126 |
| Provision for income tax | $3428 | $3332 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(9)**  **<u>Income Taxes (continued)</u>:** 

A reconciliation of the differences between the statutory federal income tax rate and the effective tax rates with the resulting dollar amounts for the years ending December 31 is shown in the following table:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2024** | **2024** | **2023** | **2023** |
|  |<br>**Dollar**<br>**Amount** | **% of**<br>**Pretax**<br>**Income** |<br>**Dollar**<br>**Amount** | **% of**<br>**Pretax**<br>**Income** |
| Income tax at statutory rate | $2910 | 21% | $2809 | 21% |
| Tax-exempt interest income | (331) | (2) | (361) | (3) |
| State taxes, net of federal benefit | 892 | 6 | 889 | 7 |
| Other | (43) | 0 | (5) | 0 |
|  | $3428 | 25% | $3332 | 25% |

---

The components of the net deferred tax assets included in other liabilities are as follows at December 31:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Deferred tax assets: |  |  |
| &nbsp;&nbsp;&nbsp;Allowance for credit losses and warranty reserve | $4330 | $4819 |
| &nbsp;&nbsp;&nbsp;Unfunded commitment | 278 | 235 |
| &nbsp;&nbsp;&nbsp;Deferred compensation | 1605 | 1594 |
| &nbsp;&nbsp;&nbsp;Securities available-for-sale | 4068 | 4406 |
| &nbsp;&nbsp;&nbsp;Compensated absences and other | 1314 | 1106 |
|  | 11595 | 12160 |
| Deferred tax liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Property and equipment | (2657) | (2880) |
| &nbsp;&nbsp;&nbsp;Mortgage servicing rights | (204) | (331) |
| &nbsp;&nbsp;&nbsp;Acquisition accounting differences | (277) | (284) |
| &nbsp;&nbsp;&nbsp;Other | (299) | (398) |
|  | (3437) | (3893) |
|  | $8158 | $8267 |

---

At December 31, 2024, the Company had federal net operating loss carryforwards of approximately $36, which expire at various dates from 2025 to 2026. Deferred tax assets are recognized for net operating losses because the benefit is more likely than not to be realized.

The Company does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months, and there is no reserve for uncertain tax positions.

With few exceptions, the Company is no longer subject to federal or state examinations by tax authorities for years before 2021.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(10)**  **<u>Employee Benefit Plans</u>:** 

The Bank and Mortgage Banking Company sponsor a 401(k) profit-sharing plan, covering substantially all full-time employees who meet eligibility requirements. The Bank and Mortgage Banking Company make discretionary contributions as approved annually by their respective Boards of Directors. The total amounts contributed and charged to expense by the Company were approximately $1,680 and $1,757 for the years ended December 31, 2024 and 2023, respectively.

The Bank has deferred compensation agreements with certain officers and directors. The accrued benefits were approximately $5,692 and $5,591 at December 31, 2024 and 2023, respectively, and the related expense for the years then ended was $481 and $401, respectively. The Bank has purchased life insurance contracts to assist in providing for these liabilities. The Bank is the owner and beneficiary of the life insurance policies, which provide an aggregate death benefit of approximately $44,272 and $44,143 at December 31, 2024 and 2023, respectively. These policies had cash surrender values of approximately $20,269 and $19,728 at December 31, 2024 and 2023, respectively.

**(11)**  **<u>Commitments and Contingencies</u>:** 

Loan commitments:

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, credit lines, letters of credit, and overdraft protection. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets.

The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and issuing letters of credit as it does for on-balance-sheet instruments.

A summary of the contract amount of the Bank's exposure to off-balance-sheet risk as of December 31 is approximately as follows:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Commitments to extend credit | $218871 | $240387 |
| Committed credit-card lines | 6387 | 8431 |
| Standby letters of credit | 6737 | 2053 |
|  | $231995 | $250871 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

<sub> </sub>

**(11)**  **<u>Commitments and Contingencies (continued)</u>:** 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments 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 commitment amounts do not necessarily represent future cash requirements. The Commitments extended over varying periods of time with the majority being disbursed within a one-year period. Loan commitments at fixed rates of interest amounted to $16,121 at December 31, 2024, with the remainder at floating market rates. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, crops, livestock, property and equipment, residential real estate, and income-producing commercial properties. Credit-card commitments are unsecured.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Standby letters of credit are considered financial guarantees under FASB guidance. The fair value of these financial guarantees is considered immaterial.

Contingencies:

Various legal claims arise from time to time in the normal course of business, which in the opinion of management will have no material effect on the Company's consolidated financial statements.

**(12) <u>Federal Home Loan Bank Advances and Other Borrowings:</u>**

Federal Home Loan Bank advances and letters of credit:

The Bank has a master contract agreement with the Federal Home Loan Bank (FHLB) which provides for borrowing up to the maximum of 76% of the book value of the Bank's 1-4 family real estate loans, 62% of the book value of the Bank's revolving home equity lines of credit, 62% of the book value of the Bank's 1-4 family second mortgages, 62% of the book value of the Bank's secured farmland loans, 73% of the book value of the multi-family loans and the amount of the Bank's securities pledged, and 73% of the commercial real estate first-lien loans. The total carrying value of the Bank's assets pledged for FHLB advances was approximately $892,193 and $874,982 at December 31, 2024 and 2023, respectively. At December 31, 2024, the Bank's available and unused portion of this borrowing agreement totaled approximately $483,639, based on collateral pledged. The Bank may, however, have to purchase additional FHLB stock to support future draws.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(12) <u>Federal Home Loan Bank Advances and Other Borrowings (continued):</u>**

Federal Home Loan Bank advances and letters of credit (continued):

Variable rate advances are due on demand and interest is payable monthly. Various advances were obtained from the FHLB with total outstanding balances of $0 at December 31, 2024 and 2023.

Fixed rate advances are due at the maturity date, with a prepayment penalty applying and interest payable monthly. Various advances were obtained from the FHLB with a total outstanding balance of $67,917 and various interest rates from 0.00% to 5.08% at December 31, 2024 and a total outstanding balance of $116,000, with various interest rates from 4.65% to 5.47% at December 31, 2023.

The Bank had four letters of credit totaling $66,045 at December 31, 2024, with maturity dates through May 2025.

Federal Reserve Bank Discount Window:

The Bank maintains an operating line of credit with the Federal Reserve Bank Discount Window that is secured by commercial and agricultural loans. As of December 31, 2024 and 2023, the balance owed on the line was $0. The Bank was eligible to borrow up to approximately $85,839 and $86,546, based on collateral of approximately $111,238 and $112,754 at December 31, 2024 and 2023, respectively.

At December 31, 2024, the scheduled maturities of Federal Home Loan Bank advances are as follows:

---

| | |
|:---|:---|
|  | **2024** |
| 2025.0 | $50000 |
| 2026.0 | 15000 |
| 2027.0 | 2917 |
|  | $67917 |

---

Bankers' Bank Borrowings:

During October 2023, Tri-County Financial Group entered into an operating line of credit with Bankers' Bank for $10,000 at a variable interest rate based upon the Wall Street Journal Prime Rate (8.50% prime interest rate at December 31, 2023). The note is secured by 52,200 shares of the common stock of First State Bank, representing 100% of the issued and outstanding capital stock of the Bank. As of December 31, 2023, the balance owed on the line was $0. The line of credit matured on October 29, 2024 and was renewed with a maturity date of October 29, 2026 at a variable interest rate based upon the Wall Street Journal Prime Rate, less 0.250 percentage points (7.50% prime interest rate at December 31, 2024). The note is secured by the same terms and the balance owed on the line was $0 at December 31, 2024. There were no draws on the operating line of credit at any point during the years ended December 31, 2024 and 2023.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(13)**  **<u>Securities Sold Under Agreements to Repurchase:</u>** 

The agreements to repurchase securities require the Company (seller) to repurchase identical securities as those that are sold. The securities underlying the agreements were under the Company's control. Information about the repurchase agreements at December 31 follows:

---

| | |
|:---|:---|
| **2024** | **2024** |
| **Remaining Contractual Maturity of the Agreements** | **Remaining Contractual Maturity of the Agreements** |
|  | **Overnight and Continuous** |
| Repurchase agreements secured by: |  |
| &nbsp;&nbsp;&nbsp;U.S. Government sponsored agencies | $12271 |
| &nbsp;&nbsp;&nbsp;Mortgage-backed – residential | 5304 |
| &nbsp;&nbsp;&nbsp;Collateralized mortgage obligations (CMOs) | 5104 |
| Total securities sold under agreements to repurchase | $22679 |

---

---

| | |
|:---|:---|
| **2023** | **2023** |
| **Remaining Contractual Maturity of the Agreements** | **Remaining Contractual Maturity of the Agreements** |
|  | **Overnight and Continuous** |
| Repurchase agreements secured by: |  |
| &nbsp;&nbsp;&nbsp;U.S. Government sponsored agencies | $12162 |
| &nbsp;&nbsp;&nbsp;Mortgage-backed – residential | 4205 |
| &nbsp;&nbsp;&nbsp;Collateralized mortgage obligations (CMOs) | 6121 |
| Total securities sold under agreements to repurchase | $22488 |

---

The maximum amount of outstanding agreements at any month end during 2024 and 2023 totaled $31,640 and $31,023, respectively, and the monthly average of such agreements totaled $22,551 and $21,821 for 2024 and 2023, respectively.

**(14)**  **<u>Subordinated Debentures:</u>** 

In October 2021, the Company issued $10,000 in subordinated debentures bearing interest of 3.50% annually until October 15, 2026 at which time the rate will reset quarterly to an interest rate per year equal to the then current three-month SOFR, plus 266 basis points. The debt requires semi-annual interest payments until October 15, 2026, followed by quarterly interest payments until maturity. The Company may redeem the subordinate debentures, in whole or in part, on or after October 15, 2026, at 100% of the principal amount, plus accrued but unpaid interest and additional interest, if any. The subordinated debentures mature on October 15, 2031.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(14)**  **<u>Subordinated Debentures (continued):</u>** 

At December 31, 2024 and 2023, subordinated debentures are as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2024** | **2024** | **2023** | **2023** |
|  | <br>**Principal** | **Unamortized Debt Issuance Costs** | <br>**Principal** | **Unamortized Debt Issuance Costs** |
| Subordinated debentures, due 2031 and 2026, respectively | $10000 | $166 | $10000 | $190 |

---

Amortization of debt issuance costs recognized totaled $24 and $25 for the years ended December 31, 2024 and 2023, respectively. The remaining annual amortization expense is as follows:

---

| | |
|:---|:---|
| 2025 | $24 |
| 2026 | 24 |
| 2027 | 24 |
| 2028 | 24 |
| 2029 | 24 |
| Thereafter | 46 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total | $166 |

---

**(15)**  **<u>Deposits</u>:** 

At December 31, 2024, the scheduled maturities of time deposits are as follows:

---

| | |
|:---|:---|
| 2025 | $439351 |
| 2026 | 34325 |
| 2027 | 23855 |
| 2028 | 1886 |
| 2029 | 1821 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total | $501238 |

---

Brokered certificates were $49,223 and $71,088 at December 31, 2024 and 2023, respectively.

The aggregate amounts of time deposits (including certificates of deposit) in denominations that meet or exceed the FDIC insurance limit of $250 were approximately $131,874 and $125,609 as of December 31, 2024 and 2023, respectively.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(16)**  **<u>Transactions with Related Parties</u>:** 

Certain directors, executive officers, and principal shareholders of the Company, and their related interests, had loans outstanding in the aggregate amounts of approximately $7,494 and $9,234 at December 31, 2024 and 2023, respectively. During the year ended December 31, 2024, total principal additions were $15,975 and total principal payments were $17,715. Changes in related party composition during the year totaled an increase of $0.

Deposit accounts with related parties totaled approximately $6,272 and $4,417 at December 31, 2024 and 2023, respectively.

In management's opinion, such loans and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management's opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.

**(17)**  **<u>Stock-Compensation Plans</u>:** 

The Company has a stock-option plan, which provides for grants of incentive stock options to employees and non-qualified stock options to non-employee directors whereby shares of common stock are made available for purchase. The maximum number of shares available for issuance under the Plan is 10.0% of the total shares of stock outstanding at any time. The Company has a policy of using previously authorized, but unissued shares of common stock to satisfy stock option exercises. Currently, the Company has a sufficient number of authorized common shares to satisfy expected stock option exercises.

Under the agreements, the exercise price of each option equals the market price of the Company's stock on the grant date. The maximum term of each option is ten years. The options vest on the third anniversary of the grant date.

For the years ended December 31, 2024 and 2023, the Company recognized approximately $161 and $247 in compensation expense for stock options, respectively. The total income tax benefit recognized was $8 and $12 for the years ended December 31, 2024 and 2023.

As of December 31, 2024, stock-based compensation expense, net of anticipated tax effects, not yet recognized totaled $153 and is expected to be recognized over a weighted-average remaining period of 1 year.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company's common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(17)**  **<u>Stock-Compensation Plans (continued)</u>:** 

No options were granted in 2024 or 2023.

The total intrinsic value of options exercised during the years ended December 31, 2024 and 2023 was $234 and $120, respectively.

The following table summarizes the activity of options granted, exercised or forfeited for the year ended December 31, 2024:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2024** |<br>**Weighted**<br>**Average**<br>**Exercise**<br>**Price** | **Weighted**<br>**Average**<br>**Remaining**<br>**Contractual**<br>**Term** |<br>**Aggregate**<br>**Intrinsic**<br>**Value** |
| Shares under option, beginning of year | 180930 | $39.70 | 6.52 | $1059 |
| Granted during the year | 0 | 0 |  |  |
| Forfeited and canceled during the year | (2425) | 44.68 |  |  |
| Exercised during the year | (17010) | 28.26 |  | 234 |
| Shares under option, end of year | 161495 | $40.83 | 6.02 | $891 |
| Options exercisable, end of year | 95495 | $36.22 | 4.66 | $863 |

---

The following table summarizes the activity for non-vested options for the year ended December 31, 2024:

---

| | | |
|:---|:---|:---|
|  |<br>**Number of**<br>**Options** | **Weighted**<br>**Average**<br>**Market Value**<br>**at Grant** |
| Non-vested options, December 31, 2023 | 77600 | $47.50 |
| Granted during the year | 0 | 0 |
| Vested during the year | (9175) | 47.50 |
| Forfeited or expired during the year | (2425) | 44.68 |
| Non-vested options, December 31, 2024 | 66000 | $47.50 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(17)**  **<u>Stock-Compensation Plans (continued)</u>:** 

The following table summarizes information about stock options outstanding at December 31, 2024:

---

| | | | |
|:---|:---|:---|:---|
|<br>**Exercise Price** | **Number**<br>**Outstanding**<br>**At December 31, 2024** |<br>**Remaining**<br>**Contractual Life** | **Number**<br>**Exercisable**<br>**At December 31, 2024** |
| $26.00 | 24245 | 2 | 24245 |
| $42.20 | 28400 | 4 | 28400 |
| $34.00 | 30050 | 6 | 30050 |
| $47.50 | 78800 | 8 | 12800 |
|  | 161495 |  | 95495 |

---

**(18)**  **<u>Minimum Capital Requirements</u>:** 

The Bank is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Furthermore, the Bank's regulators could require adjustments to regulatory capital not reflected in these financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum capital amounts and ratios (set forth in the table below). Management believes, as of December 31, 2024 and 2023, the Bank met all capital-adequacy requirements to which they are subject.

As of December 31, 2024, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum Common Equity Tier 1 risk-based, total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since December 31, 2024 that management believes have changed this categorization.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(18)**  **<u>Minimum Capital Requirements (continued)</u>:** 

The actual capital amounts and ratios for the Bank are also presented in the following table as of December 31, 2024 and December 31, 2023:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Actual** | **Actual** | <br>**For Capital Adequacy Purposes** | <br>**For Capital Adequacy Purposes** | **To Be Well Capitalized Under Prompt Corrective Action Provisions** | **To Be Well Capitalized Under Prompt Corrective Action Provisions** |
|  | **Amount** | **Ratio** | **Amount** | **Ratio** | **Amount** | **Ratio** |
| **As of December 31, 2024:** |  |  |  |  |  |  |
| Common equity Tier 1 capital (to Risk-Weighted Assets) Bank | $155252 | 13.4% | $<u>></u>52,170 | <u>></u>4.5% | $<u>></u>75,357 | <u>></u>6.5% |
| Total Capital (to Risk-Weighted Assets) Bank | $167534 | 14.5% | $<u>></u>92,747 | <u>></u>8.0% | $<u>></u>115,934 | <u>></u>10.0% |
| Tier-I Capital (to Risk-Weighted Assets) Bank | $155252 | 13.4% | $<u>></u>69,560 | <u>></u>6.0% | $<u>></u>92,747 | <u>></u>8.0% |
| Tier-I Capital (To Average Assets) Bank | $155252 | 10.3% | $<u>></u>60,519 | <u>></u>4.0% | $<u>></u>75,648 | <u>></u>5.0% |
| **As of December 31, 2023:** |  |  |  |  |  |  |
| Common equity Tier 1 capital (to Risk-Weighted Assets) Bank | $149025 | 12.9% | $<u>></u>52,144 | <u>></u>4.5% | $<u>></u>75,319 | <u>></u>6.5% |
| Total Capital (to Risk-Weighted Assets) Bank | $161772 | 14.0% | $<u>></u>92,701 | <u>></u>8.0% | $<u>></u>115,876 | <u>></u>10.0% |
| Tier-I Capital (to Risk-Weighted Assets) Bank | $149025 | 12.9% | $<u>></u>69,526 | <u>></u>6.0% | $<u>></u>92,701 | <u>></u>8.0% |
| Tier-I Capital (To Average Assets) Bank | $149025 | 9.8% | $<u>></u>60,792 | <u>></u>4.0% | $<u>></u>75,989 | <u>></u>5.0% |

---

Consolidated capital amounts and ratios are not presented as they are not required for consolidated entities less than $3 billion in assets and the Bank comprises approximately 90% of the consolidated assets of the Company.

The Basel III Capital Rules were fully phased in on January 1, 2020 and require the Bank to maintain: 1) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5%, plus a 2.5% "capital conservation buffer" (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0%); 2) a minimum ratio of Tier 1 capital ratio of 8.5%); 3) a minimum ratio of total capital to risk-weighted assets of 8.0%, plus the capital conservation buffer resulting in a minimum total capital ratio of 10.5%); and 4) a minimum Leverage Ratio of 4.0%. The net unrealized gain or loss on available-for-sale debt securities is not included in computing regulatory capital.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

**(18)**  **<u>Minimum Capital Requirements (continued)</u>:** 

The payment of dividends by the Bank would be restricted if the Bank does not meet the minimum Capital Conservation Buffer as defined by Basel III regulatory capital guidelines and/or if, after payment of the dividend, the Bank would be unable to maintain satisfactory regulatory capital ratios.

The Mortgage Banking Company is also subject to capital requirements in connection with its mortgage banking activities. Failure to maintain minimum capital requirements could result in the Mortgage Banking Company's inability to originate mortgage loans for the respective investor and therefore could have a direct material effect on the Mortgage Banking Company's financial statements.

The Mortgage Banking Company's actual adjusted capital amounts and the minimum amounts required for capital adequacy purposed in accordance with the guidelines as required by the U.S. Department of Housing and Urban Development (HUD) for Non-Supervised Mortgagees as of December 31 are as follows:

---

| | | |
|:---|:---|:---|
|  | <br>**Actual Adjusted Capital** | **Minimum Capital Requirements** |
| As of December 31, 2024: |  |  |
| &nbsp;&nbsp;&nbsp;HUD | $10234 | $1013 |
| As of December 31, 2023: |  |  |
| &nbsp;&nbsp;&nbsp;HUD | $11933 | $1060 |

---

(19) <u>Intangible Assets:</u> 

The following is a summary of intangible assets at December 31:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2024** | **2024** | **2023** | **2023** |
|  | **Gross Carrying Amount** | <br>**Accumulated**<br> **Amortization** | **Gross Carrying Amount** | <br>**Accumulated**<br> **Amortization** |
| Subject to amortization - |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Core deposit intangible | $900 | $796 | $900 | $773 |
| &nbsp;&nbsp;&nbsp;Customer list | 349 | 349 | 349 | 349 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total | $1249 | $1145 | $1249 | $1122 |

---

Goodwill is not subject to amortization and was $8,596 as of December 31, 2024 and 2023.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

(19) <u>Intangible Assets (continued):</u> 

Amortization expense recognized on all amortizable intangibles totaled $23 and $35 for the years ended December 31, 2024 and 2023, respectively. The remaining annual amortization expense is as follows:

---

| | |
|:---|:---|
| 2025 | $22 |
| 2026 | 21 |
| 2027 | 20 |
| 2028 | 19 |
| 2029 | 18 |
| Thereafter | 4 |
| &nbsp;&nbsp;&nbsp;Total | $104 |

---

(20) <u>Earnings Per Common Share:</u> 

For the years ended December 31 earnings per common share has been computed based on the following:

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Net income | $10429 | $10045 |
| Income available to common stockholders | $10429 | $10045 |
| Average number of common shares outstanding used to calculate basic earnings per common share | 2412573 | 2454027 |
| Effect of dilutive securities: |  |  |
| &nbsp;&nbsp;&nbsp;Stock options | 26182 | 27316 |
|  | 26182 | 27316 |
| Average number of common shares outstanding used to calculate diluted earnings per common share | 2438755 | 2481343 |

---

Stock options for 78,800 and 80,400 shares of the Company's common stock were not considered in computing diluted earnings per common share for the years ended December 31, 2024 and 2023, respectively, because they were anti-dilutive.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

(21) <u>Fair Value Measurements:</u> 

Accounting standards define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard describes three levels of inputs that may be used to measure fair value:

● Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

● Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

● Level 3: Significant unobservable inputs that reflect the Company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following is a description of valuation methodologies used for assets recorded at fair value:

Debt securities available for sale: The fair values of the Company's debt securities available for sale are primarily determined by quoted prices in active markets (Level 1) and matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific debt securities, but rather by relying on the debt securities' relationship to other benchmark quoted securities. The values determined by matrix pricing are considered Level 2 fair value measurements.

Mortgage loans held for sale: The fair values of the Company's mortgage loans held for sale are based on quotes from third party investors.

Derivatives: Derivatives instruments such as interest rate lock commitments and forward contracts are valued by means of pricing models based on readily observable market parameters such as interest rate yield curves and option pricing volatilities.

Collateral-dependent impaired loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification. Non-real estate collateral may be valued using an appraisal, net book value of the borrower's financial statements or aging reports, adjusted or discounted based on management's expertise and knowledge of the borrower and borrower's business. Fair value measurements prepared internally are based on management's comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

(21) <u>Fair Value Measurements (continued):</u> 

Foreclosed assets: Real estate acquired through or in lieu of loan foreclosure is not measured at fair value on a recurring basis. However, other real estate is initially measured at fair value (less estimated costs to sell) when it is acquired and may also be measured at fair value (less estimated costs to sell) if it becomes subsequently impaired. The fair value measurement for each property must be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However, management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management's comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.

The following table presents the Company's approximate fair value hierarchy for assets measured at fair value as of December 31:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2024** | **2024** | **2024** | **2024** | **2024** |
|  |  | **Fair Value Measurements at** | **Fair Value Measurements at** | **Fair Value Measurements at** |
|  |  | **Reporting Date Using** | **Reporting Date Using** | **Reporting Date Using** |
|  | **Total** | **(Level 1)** | **(Level 2)** | **(Level 3)** |
| Assets measured at fair value on a recurring basis: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debt securities available for sale | $143735 | $24598 | $119137 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage loans held for sale | $9011 |  | $9011 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Derivative assets | $188 |  | $188 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | $62 |  | $62 |  |
| Assets measured at fair value on a non-recurring basis: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Collateral-dependent loans, net of specific reserves | $6460 |  |  | $6460 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreclosed assets | $920 |  |  | $920 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

(21) <u>Fair Value Measurements (continued):</u> 

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2023** | **2023** | **2023** | **2023** | **2023** |
|  |  | **Fair Value Measurements at** | **Fair Value Measurements at** | **Fair Value Measurements at** |
|  |  | **Reporting Date Using** | **Reporting Date Using** | **Reporting Date Using** |
|  | **Total** | **(Level 1)** | **(Level 2)** | **(Level 3)** |
| Assets and liabilities measured at fair value on a recurring basis: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debt securities available for sale | $174846 | $45626 | $129220 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage loans held for sale | $10189 |  | $10189 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Derivative assets | $371 |  | $371 |  |
| &nbsp;&nbsp;&nbsp;Liabilities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | $129 |  | $129 |  |
| Assets measured at fair value on a non-recurring basis: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Collateral-dependent loans, net of specific reserves | $92 |  |  | $92 |

---

Collateral-dependent impaired loans, which are measured for impairment using the fair value of collateral, had approximate carrying values of $7,258 and $468 with specific reserves of approximately $798 and $376 as of December 31, 2024 and 2023, respectively. Losses of $0 were recognized in December 31, 2024 and 2023.

Foreclosed assets which are measured at the lower of carrying or fair value less costs to sell, had an approximate carrying amount of $920 and $0 which is comprised of the outstanding balance of approximately $920 and $0, net of an allowance for losses of $0 as of December 31, 2024 and 2023. Losses of $0 were recognized in December 31, 2024 and 2023.

The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at December 31:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2024** | **2024** | **2024** | **2024** | **2024** |
|  | **Fair Value** | **Valuation Technique** | **Unobservable Input** | **Weighted Average Discount** |
| Assets measured at fair value on a non-recurring basis: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Collateral-dependent impaired loans, net of specific reserves | $2039 | Sales comparison approach | Appraised values | 56.1% |
| &nbsp;&nbsp;&nbsp;Foreclosed assets | $920 | Sales comparison approach | Appraised values | 52.6% |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

(21) <u>Fair Value Measurements (continued):</u> 

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2023** | **2023** | **2023** | **2023** | **2023** |
|  | **Fair Value** | **Valuation Technique** | **Unobservable Input** | **Weighted Average Discount** |
| Assets measured at fair value on a non-recurring basis: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Collateral-dependent impaired loans, net of specific reserves | $92 | Sales comparison approach | Appraised values | 79.5% |

---

There were no transfers between Level 1 and Level 2 during 2024 or 2023.

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined by quoted market prices; however, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or valuation techniques. Those techniques are significantly affected by assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair-value estimates may not be realized in an immediate settlement of the instrument. Accounting standards exclude certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following table presents the carrying amounts and estimated fair values of the Company's financial instruments as of December 31:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2024** | **2024** | **2024** | **2024** | **2024** |
|  | | | **Fair Value Measurements at** | **Fair Value Measurements at** | |
|  | | | **Reporting Date Using** | **Reporting Date Using** | |
|  | **Carrying Amount** | <br>**(Level 1)** | <br>**(Level 2)** | <br>**(Level 3)** | <br>**Total** |
| **Financial assets:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $44976 | $44976 |  |  | $44976 |
| &nbsp;&nbsp;&nbsp;Securities available for sale | 143735 | 24598 | 119137 |  | 143735 |
| &nbsp;&nbsp;&nbsp;Federal Home Loan Bank stock | 3420 |  |  | 3420 | 3420 |
| &nbsp;&nbsp;&nbsp;Mortgage held for sale | 9011 |  | 9011 |  | 9011 |
| &nbsp;&nbsp;&nbsp;Loans, net | 1261965 |  |  | 1219281 | 1219281 |
| &nbsp;&nbsp;&nbsp;Accrued interest receivable | 7474 | 7474 |  |  | 7474 |
| &nbsp;&nbsp;&nbsp;Mortgage servicing rights | 790 |  | 5274 |  | 5274 |
| &nbsp;&nbsp;&nbsp;Derivative assets | 188 |  | 188 |  | 188 |
| &nbsp;&nbsp;&nbsp;Forward commitments | 62 |  | 62 |  | 62 |
| **Financial liabilities:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Deposits | $1273296 | $865392 |  | $408560 | $1273952 |
| &nbsp;&nbsp;&nbsp;FHLB advances and other borrowings | 67917 |  |  | 67917 | 67917 |
| &nbsp;&nbsp;&nbsp;Securities sold under <br>agreements to repurchase | 22679 | 22679 |  |  | 22679 |
| &nbsp;&nbsp;&nbsp;Accrued interest payable | 2899 | 2899 |  |  | 2899 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

(21) <u>Fair Value Measurements (continued):</u> 

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2023** | **2023** | **2023** | **2023** | **2023** |
|  | | | **Fair Value Measurements at** | **Fair Value Measurements at** | |
|  | | | **Reporting Date Using** | **Reporting Date Using** | |
|  |<br>**Carrying Amount** |<br>**(Level 1)** | <br>**(Level 2)** | <br>**(Level 3)** |<br>**Total** |
| **Financial assets:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $28018 | $28018 |  |  | $28018 |
| &nbsp;&nbsp;&nbsp;Securities available for sale | 174846 | 45626 | 129220 |  | 174846 |
| &nbsp;&nbsp;&nbsp;Federal Home Loan Bank stock | 5765 |  |  | 5765 | 5765 |
| &nbsp;&nbsp;&nbsp;Mortgage held for sale | 10.189 |  | 10189 |  | 10189 |
| &nbsp;&nbsp;&nbsp;Loans, net | 1257612 |  |  | 1183062 | 1183062 |
| &nbsp;&nbsp;&nbsp;Accrued interest receivable | 7572 | 7572 |  |  | 7572 |
| &nbsp;&nbsp;&nbsp;Mortgage servicing rights | 1237 |  | 5776 |  | 5776 |
| &nbsp;&nbsp;&nbsp;Derivative assets | 371 |  | 371 |  | 371 |
| **Financial liabilities:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Deposits | $1246731 | $862483 |  | $385195 | $1247678 |
| &nbsp;&nbsp;&nbsp;FHLB advances and other borrowings | 116000 |  |  | 116000 | 116000 |
| &nbsp;&nbsp;&nbsp;Securities sold under <br>agreements to repurchase | 22488 | 22488 |  |  | 22488 |
| &nbsp;&nbsp;&nbsp;Accrued interest payable | 2852 | 2852 |  |  | 2852 |
| &nbsp;&nbsp;&nbsp;Forward commitments | 129 |  | 129 |  | 129 |

---

(22) <u>Leases:</u> 

*Lessee Arrangements*

The Mortgage Banking Company leases its facilities under operating leases in Bloomington, IL; Pekin, IL; Champaign, IL; Oakbrook Terrace, IL; and Sussex, WI. The Bank leases facilities in Geneva, IL and Champaign, IL. The Company enters into leases in the normal course of business primarily for mortgage servicing centers, information technology equipment, and land for ATMs and parking lots. The Company's leases have remaining terms ranging from one to five years, some of which include renewal or termination options to extend the lease for up to five years.

The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's balance sheet.

Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

(22) <u>Leases (continued):</u> 

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in a lease is not known. The Company's incremental borrowing rate is based on the FHLB amortizing advance rate, adjusted for the lease term and other factors.

Right-of-use assets and lease liabilities by lease type, and the associated balance sheet classifications as of December 31 are as follows:

---

| | | |
|:---|:---|:---|
| **Balance Sheet Classification** | **Balance Sheet Classification** | **Balance Sheet Classification** |
|  | **2024** | **2023** |
| Right-of-use assets: |  |  |
| &nbsp;&nbsp;&nbsp;Operating leases Other assets | $842 | $821 |
| Lease liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Operating leases Accrued interest payable and other liabilities | $842 | $821 |

---

The total consolidated lease expense was approximately $573 and $613 for the years ended December 31, 2024 and 2023, respectively. The expense paid is the same as the amount paid.

***Lease Obligations***

Future undiscounted lease payments for operating leases with initial terms of one year or more as of December 31, 2024 are as follows:

---

| | |
|:---|:---|
| 2025 | $357 |
| 2026 | 221 |
| 2027 | 177 |
| 2028 | 144 |
| 2029 | 0 |
| Total undiscounted lease payments | $899 |
| Less: imputed interest | (57) |
| Net lease liabilities | $842 |

---

 

*Supplemental Lease Information*

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Operating lease weighted average remaining lease term (years) | 3.20 years | 2.25 years |
| Operating lease weighted average discount rate | 2.02% | 1.99% |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

(23) <u>Revenue from Contracts with Customers:</u> 

All of the Company's revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The following table presents the Company's sources of non-interest income for the twelve months ended December 31, 2024. Items outside the scope of ASC 606 are noted as such.

---

| | | |
|:---|:---|:---|
|  | **2024** | **2023** |
| Non-interest income |  |  |
| &nbsp;&nbsp;&nbsp;Trust department income | $268 | $276 |
| &nbsp;&nbsp;&nbsp;Customer-service fees |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Overdraft fees | 918 | 944 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 326 | 322 |
| &nbsp;&nbsp;&nbsp;Mortgage banking (1) | 9924 | 9295 |
| &nbsp;&nbsp;&nbsp;Insurance services | 1406 | 1321 |
| &nbsp;&nbsp;&nbsp;Other (2) | 2790 | 3364 |
|  | $15632 | $15522 |

---

<sup>(1)</sup> Not within the scope of ASC 606

<sup>(2)</sup> The Other category includes ATM fees, wire transfer fees, safe deposit rentals and check order fees and gain/loss on sale of OREO, totaling $2,083 and $2,692 for 2024 and 2023, respectively, which is within the scope of ASC 606; the remaining balance of $707 and $672 for 2024 and 2023, respectively, represents loan & collection income, life insurance income, and gain on sale, which is outside the scope of ASC 606.

A description of the Company's revenue streams accounted for under ASC 606 follows:

Customer-service fees: The Company earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM fees, stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

Interchange income: The Company earns interchange fees from debit and credit cardholder transactions conducted through the Visa and MasterCard payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

(23) <u>Revenue from Contracts with Customers (continued):</u> 

Trust department income: The Company earns income from its contracts with trust customers to manage assets for investment and/or to transact on their accounts. These fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management at month-end. Fees that are transaction-based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e., the trade date. Other related services are provided and the fees the Company earns, which are based on a fixed fee schedule, are recognized when the services are rendered.

Insurance services: The Company earns fees from insurance services provided to its customers. These fees are primarily earned and assessed each month as the Company provides the contracted monthly service.

Gains/Losses on Sales of OREO: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

(24) <u>Segments:</u> 

The Company is divided into two reportable segments: Commercial Banking and Mortgage Banking. Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses in all markets through retail lending, deposit services, online banking mobile banking, private banking, commercial lending, commercial real estate lending, agricultural lending, and other banking services. Mortgage banking provides residential mortgage banking products through five offices in Illinois and one office in Wisconsin through our Mortgage Banking Company. The majority of the loans are sold with servicing released.

Financial information for each business segment reflects that which is specifically identifiable. Income taxes are allocated based on the effective federal tax rate adjusted for any tax-exempt activity. All tax-exempt activity and provision have been fully allocated to the commercial banking segment. Measurement of performance of business segments is based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. Information presented is also not necessarily indicative of the segments' operations if they were independent entities.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

December 31, 2024 and 2023

(000s omitted except share data)

(Continued)

(24) <u>Segments (continued):</u> 

Principally, all of the net assets of the Company are involved in the commercial banking segment. Goodwill of approximately $6 million resulting from acquisitions has been assigned to the commercial banking segment, and goodwill of approximately $2 million has been assigned to the mortgage banking segment as a result of First State Mortgage's formation. Assets assigned to the mortgage banking primarily consist of mortgage loans held for sale and net premises and equipment.

The Company's chief operating decision maker is comprised of the Chief Executive Officer of the Company, the Chief Executive Officer of First State Bank, and Chief Executive Officer/Chief Operating Officer of First State Mortgage. The individuals consider net interest income, noninterest income, and budget-to-actual variances on a monthly basis for profit measures when making decisions about allocating capital and personnel to the operating segment.

Selected financial information by business segment is as follows for the year ended December 31, 2024:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2024** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Commercial** | **Mortgage Banking** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Eliminations** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Total** |
| Net interest income | $42618 | $337 | $(47) | $42908 |
| Recovery of credit loss expense | (1284) | 0 | 0 | (1284) |
| Mortgage banking revenues | 974 | 8869 | 81 | 9924 |
| All other noninterest income | 5708 | 0 | 0 | 5708 |
| Noninterest expenses | 34437 | 11686 | (156) | 45967 |
| Income (loss) before income tax expense | 16459 | (2480) | (122) | 13857 |
| Income tax expense (benefit) | 4137 | (709) | 0 | 3428 |
| Net income (loss) | 12322 | (1771) | (122) | 10429 |

---

Selected financial information by business segment is as follows for the year ended December 31, 2023:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2023** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Commercial** | **Mortgage Banking** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Eliminations** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Total** |
| Net interest income | $42322 | $476 | $(49) | $42749 |
| Recovery of credit loss expense | (850) | 0 | 0 | (850) |
| Mortgage banking revenues | 613 | 8599 | 83 | 9295 |
| All other noninterest income | 6227 | 0 | 0 | 6227 |
| Noninterest expenses | 33768 | 12132 | (156) | 45744 |
| Income (loss) before income tax expense | 16556 | (3057) | (122) | 13377 |
| Income tax expense (benefit) | 4170 | (838) | 0 | 3332 |
| Net income (loss) | 12386 | (2219) | (122) | 10045 |

---

(25) <u>Subsequent events:</u> 

The Company has evaluated subsequent events for recognition and disclosure through March 3, 2025, which is the date the financial statements were available to be issued.

**Tri-County Financial Group, Inc. and Subsidiaries Consolidated, Unaudited Financial Statements for the Period Ended March 31, 2025 and 2024**

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

March 31, 2025 and 2024

(000s omitted except share data)

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| **ASSETS** |  |  |
| Cash and due from banks | $43692 | $21372 |
| Federal funds sold | 1842 | 1353 |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | 45534 | 22725 |
| Debt securities available-for-sale, at fair value (amortized cost $160,042 and $184,539, respectively) | 147398 | 169149 |
| Federal Home Loan Bank stock, at cost | 3420 | 4425 |
| Mortgage loans held for sale | 15578 | 10504 |
| Loans, net of allowance for credit losses of $14,504 and $15,005, respectively | 1248252 | 1265138 |
| Bank-owned life insurance | 20409 | 19858 |
| Foreclosed assets, net | 241 | 167 |
| Bank premises and equipment, net | 25147 | 25481 |
| Goodwill and other intangibles | 8694 | 8717 |
| Accrued interest receivable | 8198 | 8229 |
| Other assets | 13621 | 15577 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total assets | $1536492 | $1549970 |
| **LIABILITIES AND STOCKHOLDERS' EQUITY** |  |  |
| Liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Deposits: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Noninterest-bearing | $184244 | $181980 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Interest-bearing | 1118700 | 1102804 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total deposits | 1302944 | 1284784 |
| &nbsp;&nbsp;&nbsp;Federal Home Loan Bank advances and other borrowings | 32917 | 74500 |
| &nbsp;&nbsp;&nbsp;Securities sold under agreements to repurchase | 22266 | 21107 |
| &nbsp;&nbsp;&nbsp;Dividends payable | 609 | 496 |
| &nbsp;&nbsp;&nbsp;Accrued interest payable and other liabilities | 21862 | 21815 |
| &nbsp;&nbsp;&nbsp;Subordinated debt, net of debt issuance costs of $160 and $184, respectively | 9840 | 9816 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities | 1390438 | 1412518 |
| Commitments and Contingencies |  |  |
| Stockholders' equity: |  |  |
| &nbsp;&nbsp;&nbsp;Common stock, $1 par value; 5,000,000 shares authorized; 2,388,443 and 1,956,018 shares issued and outstanding, respectively | 2388 | 1955 |
| &nbsp;&nbsp;&nbsp;Non-voting common stock, $1 par value; 467,500 shares authorized; 0 and 467,500 shares issued and outstanding, respectively | 0 | 468 |
| &nbsp;&nbsp;&nbsp;Additional paid-in-capital | 20956 | 22429 |
| &nbsp;&nbsp;&nbsp;Retained earnings | 131750 | 123604 |
| &nbsp;&nbsp;&nbsp;Accumulated other comprehensive loss | (9040) | (11004) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total stockholders' equity | 146054 | 137452 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total liabilities and stockholders' equity | $1536492 | $1549970 |

---

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF INCOME**

For the quarters ended March 31, 2025 and 2024

(000s omitted except share data)

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Interest income: |  |  |
| &nbsp;&nbsp;&nbsp;Loans, including fees | $17939 | $17323 |
| &nbsp;&nbsp;&nbsp;Debt securities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Taxable | 582 | 780 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Tax-exempt | 371 | 393 |
| &nbsp;&nbsp;&nbsp;Mortgage loans held for sale, including fees | 289 | 314 |
| &nbsp;&nbsp;&nbsp;Dividends | 84 | 111 |
| &nbsp;&nbsp;&nbsp;Other | 265 | 68 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total interest income | 19530 | 18989 |
| Interest expense: |  |  |
| &nbsp;&nbsp;&nbsp;Deposits | 7132 | 7075 |
| &nbsp;&nbsp;&nbsp;Federal Home Loan Bank advances and other borrowings | 582 | 1215 |
| &nbsp;&nbsp;&nbsp;Securities sold under agreements to repurchase | 178 | 220 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total interest expense | 7892 | 8510 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net interest income | 11638 | 10479 |
| Credit loss expense (recovery of credit loss expense) on loans | 231 | (989) |
| Credit loss expense (recovery of credit loss expense) on off-balance sheet credit exposures | 270 | (298) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net interest income after credit loss expense | 11137 | 11766 |
| Non-interest income: |  |  |
| &nbsp;&nbsp;&nbsp;Trust department | 37 | 44 |
| &nbsp;&nbsp;&nbsp;Customer-service fees | 305 | 277 |
| &nbsp;&nbsp;&nbsp;Mortgage banking | 2178 | 1765 |
| &nbsp;&nbsp;&nbsp;Insurance services | 409 | 230 |
| &nbsp;&nbsp;&nbsp;Other | 667 | 697 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total non-interest income | 3596 | 3013 |
| Non-interest expenses: |  |  |
| &nbsp;&nbsp;&nbsp;Salaries and employee benefits | 7552 | 7575 |
| &nbsp;&nbsp;&nbsp;Occupancy | 669 | 719 |
| &nbsp;&nbsp;&nbsp;Furniture and equipment | 283 | 298 |
| &nbsp;&nbsp;&nbsp;Other | 2796 | 2597 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total non-interest expenses | 11300 | 11189 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income before income taxes | 3433 | 3590 |
| Income tax expense | 879 | 915 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net income | $2554 | $2675 |
| Earnings per common share: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Basic | $1.07 | $1.10 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Diluted | $1.06 | $1.09 |

---

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME** 

For the quarters ended March 31, 2025 and 2024

(000s omitted except share data)

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Net income | $2554 | $2675 |
| Other comprehensive income (loss): |  |  |
| &nbsp;&nbsp;&nbsp;Unrealized holding gains (losses) on available-for-sale debt securities | 1629 | (1196) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income tax effect | (464) | 341 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total other comprehensive income (loss) | 1165 | (855) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total comprehensive income | $3719 | $1820 |

---

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY**

For the quarters ended March 31, 2025 and 2024

(000s omitted except share data)

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | | | | **Accumulated** | **Accumulated** | |
|  | | | | **Other** | **Other** | |
|  | | | | **Comprehensive** | **Comprehensive** | |
|  | **Common Stock and**<br>**Non-Voting**<br>**Common**<br>**Stock <sup>(1)</sup>** |<br>**Additional**<br>**Paid-in-**<br>**Capital** |<br>**Retained**<br>**Earnings** | **Loss** | **Loss** |<br><br>**Total** |
| Balance at December 31, 2023 | 2423 | 22455 | 121414 |  | (10149) | 136143 |
| Net income |  |  | 2675 |  |  | 2675 |
| Other comprehensive loss |  |  |  |  | (855) | (855) |
| Cash dividends on common stock ($0.20 per share) |  |  | (485) |  |  | (485) |
| Purchases and retirement of 4,375 Shares of common stock | (4) | (177) |  |  |  | (181) |
| Stock-based compensation expense |  | 0 |  |  |  | 0 |
| Stock options, exercised (5,535 shares) | 4 | 151 |  |  |  | 155 |
| Balance, March 31, 2024 | 2423 | 22429 | 123604 |  | (11004) | 137452 |
| Net income |  |  | 7754 |  |  | 7754 |
| Other comprehensive income |  |  |  |  | 799 | 799 |
| Cash dividends on common stock ($0.65 per share) |  |  | (1565) |  |  | (1565) |
| Purchases and retirement of 40,800 Shares of common stock | (42) | (1692) |  |  |  | (1734) |
| Stock-based compensation expense |  | 161 |  |  |  | 161 |
| Stock options exercised (11,475 shares) | 13 | 314 |  |  |  | 327 |
| Balance, December 31, 2024 | $2394 | $21212 | $129793 | ($| 10205) | $143194 |
| Net income |  |  | 2554 |  |  | 2554 |
| Other comprehensive income |  |  |  |  | 1165 | 1165 |
| Cash dividends on common stock ($0.25 per share) |  |  | (597) |  |  | (597) |
| Purchases and retirement of 5,800 Shares of common stock | (6) | (257) |  |  |  | (263) |
| Stock-based compensation expense |  | 0 |  |  |  | 0 |
| Stock options exercised (50 shares) | 0 | 1 |  |  |  | 1 |
| Balance, March 31, 2025 | $2388 | $20956 | $131750 | ($| 9040) | $146054 |

---

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

For the quarters ended March 31, 2025 and 2024

(000s omitted except share data)

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| **CASH FLOWS FROM OPERATING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;Net income | $2554 | $2675 |
| &nbsp;&nbsp;&nbsp;Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Depreciation | 386 | 384 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of intangibles | 6 | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net amortization (accretion) of securities | 28 | (64) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Amortization of debt issuance costs | 6 | 6 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Credt loss expense (recovery) | 501 | (1287) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deferred income tax (benefit) | (229) | (132) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net gain on sales of foreclosed assets | (8) | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net gain on sales of bank premises and equipment | 0 | (18) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net gain on sale of loans | (1631) | (1797) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Stock-based compensation expense | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net mortgage servicing rights amortization | 74 | 145 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Origination of loans held for sale | (55746) | (48306) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from loans held for sale | 50810 | 49788 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in accrued interest receivable | (724) | (657) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in bank-owned life insurance | (140) | (130) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in other assets | (460) | (693) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Change in accrued interest payable and other liabilities | 109 | 829 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) operating activities | (4464) | 749 |
| **CASH FLOWS FROM INVESTING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from maturities, paydowns and calls of available-for-sale debt securities | 4989 | 4566 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of available-for-sale debt securities | (7051) | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net redemptions of FHLB stock | 0 | 1340 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of FHLB stock | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Loan (originations) and principal collections, net | 13212 | (6305) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sales of foreclosed assets | 687 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Proceeds from sales of bank premises and equipment | 0 | 75 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Purchases of bank premises and equipment, net | (189) | (137) |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash provided by (used in) investing activities | 11648 | (461) |

---

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(CONTINUED)**

For the quarters ended March 31, 2025 and 2024

(000s omitted except share data)

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| **CASH FLOWS FROM FINANCING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;Net change in deposits | $29648 | $38053 |
| &nbsp;&nbsp;&nbsp;Net change in securities sold under agreements to repurchase | (413) | (1381) |
| &nbsp;&nbsp;&nbsp;Cash dividends paid | (599) | (727) |
| &nbsp;&nbsp;&nbsp;Purchases and retirement of common stock | (263) | (181) |
| &nbsp;&nbsp;&nbsp;Net change in short-term FHLB advances and other borrowings | (35000) | (16500) |
| &nbsp;&nbsp;&nbsp;Advances on long-term FHLB advances and other borrowings | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Payments on long-term FHLB advances and other borrowings | 0 | (25000) |
| &nbsp;&nbsp;&nbsp;Proceeds from stock options exercised | 1 | 155 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Net cash used in financing activities | (6626) | (5581) |
| Increase (decrease) in cash and cash equivalents | 558 | (5293) |
| Cash and cash equivalents: |  |  |
| &nbsp;&nbsp;&nbsp;Beginning of the year | 44976 | 28018 |
| &nbsp;&nbsp;&nbsp;Ending of the year | $45534 | $22725 |
| **SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:** |  |  |
| &nbsp;&nbsp;&nbsp;Cash payments for interest paid: |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Deposits | $6910 | $6540 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Securities sold under agreements to repurchase | 177 | 220 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;FHLB advances and other borrowings | 491 | 942 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total | $7578 | $7702 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Income taxes paid | $260 | 136) |
| **SUPPLEMENTAL DISCLOSURES OF NONCASH AND FINANCING ACTIVITIES:** |  |  |
| &nbsp;&nbsp;&nbsp;Foreclosed assets acquired in settlement of loans | $0 | $66 |
| &nbsp;&nbsp;&nbsp;Dividends payable | $609 | $496 |
| &nbsp;&nbsp;&nbsp;Lease liabilities arising from obtaining right-of-use assets | $250 | $0 |

---

See Notes to Consolidated Financial Statements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies</u>** :

Principles of consolidation:

The accompanying consolidated financial statements include the accounts of Tri-County Financial Group, Inc. (Company) and its wholly owned subsidiaries, First State Bank (Bank), Tri-County Insurance Services, Inc. (Insurance Company), and First State Mortgage (Mortgage Banking Company). The Bank consolidates subsidiaries in which it holds more than 50-percent ownership. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP) and conform to general practices within the banking industry. All significant intercompany transactions have been eliminated.

Nature of operations:

The Company provides a variety of banking and mortgage banking services and insurance services to individuals and businesses principally through its main facilities in Mendota and branches in Peru, LaMoille, McNabb, Streator, Ottawa, Earlville, Bloomington, St. Charles, Geneva, Batavia, North Aurora, Shabbona, Waterman, Sycamore, Rochelle, Princeton, West Brooklyn, and Champaign, Illinois, with additional mortgage banking offices in Illinois and Wisconsin. The Company's primary deposit products are demand deposits and certificates of deposit and its primary lending products are agribusiness, commercial, real estate mortgage and installment loans and secondary market mortgage activities.

The Company is divided into two reportable segments: Commercial Banking and Mortgage Banking. Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses in all markets through retail lending, deposit services, online banking, mobile banking, private banking, commercial lending, commercial real estate lending, agricultural lending, and other banking services. Mortgage banking provides residential mortgage banking products through five offices in Illinois and one office in Wisconsin through our Mortgage Banking Company. The majority of the loans are sold with servicing released.

Use of estimates:

The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for credit losses and valuation of goodwill.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Significant group concentrations of credit risk:

Most of the Company's activities are with customers located in the area and communities noted above. Note 3 details the types of securities in which the Company invests. Note 4 details the types of lending in which the Company engages. A substantial portion of the Company's loans are with entities involved in the agricultural industry.

Cash and cash equivalents:

For purposes of reporting cash flows, cash and cash equivalents are defined as those amounts included in cash and due from banks and federal funds sold, which are sold overnight.

Trust assets:

Assets of the trust department, other than trust cash on deposit at the Bank, are not included in these consolidated financial statements because they are not assets of the Company.

Debt securities available-for-sale:

Debt securities are classified as available for sale (AFS) and recorded at fair value, with unrealized gains or losses excluded from earnings and reported in other comprehensive income (loss).

Purchase premiums are recognized in interest income using the interest method over the terms of the debt securities and are amortized/accreted to the earliest of call or maturity date. Discounts are recognized in interest income using the interest method over the term of the securities. Gains and losses on the sale of debt securities are recorded on the trade date and are determined using the specific identification method.

When the fair value of securities is below the amortized cost and the Company will not be required to sell the security before recovery of its amortized cost basis, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. If the present value of cash flows expected to be collected from the security are less than the amortized cost basis of the security, an allowance for credit losses is recorded for the credit loss, limited to the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss).

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Debt securities available-for-sale (continued):

---

| | | |
|:---|:---|:---|
| | **Accounting Treatment** | **Accounting Treatment** |
| <br>**Circumstances of Impairment Considerations** | **Credit Component** | **Remaining Portion** |
| Not intended for sale or more likely than not that the Bank will not have to sell before recovery of cost basis | Recognized as an allowance for credit loss | Recognized in other comprehensive income (loss) |
| Intended for sale or more likely than not that the Bank will be required to sell before recovery of cost basis | Recognized in earnings | Recognized in earnings |

---

Allowance for Credit Losses – available-for-sale debt securities:

For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether (1) there is intention to sell or (2) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged off and the security's amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. The Company excludes accrued interest receivable on available-for-sale securities from the estimate of credit losses. Available-for-sale securities are charged off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.

Federal Home Loan Bank stock:

The Bank, as a member of the Federal Home Loan Bank (FHLB) system, is required to own a certain amount of stock based on the level of borrowings and may invest in additional amounts. FHLB stock is carried at cost since no ready market exists and it has no quoted market value. FHLB stock is periodically evaluated for impairment based on the ultimate recovery of par value.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Mortgage loans held for sale and loan servicing:

Mortgage loans held for sale are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through a valuation allowance by charges to noninterest income. The majority of the Company's mortgage loans held for sale are generated through the Mortgage Banking Company. Changes in fair value are recorded in mortgage banking income in the consolidated statements of income.

The Company does retain some of the servicing on the loans sold through the Mortgage Banking Company within the Company's markets.

Mortgage loans held for sale through the Bank are sold with the mortgage servicing rights retained by the Bank. Gains or losses on sales of mortgage loans are recognized based on the difference between the selling price and the carrying value of the related mortgage loans sold. These gains or losses are included in mortgage banking income in the consolidated statements of income.

Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans. Generally, for sales of mortgage loans, a portion of the cost of originating the loan is allocated to the servicing right based on relative fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available. The Company subsequently measures each class of servicing asset using the amortization method. Under the amortization method, servicing rights are amortized in proportion to and over the period of estimated net servicing income of the underlying loans. Capitalized mortgage servicing assets are reported in other assets and are assessed for impairment at least annually.

Servicing fee income is recorded for fees earned from servicing loans. The fees are based on a contractual percentage of the outstanding principal and are recorded as mortgage banking income when earned.

Mortgage loan sales:

The Company generally sells mortgage loans held for sale without recourse. However, the Company's agreements to sell residential mortgage loans in the normal course of business usually require certain representations and warranties on the underlying loans sold, related to credit information, loan documentation, collateral, and insurability, which if subsequently are untrue or breached, could require the Company to repurchase certain loans affected. The potential liability under these representations and warranties is estimated as a liability and any losses incurred and resulting expense are netted with mortgage banking income.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Mortgage banking income:

Mortgage banking income includes the fees generated from the underwriting and origination of mortgage loans held for sale along with the gains or losses realized from the sale of these loans, net of origination costs, the changes in fair values of mortgage loan derivatives, servicing right income, amortization, and servicing fee income.

Loans:

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at amortized cost basis, which is the unpaid principal balance outstanding, net of unearned income and deferred loan fees and costs. The Company has made a policy election to exclude accrued interest from the amortized cost basis of loans and report accrued interest separately from the related loan balance in the consolidated balance sheets.

Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income over the life of the loan without anticipating prepayments.

Loans are considered past due or delinquent when the contractual principal and/or interest due in accordance with the terms of the loan agreement or any portion thereof remains unpaid after the due date of the scheduled payment. The accrual of interest income on loans is typically discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection, or if full collection of interest or principal becomes doubtful. All interest accrued but not received for a loan placed on non-accrual is reversed against interest income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Under the cost-recovery method, interest income is not recognized until the loan balance is reduced to zero. Under the cash-basis method, interest income is recorded when the payment is received in cash. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Allowance for credit losses (ACL) - Loans:

The Company adopted ASU 2016-13 *Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments on January 1, 2023* (CECL). Under the CECL model, the allowance for credit losses (ACL) on loans represents a valuation allowance estimated at each balance sheet date in accordance with GAAP that is deducted from the loans' amortized cost basis to represent the net amount expected to be collected on the loan portfolio.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Allowance for credit losses (ACL) – Loans (continued):

The Company estimates the ACL on loans based on the underlying assets' amortized cost basis, which is the amount at which the receivable is originated or acquired, adjusted for applicable accretion or amortization of premium, discount, and net deferred fees or costs, collection of payment, and partial charge-offs. In the event that collection of principal becomes uncertain, the Company has policies in place to reverse accrued interest in a timely manner. Therefore, the Company has made a policy election to exclude accrued interest from the measurement of the ACL on loans.

Expected credit losses are reflected in the ACL on loans through a charge to provision for credit losses on loans. When the Company deems all or a portion of a financial asset to be uncollectible, the appropriate amount is written-off and the ACL on loans is reduced by the same amount. The Company applies judgment to determine when a financial asset is deemed uncollectible; however, generally speaking, an asset will be considered uncollectible no later than when all efforts of collection have been exhausted and the collateral, if any, has been liquidated. Subsequent recoveries, if any, are credited to the ACL on loans when received.

The Company's methodologies for estimating the ACL on loans consider available relevant information about the collectability of cash flows, including information about past events, current conditions and reasonable and supportable forecasts. The methodologies apply historical loss information, adjusted for asset-specific characteristics, economic conditions at the measurement date, and forecasts about future economic conditions expected to exist through the contractual lives of the financial assets that are reasonable and supportable to the identified pools of financial assets with similar risk characteristics for which the historical loss experience was observed. The Company's methodologies may revert to historical loss information on a straight-line basis over a number of quarters when it can no longer develop reasonable and supportable forecasts.

Loans are predominantly segmented by FDIC Call Report Codes into loan pools that have similar risk characteristics, similar collateral type and are assumed to pose consistent risk of loss to the Company.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Allowance for credit losses (ACL) - Loans (continued):

The Company measures expected credit losses for its loan portfolio segments as follows:

---

| | |
|:---|:---|
| **Loan Portfolio Segment** | **ACL Methodology** |
| Commercial and industrial | Discounted cash flow |
| Commercial agricultural | Discounted cash flow |
| Commercial other | Discounted cash flow |
| Real estate – commercial | Discounted cash flow |
| Real estate – consumer | Discounted cash flow |
| Real estate – agricultural | Discounted cash flow |
| Real estate – construction and land | Discounted cash flow |
| Consumer installment | Remaining life |
| Consumer vehicle | Remaining life |
| Credit cards | Other |

---

*<u>Discounted cash flow method (DCF)</u>* – The DCF methodology is used to develop cash flow projections at the instrument level wherein payment expectations are adjusted for estimated prepayment speed and curtailments and expected losses are calculated via a gross loss rate and recovery rate assumption. The modeling of expected prepayment speeds and curtailment rates are based on industry data.

The Company uses regression analysis on historical internal and peer data to determine suitable loss drivers to utilize when modeling expected losses. For all loan pools utilizing the DCF method, management utilizes a forecast unemployment rate and gross domestic product as its primary loss drivers, as these were determined to best correlate to historical losses.

With regard to the DCF model, management determined that four quarters represented a reasonable and supportable forecast period with reversion back to historical loss rate over four quarters on a straight-line basis.

The combination of adjustments for credit expectations (expected losses) and timing expectations (prepayment and curtailment) produces an expected cash flow stream at the instrument level. An ACL is established for the difference between the instrument's NPV and amortized cost basis.

*<u>Remaining life method</u>* – The remaining life methodology is a type of loss rate methodology that uses an average loss rate and applies it to future expected outstanding balances of the pool.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Allowance for credit losses (ACL) - Loans (continued):

*<u>Collateral dependent loans</u>* – Loans that do not share risk characteristics are evaluated on an individual basis. For collateral dependent loans where the Company has determined that the liquidation or foreclosure of the collateral is probable, or where the borrower is experiencing financial difficulty and the Company expects repayment of the financial asset to be provided substantially through the operation of the business or sale of the collateral, the ACL is measured based on the difference between the estimated fair value of the collateral and amortized cost basis of the assets as of the measurement date. When repayment is expected to be from the operation of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the NPV of expected cash flows from the operation of the collateral. When repayment is expected to be from the sale of the collateral, expected credit losses are calculated as the amount by which the amortized cost basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The ACL may be zero if the fair value of the collateral at the measurement date exceeds the amortized costs basis of the loan. The Company's estimate of the ACL reflects losses expected over the remaining contractual life of the loan and the contractual term does not consider extensions, renewals, or modifications.

The Company's qualitative factors are considered by qualitatively adjusting model results for risk factors that are not considered within the modeling processes but are nonetheless relevant in assessing the expected credit losses within the loan pools. These qualitative factors and other qualitative adjustments may increase or decrease the Company's estimate of expected credit losses by a calculated percentage or amount based upon the estimated level of risk. The various risks that may be considered in making qualitive adjustments include among other things the impact of the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;i. Changes in lending policies and procedures,
 including changes in underwriting standards and collections, charge offs, and recovery practices

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ii. Changes in international, national, regional,
 and local economic and business conditions

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;iii. Changes in the nature and volume of the
 portfolio and in the terms of the underlying loans

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;iv. Changes in the experience, depth, and
 ability of the lending management and staff

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;v. Changes in
 volume and severity of past due loans and other similar conditions

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;vi. Changes in the quality of the organization's
 loan review system

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Allowance for credit losses (ACL) - Loans (continued):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;vii. Changes in the value of the underlying
 collateral for loans that are non-collateral dependent

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;viii. The existence and effect of any concentrations
 of credit and changes in the levels of such concentrations

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;ix. The effect of other external factors such
 as regulatory, legal and technological environments; competition; and events such as natural
 disasters or health pandemics

The following portfolio segments have been identified: commercial, real estate and consumer.

Management considers the following when assessing the risk in the loan portfolio:

Commercial and industrial and agricultural loans are primarily for working capital, physical asset expansion, asset acquisition and other. These loans are made based primarily on historical and projected cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not behave as forecasted and collateral securing loans may fluctuate in value due to economic or individual performance factors. Financial information is obtained from the borrowers to evaluate cash flows sufficiency to service debt and are periodically updated during the life of the loan.

Agricultural real estate and commercial real estate loans are dependent on the industries tied to these loans. Agricultural real estate loans are primarily for land acquisition. Commercial real estate loans are primarily secured by office and industrial buildings, warehouses, small retail shopping facilities, single family rental, multifamily loans, and various special purpose properties, including hotels and restaurants. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service debt and is periodically updated during the life of the loan. Loan performance may be adversely affected by factors impacting the general economy or conditions specific to the real estate market such as geographic location and/or property type.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Allowance for credit losses (ACL) - Loans (continued):

Commercial real estate loans also include construction and land development loans. These loans are secured by vacant land and/or property that are in the process of improvement, including (a) land development preparatory to erecting vertical improvements or (b) the on-site construction of industrial, commercial, residential or farm buildings. Repayment of these loans can be dependent on the sale of the property to third parties or the successful completion of the improvements by the builder for the end user. In the event a loan is made on property that is not yet improved for the planned development, there is the risk that necessary approvals will not be granted or will be delayed. Construction loans also run the risk that improvements will not be completed on time or in accordance with specifications and projected costs.

Consumer real estate loans are affected by the local residential real estate market, the local economy, and, for variable rate mortgages, movement in indices tied to these loans. At the time of origination, the Company evaluates the borrower's repayment ability through a review of debt to income and credit scores. Appraisals are obtained to support the loan amount. Financial information is obtained from the borrowers and/or the individual project to evaluate cash flows sufficiency to service debt at the time of origination.

Consumer and other loans may take the form of installment loans, demand loans or single payment loans and are extended to individuals for household, family and other personal expenditures. At the time of origination, the Company evaluates the borrower's repayment ability through a review of debt to income and credit scores.

Allowance for Credit Losses – Off-Balance-Sheet Credit Exposures

The allowance for credit losses on off-balance-sheet credit exposures is a liability account, representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. No allowance is recognized if the Company has the unconditional right to cancel the obligation. The allowance is reported as a component of accrued interest payable and other liabilities in the consolidated balance sheets. Adjustments to the allowance are reported in the consolidated income statement as a component of credit loss expense. The allowance for credit losses on off-balance-sheet credit exposures is described more fully in Note 4.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Loan commitments:

The Bank enters into off-balance-sheet financial instruments consisting of commitments to extend credit and letters of credit issued to meet customer financing needs. Loan commitments are recorded when they are funded. Standby letters of credit are considered financial guarantees in accordance with GAAP and are recorded at fair value, if material.

Loan servicing:

Mortgage servicing rights are recognized as separate assets when rights are acquired through a sale of loans and are reported in other assets. When the originating mortgage loans are sold into the secondary market, the Company allocates the total cost of the mortgage loans between mortgage servicing rights and the loans, based on their relative fair values. The cost of originated mortgage-servicing rights is amortized in proportion to, and over the period of, estimated net servicing revenues. Impairment of mortgage servicing rights is assessed based on the fair value of those rights. The amount of impairment is the amount by which the capitalized mortgage servicing rights exceed their fair value. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions.

Mortgage loan derivatives:

Commitments to fund mortgage loans (interest rate locks) to be sold into the secondary market and forward commitments for the future delivery of these mortgage loans are to be accounted for as free-standing derivatives. The Company enters into these best efforts forward commitments and mandatory delivery forward commitments in order to hedge the change in interest rates resulting from its commitments to fund the loans. The Company also enters into over-the-counter contracts for the future delivery of mortgage backed securities. These contracts are fair value hedges, which are also used to offset the interest rate risk related to granting interest rate locks. The fair values of these derivatives are estimated based on the expected net future cash flows related to the associated servicing of the loans and changes in mortgage interest rates from the date of the commitments. In estimating fair value, the Company assigns a probability to the commitment based on an expectation that it will be exercised and the loan will be funded. These derivatives are included in other assets and other liabilities with changes in fair values on these derivatives included in net gains on sales of mortgage loans.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Foreclosed assets:

Assets acquired through or in lieu of loan foreclosure are held for sale and are initially recorded at fair value less cost to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying amount or fair market value less estimated cost to sell. At the date of acquisition losses are charged to the allowance for credit losses, and subsequent write downs are charged to expense in the period incurred. Operating costs after acquisition are expensed.

Bank premises and equipment:

Land is carried at cost. Bank premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed principally by using the straight-line method over the estimated useful lives. Building and improvements are depreciated from five to forty years and furniture and equipment from three to fifteen years.

Goodwill and other intangibles:

The premium paid on the assumption of deposit liabilities and the fair value of net assets acquired is accounted for as goodwill and other intangibles. Goodwill and other intangible assets determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. Intangible assets with definite useful lives are amortized over their estimated useful lives, which is ten years. Goodwill is the only intangible asset with an indefinite useful life on the balance sheet.

Goodwill is evaluated at the reporting unit level annually for impairment or more frequently if impairment indicators are present. A qualitative assessment is performed to determine whether the existence of events or circumstances leads to a determination that it is more likely than not the fair value is less than the carrying amount, including goodwill. If, based on the evaluation, it is determined to be more likely than not that the fair value is less than the carrying value, then goodwill is tested further for impairment. If the implied fair value of goodwill is lower than its carrying amount, a goodwill impairment is indicated and goodwill is written down to its implied fair value. Subsequent increases in goodwill value are not recognized in the consolidated financial statements.

Bank owned life insurance:

The Bank has purchased life insurance policies on certain key employees. The Bank- owned life insurance is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Transfers of financial assets:

Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Comprehensive income:

Comprehensive income consists of net income and other comprehensive income (loss). Accumulated other comprehensive loss includes unrealized gains and losses on securities available for sale, and is recognized as separate components of stockholders' equity.

Reclassification adjustments out of other comprehensive income (loss) for gains realized on sales and calls of securities available for sale comprise the entire balance of "Net gain on sales of available-for-sale securities" on the consolidated statements of income.

Stock compensation plans:

The Company records stock-based employee compensation cost using the fair value method. Compensation expense for share-based awards is recorded over the vesting period at the fair value of the award at the time of grant. The Company begins to record compensation expense in the subsequent calendar year as options are historically issued every two years in December. A Black-Sholes model is used to estimate the fair value of stock options. The Company assumes no projected forfeitures on its stock based compensation, since actual historical forfeiture rates on its stock-based incentive awards have been negligible.

Income taxes:

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(1)**  **<u>Significant Accounting Policies (continued)</u>** :

Income taxes (continued):

The Company may also recognize a liability for unrecognized tax benefits from uncertain tax positions. Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured in the financial statements. Interest and penalties related to unrecognized tax benefits are classified as income taxes, if applicable. No liabilities for unrecognized tax benefits from uncertain tax positions have been recorded.

Earnings per share:

Basic earnings per common share are computed by dividing the net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under the Company's stock options.

Recent Accounting Pronouncements:

In November 2023, the FASB issued ASU 2023-07, *Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures.* The amendments in ASU 2023-07 provide for new disclosures which: (1) require that a public entity disclose on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss; (2) require that a public entity disclose, on an annual and interim basis, an amount for other segment items by reportable segment and a description of its composition; (3) require that a public entity provide all annual disclosures about a reportable segment's profit or loss and assets currently required by Topic 280 in interim periods; (4) allows more than one measure of segment profit or loss used by the CODM when assessing segment performance and deciding how to allocate resources to be disclosed; (5) require disclosure of title and position of CODM and explain how the CODM uses the disclosed reported measurers to assess segment performance; and (6) require that a public entity that has a single reportable segment provide all the disclosures required by the amended Topic 280. The amendments in this update are effective for the Company for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments in this update are required to be applied retrospectively to all prior periods presented in the financial statements. Upon transition, the segment expense categories and amounts disclosed in the prior periods should be based on the significant segment expense categories and the amounts disclosed in the prior periods should be based on the significant segment expense categories identified and disclosed in the period of adoption. The Company adopted this accounting standard effective January 1, 2024, and the Company's financial condition, results of operations and cash flows were not impacted by this guidance. The Company has provided the required disclosures for its reportable segments.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(2)**  **<u>Cash and Due from Banks</u>:** 

The Bank is required to maintain reserve balances, in cash or on deposit with the Federal Reserve Bank, based upon a percentage of deposits. The total required reserve balances as of March 31, 2025 and 2024 were $0.

In the normal course of business, the Company maintains cash and due from bank balances with correspondent banks. Balances in these accounts may exceed the Federal Deposit Insurance Corporation's (FDIC's) insured limit of $250. Management believes these financial institutions have strong credit ratings and the credit risk related to these deposits is minimal. At March 31, 2025, the Company's cash accounts exceeded federally insured limits by $789. The Company also had $27,012 at the Federal Home Loan Bank and Federal Reserve Bank, which are government-sponsored entities not insured by the FDIC.

**(3)**  **<u>Debt Securities Available for Sale</u>:** 

The following tables reflect the amortized cost and fair value of debt securities available for sale as of March 31:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2025** | **2025** | **2025** | **2025** | **2025** |
|  |  | **Gross** | **Gross** |  |
|  | **Amortized** | **Unrealized** | **Unrealized** | **Fair** |
|  | **Cost** | **Gains** | **(Losses)** | **Value** |
| U.S. Treasuries & Govt. - sponsored agencies | $37719 | $0 | $(1680) | $36039 |
| State and municipal | 59335 | 109 | (4063) | 55381 |
| Mortgage-backed - residential | 45017 | 61 | (5288) | 39790 |
| Collateralized mortgage Obligations (CMOs) | 17971 | 11 | (1794) | 16188 |
|  | $160042 | $181 | $(12825) | $147398 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2024** | **2024** | **2024** | **2024** | **2024** |
|  |  | **Gross** | **Gross** |  |
|  | **Amortized** | **Unrealized** | **Unrealized** | **Fair** |
|  | **Cost** | **Gains** | **(Losses)** | **Value** |
| U.S. Treasuries & Govt. - sponsored agencies | $61510 | $0 | $(2943) | $58567 |
| State and municipal | 62302 | 305 | (3638) | 58969 |
| Mortgage-backed - residential | 44558 | 0 | (6644) | 37914 |
| Collateralized mortgage Obligations (CMOs) | 16169 | 0 | (2470) | 13699 |
|  | $184539 | $305 | $(15695) | $169149 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(3)**  **<u>Debt Securities Available for Sale (continued)</u>:** 

Debt securities with a carrying amount of approximately $61,008 and $72,301 at March 31, 2025 and 2024, respectively, were pledged as collateral on public deposits, debt securities sold under agreements to repurchase and for other purposes as required or permitted by law.

At March 31, 2025 and 2024, there were no holdings of debt securities of any one issuer, other than the U.S. Government and its sponsored agencies, in an amount greater than 10% of stockholders' equity.

As of March 31, 2025 and 2024, accrued interest on debt securities available-for-sale of $777 and $983, respectively, was excluded from CECL evaluation. Accrued interest on debt securities available-for-sale is recorded within accrued interest receivable on the consolidated balance sheet.

The amortized cost and approximate fair value of debt securities at March 31, 2025 by contractual maturity are shown below. Expected maturities may differ from contractual maturities on mortgage-backed and collateralized mortgage obligation debt securities because the underlying mortgages may be called or prepaid without any penalties.

---

| | | |
|:---|:---|:---|
|  | **Amortized Cost** | **Fair Value** |
| Due in one year or less | $10370 | $10283 |
| Due after one year through five years | 53847 | 51682 |
| Due after five years through ten years | 16997 | 15861 |
| Due after ten years | 21464 | 18770 |
|  | 102678 | 96596 |
| Mortgage-backed – residential | 45017 | 39790 |
| Collateralized mortgage obligations | 12347 | 11012 |
|  | $160042 | $147398 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(3)**  **<u>Debt Securities Available-for-Sale (continued)</u>:** 

Debt securities with unrealized losses as of March 31 not recognized in income are as follows:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **2025** | **2025** | **2025** | **2025** | **2025** | **2025** | **2025** |
|  | **Less than 12 Months** | **Less than 12 Months** | **12 Months or More** | **12 Months or More** | **Total** | **Total** |
|  | **Fair**<br> **Value** | **Unrealized Loss** | **Fair**<br> **Value** | **Unrealized Loss** | **Fair**<br> **Value** | **Unrealized Loss** |
| U.S Treas. & Gov't - sponsored agencies | $0 | $0 | $36039 | $1680 | $360391 | $1680 |
| State and municipal | 10511 | 90 | 35378 | 3973 | 458897 | 4063 |
| CMOs | 2454 | 17 | 12711 | 1777 | 151651 | 1794 |
| Mortgage-backed –residential | 1258 | 14 | 33705 | 5274 | 349635 | 5288 |
| Total temporarily impaired | $14223 | $121 | $117833 | $12704 | $1320563 | $12825 |

---

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
| **2024** | **2024** | **2024** | **2024** | **2024** | **2024** | **2024** |
|  | **Less than 12 Months** | **Less than 12 Months** | **12 Months or More** | **12 Months or More** | **Total** | **Total** |
|  | **Fair**<br> **Value** | **Unrealized Loss** | **Fair**<br> **Value** | **Unrealized Loss** | **Fair**<br> **Value** | **Unrealized Loss** |
| U.S Treas. &Gov't - sponsored agencies | $0 | $0 | $58567 | $2943 | $585671 | $2943 |
| State and municipal | 8274 | 52 | 32358 | 3586 | 406327 | 3638 |
| CMOs | 0 | 0 | 13699 | 2470 | 136997 | 2470 |
| Mortgage-backed –residential | 0 | 0 | 37914 | 6644 | 379145 | 6644 |
| Total temporarily impaired | $8274 | $52 | $142538 | $15643 | $1508129 | $15695 |

---

At March 31, 2025 and 2024, the investment portfolio included 177 and 163 debt securities that were in an unrealized loss position, respectively. Unrealized losses have not been recognized as an allowance for credit losses because the Company does not intend to sell the securities prior to their anticipated recovery and the decline in fair value is largely due to changes in interest rates and other market conditions.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans</u>:** 

The following table presents total loans at March 31 by portfolio segment and class of loan:

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Commercial: |  |  |
| &nbsp;&nbsp;&nbsp;Commercial and industrial | $69908 | $81850 |
| &nbsp;&nbsp;&nbsp;Agricultural | 62548 | 60399 |
| &nbsp;&nbsp;&nbsp;Other | 0 | 0 |
| Real estate: |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | 546777 | 525516 |
| &nbsp;&nbsp;&nbsp;Consumer | 384150 | 380475 |
| &nbsp;&nbsp;&nbsp;Agricultural | 166965 | 182206 |
| &nbsp;&nbsp;&nbsp;Construction and land | 24643 | 40597 |
| Consumer: |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 3889 | 4338 |
| &nbsp;&nbsp;&nbsp;Vehicle | 2684 | 3556 |
| &nbsp;&nbsp;&nbsp;Credit cards | 1192 | 1206 |
| Total loans | 1262756 | 1280143 |
| Allowance for credit losses | (14504) | (15005) |
| Loans, net | $1248252 | $1265138 |

---

Detailed analysis of the allowance for credit losses by portfolio segment for the quarter ended March 31, 2025 follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2025** | <br>**Commercial** | **Real**<br> **Estate** | <br>**Consumer** | <br>**Total** |
| Balance at beginning of year | $1101 | $13201 | $142 | $14444 |
| &nbsp;&nbsp;&nbsp;Credit loss expense | (47) | 284 | (6) | 231 |
| &nbsp;&nbsp;&nbsp;Recoveries on loans previously charged-off | 6 | 10 | 13 | 29 |
| &nbsp;&nbsp;&nbsp;Less loans charged-off | (3) | (173) | (24) | (200) |
| Balance at end of quarter | $1057 | $13322 | $125 | $14504 |

---

Detailed analysis of the allowance for credit losses by portfolio segment for the year ended March 31, 2024 follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2024** | <br>**Commercial** | **Real**<br> **Estate** | <br>**Consumer** | <br>**Total** |
| Balance at beginning of year | $1177 | $14688 | $125 | $15990 |
| &nbsp;&nbsp;&nbsp;Credit loss expense | (116) | (864) | (9) | (989) |
| &nbsp;&nbsp;&nbsp;Recoveries on loans previously charged-off | 6 | 1 | 20 | 27 |
| &nbsp;&nbsp;&nbsp;Less loans charged-off | 0 | 0 | (23) | (23) |
| Balance at end of quarter | $1067 | $13825 | $113 | $15005 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

Detailed analysis of the allowance for unfunded commitments for the quarter ended March 31, 2025 follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2025** | <br>**Commercial** | **Real**<br> **Estate** | <br>**Consumer** | <br>**Total** |
| Balance at beginning of year | $96 | $889 | $2 | $987 |
| Credit loss expense (benefit) | (10) | 280 | 0 | 270 |
| Balance at end of quarter | $86 | $1169 | $2 | $1257 |

---

Detailed analysis of the allowance for unfunded commitments for the year ended March 31, 2024 follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2024** | <br>**Commercial** | **Real**<br> **Estate** | <br>**Consumer** | <br>**Total** |
| Balance at beginning of year | $201 | $621 | $3 | $825 |
| &nbsp;&nbsp;&nbsp;Credit loss expense (benefit) | (29) | (269) | 0 | (298) |
| Balance at end of quarter | $172 | $352 | $3 | $527 |

---

The Bank has no commitments to loan additional funds to the borrowers of collateral dependent or non-accrual loans.

Certain purchased loans as later discussed in Note 4 are not considered impaired or non-accrual loans if the expected cash flows as of March 31, 2025 and 2024 exceed the carrying amount and accretion income is being recorded.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

The Company regularly evaluates various attributes of loans to determine the appropriateness of the allowance for credit losses. The Company generally monitors credit quality indicators for all non-consumer loans using the following internally prepared ratings:

● 'Pass' ratings are assigned to loans with adequate collateral and debt service ability such that collectability of the contractual loan payments is highly probable.

● 'Watch' ratings are assigned to loans that are considered below average credit risk with some clearly defined financial weaknesses or uncertainty. The loans warrant a higher than average level of monitoring.

● 'Special Mention' ratings are assigned to loans where management has some concern that the collateral or debt service ability may not be adequate, though the collectability of the contractual loan payments is still probable.

● 'Substandard' ratings are assigned to loans that do not have adequate collateral and/or debt service ability such that collectability of the contractual loan payments is no longer probable.

● 'Doubtful' ratings are assigned to loans that do not have adequate collateral and/or debt service ability, and collectability of the contractual loan payments is unlikely.

As of March 31, 2025 and 2024, accrued interest on loans of $7,487 and $7,299, respectively, were excluded from CECL evaluation. Accrued interest on loans is recorded within accrued interest receivable on the consolidated balance sheet.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

The following table presents the credit risk profile of the Company's loan portfolio (excluding loans in process and deferred loan fees) based on rating category and year of origination as of March 31, 2025:

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**March 31,** | <br>**2025** | <br>**2024** | <br>**2023** | <br>**2022** | <br>**2021** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| **Commercial:** |  |  |  |  |  |  |  |  |
| Commercial and industrial |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $6662 | $15262 | $7773 | $7753 | $2501 | $9782 | $14870 | $64603 |
| &nbsp;&nbsp;&nbsp;Watch | 162 | 940 | 364 | 316 | 52 | 147 | 1777 | 3758 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 496 | 19 | 0 | 0 | 481 | 996 |
| &nbsp;&nbsp;&nbsp;Substandard | 79 | 184 | 28 | 0 | 251 | 9 | 0 | 551 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Commercial and industrial | $6903 | $16386 | $8661 | $8088 | $2804 | $9938 | $17128 | $69908 |
| Agricultural: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $375 | $2046 | $2431 | $5262 | $5092 | $374 | $39146 | $54726 |
| &nbsp;&nbsp;&nbsp;Watch | 9 | 254 | 421 | 71 | 190 | 524 | 4182 | 5651 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 148 | 776 | 0 | 131 | 0 | 1116 | 2171 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Agricultural | $384 | $2448 | $3628 | $5333 | $5413 | $898 | $44444 | $62548 |
| Other |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Other | $0 | $— | $0 | $0 | $0 | $0 | $0 | $0 |
| **Real Estate** |  |  |  |  |  |  |  |  |
| Commercial |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $25722 | $58593 | $50044 | $117125 | $63483 | $145808 | $9478 | $470253 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 3751 | 15734 | 15976 | 12375 | 14780 | 6763 | 69379 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 897 | 0 | 897 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 2511 | 0 | 1324 | 1347 | 1066 | 6248 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Commercial | $25722 | $62344 | $68289 | $133101 | $77182 | $162832 | $17307 | $546777 |
| Consumer |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $9981 | $45441 | $62992 | $85728 | $48597 | $80561 | $24037 | $357337 |
| &nbsp;&nbsp;&nbsp;Watch | 334 | 5965 | 4516 | 985 | 3907 | 7367 | 2272 | 25346 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 96 | 67 | 0 | 78 | 0 | 241 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 419 | 42 | 747 | 18 | 1226 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Consumer | $10315 | $51406 | $67604 | $87199 | $52546 | $88753 | $26327 | $384150 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**(4) <u>Loans (continued)</u>:**

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**March 31,** | <br>**2025** | <br>**2024** | <br>**2023** | <br>**2022** | <br>**2021** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| **Real Estate Continued):** |  |  |  |  |  |  |  |  |
| Agricultural |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $3365 | $12024 | $15777 | $29979 | $27688 | $53183 | $14354 | $156370 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 1390 | 1784 | 0 | 4986 | 0 | 8160 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 1553 | 740 | 2293 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 142 | 0 | 0 | 0 | 0 | 142 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Agricultural | $3365 | $12024 | $17309 | $31763 | $27688 | $59722 | $15094 | $166965 |
| Construction and land: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $1311 | $10530 | $4442 | $805 | $593 | $3713 | $219 | $21613 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 700 | 507 | 1733 | 0 | 0 | 90 | 3030 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Construction and land | $1311 | $11230 | $4949 | $2538 | $593 | $3713 | $309 | $24643 |
| **Consumer** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $432 | $1109 | $750 | $457 | $423 | $657 | $37 | $3865 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 6 | 0 | 8 | 0 | 1 | 0 | 15 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 9 | 0 | 0 | 0 | 9 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Consumer | $432 | $1115 | $750 | $474 | $423 | $658 | $37 | $3889 |
| Vehicle |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $162 | $955 | $820 | $592 | $125 | $17 | $0 | $2671 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 13 | 0 | 0 | 0 | 0 | 0 | 13 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Vehicle | $162 | $968 | $820 | $592 | $125 | $17 | $0 | $2684 |
| Credit cards |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $1192 | 0 | 0 | 0 | 0 | 0 | 0 | $1192 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Credit Cards | $1192 | $0 | $0 | $0 | $0 | $0 | $0 | $1192 |
| **Total Loans** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $49202 | $145960 | $145029 | $247701 | $148502 | $294095 | $102141 | $1132630 |
| &nbsp;&nbsp;&nbsp;Watch | 505 | 11629 | 22932 | 20873 | 16524 | 27805 | 15084 | 115352 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 148 | 1368 | 86 | 131 | 2528 | 2337 | 6598 |
| &nbsp;&nbsp;&nbsp;Substandard | 79 | 184 | 2681 | 428 | 1617 | 2103 | 1084 | 8176 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total** | $**49786** | $**157921** | $**172010** | $**269088** | $**166774** | $**326531** | $**120646** | $**1262756** |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

The following table presents the credit risk profile of the Company's loan portfolio (excluding loans in process and deferred loan fees) based on rating category and year of origination as of March 31, 2024.

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**March 31,** | <br>**2024** | <br>**2023** | <br>**2022** | <br>**2021** | <br>**2020** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| **Commercial:** |  |  |  |  |  |  |  |  |
| Commercial and industrial |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $6998 | $15519 | $11703 | $4876 | $4202 | $9156 | $18522 | $70976 |
| &nbsp;&nbsp;&nbsp;Watch | 301 | 421 | 904 | 138 | 130 | 92 | 7057 | 9043 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 566 | 0 | 0 | 0 | 0 | 445 | 1011 |
| &nbsp;&nbsp;&nbsp;Substandard | 100 | 365 | 0 | 302 | 53 | 0 | 0 | 820 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Commercial and industrial | $7399 | $16871 | $12607 | $5316 | $4385 | $9248 | $26024 | $81850 |
| Agricultural: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $1033 | $3640 | $7781 | $8530 | $410 | $572 | $33440 | $55406 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 60 | 100 | 345 | 3 | 638 | 2861 | 4007 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 806 | 0 | 0 | 0 | 0 | 180 | 986 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Agricultural | $1033 | $4506 | $7881 | $8875 | $413 | $1210 | $36481 | $60399 |
| Other |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $0 | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Other | $0 | $— | $0 | $0 | $0 | $0 | $0 | $0 |
| **Real Estate** |  |  |  |  |  |  |  |  |
| Commercial |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $23912 | $82316 | $129625 | $71139 | $49285 | $116613 | $10791 | $483681 |
| &nbsp;&nbsp;&nbsp;Watch | 804 | 3505 | 5088 | 9518 | 776 | 12589 | 1280 | 33560 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 1351 | 0 | 221 | 0 | 434 | 1314 | 3320 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 1202 | 162 | 1279 | 460 | 1751 | 101 | 4955 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Commercial | $24716 | $88374 | $134875 | $82157 | $50521 | $131387 | $13486 | $525516 |
| Consumer |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $16085 | $75616 | $93788 | $54738 | $27414 | $73027 | $22672 | $363340 |
| &nbsp;&nbsp;&nbsp;Watch | 4100 | 3192 | 618 | 2404 | 2113 | 3456 | 527 | 16410 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 71 | 0 | 80 | 0 | 0 | 151 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 213 | 46 | 0 | 315 | 0 | 574 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Consumer | $20185 | $78808 | $94690 | $57188 | $29607 | $76798 | $23199 | $380475 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

---

| | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**March 31,** | <br>**2024** | <br>**2023** | <br>**2022** | <br>**2021** | <br>**2020** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| **Real Estate Continued):** |  |  |  |  |  |  |  |  |
| Agricultural |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $10841 | $17751 | $33650 | $29371 | $12357 | $47192 | $15988 | $167150 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 1417 | 1168 | 9 | 1331 | 5418 | 194 | 9537 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 351 | 578 | 0 | 929 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 4590 | 0 | 0 | 0 | 0 | 0 | 4590 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Agricultural | $10841 | $23758 | $34818 | $29380 | $14039 | $53188 | $16182 | $182206 |
| Construction and land: |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $132 | $12494 | $13542 | $1879 | $3696 | $7687 | $0 | $39430 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 809 | 0 | 358 | 0 | 1167 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Construction and land | $132 | $12494 | $13542 | $2688 | $3696 | $8045 | $0 | $40597 |
| **Consumer** |  |  |  |  |  |  |  |  |
| Installment |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $500 | $1386 | $692 | $653 | $381 | $647 | $34 | $4293 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 3 | 26 | 0 | 4 | 0 | 33 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 12 | 0 | 0 | 0 | 0 | 12 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Consumer | $500 | $1386 | $707 | $679 | $381 | $651 | $34 | $4338 |
| Vehicle |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $469 | $1561 | $1075 | $299 | $90 | $26 | $0 | $3520 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 0 | 4 | 0 | 0 | 4 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 32 | 0 | 0 | 0 | 32 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Vehicle | $469 | $1561 | $1075 | $331 | $94 | $26 | $0 | $3556 |
| Credit cards |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $1206 | 0 | 0 | 0 | 0 | 0 | 0 | $1206 |
| &nbsp;&nbsp;&nbsp;Watch | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Substandard | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total Credit Cards | $1206 | $0 | $0 | $0 | $0 | $0 | $0 | $1206 |
| **Total Loans** |  |  |  |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Pass | $61176 | $210283 | $291856 | $171485 | $97835 | $254920 | $101447 | $1189002 |
| &nbsp;&nbsp;&nbsp;Watch | 5205 | 8595 | 7881 | 13249 | 4357 | 22555 | 11919 | 73761 |
| &nbsp;&nbsp;&nbsp;Special Mention | 0 | 2723 | 71 | 221 | 431 | 1012 | 1939 | 6397 |
| &nbsp;&nbsp;&nbsp;Substandard | 100 | 6157 | 387 | 1659 | 513 | 2066 | 101 | 10983 |
| &nbsp;&nbsp;&nbsp;Doubtful | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**Total** | $**66481** | $**227758** | $**300195** | $**186614** | $**103136** | $**280553** | $**115406** | $**1280143** |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of March 31, 2025:

---

| | | | |
|:---|:---|:---|:---|
| **2025** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Nonaccrual** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Nonaccrual With No ACL** | **Loans Past Due Over 89 Days and Still Accruing** |
| Commercial: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | $260 | $24 | $0 |
| &nbsp;&nbsp;&nbsp;Agricultural | 0 | 0 | 192 |
| Real estate: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 2938 | 479 | 372 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 0 | 0 | 600 |
| &nbsp;&nbsp;&nbsp;Consumer real estate | 284 | 150 | 458 |
| Consumer: |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 0 | 0 | 20 |
| Total | $3482 | $653 | $1642 |

---

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due over 89 days still accruing as of March 31, 2024:

---

| | | | |
|:---|:---|:---|:---|
| **2024** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Nonaccrual** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Nonaccrual With No ACL** | **Loans Past Due Over 89 Days and Still Accruing** |
| Commercial: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | $355 | $53 | $0 |
| &nbsp;&nbsp;&nbsp;Agricultural | 0 | 0 | 0 |
| Real estate: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 1364 | 1364 | 1301 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 0 | 0 | 4590 |
| &nbsp;&nbsp;&nbsp;Consumer real estate | 183 | 181 | 257 |
| Consumer: |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 0 | 0 | 11 |
| Total | $1902 | $1598 | $6159 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

Loan aging information by class of loan for the quarters ended March 31:

---

| | | | |
|:---|:---|:---|:---|
| **2025** | **Loans Past Due**<br>**30-89 Days** | **Loans Past Due**<br>**90+ Days** | **Total**<br>**Past Due** |
| Commercial: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | $313 | $0 | $313 |
| &nbsp;&nbsp;&nbsp;Agricultural | 118 | 192 | 310 |
| Real estate: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 530 | 2557 | 3087 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 1436 | 600 | 2036 |
| &nbsp;&nbsp;&nbsp;Consumer real estate | 3916 | 917 | 4833 |
| &nbsp;&nbsp;&nbsp;Construction and land | 48 | 0 | 48 |
| Consumer: |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 62 | 22 | 84 |
| Total | $6423 | $4288 | $10711 |

---

---

| | | | |
|:---|:---|:---|:---|
| **2024** | **Loans Past Due**<br>**30-89 Days** | **Loans Past Due**<br>**90+ Days** | **Total**<br>**Past Due** |
| Commercial: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial | $340 | $127 | $467 |
| &nbsp;&nbsp;&nbsp;Agricultural | 211 | 0 | 211 |
| Real estate: |  |  |  |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 1855 | 2142 | 3997 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 1833 | 4590 | 6423 |
| &nbsp;&nbsp;&nbsp;Consumer real estate | 914 | 117 | 1031 |
| Consumer: |  |  |  |
| &nbsp;&nbsp;&nbsp;Installment | 289 | 11 | 300 |
| Total | $5442 | $6987 | $12429 |

---

The following table represents collateral dependent loans. A loan is considered to be collateral dependent when the borrower is experiencing financial difficulty and the repayment is expected to be provided substantially through the operation or sale of collateral. The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2025** | <br>**Commercial**  | **Real**<br> **Estate** | <br>**Vehicle** | <br>**Total** |
| &nbsp;&nbsp;&nbsp;Commercial and industrial | $301 | $0 | $0 | $301 |
| &nbsp;&nbsp;&nbsp;Commercial other | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Consumer vehicle | 0 | 0 | 9 | 9 |
| &nbsp;&nbsp;&nbsp;Consumer other | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 0 | 142 | 0 | 142 |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 0 | 6426 | 0 | 6426 |
| &nbsp;&nbsp;&nbsp;Residential real estate | 0 | 1315 | 0 | 1315 |
| Totals | $301 | $7883 | $9 | $8193 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

The following table presents the amortized cost basis of collateral-dependent loans by class of loans as of March 31:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2024** | <br>**Commercial**  | <br>**Real**<br> **Estate** | <br>**Vehicle** | <br>**Total** |
| &nbsp;&nbsp;&nbsp;Commercial and industrial | $833 | $0 | $0 | $833 |
| &nbsp;&nbsp;&nbsp;Commercial other | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Consumer vehicle | 0 | 0 | 32 | 32 |
| &nbsp;&nbsp;&nbsp;Consumer other | 0 | 0 | 12 | 12 |
| &nbsp;&nbsp;&nbsp;Agricultural real estate | 0 | 4590 | 0 | 4590 |
| &nbsp;&nbsp;&nbsp;Commercial real estate | 0 | 4562 | 0 | 4562 |
| &nbsp;&nbsp;&nbsp;Residential real estate | 0 | 579 | 0 | 579 |
| Totals | $833 | $9731 | $44 | $10608 |

---

The Company had no loans modified to borrowers experiencing financial difficulty as of and during the quarter ended March 31, 2025 and 2024.

The current quarter year-to-date gross charge-offs by loan class and year of origination is presented in the following table:

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**March 31,** | <br>**2025** | <br>**2024** | <br>**2023** | <br>**2022** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| Commercial and industrial | $0 | $0 | $3 | $0 | $0 | $0 | $3 |
| Commercial agricultural | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Commercial other | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate commercial | 0 | 0 | 0 | 0 | 173 | 0 | 173 |
| Real estate consumer | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate agricultural | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate construction and land | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Consumer vehicle | 0 | 0 | 1 | 0 | 0 | 0 | 1 |
| Consumer other | 23 | 0 | 0 | 0 | 0 | 0 | 23 |
| Credit cards | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| &nbsp;&nbsp;&nbsp;Total current- period gross charge-offs | $23 | $0 | $4 | $0 | $173 | $0 | $200 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(4)**  **<u>Loans (continued)</u>:** 

The March 31, 2024 quarter year-to-date gross charge-offs by loan class and year of origination is presented in the following table:

---

| | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|
| <br>**March 31,** | <br>**2024** | <br>**2023** | <br>**2022** | <br>**2021** | <br>**Prior** | **Revolving Loans** | <br>**Total** |
| Commercial and industrial | $0 | $0 | $0 | $0 | $0 | $0 | $0 |
| Commercial agricultural | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Commercial other | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate commercial | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate consumer | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate agricultural | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Real estate construction and land | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Consumer vehicle | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Consumer other | 15 | 0 | 2 | 0 | 0 | 0 | 17 |
| Credit cards | 3 | 0 | 0 | 3 | 0 | 0 | 6 |
| &nbsp;&nbsp;&nbsp;Total current- period gross charge-offs | $18 | $0 | $2 | $3 | $0 | $0 | $23 |

---

**(5)**  **<u>Servicing</u>:** 

Loans serviced for others are not included in the accompanying consolidated balance sheets. The risks inherent in mortgage servicing assets relate primarily to changes in prepayments that result from shifts in mortgage interest rates.

Mortgage loans serviced for others as of March 31, 2025 and 2024 were approximately $509,427 and $509,996, respectively. Custodial escrow balances maintained in conjunction with serviced loans and included in cash and due from banks were approximately $4,600 and $4,626 at March 31, 2025 and 2024, respectively.

At March 31, 2025 and 2024, mortgage servicing rights, net of amortization, totaled approximately $716, and $1,092, respectively, and are carried as other assets. The fair value of mortgage servicing rights approximated $5,274, $5,776, and $5,930 at March 31, 2025, 2024, and 2023, respectively. The mortgage servicing rights are applicable only to the Bank and evaluated and measured for impairment as a single class.

The following summarizes the activity pertaining to mortgage servicing rights, which is included in other assets, for the quarters ended March 31:

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Mortgage servicing rights: |  |  |
| &nbsp;&nbsp;&nbsp;Balance at beginning of year | $790 | $1237 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage servicing rights new/capitalized | 53 | 38 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage servicing rights amortized | (127) | (183) |
| &nbsp;&nbsp;&nbsp;Balance at end of quarter | $716 | $1092 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(6)**  **<u>Mortgage Banking Commitments</u>:** 

The Company enters into commitments to fund residential mortgage loans (interest rate lock commitments, or IRLC) at specified times in the future, with the intention that these loans will be subsequently sold to third-party investors. A mortgage loan commitment binds the Company to lend funds to a potential borrower at a specified interest rate and within a specified period of time, generally up to 60 days after inception of the interest rate lock. These mortgage loan commitments are considered to be derivatives. As of March 31, 2025 and 2024, the Company had approximately $30,005 and $29,719, respectively, in interest rate lock commitments outstanding.

To protect against the price risk inherent in derivative loan commitments, the Company utilizes both "mandatory delivery" and "best efforts" forward loan sale commitments to mitigate the risk of potential decreases in the values of loans that would result from the exercise of the derivative loan commitments. During 2024 and 2023, the Mortgage Banking Company used both "best efforts" and "mandatory delivery" and the Bank used "mandatory delivery" forward loan sale commitments. To facilitate the hedging of the loans, the Company has elected the fair value option for loans held for sale. Interest income is recorded based on the contractual terms of the loan and in accordance with the Company's policy on loans held for investment. None of these loans are 90 days or more past due nor on non-accrual as of March 31, 2025.

As of March 31, 2025 and 2024, the aggregate fair value, contractual balance, and gain or loss were as follows:

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| &nbsp;&nbsp;&nbsp;Aggregate fair value | $15578 | $10504 |
| &nbsp;&nbsp;&nbsp;Contractual balance | 15136 | 10196 |
| Gain | $442 | $308 |

---

Changes in the fair value of loans held for sale, interest rate lock commitments and forward contracts are recorded in mortgage banking income in noninterest income.

Best efforts sale commitments are contracts to deliver certain mortgage loans to third-party investors at a specified date and price only if the underlying loan is funded. At March 31, 2025 and 2024, the Company had approximately $7,480 and $2,670, respectively, in best effort forward sale commitments outstanding.

Mandatory forward sale commitments are contracts to deliver a certain principal amount of mortgage loans to a third-party investor at a specified date and price. If the contractual amount of mortgages are not delivered, then a "pair-off fee" is assessed based on then-current market prices. At March 31, 2025 and 2024, the Company had approximately $37,150 and $36,351, respectively, in mandatory forward sale commitments outstanding.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(6)**  **<u>Mortgage Banking Commitments (continued)</u>:** 

The following table provides the components of income from mortgage banking activities for the year ended March 31, 2025 and 2024:

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Gain on loans sold | $1631 | $1797 |
| Gain (loss) resulting from the change in fair value of loans held-for-sale | 257 | (122) |
| Gain (loss) resulting from the change in fair value of derivatives | 357 | 177 |
| Gain (loss) resulting from the change in forward contracts | (67) | (86) |
| Total | $2178 | $1765 |

---

The fair value of mortgage banking derivatives reported as assets and included in other assets was approximately $545 and $548 at March 31, 2025 and 2024, respectively. Changes in the fair values of these mortgage banking derivatives are included in mortgage banking income.

The Company also enters into over-the-counter contracts for the future delivery of mortgage-backed securities. These contracts are fair value hedges, which are also used to offset the interest rate risk related to granting interest rate locks. It is the Company's practice not to deliver on these contracts for future delivery of mortgage-backed securities. Instead, these contracts are settled with a "pair-off" that is assessed based on then-current market prices. The notional amounts of these contracts were $42,500 and $42,000 as of March 31, 2025 and 2024, respectively. The fair value of these contracts included in other assets and liabilities was approximately $(67) and $(86) as of March 31, 2025 and 2024, respectively. Changes in the fair values of these mortgage banking derivatives are included in mortgage banking income.

The IRLCs and forward contracts are not designed as accounting hedges and are recorded at fair value with changes in fair value reflected in noninterest income on the consolidated statements of income. The fair value of derivative instruments with a positive fair value are reported in other assets in the consolidated balance sheets, while derivative instruments with a negative fair value are reported in other liabilities in the consolidated balance sheets.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(6)**  **<u>Mortgage Banking Commitments (continued)</u>:** 

The following table presents the notional amount and fair value of IRLCs and forward contracts utilized by the Company at March 31:

**Asset Derivatives**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2025** | **2025** | **2024** | **2024** |
|  | **Notional**<br> **Amount** | **Fair**<br> **Value** | **Notional**<br> **Amount** | **Fair**<br> **Value** |
| <u>Derivatives not designated as hedging instruments:</u> |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;IRLCs | $30005 | $545 | $29719 | $548 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | 42500 | (67) | 42000 | (86) |

---

**Liability Derivatives**

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2025** | **2025** | **2024** | **2024** |
|  | **Notional**<br> **Amount** | **Fair**<br> **Value** | **Notional**<br> **Amount** | **Fair**<br> **Value** |
| <u>Derivatives not designated as hedging instruments:</u> |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | $0 | $0 | $0 | $0 |

---

Fair values of IRLCs and forward contracts were estimated using changes in mortgage interest rates from the date the Company entered into the IRLC and the balance sheet date.

The following table summarizes the periodic changes in the fair value of the derivative financial instruments on the consolidated statements of income for the twelve months ended March 31:

Amount of (loss)/gain recognized in the three months ended:

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| **Asset Derivatives** |  |  |
| <u>Derivatives not designated as hedging instruments</u> |  |  |
| &nbsp;&nbsp;&nbsp;IRLCs | $357 | $177 |
| &nbsp;&nbsp;&nbsp;Forward contracts | 20 | 86 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(7)**  **<u>Bank Premises and Equipment:</u>** 

The cost of bank premises and equipment and the total accumulated depreciation at March 31 is as follows:

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Land | $7993 | $7993 |
| Buildings and improvements | 28793 | 28010 |
| Furniture and equipment | 7402 | 7118 |
|  | 44188 | 43121 |
| Less accumulated depreciation | (19041) | (17640) |
|  | $25147 | $25481 |

---

**(8)**  **<u>Foreclosed Assets:</u>** 

Foreclosed assets consist of the following at March 31:

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Residential real estate | $0 | $66 |
| Commercial real estate | 241 | 101 |
| Total | $241 | $167 |

---

Residential real estate loans that are in the process of foreclosure totaled $158 and $123 at March 31, 2025 and 2024, respectively. Commercial real estate loans that are in the process of foreclosure totaled $1.099 and $5,431 at March 31, 2025 and 2024, respectively.

**(9)**  **<u>Employee Benefit Plans</u>:** 

The Bank and Mortgage Banking Company sponsor a 401(k) profit-sharing plan, covering substantially all full-time employees who meet eligibility requirements. The Bank and Mortgage Banking Company make discretionary contributions as approved annually by their respective Boards of Directors. The total amounts contributed and charged to expense by the Company were approximately $276 and $245 for the quarters ended March 31, 2025 and 2024, respectively.

The Bank has deferred compensation agreements with certain officers and directors. The accrued benefits were approximately $5,731 and $5,635 at March 31, 2025 and 2024, respectively, and the related expense for the quarters then ended was $124 and $112, respectively. The Bank has purchased life insurance contracts to assist in providing for these liabilities. The Bank is the owner and beneficiary of the life insurance policies, which provide an aggregate death benefit of approximately $44,245 and $44,112 at March 31, 2025 and 2024, respectively. These policies had cash surrender values of approximately $20,409 and $19,858 at March 31, 2025 and 2024, respectively.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(10)**  **<u>Commitments and Contingencies</u>:** 

Loan commitments:

The Bank is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, credit lines, letters of credit, and overdraft protection. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets.

The Bank's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and letters of credit is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and issuing letters of credit as it does for on-balance-sheet instruments.

A summary of the contract amount of the Bank's exposure to off-balance-sheet risk as of March 31 is approximately as follows:

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Commitments to extend credit | $222442 | $229215 |
| Committed credit-card lines | 6686 | 8638 |
| Standby letters of credit | 6419 | 1501 |
|  | $235547 | $239354 |

---

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments 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 commitment amounts do not necessarily represent future cash requirements. The Commitments extended over varying periods of time with the majority being disbursed within a one-year period. Loan commitments at fixed rates of interest amounted to $30,005 at March 31, 2025, with the remainder at floating market rates. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, inventory, crops, livestock, property and equipment, residential real estate, and income-producing commercial properties. Credit-card commitments are unsecured.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

<sub> </sub>

**(10)**  **<u>Commitments and Contingencies (continued)</u>:** 

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. Standby letters of credit are considered financial guarantees under FASB guidance. The fair value of these financial guarantees is considered immaterial.

Contingencies:

Various legal claims arise from time to time in the normal course of business, which in the opinion of management will have no material effect on the Company's consolidated financial statements.

**(11)**  **<u>Federal Home Loan Bank Advances and Other Borrowings:</u>** 

Federal Home Loan Bank advances and letters of credit:

The Bank has a master contract agreement with the Federal Home Loan Bank (FHLB) which provides for borrowing up to the maximum of 76% of the book value of the Bank's 1-4 family real estate loans, 62% of the book value of the Bank's revolving home equity lines of credit, 62% of the book value of the Bank's 1-4 family second mortgages, 62% of the book value of the Bank's secured farmland loans, 73% of the book value of the multi-family loans and the amount of the Bank's securities pledged, and 72% of the commercial real estate first-lien loans. The total carrying value of the Bank's assets pledged for FHLB advances was approximately $874,057 and $883,923 at March 31, 2025 and 2024, respectively. At March 31, 2025, the Bank's available and unused portion of this borrowing agreement totaled approximately $513,952, based on collateral pledged. The Bank may, however, have to purchase additional FHLB stock to support future draws.

Variable rate advances are due on demand and interest is payable monthly. Various advances were obtained from the FHLB with total outstanding balances of $0 at March 31, 2025 and 2024.

Fixed rate advances are due at the maturity date, with a prepayment penalty applying and interest payable monthly. Various advances were obtained from the FHLB with a total outstanding balance of $32,917 and various interest rates from 0.00% to 5.08% at March 31, 2025 and a total outstanding balance of $74,500, with various interest rates from 4.65% to 5.43% at March 31, 2024.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(11)**  **<u>Federal Home Loan Bank Advances and Other Borrowings (continued):</u>** 

The Bank had four letters of credit totaling $96,045 at March 31, 2025, with maturity dates through March 2026.

Federal Reserve Bank Discount Window:

The Bank maintains an operating line of credit with the Federal Reserve Bank Discount Window that is secured by commercial and agricultural loans. As of March 31, 2025 and 2024, the balance owed on the line was $0. The Bank was eligible to borrow up to approximately $76,816 and $82,543, based on collateral of approximately $91,007 and $101,147 at March 31, 2025 and 2024, respectively.

At March 31, 2025, the scheduled maturities of Federal Home Loan Bank advances are as follows:

---

| | |
|:---|:---|
|  | **2025** |
| 2025.0 | $15000 |
| 2026.0 | 15000 |
| 2027.0 | 2917 |
|  | $32917 |

---

Bankers' Bank Borrowings:

During October 2023, Tri-County Financial Group entered into an operating line of credit with Bankers' Bank for $10,000 at a variable interest rate based upon the Wall Street Journal Prime Rate (8.50% prime interest rate at March 31, 2024). The note is secured by 52,200 shares of the common stock of First State Bank, representing 100% of the issued and outstanding capital stock of the Bank. As of March 31, 2024, the balance owed on the line was $0. The line of credit matured on October 29, 2024 and was renewed with a maturity date of October 29, 2026 at a variable interest rate based upon the Wall Street Journal Prime Rate, less 0.250 percentage points (7.50% prime interest rate at March 31, 2025). The note is secured by the same terms and the balance owed on the line was $0 at March 31, 2025. There were no draws on the operating line of credit at any point during the quarters ended March 31, 2025 and 2024.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(12)**  **<u>Securities Sold Under Agreements to Repurchase:</u>** 

The agreements to repurchase securities require the Company (seller) to repurchase identical securities as those that are sold. The securities underlying the agreements were under the Company's control. Information about the repurchase agreements at March 31 follows:

---

| | |
|:---|:---|
| **2025** | **2025** |
| **Remaining Contractual Maturity of the Agreements** | **Remaining Contractual Maturity of the Agreements** |
|  | **Overnight and Continuous** |
| Repurchase agreements secured by: |  |
| &nbsp;&nbsp;&nbsp;U.S. Government sponsored agencies | $12486 |
| &nbsp;&nbsp;&nbsp;Mortgage-backed – residential | 5340 |
| &nbsp;&nbsp;&nbsp;Collateralized mortgage obligations (CMOs) | 4440 |
| Total securities sold under agreements to repurchase | $22266 |

---

---

| | |
|:---|:---|
| **2024** | **2024** |
| **Remaining Contractual Maturity of the Agreements** | **Remaining Contractual Maturity of the Agreements** |
|  | **Overnight and Continuous** |
| Repurchase agreements secured by: |  |
| &nbsp;&nbsp;&nbsp;U.S. Government sponsored agencies | $12085 |
| &nbsp;&nbsp;&nbsp;Mortgage-backed – residential | 5800 |
| &nbsp;&nbsp;&nbsp;Collateralized mortgage obligations (CMOs) | 3222 |
| Total securities sold under agreements to repurchase | $21107 |

---

The maximum amount of outstanding agreements at any month end during 2025 and 2024 totaled $25,257 and $26,040, respectively, and the monthly average of such agreements totaled $20,215 and $20,568 for 2025 and 2024, respectively.

**(13)**  **<u>Subordinated Debentures:</u>** 

In October 2021, the Company issued $10,000 in subordinated debentures bearing interest of 3.50% annually until October 15, 2026 at which time the rate will reset quarterly to an interest rate per year equal to the then current three-month SOFR, plus 266 basis points. The debt requires semi-annual interest payments until October 15, 2026, followed by quarterly interest payments until maturity. The Company may redeem the subordinate debentures, in whole or in part, on or after October 15, 2026, at 100% of the principal amount, plus accrued but unpaid interest and additional interest, if any. The subordinated debentures mature on October 15, 2031.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(13)**  **<u>Subordinated Debentures (continued):</u>** 

At March 31, 2025 and 2024, subordinated debentures are as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2025** | **2025** | **2024** | **2024** |
|  | <br>**Principal** | **Unamortized Debt Issuance Costs** | <br>**Principal** | **Unamortized Debt Issuance Costs** |
| Subordinated debentures, due 2031 and 2026, respectively | $10000 | $160 | $10000 | $184 |

---

Amortization of debt issuance costs recognized totaled $6 and $6 for the quarters ended March 31, 2025 and 2024, respectively. The remaining annual amortization expense is as follows:

---

| | |
|:---|:---|
| 2025 | $18 |
| 2026 | 24 |
| 2027 | 24 |
| 2028 | 24 |
| 2029 | 24 |
| Thereafter | 46 |
| &nbsp;&nbsp;&nbsp;Total | $160 |

---

**(14)**  **<u>Deposits</u>:** 

At March 31, 2025, the scheduled maturities of time deposits are as follows:

---

| | |
|:---|:---|
| 2025 | $427656 |
| 2026 | 42224 |
| 2027 | 29914 |
| 2028 | 1789 |
| 2029 | 1232 |
| &nbsp;&nbsp;&nbsp;Total | $502815 |

---

Brokered certificates were $37,522 and $87,462 at March 31, 2025 and 2024, respectively.

The aggregate amounts of time deposits (including certificates of deposit) in denominations that exceed the FDIC insurance limit of $250 were approximately $134,379 and $128,082 as of March 31, 2025 and 2024, respectively.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(15)**  **<u>Transactions with Related Parties</u>:** 

Certain directors, executive officers, and principal shareholders of the Company, and their related interests, had loans outstanding in the aggregate amounts of approximately $5,816 and $8,739 at March 31, 2025 and 2024, respectively. During the quarter ended March 31, 2025, total principal additions were $3,125 and total principal payments were $4,803. Changes in related party composition during the quarter totaled an increase of $0.

Deposit accounts with related parties totaled approximately $4,454 and $3,986 at March 31, 2025 and 2024, respectively.

In management's opinion, such loans and deposits were made in the ordinary course of business and were made on substantially the same terms (including interest rates and collateral) as those prevailing at the time for comparable transactions with other persons. Further, in management's opinion, these loans did not involve more than normal risk of collectability or present other unfavorable features.

**(16)**  **<u>Stock-Compensation Plans</u>:** 

The Company has a stock-option plan, which provides for grants of incentive stock options to employees and non-qualified stock options to non-employee directors whereby shares of common stock are made available for purchase. The maximum number of shares available for issuance under the Plan is 10.0% of the total shares of stock outstanding at any time. The Company has a policy of using previously authorized, but unissued shares of common stock to satisfy stock option exercises. Currently, the Company has a sufficient number of authorized common shares to satisfy expected stock option exercises.

Under the agreements, the exercise price of each option equals the market price of the Company's stock on the grant date. The maximum term of each option is ten years. The options vest on the third anniversary of the grant date.

For the three months ended March 31, 2025 and 2024, the Company recognized approximately $45 in compensation expense for stock options. The total income tax benefit recognized was $2 for the periods ended March 31, 2025 and 2024.

As of March 31, 2025, stock-based compensation expense, net of anticipated tax effects, not yet recognized totaled $110 and is expected to be recognized over a weighted-average remaining period of 1 year.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company's common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(16)**  **<u>Stock-Compensation Plans (continued)</u>:** 

No options were granted in 2025 or 2024.

The total intrinsic value of options exercised for the three months ended March 31, 2025 and 2024 was $1 and $141, respectively.

The following table summarizes the activity of options granted, exercised or forfeited for the three months ended March 31, 2025:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2025** |<br>**Weighted**<br>**Average**<br>**Exercise**<br>**Price** | **Weighted**<br>**Average**<br>**Remaining**<br>**Contractual**<br>**Term** |<br>**Aggregate**<br>**Intrinsic**<br>**Value** |
| Shares under option, beginning of year | 161495 | $40.83 | 6.02 | $891 |
| Granted during the year | 0 | 0 |  |  |
| Forfeited and canceled during the year | (385) | 42.75 |  |  |
| Exercised during the year | (50) | 34.00 |  | 1 |
| Shares under option, end of year | 161060 | $40.83 | 5.02 | $827 |
| Options exercisable, end of year | 95460 | $36.24 | 3.66 | $789 |

---

The following table summarizes the activity for non-vested options for the three months ended March 31, 2025:

---

| | | |
|:---|:---|:---|
|  |<br>**Number of**<br>**Options** | **Weighted**<br>**Average**<br>**Market Value**<br>**at Grant** |
| Non-vested options, December 31, 2024 | 66000 | $47.50 |
| Granted during the year | 0 | 0 |
| Vested during the year | (100) | 47.50 |
| Forfeited or expired during the year | (300) | 47.50 |
| Non-vested options, March 31, 2025 | 65600 | $47.50 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(16)**  **<u>Stock-Compensation Plans (continued)</u>:** 

The following table summarizes information about stock options outstanding at March 31, 2025:

---

| | | | |
|:---|:---|:---|:---|
|<br>**Exercise Price** | **Number**<br>**Outstanding**<br>**At March 31, 2025** |<br>**Remaining**<br>**Contractual Life** | **Number**<br>**Exercisable**<br>**At March 31, 2025** |
| $26.00 | 24160 | 1 | 24160 |
| $42.20 | 28400 | 3 | 28400 |
| $34.00 | 30000 | 5 | 30000 |
| $47.50 | 78500 | 7 | 12900 |
|  | 161060 |  | 95460 |

---

**(17)**  **<u>Minimum Capital Requirements</u>:** 

The Bank is subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Furthermore, the Bank's regulators could require adjustments to regulatory capital not reflected in these financial statements.

Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum capital amounts and ratios (set forth in the table below). Management believes, as of March 31, 2025 and 2024, the Bank met all capital-adequacy requirements to which they are subject.

As of March 31, 2025, the Bank was categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum Common Equity Tier 1 risk-based, total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since March 31, 2025 that management believes have changed this categorization.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(17)**  **<u>Minimum Capital Requirements (continued)</u>:** 

The actual capital amounts and ratios for the Bank are also presented in the following table as of March 31, 2025 and March 31, 2024:

---

| | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|
|  | **Actual** | **Actual** | <br>**For Capital Adequacy Purposes** | <br>**For Capital Adequacy Purposes** | **To Be Well Capitalized Under Prompt Corrective Action Provisions** | **To Be Well Capitalized Under Prompt Corrective Action Provisions** |
|  | **Amount** | **Ratio** | **Amount** | **Ratio** | **Amount** | **Ratio** |
| **As of March 31, 2025:** | | | | | | |
| Common equity Tier 1 capital (to Risk-Weighted Assets) Bank | $156365 | 13.8% | $<u>></u> 50,968 | <u>></u> 4.5% | $<u>></u> $73,620 | <u>></u> 6.5% |
| Total Capital (to Risk-Weighted Assets) Bank | $169788 | 15.0% | $<u>></u> 90,609 | <u>></u> 8.0% | $<u>></u> 113,261 | <u>></u> 10.0% |
| Tier-I Capital (to Risk-Weighted Assets) Bank | $156365 | 13.8% | $<u>></u> 67,957 | <u>></u> 6.0% | $<u>></u> 90,609 | <u>></u> 8.0% |
| Tier-I Capital (To Average Assets) Bank | $156365 | 10.3% | $<u>></u> 60,527 | <u>></u> 4.0% | $<u>></u> 75,659 | <u>></u> 5.0% |
| **As of March 31, 2024:** |  |  |  |  |  |  |
| Common equity Tier 1 capital (to Risk-Weighted Assets) Bank | $150247 | 13.0% | $<u>></u> 51,914 | <u>></u> 4.5% | $<u>></u> 74,986 | <u>></u> 6.5% |
| Total Capital (to Risk-Weighted Assets) Bank | $163090 | 14.1% | $<u>></u> 92,291 | <u>></u> 8.0% | $<u>></u> 115,363 | <u>></u> 10.0% |
| Tier-I Capital (to Risk-Weighted Assets) Bank | $150247 | 13.0% | $<u>></u> 69,218 | <u>></u> 6.0% | $<u>></u> 92,291 | <u>></u> 8.0% |
| Tier-I Capital (To Average Assets) Bank | $150247 | 9.8% | $<u>></u> 61,058 | <u>></u> 4.0% | $<u>></u> 76,323 | <u>></u> 5.0% |

---

Consolidated capital amounts and ratios are not presented as they are not required for consolidated entities less than $3 billion in assets and the Bank comprises approximately 90% of the consolidated assets of the Company.

The Basel III Capital Rules were fully phased in on January 1, 2020 and require the Bank to maintain: 1) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 4.5%, plus a 2.5% "capital conservation buffer" (resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of 7.0%); 2) a minimum ratio of Tier 1 capital ratio of 8.5%); 3) a minimum ratio of total capital to risk-weighted assets of 8.0%, plus the capital conservation buffer resulting in a minimum total capital ratio of 10.5%); and 4) a minimum Leverage Ratio of 4.0%. The net unrealized gain or loss on available-for-sale debt securities is not included in computing regulatory capital.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

**(17)**  **<u>Minimum Capital Requirements (continued)</u>:** 

The payment of dividends by the Bank would be restricted if the Bank does not meet the minimum Capital Conservation Buffer as defined by Basel III regulatory capital guidelines and/or if, after payment of the dividend, the Bank would be unable to maintain satisfactory regulatory capital ratios.

The Mortgage Banking Company is also subject to capital requirements in connection with its mortgage banking activities. Failure to maintain minimum capital requirements could result in the Mortgage Banking Company's inability to originate mortgage loans for the respective investor and therefore could have a direct material effect on the Mortgage Banking Company's financial statements.

(18) <u>Intangible Assets:</u> 

The following is a summary of intangible assets at March 31:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **2025** | **2025** | **2024** | **2024** |
|  | **Gross Carrying Amount** | <br>**Accumulated**<br> **Amortization** | **Gross Carrying Amount** | <br>**Accumulated**<br> **Amortization** |
| Subject to amortization - |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Core deposit intangible | $900 | $802 | $900 | $779 |
| &nbsp;&nbsp;&nbsp;Customer list | 349 | 349 | 349 | 349 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total | $1249 | $1151 | $1249 | $1128 |

---

Goodwill is not subject to amortization and was $8,596 as of March 31, 2025 and 2024.

Amortization expense recognized on all amortizable intangibles totaled $6 for the quarters ended March 31, 2025 and 2024. The remaining annual amortization expense is as follows:

---

| | |
|:---|:---|
| 2025 | $16 |
| 2026 | 21 |
| 2027 | 20 |
| 2028 | 19 |
| 2029 | 18 |
| Thereafter | 4 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Total | $98 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

(19) <u>Earnings Per Common Share:</u> 

For the quarters ended March 31 earnings per common share has been computed based on the following:

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Net income | $2554 | $2675 |
| Income available to common stockholders | $2554 | $2675 |
| Average number of common shares outstanding used to calculate basic earnings per common share | 2388888 | 2423785 |
| Effect of dilutive securities: |  |  |
| Stock options | 18638 | 19290 |
|  | 18638 | 19290 |
| Average number of common shares outstanding used to calculate diluted earnings per common share | 2407526 | 2443076 |

---

Stock options for 78,800 and 109,100 shares of the Company's common stock were not considered in computing diluted earnings per common share for the quarters ended March 31, 2025 and 2024, respectively, because they were anti-dilutive.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

(20) <u>Fair Value Measurements:</u> 

Accounting standards define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard describes three levels of inputs that may be used to measure fair value:

● Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the Company has the ability to access as of the measurement date.

● Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

● Level 3: Significant unobservable inputs that reflect the Company's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The following is a description of valuation methodologies used for assets recorded at fair value:

Debt securities available for sale: The fair values of the Company's debt securities available for sale are primarily determined by quoted prices in active markets (Level 1) and matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific debt securities, but rather by relying on the debt securities' relationship to other benchmark quoted securities. The values determined by matrix pricing are considered Level 2 fair value measurements.

Mortgage loans held for sale: The fair values of the Company's mortgage loans held for sale are based on quotes from third party investors.

Derivatives: Derivatives instruments such as interest rate lock commitments and forward contracts are valued by means of pricing models based on readily observable market parameters such as interest rate yield curves and option pricing volatilities.

Collateral-dependent impaired loans: The Company does not record loans at fair value on a recurring basis. However, from time to time, fair value adjustments are recorded on these loans to reflect (1) partial write-downs, through charge-offs or specific reserve allowances, that are based on the current appraised or market-quoted value of the underlying collateral or (2) the full charge-off of the loan carrying value. The fair value of collateral dependent impaired loans is generally based on recent real estate appraisals. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification. Non-real estate collateral may be valued using an appraisal, net book value of the borrower's financial statements or aging reports, adjusted or discounted based on management's expertise and knowledge of the borrower and borrower's business. Fair value measurements prepared internally are based on management's comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

(20) <u>Fair Value Measurements (continued):</u> 

Foreclosed assets: Real estate acquired through or in lieu of loan foreclosure is not measured at fair value on a recurring basis. However, other real estate is initially measured at fair value (less estimated costs to sell) when it is acquired and may also be measured at fair value (less estimated costs to sell) if it becomes subsequently impaired. The fair value measurement for each property must be obtained from an independent appraiser or prepared internally. Fair value measurements obtained from independent appraisers generally utilize a market approach based on sales of comparable assets and/or an income approach. Such measurements are usually considered Level 2 measurements. However, management routinely evaluates fair value measurements of independent appraisers by comparing actual selling prices to the most recent appraisals. If management determines significant adjustments should be made to the independent appraisals based on these evaluations, these measurements are considered Level 3 measurements. Fair value measurements prepared internally are based on management's comparisons to sales of comparable assets, but include significant unobservable data and are therefore considered Level 3 measurements.

The following table presents the Company's approximate fair value hierarchy for assets measured at fair value as of March 31:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2025** | **2025** | **2025** | **2025** | **2025** |
|  |  | **Fair Value Measurements at** | **Fair Value Measurements at** | **Fair Value Measurements at** |
|  |  | **Reporting Date Using** | **Reporting Date Using** | **Reporting Date Using** |
|  | **Total** | **(Level 1)** | **(Level 2)** | **(Level 3)** |
| Assets measured at fair value on a recurring basis: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debt securities available for sale | $147398 | $22942 | $124456 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage loans held for sale | $15578 |  | $15578 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Derivative assets | $545 |  | $545 |  |
| &nbsp;&nbsp;&nbsp;Liabilities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | $67 |  | $67 |  |
| Assets measured at fair value on a non-recurring basis: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Collateral-dependent loans, net of specific reserves | $1937 |  |  | $1937 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Foreclosed assets | $241 |  |  | $241 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

(20) <u>Fair Value Measurements (continued):</u> 

---

| | | | | |
|:---|:---|:---|:---|:---|
| **2024** | **2024** | **2024** | **2024** | **2024** |
|  |  | **Fair Value Measurements at** | **Fair Value Measurements at** | **Fair Value Measurements at** |
|  |  | **Reporting Date Using** | **Reporting Date Using** | **Reporting Date Using** |
|  | **Total** | **(Level 1)** | **(Level 2)** | **(Level 3)** |
| Assets and liabilities measured at fair value on a recurring basis: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Debt securities available for sale | $169149 | $45784 | $123365 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Mortgage loans held for sale | $10504 |  | $10504 |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Derivative assets | $548 |  | $548 |  |
| &nbsp;&nbsp;&nbsp;Liabilities: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Forward contracts | $86 |  | $86 |  |
| Assets measured at fair value on a non-recurring basis: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Assets: |  |  |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Collateral-dependent loans, net of specific reserves | $37 |  |  | $37 |

---

There were no transfers between Level 1 and Level 2 during 2025 or 2024.

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is best determined by quoted market prices; however, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or valuation techniques. Those techniques are significantly affected by assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair-value estimates may not be realized in an immediate settlement of the instrument. Accounting standards exclude certain financial instruments and all non-financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

(20) <u>Fair Value Measurements (continued):</u> 

The following table presents the carrying amounts and estimated fair values of the Company's financial instruments as of March 31:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2025** | **2025** | **2025** | **2025** | **2025** |
|  | | | **Fair Value Measurements at** | **Fair Value Measurements at** | |
|  | | | **Reporting Date Using** | **Reporting Date Using** | |
|  |<br>**Carrying Amount** |<br>**(Level 1)** | <br>**(Level 2)** | <br>**(Level 3)** |<br>**Total** |
| **Financial assets:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $45534 | $45534 |  |  | $45534 |
| &nbsp;&nbsp;&nbsp;Securities available for sale | 147398 | 22942 | 124456 |  | 147398 |
| &nbsp;&nbsp;&nbsp;Federal Home Loan Bank stock | 3420 |  |  | 3420 | 3420 |
| &nbsp;&nbsp;&nbsp;Mortgage held for sale | 15578 |  | 15578 |  | 15578 |
| &nbsp;&nbsp;&nbsp;Loans, net | 1248252 |  |  | 1203843 | 1203843 |
| &nbsp;&nbsp;&nbsp;Accrued interest receivable | 8198 | 8198 |  |  | 8198 |
| &nbsp;&nbsp;&nbsp;Mortgage servicing rights | 716 |  | 5274 |  | 5274 |
| &nbsp;&nbsp;&nbsp;Derivative assets | 545 |  | 545 |  | 188 |
| **Financial liabilities:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Deposits | $1302944 | $894734 |  | $408803 | $1303537 |
| &nbsp;&nbsp;&nbsp;FHLB advances and other borrowings | 32917 |  |  | 32917 | 32917 |
| &nbsp;&nbsp;&nbsp;Securities sold under agreements to repurchase | 22266 | 22266 |  |  | 22266 |
| &nbsp;&nbsp;&nbsp;Accrued interest payable | 3178 | 3178 |  |  | 3178 |
| &nbsp;&nbsp;&nbsp;Forward commitments | 67 |  | 67 |  | 67 |

---

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **2024** | **2024** | **2024** | **2024** | **2024** |
|  | | | **Fair Value Measurements at** | **Fair Value Measurements at** | |
|  | | | **Reporting Date Using** | **Reporting Date Using** | |
|  |<br>**Carrying Amount** |<br>**(Level 1)** | <br>**(Level 2)** | <br>**(Level 3)** |<br>**Total** |
| **Financial assets:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Cash and cash equivalents | $22725 | $22725 |  |  | $22725 |
| &nbsp;&nbsp;&nbsp;Securities available for sale | 169149 | 45784 | 123365 |  | 169149 |
| &nbsp;&nbsp;&nbsp;Federal Home Loan Bank stock | 4425 |  |  | 4425 | 4425 |
| &nbsp;&nbsp;&nbsp;Mortgage held for sale | 10504 |  | 10504 |  | 10504 |
| &nbsp;&nbsp;&nbsp;Loans, net | 1265138 |  |  | 1202156 | 1202156 |
| &nbsp;&nbsp;&nbsp;Accrued interest receivable | 8229 | 8229 |  |  | 8229 |
| &nbsp;&nbsp;&nbsp;Mortgage servicing rights | 1092 |  | 5776 |  | 5776 |
| &nbsp;&nbsp;&nbsp;Derivative assets | 548 |  | 548 |  | 548 |
| **Financial liabilities:** |  |  |  |  |  |
| &nbsp;&nbsp;&nbsp;Deposits | $1284784 | $852150 |  | $434311 | $1286462 |
| &nbsp;&nbsp;&nbsp;FHLB advances and other borrowings | 74500 |  |  | 74500 | 74500 |
| &nbsp;&nbsp;&nbsp;Securities sold under agreements to repurchase | 21107 | 21107 |  |  | 21107 |
| &nbsp;&nbsp;&nbsp;Accrued interest payable | 3222 | 3222 |  |  | 3222 |
| &nbsp;&nbsp;&nbsp;Forward commitments | 86 |  | 86 |  | 86 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

(21) <u>Leases:</u> 

*Lessee Arrangements*

The Mortgage Banking Company leases its facilities under operating leases in Bloomington, IL; Pekin, IL; Champaign, IL; Oakbrook Terrace, IL; and Sussex, WI. The Bank leases facilities in Geneva, IL and Champaign, IL. The Company enters into leases in the normal course of business primarily for mortgage servicing centers, information technology equipment, and land for ATMs and parking lots. The Company's leases have remaining terms ranging from one to five years, some of which include renewal or termination options to extend the lease for up to five years.

The Company includes lease extension and termination options in the lease term if, after considering relevant economic factors, it is reasonably certain the Company will exercise the option. In addition, the Company has elected to account for any non-lease components in its real estate leases as part of the associated lease component. The Company has also elected not to recognize leases with original lease terms of 12 months or less (short-term leases) on the Company's balance sheet.

Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease.

Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

The Company uses its incremental borrowing rate at lease commencement to calculate the present value of lease payments when the rate implicit in a lease is not known. The Company's incremental borrowing rate is based on the FHLB amortizing advance rate, adjusted for the lease term and other factors.

Right-of-use assets and lease liabilities by lease type, and the associated balance sheet classifications as of March 31 are as follows:

**Balance Sheet Classification**

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Right-of-use assets: |  |  |
| &nbsp;&nbsp;&nbsp;Operating leases Other assets | $1002 | $1369 |
| Lease liabilities: |  |  |
| &nbsp;&nbsp;&nbsp;Operating leases Accrued interest payable and other liabilities | $1001 | $1371 |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

(21) <u>Leases (continued):</u> 

The total consolidated lease expense was approximately $120 and $142 for the quarters ended March 31, 2025 and 2024, respectively. The expense paid is the same as the amount paid.

***Lease Obligations***

Future undiscounted lease payments for operating leases with initial terms of one year or more as of March 31, 2025 are as follows:

---

| | |
|:---|:---|
| 2025 | $315 |
| 2026 | 313 |
| 2027 | 268 |
| 2028 | 154 |
| 2029 | 0 |
| Total undiscounted lease payments | $1050 |
| Less: imputed interest | (48) |
| Net lease liabilities | $1002 |

---

 

*Supplemental Lease Information*

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Operating lease weighted average remaining lease term (years) | 3.03 years | 3.10 years |
| Operating lease weighted average discount rate | 3.14% | 2.02% |

---

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

(22) <u>Revenue from Contracts with Customers:</u> 

All of the Company's revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The following table presents the Company's sources of non-interest income for the quarter ended March 31, 2025 and 2024. Items outside the scope of ASC 606 are noted as such.

---

| | | |
|:---|:---|:---|
|  | **2025** | **2024** |
| Non-interest income |  |  |
| &nbsp;&nbsp;&nbsp;Trust department income | $37 | $44 |
| &nbsp;&nbsp;&nbsp;Customer-service fees |  |  |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Overdraft fees | 222 | 201 |
| &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Other | 83 | 76 |
| &nbsp;&nbsp;&nbsp;Mortgage banking (1) | 2178 | 1765 |
| &nbsp;&nbsp;&nbsp;Insurance services | 409 | 230 |
| &nbsp;&nbsp;&nbsp;Other (2) | 667 | 697 |
|  | $3596 | $3013 |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) Not within the scope of ASC 606

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) The Other category includes ATM fees, wire transfer fees, safe deposit rentals and check order fees and gain/loss on sale of OREO, totaling $488 and $529 for 2025 and 2024, respectively, which is within the scope of ASC 606; the remaining balance of $179 and $168 for 2025 and 2024, respectively, represents loan & collection income, life insurance income, and gain on sale, which is outside the scope of ASC 606.

A description of the Company's revenue streams accounted for under ASC 606 follows:

Customer-service fees: The Company earns fees from its deposit customers for transaction-based, account maintenance and overdraft services. Transaction-based fees, which include services such as ATM fees, stop payment charges, statement rendering and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Company fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

Interchange income: The Company earns interchange fees from debit and credit cardholder transactions conducted through the Visa and MasterCard payment networks. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to the cardholder.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

(22) <u>Revenue from Contracts with Customers (continued):</u> 

Trust department income: The Company earns income from its contracts with trust customers to manage assets for investment and/or to transact on their accounts. These fees are primarily earned over time as the Company provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management at month-end. Fees that are transaction-based, including trade execution services, are recognized at the point in time that the transaction is executed, i.e., the trade date. Other related services are provided and the fees the Company earns, which are based on a fixed fee schedule, are recognized when the services are rendered.

Insurance services: The Company earns fees from insurance services provided to its customers. These fees are primarily earned and assessed each month as the Company provides the contracted monthly service.

Gains/Losses on Sales of OREO: The Company records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Company finances the sale of OREO to the buyer, the Company assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Company adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

(23) <u>Segments:</u> 

The Company is divided into two reportable segments: Commercial Banking and Mortgage Banking. Commercial Banking provides a full range of loan and deposit products to individual consumers and businesses in all markets through retail lending, deposit services, online banking mobile banking, private banking, commercial lending, commercial real estate lending, agricultural lending, and other banking services. Mortgage banking provides residential mortgage banking products through five offices in Illinois and one office in Wisconsin through our Mortgage Banking Company. The majority of the loans are sold with servicing released.

Financial information for each business segment reflects that which is specifically identifiable. Income taxes are allocated based on the effective federal tax rate adjusted for any tax-exempt activity. All tax-exempt activity and provision have been fully allocated to the commercial banking segment. Measurement of performance of business segments is based on the management structure of the Company and is not necessarily comparable with similar information for any other financial institution. Information presented is also not necessarily indicative of the segments' operations if they were independent entities.

**TRI-COUNTY FINANCIAL GROUP, INC. AND SUBSIDIARIES**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

March 31, 2025 and 2024

(000s omitted except share data)

(Continued)

(23) <u>Segments (continued):</u> 

Principally, all of the net assets of the Company are involved in the commercial banking segment. Goodwill of approximately $6 million resulting from acquisitions has been assigned to the commercial banking segment, and goodwill of approximately $2 million has been assigned to the mortgage banking segment as a result of First State Mortgage's formation. Assets assigned to the mortgage banking primarily consist of mortgage loans held for sale and net premises and equipment.

The Company's chief operating decision maker is comprised of the Chief Executive Officer of the Company, the Chief Executive Officer of First State Bank, and Chief Executive Officer/Chief Operating Officer of First State Mortgage. The individuals consider net interest income, noninterest income, and budget-to-actual variances on a monthly basis for profit measures when making decisions about allocating capital and personnel to the operating segment.

Selected financial information by business segment is as follows for the quarter ended March 31, 2025:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2025** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Commercial** | **Mortgage Banking** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Eliminations** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Total** |
| Net interest income | $11540 | $106 | $(8) | $11638 |
| Provision for credit losses | 501 | 0 | 0 | 501 |
| Mortgage banking revenues | 337 | 1828 | 13 | 2178 |
| All other noninterest income | 1418 | 0 | 0 | 1418 |
| Noninterest expenses | 8716 | 2625 | (41) | 11300 |
| Income (loss) before income tax expense | 4160 | (691) | (36) | 3433 |
| Income tax expense (benefit) | 1076 | (197) | 0 | 879 |
| Net income (loss) | 3084 | (494) | (36) | 2554 |

---

Selected financial information by business segment is as follows for the quarter ended March 31, 2024:

---

| | | | | |
|:---|:---|:---|:---|:---|
| <br>**2024** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Commercial** | **Mortgage Banking** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Eliminations** | &nbsp;&nbsp;&nbsp;&nbsp;<br>**Total** |
| Net interest income | $10357 | $129 | $(7) | $10479 |
| Recovery of credit loss expense | (1287) | 0 | 0 | (1287) |
| Mortgage banking revenues | 176 | 1575 | 14 | 1765 |
| All other noninterest income | 1248 | 0 | 0 | 1248 |
| Noninterest expenses | 8608 | 2623 | (41) | 11189 |
| Income (loss) before income tax expense | 4542 | (919) | (34) | 3590 |
| Income tax expense (benefit) | 1176 | (262) | 0 | 915 |
| Net income (loss) | 3366 | (657) | (34) | 2675 |

---

(24) <u>Subsequent events:</u> 

The Company has evaluated subsequent events for recognition and disclosure through June 16, 2025, which is the date the financial statements were available to be issued.

**PART II**

**INFORMATION NOT REQUIRED IN PROSPECTUS**

**Item 13. Other Expenses of Issuance and Distribution.**

The following table sets forth the costs and expenses, other than underwriting commissions, to be paid in connection with the sale of shares of our common stock being registered, all of which will be paid by us. We will pay all of these expenses. All expenses other than the SEC registration fee are estimates, pursuant to the instruction to Item 511 of Regulation S-K, subject to future contingencies, of the expenses to be incurred by us in connection with the issuance and distribution of the securities being registered.

---

| | |
|:---|:---|
|  | **Approximate**<br> **Amount** |
| SEC Registration Fee | $3793.02 |
| Legal Fees and Expenses | $300000.00 |
| Accounting Fees and Expenses | $162760.50 |
| Printing and EDGAR Expenses | $14899.00 |
| Miscellaneous | $10000 |
| Total | $491453 |

---

**Item 14. Indemnification of Directors and Officers.**

Section 145 of the DGCL authorizes a corporation's board of directors to grant indemnification to directors and officers in terms sufficiently broad to permit such indemnification under certain circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act.

Our certificate of incorporation provides that we must indemnify, to the fullest extent permitted by Section 145 of the DGCL, our directors and officers. Under Delaware law, a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit or proceeding if he or she acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.

Our certificate of incorporation also includes a provision that eliminates the personal liability of our directors for monetary damages for breach of their fiduciary duty as a director to the fullest extent permitted by the DGCL, except for liability for any breach of the director's duty of loyalty to us or our shareholders; for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; under Section 174 of the DGCL, which relates to unlawful payment of dividends or unlawful stock purchase or redemption and expressly sets forth a negligence standard with respect to such liability; and for any transaction from which the director derived an improper personal benefit.

**Item 15. Unregistered Sales of Equity Securities.**

None.

**EXHIBIT INDEX**

---

| | |
|:---|:---|
| **Exhibit <br> Number** | **Description** |
| 3.1 | [Amended and Restated Certificate of Incorporation of Tri-County Financial Group, Inc.](ex3-1.htm) |
| 3.2 | [Amended and Restated By-laws of Tri-County Financial Group, Inc.](ex3-2.htm) |
| 4.1 | [Form of Registrant's Common Stock Certificate](ex4-1.htm) |
| 5.1 | Opinion of Barack Ferrazzano Kirschbaum & Nagelberg LLP\* |
| 10 | [Timothy J. McConville Employment Agreement, dated December 2017](ex10.htm) |
| 10.1 | [Registration Rights Agreement between Tri-County Financial Group, Inc. and Castle Creek Capital Partners VI, LP dated October 6, 2017](ex10-1.htm) |
| 10.2 | [Securities Purchase Agreement between Tri-County Financial Group, Inc. and Castle Creek Capital Partners VI, LP dated October 6, 2017](ex10-2.htm) |
| 10.3# | [Kirk Ross Employment Agreement, dated February 7, 2024](ex10-3.htm) |
| 10.4# | [Timothy J. McConville Employment Agreement, dated December 2017](ex10-4.htm) |
| 10.5 | [Indenture, dated October 14, 2016, between Tri-County Financial Group, Inc., as Issuer, and Hickory Point Bank and Trust, as Trustee.](ex10-5.htm) |
| 10.6 | [Indenture, dated October 12, 2021, between Tri-County Financial Group, Inc., as Issuer, and Hickory Point Bank and Trust, as Trustee.](ex10-6.htm) |
| 21.1 | [List of Subsidiaries](ex21-1.htm) |
| 23.1 | Consent of Barack Ferrazzano Kirschbaum & Nagelberg LLP (included in Exhibit 5.1)\* |
| 23.2 | [Consent of Forvis Mazars LLP](ex23-2.htm) |
| 24.1 | [Power of Attorney (included on the signature page to this Registration Statement)](#yz_001) |
| 107 | [Calculation of Filing Fee Tables](ex107.htm) |

---

\* To be filed by amendment. <br> # Management Contract.

**Item 17. Undertakings.**

Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the indemnification provisions described herein, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report, to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information.

The undersigned registrant hereby undertakes that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial *bona fide* offering thereof.

**SIGNATURES**

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned thereunto duly authorized, in the City of Mendota, State of Illinois, on June 16, 2025.

---

| | |
|:---|:---|
| **TRI-COUNTY FINANCIAL GROUP, INC.** | **TRI-COUNTY FINANCIAL GROUP, INC.** |
| By: | */s/ Timothy J. McConville* |
|  | Timothy McConville |
|  | President and |
|  | Chief Executive Officer |
| By: | */s/ Lana Eddy* |
|  | Lana Eddy |
|  | Principal Financial Officer and Principal Accounting Officer |

---

**POWER OF ATTORNEY**

Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in their respective capacities and on the respective dates indicated opposite their names. Each person whose signature appears below hereby authorizes each of Timothy McConville and Lana Eddy, each with full power of substitution, to execute in the name and on behalf of such person any post-effective amendment to this Registration Statement and to file the same, with exhibits thereto, and other documents in connection therewith, making such changes in this Registration Statement as the registrant deems appropriate, and appoints each of Timothy McConville and Lana Eddy, each with full power of substitution, attorney-in-fact to sign any amendment and any post-effective amendment to this Registration Statement and any additional Registration Statements pursuant to Rule 462(b) of the Securities Act and to file the same, with exhibits thereto, and other documents in connection therewith. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.

---

| | | |
|:---|:---|:---|
| **Signature** | **Title** | **Date** |
| */s/ Timothy J. McConville* | Director, President and Chief Executive Officer | June 16, 2025 |
| Timothy J. McConville | (principal executive officer) |  |
| */s/ Lana Eddy* | Chief Financial Officer | June 16, 2025 |
| Lana Eddy | (principal financial officer) |  |
| */s/ Spencer T. Cohn* |  |  |
| Spencer T. Cohn | Director | June 16, 2025 |
| */s/ Matthew P. Faber* |  |  |
| Matthew P. Faber | Director | June 16, 2025 |
| */s/ John Holland III* |  |  |
| John Holland III | Director | June 16, 2025 |
| */s/ Kenneth D. Otterbach* |  |  |
| Kenneth D. Otterbach | Director | June 16, 2025 |
| */s/ Thomas K. Prescott* |  |  |
| Thomas K. Prescott | Director | June 16, 2025 |
| */s/ Kirk L. Ross* |  |  |
| Kirk L. Ross | Director | June 16, 2025 |
| */s/ Julie Setchell* |  |  |
| Julie Setchell | Director | June 16, 2025 |
| */s/ Kathleen Stevensen* |  |  |
| Kathleen Stevensen | Director | June 16, 2025 |
| */s/ Goodwin W. Toraason* |  |  |
| Goodwin W. Toraason | Director | June 16, 2025 |

---

## Exhibit 3.1

**Exhibit 3.1**

![](ex3-1_001.jpg)

![](ex3-1_002.jpg)

![](ex3-1_003.jpg)

![](ex3-1_004.jpg)

![](ex3-1_005.jpg)

![](ex3-1_006.jpg)

![](ex3-1_007.jpg)

![](ex3-1_008.jpg)

![](ex3-1_009.jpg)

![](ex3-1_010.jpg)

![](ex3-1_011.jpg)

![](ex3-1_012.jpg)

![](ex3-1_013.jpg)

![](ex3-1_014.jpg)

![](ex3-1_015.jpg)

![](ex3-1_016.jpg)

![](ex3-1_017.jpg)

![](ex3-1_018.jpg)

![](ex3-1_019.jpg)

![](ex3-1_020.jpg)

## Exhibit 3.2

**Exhibit 3.2**

**AMENDED AND RESTATED BYLAWS**

**OF**

**TRI-COUNTY FINANCIAL GROUP, INC.**

**ARTICLE I**

**OFFICES**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1 <u>Registered Office</u>. The registered office of Tri-County Financial Group, Inc. (the "<u>Corporation</u>") in the State of Delaware shall be established and maintained at 251 Little Falls Drive, Wilmington, County of New Castle, Delaware 19808, and United States Corporation Company shall be the registered agent of the Corporation in charge thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.2 <u>Other Offices</u>. The Corporation may also have offices at such other places both within and without the State of Delaware as the board of directors of the Corporation (the "<u>Board of Directors</u>") may from time to time determine or the business of the Corporation may require.

**ARTICLE II**

**MEETINGS OF STOCKHOLDERS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1 <u>Annual Meetings</u>. The annual meeting of stockholders shall be held on such date and at such time as may be fixed by the Board of Directors and stated in the notice of the meeting, for the purpose of electing directors and for the transaction of only such other business as is properly brought before the meeting in accordance with these Amended and Restated Bylaws (these "<u>Bylaws</u>").

Written notice of an annual meeting stating the place, date and hour of the meeting, shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days before the date of the annual meeting.

To be properly brought before the annual meeting, business must be either (i) specified in the notice of annual meeting (or any supplement or amendment thereto) given by or at the direction of the Board of Directors, (ii) otherwise brought before the annual meeting by or at the direction of the Board of Directors, or (iii) otherwise properly brought before the annual meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the meeting; *provided, however*, that in the event that less than seventy (70) days' notice or prior public disclosure of the date of the annual meeting is given or made to stockholders, notice by a stockholder, to be timely, must be received no later than the close of business on the tenth (10<sup>th</sup>) day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. A stockholder's notice to the Secretary shall set forth (a) as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, and (ii) any material interest of the stockholder in such business, and (b) as to the stockholder giving the notice (i) the name and record address of the stockholder and (ii) the class, series and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder. Notwithstanding anything in these Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 2.1. The officer of the Corporation presiding at an annual meeting shall, if the facts warrant, determine and declare to the annual meeting that business was not properly brought before the annual meeting in accordance with the provisions of this Section 2.1, and if such officer should so determine, such officer shall so declare to the annual meeting and any such business not properly brought before the meeting shall not be transacted.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2 <u>Special Meetings</u>. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Amended and Restated Certificate of Incorporation of the Corporation, as amended and/or restated from time to time (the "<u>Certificate of Incorporation</u>"), may only be called by a majority of the entire Board of Directors, the Chief Executive Officer, the President or the Chairman, and shall be called by the Secretary at the request in writing of stockholders owning a majority in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote for the election of directors. Such request shall state the purpose or purposes of the proposed meeting.

Unless otherwise provided by law, written notice of a special meeting of stockholders, stating the time, place and purpose or purposes thereof, shall be given to each stockholder entitled to vote at such meeting, not less than ten (10) or more than sixty (60) days before the date fixed for the meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Notwithstanding the foregoing, a special meeting shall not be held if:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the Board of Directors has called or calls for an annual or special meeting of the stockholders to be held within ninety (90) days after the Secretary receives the request for the special meeting and the Board of Directors determines in good faith that the business of such meeting includes (among any other matters properly brought before the meeting) the business specified in the request;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the stated business to be brought before the special meeting is not a proper subject for stockholder action under applicable law;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) an identical or substantially similar item (a "<u>Similar Item</u>") was presented at any meeting of stockholders held within one hundred and twenty (120) days prior to the receipt by the Secretary of the request for the special meeting (and, for purposes of this Section 2.2(iii), the election of directors shall be deemed a Similar Item with respect to all items of business involving the election or removal of directors); or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) the special meeting request was made in a manner that involved a violation of Regulation 14A under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (the "<u>Exchange Act</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.3 <u>Place of Meetings</u>. All meetings of the stockholders shall be held at such time and place, either within or without the State of Delaware, as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.4 <u>Adjournment</u>. Any meeting of the stockholders, including one at which directors are to be elected, may be adjourned for such periods as the presiding officer of the meeting or the stockholders present in person or by proxy and entitled to vote shall direct. When a meeting is adjourned to another time or place, no notice of the adjourned meeting other than an announcement at the meeting need be given, unless the adjournment is for more than thirty (30) days or a new record date is fixed for the adjourned meeting after such adjournment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.5 <u>Voting List</u>. The officer who has charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the election, either at a place within the city, town or village where the election is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held. The list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder of the Corporation who is present.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.6 <u>Organization</u>. The Chairman of the Board of Directors shall act as chairman of meetings of the stockholders. The Board of Directors may designate any other officer or director of the Corporation to act as chairman of any meeting in the absence of the Chairman of the Board of Directors, and the Board of Directors may further provide for determining who shall act as chairman of any stockholders meeting in the absence of the Chairman of the Board of Directors and such designee.

The Secretary of the Corporation shall act as secretary of all meetings of the stockholders, but in the absence of the Secretary the presiding officer may appoint any other person to act as secretary of any meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.7 <u>Quorum</u>. The holders of a majority of the capital stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Certificate of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the holders of a majority of the votes entitled to be cast by the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally noticed. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote at the meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.8 <u>Voting</u>. Unless otherwise required by law, the Certificate of Incorporation or these Bylaws, any question (other than the election of directors) brought before any meeting of stockholders shall be decided by the vote of the holders of a majority of the stock represented and entitled to vote thereat. At all meetings of stockholders for the election of directors, the persons receiving the greatest number of votes, up to the number of directors then to be elected, shall be the persons then elected, except for vacancies filled pursuant to Section 3.2. The election of directors is subject to any provisions contained in the Certificate of Incorporation relating thereto, including any provisions for a classified Board of Directors. Each stockholder represented at a meeting of stockholders shall be entitled to cast one (1) vote for each share of the capital stock entitled to vote thereat held by such stockholder, unless otherwise provided by the Certificate of Incorporation. Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize any person or persons to act for him by proxy. All proxies shall be executed in writing and shall be filed with the Secretary of the Corporation not later than the day on which exercised. No proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. The Board of Directors, in its discretion, or the officer of the Corporation presiding at a meeting of stockholders, in his or her discretion, may require that any votes cast at such meeting shall be cast by written ballot.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.9 <u>Ratification</u>. Any transaction questioned in any stockholders' derivative suit, or any other suit to enforce alleged rights of the Corporation or any of its stockholders, on the ground of lack of authority, defective or irregular execution, adverse interest of any director, officer or stockholder, nondisclosure, miscomputation or the application of improper principles or practices of accounting may be approved, ratified and confirmed before or after judgment by the Board of Directors or by the holders of a majority of the capital stock issued and outstanding and entitled to vote thereon and, if so approved, ratified or confirmed, shall have the same force and effect as if the questioned transaction had been originally duly authorized, and said approval, ratification or confirmation shall be binding upon the Corporation and all of its stockholders and shall constitute a bar to any claim or execution of any judgment in respect of such questioned transaction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.10 <u>Inspectors</u>. The election of directors and any other vote by ballot at any meeting of the stockholders shall be supervised by at least one (1) inspector. Such inspectors shall be appointed by the Board of Directors in advance of the meeting. If the inspector so appointed shall refuse to serve or shall not be present, such appointment shall be made by the officer presiding at the meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.11 <u>Stock Ledger</u>. The stock ledger of the Corporation shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list required by Section 2.5 or the books of the Corporation, or to vote in person or by proxy at any meeting of stockholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.12 <u>Action Without Meeting</u>. No action shall be taken by stockholders except at an annual meeting or special meeting of the stockholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.13 <u>Voting of Certain Shares</u>. Shares of capital stock of the Corporation standing in the name of another corporation, domestic or foreign, and entitled to vote may be voted by such officer, agent, or proxy as the by-laws of such corporation may prescribe or, in the absence of such provision, as the Board of Directors of such corporation may determine. Shares of capital stock of the Corporation standing in the name of a deceased person, a minor or an incompetent and entitled to vote may be voted by his, her or its administrator, executor, guardian or conservator, as the case may be, either in person or by proxy. Shares of capital stock of the Corporation standing in the name of a trustee, receiver or pledgor and entitled to vote may be voted by such trustee, receiver or pledgor either in person or by proxy as provided by Delaware law. Shares of its own capital stock belonging to the Corporation or to another corporation, if a majority of the shares entitled to vote in the election of directors of such other corporation is held by the Corporation, shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares for the purpose of determining whether a quorum is present. Nothing in this Section 2.13 shall be construed to limit the right of the Corporation to vote shares of its own capital stock held by it in a fiduciary capacity.

**ARTICLE III**

**DIRECTORS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 <u>Powers; Number; Qualifications</u>. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors, except as may be otherwise provided by law or in the Certificate of Incorporation. The exact number of directors shall be fixed from time to time, within any limits specified in the Certificate of Incorporation, by the Board of Directors. Directors need not be stockholders of the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 <u>Election; Term of Office; Resignation; Vacancies</u>. The Board of Directors shall be divided into three (3) classes as nearly equal in number as possible. At each annual meeting of stockholders, directors chosen to succeed those whose terms then expire shall be elected for a term of office expiring at the third (3<sup>rd</sup>) succeeding annual meeting of stockholders after their election. Unless otherwise provided in the Certificate of Incorporation, vacancies and newly created directorships resulting from any increase in the authorized number of directors or from any other cause shall be filled by a majority vote of the directors then in office. In the event the Certificate of Incorporation shall divide the directors into classes, any directors elected by the Board of Directors shall hold office until the next election of the class for which such directors have been chosen. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.3 <u>Nominations</u>. Nominations of persons for election to the Board of Directors of the Corporation at a meeting of stockholders of the Corporation may be made at such meeting by or at the direction of the Board of Directors, by any committee or persons appointed by the Board of Directors or by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this Section 3.3. Such nominations by any stockholder shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the Corporation not less fourteen (14) days prior to the meeting of the stockholders called for the election of directors; *provided, however*, that if less than twenty-one (21) days' notice of the meeting is given to stockholders, such written notice shall be delivered or mailed, as prescribed, to the Secretary not later than the close of the seventh (7<sup>th</sup>) day following the day on which notice of the meeting was mailed to stockholders. Such stockholder's notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director, (a) the name, age, business address and, if known, residence address of each nominee proposed in such notice, (b) the principal occupation or employment of each such nominee, (c) the number of shares of capital stock of the Corporation which are beneficially owned by each such nominee, (d) evidence of the nominee's willingness to serve as a director of the Corporation and (e) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to the Rules and Regulations of the Securities and Exchange Commission under Section 14 of the Securities Exchange Act of 1934, as amended, and (ii) as to the stockholder giving the notice (a) the name and record address of the stockholder, (b) the class and number of shares of capital stock of the Corporation which are beneficially owned by the stockholder, (c) a description of any agreement, arrangement, or understanding with respect to such nomination between or among the stockholder or the beneficial owner, if any, on whose behalf the nomination is being made and any of their affiliates or associates, and any others (including their names) acting in concert with any of the foregoing, and a representation that the stockholder will notify the Corporation in writing of any such agreement, arrangement, or understanding in effect as of the record date for the meeting within five business days after the record date for such meeting, (d) a description of any agreement, arrangement, or understanding (including any derivative or short positions, profit interests, options, hedging transactions, and borrowed or loaned shares) that has been entered into as of the date of the stockholder's notice by, or on behalf of, the stockholder or the beneficial owner, if any, on whose behalf the nomination is being made and any of their affiliates or associates, the effect or intent of which is to mitigate loss to, manage risk or benefit of share price changes for, or increase or decrease the voting power of such person or any of their affiliates or associates with respect to shares of stock of the Corporation, and a representation that the stockholder will notify the Corporation in writing of any such agreement, arrangement, or understanding in effect as of the record date for the meeting within five business days after the record date for such meeting, (e) a representation that the stockholder is a holder of record of shares of the Corporation entitled to vote at the meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice, and (f) a representation whether the stockholder intends to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the Corporation's outstanding capital stock required to approve the nomination and/or otherwise to solicit proxies from stockholders in support of the nomination. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as a director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. The officer of the Corporation presiding at an annual meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.4 <u>Meetings</u>. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Delaware. The first meeting of each newly elected Board of Directors shall be held immediately after and at the same place as the meeting of the stockholders at which it is elected and no notice of such meeting shall be necessary to the newly elected directors in order to legally constitute the meeting, provided a quorum shall be present. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. Special meetings of the Board of Directors may be called by the Chief Executive Officer, the President or a majority of the entire Board of Directors. Notice thereof stating the place, date and hour of the meeting shall be given to each director either by mail not less than forty-eight (48) hours before the date of the meeting, by telephone, facsimile, telegram or e-mail on twenty-four (24) hours' notice, or on such shorter notice as the person or persons calling such meeting may deem necessary or appropriate in the circumstances. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders, directors or committee of directors need be specified in any written waiver of notice unless so required by statute, the Certificate of Incorporation or these Bylaws.

Unless otherwise provided by statute or the Certificate of Incorporation, a director who is present at a meeting of the Board of Directors at which action is taken on any corporate matter shall be presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as Secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.5 <u>Quorum</u>. Except as may be otherwise specifically provided by law, the Certificate of Incorporation or these Bylaws, at all meetings of the Board of Directors or any committee thereof, a majority of the entire Board of Directors or of such committee, as the case may be, shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors. If a quorum shall not be present at any meeting of the Board of Directors or of any committee thereof, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.6 <u>Organization of Meetings</u>. The Board of Directors shall elect one of its members to be Chairman of the Board of Directors. The Chairman of the Board of Directors shall lead the Board of Directors in fulfilling its responsibilities as set forth in these Bylaws, including its responsibility to oversee the performance of the Corporation, and shall determine the agenda and perform all other duties and exercise all other powers which are or from time to time may be delegated to him or her by the Board of Directors.

Meetings of the Board of Directors shall be presided over by the Chairman of the Board of Directors, or, in his or her absence, by the Chief Executive Officer, or, in the absence of both the Chairman of the Board of Directors and the Chief Executive Officer, by the President, or, in the absence of the Chairman of the Board of Directors, the Chief Executive Officer and the President, by such other person as the Board of Directors may designate or the members present may select.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.7 <u>Actions of Board of Directors Without Meeting</u>. Unless otherwise restricted by law, the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or of such committee, as the case may be, consent thereto in writing or by electronic transmission, and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.8 <u>Removal of Directors by Stockholders</u>. The entire Board of Directors or any individual Director may be removed from office at any time, but only for cause and only by the affirmative vote of the holders of at least 75% of the voting power of all of the capital stock of the Corporation entitled to vote for the election of directors. In case the Board of Directors or any one or more Directors be so removed, new Directors may be elected at the same time for the unexpired portion of the full term of the Director or Directors so removed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.9 <u>Resignations</u>. Any Director may resign at any time by submitting his or her written resignation to the Board of Directors or Secretary of the Corporation. Such resignation shall take effect at the time of its receipt by the Corporation unless another time be fixed in the resignation, in which case it shall become effective at the time so fixed. The acceptance of a resignation shall not be required to make it effective.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.10 <u>Committees</u>. The Board of Directors may designate one (1) or more committees, each committee to consist of one (1) or more of the directors of the Corporation. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he, she or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided by law and in the resolution of the Board of Directors establishing such committee, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize any seal of the Corporation to be affixed to all papers which may require it; *provided, however*, that no such committee shall have the power or authority in reference to amending the Certificate of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution or amending the Bylaws of the Corporation; and, *provided further*, that unless the resolution expressly so provides, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock or to adopt a certificate of ownership and merger. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.11 <u>Compensation</u>. The directors of the Corporation may be paid their expenses, if any, of attendance at each meeting of the Board of Directors or a committee thereof, and may be paid a fixed amount (in cash or other form of consideration) for attendance at each meeting of the Board of Directors or a stated salary as director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.12 <u>Interested Directors</u>. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his, her or their votes are counted for such purpose, if: (i) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; (ii) the material facts as to his, her or their relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the stockholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.13 <u>Meetings by Means of Teleconference</u>. Members of the Board of Directors or any committee may participate in a meeting of the Board of Directors or of a committee by means of teleconference or videoconference, or similar means of communication by means of which all persons participating in the meeting can hear each other, and participation in a meeting pursuant to this subsection shall constitute presence in person at such meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.14 <u>Retirement</u>. At the end of the month in which any director attains his or her seventy-fifth (75<sup>th</sup>) birthday, such director's qualification to serve on the Board of Directors shall cease, his or her directorship shall be deemed vacated and such person shall thereafter not be eligible for election or appointment to the Board of Directors. Such director shall, except in the event he or she elects to decline such status, become an emeritus director of the Corporation and shall be reasonably available to render advisory services to the Board of Directors.

**ARTICLE IV**

**OFFICERS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 <u>General</u>. The officers of the Corporation shall be elected by the Board of Directors and may consist of: a Chairman of the Board, Vice Chairman of the Board, Chief Executive Officer, President, Chief Financial Officer, Secretary and Treasurer. The Board of Directors, in its discretion, may also elect one or more Vice Presidents (including Executive Vice Presidents and Senior Vice Presidents), Assistant Secretaries, Assistant Treasurers, a Controller and such other officers as in the judgment of the Board of Directors may be necessary or desirable. Any number of offices may be held by the same person and more than one person may hold the same office, unless otherwise prohibited by law, the Certificate of Incorporation or these Bylaws. The officers of the Corporation need not be stockholders of the Corporation, nor need such officers be directors of the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2 <u>Election</u>. The Board of Directors at its first meeting held after each annual meeting of stockholders shall elect the officers of the Corporation who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors; and all officers of the Corporation shall hold office until their successors are chosen and qualified, or until their earlier resignation or removal. Except as otherwise provided in this Article IV, any officer elected by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. The salaries of all officers who are directors of the Corporation shall be fixed by the Board of Directors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 <u>Voting Securities Owned by the Corporation</u>. Powers of attorney, proxies, waivers of notice of meeting, consents and other instruments relating to securities owned by the Corporation may be executed in the name of and on behalf of the Corporation by the Chief Executive Officer, the President or any Vice President, and any such officer may, in the name and on behalf of the Corporation, take all such action as any such officer may deem advisable to vote in person or by proxy at any meeting of security holders of any corporation in which the Corporation may own securities and at any such meeting shall possess and may exercise any and all rights and powers incident to the ownership of such securities and which, as the owner thereof, the Corporation might have exercised and possessed if present. The Board of Directors may, by resolution, from time to time confer like powers upon any other person or persons.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4 <u>Chief Executive Officer</u>. Subject to the provisions of these Bylaws and to the direction of the Board of Directors, the Chief Executive Officer shall have ultimate authority for decisions relating to the general management and control of the affairs and business of the Corporation and shall perform such other duties and exercise such other powers which are or from time to time may be delegated to him or her by the Board of Directors or these Bylaws, all in accordance with basic policies as established by and subject to the oversight of the Board of Directors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5 <u>President</u>. At the request of the Chief Executive Officer, or in the absence of the Chief Executive Officer, or in the event of his or her inability or refusal to act, the President shall perform the duties of the Chief Executive Officer, and, when so acting, shall have all the powers of and be subject to all the restrictions upon such office. The President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6 <u>Chief Financial Officer</u>. The Chief Financial Officer shall have general supervision, direction and control of the financial affairs of the Corporation and shall perform such other duties and exercise such other powers which are or from time to time may be delegated to him or her by the Board of Directors or these Bylaws, all in accordance with basic policies as established by and subject to the oversight of the Board of Directors. In the absence of a named Treasurer, the Chief Financial Officer shall also have the powers and duties of the Treasurer as hereinafter set forth and shall be authorized and empowered to sign as Treasurer in any case where such officer's signature is required.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7 <u>Vice Presidents</u>. At the request of the Chief Executive Officer, or in the absence of the Chief Executive Officer, or in the event of his or her inability or refusal to act, the President, or in the absence of the Chief Executive Officer and the President, or in the event of their inability or refusal to act, the Vice President or the Vice Presidents if there is more than one (in the order designated by the Board of Directors) shall perform the duties of the President, and when so acting, shall have all the powers of and be subject to all the restrictions upon such office. Each Vice President shall perform such other duties and have such other powers as the Board of Directors from time to time may prescribe. If there be no Vice President, the Board of Directors shall designate the officer of the Corporation who, in the absence of the President or in the event of the inability or refusal of such officer to act, shall perform the duties of such office, and when so acting, shall have all the powers of and be subject to all the restrictions upon such office.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.8 <u>Secretary</u>. The Secretary shall attend all meetings of the Board of Directors and all meetings of stockholders and record all the proceedings thereat in a book or books to be kept for that purpose; the Secretary shall also perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chief Executive Officer or the President, under whose supervision the Secretary shall be. If the Secretary shall be unable or shall refuse to cause to be given notice of all meetings of the stockholders and special meetings of the Board of Directors, then any Assistant Secretary shall perform such actions. If there be no Assistant Secretary, then the Board of Directors, the Chief Executive Officer or the President may choose another officer to cause such notice to be given. The Secretary shall have custody of any seal of the Corporation and the Secretary or any Assistant Secretary, if there be one, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by the signature of the Secretary or by the signature of any such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix any seal of the Corporation and to attest the affixing by his or her signature. The Secretary shall see that all books, reports, statements, certificates and other documents and records required by law to be kept or filed are properly kept or filed, as the case may be.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.9 <u>Treasurer</u>. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chief Executive Officer, the President and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his or her transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, the Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.10 <u>Assistant Secretaries</u>. Except as may be otherwise provided in these Bylaws, Assistant Secretaries, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, the President, any Vice President, if there be one, or the Secretary, and in the absence of the Secretary or in the event of his or her disability or refusal to act, shall perform the duties of the Secretary, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Secretary.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.11 <u>Assistant Treasurers</u>. Assistant Treasurers, if there be any, shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors, the Chief Executive Officer, the President, any Vice President, if there be one, or the Treasurer, and in the absence of the Treasurer or in the event of his or her disability or refusal to act, shall perform the duties of the Treasurer, and when so acting, shall have all the powers of and be subject to all the restrictions upon the Treasurer. If required by the Board of Directors, an Assistant Treasurer shall give the Corporation a bond in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his or her office and for the restoration to the Corporation, in case of his or her death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his or her possession or under his or her control belonging to the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.12 <u>Controller</u>. The Controller shall establish and maintain the accounting records of the Corporation in accordance with generally accepted accounting principles applied on a consistent basis, maintain proper internal control of the assets of the Corporation and shall perform such other duties as the Board of Directors, the Chief Executive Officer, the President or any Vice President of the Corporation may prescribe.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.13 <u>Other Officers</u>. Such other officers as the Board of Directors may choose shall perform such duties and have such powers as from time to time may be assigned to them by the Board of Directors. The Board of Directors may delegate to any other officer of the Corporation the power to choose such other officers and to prescribe their respective duties and powers.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.14 <u>Vacancies</u>. The Board of Directors shall have the power to fill any vacancies in any office occurring from whatever reason.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.15 <u>Resignations</u>. Any officer may resign at any time by submitting his or her written resignation to the Corporation. Such resignation shall take effect at the time of its receipt by the Corporation, unless another time be fixed in the resignation, in which case it shall become effective at the time so fixed. The acceptance of a resignation shall not be required to make it effective.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.16 <u>Removal</u>. Subject to the provisions of any employment agreement approved by the Board of Directors, any officer of the Corporation may be removed at any time, with or without cause, by a majority of the Board of Directors.

**ARTICLE V**

**CAPITAL STOCK**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1 <u>Form of Certificates</u>. The shares of stock in the Corporation shall be represented by certificates; *provided, however*, that the Board of Directors may provide by resolution or resolutions that some or all of any or all classes or series of the Corporation's stock shall be in uncertificated form. Stock certificates shall be in such forms as the Board of Directors may prescribe and signed by the Chairman of the Board, the Chief Executive Officer, President or a Vice President and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2 <u>Signatures</u>. Any or all of the signatures on a stock certificate may be a facsimile, including, but not limited to, signatures of officers of the Corporation and countersignatures of a transfer agent or registrar. In case an officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if such person were such officer, transfer agent or registrar at the date of issue.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.3 <u>Lost Certificates</u>. The Board of Directors may direct a new stock certificate or certificates to be issued in place of any stock certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new stock certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate, or his or her legal representative, to advertise the same in such manner as the Board of Directors shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.4 <u>Transfers</u>. Stock of the Corporation shall be transferable in the manner prescribed by law and in these Bylaws. Transfers of certificated stock shall be made on the books of the Corporation only by the person named in the certificate or by such person's attorney lawfully constituted in writing and upon the surrender of the certificate therefor, which shall be canceled before a new certificate shall be issued. Transfers of uncertificated stock shall be made on the books of the Corporation only by the person then registered on the books of the Corporation as the owner of such shares or by such person's attorney lawfully constituted in writing and written instruction to the Corporation containing such information as the Corporation or its agents may prescribe. No transfer of uncertificated stock shall be valid as against the Corporation for any purpose until it shall have been entered in the stock records of the Corporation by an entry showing from and to whom transferred. The Corporation shall have no duty to inquire into adverse claims with respect to any stock transfer unless (a) the Corporation has received a written notification of an adverse claim at a time and in a manner which affords the Corporation a reasonable opportunity to act on it prior to the issuance of a new, reissued or re-registered share certificate, in the case of certificated stock, or entry in the stock record books of the Corporation, in the case of uncertificated stock, and the notification identifies the claimant, the registered owner and the issue of which the share or shares is a part and provides an address for communications directed to the claimant; or (b) the Corporation has required and obtained, with respect to a fiduciary, a copy of a will, trust, indenture, articles of co-partnership, Bylaws or other controlling instruments, for a purpose other than to obtain appropriate evidence of the appointment or incumbency of the fiduciary, and such documents indicate, upon reasonable inspection, the existence of an adverse claim. The Corporation may discharge any duty of inquiry by any reasonable means, including notifying an adverse claimant by registered or certified mail at the address furnished by him or, if there be no such address, at his or her residence or regular place of business that the security has been presented for registration of transfer by a named person, and that the transfer will be registered unless within thirty days from the date of mailing the notification, either (a) an appropriate restraining order, injunction or other process issues from a court of competent jurisdiction; or (b) an indemnity bond, sufficient in the Corporation's judgment to protect the Corporation and any transfer agent, registrar or other agent of the Corporation involved from any loss which it or they may suffer by complying with the adverse claim, is filed with the Corporation.

Any stockholder may enter into an agreement with other stockholders or with the Corporation providing for reasonable limitation or restriction on the right of such stockholder to transfer shares of capital stock of the Corporation held by him, her or it, including, without limiting the generality of the foregoing, agreements granting to such other stockholders or to the Corporation the right to purchase for a given period of time any of such shares on terms equal to terms offered such stockholders by any third party. Any such limitation or restriction on the transfer of shares may be set forth on certificates representing shares of capital stock or notice thereof may be otherwise given to the Corporation or the transfer agent, in which case the Corporation or the transfer agent shall not be required to transfer such shares upon the books of the Corporation without receipt of satisfactory evidence of compliance with the terms of such limitation or restriction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.5 <u>Fixing Record Date</u>. In order that the Corporation may determine the stockholders entitled to notice or to vote at any meeting of stockholders or any adjournment thereof, to express consent to corporate action in writing without a meeting, entitled to receive payment of any dividend or other distribution or allotment of any rights, entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than ten (10) days after the date upon which the resolution fixing the record date of action with a meeting is adopted by the Board of Directors, nor more than sixty (60) days prior to any other action. If no record date is fixed:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day preceding the day on which notice is given, or, if notice is waived, at the close of business on the day preceding the day on which the meeting is held.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is necessary, shall be the first date on which a signed written consent is delivered to the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; *provided, however*, that the Board of Directors may fix a new record date for the adjourned meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.6 <u>Registered Stockholders</u>. Prior to due presentment for transfer of any share or shares, the Corporation shall treat the registered owner thereof as the person exclusively entitled to vote, to receive notifications and to all other benefits of ownership with respect to such share or shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State Delaware.

**ARTICLE VI**

**NOTICES**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1 <u>Form of Notice</u>. Notices to directors and stockholders other than notices to directors of special meetings of the board of Directors which may be given by any means stated in Section 3.4, shall be in writing and delivered personally or mailed to the directors or stockholders at their addresses appearing on the books of the Corporation. Notice by mail shall be deemed to be given at the time when the same shall be mailed. Notice to directors may also be given by telegram.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2 <u>Waiver of Notice</u>. Whenever any notice is required to be given under the provisions of law or the Certificate of Incorporation or by these Bylaws of the Corporation, a written waiver, signed by the person or persons entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular, or special meeting of the stockholders, Directors, or members of a committee of Directors need be specified in any written waiver of notice unless so required by the Certificate of Incorporation.

**ARTICLE VII**

**INDEMNIFICATION OF DIRECTORS AND OFFICERS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.1 <u>General</u>. The Corporation shall indemnify and hold harmless to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person who was or is made or is threatened to be made a party or is otherwise involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (a "<u>Proceeding</u>"), by reason of the fact that he or she, or a person for whom he or she is the legal representative, is or was a director or officer of the Corporation or, while a director or officer of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) actually and reasonably incurred by such person. Notwithstanding the preceding sentence, the Corporation shall be required to indemnify a person in connection with a Proceeding (or part thereof) commenced by such person only if the commencement of such Proceeding (or part thereof) by the person was authorized in the specific case by the Board of Directors.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.2 <u>Authorization</u>. Any indemnification under Section 7.1 (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the Corporation or officer is proper in the circumstances because he or she has met the applicable standard of conduct as defined by applicable law. Such determination shall be made by either (i) the Board of Directors by a majority vote of a quorum of directors who are not party to such action, suit or proceeding; (ii) by a committee of the directors who are not party to such action, suit or proceeding designated by a majority vote of such directors; (iii) the stockholders; or (iv) an independent legal counsel as set forth in a written opinion (it being understood that such independent legal counsel shall make such determination only if the quorum of directors referred to in clause (i) above is not obtainable or if the Board of Directors by a majority vote of a quorum of directors who are not party to such action, suit or proceeding so directs).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.3 <u>Advance of Expenses</u>. The Corporation shall pay the expenses (including attorneys' fees) actually and reasonably incurred by a director or officer of the Corporation in defending any Proceeding in advance of its final disposition, upon receipt of an undertaking by or on behalf of such person to repay all amounts advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such person is not entitled to be indemnified for such expenses under this Section 7.3 or otherwise. Advances of expenses shall be made without regard to the ability to repay the advances. An indemnitee's obligation to repay the Corporation for advances shall be unsecured and no interest shall be charged thereon.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.4 <u>Non-Exclusivity</u>. The rights conferred on any person by this Article VII will not be exclusive of any other right which such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, these Bylaws, vote of stockholders or disinterested directors or otherwise, both as to action in his or her official capacity and as to action in another capacity while holding office. The Corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees, or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law (the "<u>DGCL</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.5 <u>Contributions</u>. The Corporation's obligation, if any, to indemnify any person who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, enterprise or nonprofit entity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.6 <u>Insurance</u>. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or nonprofit entity against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the Corporation would have the power to indemnify him or her against such liability under the provisions of the DGCL.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.7 <u>Amendment</u>. Any amendment, repeal or modification of this Article VII shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.8 <u>Subsidiaries</u>. For purposes of this Article VII, references to "the Corporation" shall include, in addition to the resulting Corporation, any constituent Corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer employee or agent of such constituent Corporation, or is or was serving at the request of such constituent Corporation as a director, officer, employee or agent of another Corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under this Article with respect to the resulting or surviving Corporation as he would have with respect to such constituent Corporation of its separate existence had continued.

For purposes of this Article VII, references to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to any employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a director, officer, employee or agent of the Corporation which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article VII.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.10 <u>Continuation</u>. The indemnification and advancement of expenses provided by, or granted pursuant to, this Article VII shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7.11 <u>Liability</u>. No director or officer of the Corporation shall be personally liable to the Corporation or to any stockholder of the Corporation for monetary damages for breach of fiduciary duty as a director or officer, *provided*, that this provision shall not limit the liability of a director or officer (i) for any breach of the director's or the officer's duty of loyalty to the Corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the DGCL; or (iv) for any transaction from which the director or officer derived an improper personal benefit.

**ARTICLE VIII**

**GENERAL PROVISIONS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.1 <u>Reliance on Books and Records</u>. Each director, member of any committee designated by the Board of Directors and officer of the Corporation, shall, in the performance of his or her duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, including reports made to the Corporation by any of its officers, an independent certified public accountant or an appraiser selected with reasonable care.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.2 <u>Maintenance and Inspection of Records</u>. The Corporation shall, either at its principal executive office or at such place or places as designated by the Board of Directors, keep a record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws, as may be amended to date, minute books, accounting books and other records.

Any such records maintained by the Corporation may be kept on, or by means of, or be in the form of, any information storage device or method, provided that the records so kept can be converted into clearly legible paper form within a reasonable time. The Corporation shall so convert any records so kept upon the request of any person entitled to inspect such records pursuant to the provisions of the DGCL. When records are kept in such manner, a clearly legible paper form produced from or by means of the information storage device or method shall be admissible in evidence, and accepted for all other purposes, to the same extent as an original paper form accurately portrays the record.

Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the Corporation's stock ledger, a list of its stockholders and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the Corporation at its registered office in Delaware or at its principal executive office.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.3 <u>Inspection by Directors</u>. Any director shall have the right to examine the Corporation's stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.4 <u>Dividends</u>. Subject to the provisions of the Certificate of Incorporation, if any, dividends upon the capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, pursuant to law and the Certificate of Incorporation. Dividends may be paid in cash, in property, or in shares of the Corporation's capital stock, subject to the provisions of the Certificate of Incorporation. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.5 <u>Checks</u>. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other persons as the Board of Directors may from time to time designate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.6 <u>Fiscal Year</u>. The fiscal year of the Corporation shall be as determined by the Board of Directors. If the Board of Directors shall fail to do so, the Chief Executive Officer shall fix the fiscal year.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.7 <u>Seal</u>. Any corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware." Any seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.8 <u>Amendments</u>. The Board of Directors is expressly empowered to amend or repeal these Bylaws, subject to any restrictions that may be set forth in the Certificate of Incorporation. The stockholders shall also have the power to amend or repeal these Bylaws, subject to any restrictions that may be set forth in the Certificate of Incorporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8.9 <u>Interpretation of Bylaws</u>. All words, terms and provisions of these Bylaws shall be interpreted and defined by and in accordance with the DGCL.

## Exhibit 4.1

**Exhibit 4.1**

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## Ex-10

**Exhibit 10**

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## Exhibit 10.1

**Exhibit 10.1**

***Execution Version***

 ****

**STOCK PURCHASE AGREEMENT**

Dated October 6, 2017

by and between

**TRI-COUNTY FINANCIAL GROUP, INC.**

and

**CASTLE CREEK CAPITAL PARTNERS VI, LP**

**STOCK PURCHASE AGREEMENT**

This Stock Purchase Agreement (this "<u>Agreement</u>") is dated as of October 6, 2017, by and between Tri-County Financial Group, Inc., a Delaware corporation (the "<u>Company</u>"), and Castle Creek Capital Partners VI, LP, a Delaware limited partnership ("<u>Purchaser</u>").

**RECITALS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;A. The Company and Purchaser are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933 (the "<u>Securities Act</u>") and Rule 506 of Regulation D ("<u>Regulation D</u>") as promulgated by the United States Securities and Exchange Commission (the "<u>Commission</u>") under the Securities Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;B. Purchaser wishes to purchase, and the Company wishes to sell, upon the terms and conditions stated in this Agreement, that number of shares of (i) voting common stock, par value $1.00 per share, of the Company (the "<u>Common Stock</u>"), set forth below Purchaser's name on the signature page of this Agreement (which shall be collectively referred to herein as the "<u>Common Shares</u>"), and (ii) a newly-issued series of convertible perpetual preferred stock, Series B, no par value per share, of the Company (the "<u>Series B Preferred Stock</u>"), set forth below Purchaser's name on the signature page of this Agreement (which shall be collectively referred to herein as the "<u>Series B Preferred Shares</u>") which shall be convertible into Common Shares subject to the terms and conditions set forth in the Certificate of Designations (as defined below) and, following the Shareholder Approval (as defined below) and subject to the terms and conditions of the Certificate of Amendment (as defined below), non-voting common stock, par value $1.00 per share, of the Company (the "<u>Non-Voting Common Stock</u>"). The Common Shares and the Series B Preferred Shares shall be collectively referred herein to as the "<u>Shares</u>." The Common Shares and Non-Voting Common Stock into which the Series B Preferred Stock is convertible are referred to herein as the "<u>Underlying Shares</u>" and the Underlying Shares and the Shares are referred to herein, collectively, as the "<u>Securities</u>."

**NOW, THEREFORE,** in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and Purchaser hereby agree as follows:

ARTICLE I

**DEFINITIONS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1.1 **Definitions**. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms shall have the meanings indicated in this Section 1.1:

"<u>Acquisition Transaction</u>" (i) a merger, reorganization, share exchange, consolidation, business combination, recapitalization, dissolution, liquidation, or similar transaction involving the Company or any of its Subsidiaries; (ii) the issuance by the Company or any of its Subsidiaries of securities representing twenty percent (20%) or more of its outstanding Voting Securities (including upon the conversion, exercise or exchange of securities convertible into or exercisable or exchangeable for such Voting Securities); or (iii) the acquisition in any manner, directly or indirectly, of (x) twenty percent (20%) or more of the outstanding Voting Securities of the Company or any of its Subsidiaries (including through the acquisition of securities convertible into or exercisable or exchangeable for such Voting Securities), (y) twenty percent (20%) or more of the consolidated total assets of the Company and its Subsidiaries, taken as a whole, or (z) one or more businesses or divisions that constitute twenty percent (20%) or more of the revenues or net income of the Company and its Subsidiaries, taken as a whole.

"<u>Action</u>" means any action, suit, inquiry, notice of violation, proceeding (including any partial proceeding such as a deposition), or investigation pending or, to the Company's Knowledge, threatened against the Company, any Subsidiary, or any of their respective properties or any officer, director, or employee of the Company or any Subsidiary acting in his or her capacity as an officer, director, or employee before or by any Governmental Entity.

"<u>Affiliate</u>" means, with respect to any Person, any other Person that, directly or indirectly through one or more intermediaries, Controls, is controlled by, or is under common control with such Person, as such terms are used in and construed under Rule 405 under the Securities Act.

"<u>Agency</u>" has the meaning set forth in Section 3.1(pp).

"<u>Agreement</u>" shall have the meaning ascribed to such term in the Preamble.

"<u>Bank</u>" means First State Bank, an Illinois state-chartered nonmember bank.

"<u>Bank Board</u>" has the meaning set forth in Section 4.20(a).

"<u>Bank Regulatory Approvals</u>" means that Purchaser shall have received, in its sole discretion, satisfactory feedback from the Federal Reserve (which may be the absence of any communication from the Federal Reserve) and the IDFPR that it will not have "control" of the Company or the Bank for purposes of the BHCA and applicable Laws of the State of Illinois and that no notice is required under the CIBC Act or applicable Laws of the State of Illinois, and Purchaser shall have submitted all other filings with and received all other approvals required by applicable Governmental Entities, in each case as necessary to permit Purchaser to hold up to twenty-four point nine percent (24.9%) of the voting securities of the Company.

"<u>Benefit Plan</u>" has the meaning set forth in Section 3.1(rr).

"<u>BHCA</u>" has the meaning set forth in Section 3.1(b).

"<u>BHCA Control</u>" has the meaning set forth in Section 3.1(uu).

"<u>Board of Directors</u>" has the meaning set forth in this Section 1.1.

"<u>Board Representative</u>" has the meaning set forth in Section 4.20(a).

"<u>Burdensome Condition</u>" has the meaning set forth in Section 4.15.

"<u>Business Day</u>" means a day, other than a Saturday or Sunday, on which banks in Illinois are open for the general transaction of business.

"<u>Certificate of Amendment</u>" has the meaning set forth in Section 4.20(g).

"<u>Certificate of Designations</u>" has the meaning set forth in Section 2.2(a)(xii).

"<u>Certificate of Incorporation</u>" means the Certificate of Incorporation of the Company and all amendments thereto, as the same may be amended from time to time.

"<u>Change in Control</u>" means, with respect to the Company, the occurrence of any of the following events:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) any Person or "group" (other than Purchaser and its Affiliates) becomes a beneficial owner (as defined in Rules 13d-3 of the Exchange Act), directly or indirectly, of fifty percent (50%) or more of the aggregate shares of Common Stock;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) any Person or "group" (other than Purchaser and its Affiliates) becomes a beneficial owner (as defined in Rules 13d-3 of the Exchange Act), directly or indirectly, of twenty-four point nine percent (24.9%) or more of the aggregate shares of Common Stock, and in connection with such event, individuals who, on the date of this Agreement, constitute the board of directors of the Company (the "<u>Board of Directors</u>") cease for any reason to constitute at least a majority of the Board of Directors;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) the consummation of a merger, consolidation, statutory share exchange, or similar transaction that requires adoption by the Company's shareholders (a "<u>Business Combination</u>"), unless immediately following such Business Combination more than fifty percent (50%) of the total voting power of the corporation resulting from such Business Combination (the "<u>Surviving Corporation</u>"), or, if applicable, the ultimate parent corporation that directly or indirectly has beneficial ownership (as defined in Rules 13d-3 of the Exchange Act) of one hundred percent (100%) of the voting securities eligible to elect directors of the Surviving Corporation, is represented by Common Stock that was outstanding immediately before such Business Combination;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) the shareholders of the Company approve a plan of liquidation or dissolution of the Company or a sale of all or substantially all of the Company's assets; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) the Company has entered into a definitive agreement, the consummation of which would result in the occurrence of any of the events described in clauses (1) through (4) of this definition above.

"<u>CIBC Act</u>" means the Change in Bank Control Act of 1978.

"<u>Closing</u>" means the closing of the purchase and sale of the Shares pursuant to this Agreement.

"<u>Closing Date</u>" has the meaning set forth in Section 2.1(b).

"<u>Code</u>" means the Internal Revenue Code of 1986, including the regulations and published interpretations thereunder.

"<u>Commission</u>" has the meaning set forth in the Recitals.

"<u>Common Shares</u>" has the meaning set forth in the Recitals.

"<u>Common Stock</u>" has the meaning set forth in the Recitals and also includes any securities into which the Common Stock may hereafter be reclassified or changed.

"<u>Company</u>" has the meaning set forth in the Preamble.

"<u>Company Counsel</u>" means Howard & Howard Attorneys PLLC.

"<u>Company Deliverables</u>" has the meaning set forth in Section 2.2(a).

"<u>Company Financial Statements</u>" has the meaning set forth in Section 3.1(h).

"<u>Company Recommendation</u>" has the meaning set forth in Section 4.20(g).

"<u>Company Reports</u>" has the meaning set forth in Section 3.1(kk).

"<u>Company's Knowledge</u>" means with respect to any statement made to the knowledge of the Company, that the statement is based upon the actual knowledge of Tim McConville, the Company's President and Chief Executive Officer, Connie Ganz, the Bank's Senior Vice President, Jacqueline Bend, the Bank's Chief Financial Officer and Cashier, Goodwin Toraason, the Company's Executive Vice President, and Trisha Harrison, the Company's Controller.

"<u>Control</u>" (including the terms "controlling," "controlled by" or "under common control with") means the direct or indirect possession of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract, or otherwise for purposes of the BHCA or the CIBC Act.

"<u>Covered Person</u>" has the meaning set forth in Section 3.1(ww).

"<u>CRA</u>" has the meaning set forth in Section 3.1(nn).

"<u>Delaware Courts</u>" has the meaning set forth in Section 6.8.

"<u>Disqualification Event</u>" has the meaning set forth in Section 3.1(ww).

"<u>Effective Date</u>" means the date on which the initial Registration Statement required by Section 2(a) of the Registration Rights Agreement is first declared effective by the Commission.

"<u>Environmental Laws</u>" has the meaning set forth in Section 3.1(k).

"<u>ERISA</u>" has the meaning set forth in Section 3.1(rr).

"<u>ERISA Affiliates</u>" has the meaning set forth in Section 3.1(rr).

"<u>ERISA Plan</u>" has the meaning set forth in Section 3.1(rr).

"<u>Exchange Act</u>" means the Securities Exchange Act of 1934 any successor statute, and the rules and regulations promulgated thereunder.

"<u>FDIC</u>" means the Federal Deposit Insurance Corporation.

"<u>Federal Reserve</u>" means the Board of Governors of the Federal Reserve System.

"<u>GAAP</u>" means U.S. generally accepted accounting principles as applied by the Company.

"<u>Governmental Entity</u>" means any court, administrative agency, arbitrator, or commission or other governmental or regulatory authority or instrumentality, whether federal, state, local, or foreign, and any applicable industry self-regulatory organization or securities exchange.

"<u>IDFPR</u>" means the Illinois Division of Financial and Professional Regulation.

"<u>Insurer</u>" has the meaning set forth in Section 3.1(pp).

"<u>Intellectual Property</u>" has the meaning set forth in Section 3.1(q).

"<u>IRS</u>" has the meaning set forth in Section 3.1(rr).

"<u>Law</u>" means any federal, state, county, municipal or local ordinance, permit, concession, grant, franchise, law, statute, code, rule or regulation or any judgment, ruling, order, writ, injunction or decree promulgated by any Governmental Entity.

"<u>Legend Removal Date</u>" has the meaning set forth in Section 4.1(c).

"<u>Lien</u>" means any lien, charge, claim, encumbrance, security interest, right of first refusal, preemptive right, mortgage, deed of trust, pledge, conditional sale agreement, restriction on transfer or other restrictions of any kind.

"<u>Loan Investor</u>" has the meaning set forth in Section 3.1(pp).

"<u>Losses</u>" has the meaning set forth in Section 4.7(a).

"<u>Material Adverse Effect</u>" means any event, circumstance, change or occurrence that has had or would reasonably be expected to have (i) a material and adverse effect on the legality, validity, or enforceability of any Transaction Document, (ii) a material and adverse effect on the operations, results of operations, assets, liabilities, properties, business or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) any adverse impairment to the Company's ability to perform in any material respect on a timely basis its obligations under any Transaction Document; provided, however, that clause (ii) shall not include the impact of (A) changes in banking and similar Laws of general applicability or interpretations thereof by any applicable Governmental Entity, (B) changes in GAAP or regulatory accounting requirements applicable to banks and their holding companies generally, (C) changes in general economic conditions, including interest rates, affecting banks generally, (D) the effects of any action or omission of the Company or the Bank required by the Agreement or taken with the prior written consent of Purchaser, (E) changes, after the date hereof, in global or national political conditions, including the outbreak or escalation of war or acts of terrorism, unless such changes have a materially disproportionate adverse effect on the Company and/or its Subsidiaries relative to similarly situated banks and their holding companies in the United States and (F) the effects of the public announcement of this Agreement or the investment in the Company by Purchaser, except, with respect to clauses (A), (B) and (C), to the extent that the effect of such changes has a disproportionate impact on the Company and the Subsidiaries, taken as a whole, relative to other similarly situated banks and their holding companies generally.

"<u>Material Contract</u>" means any of the following agreements of the Company or any of its Subsidiaries:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(1) any contract containing covenants that limit in any material respect the ability of the Company or any of its Subsidiaries to compete in any line of business or with any person or which involve any material restriction of the geographical area in which, or method by which or with whom, the Company or any of its Subsidiaries may carry on its business (other than as may be required by Law or applicable regulatory authorities), and any contract that could require the disposition of any material assets or line of business of the Company or of its Subsidiaries;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(2) any joint venture, partnership, strategic alliance, or other similar contract (including any franchising agreement, but in any event excluding introducing broker agreements), and any contract relating to the acquisition or disposition of any material business or material assets (whether by merger, sale of stock or assets, or otherwise), which acquisition or disposition is not yet complete or where such contract contains continuing material obligations or contains continuing indemnity obligations of the Company or any of its Subsidiaries;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(3) any real property lease and any other lease with annual rental payments aggregating $75,000 or more;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(4) other than with respect to loans, any contract providing for, or reasonably likely to result in, the receipt or expenditure of more than $150,000 on an annual basis, including the payment or receipt of royalties or other amounts calculated based upon revenues or income;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(5) any contract or arrangement under which the Company or any of its Subsidiaries is licensed or otherwise permitted by a third party to use any Intellectual Property that is material to its business (except for any "shrinkwrap" or "click through" license agreements or other agreements for software that is generally available to the public and has not been customized for the Company or its Subsidiaries) or under which a third party is licensed or otherwise permitted to use any Intellectual Property owned by the Company or any of its Subsidiaries;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(6) any contract that by its terms limits the payment of dividends or other distributions by the Company or any of its Subsidiaries;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(7) any standstill or similar agreement pursuant to which any party has agreed not to acquire assets or securities of another person;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(8) any contract that would reasonably be expected to prevent, materially delay, or materially impede the Company's ability to consummate the transactions contemplated by this Agreement and the other Transaction Documents;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(9) any contract providing for indemnification by the Company or any of its Subsidiaries of any person, except for contracts entered into in the ordinary course of business consistent with past practice;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(10) any contract that contains a put, call, or similar right pursuant to which the Company or any of its Subsidiaries could be required to purchase or sell, as applicable, any equity interests or assets that have a fair market value or purchase price of more than $100,000; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(11) any other contract or agreement which is a "material contract" within the meaning of Item 601(b)(10) of Regulation S-K.

"<u>Material Permits</u>" has the meaning set forth in Section 3.1(o).

"<u>Minimum Ownership Interest</u>" has the meaning set forth in Section 4.20(a).

"<u>Money Laundering Laws</u>" has the meaning set forth in Section 3.1(ii).

"<u>New Security</u>" has the meaning set forth in Section 4.23(a).

"<u>Non-Voting Common Stock</u>" has the meaning set forth in the Recitals.

"<u>Observer</u>" has the meaning set forth in Section 4.20(d).

"<u>OFAC</u>" has the meaning set forth in Section 3.1(hh).

"<u>Offering</u>" has the meaning set forth in Section 4.23(c).

"<u>OTC Pink</u>" means the marketplace for trading over-the-counter stocks provided and operated by the OTC Market Group, Inc.

"<u>Outside Date</u>" means 120 days following the date of this Agreement; provided that if such day is not a Business Day, the first day following such day that is a Business Day.

"<u>Pension Plan</u>" has the meaning set forth in Section 3.1(rr).

"<u>Person</u>" means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, Governmental Entity, or any other form of entity not specifically listed herein.

"<u>Personally Identifiable Information</u>" means any information that is publicly available or is held or controlled by the Company or any of its Subsidiaries that, alone or in combination with other information, can be used to identify an individual or a specific device.

"<u>Principal Trading Market</u>" means the Trading Market on which the Common Stock is primarily quoted for trading, which, as of the date of this Agreement and the Closing Date, shall be the OTC Pink.

"<u>Proceeding</u>" means an action, claim, suit, investigation, or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

"<u>Purchase Price</u>" means an amount equal to $35.52 per Common Share and $355.20 per Series B Preferred Share.

"<u>Purchased Shares</u>" means the number of Shares to be purchased by Purchaser hereunder.

"<u>Purchaser</u>" has the meaning set forth in the Preamble.

"<u>Purchaser Deliverables</u>" has the meaning set forth in Section 2.2(b).

"<u>Purchaser Indemnitors</u>" has the meaning set forth in Section 4.20(f).

"<u>Purchaser Party</u>" has the meaning set forth in Section 4.7(a).

"<u>Questionnaire</u>" has the meaning set forth in Section 2.2(b)(iv).

"<u>Raymond James</u>" has the meaning set forth in Section 3.1(u).

"<u>Registration Rights Agreement</u>" means a registration rights agreement, substantially in the form attached hereto as <u>Exhibit A</u>, to be dated as of the Closing Date, between the Company and Purchaser.

"<u>Registration Statement</u>" means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by Purchaser of Registrable Securities (as defined in the Registration Rights Agreement).

"<u>Regulation D</u>" has the meaning set forth in the Recitals.

"<u>Regulatory Agreement</u>" has the meaning set forth in Section 3.1(mm).

"<u>Required Approvals</u>" has the meaning set forth in Section 3.1(e).

"<u>Response Period</u>" has the meaning set forth in Section 4.23(c).

"<u>Rule 144</u>" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule 144.

"<u>Securities</u>" has the meaning set forth in the Recitals.

"<u>Securities Act</u>" has the meaning set forth in the Recitals.

"<u>Series B Preferred Shares</u>" has the meaning set forth in the Recitals.

"<u>Series B Preferred Stock</u>" has the meaning set forth in the Recitals.

"<u>Shareholder Approval</u>" has the meaning set forth in Section 4.20(g).

"<u>Shareholder Litigation</u>" has the meaning set forth in Section 4.17.

"<u>Shareholders' Meeting</u>" has the meaning set forth in Section 4.20(g).

"<u>Shares</u>" has the meaning set forth in the Recitals.

"<u>Subsidiary</u>" means any entity in which the Company or the Bank, directly or indirectly, owns fifty percent (50%) or more of the outstanding capital stock or otherwise has Control over such entity. For the avoidance of doubt, the Subsidiaries of the Company include the Bank.

"<u>Takeover Law</u>" has the meaning set forth in Section 3.1(bb).

"<u>Tax</u>" or "<u>Taxes</u>" mean (i) any federal, state, local or foreign income, gross receipts, property, sales, use, license, excise, franchise, employment, payroll, withholding, alternative or add on minimum, ad valorem, transfer or excise tax, or any other tax, custom, duty, governmental fee or other like assessment or charge of any kind whatsoever, together with any interest or penalty, imposed by any Governmental Entity and (ii) any liability in respect of any items described in clause (i) above payable by reason of contract, assumption, transferee or successor liability, operation of law, Treasury Regulations Section 1.1502-6(a) (or any predecessor or successor thereof or analogous or similar provisions of Law) or otherwise.

"<u>Tax Return</u>" means any return, declaration, report or similar statement filed or required to be filed with respect to any Tax (including any attached schedules), including, without limitation, any information return, claim for refund, amended return or declaration of estimated Tax.

"<u>Trading Day</u>" means (i) a day on which the Common Stock is listed or quoted and traded on its Principal Trading Market, or (ii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported by OTC Markets Group, Inc. (including the OTC Pink); *provided*, that in the event that the Common Stock is not listed or quoted as set forth in (i) and (ii) hereof, then Trading Day shall mean a Business Day.

"<u>Trading Market</u>" means whichever of the New York Stock Exchange, the NYSE Amex, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market, or the OTC Pink on which the Common Stock is listed or quoted for trading on the date in question.

"<u>Transaction Documents</u>" means this Agreement, the Schedules and Exhibits attached hereto, including the VCOC Letter Agreement, the Registration Rights Agreement, the Certificate of Designations, and any other documents or agreements executed by the Company or Purchaser in connection with the transactions contemplated hereunder.

"<u>Transfer Agent</u>" means the Company or any successor third party transfer agent selected by the Company.

"<u>Underlying Shares</u>" has the meaning set forth in the Recitals.

"<u>VCOC Letter Agreement</u>" means the letter agreement in the form attached hereto as <u>Exhibit F</u>, dated as of the Closing Date, between the Company and Purchaser.

"<u>Voting Securities</u>" means the capital stock of the Company that is then entitled to vote generally in the election of directors of the Company.

ARTICLE II

**PURCHASE AND SALE**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.1 **Closing**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **Purchase of Shares**. Subject to the terms and conditions set forth in this Agreement, at the Closing, the Company shall issue and sell to Purchaser, and Purchaser shall purchase from the Company, the number of Shares set forth below Purchaser's name on the signature page of this Agreement at a per share price equal to the Purchase Price.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **Closing**. Unless this Agreement has been terminated pursuant to <u>Section 6.15</u> and subject to the satisfaction (or waiver, as applicable) of the conditions set forth in <u>Article V</u> and the delivery of the Company Deliverables and the Purchaser Deliverables, the Closing shall take place on the date that is ten (10) Business Days following the day on which the conditions set forth in <u>Article V</u> (other than those conditions that by their nature are to be satisfied at Closing, but subject to the fulfillment or waiver of those conditions) are satisfied or waived (the "<u>Closing Date</u>"), via electronic communication or at such location as agreed by the parties in writing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2.2 **Closing Deliveries**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) On or prior to the Closing, the Company shall issue, deliver, or cause to be delivered to Purchaser (unless otherwise indicated) the following (the "<u>Company Deliverables</u>"):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) this Agreement, duly executed by the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) evidence of book-entry Shares with respect to the Shares subscribed for by Purchaser hereunder, registered in the name of Purchaser or its nominee;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) a legal opinion of Company Counsel, dated as of the Closing Date and in the form attached hereto as <u>Exhibit C</u>, executed by such counsel and addressed to Purchaser;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) the Registration Rights Agreement, duly executed by the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) a certificate of the Secretary of the Company, in the form attached hereto as <u>Exhibit D</u>, dated as of the Closing Date, (a) certifying the resolutions adopted by the Board of Directors or a duly authorized committee thereof approving the transactions contemplated by this Agreement and the other Transaction Documents and the issuance of the Shares pursuant to this Agreement and the other Transaction Documents, (b) certifying the current versions of the Certificate of Incorporation and Bylaws of the Company, and (c) certifying as to the signatures and authority of persons signing the Transaction Documents and related documents on behalf of the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) a certificate, dated as of the Closing Date and signed by its President and Chief Executive Officer or its Chief Financial Officer, substantially in the form attached hereto as <u>Exhibit E</u>;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) a Certificate of Good Standing of the Company from the Delaware Secretary of State as of a recent date;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) a certificate of the Federal Reserve Bank of Chicago to the effect that the Company is a registered bank holding company under the BHCA;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix) a certificate of the IDFPR as of a recent date evidencing the corporate existence of the Bank under the Laws of the United States;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) a certificate of the FDIC to the effect that the Bank's deposit accounts are insured by the FDIC under the provisions of the Federal Deposit Insurance Act;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xi) the VCOC Letter Agreement, duly executed by the Company; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xii) the Certificate of Designations relating to the Series B Preferred Stock of the Company filed with the Delaware Secretary of State in the form attached hereto as <u>Exhibit G</u> (the "<u>Certificate of Designations</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) On or prior to the Closing, Purchaser shall deliver or cause to be delivered to the Company the following (the "<u>Purchaser Deliverables</u>"):

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) this Agreement, duly executed by Purchaser;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) in U.S. dollars and in immediately available funds, the amount indicated below Purchaser's name on the applicable signature page hereto under the heading "Aggregate Purchase Price" by wire transfer to the account provided by the Company;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) the Registration Rights Agreement duly executed by Purchaser; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) a fully completed and duly executed accredited investor questionnaire (the "<u>Questionnaire</u>"), reasonably satisfactory to the Company, in the form attached hereto as <u>Exhibit B</u>.

ARTICLE III

**REPRESENTATIONS AND WARRANTIES**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.1 **Representations and Warranties of the Company**. The Company hereby represents and warrants as of the date hereof and as of the Closing Date, except for the representations and warranties that speak as of a specific date, which shall be made as of such date and qualified as set forth on the Disclosure Schedules attached to this Agreement, to Purchaser that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **Subsidiaries**. The Company owns all of the outstanding shares of the Bank. The Company has no other direct or indirect Subsidiaries except as set forth on Schedule 3.1(a). The Company owns, directly or indirectly, all of the capital stock (except for any preferred securities issued by Subsidiaries that are trusts as set forth on Schedule 3.1(a)) or comparable equity interests of each Subsidiary free and clear of any and all Liens, and all the issued and outstanding shares of capital stock or comparable equity interest of each Subsidiary are validly issued and are fully paid, non-assessable, and free of preemptive and similar rights to subscribe for or purchase securities. Except in respect of the Company's Subsidiaries, the Company does not own beneficially, directly or indirectly, more than five percent (5%) of any class of equity securities or similar interests of any corporation, bank, business trust, association or similar organization, and is not, directly or indirectly, a partner in any partnership or party to any joint venture.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **Organization and Qualification**. The Company and each of its Subsidiaries is an entity duly incorporated or otherwise organized, validly existing, and in good standing under the Laws of the jurisdiction of its incorporation or organization (as applicable), with the requisite power and authority to own or lease and use its properties and assets and to carry on its business as currently conducted. Neither the Company nor any Subsidiary is in violation of any of the provisions of its respective certificate or articles of incorporation, bylaws, or other organizational or charter documents. The Company and each of its Subsidiaries is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not in the reasonable judgment of the Company be expected to be material to the Company or any of its Subsidiaries. The Company is duly registered as a bank holding company under the Bank Holding Company Act of 1956 (the "<u>BHCA</u>"). The Bank is the Company's only Subsidiary banking institution. The Bank's deposit accounts are insured up to applicable limits by the FDIC, and all premiums and assessments required to be paid in connection therewith have been paid when due and no proceeding for the termination of such insurance is pending or, to the Company's Knowledge, threatened. The Company and its Subsidiaries have conducted business in compliance with all applicable federal, state and foreign Laws, orders, judgments, decrees, rules, regulations, and applicable stock exchange requirements, including all Laws and regulations restricting activities of bank holding companies and banking organizations, in all material respects except as disclosed in Schedule 3.1(b).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **Authorization; Enforcement; Validity**. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder, including, without limitation, to issue the Securities in accordance with the terms hereof. The Company's execution and delivery of each of the Transaction Documents and the consummation by it of the transactions contemplated hereby and thereby (including, but not limited to, the sale and delivery of the Securities pursuant to this Agreement and the other Transaction Documents) have been duly authorized by all necessary corporate action on the part of the Company, and no further corporate action is required by the Company, the Board of Directors, or the Company's shareholders in connection therewith other than in connection with the Required Approvals. Each of the Transaction Documents has been (or upon delivery will have been) duly executed by the Company and is, or when delivered in accordance with the terms hereof or thereof, will constitute the legal, valid, and binding obligation of the Company enforceable against the Company in accordance with its terms, except (i) as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, or similar Laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application, (ii) as limited by Laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) insofar as indemnification and contribution provisions may be limited by applicable Law. There are no shareholder agreements, voting agreements, or other similar arrangements with respect to the Company's capital stock to which the Company is a party or, to the Company's Knowledge, between or among any of the Company's shareholders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) **No Conflicts**. The execution, delivery, and performance by the Company of the Transaction Documents and the consummation by the Company of the transactions contemplated hereby or thereby (including, without limitation, the issuance of the Securities pursuant to this Agreement and the other Transaction Documents) do not and will not, subject to receipt of the Required Approvals, (i) conflict with or violate any provisions of the Company's or any Subsidiary's certificate or articles of incorporation, bylaws, or otherwise result in a violation of the organizational documents of the Company or any Subsidiary, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would result in a default) under, result in the creation of any Lien upon any of the properties or assets of the Company or any Subsidiary or give to others any rights of termination, amendment, acceleration, or cancellation (with or without notice, lapse of time or both) of, any agreement, indenture or instrument to which the Company or any Subsidiary is a party, or (iii) subject to the Required Approvals, conflict with or result in a violation of any Law, rule, regulation, order, judgment, injunction, decree, or other restriction of any court or Governmental Entity to which the Company is subject (including federal and state securities Laws and regulations and the rules and regulations thereunder, assuming, without investigation, the correctness of the representations and warranties made by Purchaser herein, of any self-regulatory organization to which the Company or its securities are subject, including all applicable Trading Markets), or by which any property or asset of the Company is bound or affected, except in the case of clauses (ii) and (iii) such as would not reasonably be expected to be material to the Company or any of its Subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) **Filings, Consents and Approvals**. Neither the Company nor any of its Subsidiaries is required to obtain any consent, waiver, authorization, or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local, or other Governmental Entity, self-regulatory organization, or other Person in connection with the execution, delivery, and performance by the Company of the Transaction Documents (including, without limitation, the issuance of the Securities pursuant to this Agreement and the other Transaction Documents), other than (i) the filing with the Commission of one or more Registration Statements in accordance with the requirements of the Registration Rights Agreement, if applicable, (ii) filings required by any applicable state securities Laws, (iii) the filing of a Notice of Exempt Offering of Securities on Form D with the Commission under Regulation D of the Securities Act, (iv) the filing of any requisite notices and/or application(s) to the Principal Trading Market, if applicable, for the issuance, sale, and listing or quotation of the Common Shares for trading or quotation, as the case may be, thereon in the time and manner required thereby, (v) the filing of any applicable notices and/or applications to or the receipt of any applicable consents or non-objections from the state or federal bank regulatory authorities that govern the Company or the Bank, (vi) the filing of the Certificate of Designations to create the Series B Preferred Stock, (vii) the Shareholder Approval regarding the authorization of the shares of Non-Voting Common Stock to be issued on conversion of the Series B Preferred Stock, (viii) the filing of the Certificate of Amendment to create the Non-Voting Common Stock, and (ix) those that have been made or obtained prior to the date of this Agreement (collectively, the "<u>Required Approvals</u>"). The Company is unaware of any facts or circumstances relating to the Company or its Subsidiaries that would be likely to prevent the Company from obtaining or effecting any of the foregoing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) **Capitalization**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) The authorized capital stock of the Company consists of (1) 5,000,000 shares of Common Stock, par value $1.00 per share and (2) 100,000 shares of preferred stock, no par value per share. As of the date hereof, there are 1,850,310 shares of Common Stock outstanding. All of the outstanding shares of capital stock of the Company are duly authorized, validly issued, fully paid and non-assessable, have been issued in compliance in all material respects with all applicable federal and state securities Laws, and none of such outstanding shares was issued in violation of any preemptive rights or similar rights to subscribe for or purchase any capital stock of the Company. The shares of Series B Preferred Stock (upon filing of the related Certificate of Designations with the Secretary of State of the State of Delaware) will be duly authorized by all necessary corporate action, and when issued and sold against receipt of the consideration therefor as provided in this Agreement, such shares of Series B Preferred Stock will be validly issued, fully paid and non-assessable and free of preemptive rights except for those stated herein. The shares of Common Stock (and, upon filing of the Certificate of Amendment, the Non-Voting Common Stock) issuable upon the conversion of the Series B Preferred Stock will have been duly authorized by all necessary corporate action and when so issued upon such conversion or exercise will be validly issued, fully paid and non-assessable, and free of preemptive rights except for those stated herein. The Company will reserve, free of any preemptive or similar rights of shareholders of the Company, a number of unissued shares of Common Stock and Non-Voting Common Stock, sufficient to issue and deliver the Underlying Shares into which the Series B Preferred Stock or Non-Voting Common Stock is convertible. No shares of the Company's outstanding capital stock are subject to preemptive rights or any other similar rights. There are no outstanding options, warrants, scrip, rights to subscribe to, calls, or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls, or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any shares of capital stock of the Company or any of its Subsidiaries. Except as set forth on Schedule 3.1(g), there are no material outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is bound. Except for the Registration Rights Agreement, if applicable, there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its securities under the Securities Act. There are no outstanding securities or instruments of the Company or any of its Subsidiaries that contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its Subsidiaries. The Company and its Subsidiaries do not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement. Neither the Company nor any of its Subsidiaries has any liabilities or obligations required to be disclosed in the Company Financial Statements but not so disclosed in the Company Financial Statements, which, individually or in the aggregate, would reasonably be expected to be material to the Company or any of its Subsidiaries. There are no securities or instruments issued by or to which the Company or any of its Subsidiaries is a party containing anti-dilution or similar provisions that will be triggered by the issuance of the Shares pursuant to this Agreement and the other Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Immediately following the Closing, (a) 1,945,874 shares of Common Stock, and (b) 46,750 shares of Series B Preferred Stock will be issued and outstanding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) **Financial Statements**. The audited consolidated balance sheets of the Company and its Subsidiaries as of December 31, 2016, 2015 and 2014 and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the three years ended December 31, 2016, together with the notes thereto, and the unaudited consolidated balance sheets of the Company and its Subsidiaries as of August 31, 2017 and the related consolidated statements of operations, changes to shareholders' equity and cash flows for the eight (8) months then ended (the "<u>Company Financial Statements</u>") (1) have been prepared from, and are in accordance with the books and records of the Company and its Subsidiaries, (2) have been prepared in accordance with GAAP applied on a consistent basis during the periods involved, except as may be otherwise specified in such financial statements or the notes thereto and except that the unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the balance sheet of the Company and its Subsidiaries taken as a whole as of and for the dates thereof and the results of operations, shareholders' equity, and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, year-end audit adjustments, which would not be material, either individually or in the aggregate. The Company has made available to Purchaser complete and accurate copies of the Company Financial Statements. There is no transaction, arrangement, or other relationship between the Company (or any of its Subsidiaries) and an unconsolidated or other off-balance sheet entity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) **Tax Matters**. The Company and each of its Subsidiaries has (i) timely filed all material foreign, U.S. federal, state and local Tax Returns that are or were required to be filed, and all such Tax Returns are true, correct and complete in all material respects, (ii) paid all material Taxes required to be paid by it and any other material assessment, fine or penalty levied against it, whether or not shown or determined to be due on such Tax Returns, other than any such amounts (x) currently payable without penalty or interest, or (y) being contested in good faith by appropriate proceedings and for which adequate reserves have been established in accordance with GAAP; (iii) timely withheld, collected or deposited as the case may be all material Taxes (determined both individually and in the aggregate) required to be withheld, collected or deposited by it, and to the extent required, have been paid to the relevant taxing authority in accordance with applicable Law; and (iv) complied with all applicable information reporting requirements in all material respects. Neither the Company nor any Subsidiary (i) is subject to any outstanding audit, assessment, dispute or claim concerning any material Tax liability of the Company or any of its Subsidiaries either within the Company's Knowledge or claimed, pending or raised by an authority in writing; (ii) is a party to, bound by or otherwise subject to any obligation under any Tax sharing or Tax indemnity agreement or similar contract or arrangement (other than an agreement, similar contract or arrangement to which only the Company and its Subsidiaries are parties); (iii) has participated in a "listed transaction" within the meaning of Treasury Regulation Section 1.6011- 4(b)(2); or (iv) has any liability for Taxes of any Person arising from the application of Treasury Regulation Section 1.1502-6 or any analogous provision of state, local or foreign Law, or as a transferee or successor, by contract, or otherwise. No claim has been made by a tax authority in a jurisdiction where the Company or any Subsidiary does not pay Taxes or file Tax Returns asserting that the Company or any Subsidiary is or may be subject to Taxes assessed by such jurisdiction. Neither the Company nor any Subsidiary will be required to include any item of income in, or exclude any item of deduction from, taxable income for any period (or any portion thereof) ending after the Closing as a result of any: (1) installment sale or other open transaction disposition made on or prior to the Closing; (2) prepaid amount received on or prior to the Closing; (3) written and legally binding agreement with a Governmental Entity relating to taxes for any taxable period ending on or before the Closing; (4) change in method of accounting in any taxable period ending on or before the Closing; or (5) election under Section 108(i) of the Code. The Company and its Subsidiaries have not experienced an "ownership change" under Section 382 of the Code.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) **Material Changes**. Since the date of the latest audited financial statements included within the Company Financial Statements, (i) there have been no events, occurrences, or developments that have had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect, (ii) the Company and its Subsidiaries have not incurred any material liabilities (contingent or otherwise) other than (A) trade payables, accrued expenses, and other liabilities incurred in the ordinary course of business consistent with past practice, and (B) liabilities not required to be reflected in the Company Financial Statements pursuant to GAAP, (iii) the Company and its Subsidiaries have not altered materially their method of accounting or the manner in which they keep their accounting books and records, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its shareholders or purchased, redeemed, or made any agreements to purchase or redeem any shares of its capital stock, (v) the Company and its subsidiaries have not issued any equity to any Person, (vi) there has not been any material change or amendment to, or any waiver of any material right by the Company or any of its Subsidiaries under, any Material Contract under which the Company or any of its Subsidiaries is bound or subject, and (vii) there has not been a material increase in the aggregate dollar amount of (A) the Bank's nonperforming loans (including nonaccrual loans and loans 90 days or more past due and still accruing interest) or (B) the reserves or allowances established on and in respect to the Company Financial Statements. Since the date(s) the Company afforded Purchaser (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Shares and the merits and risks of investing in the Shares, and (ii) access to information about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management, prospects, and any potential transactions sufficient to enable it to evaluate its investment, there have been no events, occurrences, or developments that have materially affected or would reasonably be expected to materially affect, either individually or in the aggregate, the information as presented to Purchaser in connection with the offering of the Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) **Environmental Matters**. Neither the Company nor any of its Subsidiaries (i) to the Company's Knowledge, is or has been in violation of any Law of any Governmental Entity relating to the use, disposal or release of hazardous or toxic substances or relating to the protection or restoration of the environment or human exposure to hazardous or toxic substances (collectively, "<u>Environmental Laws</u>"), (ii) to the Company's Knowledge, is or has been liable for any off-site disposal or contamination pursuant to any Environmental Laws, (iii) owns or operates, or owned or operated, any real property contaminated with any substance that is in violation of any Environmental Laws or (iv) is or has been subject to any claim relating to any Environmental Laws; in each case, which violation, contamination, liability or claim is or would reasonably be expected to be material to the Company or any of its Subsidiaries; and there is no pending or, to the Company's Knowledge, threatened investigation that might lead to such a claim. Except as would not be material to the Company or any of its Subsidiaries, there are and have been no circumstances or conditions (including the presence of asbestos, underground storage tanks, lead products, polychlorinated biphenyls, prior manufacturing operations, dry-cleaning or automotive services) involving the Company or any of its Subsidiaries, or any currently or formerly owned or operated property of the Company or any of its Subsidiaries, that could reasonably be expected to result in any claim, liability, investigation, cost or restriction against the Company or any of its Subsidiaries, or result in any restriction on the ownership, use, or transfer of any property pursuant to any Environmental Law, or adversely affect the value of any currently owned property of the Company or any of its Subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) **Litigation**. There is and has been no Action pending or, to the Company's Knowledge, threatened, which (i) adversely affects or challenges the legality, validity, or enforceability of any of the Transaction Documents, the issuance of Purchased Shares pursuant to this Agreement and the other Transaction Documents, or the conversion of the Shares of Series B Preferred Stock into the Underlying Shares, or (ii) except as disclosed in Schedule 3.1(l), is reasonably likely to be material to the Company or any Subsidiary, individually or in the aggregate if there were an unfavorable decision. Neither the Company nor any Subsidiary, nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities Laws or a claim of breach of fiduciary duty nor is any Action, to the Company's Knowledge, currently threatened. There is and has been no Action by the Company or any Subsidiary pending or which the Company or any Subsidiary intends to initiate (other than collection or similar claims in the ordinary course of business). There has not been, and to the Company's Knowledge there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company. The Commission has not issued any stop order or other order suspending the effectiveness of any registration statement filed by the Company or any of its Subsidiaries under the Exchange Act or the Securities Act. There are and have been no outstanding orders, judgments, injunctions, awards or decrees of any court, arbitrator or governmental or regulatory body against the Company or any executive officers or directors of the Company in their capacities as such, which individually or in the aggregate, would reasonably be expected to be material to the Company or any Subsidiary.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) **Employment Matters**. No labor dispute exists or, to the Company's Knowledge, is imminent with respect to any of the employees of the Company or any Subsidiary that would be, or would reasonably be expected to be, material to the Company or any of its Subsidiaries. None of the employees of the Company or any Subsidiary is a member of a union that relates to such employee's relationship with the Company or any Subsidiary, and neither the Company nor any of its Subsidiaries is a party to a collective bargaining agreement, and the Company and each Subsidiary believes that its relationship with its employees is good. To the Company's Knowledge, there is no activity involving any of the employees of the Company or any of its Subsidiaries seeking to certify a collective bargaining unit or similar organization. To the Company's Knowledge, no executive officer is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement or non-competition agreement, or any other contract or agreement or any restrictive covenant in favor of a third party, and to the Company's Knowledge, the continued employment of each such executive officer does not subject the Company or any Subsidiary to any liability with respect to any of the foregoing matters. The Company and each of its Subsidiaries are and at all times have been in compliance with all Laws and regulations relating to employment and employment practices, immigration, terms and conditions of employment and wages and hours, except where the failure to be in compliance would not have or reasonably be material to the Company or any of its Subsidiaries. As of the date of this Agreement, except as otherwise disclosed to Purchaser, no material employee has given notice to the Company or any of its Subsidiaries of his or her intent to terminate his or her employment or service relationship with the Company or any of its Subsidiaries. The Company and its Subsidiaries are and at all times have been in material compliance with all Laws concerning the classification of employees and independent contractors and have properly classified all such individuals for purposes of participation in employee benefit plans.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) **Compliance**. Neither the Company nor any of its Subsidiaries (i) are or at any time has been in default under or in violation of (and no event has occurred that has not been waived that, with notice or lapse of time or both, would result in a default by the Company or any of its Subsidiaries under), nor has the Company or any of its Subsidiaries received written notice of a claim that it is in default under or that it is in violation of, any Material Contract (whether or not such default or violation has been waived), (ii) are or at any time has been in violation of any order of which the Company has been made aware in writing of any court, arbitrator, or governmental body having jurisdiction over the Company or its Subsidiaries or their respective properties or assets, (iii) are or at any time has been in violation of, or in receipt of written notice that it is in violation of, any statute, rule, regulation, policy, guideline, or order of any Governmental Entity or self-regulatory organization (including the Principal Trading Market), applicable to the Company or any of its Subsidiaries, or which would have the effect of revoking or limiting FDIC deposit insurance, except in each case as would not reasonably be expected to be material to the Company or any of its Subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) **Regulatory Permits**. The Company and each of its Subsidiaries possess and have possessed all required certificates, authorizations, consents, licenses, franchises, variances, exceptions, orders, approvals and permits issued by the appropriate Governmental Entities with respect to the Company and its Subsidiaries' business, except where the failure to possess such certificates, authorizations, consents, or permits, individually or in the aggregate, is not and would not reasonably be expected to be material to the Company or any of its Subsidiaries ("<u>Material Permits</u>"), and (i) neither the Company nor any of its Subsidiaries has received any notice in writing of proceedings relating to the revocation or material adverse modification of any such Material Permits, and (ii) the Company is unaware of any facts or circumstances that would give rise to the revocation or material adverse modification of any Material Permits.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) **Title to Assets**. The Company and its Subsidiaries have good and marketable title to all real property and tangible personal property owned by them which is material to the business of the Company and its Subsidiaries, taken as a whole, in each case free and clear of all Liens, except such Liens, if any, as may be reflected on the Financial Statements and such other Liens as do not materially affect the value of such property or do not interfere with the use made and proposed to be made of such property by the Company and any of its Subsidiaries. Notwithstanding the foregoing representation and warranty is qualified as to the Company's Knowledge with respect to properties received by the Company through foreclosure (judicial or non-judicial) or by deed in lieu of foreclosure (collectively, "OREO Properties"). The Company and of its Subsidiaries make no representation or warranty with respect to the status of title or Liens affecting OREO Properties. Any real property and facilities held under lease by the Company and any of its Subsidiaries are held by them under valid, subsisting, and enforceable leases with such exceptions as are not material and do not interfere with the use made and proposed to be made of such property and facilities by the Company and its Subsidiaries. No notice of a claim of default by any party to any lease entered into by the Company or any of its Subsidiaries has been delivered to either the Company or any of its Subsidiaries or is now pending, and there does not exist any event or circumstance that with notice or passing of time, or both, would constitute a default or excuse performance by any party thereto. None of the owned or leased premises or properties of the Company or any of its Subsidiaries is subject to any current or potential interests of third parties or other restrictions or limitations that would impair or be inconsistent in any material respect with the current use of such property by the Company or any of its Subsidiaries, as the case may be.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) **Intellectual Property; Data Security**. The Company and its Subsidiaries own, possess, license, or have other rights to use all foreign and domestic patents, patent applications, trade and service marks, trade and service mark registrations, trade names, copyrights, inventions, trade secrets, technology, Internet domain names, know-how, and other intellectual property (collectively, the "<u>Intellectual Property</u>") necessary for the conduct of their respective businesses as now conducted or as proposed to be conducted free and clear of all Liens (other than rights of licensors of such Intellectual Property) and such Intellectual Property is valid, subsisting and enforceable, and is not subject to any outstanding order, judgment, decree or agreement adversely affecting the Company's or its Subsidiaries' use of, or rights to, such Intellectual Property, except where the failure to own, possess, license, or have such rights would not reasonably be expected to be material to the Company or any of its Subsidiaries. Except where such violations or infringements would not be material to the Company or any of its Subsidiaries, (i) there are no rights of third parties to any such Intellectual Property, (ii) there is and has been no infringement by third parties of any such Intellectual Property, (iii) there is and has been no pending or threatened action, suit, proceeding, or claim by others challenging the Company's and its Subsidiaries' rights in or to any such Intellectual Property, (iv) there is and has been no pending or threatened action, suit, proceeding, or claim by others challenging the validity or scope of any such Intellectual Property, and (v) there is and has been no pending or threatened action, suit, proceeding, or claim by others that the Company and/or any Subsidiary infringes or otherwise violates any patent, trademark, copyright, trade secret, or other proprietary rights of others. Except as would not reasonably be expected to be material to the Company and its Subsidiaries, taken as a whole, (A) the Company and its Subsidiaries are and at all times have been in compliance with all applicable Laws related to data privacy and data security and (B) there has been no material loss or theft of data or security breach or unauthorized access or use relating to data (including Personally Identifiable Information) in the possession, custody or control of the Company or any of its Subsidiaries. (1) No claims have been asserted or, to the Company's Knowledge, threatened in writing against the Company or any of its Subsidiaries relating to data security, privacy, or the storage, transfer, use or processing of data (including Personally Identifiable Information), and (2) to the Company's Knowledge, the Company and its Subsidiaries are not and have never been the subject of any audits, investigations or other inquiries or Proceedings relating to data security, privacy, or the storage, transfer, use or processing of data (including Personally Identifiable Information) from any Governmental Entity, in the case of clause (1) or clause (2).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) **Insurance**. The Company and each of the Subsidiaries are, and following the Closing Date will remain, insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as the Company reasonably believes to be prudent and customary in the businesses and locations in which and where the Company and its Subsidiaries are engaged. The Company and its Subsidiaries have not been refused any insurance coverage sought or applied for, and the Company and its Subsidiaries do not have any reason to believe that they will not be able to renew their existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue their business at a cost that would not be material to the Company or any of its Subsidiaries. All premiums due and payable under all such policies and bonds have been timely paid, and the Company and its Subsidiaries are in material compliance with the terms of such policies and bonds. Neither the Company nor any of its Subsidiaries has received any notice of cancellation of any such insurance, nor, to the Company's Knowledge, will it or any Subsidiary be unable to renew their respective existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would be materially higher than their existing insurance coverage. The Company (i) maintains directors' and officers' liability insurance and fiduciary liability insurance with financially sound and reputable insurance companies with benefits and levels of coverage as disclosed in Schedule 3.1(r), (ii) has timely paid all premiums on such policies, and (iii) there has been no lapse in coverage during the term of such policies.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s) **Transactions with Affiliates and Employees**. Except as set forth in Schedule 3.1(s), none of the officers or directors of the Company or any Subsidiary and, to the Company's Knowledge, none of the employees of the Company or any Subsidiary, is presently a party to any transaction with the Company or any Subsidiary or to a presently contemplated transaction (other than for services as employees, officers, and directors) that would be required to be disclosed pursuant to Item 404 of Regulation S-K promulgated under the Securities Act if the Common Stock was required to be registered with the Commission under the Securities Act or the Exchange Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(t) **Internal Control over Financial Reporting**. The Company and its Subsidiaries maintain internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act) designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and have disclosed, based on its most recent evaluation prior to the date of this Agreement, to the Company's outside auditors and the audit committee of the Board of Directors (A) any significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the Company's ability to record, process, summarize, and report financial information, and (B) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Since December 31, 2013, (i) neither the Company nor any of its Subsidiaries nor, to the Company's Knowledge, any director, officer, employee, auditor, accountant or representative of the Company or any of its Subsidiaries has received or otherwise had or obtained knowledge of any material complaint, allegation, assertion or claim, whether written or oral, regarding the accounting or auditing practices, procedures, methodologies or methods of the Company or any of its Subsidiaries or their respective internal accounting controls, including any material complaint, allegation, assertion or claim that the Company or any of its Subsidiaries has engaged in questionable accounting or auditing practices, and (ii) no attorney representing the Company or any of its Subsidiaries, whether or not employed by the Company or any of its Subsidiaries, has reported evidence of a violation of securities Laws, breach of fiduciary duty or similar violation by the Company, its Subsidiaries or any of its officers, directors, employees or agents to the Board of Directors or any committee thereof or to any director or officer of the Company or any of its Subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(u) **Certain Fees**. Other than fees due to Raymond James & Associates ("<u>Raymond James</u>") related to its services in connection with the transactions contemplated by this Agreement in the amount set forth in Schedule 3.1(u), no person or entity will have, as a result of the transactions contemplated by this Agreement, any valid right, interest, or claim against or upon the Company, any Subsidiary or Purchaser for any commission, fee, or other compensation pursuant to any agreement, arrangement, or understanding entered into by or on behalf of the Company or any Subsidiary. The Company shall indemnify, pay and hold the Purchaser Parties harmless against any liability, loss or expense (including, without limitation, attorney's fees and out-of-pocket expenses) arising in connection with any such right, interest or claim.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) **Private Placement**. Assuming the accuracy of Purchaser's representations and warranties set forth in Section 3.2 of this Agreement and the accuracy of the information disclosed in the Questionnaire, no registration under the Securities Act is required for the offer and sale of the Shares by the Company to Purchaser under the Transaction Documents. The issuance and sale of the Shares hereunder does not contravene the rules and regulations of the Principal Trading Market.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(w) **Registration Rights**. Other than Purchaser, no Person has any right to cause the Company or any of its Subsidiaries to effect the registration under the Securities Act of any securities of the Company or any of its Subsidiaries other than those securities which are currently registered on an effective registration statement on file with the Commission.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) **No Objections**. Neither the FDIC nor the IDFPR has issued any order or taken any similar action preventing or suspending the issuance or sale of the Purchased Shares to Purchaser. The Company has filed, and will continue to file, with the FDIC and the IDFPR, as applicable, all materials required to be filed by the Company in connection with the issuance and sale of the Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(y) **No Integrated Offering**. Assuming the accuracy of Purchaser's representations and warranties set forth in Section 3.2, none of the Company, its Subsidiaries nor, to the Company's Knowledge, any of its Affiliates or any Person acting on its behalf has, directly or indirectly, at any time within the past six months, made any offers or sales of any Company security or solicited any offers to buy any security under circumstances that would eliminate the availability of the exemption from registration under Regulation D under the Securities Act in connection with the offer and sale by the Company of the Shares as contemplated hereby.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(z) **Investment Company**. Neither the Company nor any of its Subsidiaries is required to be registered as, and is not an Affiliate of, and immediately following the Closing will not be required to register as, an "investment company" within the meaning of the Investment Company Act of 1940, as amended, and neither the Company nor any of its Subsidiaries sponsors any person that is such an investment company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(aa) **Unlawful Payments**. Neither the Company nor any of its Subsidiaries, nor to the Company's Knowledge, any directors, officers, employees, agents, or other Persons acting at the direction of or on behalf of the Company or any of its Subsidiaries has, in the course of its actions for, or on behalf of, the Company or any of its Subsidiaries (a) directly or indirectly, used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to foreign or domestic political activity, (b) made any direct or indirect unlawful payments to any foreign or domestic governmental officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (c) violated any provision of the Foreign Corrupt Practices Act of 1977, or (d) made any other unlawful bribe, rebate, payoff, influence payment, kickback, or other material unlawful payment to any foreign or domestic government official or employee.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(bb) **Application of Takeover Protections; Rights Agreements**. The Company has not adopted any shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of its Common Stock or a Change in Control of the Company. The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement), or other similar anti-takeover provision under the Company's Certificate of Incorporation or other organizational documents or the Laws of the jurisdiction of its incorporation or otherwise which is or could become applicable to Purchaser solely as a result of the transactions contemplated by this Agreement, including, without limitation, the Company's issuance of the Shares, Purchaser's ownership of the Purchased Shares (each, a "<u>Takeover Law</u>").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(cc) **No Undisclosed Liabilities**. There are no material liabilities or obligations of the Company or any of the Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute, determined, determinable, or otherwise, except for (i) liabilities appropriately reflected or reserved against in accordance with GAAP in the Company Financial Statements or that are otherwise disclosed in the footnotes to the financial statements for the year ended December 31, 2016, and (ii) liabilities that have arisen in the ordinary and usual course of business and consistent with past practice since December 31, 2016.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(dd) **Disclosure**. The Company confirms that neither it nor any of its officers or directors nor any other Person acting on its or their behalf has provided Purchaser or its agents or counsel with any information that it believes constitutes or could reasonably be expected to constitute material, non-public information except insofar as the existence, provisions, and terms of the Transaction Documents and the proposed transactions hereunder may constitute such information. The Company understands and confirms that Purchaser will rely on the foregoing representations in effecting transactions in securities of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ee) **Off Balance Sheet Arrangements**. There is no transaction, arrangement, or other relationship between the Company (or any of its Subsidiaries) and an unconsolidated or other off-balance sheet entity that is required to be disclosed by the Company in its Company Financial Statements and is not so disclosed.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ff) **Acknowledgment Regarding Purchaser's Purchase of Shares**. The Company acknowledges and agrees that Purchaser is acting solely in the capacity of an arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby and thereby. The Company further acknowledges that Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by Purchaser or any of their respective representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to Purchaser's purchase of the Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(gg) **Absence of Manipulation**. The Company has not, and to the Company's Knowledge no one acting on its behalf has, taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Purchased Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(hh) **OFAC**. Neither the Company nor any Subsidiary nor, to the Company's Knowledge, any director, officer, agent, employee, Affiliate, or Person acting on behalf of the Company or any Subsidiary is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department ("<u>OFAC</u>"); and the Company will not knowingly use the proceeds of the sale of the Purchased Shares towards any sales or operations in Cuba, Iran, Syria, Sudan or any other country sanctioned by OFAC or for the purpose of financing the activities of any Person currently subject to any U.S. sanctions administered by OFAC.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) **Money Laundering Laws**. The operations of each of the Company and any Subsidiary are, and have been conducted at all times, in compliance in all material respects with the money laundering statutes of applicable jurisdictions, the rules and regulations thereunder, and any related or similar rules, regulations, or guidelines, issued, administered, or enforced by any applicable Governmental Entity (collectively, the "<u>Money Laundering Laws</u>"), and to the Company's Knowledge, no action, suit, or proceeding by or before any court or Governmental Entity, authority, or body or any arbitrator involving the Company and/or any Subsidiary with respect to the Money Laundering Laws is pending or threatened.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(jj) **No Additional Agreements**. The Company has no agreements or understandings (including, without limitation, side letters) with any Person to purchase shares of Common Stock or Series B Preferred Stock on terms more favorable to such Person than as set forth herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(kk) **Reports, Registrations and Statements**. Since January 1, 2014, the Company and each Subsidiary have filed all material reports, registrations, documents, filings, submissions and statements, together with any required amendments thereto, that it was required to file with the Federal Reserve, the FDIC, the IDFPR and any other applicable federal or state securities or banking authorities. All such reports and statements filed with any such regulatory body or authority are collectively referred to herein as the "<u>Company Reports</u>." All such Company Reports were filed on a timely basis or the Company or the applicable Subsidiary, as applicable, received a valid extension of such time of filing and has filed any such Company Reports prior to the expiration of any such extension. As of their respective dates, the Company Reports complied in all material respects with all the rules and regulations promulgated by the Federal Reserve, the FDIC, the IDFPR and any other applicable foreign, federal, or state securities or banking authorities, as the case may be.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ll) **Regulatory Capitalization**. As of August 31, 2017, the Bank was considered "well capitalized" under the FDIC's regulatory framework for prompt corrective action (12 C.F.R. §325.103(b)(1)).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(mm) **Agreements with Regulatory Agencies**. Neither the Company nor any Subsidiary is subject to any cease-and-desist or other similar order or enforcement action issued by, or is a party to any written agreement, consent agreement, or memorandum of understanding with, or is a party to any commitment letter or similar undertaking to, or is subject to any capital directive by, or since December 31, 2013, has adopted any board resolutions at the request of, any Governmental Entity that currently restricts in any material respect the conduct of its business or that in any material manner relates to its capital adequacy, its liquidity and funding policies and practices, its ability to pay dividends, its credit, risk management or compliance policies, its internal controls, its management, or its operations or business (each item in this sentence, a "<u>Regulatory Agreement</u>"), nor has the Company or any Subsidiary been advised in writing since December 31, 2013 by any Governmental Entity that it intends to issue, initiate, order, or request any such Regulatory Agreement. The Company and each of its Subsidiaries are in compliance in all material respects with all Regulatory Agreements applicable to them.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(nn) **Compliance with Certain Banking Regulations**. There are no facts or circumstances, and the Company has no reason to believe that any facts or circumstances exist, that would cause the Bank (i) to be deemed not to be in satisfactory compliance with the Community Reinvestment Act ("<u>CRA</u>") and the regulations promulgated thereunder or to be assigned a CRA rating by federal or state banking regulators of lower than "satisfactory," (ii) to be deemed to be operating in violation, in any material respect, of the Bank Secrecy Act, the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act of 2001, any order issued with respect to anti-money laundering by OFAC, or any other anti-money laundering Law, (iii) to be deemed not to be in satisfactory compliance, in any material respect, with the Home Mortgage Disclosure Act, the Fair Housing Act, the Community Reinvestment Act, the Equal Credit Opportunity Act, the Flood Disaster Protection Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or (iv) to be deemed not to be in satisfactory compliance, in any material respect, with all applicable privacy of customer information requirements contained in any applicable federal and state privacy Laws as well as the provisions of all information security programs adopted by the Bank.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(oo) **No General Solicitation or General Advertising**. Neither the Company nor, to the Company's Knowledge, any person acting on its behalf has engaged or will engage in any form of general solicitation or general advertising (within the meaning of Regulation D under the Securities Act) in connection with any offer or sale of the Shares pursuant to this Agreement and the other Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(pp) **Loan Portfolio**. Except as would not reasonably be expected to be material to the Company or any of its Subsidiaries:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) The Company and each of its Subsidiaries has complied with, and all documentation in connection with the origination, processing, underwriting, and credit approval of any loan, lease or other extension of credit or commitment to extend credit (each, a "<u>Loan</u>") originated, purchased, or serviced by the Company or any of its Subsidiaries satisfied, (A) all applicable Laws with respect to the origination, insuring, purchase, sale, pooling, servicing, subservicing, or filing of claims in connection with Loans, including all Laws relating to real estate settlement procedures, consumer credit protection, truth in lending Laws, usury limitations, fair housing, transfers of servicing, collection practices, equal credit opportunity, and adjustable rate mortgages, (B) the responsibilities and obligations relating to Loans set forth in any contract or agreement between the Company or any of its Subsidiaries and any Agency, Loan Investor, or Insurer, (C) the applicable rules, regulations, guidelines, handbooks, and other requirements of any Agency, Loan Investor, or Insurer, (D) the terms and provisions of any mortgage or other collateral documents and other Loan documents with respect to each Loan and (E) the underwriting guidelines and other loan policies and procedures of the Company or the applicable Subsidiary;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) No Agency, Loan Investor, or Insurer has (A) claimed in writing that the Company or any of its Subsidiaries has violated or has not complied with the applicable underwriting standards with respect to Loans sold by the Company or any of its Subsidiaries to a Loan Investor or Agency, or with respect to any sale of Loan servicing rights to a Loan Investor, (B) imposed in writing restrictions on the activities (including commitment authority) of the Company or any of its Subsidiaries, or (C) indicated in writing to the Company or any of its Subsidiaries that it has terminated or intends to terminate its relationship with the Company or any of its Subsidiaries for poor performance, poor Loan quality, or concern with respect to the Company's or any of its Subsidiaries' compliance with Laws; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) The characteristics of the loan portfolio of the Company have not materially changed from the characteristics of the loan portfolio of the Company as of December 31, 2016.

For purposes of this Section 3.1(pp), (A) "<u>Agency</u>" means the Federal Housing Administration, the Federal Home Loan Mortgage Corporation, the Farmers Home Administration (now known as Rural Housing and Community Development Services), the Federal National Mortgage Association, the United States Department of Veterans' Affairs, the Rural Housing Service of the U.S. Department of Agriculture, or any other Governmental Entity with authority to (i) determine any investment, origination, lending, or servicing requirements with regard to Loans originated, purchased, or serviced by the Company or any of its Subsidiaries, or (ii) originate, purchase, or service Loans, or otherwise promote lending, including state and local housing finance authorities, (B) "<u>Loan Investor</u>" means any person (including an Agency) having a beneficial interest in any Loan originated, purchased, or serviced by the Company or any of its Subsidiaries or a security backed by or representing an interest in any such Loan, and (C) "<u>Insurer</u>" means a person who insures or guarantees for the benefit of the mortgagee all or any portion of the risk of loss upon borrower default on any of the Loans originated, purchased, or serviced by the Company or any of its Subsidiaries, including the Federal Housing Administration, the United States Department of Veterans' Affairs, the Rural Housing Service of the U.S. Department of Agriculture, and any private mortgage insurer, and providers of hazard, title, or other insurance with respect to such Loans or the related collateral.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(qq) **Risk Management Instruments**. The Company and the Subsidiaries have in place risk management policies and procedures sufficient in scope and operation to protect against risks of the type and in amounts reasonably expected to be incurred by companies of similar size and in similar lines of business as the Company and the Subsidiaries. Except as would not reasonably be expected to be material to the Company or any of its Subsidiaries, since January 1, 2014, all derivative instruments, including, swaps, caps, floors, and option agreements, whether entered into for the Company's own account, or for the account of one or more of the Subsidiaries, were entered into (1) only in the ordinary course of business, (2) in accordance with prudent practices and in all respects with all applicable Laws, and (3) with counterparties believed to be financially responsible at the time, and each of them constitutes the valid and legally binding obligation of the Company or one of the Subsidiaries, enforceable in accordance with its terms. Neither the Company nor the Subsidiaries, nor, to the Company's Knowledge, any other party thereto, is in breach of any of its obligations under any such agreement or arrangement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(rr) **Company Benefit Plans**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) "<u>Benefit Plan</u>" means all material employee benefit plans, programs, agreements, contracts, policies, practices, or other arrangements providing benefits to any current or former employee, officer, director or consultant of the Company or any of its Subsidiaries or any beneficiary or dependent thereof that is sponsored or maintained by the Company or any of its Subsidiaries or to which the Company or any of its Subsidiaries contributes or is obligated to contribute or is party, whether or not written, including any material "employee welfare benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("<u>ERISA</u>"), any "employee pension benefit plan" within the meaning of Section 3(2) of ERISA (whether or not such plan is subject to ERISA) and any material bonus, incentive, deferred compensation, vacation, stock purchase, stock option or equity award, equity-based severance, employment, change of control, consulting or fringe benefit plan, program, agreement or policy. Each Benefit Plan is listed on Schedule 3.1(rr)(i). True and complete copies of all Benefit Plans listed on Schedule 3.1(rr)(i) have been made available to Purchaser prior to the date hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) With respect to each Benefit Plan, (A) the Company and its Subsidiaries have complied, and are now in compliance in all material respects with the applicable provisions of ERISA, and the Code and all other Laws and regulations applicable to such Benefit Plan and (B) each Benefit Plan has been administered in all material respects in accordance with its terms. Except as would not reasonably be expected to be material to the Company or any of its Subsidiaries, none of the Company or any of its Subsidiaries nor any of their respective ERISA Affiliates has incurred any withdrawal liability as a result of a complete or partial withdrawal from a multiemployer plan, as those terms are defined in Part I of Subtitle E of Title IV of ERISA, that has not been satisfied in full. "<u>ERISA Affiliate</u>" means any entity, trade or business, whether or not incorporated, which together with the Company and its Subsidiaries, would be deemed a "single employer" within the meaning of Section 4001 of ERISA or Sections 414(b), (c), (m) or (o) of the Code.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) Each Benefit Plan which is subject to ERISA (an "<u>ERISA Plan</u>") that is an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA ("<u>Pension Plan</u>") and that is intended to be qualified under Section 401 (a) of the Code is so qualified, has received a favorable determination letter from the Internal Revenue Service (the "<u>IRS</u>") and, to the Company's Knowledge, nothing has occurred, whether by action or failure to act, that could likely result in revocation of any such favorable determination or opinion letter or the loss of the qualification of such Benefit Plan under Section 401(a) of the Code. Neither the Company nor any of its Subsidiaries has engaged in a transaction with respect to any ERISA Plan that, assuming the taxable period of such transaction expired as of the date hereof, could subject the Company or any of its Subsidiaries to a material tax or material penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA. Neither the Company nor any of its Subsidiaries has incurred or reasonably expects to incur a material tax or penalty imposed by Section 4980F of the Code or Section 502 of ERISA.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) Neither the Company, any of its Subsidiaries nor any ERISA Affiliate (x) sponsors, maintains or contributes to or has within the past six years sponsored, maintained or contributed to a Pension Plan that is subject to Subtitles C or D of Title IV of ERISA or (y) sponsors, maintains or has any liability with respect to or an obligation to contribute to or has within the past six years sponsored, maintained, had any liability with respect to, or had an obligation to contribute to a "multiemployer plan" within the meaning of Section 3(37) of ERISA.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) None of the execution and delivery of this Agreement, the issuance of Purchased Shares, nor the consummation of the transactions contemplated hereby will, whether alone or in connection with another event, (i) constitute a "change in control" or "change of control" within the meaning of any Benefit Plan or result in any material payment or benefit (including severance, unemployment compensation, "excess parachute payment" (within the meaning of Section 280G of the Code), forgiveness of indebtedness or otherwise) becoming due to any current or former employee, officer, director or consultant of the Company or any of its Subsidiaries from the Company or any of its Subsidiaries under any Benefit Plan or any other agreement with any employee, including, for the avoidance of doubt, any employment or change in control agreements, (ii) result in payments under any of the Benefit Plans which would not be deductible under Section 162(m) or Section 280G of the Code, (iii) materially increase any compensation or benefits otherwise payable under any Benefit Plan, (iv) result in any acceleration of the time of payment or vesting of any such benefits, (v) require the funding or increase in the funding of any such benefits, or (vi) result in any limitation on the right of the Company or any of its Subsidiaries to amend, merge, terminate or receive a reversion of assets from any Benefit Plan or related trust.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) There is no material pending or, to the Company's Knowledge, threatened, litigation relating to the Benefit Plans (other than claims for benefits in the ordinary course). Neither the Company nor any of its Subsidiaries has any obligations for retiree health and life benefits under any ERISA Plan or collective bargaining agreement, except for health continuation coverage as required by Section 4980B of the Code or Part 6 of Title I of ERISA and at no expense to the Company and its Subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) Except as would not reasonably be expected to be material to the Company and except for liabilities fully reserved for or identified in the Company Financial Statements, there are no pending or, to the Company's Knowledge, threatened claims (other than claims for benefits in the ordinary course), lawsuits or arbitrations which have been asserted or instituted against (i) the Benefit Plans, (ii) any fiduciaries thereof with respect to their duties to the Benefit Plans, or (iii) the assets of any of the trusts under any of the Benefit Plans.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ss) **Nonperforming Assets**. To the Company's Knowledge, as of the date hereof, the Company believes that the Bank will be able to fully and timely collect substantially all interest, principal, or other payments when due under its loans, leases, and other assets that are not classified as nonperforming and such belief is reasonable under all the facts and circumstances known to the Company and Bank, and the Company believes that the amount of reserves and allowances for loan and lease losses and other nonperforming assets established on the Company's and Bank's financial statements is adequate, and such belief is reasonable under all the facts and circumstances known to the Company and Bank.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(tt) **No Change in Control**. Neither the Company nor any of its Subsidiaries is a party to any employment, Change in Control, severance, or other compensatory agreement or any benefit plan pursuant to which the issuance of the Shares to Purchaser as contemplated by this Agreement would trigger a "change of control" or other similar provision in any of the agreements, which results in payments to the counterparty or the acceleration of vesting of benefits.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(uu) **Common Control**. The Company is not and, after giving effect to the offering and sale of the Shares, will not be under the control (as defined in the BHCA and the Federal Reserve's Regulation Y (12 C.F.R. Part 225) ("<u>BHCA Control</u>") of any company (as defined in the BHCA and the Federal Reserve's Regulation Y). The Company is not in BHCA Control of any federally insured depository institution other than the Bank. The Bank is not under the BHCA Control of any company (as defined in the BHCA and the Federal Reserve's Regulation Y) other than Company. Neither the Company nor the Bank controls, in the aggregate, more than five percent (5%) of the outstanding voting class, directly or indirectly, of any federally insured depository institution. The Bank is not subject to the liability of any commonly controlled depository institution pursuant to Section 5(e) of the Federal Deposit Insurance Act (12 U.S.C. § 1815(e)).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vv) **Material Contracts**. The Company has made available to Purchaser or its respective representatives, prior to the date hereof, true, correct, and complete copies of, and listed on Schedule 3.1(vv), each Material Contract to which the Company or any of its Subsidiaries is a party or subject (whether written or oral, express or implied) as of the date of this Agreement. Each Material Contract is a valid and binding obligation of the Company or any of its Subsidiaries (as applicable) that is a party thereto and, to the Company's Knowledge, each other party to such Material Contract, except for such failures to be valid and binding as, individually or in the aggregate, would not reasonably be expected to be material to the Company or any of its Subsidiaries. Each such Material Contract is enforceable against the Company or any of its Subsidiaries (as applicable) that is a party thereto and, to the Company's Knowledge, each other party to such Material Contract in accordance with its terms (subject in each case to applicable bankruptcy, insolvency, reorganization, moratorium or similar Laws affecting the enforcement of creditors' rights generally and general equitable principles, regardless of whether such enforceability is considered in a proceeding of law or at equity), except for such failures to be enforceable as, individually or in the aggregate, would not reasonably be expected to be material to the Company or any of its Subsidiaries. Neither the Company nor any of its Subsidiaries, nor to the Company's Knowledge, any other party to a Material Contract, is in material default or material breach of a Material Contract and there does not exist any event, condition or omission that would constitute such a default or breach (whether by lapse of time or notice or both), in each case, except as, individually or in the aggregate, would not reasonably be expected to be material to the Company or any of its Subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ww) **No "Bad Actor" Disqualification**. The Company has exercised reasonable care, in accordance with Commission rules and guidance, and has conducted a factual inquiry including the procurement of relevant questionnaires from each Covered Person (as defined below) or other means, the nature and scope of which reflect reasonable care under the relevant facts and circumstances, to determine whether any Covered Person is subject to any of the "bad actor" disqualifications described in Rule 506(d)(1)(i) to (viii) under the Securities Act ("<u>Disqualification Events</u>"). To the Company's Knowledge, after conducting such sufficiently diligent factual inquiries, no Covered Person is subject to a Disqualification Event, except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3) under the Securities Act. The Company has complied, to the extent applicable, with any disclosure obligations under Rule 506(e) under the Securities Act. "<u>Covered Persons</u>" are those persons specified in Rule 506(d)(1) under the Securities Act, including the Company, any predecessor or affiliate of the Company, any director, executive officer, other officer participating in the offering, general partner or managing member of the Company, any beneficial owner of twenty percent (20%) or more of the Company's outstanding voting equity securities, calculated on the basis of voting power, any promoter (as defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of the sale of the Securities, and any person that has been or will be paid (directly or indirectly) remuneration for solicitation of purchasers in connection with the sale of the Shares (a "<u>Solicitor</u>"), any general partner or managing member of any Solicitor, and any director, executive officer or other officer participating in the offering of any Solicitor or general partner or managing member of any Solicitor.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(xx) **Knowledge as to Conditions**. The Company knows of no reason why it would be reasonable to expect that any regulatory approvals and, to the extent necessary, any other approvals, authorizations, filings, registrations, and notices required or otherwise a condition to the consummation of the transactions contemplated by the Transaction Documents will not be obtained.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(yy) **Shell Company Status**. The Company is not, and has never been, an issuer identified in Rule 144(i)(1).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3.2 **Representations and Warranties of Purchaser**. Purchaser hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **Organization; Authority**. Purchaser is duly organized, validly existing, and in good standing under the Laws of the jurisdiction of its organization with the requisite corporate, partnership, limited liability company, or other applicable similar power and authority to enter into and to consummate the transactions contemplated by the applicable Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution, delivery, and performance by Purchaser of the applicable Transaction Documents to which it is a party and the transactions contemplated by this Agreement have been duly authorized by Purchaser's board of directors, general partner, managing members, investment committee or other authorized persons, as the case may be (if such authorization is required), and no further approval or authorization by any of such persons, as the case may be, is required. This Agreement has been duly executed by Purchaser, and when delivered by Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of Purchaser, enforceable against it in accordance with its terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, liquidation, or similar Laws relating to, or affecting generally the enforcement of, creditors' rights and remedies or by other equitable principles of general application.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **No Conflicts**. The execution, delivery, and performance by Purchaser of this Agreement and the Registration Rights Agreement, if applicable, and the consummation by Purchaser of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of Purchaser, (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, or instrument to which Purchaser is a party, or (iii) result in a violation of any Law, rule, regulation, order, judgment, or decree (including federal and state securities Laws) applicable to Purchaser, except in the case of clauses (ii) and (iii) above, for such conflicts, defaults, rights, or violations which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of Purchaser to perform its obligations hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **Investment Intent**. Purchaser understands that the Shares are "restricted securities" and have not been registered under the Securities Act or any applicable state securities Law and is acquiring the Shares as principal for its own account and not with a view to, or for distributing or reselling such Shares or any part thereof in violation of the Securities Act or any applicable state securities Laws, *provided*, *however*, that by making the representations herein, Purchaser does not agree to hold any of the Shares for any minimum period of time and reserves the right at all times to sell or otherwise dispose of all or any part of such Shares pursuant to an effective registration statement under the Securities Act or under an exemption from such registration and in compliance with applicable federal and state securities Laws. Purchaser is acquiring the Shares hereunder in the ordinary course of its business. Purchaser does not presently have any agreement, plan, or understanding, directly or indirectly, with any Person to distribute or effect any distribution of any of the Shares (or any securities which are derivatives thereof) to or through any person or entity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) **Purchaser Status**. At the time Purchaser was offered the Shares, it was, and at the date hereof it is, an "accredited investor" as defined in Rule 501(a) under the Securities Act.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) **Residency**. Purchaser's office in which its investment decision with respect to the Shares was made is located at the address for Purchaser set forth in Section 6.3.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) **No Other Representations**. Purchaser has not made and does not make any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) **Access to Information**. Purchaser acknowledges that it has been afforded (i) the opportunity to ask such questions as it has deemed necessary of, and to receive answers from, representatives of the Company concerning the terms and conditions of the offering of the Securities and the merits and risks of investing in the Securities; (ii) access to information about the Company and the Subsidiaries and their respective financial condition, results of operations, business, properties, management and prospects sufficient to enable it to evaluate its investment; and (iii) the opportunity to obtain such additional information that the Company possesses or can acquire without unreasonable effort or expense that is necessary to make an informed investment decision with respect to the investment. Neither such inquiries nor any other investigation conducted by or on behalf of the Purchaser or its representatives or counsel shall modify, amend or affect Purchaser's right to rely on the truth, accuracy and completeness of the Financial Statements and Call Reports and the Company's representations and warranties contained in the Transaction Documents. Purchaser has sought such accounting, legal and tax advice as it has considered necessary to make an informed decision with respect to its acquisition of the Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) **Brokers and Finders**. Other than Raymond James (whose fees are to be paid by the Company), no Person will have, as a result of the transactions contemplated by this Agreement, any valid right, interest or claim against or upon the Company or Purchaser for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Purchaser.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) **Independent Investment Decision**. Purchaser has independently evaluated the merits of its decision to purchase Securities pursuant to the Transaction Documents, and Purchaser confirms that it has not relied on the advice of any business and/or legal counsel other than Purchaser's own such advisors in making such decision. Purchaser understands that nothing in this Agreement or any other materials presented by or on behalf of the Company to the Purchaser in connection with the purchase of the Securities constitutes legal, tax or investment advice. Purchaser has consulted such legal, tax and investment advisors as it, in its sole discretion, has deemed necessary or appropriate in connection with its purchase of the Securities. Purchaser understands that Raymond James has acted solely as the agent of the Company in this placement of the Securities and Purchaser has not relied on the business or legal advice of Raymond James or any of its agents, counsel or Affiliates in making its investment decision hereunder, and confirms that none of such Persons has made any representations or warranties to Purchaser in connection with the transactions contemplated by the Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) **Reliance on Exemptions**. Purchaser understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of U.S. federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and Purchaser's compliance with, the representations, warranties, agreements, acknowledgements and understandings of Purchaser set forth herein in order to determine the availability of such exemptions and the eligibility of such Purchaser to acquire the Securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) **No Governmental Review**. Purchaser understands that no U.S. federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

ARTICLE IV

**OTHER AGREEMENTS OF THE PARTIES**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.1 **Transfer Restrictions**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **Compliance with Laws**. Notwithstanding any other provision of this Article IV, Purchaser covenants that the Purchased Shares may be disposed of only pursuant to an effective registration statement under, and in compliance with the requirements of, the Securities Act, or pursuant to an available exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, and in compliance with any applicable state, federal or foreign securities Laws. In connection with any transfer of the Shares other than (i) pursuant to an effective registration statement, (ii) to the Company, or (iii) pursuant to Rule 144 (provided that the transferor provides the Company with reasonable assurances (in the form of a seller representation letter and, if applicable, a broker representation letter) that such securities may be sold pursuant to such rule), the Company may require the transferor thereof to provide to the Company and the Transfer Agent, at the transferor's expense, an opinion of counsel selected by the transferor and reasonably acceptable to the Company and the Transfer Agent, the form and substance of which opinion shall be reasonably satisfactory to the Company and the Transfer Agent, to the effect that such transfer does not require registration of such transferred securities under the Securities Act. As a condition of transfer (other than pursuant to clauses (i), (ii) or (iii) of the preceding sentence), any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement, if applicable, with respect to such transferred Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **Legends**. Certificates evidencing the Securities shall bear any legend as required by the "Blue Sky" Laws of any state and a restrictive legend in substantially the following form, until such time as they are not required under Section 4.1(c) or applicable Law:

THE ISSUANCE OF THESE SECURITIES HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED, OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OR (B) AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS OR BLUE SKY LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY AND ITS TRANSFER AGENT OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER THE ACT (PROVIDED THAT THE TRANSFEROR PROVIDES THE COMPANY WITH REASONABLE ASSURANCES (IN THE FORM OF A SELLER REPRESENTATION LETTER AND, IF APPLICABLE, A BROKER REPRESENTATION LETTER) THAT THE SECURITIES MAY BE SOLD PURSUANT TO SUCH RULE).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **Removal of Legends**. Upon the written request of the holder, the restrictive legend set forth in Section 4.1(b) above shall be removed and the Company shall issue a certificate without such restrictive legend or any other restrictive legend (other than the legend described below in Section 4.1(d)) to the holder of the applicable Securities upon which it is stamped, if (i) such Securities are registered for resale under the Securities Act, (ii) such Securities are sold or transferred pursuant to Rule 144, or (iii) such Securities are eligible for sale under Rule 144, without the requirement for the Company to be in compliance with the current public information required under Rule 144(c)(1) (or Rule 144(i)(2), if applicable) as to such securities and without volume or manner-of-sale restrictions. Following the earlier of (A) the Effective Date or (B) Rule 144 becoming available for the resale of Securities, without the requirement for the Company to be in compliance with the current public information required under Rule 144(c)(1) (or Rule 144(i)(2), if applicable) as to the Securities and without volume or manner-of-sale restrictions, the Company, upon the written request of the holder, shall instruct the Transfer Agent to remove the legend from the Securities and shall cause its counsel to issue any legend removal opinion required by the Transfer Agent. Any fees (with respect to the Transfer Agent, Company Counsel, or otherwise) associated with the issuance of such opinion or the removal of such legend shall be borne by the Company. If a legend is no longer required pursuant to the foregoing, the Company will no later than three Trading Days following the delivery by a Purchaser to the Company or the Transfer Agent (with notice to the Company) of a legended certificate representing such Securities (endorsed or with stock powers attached, signatures guaranteed, and otherwise in form necessary to affect the reissuance and/or transfer) and a representation letter to the extent required by Section 4.1(a), (such third Trading Day, the "<u>Legend Removal Date</u>") deliver or cause to be delivered to Purchaser a certificate representing such Securities that is free from all restrictive legends. The Company may not make any notation on its records or give instructions to the Transfer Agent that enlarge the restrictions on transfer set forth in this Section 4.1(c).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) The Company shall cooperate, in accordance with reasonable and customary business practices with any and all transfers, whether by direct or indirect sale, assignment, award, confirmation, distribution, bequest, donation, trust, pledge, encumbrance, hypothecation or other transfer or disposition, for consideration or otherwise, whether voluntarily or involuntarily, by operation of law or otherwise, by Purchaser or any of their successors and assigns of the Shares and other shares of Common Stock, Series B Preferred Stock and/or Non-Voting Common Stock such party may beneficially own prior to or subsequent to the date hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.2 **Acknowledgment of Dilution**. The Company acknowledges that the issuance of the Securities may result in dilution of the outstanding shares of Common Stock. The Company further acknowledges that its obligations under this Agreement, including without limitation its obligation to issue the Securities pursuant to this Agreement, are unconditional (except as otherwise set forth herein) and absolute and not subject to any right of set off, counterclaim, delay, or reduction, regardless of the effect of any such dilution or any claim the Company may have against Purchaser and regardless of the dilutive effect that such issuance may have on the ownership of the other shareholders of the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.3 **Access, Information and Confidentiality**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Purchaser shall be provided with access, information, and other rights as provided in the VCOC Letter Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The parties to this Agreement will hold, and will cause their respective subsidiaries and their directors, officers, employees, agents, consultants and advisors to hold, in strict confidence, unless disclosure to a Governmental Entity is necessary or appropriate in connection with any necessary regulatory approval, or request for information or similar process, or unless compelled to disclose by judicial or administrative process or, in the written opinion of its counsel, by other requirement of Law or the applicable requirements of any Governmental Entity (in which case, the party permitted to disclose such information shall, to the extent legally permissible and reasonably practicable, provide the other party with prior written notice of such permitted disclosure), all nonpublic records, books, contracts, instruments, computer data and other data and information (collectively, "<u>Information</u>") concerning the other party hereto furnished to it by such other party or its representatives pursuant to this Agreement (except to the extent that such information can be shown to have been (1) previously known by such party on a nonconfidential basis, (2) in the public domain through no fault of such party or (3) later lawfully acquired from other sources by the party to which it was furnished), and neither party hereto shall release or disclose such Information to any other person, except its auditors, attorneys, financial advisors, other consultants and advisors with the express understanding that such parties will maintain the confidentiality of the Information and, to the extent permitted above, to bank and securities regulatory authorities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.4 **Form D and Blue Sky**. The Company agrees to timely file a Form D with respect to the Purchased Shares as required under Regulation D. Purchaser agrees to timely provide Company with any and all needed information in connection with Company's preparation and filing of a Form D. The Company, on or before the Closing Date, shall take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Purchased Shares for sale to Purchaser at the Closing pursuant to this Agreement under applicable securities or "Blue Sky" Laws of the states of the United States (or to obtain an exemption from such qualification). The Company shall make all filings and reports relating to the offer and sale of the Purchased Shares required under applicable securities or "Blue Sky" Laws of the states of the United States following the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.5 **No Integration**. The Company shall not, and shall use its commercially reasonable efforts to ensure that no Affiliate of the Company shall, sell, offer for sale, or solicit offers to buy, or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that will be integrated with the offer or sale of the Purchased Shares in a manner that would require the registration under the Securities Act of the sale of the Purchased Shares to Purchaser.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.6 **Securities Laws Disclosure; Publicity**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) The Company shall, by 9:00 a.m., New York City time, on the first Trading Day immediately following the date of this Agreement, issue one or more press releases (collectively, the "<u>Initial Press Release</u>") reasonably acceptable to Purchaser disclosing all material terms of the transactions contemplated hereby and by the other Transaction Documents and any other material, non-public information that the Company may have provided Purchaser at any time prior to the filing of the Initial Press Release. Whenever any party determines, based upon the advice of such party's counsel, that a public announcement or other disclosure is required by or advisable with respect to any applicable Law or regulation, the parties shall discuss such disclosure with each other in good faith prior to the making of such public announcement or other disclosure.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Company shall, by 9:00 a.m., New York City time on the first Trading Day immediately following the Closing Date, issue one or more press releases reasonably acceptable to Purchaser disclosing the Closing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.7 **Indemnification**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **Indemnification of Purchaser**. In addition to the indemnity provided in the Registration Rights Agreement, if applicable, the Company will indemnify and hold Purchaser and its directors, officers, shareholders, members, partners, employees, agents, and investment advisors (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title), each Person who controls Purchaser (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, shareholders, agents, members, partners, employees, agents, or investment advisors (and any other Persons with a functionally equivalent role of a Person holding such titles notwithstanding a lack of such title or any other title) of such controlling person (each, a "<u>Purchaser Party</u>") harmless from any and all losses, damages, liabilities, obligations, claims, contingencies, costs, and expenses, including all judgments, amounts paid in settlements, court costs, and reasonable attorneys' fees and costs of investigation (collectively, "<u>Losses</u>") that any such Purchaser Party may suffer or incur as a result of (i) any breach of any of the representations, warranties, covenants, or agreements made by the Company in this Agreement or in the other Transaction Documents or (ii) any action instituted against a Purchaser Party in any capacity, or any of them or their respective affiliates, by any shareholder of the Company who is not an affiliate of such Purchaser Party, with respect to any of the transactions contemplated by this Agreement. Any indemnification payment made pursuant to this Agreement shall be treated as an adjustment to purchase price for Tax purposes, except as otherwise required by Law or deemed impermissible under GAAP. Such payment shall not result in an adjustment to the value of the original investment reported by the Company under GAAP. The Company will not be liable to any Purchaser Party under this Agreement to the extent, but only to the extent that a loss, claim, damage or liability is directly and primarily attributable to any Purchaser Party's material breach of any of the representations, warranties, covenants or agreements made by such Purchaser Party in this Agreement or in the other Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **Conduct of Indemnification Proceedings**. Promptly after receipt by any Purchaser Party of notice of any demand, claim, or circumstances which would or might give rise to a claim or the commencement of any action, proceeding, or investigation in respect of which indemnity may be sought pursuant to Section 4.7(a), such Purchaser Party shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Purchaser Party, and shall assume the payment of all fees and expenses; *provided*, *however*, that the failure of any Purchaser Party to so notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is actually and materially and adversely prejudiced by such failure to notify. In any such proceeding, any Purchaser Party shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Purchaser Party unless (i) the Company and the Purchaser Party shall have mutually agreed to the retention of such counsel, (ii) the Company shall have failed promptly to assume the defense of such proceeding and to employ counsel reasonably satisfactory to such Purchaser Party in such proceeding, or (iii) in the reasonable judgment of counsel to such Purchaser Party, representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, delayed or conditioned. Without the prior written consent of the Purchaser Party, the Company shall not effect any settlement of any pending or threatened proceeding in respect of which any Purchaser Party is or could have been a party and indemnity could have been sought hereunder by such Purchaser Party, unless such settlement includes an unconditional release of such Purchaser Party from all liability arising out of such proceeding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **Materiality Scrape**. For purposes of the indemnity contained in Section 4.7(a), all qualifications and limitations set forth in the parties' representations and warranties as to "materiality," "Material Adverse Effect" and words of similar import shall be disregarded in determining whether there shall have been any inaccuracy in or breach of any representations and warranties in this Agreement and the Losses arising therefrom.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) **Investigation; Cap on Damages**. No investigation by Purchaser, whether prior to or after the date of this Agreement, shall limit any Indemnified Party's exercise of any right hereunder or be deemed to be a waiver of any such right. The maximum liability of the Company or Purchaser for indemnification hereunder is the purchase price of the Securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.8 **Use of Proceeds**. The Company intends to use the net proceeds from the sale of the Shares hereunder to strengthen the Company's current balance sheet, improve the regulatory capital of the Bank, support its operations and organic growth opportunities and for general corporate purposes.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.9 **Limitation on Beneficial Ownership**. Purchaser (and its Affiliates or any other Persons with which it is acting in concert) shall not be entitled to purchase a number of Common Shares that would result in Purchaser becoming, directly or indirectly, the beneficial owner (as determined under Rule 13d-3 under the Exchange Act) of more than four point nine percent (4.9%) of the number of shares of the Company's voting securities issued and outstanding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.10 **Certain Transactions.** The Company will not merge or consolidate into, or sell, transfer or lease all or substantially all of its property or assets to, any other party unless the successor, transferee or lessee party, as the case may be (if not the Company), expressly assumes the due and punctual performance and observance of each and every covenant and condition of this Agreement to be performed and observed by the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.11 **No Additional Issuances**. Between the date of this Agreement and the Closing Date, except for the Shares being issued pursuant to this Agreement, the Company shall not issue or agree to issue any additional shares of Common Stock or other securities that provide the holder thereof the right to convert such securities into, or acquire, shares of Common Stock. For the avoidance of doubt, nothing in this Section 4.11 shall restrict the Company from issuing securities in response or pursuant to an order or directive by the Federal Reserve with respect to capital adequacy.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.12 **Conduct of Business**. From the date hereof until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, except as contemplated by this Agreement, the Company will, and will cause its Subsidiaries to: (i) operate their business in the ordinary course consistent with past practice; (ii) preserve intact the current business organization of the Company; (iii) use commercially reasonable efforts to retain the services of their employees, consultants, and agents; (iv) preserve the current relationships of the Company and its Subsidiaries with material customers and other Persons with whom the Company and its Subsidiaries have and intend to maintain significant relations; (v) maintain all of its operating assets in their current condition (normal wear and tear excepted); (vi) refrain from taking or omitting to take any action that would constitute a breach of Section 3.1(j); and (vii) refrain from (1) declaring, setting aside or paying any distributions or dividends on, or making any distributions (whether in cash, securities, or other property) in respect of, any of its capital stock, (2) splitting, combining or reclassifying any of its capital stock or issuing or authorizing the issuance of any other securities in respect of, in lieu of or in substitution for capital stock or any of its other securities, and (3) purchasing, redeeming or otherwise acquiring any capital stock, assets or other securities or any rights, warrants or options to acquire any such capital stock, assets or other securities, other than acquisitions of investment securities in the ordinary course of business. Additionally, except as required pursuant to existing written, binding agreements in effect prior to the date hereof and set forth in Schedule 3.1(rr), and with respect to clauses (i) and (ii) except in the ordinary course of business consistent with past practice, prior to the earlier of the Closing Date and the termination of this Agreement pursuant to Section 6.15, the Company shall and shall cause its Subsidiaries to not take any of the following actions: (i) grant or provide any severance or termination payments or benefits to any director, officer or employee of the Company or any of its Subsidiaries; (ii) increase the compensation, bonus or pension, welfare, severance or other benefits of, pay any bonus to, or make any new equity awards to any director, officer or employee of the Company or any of its Subsidiaries; (iii) establish, adopt, amend or terminate any Benefit Plan or amend the terms of any outstanding equity-based awards, except as may be required by applicable Law; (iv) take any action to accelerate the vesting or payment, or fund or in any other way secure the payment, of compensation or benefits under any Benefit Plan, to the extent not already provided in any such Benefit Plan; (v) change any actuarial or other assumptions used to calculate funding obligations with respect to any Benefit Plan or to change the manner in which contributions to such plans are made or the basis on which such contributions are determined, except as may be required by GAAP; (vi) forgive any loans to directors, officers or employees of the Company or any of its Subsidiaries; or (vii) enter into any contract with respect to, or otherwise agree or commit to do, any of the foregoing; *provided*, that in no event shall any increase of any payment in the ordinary course of business under clause (ii) increase such person's compensation by more than five percent (5%) in the aggregate except as set forth in Schedule 3.1(rr). Furthermore, from the date of this Agreement until the Closing, the Company shall not, directly or indirectly, amend, modify, or waive, and the Board of Directors shall not recommend approval of any proposal to the Company's shareholders having the effect of amending, modifying, or waiving any provision in the Certificate of Incorporation or bylaws of the Company in any manner adverse to Purchaser.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.13 **Avoidance of Control**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Notwithstanding anything to the contrary in this Agreement, Purchaser (together with its Affiliates (as such term is used under the BHCA)) shall not have the ability to purchase or exercise any voting rights of any class of securities in excess of four point nine percent (4.9%) of the total outstanding voting securities of the Company. In the event Purchaser breaches its obligations under this Section 4.13 or believes that it is reasonably likely to breach such an obligation, it shall promptly notify the Company and shall cooperate in good faith with such parties to modify ownership or make other arrangements or take any other action, in each case, as is necessary to cure or avoid such breach.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Notwithstanding anything to the contrary in this Agreement, neither the Company nor any Subsidiary shall take any action (including, without limitation, any redemption, repurchase, rescission or recapitalization of Common Stock, or securities or rights, options or warrants to purchase Common Stock, or securities of any type whatsoever that are, or may become, convertible into or exchangeable into or exercisable for Common Stock in each case, where Purchaser is not given the right to participate in such redemption, repurchase, rescission, or recapitalization to the extent of Purchaser's pro rata proportion) that would reasonably be expected to pose a substantial risk that (a) Purchaser's equity of the Company (together with equity owned by Purchaser's affiliates (as such term is used under the BHCA) to exceed thirty-three point three percent (33.3%) of the Company's total equity (provided that there is no ownership or control in excess of four point nine percent (4.9%) of any class of voting securities of the Company by Purchaser, together with Purchaser's affiliates) or (b) Purchaser's ownership of any class of voting securities of the Company (together with the ownership by Purchaser's affiliates (as such term is used under the BHCA) of voting securities of the Company) to exceed four point nine percent (4.9%), in each case without the prior written consent of Purchaser, or to increase to an amount that would constitute "control" under the BHCA, the CIBC Act, any applicable provisions of the Laws of the State of Illinois, or any rules or regulations promulgated thereunder (or any successor provisions) or otherwise cause Purchaser to "control" the Company under and for purposes of the BHCA, the CIBC Act or any rules or regulations promulgated thereunder (or any successor provisions). Notwithstanding anything to the contrary in this Agreement, Purchaser (together with its Affiliates (as such term is used under the BHCA)) shall not have the ability to purchase more than thirty-three point three percent (33.3%) of the Company's total equity or exercise any voting rights of any class of securities in excess of four point nine percent (4.9%) of the total outstanding voting securities of the Company. In the event either the Company or Purchaser breaches its obligations under this Section 4.13 or believes that it is reasonably likely to breach such an obligation, it shall promptly notify the other party hereto and shall cooperate in good faith with such parties to modify ownership or, to the extent commercially reasonable, make other arrangements or take any other action, in each case, as is necessary to cure or avoid such breach.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.14 **Most Favored Nation**. During the period from the date of this Agreement through the Closing Date, neither the Company nor any of its Subsidiaries shall enter into any additional, or modify any existing, agreements with any existing or future investors in the Company or any of its Subsidiaries that have the effect of establishing rights or otherwise benefiting such investor in a manner more favorable in any material respect to such investor than the rights and benefits established in favor of Purchaser by this Agreement, unless, in any such case, Purchaser has been provided with such rights and benefits.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.15 **Filings; Other Actions**. Purchaser and the Company will reasonably cooperate and consult with the other and use commercially reasonable efforts to provide all necessary and customary information and data, to prepare and file all necessary and customary documentation, to effect all necessary and customary applications, notices, petitions, filings and other documents, to provide evidence of non-control of the Company and the Bank, as requested by the applicable Governmental Entity, including executing and delivery to the applicable Governmental Entities customary passivity commitments, disassociation commitments, and commitments not to act in concert, with respect to the Company or the Bank, and to obtain all necessary and customary permits, consents, orders, approvals, and authorizations of, or any exemption by, all third parties and Governmental Entities, in each case, (i) necessary or advisable to consummate the transactions contemplated by this Agreement, and to perform the covenants contemplated by this Agreement, in each case required by it, and (ii) with respect to Purchaser, to the extent typically provided by Purchaser to such third parties or Governmental Entities, as applicable, under Purchaser's policies consistently applied, to the extent Purchaser has such policies, and subject to such confidentiality requests as Purchaser may reasonably seek. Each of the parties hereto shall execute and deliver both before and after the Closing such further certificates, agreements, and other documents and take such other actions as the other parties may reasonably request to consummate or implement such transactions or to evidence such events or matters, subject, in each case, to clauses (i) and (ii) of the first sentence of this Section 4.15. Purchaser and the Company will have the right to review in advance, and to the extent practicable each will consult with the other, in each case subject to applicable Laws relating to the exchange of information (other than confidential information related to Purchaser and any of its respective Affiliates), which appears in any filing made with, or written materials submitted to, any third party or any Governmental Entity in connection with the transactions to which it will be party contemplated by this Agreement. In exercising the foregoing right, the parties hereto agree to act reasonably and as promptly as practicable. Purchaser and the Company agree to keep each other reasonably apprised of the status of matters referred to in this Section 4.15. Purchaser and the Company shall promptly furnish each other with copies of written communications received by it or its Affiliates from, or delivered by any of the foregoing to, any Governmental Entity in respect of the transactions contemplated by this Agreement; *provided*, *that* the party delivering any such document may redact any confidential information contained therein. Notwithstanding anything in this Section 4.15 or elsewhere in this Agreement to the contrary, Purchaser shall not be required to provide to any Person pursuant to this Agreement any of its, its Affiliates', its investment advisors' or its or their control persons' or equity holders' nonpublic, proprietary, personal, or otherwise confidential information including the identities or financial condition of limited partners, shareholders, or non-managing members of Purchaser or its Affiliates or their investment advisors. Notwithstanding anything to the contrary in this Section 4.15, Purchaser shall not be required to perform any of the above actions if such performance would constitute or could reasonably result in any restriction or condition that Purchaser determines, in its reasonable good faith judgment, (i) is materially and unreasonably burdensome, or (ii) would reduce the benefits of the transactions contemplated hereby to Purchaser to such a degree that Purchaser would not have entered into this Agreement had such condition or restriction been known to it on the date of this Agreement (any such condition or restriction, a "<u>Burdensome Condition</u>"); for the avoidance of doubt, any requirement to disclose the identities or financial condition of limited partners, shareholders, or non-managing members of Purchaser or its Affiliates or its investment advisers shall be deemed a Burdensome Condition unless otherwise determined by Purchaser in its sole discretion.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.16 **Notice of Certain Events**. Each party hereto shall promptly notify the other party hereto of (a) any event, condition, fact, circumstance, occurrence, transaction or other item of which such party becomes aware prior to the Closing that would constitute a violation or breach of the Transaction Documents (or a breach of any representation or warranty contained herein or therein) or, if the same were to continue to exist as of the Closing Date, would constitute the non-satisfaction of any of the conditions set forth in Sections 5.1 or 5.2 hereof, and (b) any event, condition, fact, circumstance, occurrence, transaction or other item of which such party becomes aware that would have been required to have been disclosed pursuant to the terms of this Agreement had such event, condition, fact, circumstance, occurrence, transaction or other item existed as of the date hereof; provided that delivery of any notice pursuant to this Section 4.16 shall not modify the representations, warranties, covenants, agreements or obligations of the parties (or remedies with respect thereto) or the conditions to the obligations of the parties under this Agreement. Notwithstanding the foregoing, neither party shall be required to take any action that would jeopardize such party's attorney-client privilege.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.17 **Shareholder Litigation**. The Company shall promptly inform Purchaser of any claim, action, suit, arbitration, mediation, demand, hearing, investigation or proceeding ("<u>Shareholder Litigation</u>") against the Company, any of its Subsidiaries or any of the past or present executive officers or directors of the Company or any of its Subsidiaries that is threatened in writing or initiated by or on behalf of any shareholder of the Company in connection with or relating to the transactions contemplated hereby or by the Transaction Documents. The Company shall consult with Purchaser and keep Purchaser informed of all material filings and developments relating to any such Shareholder Litigation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.18 **Certain Transactions**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Prior to the Closing, notwithstanding anything in this Agreement to the contrary, the Company shall not directly or indirectly effect or cause to be effected any transaction with a third party that would reasonably be expected to result in a Change in Control unless such third party shall have provided prior assurance in writing to the Company (in a form that is reasonably satisfactory to the Company) that the terms of this Agreement shall be fully performed (i) by the Company or (ii) by such third party if it is the successor of the Company or if the Company is its direct or indirect subsidiary, and the Company agrees to promptly provide copies of such assurances to Purchaser. For the avoidance of doubt, it is understood and agreed that, (i) in the event that a Change in Control occurs on or prior to the Closing, Purchaser shall maintain its right under this Agreement to acquire, pursuant to the terms and conditions of this Agreement, the Shares (or such other securities or property (including cash) into which the Shares may have become exchangeable as a result of such Change in Control), as if the Closing had occurred immediately prior to such Change in Control, and (ii) nothing in this Section 4.18(a) is intended to or shall limit in any way Purchaser closing conditions contained in Article V.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) In the event that, at or prior to Closing, (1) the number of shares of Common Stock or securities convertible or exchangeable into or exercisable for shares of Common Stock issued and outstanding is changed as a result of any reclassification, stock split (including reverse split), stock dividend or distribution (including any dividend or distribution of securities convertible or exchangeable into or exercisable for shares of Common Stock), merger, tender or exchange offer or other similar transaction, or (2) the Company fixes a record date that is at or prior to the applicable Closing Date for the payment of any non-stock dividend or distribution on the Common Stock, then the number of shares of Common Stock and Series B Preferred Stock to be issued to Purchaser at the Closing under this Agreement, together with the applicable implied per share price of the shares of Common Stock and Series B Preferred Stock to be issued to Purchaser at the Closing under this Agreement, shall be equitably substituted with shares of other stock or securities or property (including cash), in each case, to provide Purchaser with substantially the same economic benefit from this Agreement as Purchaser had prior to the applicable transaction. Notwithstanding anything in this Agreement to the contrary, in no event shall the Purchase Price or any component thereof, or the aggregate percentage of shares to be purchased by Purchaser or any other person, be changed by the foregoing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Notwithstanding anything in the foregoing, the provisions of Section 4.18(b) shall not be triggered by the transactions contemplated by the Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.19 **Anti-Takeover Matters**. If any Takeover Law may become, or may purport to be, applicable to the transactions contemplated or permitted by this Agreement, the Company and the Board of Directors shall grant such approvals and take such actions as are necessary so that the transactions contemplated or permitted by this Agreement and the other Transaction Documents may be consummated, as promptly as practicable, on the terms contemplated by this Agreement and the other Transaction Documents, as the case may be, and otherwise act to eliminate or minimize the effects of any Takeover Law on any of the transactions contemplated or permitted by this Agreement and the other Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.20 **Governance Matters.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Following the Closing and upon the written request of Purchaser, the Company will promptly cause one individual designated by Purchaser (the "<u>Board Representative</u>") to be elected or appointed to the Board of Directors, subject to satisfaction of all legal and regulatory requirements regarding service and election or appointment as a director of the Company, and the board of directors of the Bank (the "<u>Bank Board</u>"), subject to satisfaction of all legal and regulatory requirements regarding service and election or appointment as a director of the Bank, so long as Purchaser, together with its Affiliates, in the aggregate owns at least four point nine percent (4.9%) of the Common Stock then outstanding (the "<u>Minimum Ownership Interest</u>"). So long as Purchaser, together with its Affiliates, has a Minimum Ownership Interest, the Company will recommend to its shareholders the election of the Board Representative to the Board of Directors at the Company's annual meeting of shareholders, subject to satisfaction of all legal requirements regarding service and election or appointment as a director of the Company. If Purchaser no longer has a Minimum Ownership Interest, Purchaser will have no further rights under Sections 4.20(a) through 4.20(b) and, at the written request of the Board of Directors, shall use commercially reasonable efforts to cause the Board Representative to resign from the Board of Directors and the Bank Board as promptly as possible thereafter.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Subject to applicable Law, the Board Representative shall be one of the Company's nominees to serve on the Board of Directors. The Company shall use its reasonable best efforts to have the Board Representative elected as a director of the Company by the shareholders of the Company, and the Company shall solicit proxies for the Board Representative to the same extent as it does for any of its other Company nominees to the Board of Directors. The Company shall ensure, and the Bank shall ensure, that the Board of Directors and the Bank Board shall each have at least four members for so long as Purchaser shall have the right to appoint a Board Representative.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) Subject to Section 4.20(a), upon the death, resignation, retirement, disqualification, or removal from office as a member of the Board of Directors or the Bank Board of the Board Representative, Purchaser shall have the right to designate the replacement for the Board Representative. The Board of Directors and the Bank Board shall use their reasonable best efforts to take all action required to fill the vacancy resulting therefrom with such person (including such person, subject to applicable Law, being one of the Company's nominees to serve on the Board of Directors and the Bank Board), using reasonable best efforts to have such person elected as director of the Company by the shareholders of the Company and the Company soliciting proxies for such person to the same extent as it does for any of its other nominees to the Board of Directors, as the case may be.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) The Company hereby agrees that, from and after the Closing Date, for so long as Purchaser and its Affiliates in the aggregate have a Minimum Ownership Interest, and do not have a Board Representative currently serving on the Board of Directors and the Bank Board (or have a Board Representative whose appointment is subject to receipt of regulatory approvals), the Company shall invite a person designated by Purchaser (the "<u>Observer</u>") to attend meetings of the Board of Directors or the Bank Board, as applicable, in a nonvoting, nonparticipating observer capacity. The Observer shall not have any right to vote on any matter presented to the Board of Directors, the Bank Board or any committee thereof. The Company shall give the Observer written notice of each meeting of the Board of Directors or the Bank Board at the same time and in the same manner as the members of the Board of Directors or the Bank Board, shall provide the Observer with all written materials and other information given to members of the Board of Directors or the Bank Board at the same time such materials and information are given to such members (provided, however, that the Observer shall not be provided any confidential supervisory information) and shall permit the Observer to attend as an observer at all meetings thereof. In the event the Company or the Bank proposes to take any action by written consent in lieu of a meeting, the Company or the Bank shall give written notice thereof to the Observer prior to the effective date of such consent describing the nature and substance of such action and including the proposed text of such written consents. If Purchaser no longer has a Minimum Ownership Interest, Purchaser will have no further rights under this Section 4.20(d).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) The Board Representative shall be entitled to compensation and indemnification and insurance coverage in connection with his or her role as a director to the same extent as other outside directors on the Board of Directors or the Bank Board, as applicable, and shall be entitled to reimbursement for reasonable and documented out-of-pocket expenses incurred in attending meetings of the Board of Directors, or any committee thereof in accordance with Company or Bank policy, as applicable. The Company and the Bank shall notify the Board Representative of all regular meetings and special meetings of the Board of Directors and the Bank Board and of all regular and special meetings of any committee of the Board of Directors and the Bank Board. The Company and the Bank shall provide the Board Representative with copies of all notices, minutes, consents and other material that it provides to all members of the Board of Directors and the Bank Board, respectively, at the same time such materials are provided to the other respective members.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) The Company acknowledges that the Board Representative may have certain rights to indemnification, advancement of expenses and/or insurance provided by Purchaser and/or its respective Affiliates (collectively, the "<u>Purchaser Indemnitors</u>"). The Company hereby agrees that, with respect to a claim by a Board Representative for indemnification arising out his or her service as a director of the Company or the Bank, (1) it is the indemnitor of first resort (i.e., its obligations to the Board Representative with respect to indemnification, advancement of expenses and/or insurance (which obligations shall be the same as, but in no event greater than, any such obligations to members of the Board of Directors or the Bank Board, as applicable) are primary and any obligation of the Purchaser Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by the Board Representative are secondary), and (2) the Purchaser Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of the Board Representative against the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) No later than April 30, 2018, the Company shall duly call, give notice of, establish a record date for, convene and hold its annual shareholders' meeting (the "<u>Shareholders' Meeting</u>"), for the purpose of, among other matters, voting upon approval and adoption of an amendment to the Company's Certificate of Incorporation (the "<u>Shareholder Approval</u>"), in the form attached as Annex A to the Certificate of Designations (the "<u>Certificate of Amendment</u>"). The Company shall: (A) through its Board of Directors recommend to its shareholders the approval and adoption of the Certificate of Amendment (the "<u>Company Recommendation</u>"); (B) include such Company Recommendation in the proxy statement delivered to shareholders; and (C) use its best efforts to obtain the Shareholder Approval. Neither the Board of Directors nor any committee thereof shall withdraw, qualify or modify, or propose publicly to withdraw, qualify or modify, in a manner adverse to Purchaser, the Company Recommendation or take any action, or make any public statement, filing or release inconsistent with the Company Recommendation. The Company shall adjourn or postpone the Shareholders' Meeting, if, as of the time for which such meeting is originally scheduled there are insufficient shares of Common Stock represented (either in person or by proxy) to constitute a quorum necessary to conduct the business of such meeting. The Company shall also adjourn or postpone the Shareholders' Meeting, if on the date of the Shareholders' Meeting the Company has not received proxies representing a sufficient number of shares necessary to obtain the Shareholder Approval and, following such adjournment or postponement, the Company shall solicit proxies representing a sufficient number of shares to obtain the Shareholder Approval. Following the first of either such adjournment or postponement, if requested by Purchaser, the Company shall retain a proxy solicitor reasonably acceptable to, and on terms reasonably acceptable to, Purchaser in connection with obtaining the Shareholder Approval.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) After obtaining the Shareholder Approval, the Company shall as promptly as reasonably practical, file the Certificate of Amendment with the Secretary of State of the State of Delaware, as required by applicable Law and provide Purchaser a certificate from the Secretary of State of the State of Delaware evidencing that the Certificate of Amendment is in full force and effect as of a date within five (5) Business Days after the date of the Shareholders' Meeting.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.21 **No Solicitation of Competing Proposal**. Except as provided in this Section 4.21, from and after the date of this Agreement until the earlier of the Closing and the date, if any, on which this Agreement is terminated pursuant to Section 6.15, the Company agrees that it shall not, and that it shall direct and use its reasonable best efforts to cause the Company's directors, officers, employees, agents, consultants and advisors not to, directly or indirectly, solicit, initiate, encourage or facilitate any inquiries or proposals from, discuss or negotiate with, provide any information to, or consider the merits of any unsolicited inquiries or proposals, any person relating to any Acquisition Transaction or a potential Acquisition Transaction involving the Company or any of its Subsidiaries.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.22 **Corporate Opportunities**. Each of the parties hereto acknowledges that Purchaser and its Affiliates and related investment funds may review the business plans and related proprietary information of any enterprise, including enterprises that may have products or services that compete directly or indirectly with those of the Company and its Subsidiaries, and may trade in the securities of such enterprise. None of Purchaser and its Affiliates, any of their respective Affiliates or related investment funds shall be precluded or in any way restricted from investing or participating in any particular enterprise, or trading in the securities thereof whether or not such enterprise has products or services that compete with those of the Company and its Subsidiaries. The parties expressly acknowledge and agree that: (a) Purchaser, the Board Representative, the Affiliates of Purchaser and their respective Affiliates have the right to, and shall have no duty (contractual or otherwise) not to, directly or indirectly, engage in the same or similar business activities or lines of business as the Company and its Subsidiaries; and (b) in the event that Purchaser, the Board Representative, any Affiliate of Purchaser or any of their respective Affiliates acquires knowledge of a potential transaction or matter that may be a corporate opportunity for the Company or any of its Subsidiaries, Purchaser, Board Representative, Affiliates of Purchaser or any of their respective Affiliates shall have no duty (contractual or otherwise) to communicate or present such corporate opportunity to the Company or any of its Subsidiaries, and, notwithstanding any provision of this Agreement to the contrary, shall not be liable to the Company or any of its Subsidiaries or shareholders of the Company for breach of any duty (contractual or otherwise) by reason of the fact that Purchaser, any Affiliate thereof, any related investment fund thereof or any of their respective Affiliates, directly or indirectly, pursues or acquires such opportunity for itself, directs such opportunity to another person, or does not present such opportunity to the Company.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.23 **Preemptive Rights**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **Sale of New Securities**. For so long as Purchaser, together with its Affiliates and, for purposes of this Section 4.23, persons who share a common discretionary investment advisor with Purchaser, holds a Minimum Ownership Interest, if at any time after the date hereof the Company or any of its Subsidiaries makes any public or nonpublic offering or sale of any equity (including Common Stock, Series B Preferred Stock, Non-Voting Common Stock or restricted stock), or any securities, options or debt that is convertible or exchangeable into equity or that includes an equity component (such as, an "equity kicker") (including any hybrid security) (any such security, a "<u>New Security</u>") (other than (i) any Common Stock or other securities issuable upon the exercise or conversion of any securities of the Company issued or agreed or contemplated (and disclosed to Purchaser in writing) to be issued as of the date hereof; (ii) pursuant to the granting or exercise of employee stock options, restricted stock or other stock incentives pursuant to the Company's stock incentive plans approved by the Board of Directors or the issuance of stock pursuant to the Company's employee stock purchase plan approved by the Board of Directors or similar plan where stock is being issued or offered to a trust, other entity or otherwise, for the benefit of any employees, officers or directors of the Company, in each case in the ordinary course of providing incentive compensation in all cases not to exceed in the aggregate five percent (5%) of the outstanding shares of Common Stock as of the date hereof; or (iii) issuances of capital stock as full or partial consideration for a merger, acquisition, joint venture, strategic alliance, license agreement or other similar non-financing transaction. The amount of New Securities that Purchaser shall be entitled to purchase in the aggregate shall be determined by multiplying (x) the total number or principal amount of such offered New Securities by (y) a fraction, the numerator of which is the total number of shares of Common Stock then held by Purchaser (counting for such purposes all shares of Common Stock into or for which any securities owned by Purchaser are directly or indirectly convertible or exercisable, including the Series B Preferred Stock and the Non-Voting Common Stock), if any, and the denominator of which is the total number of shares of Common Stock then outstanding (counting for such purposes all shares of Common Stock into or for which any securities owned by Purchaser are directly or indirectly convertible or exercisable, including the Series B Preferred Stock and the Non-Voting Common Stock). Notwithstanding anything herein to the contrary, in no event shall Purchaser have the right to purchase New Securities hereunder to the extent such purchase would result in Purchaser, together with any other person whose Company securities would be aggregated with Purchaser's Company securities for purposes of any bank regulation or law, to collectively be deemed to own, control or have the power to vote securities which (assuming, for this purpose only, full conversion and/or exercise of such securities by Purchaser) would represent more than four point nine percent (4.9%) of the Voting Securities or more than thirty-three point three percent (33.3%) of the Company's total equity outstanding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **Limitation on Voting Securities.** Notwithstanding anything in this Section 4.23 to the contrary, upon the request of Purchaser that Purchaser not be issued Voting Securities in whole or in part upon the exercise of its rights to purchase New Securities, the Company shall cooperate with Purchaser to modify the proposed issuance of New Securities to Purchaser to provide for the issuance of the Series B Preferred Stock, Non-Voting Common Stock or other non-voting securities in lieu of Voting Securities; provided, however, that to the extent, following such reasonable cooperation, such modification would cause Purchaser to exceed its respective ownership limitation, the Company shall, and shall only be obligated to, issue and sell to Purchaser such number of Voting Securities and nonvoting securities as will not cause Purchaser to exceed its ownership limitation, and any remaining securities may be offered, sold or otherwise transferred to any other person or persons in accordance with Section 4.23(e).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **Notice.** In the event the Company proposes to offer or sell New Securities (the "<u>Offering</u>"), it shall give Purchaser written notice of its intention, describing the price (or range of prices), anticipated amount of New Securities, timing, and other terms upon which the Company proposes to offer the same (including, in the case of a registered public offering and to the extent possible, a copy of the prospectus included in the registration statement filed with respect to such Offering). Purchaser shall have fifteen (15) Business Days from the date of receipt of such a notice (the "<u>Response Period</u>") to notify the Company in writing that it intends to exercise its rights provided in this Section 4.23 and as to the amount of New Securities that Purchaser desires to purchase, up to the maximum amount calculated pursuant to this Section 4.23. Such notice shall constitute the Purchaser's commitment to purchase the amount of New Securities so specified at the price and other terms set forth in the Company's notice to it if the underlying sale of New Securities is consummated. The failure of Purchaser to respond within the Response Period shall be deemed to be a waiver of Purchaser's rights under this Section 4.23 only with respect to the Offering described in the applicable notice.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) **Purchase Mechanism.** If Purchaser exercises its rights provided in this Section 4.23, the closing of the purchase of the New Securities in connection with the closing of the Offering with respect to which such right has been exercised shall take place within thirty (30) calendar days after the giving of notice of such exercise, which period of time shall be extended for a maximum of 180 days in order to comply with applicable laws and regulations (including receipt of any applicable regulatory or shareholder approvals). Notwithstanding anything to the contrary herein, the closing of the purchase of the New Securities by Purchaser will occur no earlier than the closing of the Offering triggering the right being exercised by Purchaser. Each of the Company and Purchaser agree to use their commercially reasonable efforts to secure any regulatory or shareholder approvals or other consents, and to comply with any law or regulation necessary in connection with the offer, sale and purchase of, such New Securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) **Failure of Purchase.** In the event Purchaser fails to exercise its rights provided in this Section 4.23 within this Response Period or, if so exercised, Purchaser is unable to consummate such purchase within the time period specified in Section 4.23(d) above because of its failure to obtain any required regulatory or shareholder consent or approval, the Company shall thereafter be entitled (during the period of sixty (60) days following the conclusion of the applicable period) to sell or enter into an agreement (pursuant to which the sale of the New Securities covered thereby shall be consummated, if at all, within ninety (90) days from the date of such agreement) to sell the New Securities not elected to be purchased pursuant to this Section 4.23 by Purchaser or which Purchaser is unable to purchase because of such failure to obtain any such consent or approval, at a price and upon terms no more favorable in the aggregate to the purchasers of such New Securities than were specified in the Company's notice to Purchaser. Notwithstanding the foregoing, if such sale is subject to the receipt of any regulatory or shareholder approval or consent or the expiration of any waiting period, the time period during which such sale may be consummated shall be extended until the expiration of five (5) Business Days after all such approvals or consents have been obtained or waiting periods expired, but in no event shall such time period exceed 180 days from the date of the applicable agreement with respect to such sale. In the event the Company has not sold the New Securities or entered into an agreement to sell the New Securities within such 60-day period (or sold and issued New Securities in accordance with the foregoing within ninety (90) days from the date of such agreement (as such period may be extended in the manner described above for a period not to exceed 180 days from the date of such agreement)), the Company shall not thereafter offer, issue or sell such New Securities without first offering such New Securities to Purchaser in the manner provided above.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) **Non-Cash Consideration.** In the case of the offering of securities for a consideration in whole or in part other than cash, including securities acquired in exchange therefor (other than securities by their terms so exchangeable), the consideration other than cash shall be deemed to be the fair value thereof as reasonably determined by the Board of Directors and Purchaser.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) **Cooperation.** The Company and Purchaser shall cooperate in good faith to facilitate the exercise of Purchaser's rights under this Section 4.23, including to secure any required approvals or consents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4.24 **Bank Regulatory Approvals**. Upon Purchaser's request, the Company shall use its reasonable best efforts to cooperate with Purchaser to receive the Bank Regulatory Approvals. Notwithstanding anything to the contrary in this Agreement, upon the receipt of such Bank Regulatory Approvals, all references in this Agreement to ownership and voting limitations of four point nine percent (4.9%) shall be deemed to be deleted and replaced with twenty-four point nine percent (24.9%). Upon Purchaser receiving such Bank Regulatory Approvals, the Company shall use its reasonable best efforts to exchange all shares of Series B Preferred Stock or Non-Voting Common Stock (as applicable) held by Purchaser into the applicable number of shares of Common Stock and to deliver such shares of Common Stock to Purchaser in book-entry form.

ARTICLE V

**CONDITIONS PRECEDENT TO CLOSING**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.1 **Conditions Precedent to the Obligations of Purchaser**. The obligation of Purchaser to acquire the Purchased Shares at the Closing is subject to the fulfillment to Purchaser's satisfaction, on or prior to the Closing Date, of each of the following conditions, any of which may be waived by Purchaser:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **Representations and Warranties**. The representations and warranties of the Company contained herein shall be true and correct as of the date when made and as of the Closing Date, as though made on and as of such date, except for such representations and warranties that speak as of a specific date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **Performance**. The Company shall have performed, satisfied, and complied in all material respects with all covenants, agreements, and conditions required by the Transaction Documents to be performed, satisfied, or complied with by it at or prior to the Closing.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **No Injunction**. No statute, rule, regulation, executive order, decree, ruling, or injunction shall have been enacted, entered, promulgated, or endorsed by any court or Governmental Entity of competent jurisdiction, nor has there been any regulatory communication, that prohibits the consummation of any of the transactions contemplated by the Transaction Documents or restricts Purchaser or any of its Affiliates from owning or voting any securities of the Company in accordance with the terms thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) **Consents**. The Company shall have obtained in a timely fashion any and all consents, permits, approvals, non-objections, registrations, and waivers necessary for consummation of the purchase and sale of the Purchased Shares (including all Required Approvals), all of which shall be and remain so long as necessary in full force and effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) **Company Deliverables**. The Company shall have delivered the Company Deliverables in accordance with Section 2.2(a).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) **Termination**. This Agreement shall not have been terminated in accordance with Section 6.15 herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) **No Burdensome Condition**. Since the date hereof, there shall not be imposed any Burdensome Condition.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) **Regulatory Capital Treatment**. The Series B Preferred Shares shall qualify as "Additional Tier 1 capital" under 12 C.F.R. Section 217.20(c). The Common Shares and Non-Voting Common Stock shall qualify as "Common Equity Tier 1 capital" under 12 C.F.R. Section 217.20(b).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) **Ownership Limitation**. The purchase of the Purchased Shares by Purchaser shall not (i) cause Purchaser or any of its Affiliates to violate any banking regulation, (ii) require Purchaser or any of its Affiliates to file a prior notice under the CIBC Act, or otherwise seek prior approval of any banking regulator, (iii) require Purchaser or any of its Affiliates to become a bank holding company or otherwise serve as a source of strength for the Company or any Subsidiary, or (iv) cause Purchaser, together with any other Person whose Company securities would be aggregated with Purchaser's Company securities for purposes of any banking regulation or law, to collectively be deemed to own, control, or have the power to vote securities which (assuming, for this purpose only, full conversion and/or exercise of such securities by Purchaser and such other Persons) would represent more than four point nine percent (4.9%) of any class of voting securities of the Company outstanding at such time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) **Material Adverse Effect**. No Material Adverse Effect shall have occurred since December 31, 2016.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) **No Change in Control**. The Company shall not have agreed to enter into or entered into (A) any agreement or transaction in order to raise capital, or (B) any transaction that resulted in, or would result in if consummated, a Change in Control of the Company, in each case, other than in connection with the transactions contemplated by the Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) **Certificate of Designations**. The Company shall have filed with the Delaware Secretary of State (and the Delaware Secretary of State shall have issued a certificate of designations evidencing the effectiveness of) the Certificate of Designations, setting forth the terms of the Series B Preferred Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) **Well-Capitalized Status**. After the Closing and the consummation of the transactions contemplated by this Agreement, (A) the Bank's capital levels shall exceed the specific quantitative capital requirements necessary to be deemed "well capitalized" as defined in 12 C.F.R. § 325.103(b)(1); (B) the Company's capital levels shall exceed the specific quantitative capital requirements necessary to be deemed "well capitalized" as defined in 12 C.F.R. §§ 225.2(r); (C) the Company and the Bank shall meet or exceed all specific quantitative capital requirements stated in any written agreement, order, understanding or undertaking with the Federal Reserve or the IDFPR, as applicable; (D) subject to any regulatory limitations, the Series B Preferred Stock shall qualify as "Additional Tier 1 capital" under 12 C.F.R. Section 217.20(c); and (E) the Company's capital structure will otherwise comply with the "predominance" of voting common equity provisions of 12 C.F.R. Part 225, Appendix A.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) **Non-Performing Assets**. As of the end of the month immediately prior to the Closing, total nonperforming assets shall not have increased more than twenty percent (20%) over total nonperforming assets as of August 31, 2017 as disclosed in the Company Financial Statements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5.2 **Conditions Precedent to the Obligations of the Company to Sell the Shares**. The Company's obligation to sell and issue the Shares to Purchaser at the Closing is subject to the fulfillment to the satisfaction of the Company on or prior to the Closing Date of the following conditions, any of which may be waived by the Company:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **Representations and Warranties**. The representations and warranties made by Purchaser in Section 3.2 hereof shall be true and correct in all material respects (except to the extent such representations and warranties are qualified by materiality, in which case they shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made on and as of such date (except to the extent such representations and warranties are made as of a specified date, in which case such representations and warranties shall be true and correct in all material respects as of such date), in each case except as would not have a material adverse effect on the ability of Purchaser to consummate the transactions contemplated by this Agreement and the other Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **Performance**. Purchaser shall have performed, satisfied, and complied in all material respects with all covenants, agreements, and conditions required by the Transaction Documents to be performed, satisfied, or complied with by Purchaser at or prior to the Closing Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **No Injunction**. No statute, rule, regulation, executive order, decree, ruling, or injunction shall have been enacted, entered, promulgated, or endorsed by any court or Governmental Entity of competent jurisdiction, nor has there been any regulatory communication, that prohibits the consummation of any of the transactions contemplated by the Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) **Purchaser Deliverables**. Purchaser shall have delivered its Purchaser Deliverables in accordance with Section 2.2(b).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) **Termination**. This Agreement shall not have been terminated in accordance with Section 6.15 herein.

ARTICLE VI

**MISCELLANEOUS**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.1 **Fees and Expenses**. The Company shall reimburse Purchaser for all reasonable fees and expenses, not to exceed $75,000, incurred by Purchaser in connection with the transactions contemplated by the Transaction Documents (including due diligence, legal fees (including the preparation and review of definitive documentation and regulatory filings, travel expenses and other disbursements)). In addition, the Company shall pay the full cost of the independent loan reviewed obtained by the Company at Purchaser's request, with member(s) of Purchaser onsite during the review. Except as set forth above and elsewhere in the Transaction Documents, the parties hereto shall be responsible for the payment of all expenses incurred by them in connection with the preparation and negotiation of the Transaction Documents and the consummation of the transactions contemplated hereby. The Company shall pay all Transfer Agent fees, stamp taxes and other taxes and duties levied in connection with the Company's sale and issuance of the Purchased Shares to Purchaser.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.2 **Entire Agreement**. The Transaction Documents, together with the Exhibits and Schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements, understandings, discussions, and representations, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits, and schedules. At or after the Closing, and without further consideration, the Company and Purchaser will execute and deliver to the other such further documents as may be reasonably requested in order to give practical effect to the intention of the parties under the Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.3 **Notices**. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile or e-mail (provided the sender receives a machine-generated confirmation of successful facsimile transmission or e-mail notification or confirmation of receipt of an e-mail transmission) at the facsimile number or e-mail address specified in this Section 6.3 prior to 5:00 p.m., Eastern time, on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile or e-mail at the facsimile number or e-mail address specified in this Section 6.3 on a day that is not a Trading Day or later than 5:00 p.m., Eastern time, on any Trading Day, (c) if sent by U.S. nationally recognized overnight courier service with next day delivery specified (receipt requested) the Trading Day following delivery to such courier service, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

If to the Company: Tri-County Financial Group, Inc.

706 Washington Street

Mendota, IL 61342

Attention: President and Chief Executive Officer

Facsimile: [●]

Email: [●]

With a copy to: Howard & Howard Attorneys PLLC

200 South Michigan Avenue, Suite 1100

Chicago, Illinois 60604

Attention: Jude M. Sullivan, Esq.

Facsimile: [●]

Email: [●]

If to Purchaser: Castle Creek Capital Partners VI, LP

6051 El Tordo, P.O. Box 1329

Rancho Santa Fe, CA 92067

Attn: John T. Pietrzak, Managing Principal

Facsimile: [●]

Email: [●]

With a copy to: Sidley Austin LLP

1999 Avenue of the Stars, 17<sup>th</sup> Floor

Los Angeles, CA 90067

Attention: Vijay S. Sekhon, Esq.

Facsimile: [●]

Email: [●]

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.4 **Amendments; Waivers; No Additional Consideration**. No amendment or waiver of any provision of this Agreement will be effective with respect to either party unless made in writing and signed by a duly authorized representative of such party. No waiver of any default with respect to any provision, condition, or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition, or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.5 **Construction**. The headings herein are for convenience only, do not constitute a part of this Agreement, and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. This Agreement shall be construed as if drafted jointly by the parties, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement or any of the Transaction Documents.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.6 **Successors and Assigns**. The provisions of this Agreement shall inure to the benefit of and be binding upon the parties and their successors and permitted assigns. This Agreement, or any rights or obligations hereunder, may not be assigned by the Company without the prior written consent of Purchaser. Purchaser may assign its rights hereunder in whole or in part to any Affiliate of Purchaser, and/or any Person to whom Purchaser assigns or transfers any Shares in compliance with the Transaction Documents and applicable Law, provided such transferee shall agree in writing to be bound, with respect to the transferred Shares, by the terms and conditions of this Agreement that apply to the "Purchaser."

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.7 **No Third-Party Beneficiaries**. This Agreement is intended for the benefit of the parties hereto, their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, other than, solely with respect to the provisions of Section 4.7, the Purchaser Parties.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.8 **Governing Law**. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal Laws of the State of Delaware, without regard to the principles of conflicts of law thereof. The parties agree that all Proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement and any other Transaction Documents (whether brought against either party hereto or its respective Affiliates, employees or agents) shall be commenced on an exclusive basis in the state or federal courts located in the State of Delaware (the "<u>Delaware Courts</u>"). The parties hereby irrevocably submit to the exclusive jurisdiction of the Delaware Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waive, and agree not to assert in any Proceeding, any claim that it is not personally subject to the jurisdiction of any such Delaware Court, or that such Proceeding has been commenced in an improper or inconvenient forum. The parties hereby irrevocably waive personal service of process and consent to process being served in any such Proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agree that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by Law. **THE PARTIES HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.9 **Survival**. The representations, warranties, agreements, and covenants contained herein shall survive the Closing and the delivery of the Shares as follows: (i) the representations and warranties of the Company set forth in Sections 3.1(a), 3.1(b), 3.1(c), 3.1(e), 3.1(f), 3.1(g), 3.1(h), 3.1(q), 3.1(s), 3.1(t), 3.1(u), 3.1(bb), and 3.1(cc) shall survive indefinitely, (ii) the representations and warranties of the Company set forth in Sections 3.1(i), 3.1(k), 3.1(m), and 3.1(rr) shall survive for the applicable statute of limitations, (iii) all other representations and warranties of the Company set forth in Section 3.1 shall survive for a period of 18 months following the Closing and the delivery of Shares, and (iv) the representations and warranties of the Purchaser set forth in Section 3.2 shall survive for a period of eighteen months following the Closing and the delivery of the Shares.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.10 **Execution**. This Agreement may be executed in two or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that the parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, or by e-mail delivery of a ".pdf" format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.11 **Severability**. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.12 **Replacement of Shares**. If any certificate or instrument evidencing any Shares is mutilated, lost, stolen, or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company and the Transfer Agent of such loss, theft, or destruction and the execution by the holder thereof of a customary lost certificate affidavit of that fact and an agreement to indemnify and hold harmless the Company and the Transfer Agent for any losses in connection therewith or, if required by the Transfer Agent, a bond in such form and amount as is required by the Transfer Agent. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Shares. If a replacement certificate or instrument evidencing any Shares is requested due to a mutilation thereof, the Company may require delivery of such mutilated certificate or instrument as a condition precedent to any issuance of a replacement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.13 **Remedies**. In addition to being entitled to exercise all rights provided herein or granted by Law, including recovery of damages, Purchaser and the Company will be entitled to seek specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agree to waive in any action for specific performance of any such obligation (other than in connection with any action for a temporary restraining order) the defense that a remedy at law would be adequate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.14 **Payment Set Aside**. To the extent that the Company makes a payment or payments to Purchaser pursuant to any Transaction Document or Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by, or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver, or any other person under any Law (including, without limitation, any bankruptcy Law, state or federal Law, common Law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.15 **Termination**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) This Agreement may be terminated and the sale and purchase of the Shares abandoned at any time prior to the Closing:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) by the written consent of the Company and Purchaser (with respect to itself only);

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) by either the Company or Purchaser (with respect to itself only) upon written notice to the other, if the Closing has not been consummated on or prior to 5:00 p.m., Central Time, on the Outside Date; *provided, however*, that the right to terminate this Agreement under this Section 6.15(a)(ii) shall not be available to any Person whose failure to comply with its obligations under this Agreement has been the cause of or resulted in the failure of the Closing to occur on or before such time;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) by the Company or Purchaser, upon written notice to the other parties, in the event that any Governmental Entity shall have issued any order, decree or injunction or taken any other action restraining, enjoining or prohibiting any of the transactions contemplated by this Agreement, and such order, decree, injunction or other action shall have become final and nonappealable;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) by Purchaser (with respect to itself only), upon written notice to the Company, if there has been a breach of any representation, warranty, covenant or agreement made by the Company in this Agreement, or any such representation or warranty shall have become untrue after the date of this Agreement, in each case such that a closing condition in Section 5.1(a) or Section 5.1(b) would not be satisfied;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) by the Company, upon written notice to Purchaser, if there has been a breach of any representation, warranty, covenant or agreement made by Purchaser in this Agreement, or any such representation or warranty shall have become untrue after the date of this Agreement, in each case such that a closing condition in Section 5.2(a) or Section 5.2(b) would not be satisfied;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) by the Company or Purchaser, upon written notice to the other, if any of the conditions to Closing set forth in Sections 5.1 or 5.2 are not capable of being satisfied on or before 5:00 p.m., Central Time, on the Outside Date; *provided*, *however*, that the right to terminate this Agreement under this Section 6.15(a)(vi) shall not be available to any Person whose failure to comply with its obligations under this Agreement has been the cause of or resulted in the failure of the conditions to Closing set forth in Sections 5.1 or 5.2 to occur on or before such time;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vii) by Purchaser, upon written notice to the Company, if the Company shall have materially breached Section 4.21;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(viii) by Purchaser, upon written notice to the Company, if Purchaser or any of its Affiliates receives written notice from or is otherwise advised by the Federal Reserve or the IDFPR that the Federal Reserve or the IDFPR, as applicable, will not grant (or intends to rescind if previously granted) any of the confirmations or determinations referred to in Section 5.1(i); or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ix) by Purchaser, if the Company directly or indirectly effects or causes to be effected any transaction with a third party (1) with respect to an Acquisition Transaction or a potential Acquisition Transaction or that would reasonably be expected to result in a Change in Control and (2) such transaction has a purchase price per share of Common Stock that is less than the Purchase Price.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Nothing in this Section 6.15 shall be deemed to release any party from any liability for any breach by such party of the terms and provisions of this Agreement or the other Transaction Documents or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement or the other Transaction Documents. Upon a termination in accordance with this Section 6.15, the Company and Purchaser shall not have any further obligation or liability (including arising from such termination) to the other.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6.16 **Rescission and Withdrawal Right**. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever Purchaser exercises a right, election, demand, or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

**IN WITNESS WHEREOF**, the parties hereto have caused this Stock Purchase Agreement to be duly executed by their respective authorized signatories as of the date first indicated above.

---

| | |
|:---|:---|
| **TRI-COUNTY FINANCIAL GROUP, INC.** | **TRI-COUNTY FINANCIAL GROUP, INC.** |
| By: | /s/ Timothy J. McConville |
| Name: | Timothy J. McConville |
| Title: | President and Chief Executive Officer |
| **CASTLE CREEK CAPITAL PARTNERS VI, LP** | **CASTLE CREEK CAPITAL PARTNERS VI, LP** |
| By: | Castle Creek Capital VI LLC, its general partner |
| By: | /s/ John T. Pietrzak |
| Name: | John T. Pietrzak |
| Title: | Managing Principal |
| Aggregate Purchase Price: $<u>20,000,033.28</u> | Aggregate Purchase Price: $<u>20,000,033.28</u> |
| No. of Common Shares to be Acquired at $35.52 per Share: <u>95,564</u> | No. of Common Shares to be Acquired at $35.52 per Share: <u>95,564</u> |
| No. of Series B Preferred Shares to be Acquired at $355.20 per Share:<u>46,750</u> | No. of Series B Preferred Shares to be Acquired at $355.20 per Share:<u>46,750</u> |

---

[Signature Page to Stock Purchase Agreement]

**EXHIBITS**

---

| | |
|:---|:---|
| A | Registration Rights Agreement |
| B | Accredited Investor Questionnaire |
| C | Form of Opinion of Company Counsel |
| D | Form of Secretary's Certificate |
| E | Form of Officer's Certificate |
| F | Form of VCOC Letter Agreement |
| G | Form of Certificate of Designations |

---

[Exhibit Index]

**EXHIBIT A**

**TRI-COUNTY FINANCIAL GROUP, INC.**

**REGISTRATION RIGHTS AGREEMENT**

This Registration Rights Agreement (this "<u>Agreement</u>") is made and entered into as of October 6, 2017, by and among Tri-County Financial Group, Inc., a Delaware corporation (the "<u>Company</u>"), and Castle Creek Capital Partners VI, LP, a Delaware limited partnership (the "<u>Registration Rights Purchaser</u>").

This Agreement is made pursuant to the Stock Purchase Agreement, dated as of October 6, 2017, between the Company and each Registration Rights Purchaser (the "<u>Purchase Agreement</u>").

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Registration Rights Purchaser agree as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. <u>Definitions</u>. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

"<u>Advice</u>" shall have the meaning set forth in Section 8(h).

"<u>Affiliate</u>" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person.

"<u>Agreement</u>" shall have the meaning set forth in the Preamble.

"<u>Allowable Grace Period</u>" shall have the meaning set forth in Section 5(d).

"<u>Business Day</u>" means a day other than a Saturday or Sunday or other day on which banks located in New York City are authorized or required by law to close.

"<u>Capital Stock</u>" means, with respect to any Person at any time, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of capital stock, securities convertible into or exchangeable or exercise able for any of its shares, interests, participations or other equivalents, partnership interests (whether general or limited), limited liability company interests, or equivalent ownership interests in or issued by such Person.

"<u>Closing Date</u>" has the meaning set forth in the Purchase Agreement.

"<u>Commission</u>" means the United States Securities and Exchange Commission.

"<u>Common Stock</u>" means the voting common stock of the Company, par value $1.00 per share, and any securities into which such shares of voting common stock may hereinafter be reclassified.

"<u>Company</u>" shall have the meaning set forth in the Preamble.

"<u>Effective Date</u>" means the date that the Registration Statement filed pursuant to Section 2(a) is first declared effective by the Commission.

"<u>Effectiveness Deadline</u>" means, with respect to the Initial Registration Statement or the New Registration Statement, the fifth (5th) Trading Day after the date the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be "reviewed" or will not be subject to further review; provided, that if the Effectiveness Deadline falls on a Saturday, Sunday or other day that the Commission is closed for business, the Effectiveness Deadline shall be extended to the next Business Day on which the Commission is open for business.

"<u>Effectiveness Period</u>" shall have the meaning set forth in Section 2(b).

"<u>Event</u>" shall have the meaning set forth in Section 2(c).

"<u>Event Date</u>" shall have the meaning set forth in Section 2(c).

"<u>Exchange Act</u>" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

"<u>Filing Deadline</u>" means, with respect to the Initial Registration Statement required to be filed pursuant to Section 2(a), the date that is the fifth (5th) anniversary of the Closing Date; provided that if the Filing Deadline falls on a Saturday, Sunday or other day that the Commission is closed for business, the Filing Deadline shall be extended to the next business day on which the Commission is open for business.

"<u>FINRA</u>" shall have the meaning set forth in Section 5(n).

"<u>Grace Period</u>" shall have the meaning set forth in Section 5(d).

"<u>Holder</u>" or "<u>Holders</u>" means the holder or holders, as the case may be, from time to time of Registrable Securities.

"<u>Holders Counsel</u>" shall have the meaning set forth in Section 5(a).

"<u>Indemnified Party</u>" shall have the meaning set forth in Section 7(c).

"<u>Indemnifying Party</u>" shall have the meaning set forth in Section 7(c).

"<u>Initial Registration Statement</u>" means shall have the meaning set forth in Section 2(a).

"<u>Liquidated Damages"</u> shall have the meaning set forth in Section 2(c).

"<u>Losses</u>" shall have the meaning set forth in Section 7(a).

"<u>New Registration Statement</u>" shall have the meaning set forth in Section 2(a).

"<u>Non-Responsive Holder</u>" shall have the meaning set forth in Section 8(d).

"<u>Non-Voting Common Stock</u>" means the Company's non-voting common stock, $1.00 par value per share, into which the Series B Preferred Stock is convertible following approval by the Company's shareholders of an amendment to its certificate of incorporation authorizing said stock.

"<u>OTC Pink</u>" means the marketplace for trading over-the-counter stocks provided and operated by OTC Markets Group, Inc.

"<u>Other Securities</u>" means shares of Common Stock, Series B Preferred Stock, Non-Voting Common Stock or shares of other Capital Stock of the Company which are contractually entitled to registration rights or Capital Stock which the Company is registering pursuant to a Registration Statement.

"<u>Person</u>" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

"<u>Piggyback Registration</u>" shall have the meaning set forth in Section 3(a).

"<u>Principal Market</u>" means the Trading Market on which the Common Stock is primarily listed on and quoted for trading, which, as of the Closing Date, shall be OTC Pink.

"<u>Proceeding</u>" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

"<u>Prospectus</u>" means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

"<u>Purchase Agreement</u>" shall have the meaning set forth in the Recitals.

"<u>Registrable Securities</u>" means all of the Shares, the Underlying Shares and any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the Shares or the Underlying Shares, provided that Shares or the Underlying Shares shall cease to be Registrable Securities upon the earliest to occur of the following: (A) a sale pursuant to a Registration Statement or Rule 144 under the Securities Act (in which case, only such security sold shall cease to be a Registrable Security); (B) becoming eligible for sale without time, volume or manner of sale restrictions by the Holders under Rule 144; (C) if such Shares or Underlying Shares have ceased to be outstanding; (D) the date a Registration Statement becomes effective including such Shares or Underlying Shares; or (E) if such Shares or Underlying Shares have been sold in a private transaction in which the Holder's rights under this Agreement have not been assigned to the transferee.

"<u>Registration Rights Purchaser</u>" shall have the meaning set forth in the Preamble.

"<u>Registration Statements</u>" means any one or more registration statements of the Company filed under the Securities Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement (including without limitation the Initial Registration Statement, the New Registration Statement and any Remainder Registration Statements), amendments and supplements to such Registration Statements, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such Registration Statements.

"<u>Remainder Registration Statement</u>" shall have the meaning set forth in Section 2(a).

"<u>Requested Information</u>" shall have the meaning set forth in Section 8(d).

"<u>Required Registration Statement</u>" means any Initial Registration Statement, New Registration Statement or Remainder Registration Statement.

"<u>Rule 144</u>" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule thereto.

"<u>Rule 144A</u>" means Rule 144A promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule thereto.

"<u>Rule 415</u>" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule thereto.

"<u>Rule 424</u>" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule thereto.

"<u>SEC Guidance</u>" means (i) any publicly available written guidance, comments, requirements or requests of the Commission staff and (ii) the Securities Act.

"<u>Securities Act</u>" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

"<u>Series B Preferred Stock</u>" means the Company's Series B Convertible Perpetual Preferred Stock, no par value per share, and any securities into which such shares of Series B Convertible Perpetual Preferred Stock may hereinafter be reclassified.

"<u>Shares</u>" means the shares of Common Stock and Series B Preferred Stock issued or issuable to the Registration Rights Purchaser pursuant to the Purchase Agreement.

"<u>Shelf Offering</u>" shall have the meaning set forth in Section 4(a).

"<u>Take-Down Notice</u>" shall have the meaning set forth in Section 4(a).

"<u>Trading Day</u>" means (i) a day on which the Common Stock is listed or quoted and traded on its Principal Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported in the "pink sheets" by OTC Markets Group, Inc. (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

"<u>Trading Market</u>" means whichever of the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

"<u>Underlying Shares</u>" means the shares of Common Stock and Non-Voting Common Stock into which the Series B Preferred Stock is convertible.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. <u>Mandatory Registration</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) On or prior to the Filing Deadline, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities not already covered by an existing and effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 or, if Rule 415 is not available for offers and sales of the Registrable Securities, by such other means of distribution of Registrable Securities as the Company may reasonably determine (the "<u>Initial Registration Statement</u>"); provided, that, the Company shall consider in good faith preparing and filing such Initial Registration Statement on or prior to the third (3rd) anniversary of the date hereof. Notwithstanding the registration obligations set forth in this Section 2, in the event that (i) the Company's counsel determines that all such Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement prior to filing the Initial Registration Statement, or (ii) the Commission informs the Company that all such Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly (A) inform each of the Holders thereof and, as applicable, file the Initial Registration Statement, or use its reasonable best efforts to file amendments to the Initial Registration Statement as required by the Commission and/or (B) withdraw the Initial Registration Statement and file a new registration statement (a "<u>New Registration Statement</u>"), in each case covering the maximum number of such Registrable Securities permitted to be registered thereon, on such form available to the Company to register for resale the Registrable Securities as a secondary offering; provided, that in the case of (ii) above, prior to filing such amendment or New Registration Statement, the Company shall be obligated to use its reasonable best efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Securities Act Rules Compliance and Disclosure Interpretation 612.09, or any successor thereto. Notwithstanding any other provision of this Agreement, if the opinion of the Company's counsel or any SEC Guidance sets forth a limitation of the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and, in the case of clause (ii) above, notwithstanding that the Company used reasonable best efforts to reasonably advocate with the Commission for the registration of all or a greater number of Registrable Securities), the number of Registrable Securities to be registered on such Registration Statement will be reduced on a pro rata on the basis of the aggregate number of Registrable Securities owned by each such person, and under such circumstances, the Company will not be subject to the payment of Liquidated Damages in Section 2(c). In the event the Company amends the Initial Registration Statement or files a New Registration Statement, as the case may be, under clauses (A) or (B) above, the Company will use its reasonable best efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on such form available to the Company to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended, or the New Registration Statement (the "<u>Remainder Registration Statements</u>"). No Holder shall be named as an "underwriter" in any Registration Statement without such Holder's prior written consent, which shall not be unreasonably withheld.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Company shall use its reasonable best efforts to cause each Required Registration Statement to be declared effective by the Commission as soon as practicable, and, with respect to the Initial Registration Statement or the New Registration Statement, as applicable, no later than the Effectiveness Deadline, and shall use its reasonable best efforts to keep each Required Registration Statement continuously effective under the Securities Act until the earlier of (i) such time as all of the Registrable Securities covered by such Required Registration Statement have been publicly sold by the Holders or (ii) the date that all Registrable Securities covered by such Required Registration Statement may be sold by the Holders without volume or manner of sale restrictions under Rule 144, as determined by counsel to the Company pursuant to a written opinion letter to such effect, addressed and reasonably acceptable to the Company's transfer agent (the "<u>Effectiveness Period</u>"); provided, however, if the Company does not meet the eligibility requirements for filing on Form S-3 (or any successor registration statement form) at the time of filing of a Required Registration Statement, the Effectiveness Period shall not exceed 180 days following the Effective Date. The Company shall request effectiveness of a Required Registration Statement as of 5:00 p.m., New York City time, on a Trading Day. The Company shall promptly notify the Holders via facsimile or electronic mail of a ".pdf" format data file of the effectiveness of a Registration Statement within one (1) Business Day of the Effective Date. The Company shall file a final Prospectus for a Required Registration Statement with the Commission, as required by Rule 424(b) as promptly as reasonably practicable following the Effective Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) If: (i) the Initial Registration Statement is not filed with the Commission on or prior to the Filing Deadline, (ii) the Initial Registration Statement or the New Registration Statement, as applicable, is not declared effective by the Commission (or otherwise does not become effective) for any reason on or prior to the Effectiveness Deadline, or (iii) after its Effective Date, (A) such Registration Statement ceases to be effective for any reason (including without limitation by reason of a stop order, or the Company's failure to update the Registration Statement), to remain continuously effective as to all Registrable Securities for which it is required to be effective, or (B) the Holders are not permitted to utilize the Prospectus therein to resell such Registrable Securities (other than during an Allowable Grace Period), (iv) a Grace Period applicable to a Required Registration Statement exceeds the length of an Allowable Grace Period, or (v) after the Filing Deadline, and only in the event a Registration Statement is not effective or available to sell all Registrable Securities, the Holders are unable to sell Registrable Securities without restriction under Rule 144, (any such failure or breach in clauses (i) through (v) above being referred to as an "<u>Event</u>," and, for purposes of clauses (i), (ii), (iii) or (v), the date on which such Event occurs, or for purposes of clause (iv) the date on which such Allowable Grace Period is exceeded, being referred to as an "<u>Event Date</u>"), then in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty ("<u>Liquidated Damages</u>"), equal to two percent (2.0%) of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any Registrable Securities held by such Holder on the Event Date. The parties agree that notwithstanding anything to the contrary herein or in the Purchase Agreement, no Liquidated Damages shall be payable (i) if as of the relevant Event Date, the Registrable Securities may be sold by the Holders without volume or manner of sale restrictions under Rule 144, as determined by counsel to the Company pursuant to a written opinion letter to such effect, addressed and reasonably acceptable to the Company's transfer agent, (ii) to a Holder causing an Event that relates to or is caused by any action or inaction taken by such Holder, (iii) to a Holder in the event it is unable to lawfully sell any of its Registrable Securities (including, without limitation, in the event a Grace Period exceeds the length of an Allowable Grace Period) because of possession of material non-public information or (iv) with respect to any period after the expiration of the Effectiveness Period (it being understood that this clause shall not relieve the Company of any Liquidated Damages accruing prior to the expiration of the Effectiveness Period). If the Company fails to pay any Liquidated Damages pursuant to this Section 2(c) in full within ten (10) Business Days after the date payable, the Company will pay interest on the amount of Liquidated Damages then owing to the Holder at a rate of 1.0% per month on an annualized basis (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such Liquidated Damages are due until such amounts, plus all such interest thereon, are paid in full. The Liquidated Damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event, except in the case of the first Event Date. With respect to a Holder, the Effectiveness Deadline for a Required Registration Statement shall be extended without default or Liquidated Damages hereunder in the event that the Company's failure to obtain the effectiveness of the Registration Statement on a timely basis results from the failure of such Holder to timely provide the Company with information requested by the Company and necessary to complete the Registration Statement in accordance with the requirements of the Securities Act (in which case the Effectiveness Deadline would be extended with respect to Registrable Securities held by such Registration Rights Purchaser).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. <u>Piggyback Registration</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) If the Company intends to file a Registration Statement covering a primary or secondary offering of any of its Common Stock, Series B Preferred Stock, Non-Voting Common Stock or Other Securities, whether or not the sale for its own account, which is not a registration solely to implement an employee benefit plan pursuant to a registration statement on Form S-8 (or successor form), a registration statement on Form S-4 (or successor form) or a transaction to which Rule 145 or any other similar rule of the Commission is applicable, the Company will promptly (and in any event at least ten (10) Business Days before the anticipated filing date) give written notice to the Holders of its intention to effect such a registration. The Company will effect the registration under the Securities Act of all Registrable Securities that the Holder(s) request(s) be included in such registration (a "<u>Piggyback Registration</u>") by a written notice delivered to the Company within five (5) Business Days after the notice given by the Company in the preceding sentence. Subject to Section 3(b), securities requested to be included in a Company registration pursuant to this Section 3 shall be included by the Company on the same form of Registration Statement as has been selected by the Company for the securities the Company is registering for sale referred to above. The Holders shall be permitted to withdraw all or part of the Registrable Securities from the Piggyback Registration at any time at least two (2) Business Days prior to the effective date of the Registration Statement relating to such Piggyback Registration (the "<u>Piggyback Registration Statement</u>"). If the Company elects to terminate any registration filed under this Section 3 prior to the effectiveness of such registration, the Company will have no obligation to register the securities sought to be included by the Holders in such registration under this Section 3. There shall be no limit to the number of Piggybank Registrations pursuant to this Section 3(a).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If a Registration Statement under this Section 3 relates to an underwritten offering and the managing underwriter(s) advise(s) the Company that in its or their reasonable opinion the number of securities requested to be included in such offering exceeds the number which can be sold without adversely affecting the marketability of such offering (including an adverse effect on the per share offering price), the Company will include in such registration or Prospectus only such number of securities that in the reasonable opinion of such underwriter(s) can be sold without adversely affecting the marketability of the offering (including an adverse effect on the per share offering price), which securities will be so included in the following order of priority: (i) first, the Common Stock and other securities the Company proposes to sell, (ii) second, the Registrable Securities of the Holders who have requested inclusion of Registrable Securities pursuant to this Section 3, pro rata on the basis of the aggregate number of such securities or shares owned by each such person, or as such Holders may otherwise agree, and (iii) third, any other securities of the Company that have been requested to be so included, subject to the terms of this Agreement. The Company shall select the investment banking firm or firms to act as the lead underwriter or underwriters in connection with an underwritten offering made pursuant to this Section 3. No Holder may participate in any underwritten registration under this Section 3 unless such Holder (i) agrees to sell the Registrable Securities it desires to have covered by the underwritten offering on the basis provided in any underwriting arrangements in customary form and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. <u>Underwritten Shelf Offerings.</u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) At any time that a shelf registration statement covering Registrable Securities pursuant to Section 2 or Section 3 is effective, if any Holder delivers a notice to the Company (a "<u>Take-Down Notice</u>") stating that it intends to sell all or part of its Registrable Securities included by it on the shelf registration statement (a "<u>Shelf Offering</u>"), then, the Company shall amend or supplement the shelf registration statement as may be necessary in order to enable such Registrable Securities to be distributed pursuant to the Shelf Offering (taking into account the inclusion of Registrable Securities by any other Holders pursuant to this Section 4(a)). In connection with any Shelf Offering, including any Shelf Offering that is an underwritten offering, such proposing holder(s) shall also deliver the Take-Down Notice to all other holders of Registrable Securities included on such shelf Registration Statement and permit each such Holder to include its Registrable Securities included on the shelf Registration Statement in the Shelf Offering if such holder notifies the proposing holder(s) and the Company within five days after delivery of the Take-Down Notice to such Holder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Company shall have no obligation to effect an underwritten offering under this Section 4 on behalf of the holders of Registrable Securities electing to participate in such offering unless the expected gross proceeds from such offering exceed $5,000,000.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) If a Shelf Offering of Registrable Securities included in a Required Registration Statement is to be conducted as an underwritten offering, then the Company shall select the investment banking firm or firms to act as the lead underwriter or underwriters in connection with such offering, provided, that such selection shall be reasonably acceptable to the Holders of the majority of the Registrable Securities included in a Required Registration Statement. If, in connection with any such underwritten offering, the managing underwriter(s) advise(s) the Company that in its or their reasonable opinion the number of securities requested to be included in such offering exceeds the number which can be sold without adversely affecting the marketability of such offering (including an adverse effect on the per share offering price), the Company will include in such registration or Prospectus only such number of securities that in the reasonable opinion of such underwriter(s) can be sold without adversely affecting the marketability of the offering (including an adverse effect on the per share offering price), which securities will be so included in the following order of priority: (i) first, the Registrable Securities of the Holders who have requested registration of Registrable Securities pursuant to this Section 4, pro rata on the basis of the aggregate number of such securities or shares owned by each such person, or as the Holders may otherwise agree amongst themselves, (ii) second, the Common Stock and other securities the Company proposes to sell, and (iii) third, any other securities of the Company that have been requested to be so included, subject to the terms of this Agreement. No Holder may participate in any underwritten registration under this Section 4 unless such Holder (i) agrees to sell the Registrable Securities it desires to include in the underwritten offering on the basis provided in any underwriting arrangements in customary form and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) In addition to Sections (a) and (b) of this Section 4, a Shelf Offering of Registrable Securities included on a Piggyback Registration Statement initiated by Holders shall be subject to the procedures set forth in Section 3(b).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. <u>Registration Procedures</u>.

In connection with the Company's registration obligations hereunder:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the Company shall, not less than three (3) Trading Days prior to the filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto (except for Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, proxy statements and Current Reports on Form 8-K and any similar or successor reports), furnish to one counsel designated by a majority of the outstanding Registrable Securities ("<u>Holders Counsel</u>"), copies of such Registration Statement, Prospectus or amendment or supplement thereto, as proposed to be filed, which documents will be subject to the reasonable review of Holders Counsel. The Company shall not file any Registration Statement or amendment or supplement thereto containing information which Holders Counsel reasonably objects in good faith, unless the Company shall have been advised by its counsel that the information objected to is required under the Securities Act or the rules or regulations adopted thereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) (i) the Company shall prepare and file with the Commission such amendments, including post-effective amendments and supplements, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement continuously effective as to the applicable Registrable Securities for its Effectiveness Period (except during an Allowable Grace Period); (ii) the Company shall cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424 (except during an Allowable Grace Period); (iii) the Company shall respond as promptly as reasonably practicable to any comments received from the Commission with respect to each Registration Statement or any amendment thereto and, as promptly as reasonably possible, provide the Holders Counsel true and complete copies of all correspondence from and to the Commission relating to such Registration Statement that pertains to the Holders as "Selling Shareholders"; and (iv) the Company shall comply in all material respects with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by a Registration Statement until such time as all of such Registrable Securities shall have been disposed of (subject to the terms of this Agreement) in accordance with the intended methods of disposition by the Holders thereof as set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; provided, that each Holder shall be responsible for the delivery of the Prospectus to the Persons to whom such Registration Rights Purchaser sells any of the Registrable Securities (including in accordance with Rule 172 under the Securities Act), and each Holder agrees to dispose of Registrable Securities in compliance with applicable federal and state securities laws. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 5(b)) by reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Exchange Act, the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the Commission as promptly as practicable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) the Company shall notify the Holders (which notice shall, pursuant to clauses (ii) through (iv) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made, if applicable) as promptly as reasonably practicable following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement has been filed with the Commission; (B) with respect to each Registration Statement or any post-effective amendment, when the same has become effective; (ii) of the issuance by the Commission or any other federal or state Governmental Entity of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (iv) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, form of prospectus or supplement thereto, in light of the circumstances under which they were made), not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Notwithstanding anything to the contrary herein, at any time after the Registration Statement has been declared effective by the Commission, the Company may delay the disclosure of material non-public information concerning the Company if the disclosure of such information at the time is not, in the good faith judgment of the Company, in the best interests of the Company (such delay, a "<u>Grace Period</u>"). During the Grace Period, the Company shall not be required to maintain the effectiveness of any Registration Statement filed hereunder and, in any event, Holders shall suspend sales of Registrable Securities pursuant to such Registration Statements during the pendancy of the Grace Period provided, the Company shall promptly (i) notify the Holders in writing of the existence of material non-public information giving rise to a Grace Period or the need to file a post-effective amendment, as applicable, and the date on which such Grace Period will begin, (ii) use reasonable best efforts to terminate a Grace Period as promptly as practicable provided that such termination is, in the good faith judgment of the Company, in the best interest of the Company and (iii) notify the Holders in writing of the date on which the Grace Period ends; provided, further, that, with respect to a Required Registration Statement only, no single Grace Period shall exceed forty-five (45) consecutive days, and during any three hundred sixty-five (365) day period, the aggregate of all Grace Periods shall not exceed an aggregate of ninety (90) days (each Grace Period complying with this provision being an "<u>Allowable Grace Period</u>"). For purposes of determining the length of a Grace Period, the Grace Period shall be deemed to begin on and include the date the Holders receive the notice referred to in clause (i) above and shall end on and include the later of the date the Holders receive the notice referred to in clause (iii) above and the date referred to in such notice; provided, that no Grace Period shall be longer than an Allowable Grace Period. Notwithstanding anything to the contrary, the Company shall use reasonable best efforts to cause the Transfer Agent to deliver unlegended Shares to a transferee of a Holder in accordance with the terms of the Purchase Agreement in connection with any sale of Registrable Securities with respect to which a Holder has entered into an irrevocable contract for sale prior to the Holder's receipt of the notice of a Grace Period and for which the Holder has not yet settled.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) the Company shall use reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, as soon as practicable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) the Company shall, if requested by a Holder, furnish to such Holder, without charge, at least one (1) conformed copy of each Registration Statement and each amendment thereto and all exhibits to the extent requested by such Holder (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that the Company shall have no obligation to provide any document pursuant to this clause that is available on the Commission's EDGAR or successor system.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) the Company agrees to promptly deliver to each Holder whose Registrable Securities are included in the applicable Registration Statement, without charge, as many copies of each prospectus or prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) the Company shall, prior to any resale of Registrable Securities by a Holder, use its reasonable best efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any general tax in any such jurisdiction where it is not then so subject or file a consent to service of process in any such jurisdiction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the Company shall enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith or by the managing underwriter(s), if any, in order to expedite or facilitate the disposition of such Registrable Securities. In connection with any such permitted underwritten offering of Registrable Securities, (i) the Company shall (A) make such representations and warranties to the selling Holders and the managing underwriter(s), if any, with respect to the business of the Company and its subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers in underwritten offerings, and, if true, confirm the same if and when requested, (B) use its reasonable best efforts to furnish opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriter(s), if any, addressed to each of the managing underwriter(s), if any, covering the matters customarily covered in opinions requested in underwritten offerings, (C) use its reasonable best efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement) who have certified the financial statements included in such Registration Statement, addressed to each of the managing underwriter(s), if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings, (D) the underwriting agreement shall contain indemnification provisions and procedures customary in such underwritten offerings and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith, their counsel and the managing underwriter(s), if any, to evidence the continued validity of the representations and warranties made pursuant to clause (A) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company, (ii) each Holder shall not, during such period (which period shall in no event exceed one hundred and eighty (180) days, subject to any then customary "booster shot" extension (which extension shall not exceed thirty (30) days) following the effective date of any Registration Statement to the extent requested by any managing underwriter, sell, pledge, hypothecate, transfer, make any short sale of, loan, grant any option or right to purchase of, or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Registrable Securities owned by it at any time during such period, except Registrable Securities included in such registration; provided that any release of Registrable Securities from such agreement shall be effected among the Holders on a pro rata basis according to the Registrable Securities then owned by them, and (iii) the Company shall use its reasonable best efforts to cause each of its directors and senior executive officers to execute and deliver customary lockup agreements in such form and for such time period up to one hundred and eighty (180) days (subject to any then customary "booster shot" extensions) as may be requested by any managing underwriter. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required thereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) the Company shall make available for inspection by any Holder of Registrable Securities included in such Registration Statement, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such seller or underwriter (collectively, the "<u>Inspectors</u>"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its Subsidiaries (collectively, the "<u>Records</u>"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such Registration Statement; provided, however, that any Records that are not generally publicly available at the time of delivery of such Records shall be kept confidential by such Inspectors unless (i) the disclosure of such Records is necessary in the reasonable judgment of the Inspectors to avoid or correct a misstatement or omission in the Registration Statement, or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction; provided, further, that each Holder of Registrable Securities agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company to the extent legally permitted and allow the Company, at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) the Company shall, in the case of an underwritten offering, cause its officers to use their reasonable best efforts to support the marketing of the Registrable Securities covered by the Registration Statement (including, without limitation, by participation in "road shows") if requested by the managing underwriter(s) and taking into account the Company's business needs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) the Company shall reasonably cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement and under law, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may reasonably request. Certificates for Registrable Securities free from all restrictive legends may be transmitted by the transfer agent to a Holder by crediting the account of such Holder's prime broker with DTC as directed by such Holder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) the Company shall following the occurrence of any event contemplated by Sections 5(c)(ii)-(iv), as promptly as reasonably practicable, as applicable: (i) use its reasonable best efforts to prevent the issuance of any stop order or obtain its withdrawal at the earliest possible moment if the stop order have been issued, or (ii) taking into account the Company's good faith assessment of any adverse consequences to the Company and its shareholders of the premature disclosure of such event, prepare and file a supplement or amendment, including a post-effective amendment, to the affected Registration Statements or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, no Registration Statement nor any Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, form of prospectus or supplement thereto, in light of the circumstances under which they were made), not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) the Company may require each selling Holder to furnish to the Company a certified statement as to (i) the number of securities of the Company beneficially owned by such Holder and any Affiliate thereof, (ii) any Financial Industry Regulatory Authority ("FINRA") affiliations, (iii) any natural persons who have the power to vote or dispose of the Common Stock and (iv) any other information as may be requested by the Commission, FINRA, any state securities commission or any other government or regulatory body with jurisdiction over the Company or its activities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) the Company shall cooperate with any registered broker through which a Holder proposes to resell its Registrable Securities in effecting a filing with FINRA pursuant to FINRA Rule 5110 as requested by any such Holder and the Company shall pay the filing fee required for the first such filing (but not additional filings) within two (2) Business Days of the request therefore.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) if the Company becomes eligible to use Form S-3 during the term of this Agreement, the Company shall use its reasonable best efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of Registrable Securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) if requested by a Holders Counsel, the Company shall (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees (upon advice of counsel) is required to be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as reasonably practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment.

The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company in writing such information required in connection with such registration regarding such Holder and the distribution of such Registrable Securities as the Company may, from time to time, reasonably request in writing and the Company may exclude from such registration the Registrable Securities of any Holder who fails to furnish such information within a reasonable time after receiving such request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. <u>Registration Expenses</u>. All fees and expenses incident to the Company's performance of or compliance with its obligations under this Agreement (excluding any underwriting discounts and selling commissions, stock transfer taxes and fees of counsel for the Holders) shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence that are the Company's responsibility shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, (B) with respect to compliance with applicable state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders) and (C) if not previously paid by the Company in connection with an issuer filing, with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with FINRA pursuant to FINRA Rule 5110, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the Holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses of the Company, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, and (vii) those expenses of the selling Holders actually and reasonably incurred, including without limitation, the reasonable fees of one Holders Counsel representing the Holders. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. <u>Indemnification</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Indemnification by the Company</u>. The Company shall, notwithstanding any termination of this Agreement, indemnify, defend and hold harmless each Holder, the officers, directors, agents, general partners, managing members, managers, Affiliates and employees, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, general partners, managing members, managers, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and investigation and reasonable and documented attorneys' fees) and expenses (collectively, "<u>Losses</u>"), as incurred, that arise out of or are based upon (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, or (ii) any violation or alleged violation by the Company of the Securities Act, Exchange Act or any state securities law or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (A) such untrue statements, alleged untrue statements, omissions or alleged omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder or on behalf of such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and approved by such Holder or Holders Counsel expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto, (B) Holder's failure to deliver or cause to be delivered the Prospectus or any amendment or supplement thereto made available by the Company in compliance with Section 8(g), or (C) in the case of an occurrence of an event of the type specified in Sections 5(c)(ii)-(iv), related to the use by a Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing or electronic mail that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated and defined in Section 8(h) below, but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of an Indemnified Party (as defined in Section 7(c)) and shall survive the transfer of the Registrable Securities by the Holders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Indemnification by Holders</u>. Each Holder shall, notwithstanding any termination of this Agreement, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising out of or are based upon (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, or any form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (A) to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by or on behalf of such Holder expressly for use therein, or (B) to the extent, but only to the extent, that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and approved by such Holder or Holders Counsel expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (C) in the case of an occurrence of an event of the type specified in Sections 5(c)(ii)-(iv), to the extent, but only to the extent, related to the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 8(h), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected, or (ii) Holder's failure to deliver or cause to be delivered the Prospectus or any amendment or supplement thereto made available by the Company in compliance with Section 8(g). In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Conduct of Indemnification Proceedings</u>. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "<u>Indemnified Party</u>"), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the "<u>Indemnifying Party</u>") in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of one (1) counsel reasonably satisfactory to the Indemnified Party and the payment of all reasonable and documented fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such written notice within a reasonable time of commencement of any such Proceeding shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that such failure shall have materially and adversely prejudiced the Indemnifying Party in its ability to defend such Proceeding.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Indemnified Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel in writing that a conflict of interest exists if the same counsel were to represent such Indemnified Party and the Indemnifying Party; provided, that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld, delayed or unreasonably conditioned. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

Subject to the terms of this Agreement, all documented fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section 7(c)) shall be paid to the Indemnified Party, as incurred, within twenty (20) Trading Days of written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally judicially determined to not be entitled to indemnification hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Contribution</u>. If a claim for indemnification under Section 7(a) or 7(b) is unavailable to an Indemnified Party (other than in accordance with its terms) or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and Indemnified Party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party, on the one hand, and Indemnified Party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section 7(d) was available to such party in accordance with its terms. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 7(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

The indemnity and contribution agreements contained in this Section 7 are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties and are not in diminution or limitation of the indemnification provisions under the Purchase Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8. <u>Miscellaneous</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Remedies</u>. In the event of a breach by the Company or by a Holder of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Prohibition on Other Registrations</u>. The Company agrees (i) not to effect or initiate a registration statement for any public sale or distribution of any securities similar to those being registered pursuant to this Agreement, or any securities convertible into or exchangeable or exercisable for such securities (other than a registration solely to implement an employee benefit plan pursuant to a registration statement on Form S-8 (or successor form), a registration statement on Form S-4 (or successor form) or a transaction to which Rule 145 or any other similar rule of the Commission is applicable), during the fourteen (14) calendar days prior to, and during the sixty (60) calendar-day period beginning on, the effective date of any Registration Statement in which the Holders of Registrable Securities are participating (except as part of any such registration, if permitted).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Rule 144 Requirements</u>. For so long as the Company is subject to the reporting requirements of the Exchange Act, the Company will use its reasonable best efforts to timely file with the Commission such reports and information required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder and as the Commission may require. The Company shall furnish to any Holder of Registrable Securities forthwith upon request a written statement as to its compliance with the reporting requirements of Rule 144 (or any successor exemptive rule), the Securities Act and the Exchange Act (at any time that it is subject to such reporting requirements); a copy of its most recent annual or quarterly report; and such other reports and documents as such Person may reasonably request in availing itself of any rule or regulation of the Commission allowing it to sell any such securities without registration.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Obligations of Holders and Others in a Registration</u>. Each Holder agrees to timely furnish in writing such information regarding such Person, the securities sought to be registered and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably be required to effect the registration of such Registrable Securities (the "<u>Requested Information</u>") and shall take such other action as the Company may reasonably request in connection with the registration, qualification or compliance or as otherwise provided herein. At least ten (10) Business Days prior to the first anticipated filing date of a Registration Statement, the Company shall notify each holder of the information the Company requires from such Holder if such Holder elects to have any of such Holder's Registrable Securities included in the Registration Statement. If at least five (5) business days prior to the filing date, the Company has not received the Requested Information from a Holder (a "<u>Non-Responsive Holder</u>"), then the Company may exclude from any Registration Statement the Registrable Securities of such Non-Responsive Holder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Rule 144A</u>. The Company agrees that, upon the request of any Holder of Registrable Securities or any prospective purchaser of Registrable Securities designated by a Holder, the Company shall promptly provide (but in any case within fifteen (15) calendar days of a request) to such Holder or potential purchaser, the following information:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) a brief statement of the nature of the business of the Company and any subsidiaries and the products and services they offer;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the most recent consolidated balance sheets and profit and losses and retained earnings statements, and similar financial statements of the Company for the two (2) most recent fiscal years (such financial information shall be audited, to the extent reasonably available); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) such other information about the Company, any subsidiaries, and their business, financial condition and results of operations as the requesting Holder or purchaser of such Registrable Securities shall reasonably request in order to comply with Rule 144A, as amended, and in connection therewith the anti-fraud provisions of the federal and state securities laws.

The Company hereby represents and warrants to any such requesting Holder and any prospective purchaser of Registrable Securities from such Holder that the information provided by the Company pursuant to this Section 8(e) will, as of their dates, not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Limitations on Subsequent Registration Rights</u>. The Company will not enter into any agreements with any holder or prospective holder of any securities of the Company which would grant such holder or prospective holder registration rights with respect to the securities of the Company which would have priority over the Registrable Securities with respect to the inclusion of such securities in any registration. If the Company enters into an agreement that contains terms more favorable, in form or substance, to any shareholders than the terms provided to the Holders under this Agreement, then the Company will modify or revise the terms of this Agreement in order to reflect any such more favorable terms for the benefit of the Holders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <u>Compliance</u>. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to the Registration Statement and shall sell the Registrable Securities only in accordance with a method of distribution described in the Registration Statement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <u>Discontinued Disposition</u>. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Sections 5(c)(ii)-(iv), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the "<u>Advice</u>") by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <u>No Inconsistent Agreements</u>. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date hereof, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <u>Amendments and Waivers</u>. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, or waived unless the same shall be in writing and signed by the Company and Holders of a majority of the then outstanding Registrable Securities; provided that any such amendment, modification, supplement or waiver that materially, adversely and disproportionately effects the rights or obligations of any Holder vis-à-vis the other Holders shall require the prior written consent of such Holder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <u>Notices</u>. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile or e-mail (provided the sender receives a machine-generated confirmation of successful facsimile transmission or e-mail notification or confirmation of receipt of an e-mail transmission) at the facsimile number or e-mail address specified in this Section prior to 5:00 p.m., New York City time, on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5:00 p.m., New York City time, on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service with next day delivery specified, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

Attn: President and Chief Executive Officer

Facsimile: [●]

Email: [●]

Attn: Jude M. Sullivan, Esq.

Facsimile: [●]

Email: [●]

Attn: [●]

Facsimile: [●]

Email: jpietrzak@castlecreek.com

Attn: Vijay S. Sekhon, Esq.

Facsimile: [●]

Email: [●]

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <u>Successors and Assigns</u>. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. The Company may not assign its rights (except by merger or in connection with another entity acquiring all or substantially all of the Company's assets) or obligations hereunder without the prior written consent of all the Holders of the then outstanding Registrable Securities. The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by Registration Rights Purchaser to any transferee of the Shares only if: (a) the transferee or assignee (i) acquires Shares of the Registration Rights Purchaser's Registrable Securities with an original value as of the Closing Date of $1,000,000; (b) the Registration Rights Purchaser agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable period of time after such assignment; (c) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee and (ii) the securities with respect to which such registration rights are being transferred or assigned; (d) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws; and (e) at or before the time the Company received the written notice contemplated by clause (c) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein with respect to a Holder or Registration Rights Purchaser. In the event of any delay in filing or effectiveness of the Registration Statement as a result of such assignment by a Registration Rights Purchaser or its transferee, the Company shall not be liable for any damages arising from such delay.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) <u>Execution and Counterparts</u>. This Agreement may be executed in two (2) or more counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a ".pdf" format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or ".pdf" signature were the original thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) <u>Governing Law and Jurisdiction</u>. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware applicable to contracts made and to be performed entirely within such State. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) <u>Cumulative Remedies</u>. Except as provided in Section 2(c) with respect to Liquidated Damages, the remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) <u>Severability</u>. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their good faith reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) <u>Headings</u>. The headings in this Agreement are for convenience only and shall not limit or otherwise affect the meaning hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s) <u>Entire Agreement</u>. This Agreement and the Purchase Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than as set forth or referred to herein and in the Purchase Agreement. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

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| | |
|:---|:---|
| **TRI-COUNTY FINANCIAL GROUP, INC.** | **TRI-COUNTY FINANCIAL GROUP, INC.** |
| By: |  |
| Name: | Timothy J. McConville |
| Title: | President and Chief Executive Officer |
| **CASTLE CREEK CAPITAL PARTNERS VI, LP** | **CASTLE CREEK CAPITAL PARTNERS VI, LP** |
| By: | Castle Creek Capital VI LLC, its general partner |
| By: |  |
| Name: | John T. Pietrzak |
| Title: | Managing Principal |

---

[Signature Page to Registration Rights Agreement]

**EXHIBIT B**

**ACCREDITED INVESTOR QUESTIONNAIRE**

**(ALL INFORMATION WILL BE TREATED CONFIDENTIALLY)**

To: Tri-County Financial Group, Inc.

This Accredited Investor Questionnaire ("<u>Questionnaire</u>") must be completed by Castle Creek Capital Partners VI, LP, a Delaware limited partnership (the "<u>Purchaser</u>") in connection with the offer and sale by Tri-County Financial Group, Inc., a Delaware corporation (the "<u>Company</u>"), of its shares of (i) common stock, $1.00 par value per share (the "<u>Common Shares</u>") and (ii) the Series B Preferred Stock of the Company, no par value per share (the "<u>Series B Preferred Shares</u>"). The Common Shares and the Series B Preferred Shares shall be collectively referred herein to as the "<u>Shares</u>". The Shares are being offered and sold by the Company without registration under the Securities Act of 1933, as amended (the "<u>Act</u>"), and the securities laws of certain states, in reliance on the exemptions contained in Section 4(a)(2) of the Act and on Regulation D promulgated thereunder and in reliance on similar exemptions under applicable state laws. The Company must determine that the Purchaser meets certain suitability requirements before offering or selling Shares to such investor. The purpose of this Questionnaire is to assure the Company that the Purchaser will meet the applicable suitability requirements. The information supplied by the Purchaser will be used in determining whether the Purchaser meets such criteria, and reliance upon the private offering exemptions from registration is based in part on the information herein supplied.

This Questionnaire does not constitute an offer to sell or a solicitation of an offer to buy any security. The Purchaser's answers will be kept strictly confidential. However, by signing this Questionnaire, the Purchaser will be authorizing the Company to provide a completed copy of this Questionnaire to such parties as the Company deems appropriate in order to ensure that the offer and sale of the Shares will not result in a violation of the Act or the securities laws of any state and that the Purchaser otherwise satisfies the suitability standards applicable to purchasers of the Shares. Please print or type all responses and attach additional sheets of paper if necessary to complete answers to any item.

---

| | |
|:---|:---|
| PART A. | **BACKGROUND INFORMATION** |

---

Name of Beneficial Owner of the Shares:  

Business Address:   <br> (Number and Street)

(City) (State) (Zip
 Code)

Telephone Number: ()   <br>  

***If a corporation, partnership, limited liability company, trust or other entity***:

 ****

Type of entity:  

 ****

Were you formed for the purpose of investing in the securities being offered?<br>

---

| | |
|:---|:---|
| Yes ☐ | No ☐ |

---

***If an individual***:

 

Residence Address:   <br> (Number and Street)

(City) (State) (Zip
 Code)

Telephone Number: ()   <br>  

---

| | | |
|:---|:---|:---|
| Age: | Citizenship: | Where registered to vote: |

---

Set forth in the space provided below the state(s), if any, in the United States in which you maintained your residence during the past two years and the dates during which you resided in each state: ______

------

Are you a director or executive officer of the Company?<br>

---

| | |
|:---|:---|
| Yes ☐ | No ☐ |

---

Social Security or Taxpayer Identification No.   <br>  

---

| | |
|:---|:---|
| PART B. | **ACCREDITED INVESTOR QUESTIONNAIRE** |

---

In order for the Company to offer and sell the Shares in conformance with state and federal securities laws, the following information must be obtained regarding your investor status. Please *initial each category* applicable to you as a Purchaser of Shares.

---

| | | |
|:---|:---|:---|
| ☐ | 1. | A bank as defined in Section 3(a)(2) of the Securities Act, or any savings and loan association or other institution as defined in Section 3(a)(5)(A) of the Securities Act whether acting in its individual or fiduciary capacity; |
| ☐ | 2. | A broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934; |
| ☐ | 3. | An insurance company as defined in Section 2(a)(13) of the Securities Act; |
| ☐ | 4. | An investment company registered under the Investment Company Act of 1940 or a business development company as defined in Section 2(a)(48) of that Act; |
| ☐ | 5. | A Small Business Investment Company licensed by the U.S. Small Business Administration under Section 301(c) or (d) of the Small Business Investment Act of 1958; |
| ☐ | 6. | A plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; |
| ☐ | 7. | An employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974, if the investment decision is made by a plan fiduciary, as defined in Section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors; |

---

[Signature Page to Accredited Investor Questionnaire]

---

| | | |
|:---|:---|:---|
| ☐ | 8. | A private business development company as defined in Section 202(a)(22) of the Investment Advisers Act of 1940; |
| ☒ | 9. | An organization described in Section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the Shares, with total assets in excess of $5,000,000; |
| ☐ | 10. | A trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the Shares, whose purchase is directed by a sophisticated person who has such knowledge and experience in financial and business matters that such person is capable of evaluating the merits and risks of investing in the Company; |
| ☐ | 11. | A natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his or her purchase exceeds $1,000,000 (*see* **Note 11** below); |
| ☐ | 12. | A natural person who had an individual income in excess of $200,000 in each of the two most recent years, or joint income with that person's spouse in excess of $300,000 in each of those years, and has a reasonable expectation of reaching the same income level in the current year; |
| ☐ | 13. | An executive officer or director of the Company; and |
| ☐ | 14. | An entity in which all of the equity owners qualify under any of the above subparagraphs. If the undersigned belongs to this investor category only, list the equity owners of the undersigned, and the investor category which each such equity owner satisfies. |

---

---

| | |
|:---|:---|
| **Note 11.** | For purposes of calculating net worth under paragraph (11): |

---

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(A) The
 person's primary residence shall not be included as an asset;

(B) Indebtedness
 that is secured by the person's primary residence, up to the estimated fair market value of the primary residence at the time
 of the sale of securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the
 time of sale of securities exceeds the amount outstanding sixty (60) days before such time, other than as a result of the acquisition
 of the primary residence, the amount of such excess shall be included as a liability); and

(C) Indebtedness
 that is secured by the person's primary residence in excess of the estimated fair market value of the primary residence at
 the time of the sale of securities shall be included as a liability.

[Signature Page to Accredited Investor Questionnaire]

---

| | | | |
|:---|:---|:---|:---|
|  |  | **CASTLE CREEK CAPITAL PARTNERS VI, LP** | **CASTLE CREEK CAPITAL PARTNERS VI, LP** |
| Date: | October 6, 2017 |  |  |
|  |  | By: |  |
|  |  | Name: | John T. Pietrzak |
|  |  | Title: | Managing Principal |

---

[Signature Page to Accredited Investor Questionnaire]<br>

**EXHIBIT C**

**FORM OF OPINION OF COMPANY COUNSEL**

**[Company Counsel to Add Standard Template]**

1. The
 Company validly exists as a corporation in good standing under the laws of the State of Delaware.

2. The
 Company has the corporate power and authority to execute and deliver and to perform its obligations
 under the Transaction Documents, including, without limitation, to issue the Shares.

3. The
 Company is a registered bank holding company under the Bank Holding Company Act of 1956,
 as amended.

4. The
 deposit accounts of the Bank are insured by the Federal Deposit Insurance Corporation under
 the provisions of the Federal Deposit Insurance Act.

5. Each
 of the Transaction Documents has been duly authorized, executed, and delivered by the Company
 and, assuming due authorization, execution, and delivery by Purchaser, each of the Transaction
 Documents constitutes a valid and binding agreement of the Company, enforceable against the
 Company in accordance with its terms.

6. The
 execution and delivery by the Company of each of the Transaction Documents and the performance
 by the Company of its obligations under such agreements, including its issuance and sale
 of the Shares, do not and will not: (a) require any consent, approval, license or exemption
 by, order or authorization of, or filing, recording, or registration by the Company with
 any federal or state governmental authority, except (1) as may be required by federal securities
 laws with respect to the Company's obligations under the Registration Rights Agreement,
 (2) the filing of Form D pursuant to the United States Securities and Exchange Commission
 Regulation D, and (3) the filings required in accordance with Section 4.4 of the Stock Purchase
 Agreement, (b) violate any federal or state statute, rule, or regulation, or any rule or
 regulation of any Governmental Entity, or any court order, judgment, or decree, if any, listed
 in <u>Exhibit A</u> hereto, which exhibit lists all court orders, judgments, and decrees
 that the Company has certified to us are applicable to it, (c) result in any violation of
 the Certificate of Incorporation or Bylaws of the Company, or (d) result in a breach of,
 or constitute a default under, any contract listed on Schedule 3.1(vv) hereto.

7. Assuming
 the accuracy of the representations, warranties, and compliance with the covenants and agreements
 of Purchaser and the Company contained in the Stock Purchase Agreement, it is not necessary,
 in connection with the offer, sale, and delivery of the Shares and Underlying Shares to Purchaser
 to register the Shares or Underlying Shares under the Securities Act.

8. The
 Shares being delivered to Purchaser pursuant to the Stock Purchase Agreement have been duly
 and validly authorized and, when issued, delivered, and paid for as contemplated in the Stock
 Purchase Agreement, will be duly and validly issued, fully paid and non-assessable, and free
 of any preemptive right or similar rights contained in the Company's Certificate of
 Incorporation or Bylaws. The Underlying Shares to be issued upon conversion have been authorized
 on the part of the Company, have been duly and validly reserved for issuance by all necessary
 corporate action on the part of the Company and will be validly issued, fully paid and non-assessable,
 and free of any preemptive rights except for those herein pursuant to law or the Company's
 Certificate of Incorporation, as amended, or Bylaws.

**EXHIBIT D**

**FORM OF SECRETARY'S CERTIFICATE**

The undersigned hereby certifies that he is the duly elected, qualified, and acting Secretary of Tri-County Financial Group, Inc., a Delaware corporation (the "<u>Company</u>"), and that as such he is authorized to execute and deliver this certificate in the name and on behalf of the Company in connection with the Stock Purchase Agreement, dated as of October 6, 2017, by and among the Company and Castle Creek Capital Partners VI, LP (the "<u>Stock Purchase Agreement</u>"), and further certifies in his official capacity, in the name and on behalf of the Company, the items set forth below. Capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Stock Purchase Agreement.

1. Attached
 hereto as <u>Exhibit A</u> is a true, correct and complete copy of the resolutions duly adopted
 by the Board of Directors of the Company at a meeting held on [●], 2017. Such resolutions
 have not in any way been amended, modified, revoked, or rescinded, have been in full force
 and effect since their adoption to and including the date hereof and are now in full force
 and effect.

2. Attached
 hereto as <u>Exhibit B</u> is a copy of the Company's Certificate of Incorporation,
 as amended. Such Certificate of Incorporation, as amended, constitute true, correct, and
 complete copies of the Certificate of Incorporation, as amended, of the Company as in effect
 on the date hereof.

3. Attached
 hereto as <u>Exhibit C</u> is a copy of the Company's bylaws. Such bylaws constitute
 true, correct, and complete copies of the bylaws of the Company as in effect on the date
 hereof.

4. Each
 person listed below has been duly elected or appointed to the position(s) indicated opposite
 his name and is duly authorized to sign the Stock Purchase Agreement and each of the Transaction
 Documents on behalf of the Company, and the signature appearing opposite such person's
 name below is such person's genuine signature.

---

| | | |
|:---|:---|:---|
| **Name** | **Position** | **Signature** |

---

**IN WITNESS WHEREOF**, the undersigned has hereunto set his hand as of this 6th day of October, 2017.

  <br> [ ] <br> Secretary

I, [________], [President and Chief Executive Officer], hereby certify that [______] is the duly elected, qualified, and acting Secretary of the Company and that the signature set forth above is his true signature.

  <br> [ ] <br> President and Chief Financial Officer

**EXHIBIT E**

**FORM OF OFFICER'S CERTIFICATE**

The undersigned, the President and Chief Executive Officer of Tri-County Financial Group, Inc., a Delaware corporation (the "<u>Company</u>"), pursuant to Section 2.2(a)(vi) of the Stock Purchase Agreement, dated as of October 6, 2017, by and among the Company and the investors signatory thereto (the "<u>Agreement</u>"), hereby represents, warrants, and certifies as follows (capitalized terms used but not otherwise defined herein shall have the meaning set forth in the Agreement):

1. The
 representations and warranties of the Company contained in the Stock Purchase Agreement are
 true and correct as of the date when made and as of the Closing Date, as though made on and
 as of such date, except for such representations and warranties that speak as of a specific
 date.

2. The
 Company has performed, satisfied and complied in all material respects with all covenants,
 agreements and conditions required by the Transaction Documents to be performed, satisfied
 or complied with by it at or prior to the Closing.

3. Since
 December 31, 2016, there has not occurred any circumstance, event, change, development or
 effect that, individually or in the aggregate, has had or could reasonably be expected to
 have a Material Adverse Effect on the Company or the Bank.

**IN WITNESS WHEREOF**, the undersigned has executed this certificate this 6th day of October, 2017.

  <br> [ ] <br> President and Chief Executive Officer

**EXHIBIT F**

**FORM OF VCOC LETTER AGREEMENT**

**TRI-COUNTY FINANCIAL GROUP, INC.**

**706 WASHINGTON STREET**

**MENDOTA, IL 61342**

**October 6, 2017**

Castle Creek Capital Partners VI, LP

6051 El Tordo

Rancho Santa Fe, CA 92091

Dear Sir/Madam:

Reference is made to the Stock Purchase Agreement by and between among Tri-County Financial Group, Inc., a Delaware corporation (the "<u>Corporation</u>"), and Castle Creek Capital Partners VI, LP, a Delaware limited partnership (the "<u>VCOC Investor</u>"), dated as of October 6, 2017 (the "<u>Stock Purchase Agreement</u>"), pursuant to which the VCOC Investor agreed to purchase from the Corporation shares of its voting common stock, $1.00 par value per share (the "<u>Common Stock</u>"), and shares of its Series B Preferred Stock, no par value per share (the "<u>Series B Preferred Stock</u>"). Capitalized terms used herein without definition shall have the respective meanings in the Stock Purchase Agreement.

For good and valuable consideration acknowledged to have been received, the Corporation hereby agrees that it shall:

● For
 so long as the VCOC Investor, directly or through one or more Affiliates, continues to hold
 any Common Stock, Series B Preferred Stock or Non-Voting Common Stock, provide the VCOC Investor
 or its designated representative with the governance rights set forth in the Stock Purchase
 Agreement;

● For
 so long as the VCOC Investor, directly or through one or more Affiliates, continues to hold
 any Common Stock, Series B Preferred Stock or Non-Voting Common Stock, without limitation
 or prejudice of any of the rights provided to the VCOC Investor under the Stock Purchase
 Agreement and the Side Letter or any other agreement or otherwise, provide the VCOC Investor
 or its designated representative with:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the right to visit and inspect any of the offices and properties of the Corporation and its subsidiaries and inspect the books and records of the Corporation and its subsidiaries at such times as the VCOC Investor shall reasonably request upon three (3) business days' notice but not more frequently than once per calendar quarter, provided, however, that such rights shall not extend to confidential bank supervisory communications, customer financial records or other "exempt records" as defined by 12 C.F.R. Part 309, or reports of examination of any national or state chartered insured bank, which information may only be disclosed by the Corporation or any subsidiary of the Corporation in accordance with the provisions and subject to the limitations of applicable law or regulation;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) consolidated balance sheets and statements of income and cash flows of the Corporation and its subsidiaries prepared in conformity with generally accepted accounting principles in the United States applied on a consistent basis (A) as of the end of each quarter of each fiscal year of the Corporation as soon as practicable after preparation thereof but in no event later than ninety (90) days after the end of such quarter, and (B) with respect to each fiscal year end statement, as soon as practicable after preparation thereof but in no event later than one hundred and twenty (120) days after the end of such fiscal year together with an auditor's report thereon of a firm of established national reputation; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) to the extent the Corporation or any of its subsidiaries is required by law or pursuant to the terms of any outstanding indebtedness of the Corporation or any subsidiary to prepare such reports, any annual reports, quarterly reports and other periodic reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 or otherwise, actually prepared by the Corporation or any of its subsidiaries as soon as available;

provided that, in each case, if the Corporation makes the information described in clauses (ii) and (iii) of this bullet point available through public filings on the EDGAR system or any successor or replacement system of the United States Securities and Exchange Commission, the delivery of the information shall be deemed satisfied by such public filings.

● Make
 appropriate officers and directors of the Corporation, and its subsidiaries, available periodically
 and at such times as reasonably requested by the VCOC Investor for consultation with the
 VCOC Investor or its designated representative, but not more frequently than once per calendar
 quarter, with respect to matters relating to the business and affairs of the Corporation
 and its subsidiaries; and

● If
 the VCOC Investor's regular outside counsel determines in writing that other rights
 of consultation are reasonably necessary under applicable legal authorities promulgated after
 the date of this agreement to preserve the qualification of VCOC Investor's investment
 in the Corporation as a "venture capital investment" for purposes of the United
 States Department of Labor Regulation published at 29 C.F.R. Section 2510.3-101(d)(3)(i)
 (the " <u>Plan Asset Regulation</u> "), the Corporation agrees to cooperate in
 good faith with the VCOC Investor to amend this letter agreement to reflect such other rights
 that are mutually satisfactory to the Corporation and the VCOC Investor and consistent with
 the Federal Reserve Policy Statement on Equity Investments in Banks and Bank Holding Companies;
 provided that such consultation rights shall be limited to once per calendar quarter.

The Corporation agrees to consider, in good faith, the recommendations of the VCOC Investor or its designated representative in connection with the matters on which it is consulted as described above, recognizing that the ultimate discretion with respect to all such matters shall be retained by the Corporation.

The VCOC Investor agrees, and will require each designated representative of the VCOC Investor to agree, to hold in confidence and not use or disclose to any third party (other than its legal counsel and accountants) any confidential information provided to or learned by such party in connection with the VCOC Investor's rights under this letter agreement except as may otherwise be required by law or legal, judicial or regulatory process, provided that the VCOC Investor takes reasonable steps to minimize the extent of any such required disclosure.

In the event the VCOC Investor transfers all or any portion of its investment in the Corporation to an affiliated entity (or to a direct or indirect wholly-owned conduit subsidiary of any such affiliated entity) that is intended to qualify as a venture capital operating company under the Plan Asset Regulation, such affiliated entity shall be afforded the same rights that the Corporation has afforded to the VCOC Investor hereunder and shall be treated, for such purposes, as a third party beneficiary hereunder.

The rights of the VCOC Investor under this letter agreement are unique to the VCOC Investor and shall not be assignable or transferrable other than to an affiliated entity that is intended to qualify as a venture capital operating company under the Plan Asset Regulation.

This letter agreement and the rights and the duties of the parties hereto shall be governed by, and construed in accordance with, the laws of the State of New York and may be executed in counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same instrument.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

**IN WITNESS WHEREOF**, the parties have executed this letter agreement as of the date first above written.

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| | |
|:---|:---|
| **TRI-COUNTY FINANCIAL GROUP, INC.** | **TRI-COUNTY FINANCIAL GROUP, INC.** |
| By: |  |
| Name: | Timothy J. McConville |
| Title: | President and Chief Executive Officer |

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Agreed and acknowledged as of the date first above written:

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| | |
|:---|:---|
| **CASTLE CREEK CAPITAL PARTNERS VI, LP** | **CASTLE CREEK CAPITAL PARTNERS VI, LP** |
| By: | Castle Creek Capital VI LLC, its general partner |
| By: |  |
| Name: |  |
| Title: |  |

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[Signature Page to VCOC Agreement]

**EXHIBIT G**

**CERTIFICATE OF DESIGNATIONS**

**OF**

**SERIES B CONVERTIBLE PERPETUAL PREFERRED STOCK**

**OF**

**TRI-COUNTY FINANCIAL GROUP, INC.**

Pursuant to the provisions of the certificate of incorporation and the bylaws of the Corporation and applicable law, a series of preferred stock, no par value per share, of the Corporation be and hereby is created, and that the designation and number of shares of such series, and the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. <u>Definitions</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) "<u>Affiliate</u>" has the meaning set forth in 12 C.F.R. Section 225.2(a) or any successor provision.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) "<u>Board of Directors</u>" means the board of directors of the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) A "<u>business day</u>" means any day other than a Saturday or a Sunday or a day on which banks in Illinois are authorized or required by law, executive order or regulation to close.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) "<u>Certificate</u>" means a certificate representing one (1) or more shares of Series B Preferred Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) "<u>Certificate of Amendment Effective Date</u>" means the date that the Corporation shall have filed an amendment to the Certificate of Incorporation with the Delaware Secretary of State as required by the Delaware General Corporation Law to authorize a class of Non-Voting Common Stock containing terms substantially as set forth in Annex A to this Certificate of Designations in an amount of shares sufficient to permit the full conversion of the Series B Preferred Stock into shares of Non-Voting Common Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) "<u>Certificate of Incorporation</u>" means the Certificate of Incorporation of the Corporation, as amended and in effect from time and time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) "<u>Common Stock</u>" means the voting common stock of the Corporation, $1.00 par value per share.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) "<u>Conversion</u>" has the meaning set forth in Section 5.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) "<u>Corporation</u>" means Tri-County Financial Group, Inc., a Delaware corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) "<u>Dividends</u>" has the meaning set forth in Section 3.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) "<u>Exchange Agent</u>" means the Corporation solely for this purpose in its capacity as transfer and exchange agent for the Corporation, or any successor transfer and exchange agent for the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) "<u>Liquidation Distribution</u>" has the meaning set forth in Section 4.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) "<u>Mandatory Conversion Date</u>" means, with respect to shares of Series B Preferred Stock of any and all holders thereof, the Certificate of Amendment Effective Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) "<u>Non-Voting Common Stock</u>" means, if authorized by all necessary action on the part of the Corporation, a class of common equity of the Corporation containing terms substantially as set forth in Annex A to this Certificate of Designations.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) "<u>Permissible Transfer</u>" means a transfer by the holder of Series B Preferred Stock (i) to the Corporation; (ii) in a widely distributed public offering of Common Stock or Series B Preferred Stock; (iii) that is part of an offering that is not a widely distributed public offering of Common Stock or Series B Preferred Stock but is one in which no one transferee (or group of associated transferees) acquires the rights to receive two percent (2%) or more of any class of the Voting Securities of the Corporation then outstanding (including pursuant to a related series of transfers); (iv) that is part of a transfer of Common Stock or Series B Preferred Stock to an underwriter for the purpose of conducting a widely distributed public offering; or (v) to a transferee that controls more than fifty percent (50%) of the Voting Securities of the Corporation without giving effect to such transfer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) "<u>Person</u>" means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, or any other form of entity not specifically listed herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) "<u>Series B Preferred Stock</u>" has the meaning set forth in Section 2.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s) "<u>Voting Security</u>" has the meaning set forth in 12 C.F.R. Section 225.2(q) or any successor provision.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. <u>Designation; Number of Shares</u>. The series of shares of Preferred Stock hereby authorized shall be designated the "<u>Series B Convertible Perpetual Preferred Stock</u>". The number of authorized shares of the Series B Preferred Stock shall be 46,750 shares. The Series B Preferred Stock shall have no par value per share. Each share of Series B Preferred Stock has the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption as described herein. Each share of Series B Preferred Stock is identical in all respects to every other share of Series B Preferred Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. <u>Dividends</u>. The Series B Preferred Stock will rank *pari passu* with the Common Stock with respect to the payment of dividends or distributions, whether payable in cash, securities, options or other property, and with respect to issuance, grant or sale of any rights to purchase stock, warrants, securities or other property (collectively, the "<u>Dividends</u>") on a pro rata basis with the Common Stock determined on an as-converted basis assuming all shares had been converted pursuant to Section 5 as of immediately prior to the record date of the applicable Dividend (or if no record date is fixed, the date as of which the record holders of Common Stock entitled to such Dividends are to be determined). Accordingly, the holders of record of Series B Preferred Stock will be entitled to receive as, when, and if declared by the Board of Directors, Dividends in the same per share amount as paid on the number of shares of Common Stock with respect to the number of shares of Common Stock into which the shares of Series B Preferred Stock would be converted, and no Dividends will be payable on the Common Stock or any other class or series of capital stock ranking with respect to Dividends *pari passu* with the Common Stock unless a Dividend identical to that paid on the Common Stock is payable at the same time on the Series B Preferred Stock in an amount per share of Series B Preferred Stock equal to the product of (a) the per share Dividend declared and paid in respect of each share of Common Stock and (b) the number of shares of Common Stock into which such share of Series B Preferred Stock is then convertible (without regard to any limitations on conversion of the Series B Preferred Stock); *provided, however*, that if a stock Dividend is declared on Common Stock payable solely in Common Stock, the holders of Series B Preferred Stock will be entitled to a stock Dividend payable solely in shares of Series B Preferred Stock. Dividends that are payable on Series B Preferred Stock will be payable to the holders of record of Series B Preferred Stock as they appear on the stock register of the Corporation on the applicable record date, as determined by the Board of Directors, which record date will be the same as the record date for the equivalent Dividend of the Common Stock. In the event that the Board of Directors does not declare or pay any Dividends with respect to shares of Common Stock, then the holders of Series B Preferred Stock will have no right to receive any Dividends.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. <u>Liquidation</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Rank</u>. The Series B Preferred Stock will, with respect to rights upon liquidation, winding up and dissolution, rank (i) subordinate and junior in right of payment to all other securities of the Corporation which, by their respective terms, are senior to the Series B Preferred Stock or the Common Stock, and (ii) *pari passu* with the Common Stock pro rata on an as-converted basis. Not in limitation of anything contained herein, and for purposes of clarity, the Series B Preferred Stock is subordinated to the general creditors and subordinated debt holders of the Company, and the depositors of the Company's bank subsidiaries, in any receivership, insolvency, liquidation or similar proceeding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Liquidation Distributions</u>. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Series B Preferred Stock will be entitled to receive, for each share of Series B Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, subject to the rights of any Persons to whom the Series B Preferred Stock is subordinate, a distribution ("<u>Liquidation Distribution</u>") equal to (i) any authorized and declared, but unpaid, Dividends with respect to such share of Series B Preferred Stock at the time of such liquidation, dissolution or winding up, and (ii) the amount the holder of such share of Series B Preferred Stock would receive in respect of such share if such share had been converted into shares of Common Stock at the then applicable conversion rate at the time of such liquidation, dissolution or winding up (assuming the conversion of all shares of Series B Preferred Stock at such time, without regard to any limitations on conversion of the Series B Preferred Stock). All Liquidation Distributions to the holders of the Series B Preferred Stock and Common Stock set forth in clause (ii) above will be made pro rata to the holders thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Merger, Consolidation and Sale of Assets Not Liquidation</u>. For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Series B Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or property) of all or substantially all of the assets of the Corporation, will not constitute a liquidation, dissolution or winding up of the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. <u>Conversion</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>General</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Unless the shares of Series B Preferred Stock shall have previously been converted into shares of Non-Voting Common Stock pursuant to Section 5(a)(iii), a holder of Series B Preferred Stock shall be permitted to convert, or upon the written request of the Corporation shall convert, shares of Series B Preferred Stock into shares of Common Stock at any time or from time to time, provided that upon such conversion the holder, together with all Affiliates of the holder, will not own or control in the aggregate more than twenty-four point nine percent (24.9%) of the Common Stock (or of any class of Voting Securities issued by the Corporation), excluding for the purpose of this calculation any reduction in ownership resulting from transfers by such holder of Voting Securities of the Corporation (which, for the avoidance of doubt, does not include Series B Preferred Stock). In any such conversion, each share of Series B Preferred Stock will convert initially into ten (10) shares of Common Stock, subject to adjustment as provided in Section 6 below.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Unless the shares of Series B Preferred Stock shall have previously been converted into shares of Non-Voting Common Stock pursuant to Section 5(a)(iii), each share of Series B Preferred Stock will automatically convert into ten (10) shares of Common Stock, without any further action on the part of any holder, subject to adjustment as provided in Section 6, below, on the date a holder of Series B Preferred Stock transfers any shares of Series B Preferred Stock to a non-affiliate of the holder in a Permissible Transfer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) Effective as of the close of business on the Mandatory Conversion Date, each share of Series B Preferred Stock will automatically convert into ten (10) shares of Non-Voting Common Stock, without any further action on the part of any holder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) To effect any permitted conversion under Section 5(a)(i) or Section 5(a)(ii), the holder shall surrender the certificate or certificates evidencing such shares of Series B Preferred Stock, duly endorsed, at the registered office of the Corporation, and provide written instructions to the Corporation as to the number of whole shares for which such conversion shall be effected, together with any appropriate documentation that may be reasonably required by the Corporation. Upon the surrender of such certificate(s), the Corporation will issue and deliver to such holder (in the case of a conversion under Section 5(a)(i)) or such holder's transferee (in the case of a conversion under Section 5(a)(ii)) a certificate or certificates for the number of shares of Common Stock into which the Series B Preferred Stock has been converted and, in the event that such conversion is with respect to some, but not all, of the holder's shares of Series B Preferred Stock, the Corporation shall deliver to such holder a certificate or certificate(s) representing the number of shares of Series B Preferred Stock that were not converted to Common Stock or Non-Voting Common Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) Upon occurrence of the Mandatory Conversion Date, the Corporation shall promptly provide notice of such event and the resulting conversion of the Series B Preferred Stock to each registered holder of the Series B Preferred Stock. Such notice shall provide instructions for the surrender to the Corporation of certificates for shares of Series B Preferred Stock held of record by such holders for issuance of certificates representing shares of Non-Voting Common Stock into which the Series B Preferred Stock have been converted pursuant to Section 5(a)(iii).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) All shares of Common Stock or Non-Voting Common Stock delivered upon conversion of the Series B Preferred Stock shall be duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens, claims, security interests, charges and other encumbrances.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Reservation of Shares Issuable Upon Conversion</u>. The Corporation will at all times reserve and keep available out of its authorized but unissued Common Stock and, when authorized, Non-Voting Common Stock solely for the purpose of effecting the conversion of the Series B Preferred Stock such number of shares of Common Stock or Non-Voting Common Stock as will from time to time be sufficient to effect the conversion of all outstanding Series B Preferred Stock; and if at any time the number of shares of authorized but unissued Common Stock or Non-Voting Common Stock (when authorized) will not be sufficient to effect the conversion of all then outstanding Series B Preferred Stock, the Corporation will take such action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued Common Stock or Non-Voting Common Stock to such number of shares as will be sufficient for such purpose.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>No Impairment</u>. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such actions as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series B Preferred Stock against impairment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Compliance with Law</u>. Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Series B Preferred Stock, the Corporation shall use its reasonable best efforts to comply with any federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Listing</u>. The Corporation hereby covenants and agrees that, if at any time the Common Stock shall be traded on any national securities exchange, the Corporation will, if permitted by the rules of such exchange, list and keep listed, so long as the Common Stock shall be so listed on such exchange, all the Common Stock issuable upon conversion of the Series B Preferred Stock; provided, however, that if the rules of such exchange require the Corporation to defer the listing of such Common Stock until the first conversion of Series B Preferred Stock into Common Stock in accordance with the provisions hereof, the Corporation covenants to list such Common Stock issuable upon conversion of the Series B Preferred Stock in accordance with the requirements of such exchange at such time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. <u>Adjustments</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Combinations or Divisions of Common Stock</u>. In the event that the Corporation at any time or from time to time will effect a division of the Common Stock into a greater number of shares (by stock split, reclassification or otherwise other than by payment of a Dividend in Common Stock or in any right to acquire the Common Stock), or in the event the outstanding Common Stock will be combined or consolidated, by reclassification, reverse stock split or otherwise, into a lesser number of shares of the Common Stock, then the dividend, liquidation, and conversion rights of each share of Series B Preferred Stock in effect immediately prior to such event will, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Reclassification, Exchange or Substitution</u>. If the Common Stock is changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a division or combination of shares provided for in Section 6(a) above), (1) the conversion ratio then in effect will, concurrently with the effectiveness of such transaction, be adjusted so that each share of the Series B Preferred Stock will be convertible into, in lieu of the number of shares of Common Stock which the holders of the Series B Preferred Stock would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equal to the product of (i) the number of shares of such other class or classes of stock that a holder of a share of Common Stock would be entitled to receive in such transaction and (ii) the number of shares of Common Stock into which such share of Series B Preferred Stock is then convertible (without regard to any limitations on conversion of the Series B Preferred Stock) immediately before that transaction and (2) the Dividend and Liquidation Distribution rights then in effect will, concurrently with the effectiveness of such transaction, be adjusted so that each share of Series B Preferred Stock will be entitled to a Dividend and Liquidation Distribution right, in lieu of with respect to the number of shares of Common Stock which the holders of the Series B Preferred Stock would otherwise have been entitled to receive, with respect to a number of shares of such other class or classes of stock equal to the product of (i) the number of shares of such other class or classes of stock that a holder of a share of Common Stock would be entitled to receive in such transaction and (ii) the number of shares of Common Stock into which such share of Series B Preferred Stock is then convertible (without regard to any limitations on conversion of the Series B Preferred Stock) immediately before that transaction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Certificates as to Adjustments</u>. Upon the occurrence of each adjustment or readjustment pursuant to this Section 6, the Corporation at its expense will promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series B Preferred Stock a certificate executed by the Corporation's President (or other appropriate officer) setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation will, upon the written request at any time of any holder of Series B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, and (ii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series B Preferred Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. <u>Reorganization, Mergers, Consolidations or Sales of Assets</u>. If at any time or from time to time there will be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares otherwise provided for in Section 6) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all the Corporation's properties and assets to any other Person, then, as a part of such reorganization, merger, consolidation or sale, provision will be made so that the holders of the Series B Preferred Stock will thereafter be entitled to receive upon conversion of the Series B Preferred Stock, the number of shares of stock or other securities or property of the Corporation, or of the successor company resulting from such merger or consolidation or sale, to which a holder of that number of shares of Common Stock deliverable upon conversion of the Series B Preferred Stock would have been entitled to receive on such capital reorganization, merger, consolidation or sale (without regard to any limitations on conversion of the Series B Preferred Stock).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8. <u>Redemption</u>. Except to the extent a liquidation under Section 4 may be deemed to be a redemption, the Series B Preferred Stock will not be redeemable at the option of the Corporation or any holder of Series B Preferred Stock at any time. Notwithstanding the foregoing, the Corporation will not be prohibited from repurchasing or otherwise acquiring shares of Series B Preferred Stock in voluntary transactions with the holders thereof, subject to compliance with any applicable legal or regulatory requirements, including applicable regulatory capital requirements. Any shares of Series B Preferred Stock repurchased or otherwise acquired may be cancelled by the Corporation and thereafter be reissued as shares of any series of preferred stock of the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;9. <u>Voting Rights</u>. The holders of Series B Preferred Stock will not have any voting rights, except as may otherwise from time to time be required by law. If the holders of Series B Preferred Stock shall be entitled by law to vote as a single class with the holders of outstanding shares of Common Stock, with respect to any and all matters presented to the shareholders of the Corporation for their action or consideration (by vote or written consent), each share of Series B Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which such share is convertible pursuant to Section 5.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;10. <u>Protective Provisions</u>. So long as any shares of Series B Preferred Stock are issued and outstanding, the Corporation will not (including by means of merger, consolidation or otherwise), without obtaining the approval (by vote or written consent) of the holders of a majority of the issued and outstanding shares of Series B Preferred Stock, (a) alter or change the rights, preferences, privileges or restrictions provided for the benefit of the holders of the Series B Preferred Stock so as to affect them adversely, (b) increase or decrease the authorized number of shares of Series B Preferred Stock or (c) enter into any agreement, merger or business consolidation, or engage in any other transaction, or take any action that would have the effect of adversely changing any preference or any relative or other right provided for the benefit of the holders of the Series B Preferred Stock. In the event that the Corporation offers to repurchase shares of Common Stock, the Corporation shall offer to repurchase shares of Series B Preferred Stock pro rata based upon the number of shares of Common Stock such holders would be entitled to receive if such shares were converted into shares of Common Stock immediately prior to such repurchase.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;11. <u>Notices</u>. All notices required or permitted to be given by the Corporation with respect to the Series B Preferred Stock shall be in writing, and if delivered by first class United States mail, postage prepaid, to the holders of the Series B Preferred Stock at their last addresses as they shall appear upon the books of the Corporation, shall be conclusively presumed to have been duly given, whether or not the holder actually receives such notice; provided, however, that failure to duly give such notice by mail, or any defect in such notice, to the holders of any stock designated for repurchase, shall not affect the validity of the proceedings for the repurchase of any other shares of Series B Preferred Stock, or of any other matter required to be presented for the approval of the holders of the Series B Preferred Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;12. <u>Record Holders</u>. To the fullest extent permitted by law, the Corporation will be entitled to recognize the record holder of any share of Series B Preferred Stock as the true and lawful owner thereof for all purposes and will not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other Person, whether or not it will have express or other notice thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;13. <u>Term</u>. The Series B Preferred Stock shall have perpetual term unless converted in accordance with Section 5.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;14. <u>No Preemptive Rights</u>. The holders of Series B Preferred Stock are not entitled to any preemptive or preferential right to purchase or subscribe for any capital stock, obligations, warrants or other securities or rights of the Corporation, except for any such rights that may be granted by way of separate contract or agreement to one or more holders of Series B Preferred Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;15. <u>Replacement Certificates</u>. In the event that any Certificate will have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Corporation, the posting by such Person of a bond in such amount as the Corporation may determine is necessary as indemnity against any claim that may be made against it with respect to such Certificate, the Corporation or the Exchange Agent, as applicable, will deliver in exchange for such lost, stolen or destroyed Certificate a replacement Certificate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;16. <u>Other Rights</u>. The shares of Series B Preferred Stock have no preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or rights, other than as set forth herein or as provided by applicable law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;17. <u>General Provisions</u>. In addition to the above provisions with respect to the Series B Preferred Stock, such Series B Preferred Stock shall be subject to, and entitled to the benefits of, the provisions set forth in the Corporation's Certificate of Incorporation with respect to preferred stock generally.

**ANNEX A**

**FORM OF CERTIFICATE OF AMENDMENT**

**ESTABLISHING A CLASS OF NON-VOTING COMMON STOCK**

The shares of Non-Voting Common Stock of the Corporation into which the Series B Preferred Stock shall be mandatorily convertible upon the taking by the Corporation of all action necessary under the Delaware General Corporation Law to authorize a class of Non-Voting Common Stock shall have the following terms and provisions:

**CERTIFICATE OF AMENDMENT**

**OF**

**NON-VOTING COMMON STOCK**

**OF**

**TRI-COUNTY FINANCIAL GROUP, INC.**

Pursuant to the provisions of the Certificate of Incorporation and the Bylaws of the Corporation and applicable law, a series of non-voting common stock, par value $1.00 per share, of the Corporation be, and hereby is, created, and the designation and number of shares of such series, and the voting and other powers, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions thereof, of the shares of such series, are as follows:

1. <u>Definitions</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) "<u>Affiliate</u>" has the meaning set forth in 12 C.F.R. Section 225.2(a) or any successor provision.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) "<u>Board of Directors</u>" means the board of directors of the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) A "<u>business day</u>" means any day other than a Saturday or a Sunday or a day on which banks in Illinois are authorized or required by law, executive order or regulation to close.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) "<u>Certificate</u>" means a certificate representing one (1) or more shares of Non-Voting Common Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) "<u>Certificate of Incorporation</u>" means the Certificate of Incorporation of the Corporation, as amended and in effect from time and time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) "<u>Common Stock</u>" means the voting common stock of the Corporation, no par value per share.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) "<u>Conversion</u>" has the meaning set forth in Section 5.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) "<u>Corporation</u>" means Tri-County Financial Group, Inc., a Delaware corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) "<u>Dividends</u>" has the meaning set forth in Section 3.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) "<u>Exchange Agent</u>" means the Corporation solely for this purpose in its capacity as transfer and exchange agent for the Corporation, or any successor transfer and exchange agent for the Corporation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) "<u>Liquidation Distribution</u>" has the meaning set forth in Section 4.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) "<u>Non-Voting Common Stock</u>" has the meaning set forth in Section 2.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) "<u>Permissible Transfer</u>" means a transfer by the holder of Non-Voting Common Stock (i) to the Corporation; (ii) in a widely distributed public offering of Common Stock or Non-Voting Common Stock; (iii) that is part of an offering that is not a widely distributed public offering of Common Stock or Non-Voting Common Stock but is one in which no one transferee (or group of associated transferees) acquires the rights to receive two percent (2%) or more of any class of the Voting Securities of the Corporation then outstanding (including pursuant to a related series of transfers); (iv) that is part of a transfer of Common Stock or Non-Voting Common Stock to an underwriter for the purpose of conducting a widely distributed public offering; or (v) to a transferee that controls more than fifty percent (50%) of the Voting Securities of the Corporation without giving effect to such transfer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) "<u>Person</u>" means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, or any other form of entity not specifically listed herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) "<u>Voting Security</u>" has the meaning set forth in 12 C.F.R. Section 225.2(q) or any successor provision.

2. <u>Designation; Number of Shares</u>. The class of shares of capital stock hereby authorized shall be designated as "<u>Non-Voting Common Stock</u>". The number of authorized shares of the Non-Voting Common Stock shall be 467,500 shares. The Non-Voting Common Stock shall have $1.00 par value per share. Each share of Non-Voting Common Stock has the designations, preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms or conditions of redemption as described herein. Each share of Non-Voting Common Stock is identical in all respects to every other share of Non-Voting Common Stock.

3. <u>Dividends</u>. The Non-Voting Common Stock will rank *pari passu* with the Common Stock with respect to the payment of dividends or distributions, whether payable in cash, securities, options or other property, and with respect to issuance, grant or sale of any rights to purchase stock, warrants, securities or other property (collectively, the "<u>Dividends</u>"). Accordingly, the holders of record of Non-Voting Common Stock will be entitled to receive as, when, and if declared by the Board of Directors, Dividends in the same per share amount as paid on the Common Stock, and no Dividends will be payable on the Common Stock or any other class or series of capital stock ranking with respect to Dividends *pari passu* with the Common Stock unless a Dividend identical to that paid on the Common Stock is payable at the same time on the Non-Voting Common Stock in an amount per share of Non-Voting Common Stock equal to the product of (i) the per share Dividend declared and paid in respect of each share of Common Stock and (ii) the number of shares of Common Stock into which such share of Non-Voting Common Stock is then convertible (without regard to any limitations on conversion of the Non-Voting Common Stock); *provided however*, that if a stock Dividend is declared on Common Stock payable solely in Common Stock, the holders of Non-Voting Common Stock will be entitled to a stock Dividend payable solely in shares of Non-Voting Common Stock. Dividends that are payable on Non-Voting Common Stock will be payable to the holders of record of Non-Voting Common Stock as they appear on the stock register of the Corporation on the applicable record date, as determined by the Board of Directors, which record date will be the same as the record date for the equivalent Dividend of the Common Stock. In the event that the Board of Directors does not declare or pay any Dividends with respect to shares of Common Stock, then the holders of Non-Voting Common Stock will have no right to receive any Dividends.

4. <u>Liquidation</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Rank</u>. The Non-Voting Common Stock will, with respect to rights upon liquidation, winding up and dissolution, rank (i) subordinate and junior in right of payment to all other securities of the Corporation that, by their respective terms, are senior to the Non-Voting Common Stock or the Common Stock, and (ii) *pari passu* with the Common Stock. Not in limitation of anything contained herein, and for purposes of clarity, the Non-Voting Common Stock is subordinated to the general creditors and subordinated debt holders of the Company, and the depositors of the Company's bank subsidiaries, in any receivership, insolvency, liquidation or similar proceeding.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Liquidation Distributions</u>. In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Non-Voting Common Stock will be entitled to receive, for each share of Non-Voting Common Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, subject to the rights of any Persons to whom the Non-Voting Common Stock is subordinate, a distribution ("<u>Liquidation Distribution</u>") equal to (i) any authorized and declared, but unpaid, Dividends with respect to such share of Non-Voting Common Stock at the time of such liquidation, dissolution or winding up, and (ii) the amount the holder of such share of Non-Voting Common Stock would receive in respect of such share if such share had been converted into shares of Common Stock at the then applicable conversion rate at the time of such liquidation, dissolution or winding up (assuming the conversion of all shares of Non-Voting Common Stock at such time, without regard to any limitations on conversion of the Non-Voting Common Stock). All Liquidation Distributions to the holders of the Non-Voting Common Stock and Common Stock set forth in clause (ii) above will be made pro rata to the holders thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Merger, Consolidation and Sale of Assets Not Liquidation</u>. For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Non-Voting Common Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or property) of all or substantially all of the assets of the Corporation, will not constitute a liquidation, dissolution or winding up of the Corporation.

5. <u>Conversion</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>General</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) A
 holder of Non-Voting Common Stock shall be permitted to convert, or upon the written request
 of the Corporation shall convert, shares of Non-Voting Common Stock into shares of Common
 Stock at any time or from time to time, provided that upon such conversion the holder, together
 with all Affiliates of the holder, will not own or control in the aggregate more than twenty-four
 point nine percent (24.9%) of the Common Stock (or of any class of Voting Securities issued
 by the Corporation), excluding for the purpose of this calculation any reduction in ownership
 resulting from transfers by such holder of Voting Securities of the Corporation (which, for
 the avoidance of doubt, does not include Non-Voting Common Stock). In any such conversion,
 each share of Non-Voting Common Stock will convert initially into one (1) share of Common
 Stock, subject to adjustment as provided in Section 6 below.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Each
 share of Non-Voting Common Stock will automatically convert into one (1) share of Common
 Stock, without any further action on the part of any holder, subject to adjustment as provided
 in Section 6 below, on the date a holder of Non-Voting Common Stock transfers any shares
 of Non-Voting Common Stock to a non-affiliate of the holder in a Permissible Transfer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) To
 effect any permitted conversion under Section 5(a)(i) or Section 5(a)(ii), the holder shall
 surrender the certificate or certificates evidencing such shares of Non-Voting Common Stock,
 duly endorsed, at the registered office of the Corporation, and provide written instructions
 to the Corporation as to the number of whole shares for which such conversion shall be effected,
 together with any appropriate documentation that may be reasonably required by the Corporation.
 Upon the surrender of such certificate(s), the Corporation will issue and deliver to such
 holder (in the case of a conversion under Section 5(a)(i)) or such holder's transferee
 (in the case of a conversion under Section 5(a)(ii)) a certificate or certificates for the
 number of shares of Common Stock into which the Non-Voting Common Stock has been converted
 and, in the event that such conversion is with respect to some, but not all, of the holder's
 shares of Non-Voting Common Stock, the Corporation shall deliver to such holder a certificate
 or certificate(s) representing the number of shares of Non-Voting Common Stock that were
 not converted to Common Stock.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) All
 shares of Common Stock delivered upon conversion of the Non-Voting Common Stock shall be
 duly authorized, validly issued, fully paid and non-assessable, free and clear of all liens,
 claims, security interests, charges and other encumbrances.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Reservation of Shares Issuable Upon Conversion</u>. The Corporation will at all times reserve and keep available out of its authorized but unissued Common Stock solely for the purpose of effecting the conversion of the Non-Voting Common Stock such number of shares of Common Stock as will from time to time be sufficient to effect the conversion of all outstanding Non-Voting Common Stock; and if at any time the number of shares of authorized but unissued Common Stock will not be sufficient to effect the conversion of all then outstanding Non-Voting Common Stock, the Corporation will take such action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued Common Stock to such number of shares as will be sufficient for such purpose.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>No Impairment</u>. The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such actions as may be necessary or appropriate in order to protect the conversion rights of the holders of the Non-Voting Common Stock against impairment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Compliance with Law</u>. Prior to the delivery of any securities that the Corporation shall be obligated to deliver upon conversion of the Non-Voting Common Stock, the Corporation shall use its reasonable best efforts to comply with any federal and state laws and regulations thereunder requiring the registration of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Listing</u>. The Corporation hereby covenants and agrees that, if at any time the Common Stock shall be traded on any national securities exchange, the Corporation will, if permitted by the rules of such exchange, list and keep listed, so long as the Common Stock shall be so listed on such exchange, all the Common Stock issuable upon conversion of the Non-Voting Common Stock; provided, however, that if the rules of such exchange require the Corporation to defer the listing of such Common Stock until the first conversion of Non-Voting Common Stock into Common Stock in accordance with the provisions hereof, the Corporation covenants to list such Common Stock issuable upon conversion of the Non-Voting Common Stock in accordance with the requirements of such exchange at such time.

6. <u>Adjustments</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Combinations or Divisions of Common Stock</u>. In the event that the Corporation at any time or from time to time will effect a division of the Common Stock into a greater number of shares (by stock split, reclassification or otherwise other than by payment of a Dividend in Common Stock or in any right to acquire the Common Stock), or in the event the outstanding Common Stock will be combined or consolidated, by reclassification, reverse stock split or otherwise, into a lesser number of shares of the Common Stock, then the dividend, liquidation, and conversion rights of each share of Non-Voting Common Stock in effect immediately prior to such event will, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Reclassification, Exchange or Substitution</u>. If the Common Stock is changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a division or combination of shares provided for in Section 6(a) above), (1) the conversion ratio then in effect will, concurrently with the effectiveness of such transaction, be adjusted so that each share of the Non-Voting Common Stock will be convertible into, in lieu of the number of shares of Common Stock which the holders of the Non-Voting Common Stock would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equal to the product of (i) the number of shares of such other class or classes of stock that a holder of a share of Common Stock would be entitled to receive in such transaction and (ii) the number of shares of Common Stock into which such share of Non-Voting Common Stock is then convertible (without regard to any limitations on conversion of the Non-Voting Common Stock) immediately before that transaction and (2) the Dividend and Liquidation Distribution rights then in effect will, concurrently with the effectiveness of such transaction, be adjusted so that each share of Non-Voting Common Stock will be entitled to a Dividend and Liquidation Distribution right, in lieu of with respect to the number of shares of Common Stock which the holders of the Non-Voting Common Stock would otherwise have been entitled to receive, with respect to a number of shares of such other class or classes of stock equal to the product of (i) the number of shares of such other class or classes of stock that a holder of a share of Common Stock would be entitled to receive in such transaction and (ii) the number of shares of Common Stock into which such share of Non-Voting Common Stock is then convertible (without regard to any limitations on conversion of the Non-Voting Common Stock) immediately before that transaction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Certificates as to Adjustments</u>. Upon the occurrence of each adjustment or readjustment pursuant to this Section 6, the Corporation at its expense will promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Non-Voting Common Stock a certificate executed by the Corporation's President (or other appropriate officer) setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation will, upon the written request at any time of any holder of Non-Voting Common Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, and (ii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Non-Voting Common Stock.

7. <u>Reorganization, Mergers, Consolidations or Sales of Assets</u>. If at any time or from time to time there will be a capital reorganization of the Common Stock (other than a subdivision, combination, reclassification or exchange of shares otherwise provided for in Section 6) or a merger or consolidation of the Corporation with or into another corporation, or the sale of all or substantially all the Corporation's properties and assets to any other Person, then, as a part of such reorganization, merger, consolidation or sale, provision will be made so that the holders of the Non-Voting Common Stock will thereafter be entitled to receive upon conversion of the Non-Voting Common Stock, the number of shares of stock or other securities or property of the Corporation, or of the successor company resulting from such merger or consolidation or sale, to which a holder of that number of shares of Common Stock deliverable upon conversion of the Non-Voting Common Stock would have been entitled to receive on such capital reorganization, merger, consolidation or sale (without regard to any limitations on conversion of the Non-Voting Common Stock).

8. <u>Redemption</u>. Except to the extent a liquidation under Section 4 may be deemed to be a redemption, the Non-Voting Common Stock will not be redeemable at the option of the Corporation or any holder of Non-Voting Common Stock at any time. Notwithstanding the foregoing, the Corporation will not be prohibited from repurchasing or otherwise acquiring shares of Non-Voting Common Stock in voluntary transactions with the holders thereof, subject to compliance with any applicable legal or regulatory requirements, including applicable regulatory capital requirements. Any shares of Non-Voting Common Stock repurchased or otherwise acquired may be reissued as additional shares of Non-Voting Common Stock.

9. <u>Voting Rights</u>. The holders of Non-Voting Common Stock will not have any voting rights, except as may otherwise from time to time be required by law.

10. <u>Protective Provisions</u>. So long as any shares of Non-Voting Common Stock are issued and outstanding, the Corporation will not (including by means of merger, consolidation or otherwise), without obtaining the approval (by vote or written consent) of the holders of a majority of the issued and outstanding shares of Non-Voting Common Stock, (i) alter or change the rights, preferences, privileges or restrictions provided for the benefit of the holders of the Non-Voting Common Stock so as to affect them adversely, (ii) increase or decrease the authorized number of shares of Non-Voting Common Stock or (iii) enter into any agreement, merger or business consolidation, or engage in any other transaction, or take any action that would have the effect of adversely changing any preference or any relative or other right provided for the benefit of the holders of the Non-Voting Common Stock. In the event that the Corporation offers to repurchase shares of Common Stock, the Corporation shall offer to repurchase shares of Non-Voting Common Stock pro rata based upon the number of shares of Common Stock such holders would be entitled to receive if such shares were converted into shares of Common Stock immediately prior to such repurchase.

11. <u>Notices</u>. All notices required or permitted to be given by the Corporation with respect to the Non-Voting Common Stock shall be in writing, and if delivered by first class United States mail, postage prepaid, to the holders of the Non-Voting Common Stock at their last addresses as they shall appear upon the books of the Corporation, shall be conclusively presumed to have been duly given, whether or not the holder actually receives such notice; provided, however, that failure to duly give such notice by mail, or any defect in such notice, to the holders of any stock designated for repurchase, shall not affect the validity of the proceedings for the repurchase of any other shares of Non-Voting Common Stock, or of any other matter required to be presented for the approval of the holders of the Non-Voting Common Stock.

12. <u>Record Holders</u>. To the fullest extent permitted by law, the Corporation will be entitled to recognize the record holder of any share of Non-Voting Common Stock as the true and lawful owner thereof for all purposes and will not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other Person, whether or not it will have express or other notice thereof.

13. <u>Term</u>. The Non-Voting Common Stock shall have perpetual term unless converted in accordance with Section 5.

14. <u>No Preemptive Rights</u>. The holders of Non-Voting Common Stock are not entitled to any preemptive or preferential right to purchase or subscribe for any capital stock, obligations, warrants or other securities or rights of the Corporation, except for any such rights that may be granted by way of separate contract or agreement to one or more holders of Non-Voting Common Stock.

15. <u>Replacement Certificates</u>. In the event that any Certificate will have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by the Corporation, the posting by such Person of a bond in such amount as the Corporation may determine is necessary as indemnity against any claim that may be made against it with respect to such Certificate, the Corporation or the Exchange Agent, as applicable, will deliver in exchange for such lost, stolen or destroyed Certificate a replacement Certificate.

16. <u>Other Rights</u>. The shares of Non-Voting Common Stock have no preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends, qualifications, or rights, other than as set forth herein or as provided by applicable law.

## Exhibit 10.2

**Exhibit 10.2**

Execution Version

**TRI-COUNTY FINANCIAL GROUP, INC.<br> REGISTRATION RIGHTS AGREEMENT**

This Registration Rights Agreement (this "<u>Agreement</u>") is made and entered into as of October 6, 2017, by and among Tri-County Financial Group, Inc., a Delaware corporation (the "<u>Company</u>"), and Castle Creek Capital Partners VI, LP, a Delaware limited partnership (the "<u>Registration Rights Purchaser</u>").

This Agreement is made pursuant to the Stock Purchase Agreement, dated as of October 6, 2017, between the Company and each Registration Rights Purchaser (the "<u>Purchase Agreement</u>").

NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Company and the Registration Rights Purchaser agree as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;1. <u>Definitions</u>. Capitalized terms used and not otherwise defined herein that are defined in the Purchase Agreement shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:

"<u>Advice</u>" shall have the meaning set forth in Section 8(h).

"<u>Affiliate</u>" means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person.

"<u>Agreement</u>" shall have the meaning set forth in the Preamble.

"<u>Allowable Grace Period</u>" shall have the meaning set forth in Section 5(d).

"<u>Business Day</u>" means a day other than a Saturday or Sunday or other day on which banks located in New York City are authorized or required by law to close.

"<u>Capital Stock</u>" means, with respect to any Person at any time, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of capital stock, securities convertible into or exchangeable or exercise able for any of its shares, interests, participations or other equivalents, partnership interests (whether general or limited), limited liability company interests, or equivalent ownership interests in or issued by such Person.

"<u>Closing Date</u>" has the meaning set forth in the Purchase Agreement.

"<u>Commission</u>" means the United States Securities and Exchange Commission.

"<u>Common Stock</u>" means the voting common stock of the Company, par value $1.00 per share, and any securities into which such shares of voting common stock may hereinafter be reclassified.

"<u>Company</u>" shall have the meaning set forth in the Preamble.

"<u>Effective Date</u>" means the date that the Registration Statement filed pursuant to Section 2(a) is first declared effective by the Commission.

"<u>Effectiveness Deadline</u>" means, with respect to the Initial Registration Statement or the New Registration Statement, the fifth (5th) Trading Day after the date the Company is notified (orally or in writing, whichever is earlier) by the Commission that such Registration Statement will not be "reviewed" or will not be subject to further review; provided, that if the Effectiveness Deadline falls on a Saturday, Sunday or other day that the Commission is closed for business, the Effectiveness Deadline shall be extended to the next Business Day on which the Commission is open for business.

"<u>Effectiveness Period</u>" shall have the meaning set forth in Section 2(b).

"<u>Event</u>" shall have the meaning set forth in Section 2(c).

"<u>Event Date</u>" shall have the meaning set forth in Section 2(c).

"<u>Exchange Act</u>" means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

"<u>Filing Deadline</u>" means, with respect to the Initial Registration Statement required to be filed pursuant to Section 2(a), the date that is the fifth (5th) anniversary of the Closing Date; provided that if the Filing Deadline falls on a Saturday, Sunday or other day that the Commission is closed for business, the Filing Deadline shall be extended to the next business day on which the Commission is open for business.

"<u>FINRA</u>" shall have the meaning set forth in Section 5(n).

"<u>Grace Period</u>" shall have the meaning set forth in Section 5(d).

"<u>Holder</u>" or "<u>Holders</u>" means the holder or holders, as the case may be, from time to time of Registrable Securities.

"<u>Holders Counsel</u>" shall have the meaning set forth in Section 5(a).

"<u>Indemnified Party</u>" shall have the meaning set forth in Section 7(c).

"<u>Indemnifying Party</u>" shall have the meaning set forth in Section 7(c).

"<u>Initial Registration Statement</u>" means shall have the meaning set forth in Section 2(a).

"<u>Liquidated Damages"</u> shall have the meaning set forth in Section 2(c).

"<u>Losses</u>" shall have the meaning set forth in Section 7(a).

"<u>New Registration Statement</u>" shall have the meaning set forth in Section 2(a).

"<u>Non-Responsive Holder</u>" shall have the meaning set forth in Section 8(d).

"<u>Non-Voting Common Stock</u>" means the Company's non-voting common stock, $1.00 par value per share, into which the Series B Preferred Stock is convertible following approval by the Company's shareholders of an amendment to its certificate of incorporation authorizing said stock.

"<u>OTC Pink</u>" means the marketplace for trading over-the-counter stocks provided and operated by OTC Markets Group, Inc.

"<u>Other Securities</u>" means shares of Common Stock, Series B Preferred Stock, Non-Voting Common Stock or shares of other Capital Stock of the Company which are contractually entitled to registration rights or Capital Stock which the Company is registering pursuant to a Registration Statement.

"<u>Person</u>" means an individual or corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or subdivision thereof) or other entity of any kind.

"<u>Piggyback Registration</u>" shall have the meaning set forth in Section 3(a).

"<u>Principal Market</u>" means the Trading Market on which the Common Stock is primarily listed on and quoted for trading, which, as of the Closing Date, shall be OTC Pink.

"<u>Proceeding</u>" means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.

"<u>Prospectus</u>" means the prospectus included in a Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by a Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in such Prospectus.

"<u>Purchase Agreement</u>" shall have the meaning set forth in the Recitals.

"<u>Registrable Securities</u>" means all of the Shares, the Underlying Shares and any securities issued or issuable upon any stock split, dividend or other distribution, recapitalization or similar event with respect to the Shares or the Underlying Shares, provided that Shares or the Underlying Shares shall cease to be Registrable Securities upon the earliest to occur of the following: (A) a sale pursuant to a Registration Statement or Rule 144 under the Securities Act (in which case, only such security sold shall cease to be a Registrable Security); (B) becoming eligible for sale without time, volume or manner of sale restrictions by the Holders under Rule 144; (C) if such Shares or Underlying Shares have ceased to be outstanding; (D) the date a Registration Statement becomes effective including such Shares or Underlying Shares; or (E) if such Shares or Underlying Shares have been sold in a private transaction in which the Holder's rights under this Agreement have not been assigned to the transferee.

"<u>Registration Rights Purchaser</u>" shall have the meaning set forth in the Preamble.

"<u>Registration Statements</u>" means any one or more registration statements of the Company filed under the Securities Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement (including without limitation the Initial Registration Statement, the New Registration Statement and any Remainder Registration Statements), amendments and supplements to such Registration Statements, including post-effective amendments, all exhibits and all material incorporated by reference or deemed to be incorporated by reference in such Registration Statements.

"<u>Remainder Registration Statement</u>" shall have the meaning set forth in Section 2(a).

"<u>Requested Information</u>" shall have the meaning set forth in Section 8(d).

"<u>Required Registration Statement</u>" means any Initial Registration Statement, New Registration Statement or Remainder Registration Statement.

"<u>Rule 144</u>" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule thereto.

"<u>Rule 144A</u>" means Rule 144A promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule thereto.

"<u>Rule 415</u>" means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule thereto.

"<u>Rule 424</u>" means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any successor rule thereto.

"<u>SEC Guidance</u>" means (i) any publicly available written guidance, comments, requirements or requests of the Commission staff and (ii) the Securities Act.

"<u>Securities Act</u>" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

"<u>Series B Preferred Stock</u>" means the Company's Series B Convertible Perpetual Preferred Stock, no par value per share, and any securities into which such shares of Series B Convertible Perpetual Preferred Stock may hereinafter be reclassified.

"<u>Shares</u>" means the shares of Common Stock and Series B Preferred Stock issued or issuable to the Registration Rights Purchaser pursuant to the Purchase Agreement.

"<u>Shelf Offering</u>" shall have the meaning set forth in Section 4(a).

"<u>Take-Down Notice</u>" shall have the meaning set forth in Section 4(a).

"<u>Trading Day</u>" means (i) a day on which the Common Stock is listed or quoted and traded on its Principal Market (other than the OTC Bulletin Board), or (ii) if the Common Stock is not listed on a Trading Market (other than the OTC Bulletin Board), a day on which the Common Stock is traded in the over-the-counter market, as reported by the OTC Bulletin Board, or (iii) if the Common Stock is not quoted on any Trading Market, a day on which the Common Stock is quoted in the over-the-counter market as reported in the "pink sheets" by OTC Markets Group, Inc. (or any similar organization or agency succeeding to its functions of reporting prices); provided, that in the event that the Common Stock is not listed or quoted as set forth in (i), (ii) and (iii) hereof, then Trading Day shall mean a Business Day.

"<u>Trading Market</u>" means whichever of the New York Stock Exchange, the NYSE MKT, the NASDAQ Global Select Market, the NASDAQ Global Market, the NASDAQ Capital Market or OTC Bulletin Board on which the Common Stock is listed or quoted for trading on the date in question.

"<u>Underlying Shares</u>" means the shares of Common Stock and Non-Voting Common Stock into which the Series B Preferred Stock is convertible.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;2. <u>Mandatory Registration</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) On or prior to the Filing Deadline, the Company shall prepare and file with the Commission a Registration Statement covering the resale of all of the Registrable Securities not already covered by an existing and effective Registration Statement for an offering to be made on a continuous basis pursuant to Rule 415 or, if Rule 415 is not available for offers and sales of the Registrable Securities, by such other means of distribution of Registrable Securities as the Company may reasonably determine (the "<u>Initial Registration Statement</u>"); provided, that, the Company shall consider in good faith preparing and filing such Initial Registration Statement on or prior to the third (3rd) anniversary of the date hereof. Notwithstanding the registration obligations set forth in this Section 2, in the event that (i) the Company's counsel determines that all such Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement prior to filing the Initial Registration Statement, or (ii) the Commission informs the Company that all such Registrable Securities cannot, as a result of the application of Rule 415, be registered for resale as a secondary offering on a single registration statement, the Company agrees to promptly (A) inform each of the Holders thereof and, as applicable, file the Initial Registration Statement, or use its reasonable best efforts to file amendments to the Initial Registration Statement as required by the Commission and/or (B) withdraw the Initial Registration Statement and file a new registration statement (a "<u>New Registration Statement</u>"), in each case covering the maximum number of such Registrable Securities permitted to be registered thereon, on such form available to the Company to register for resale the Registrable Securities as a secondary offering; provided, that in the case of (ii) above, prior to filing such amendment or New Registration Statement, the Company shall be obligated to use its reasonable best efforts to advocate with the Commission for the registration of all of the Registrable Securities in accordance with the SEC Guidance, including without limitation, Securities Act Rules Compliance and Disclosure Interpretation 612.09, or any successor thereto. Notwithstanding any other provision of this Agreement, if the opinion of the Company's counsel or any SEC Guidance sets forth a limitation of the number of Registrable Securities permitted to be registered on a particular Registration Statement as a secondary offering (and, in the case of clause (ii) above, notwithstanding that the Company used reasonable best efforts to reasonably advocate with the Commission for the registration of all or a greater number of Registrable Securities), the number of Registrable Securities to be registered on such Registration Statement will be reduced on a pro rata on the basis of the aggregate number of Registrable Securities owned by each such person, and under such circumstances, the Company will not be subject to the payment of Liquidated Damages in Section 2(c). In the event the Company amends the Initial Registration Statement or files a New Registration Statement, as the case may be, under clauses (A) or (B) above, the Company will use its reasonable best efforts to file with the Commission, as promptly as allowed by Commission or SEC Guidance provided to the Company or to registrants of securities in general, one or more registration statements on such form available to the Company to register for resale those Registrable Securities that were not registered for resale on the Initial Registration Statement, as amended, or the New Registration Statement (the "<u>Remainder Registration Statements</u>"). No Holder shall be named as an "underwriter" in any Registration Statement without such Holder's prior written consent, which shall not be unreasonably withheld.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Company shall use its reasonable best efforts to cause each Required Registration Statement to be declared effective by the Commission as soon as practicable, and, with respect to the Initial Registration Statement or the New Registration Statement, as applicable, no later than the Effectiveness Deadline, and shall use its reasonable best efforts to keep each Required Registration Statement continuously effective under the Securities Act until the earlier of (i) such time as all of the Registrable Securities covered by such Required Registration Statement have been publicly sold by the Holders or (ii) the date that all Registrable Securities covered by such Required Registration Statement may be sold by the Holders without volume or manner of sale restrictions under Rule 144, as determined by counsel to the Company pursuant to a written opinion letter to such effect, addressed and reasonably acceptable to the Company's transfer agent (the "<u>Effectiveness Period</u>"); provided, however, if the Company does not meet the eligibility requirements for filing on Form S-3 (or any successor registration statement form) at the time of filing of a Required Registration Statement, the Effectiveness Period shall not exceed 180 days following the Effective Date. The Company shall request effectiveness of a Required Registration Statement as of 5:00 p.m., New York City time, on a Trading Day. The Company shall promptly notify the Holders via facsimile or electronic mail of a ".pdf" format data file of the effectiveness of a Registration Statement within one (1) Business Day of the Effective Date. The Company shall file a final Prospectus for a Required Registration Statement with the Commission, as required by Rule 424(b) as promptly as reasonably practicable following the Effective Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) If: (i) the Initial Registration Statement is not filed with the Commission on or prior to the Filing Deadline, (ii) the Initial Registration Statement or the New Registration Statement, as applicable, is not declared effective by the Commission (or otherwise does not become effective) for any reason on or prior to the Effectiveness Deadline, or (iii) after its Effective Date, (A) such Registration Statement ceases to be effective for any reason (including without limitation by reason of a stop order, or the Company's failure to update the Registration Statement), to remain continuously effective as to all Registrable Securities for which it is required to be effective, or (B) the Holders are not permitted to utilize the Prospectus therein to resell such Registrable Securities (other than during an Allowable Grace Period), (iv) a Grace Period applicable to a Required Registration Statement exceeds the length of an Allowable Grace Period, or (v) after the Filing Deadline, and only in the event a Registration Statement is not effective or available to sell all Registrable Securities, the Holders are unable to sell Registrable Securities without restriction under Rule 144, (any such failure or breach in clauses (i) through (v) above being referred to as an "<u>Event</u>," and, for purposes of clauses (i), (ii), (iii) or (v), the date on which such Event occurs, or for purposes of clause (iv) the date on which such Allowable Grace Period is exceeded, being referred to as an "<u>Event Date</u>"), then in addition to any other rights the Holders may have hereunder or under applicable law, on each such Event Date and on each monthly anniversary of each such Event Date (if the applicable Event shall not have been cured by such date) until the applicable Event is cured, the Company shall pay to each Holder an amount in cash, as liquidated damages and not as a penalty ("<u>Liquidated Damages</u>"), equal to two percent (2.0%) of the aggregate purchase price paid by such Holder pursuant to the Purchase Agreement for any Registrable Securities held by such Holder on the Event Date. The parties agree that notwithstanding anything to the contrary herein or in the Purchase Agreement, no Liquidated Damages shall be payable (i) if as of the relevant Event Date, the Registrable Securities may be sold by the Holders without volume or manner of sale restrictions under Rule 144, as determined by counsel to the Company pursuant to a written opinion letter to such effect, addressed and reasonably acceptable to the Company's transfer agent, (ii) to a Holder causing an Event that relates to or is caused by any action or inaction taken by such Holder, (iii) to a Holder in the event it is unable to lawfully sell any of its Registrable Securities (including, without limitation, in the event a Grace Period exceeds the length of an Allowable Grace Period) because of possession of material non-public information or (iv) with respect to any period after the expiration of the Effectiveness Period (it being understood that this clause shall not relieve the Company of any Liquidated Damages accruing prior to the expiration of the Effectiveness Period). If the Company fails to pay any Liquidated Damages pursuant to this Section 2(c) in full within ten (10) Business Days after the date payable, the Company will pay interest on the amount of Liquidated Damages then owing to the Holder at a rate of 1.0% per month on an annualized basis (or such lesser maximum amount that is permitted to be paid by applicable law) to the Holder, accruing daily from the date such Liquidated Damages are due until such amounts, plus all such interest thereon, are paid in full. The Liquidated Damages pursuant to the terms hereof shall apply on a daily pro-rata basis for any portion of a month prior to the cure of an Event, except in the case of the first Event Date. With respect to a Holder, the Effectiveness Deadline for a Required Registration Statement shall be extended without default or Liquidated Damages hereunder in the event that the Company's failure to obtain the effectiveness of the Registration Statement on a timely basis results from the failure of such Holder to timely provide the Company with information requested by the Company and necessary to complete the Registration Statement in accordance with the requirements of the Securities Act (in which case the Effectiveness Deadline would be extended with respect to Registrable Securities held by such Registration Rights Purchaser).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;3. <u>Piggyback Registration</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) If the Company intends to file a Registration Statement covering a primary or secondary offering of any of its Common Stock, Series B Preferred Stock, Non-Voting Common Stock or Other Securities, whether or not the sale for its own account, which is not a registration solely to implement an employee benefit plan pursuant to a registration statement on Form S-8 (or successor form), a registration statement on Form S-4 (or successor form) or a transaction to which Rule 145 or any other similar rule of the Commission is applicable, the Company will promptly (and in any event at least ten (10) Business Days before the anticipated filing date) give written notice to the Holders of its intention to effect such a registration. The Company will effect the registration under the Securities Act of all Registrable Securities that the Holder(s) request(s) be included in such registration (a "<u>Piggyback Registration</u>") by a written notice delivered to the Company within five (5) Business Days after the notice given by the Company in the preceding sentence. Subject to Section 3(b), securities requested to be included in a Company registration pursuant to this Section 3 shall be included by the Company on the same form of Registration Statement as has been selected by the Company for the securities the Company is registering for sale referred to above. The Holders shall be permitted to withdraw all or part of the Registrable Securities from the Piggyback Registration at any time at least two (2) Business Days prior to the effective date of the Registration Statement relating to such Piggyback Registration (the "<u>Piggyback Registration Statement</u>"). If the Company elects to terminate any registration filed under this Section 3 prior to the effectiveness of such registration, the Company will have no obligation to register the securities sought to be included by the Holders in such registration under this Section 3. There shall be no limit to the number of Piggybank Registrations pursuant to this Section 3(a).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If a Registration Statement under this Section 3 relates to an underwritten offering and the managing underwriter(s) advise(s) the Company that in its or their reasonable opinion the number of securities requested to be included in such offering exceeds the number which can be sold without adversely affecting the marketability of such offering (including an adverse effect on the per share offering price), the Company will include in such registration or Prospectus only such number of securities that in the reasonable opinion of such underwriter(s) can be sold without adversely affecting the marketability of the offering (including an adverse effect on the per share offering price), which securities will be so included in the following order of priority: (i) first, the Common Stock and other securities the Company proposes to sell, (ii) second, the Registrable Securities of the Holders who have requested inclusion of Registrable Securities pursuant to this Section 3, pro rata on the basis of the aggregate number of such securities or shares owned by each such person, or as such Holders may otherwise agree, and (iii) third, any other securities of the Company that have been requested to be so included, subject to the terms of this Agreement. The Company shall select the investment banking firm or firms to act as the lead underwriter or underwriters in connection with an underwritten offering made pursuant to this Section 3. No Holder may participate in any underwritten registration under this Section 3 unless such Holder (i) agrees to sell the Registrable Securities it desires to have covered by the underwritten offering on the basis provided in any underwriting arrangements in customary form and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;4. <u>Underwritten Shelf Offerings.</u>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) At any time that a shelf registration statement covering Registrable Securities pursuant to Section 2 or Section 3 is effective, if any Holder delivers a notice to the Company (a "<u>Take-Down Notice</u>") stating that it intends to sell all or part of its Registrable Securities included by it on the shelf registration statement (a "<u>Shelf Offering</u>"), then, the Company shall amend or supplement the shelf registration statement as may be necessary in order to enable such Registrable Securities to be distributed pursuant to the Shelf Offering (taking into account the inclusion of Registrable Securities by any other Holders pursuant to this Section 4(a)). In connection with any Shelf Offering, including any Shelf Offering that is an underwritten offering, such proposing holder(s) shall also deliver the Take-Down Notice to all other holders of Registrable Securities included on such shelf Registration Statement and permit each such Holder to include its Registrable Securities included on the shelf Registration Statement in the Shelf Offering if such holder notifies the proposing holder(s) and the Company within five days after delivery of the Take-Down Notice to such Holder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) The Company shall have no obligation to effect an underwritten offering under this Section 4 on behalf of the holders of Registrable Securities electing to participate in such offering unless the expected gross proceeds from such offering exceed $5,000,000.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) If a Shelf Offering of Registrable Securities included in a Required Registration Statement is to be conducted as an underwritten offering, then the Company shall select the investment banking firm or firms to act as the lead underwriter or underwriters in connection with such offering, provided, that such selection shall be reasonably acceptable to the Holders of the majority of the Registrable Securities included in a Required Registration Statement. If, in connection with any such underwritten offering, the managing underwriter(s) advise(s) the Company that in its or their reasonable opinion the number of securities requested to be included in such offering exceeds the number which can be sold without adversely affecting the marketability of such offering (including an adverse effect on the per share offering price), the Company will include in such registration or Prospectus only such number of securities that in the reasonable opinion of such underwriter(s) can be sold without adversely affecting the marketability of the offering (including an adverse effect on the per share offering price), which securities will be so included in the following order of priority: (i) first, the Registrable Securities of the Holders who have requested registration of Registrable Securities pursuant to this Section 4, pro rata on the basis of the aggregate number of such securities or shares owned by each such person, or as the Holders may otherwise agree amongst themselves, (ii) second, the Common Stock and other securities the Company proposes to sell, and (iii) third, any other securities of the Company that have been requested to be so included, subject to the terms of this Agreement. No Holder may participate in any underwritten registration under this Section 4 unless such Holder (i) agrees to sell the Registrable Securities it desires to include in the underwritten offering on the basis provided in any underwriting arrangements in customary form and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) In addition to Sections (a) and (b) of this Section 4, a Shelf Offering of Registrable Securities included on a Piggyback Registration Statement initiated by Holders shall be subject to the procedures set forth in Section 3(b).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;5. <u>Registration Procedures</u>.

In connection with the Company's registration obligations hereunder:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) the Company shall, not less than three (3) Trading Days prior to the filing of a Registration Statement or any related Prospectus or any amendment or supplement thereto (except for Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, proxy statements and Current Reports on Form 8-K and any similar or successor reports), furnish to one counsel designated by a majority of the outstanding Registrable Securities ("<u>Holders Counsel</u>"), copies of such Registration Statement, Prospectus or amendment or supplement thereto, as proposed to be filed, which documents will be subject to the reasonable review of Holders Counsel. The Company shall not file any Registration Statement or amendment or supplement thereto containing information which Holders Counsel reasonably objects in good faith, unless the Company shall have been advised by its counsel that the information objected to is required under the Securities Act or the rules or regulations adopted thereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) (i) the Company shall prepare and file with the Commission such amendments, including post-effective amendments and supplements, to each Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement continuously effective as to the applicable Registrable Securities for its Effectiveness Period (except during an Allowable Grace Period); (ii) the Company shall cause the related Prospectus to be amended or supplemented by any required Prospectus supplement (subject to the terms of this Agreement), and, as so supplemented or amended, to be filed pursuant to Rule 424 (except during an Allowable Grace Period); (iii) the Company shall respond as promptly as reasonably practicable to any comments received from the Commission with respect to each Registration Statement or any amendment thereto and, as promptly as reasonably possible, provide the Holders Counsel true and complete copies of all correspondence from and to the Commission relating to such Registration Statement that pertains to the Holders as "Selling Shareholders"; and (iv) the Company shall comply in all material respects with the provisions of the Securities Act with respect to the disposition of all Registrable Securities covered by a Registration Statement until such time as all of such Registrable Securities shall have been disposed of (subject to the terms of this Agreement) in accordance with the intended methods of disposition by the Holders thereof as set forth in such Registration Statement as so amended or in such Prospectus as so supplemented; provided, that each Holder shall be responsible for the delivery of the Prospectus to the Persons to whom such Registration Rights Purchaser sells any of the Registrable Securities (including in accordance with Rule 172 under the Securities Act), and each Holder agrees to dispose of Registrable Securities in compliance with applicable federal and state securities laws. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 5(b)) by reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Exchange Act, the Company shall have incorporated such report by reference into such Registration Statement, if applicable, or shall file such amendments or supplements with the Commission as promptly as practicable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) the Company shall notify the Holders (which notice shall, pursuant to clauses (ii) through (iv) hereof, be accompanied by an instruction to suspend the use of the Prospectus until the requisite changes have been made, if applicable) as promptly as reasonably practicable following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to a Registration Statement has been filed with the Commission; (B) with respect to each Registration Statement or any post-effective amendment, when the same has become effective; (ii) of the issuance by the Commission or any other federal or state Governmental Entity of any stop order suspending the effectiveness of a Registration Statement covering any or all of the Registrable Securities or the initiation of any Proceedings for that purpose; (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (iv) of the occurrence of any event or passage of time that makes the financial statements included in a Registration Statement ineligible for inclusion therein or any statement made in such Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to such Registration Statement, Prospectus or other documents so that, in the case of such Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, form of prospectus or supplement thereto, in light of the circumstances under which they were made), not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) Notwithstanding anything to the contrary herein, at any time after the Registration Statement has been declared effective by the Commission, the Company may delay the disclosure of material non-public information concerning the Company if the disclosure of such information at the time is not, in the good faith judgment of the Company, in the best interests of the Company (such delay, a "<u>Grace Period</u>"). During the Grace Period, the Company shall not be required to maintain the effectiveness of any Registration Statement filed hereunder and, in any event, Holders shall suspend sales of Registrable Securities pursuant to such Registration Statements during the pendency of the Grace Period provided, the Company shall promptly (i) notify the Holders in writing of the existence of material non-public information giving rise to a Grace Period or the need to file a post-effective amendment, as applicable, and the date on which such Grace Period will begin, (ii) use reasonable best efforts to terminate a Grace Period as promptly as practicable provided that such termination is, in the good faith judgment of the Company, in the best interest of the Company and (iii) notify the Holders in writing of the date on which the Grace Period ends; provided, further, that, with respect to a Required Registration Statement only, no single Grace Period shall exceed forty-five (45) consecutive days, and during any three hundred sixty-five (365) day period, the aggregate of all Grace Periods shall not exceed an aggregate of ninety (90) days (each Grace Period complying with this provision being an "<u>Allowable Grace Period</u>"). For purposes of determining the length of a Grace Period, the Grace Period shall be deemed to begin on and include the date the Holders receive the notice referred to in clause (i) above and shall end on and include the later of the date the Holders receive the notice referred to in clause (iii) above and the date referred to in such notice; provided, that no Grace Period shall be longer than an Allowable Grace Period. Notwithstanding anything to the contrary, the Company shall use reasonable best efforts to cause the Transfer Agent to deliver unlegended Shares to a transferee of a Holder in accordance with the terms of the Purchase Agreement in connection with any sale of Registrable Securities with respect to which a Holder has entered into an irrevocable contract for sale prior to the Holder's receipt of the notice of a Grace Period and for which the Holder has not yet settled.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) the Company shall use reasonable best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i) any order suspending the effectiveness of a Registration Statement, or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction, as soon as practicable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) the Company shall, if requested by a Holder, furnish to such Holder, without charge, at least one (1) conformed copy of each Registration Statement and each amendment thereto and all exhibits to the extent requested by such Holder (including those previously furnished or incorporated by reference) promptly after the filing of such documents with the Commission; provided, that the Company shall have no obligation to provide any document pursuant to this clause that is available on the Commission's EDGAR or successor system.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) the Company agrees to promptly deliver to each Holder whose Registrable Securities are included in the applicable Registration Statement, without charge, as many copies of each prospectus or prospectuses (including each form of prospectus) and each amendment or supplement thereto as such Persons may reasonably request. The Company hereby consents to the use of such Prospectus and each amendment or supplement thereto by each of the selling Holders in connection with the offering and sale of Registrable Securities covered by such Prospectus and any amendment or supplement thereto.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) the Company shall, prior to any resale of Registrable Securities by a Holder, use its reasonable best efforts to register or qualify or cooperate with the selling Holders in connection with the registration or qualification (or exemption from the registration or qualification) of such Registrable Securities for the resale by the Holder under the securities or Blue Sky laws of such jurisdictions within the United States as any Holder reasonably requests in writing, to keep each registration or qualification (or exemption therefrom) effective during the Effectiveness Period and to do any and all other acts or things reasonably necessary to enable the disposition in such jurisdictions of the Registrable Securities covered by each Registration Statement; provided, that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified, subject the Company to any general tax in any such jurisdiction where it is not then so subject or file a consent to service of process in any such jurisdiction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) the Company shall enter into such customary agreements (including an underwriting agreement in customary form) and take all such other actions reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith or by the managing underwriter(s), if any, in order to expedite or facilitate the disposition of such Registrable Securities. In connection with any such permitted underwritten offering of Registrable Securities, (i) the Company shall (A) make such representations and warranties to the selling Holders and the managing underwriter(s), if any, with respect to the business of the Company and its subsidiaries, and the Registration Statement, Prospectus and documents, if any, incorporated or deemed to be incorporated by reference therein, in each case, in form, substance and scope as are customarily made by issuers in underwritten offerings, and, if true, confirm the same if and when requested, (B) use its reasonable best efforts to furnish opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the managing underwriter(s), if any, addressed to each of the managing underwriter(s), if any, covering the matters customarily covered in opinions requested in underwritten offerings, (C) use its reasonable best efforts to obtain "cold comfort" letters and updates thereof from the independent certified public accountants of the Company (and, if necessary, any other independent certified public accountants of any subsidiary of the Company or of any business acquired by the Company for which financial statements and financial data are, or are required to be, included in the Registration Statement) who have certified the financial statements included in such Registration Statement, addressed to each of the managing underwriter(s), if any, such letters to be in customary form and covering matters of the type customarily covered in "cold comfort" letters in connection with underwritten offerings, (D) the underwriting agreement shall contain indemnification provisions and procedures customary in such underwritten offerings and (v) deliver such documents and certificates as may be reasonably requested by the Holders of a majority of the Registrable Securities being sold in connection therewith, their counsel and the managing underwriter(s), if any, to evidence the continued validity of the representations and warranties made pursuant to clause (A) above and to evidence compliance with any customary conditions contained in the underwriting agreement or other agreement entered into by the Company, (ii) each Holder shall not, during such period (which period shall in no event exceed one hundred and eighty (180) days, subject to any then customary "booster shot" extension (which extension shall not exceed thirty (30) days) following the effective date of any Registration Statement to the extent requested by any managing underwriter, sell, pledge, hypothecate, transfer, make any short sale of, loan, grant any option or right to purchase of, or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any Registrable Securities owned by it at any time during such period, except Registrable Securities included in such registration; provided that any release of Registrable Securities from such agreement shall be effected among the Holders on a pro rata basis according to the Registrable Securities then owned by them, and (iii) the Company shall use its reasonable best efforts to cause each of its directors and senior executive officers to execute and deliver customary lockup agreements in such form and for such time period up to one hundred and eighty (180) days (subject to any then customary "booster shot" extensions) as may be requested by any managing underwriter. The above shall be done at each closing under such underwriting or similar agreement, or as and to the extent required thereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) the Company shall make available for inspection by any Holder of Registrable Securities included in such Registration Statement, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such seller or underwriter (collectively, the "<u>Inspectors</u>"), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its Subsidiaries (collectively, the "<u>Records</u>"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such Inspector in connection with such Registration Statement; provided, however, that any Records that are not generally publicly available at the time of delivery of such Records shall be kept confidential by such Inspectors unless (i) the disclosure of such Records is necessary in the reasonable judgment of the Inspectors to avoid or correct a misstatement or omission in the Registration Statement, or (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court of competent jurisdiction; provided, further, that each Holder of Registrable Securities agrees that it will, upon learning that disclosure of such Records is sought in a court of competent jurisdiction, give notice to the Company to the extent legally permitted and allow the Company, at its expense, to undertake appropriate action and to prevent disclosure of the Records deemed confidential.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) the Company shall, in the case of an underwritten offering, cause its officers to use their reasonable best efforts to support the marketing of the Registrable Securities covered by the Registration Statement (including, without limitation, by participation in "road shows") if requested by the managing underwriter(s) and taking into account the Company's business needs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) the Company shall reasonably cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be delivered to a transferee pursuant to the Registration Statement, which certificates shall be free, to the extent permitted by the Purchase Agreement and under law, of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any such Holders may reasonably request. Certificates for Registrable Securities free from all restrictive legends may be transmitted by the transfer agent to a Holder by crediting the account of such Holder's prime broker with DTC as directed by such Holder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) the Company shall following the occurrence of any event contemplated by Sections 5(c)(ii)-(iv), as promptly as reasonably practicable, as applicable: (i) use its reasonable best efforts to prevent the issuance of any stop order or obtain its withdrawal at the earliest possible moment if the stop order have been issued, or (ii) taking into account the Company's good faith assessment of any adverse consequences to the Company and its shareholders of the premature disclosure of such event, prepare and file a supplement or amendment, including a post-effective amendment, to the affected Registration Statements or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, no Registration Statement nor any Prospectus will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, form of prospectus or supplement thereto, in light of the circumstances under which they were made), not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) the Company may require each selling Holder to furnish to the Company a certified statement as to (i) the number of securities of the Company beneficially owned by such Holder and any Affiliate thereof, (ii) any Financial Industry Regulatory Authority ("FINRA") affiliations, (iii) any natural persons who have the power to vote or dispose of the Common Stock and (iv) any other information as may be requested by the Commission, FINRA, any state securities commission or any other government or regulatory body with jurisdiction over the Company or its activities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) the Company shall cooperate with any registered broker through which a Holder proposes to resell its Registrable Securities in effecting a filing with FINRA pursuant to FINRA Rule 5110 as requested by any such Holder and the Company shall pay the filing fee required for the first such filing (but not additional filings) within two (2) Business Days of the request therefore.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) if the Company becomes eligible to use Form S-3 during the term of this Agreement, the Company shall use its reasonable best efforts to maintain eligibility for use of Form S-3 (or any successor form thereto) for the registration of the resale of Registrable Securities.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) if requested by a Holders Counsel, the Company shall (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees (upon advice of counsel) is required to be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as reasonably practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment.

The Company may require each Holder of Registrable Securities as to which any registration is being effected to furnish to the Company in writing such information required in connection with such registration regarding such Holder and the distribution of such Registrable Securities as the Company may, from time to time, reasonably request in writing and the Company may exclude from such registration the Registrable Securities of any Holder who fails to furnish such information within a reasonable time after receiving such request.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;6. <u>Registration Expenses</u>. All fees and expenses incident to the Company's performance of or compliance with its obligations under this Agreement (excluding any underwriting discounts and selling commissions, stock transfer taxes and fees of counsel for the Holders) shall be borne by the Company whether or not any Registrable Securities are sold pursuant to a Registration Statement. The fees and expenses referred to in the foregoing sentence that are the Company's responsibility shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with any Trading Market on which the Common Stock is then listed for trading, (B) with respect to compliance with applicable state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Company in connection with Blue Sky qualifications or exemptions of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as requested by the Holders) and (C) if not previously paid by the Company in connection with an issuer filing, with respect to any filing that may be required to be made by any broker through which a Holder intends to make sales of Registrable Securities with FINRA pursuant to FINRA Rule 5110, so long as the broker is receiving no more than a customary brokerage commission in connection with such sale, (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is reasonably requested by the Holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses of the Company, (iv) fees and disbursements of counsel for the Company, (v) Securities Act liability insurance, if the Company so desires such insurance, (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, and (vii) those expenses of the selling Holders actually and reasonably incurred, including without limitation, the reasonable fees of one Holders Counsel representing the Holders. In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit and the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;7. <u>Indemnification</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Indemnification by the Company</u>. The Company shall, notwithstanding any termination of this Agreement, indemnify, defend and hold harmless each Holder, the officers, directors, agents, general partners, managing members, managers, Affiliates and employees, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, general partners, managing members, managers, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, reasonable costs of preparation and investigation and reasonable and documented attorneys' fees) and expenses (collectively, "<u>Losses</u>"), as incurred, that arise out of or are based upon (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission to state a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading, or (ii) any violation or alleged violation by the Company of the Securities Act, Exchange Act or any state securities law or any rule or regulation thereunder, in connection with the performance of its obligations under this Agreement, except to the extent, but only to the extent, that (A) such untrue statements, alleged untrue statements, omissions or alleged omissions are based solely upon information regarding such Holder furnished in writing to the Company by such Holder or on behalf of such Holder expressly for use therein, or to the extent that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and approved by such Holder or Holders Counsel expressly for use in the Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto, (B) Holder's failure to deliver or cause to be delivered the Prospectus or any amendment or supplement thereto made available by the Company in compliance with Section 8(g), or (C) in the case of an occurrence of an event of the type specified in Sections 5(c)(ii)-(iv), related to the use by a Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing or electronic mail that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated and defined in Section 8(h) below, but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of an Indemnified Party (as defined in Section 7(c)) and shall survive the transfer of the Registrable Securities by the Holders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Indemnification by Holders</u>. Each Holder shall, notwithstanding any termination of this Agreement, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents or employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses, as incurred, arising out of or are based upon (i) any untrue or alleged untrue statement of a material fact contained in any Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus, or any form of prospectus or supplement thereto, in light of the circumstances under which they were made) not misleading (A) to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder furnished in writing to the Company by or on behalf of such Holder expressly for use therein, or (B) to the extent, but only to the extent, that such information relates to such Holder or such Holder's proposed method of distribution of Registrable Securities and was reviewed and approved by such Holder or Holders Counsel expressly for use in a Registration Statement, such Prospectus or such form of Prospectus or in any amendment or supplement thereto or (C) in the case of an occurrence of an event of the type specified in Sections 5(c)(ii)-(iv), to the extent, but only to the extent, related to the use by such Holder of an outdated or defective Prospectus after the Company has notified such Holder in writing that the Prospectus is outdated or defective and prior to the receipt by such Holder of the Advice contemplated in Section 8(h), but only if and to the extent that following the receipt of the Advice the misstatement or omission giving rise to such Loss would have been corrected, or (ii) Holder's failure to deliver or cause to be delivered the Prospectus or any amendment or supplement thereto made available by the Company in compliance with Section 8(g). In no event shall the liability of any selling Holder hereunder be greater in amount than the dollar amount of the net proceeds received by such Holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Conduct of Indemnification Proceedings</u>. If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an "<u>Indemnified Party</u>"), such Indemnified Party shall promptly notify the Person from whom indemnity is sought (the "<u>Indemnifying Party</u>") in writing, and the Indemnifying Party shall have the right to assume the defense thereof, including the employment of one (1) counsel reasonably satisfactory to the Indemnified Party and the payment of all reasonable and documented fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such written notice within a reasonable time of commencement of any such Proceeding shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that such failure shall have materially and adversely prejudiced the Indemnifying Party in its ability to defend such Proceeding.

An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Indemnified Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such Indemnified Party shall have been advised by counsel in writing that a conflict of interest exists if the same counsel were to represent such Indemnified Party and the Indemnifying Party; provided, that the Indemnifying Party shall not be liable for the fees and expenses of more than one separate firm of attorneys at any time for all Indemnified Parties. The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld, delayed or unreasonably conditioned. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending Proceeding in respect of which any Indemnified Party is a party, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.

Subject to the terms of this Agreement, all documented fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section 7(c)) shall be paid to the Indemnified Party, as incurred, within twenty (20) Trading Days of written notice thereof to the Indemnifying Party; provided, that the Indemnified Party shall promptly reimburse the Indemnifying Party for that portion of such fees and expenses applicable to such actions for which such Indemnified Party is finally judicially determined to not be entitled to indemnification hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Contribution</u>. If a claim for indemnification under Section 7(a) or 7(b) is unavailable to an Indemnified Party (other than in accordance with its terms) or insufficient to hold an Indemnified Party harmless for any Losses, then each Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses, in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and Indemnified Party, on the other hand, in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party, on the one hand, and Indemnified Party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in this Agreement, any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section 7(d) was available to such party in accordance with its terms. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 7(d), no Holder shall be required to contribute, in the aggregate, any amount in excess of the amount by which the net proceeds actually received by such Holder from the sale of the Registrable Securities subject to the Proceeding exceeds the amount of any damages that such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

The indemnity and contribution agreements contained in this Section 7 are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties and are not in diminution or limitation of the indemnification provisions under the Purchase Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;8. <u>Miscellaneous</u>.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) <u>Remedies</u>. In the event of a breach by the Company or by a Holder of any of their obligations under this Agreement, each Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) <u>Prohibition on Other Registrations</u>. The Company agrees (i) not to effect or initiate a registration statement for any public sale or distribution of any securities similar to those being registered pursuant to this Agreement, or any securities convertible into or exchangeable or exercisable for such securities (other than a registration solely to implement an employee benefit plan pursuant to a registration statement on Form S-8 (or successor form), a registration statement on Form S-4 (or successor form) or a transaction to which Rule 145 or any other similar rule of the Commission is applicable), during the fourteen (14) calendar days prior to, and during the sixty (60) calendar-day period beginning on, the effective date of any Registration Statement in which the Holders of Registrable Securities are participating (except as part of any such registration, if permitted).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) <u>Rule 144 Requirements</u>. For so long as the Company is subject to the reporting requirements of the Exchange Act, the Company will use its reasonable best efforts to timely file with the Commission such reports and information required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the Commission thereunder and as the Commission may require. The Company shall furnish to any Holder of Registrable Securities forthwith upon request a written statement as to its compliance with the reporting requirements of Rule 144 (or any successor exemptive rule), the Securities Act and the Exchange Act (at any time that it is subject to such reporting requirements); a copy of its most recent annual or quarterly report; and such other reports and documents as such Person may reasonably request in availing itself of any rule or regulation of the Commission allowing it to sell any such securities without registration.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) <u>Obligations of Holders and Others in a Registration</u>. Each Holder agrees to timely furnish in writing such information regarding such Person, the securities sought to be registered and the intended method of disposition of the Registrable Securities held by it, as shall be reasonably be required to effect the registration of such Registrable Securities (the "<u>Requested Information</u>") and shall take such other action as the Company may reasonably request in connection with the registration, qualification or compliance or as otherwise provided herein. At least ten (10) Business Days prior to the first anticipated filing date of a Registration Statement, the Company shall notify each holder of the information the Company requires from such Holder if such Holder elects to have any of such Holder's Registrable Securities included in the Registration Statement. If at least five (5) business days prior to the filing date, the Company has not received the Requested Information from a Holder (a "<u>Non-Responsive Holder</u>"), then the Company may exclude from any Registration Statement the Registrable Securities of such Non-Responsive Holder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) <u>Rule 144A</u>. The Company agrees that, upon the request of any Holder of Registrable Securities or any prospective purchaser of Registrable Securities designated by a Holder, the Company shall promptly provide (but in any case within fifteen (15) calendar days of a request) to such Holder or potential purchaser, the following information:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) a brief statement of the nature of the business of the Company and any subsidiaries and the products and services they offer;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) the most recent consolidated balance sheets and profit and losses and retained earnings statements, and similar financial statements of the Company for the two (2) most recent fiscal years (such financial information shall be audited, to the extent reasonably available); and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) such other information about the Company, any subsidiaries, and their business, financial condition and results of operations as the requesting Holder or purchaser of such Registrable Securities shall reasonably request in order to comply with Rule 144A, as amended, and in connection therewith the anti-fraud provisions of the federal and state securities laws.

The Company hereby represents and warrants to any such requesting Holder and any prospective purchaser of Registrable Securities from such Holder that the information provided by the Company pursuant to this Section 8(e) will, as of their dates, not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) <u>Limitations on Subsequent Registration Rights</u>. The Company will not enter into any agreements with any holder or prospective holder of any securities of the Company which would grant such holder or prospective holder registration rights with respect to the securities of the Company which would have priority over the Registrable Securities with respect to the inclusion of such securities in any registration. If the Company enters into an agreement that contains terms more favorable, in form or substance, to any shareholders than the terms provided to the Holders under this Agreement, then the Company will modify or revise the terms of this Agreement in order to reflect any such more favorable terms for the benefit of the Holders.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) <u>Compliance</u>. Each Holder covenants and agrees that it will comply with the prospectus delivery requirements of the Securities Act as applicable to it (unless an exemption therefrom is available) in connection with sales of Registrable Securities pursuant to the Registration Statement and shall sell the Registrable Securities only in accordance with a method of distribution described in the Registration Statement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) <u>Discontinued Disposition</u>. By its acquisition of Registrable Securities, each Holder agrees that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Sections 5(c)(ii)-(iv), such Holder will forthwith discontinue disposition of such Registrable Securities under a Registration Statement until it is advised in writing (the "<u>Advice</u>") by the Company that the use of the applicable Prospectus (as it may have been supplemented or amended) may be resumed. The Company may provide appropriate stop orders to enforce the provisions of this paragraph.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) <u>No Inconsistent Agreements</u>. Neither the Company nor any of its Subsidiaries has entered, as of the date hereof, nor shall the Company or any of its Subsidiaries, on or after the date hereof, enter into any agreement with respect to its securities, that would have the effect of impairing the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) <u>Amendments and Waivers</u>. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, or waived unless the same shall be in writing and signed by the Company and Holders of a majority of the then outstanding Registrable Securities; provided that any such amendment, modification, supplement or waiver that materially, adversely and disproportionately effects the rights or obligations of any Holder vis-à-vis the other Holders shall require the prior written consent of such Holder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) <u>Notices</u>. Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission, if such notice or communication is delivered via facsimile or e-mail (provided the sender receives a machine-generated confirmation of successful facsimile transmission or e-mail notification or confirmation of receipt of an e-mail transmission) at the facsimile number or e-mail address specified in this Section prior to 5:00 p.m., New York City time, on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number specified in this Section on a day that is not a Trading Day or later than 5:00 p.m., New York City time, on any Trading Day, (c) the Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service with next day delivery specified, or (d) upon actual receipt by the party to whom such notice is required to be given. The address for such notices and communications shall be as follows:

Attn: President and Chief Executive Officer

Facsimile: [●]

Email: [●]

Attn: [●]

Facsimile: [●]

Email: [●]

Attn: John T. Pietrzak, Managing Principal

Facsimile: [●]

Email: [●]

Attn: Vijay S. Sekhon, Esq.

Facsimile: [●]

Email: [●]

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) <u>Successors and Assigns</u>. This Agreement shall inure to the benefit of and be binding upon the successors and permitted assigns of each of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. The Company may not assign its rights (except by merger or in connection with another entity acquiring all or substantially all of the Company's assets) or obligations hereunder without the prior written consent of all the Holders of the then outstanding Registrable Securities. The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by Registration Rights Purchaser to any transferee of the Shares only if: (a) the transferee or assignee (i) acquires Shares of the Registration Rights Purchaser's Registrable Securities with an original value as of the Closing Date of $1,000,000; (b) the Registration Rights Purchaser agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable period of time after such assignment; (c) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee and (ii) the securities with respect to which such registration rights are being transferred or assigned; (d) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws; and (e) at or before the time the Company received the written notice contemplated by clause (c) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein with respect to a Holder or Registration Rights Purchaser. In the event of any delay in filing or effectiveness of the Registration Statement as a result of such assignment by a Registration Rights Purchaser or its transferee, the Company shall not be liable for any damages arising from such delay.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) <u>Execution and Counterparts</u>. This Agreement may be executed in two (2) or more counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a ".pdf" format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or ".pdf" signature were the original thereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) <u>Governing Law and Jurisdiction</u>. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Delaware applicable to contracts made and to be performed entirely within such State. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be determined in accordance with the provisions of the Purchase Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) <u>Cumulative Remedies</u>. Except as provided in Section 2(c) with respect to Liquidated Damages, the remedies provided herein are cumulative and not exclusive of any other remedies provided by law.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) <u>Severability</u>. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their good faith reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) <u>Headings</u>. The headings in this Agreement are for convenience only and shall not limit or otherwise affect the meaning hereof.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s) <u>Entire Agreement</u>. This Agreement and the Purchase Agreement constitute the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than as set forth or referred to herein and in the Purchase Agreement. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first written above.

---

| | |
|:---|:---|
| **TRI-COUNTY FINANCIAL GROUP, INC.** | **TRI-COUNTY FINANCIAL GROUP, INC.** |
| By: | /s/ Timothy J. McConville |
| Name: | Timothy J. McConville |
| Title: | President and Chief Executive Officer |
| **CASTLE CREEK CAPITAL PARTNERS VI, LP** | **CASTLE CREEK CAPITAL PARTNERS VI, LP** |
| By: | Castle Creek Capital VI LLC, its general partner |
| By: | /s/ John T. Pietrzak |
| Name: | John T. Pietrzak |
| Title: | Managing Principal |

---

## Exhibit 10.3

**Exhibit 10.3**

**First State Bank**

**<u>Employment Agreement</u>**

This **Employment Agreement** (this "**Agreement**") is made and entered into as of February 7, 2024 (the "**Effective Date**"), by and between **First State Bank** (the "**Employer**"), a wholly-owned banking subsidiary of **Tri-County Financial Group, Inc.** (the "**Company**"), and Kirk Ross ("**Executive**," and together with the Employer, each a "**Party**" and collectively, the "**Parties**").

**Recitals**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**A.** The Employer desires to employ Executive as the President and Chief Executive Officer of the Employer pursuant to the terms of this Agreement, and Executive desires to be employed pursuant to the terms of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**B.** The Parties have made commitments to each other on a variety of important issues concerning Executive's employment, including the performance that will be expected of Executive, the compensation Executive will be paid, how long and under what circumstances Executive will remain employed and the financial details relating to any decision that either the Employer or Executive may make to terminate this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**C.** The Parties desire to enter into this Agreement as of the Effective Date and, to the extent provided herein, to have this Agreement supersede all of the terms of all prior employment agreements between the Parties, whether or not in writing, and any such prior employment agreements shall become null and void as of the Effective Date, and the parties thereunder shall have no rights or interests therein.

**Agreements**

In consideration of the foregoing and the mutual promises and covenants of the Parties set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby expressly covenant and agree as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**1. <u>Employment Period</u>.** The Employer shall employ Executive, and Executive shall be so employed, during the Employment Period in accordance with the terms of this Agreement. The "**Employment Period**" shall be the period beginning on the Effective Date and ending on the date that is two years following the Effective Date, provided that beginning on the Effective Date, the Employment Period shall automatically be extended by one (1) day for each day that passes, so that the Employment Period shall always be two years, unless sooner terminated as provided herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2. <u>Duties</u>.** During the Employment Period, Executive shall devote Executive's full business time, energies and talents to serving as the Employer's President and Chief Executive Officer at the direction of the Board. Executive shall have such duties and responsibilities as may be assigned to Executive from time to time by the Board, which duties and responsibilities shall be commensurate with Executive's position, shall perform all duties assigned to Executive faithfully and efficiently, subject to the direction of Board and shall have such authorities and powers as are inherent to the undertakings applicable to Executive's position and necessary to carry out the responsibilities and duties required of Executive hereunder. Executive shall perform the duties required by this Agreement at the Employer's Mendota, Illinois headquarters, or such other location agreed to by the Parties, unless the nature of such duties requires otherwise. Notwithstanding the foregoing provisions of this **Section 2**, during the Employment Period, Executive may devote reasonable time to activities other than those required under this Agreement, including activities of a charitable, educational, religious or similar nature (including professional associations) to the extent such activities do not, in the reasonable judgment of the Board, inhibit, prohibit, interfere with or conflict with Executive's duties under this Agreement or conflict in any material way with the business of the Employer or an Affiliate; *provided, however,* that Executive shall not serve on the board of directors of any business (other than the Employer or any Affiliate) or hold any other position with any business without receiving the prior written consent of the Board.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3. <u>Compensation and Benefits</u>.** Subject to the terms of this Agreement, during the Employment Period, while Executive is employed by the Employer, the Employer shall compensate Executive for Executive's services as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *Annual Base Salary.* Executive shall be compensated with a salary at an annual rate of Three Hundred Fifty Thousand Dollars ($350,000) (the "**Annual Base Salary**"), which shall be payable in accordance with the normal payroll practices of the Employer then in effect. Executive's Annual Base Salary shall be reviewed annually thereafter in accordance with the Employer's normal salary review practices. Executive's Annual Base Salary shall be pro-rated for Executive's first year of employment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Annual Incentive Bonus.* At the sole discretion of the Board, Executive shall be eligible to receive a discretionary annual incentive bonus (each, the "**Incentive Bonus**") from the Employer for each fiscal year ending during the Employment Period. Executive must be employed by the Employer on the date of payment of the Incentive Bonus in order to be eligible to receive such bonus. Executive's Incentive Bonus, if any, for Executive's first year of employment shall be pro-rated.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) *Reimbursement of Expenses*. The Employer shall reimburse Executive, in accordance with and subject to Executive's compliance with the Employer's expense reimbursement policy, for Executive's necessary and reasonable out-of-pocket expenses incurred in the ordinary course of performance of Executive's duties hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) *Other Benefits*. During the Employment Period, Executive and Executive's dependents, as the case may be, shall be eligible to participate, subject to the terms thereof, in all benefit plans and programs of the Employer as may be in effect from time to time with respect to similarly situated executives employed by the Employer. The Employer, or its applicable affiliate, may amend or terminate any and all such benefits plans and programs at any time and from time to time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4. <u>Rights upon Termination</u>.** Executive's right to benefits, if any, for periods after the Termination Date shall be determined in accordance with this **Section 4**:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **<u>Minimum Benefits</u>.** If the Termination Date occurs during the Employment Period for any reason, Executive shall be entitled to the Minimum Benefits in addition to any other benefits to which Executive may be entitled under the following provisions of this **Section 4** or the express terms of any employee benefit plan or as required by law. Any Minimum Benefits to be provided to Executive pursuant to this **Section 4(a)** shall be provided within thirty (30) days after the Termination Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **<u>Termination for Cause; Death; Disability; Voluntary Resignation; Executive Non-Renewal</u>.** If the Termination Date occurs during the Employment Period and is a result of a Termination for Cause, Executive's death or Disability, or a voluntary termination by Executive or if Executive provides notice of non-renewal of this Agreement, then, other than the Minimum Benefits, Executive shall have no right to benefits under this Agreement (and the Employer and its Affiliates shall have no obligation to provide any such benefits) for periods after the Termination Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **<u>Termination other than a Termination for Cause</u>.** If Executive's employment is subject to a Qualifying Termination, then, in addition to the Minimum Benefits, subject to the Release requirements of **Section 5** and the Executive meeting the restrictive covenants under **Section 7**, the Employer shall pay Executive a lump sum payment in an amount equal to the Severance Amount on the first Employer payroll date that occurs on or following the sixtieth (60th) day following the Termination Date, but in no event later than two and one-half months (2½) months following the end of the year in which the Termination Date occurs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) **<u>Other Benefits</u>.** Executive's rights following a termination of employment with the Employer and its Affiliates for any reason with respect to any benefits, incentives or awards provided to Executive pursuant to the terms of any plan, program or arrangement sponsored or maintained by the Employer or an Affiliate, whether tax-qualified or not, which are not specifically addressed herein, shall be subject to the terms of such plan, program or arrangement, and this Agreement shall have no effect upon such terms except as specifically provided herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) **<u>Removal from any Boards and Positions</u>.** Upon Executive's termination of employment for any reason under this Agreement, Executive shall be deemed to resign (i) if a member, from the Board and the board of directors of any Affiliate and any other board to which Executive has been appointed or nominated by or on behalf of the Employer, (ii) from each position with the Employer, or any Affiliate, including as an officer of the Employer, or any of its Affiliates and (iii) as a fiduciary of any employee benefit plan of the Employer or any of its Affiliates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**5. <u>Release</u>.** Notwithstanding any provision of this Agreement to the contrary, no payment shall be owed to Executive under Section 4(c) unless Executive executes and delivers to the Employer a Release within forty-five (45) days following the Termination Date, and any applicable revocation period has expired prior to the sixtieth (60<sup>th</sup>) day following the Termination Date. Except as specifically provided herein, the Employer shall have no further obligations to Executive under this Agreement following Executive's termination of employment for any reason.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6. <u>Excise Tax Limitation</u>.** It is the intention of the Parties that no portion of any payment under this Agreement, or payments to or for the benefit of Executive under any other agreement or plan, be deemed to be an "excess parachute payment," as such term is defined under Code Section 280G and the regulations promulgated thereunder. The present value of payments to or for the benefit of Executive in the nature of compensation, receipt of which is contingent on (i) a change in the ownership or effective control of the Employer or any of its Affiliates, or (ii) a change in the ownership of a substantial portion of the assets of the Employer or any of its Affiliates (in each case, within the meaning of Code Section 280G and the regulations promulgated thereunder), and to which Code Section 280G applies, shall not exceed an amount equal to $1.00 less than the maximum amount that may be paid without a loss of deduction under Code Section 280G(a). Any modification, reduction or elimination of payments necessary to accomplish the foregoing shall be done in accordance with applicable provisions of Code Section 409A.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**7. <u>Restrictive Covenants</u>.** Executive acknowledges that Executive has been and will continue to be provided intimate knowledge of the business practices, trade secrets, and other confidential and proprietary information of the Employer and its Affiliates (including the Confidential Information), which, if exploited by Executive, would seriously, adversely, and irreparably affect the interests of the Employer and its Affiliates and the ability of each to continue its business and, therefore, Executive hereby agrees to be bound by the restrictions contained in this **Section 7** (the "**Restrictive Covenants**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **<u>Confidential Information</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Executive acknowledges that, during the course of Executive's employment with the Employer, Executive may produce and have access to confidential and/or proprietary, non-public information concerning the Employer or its Affiliates, including marketing materials, financial and other information concerning customers and prospective customers, customer lists, records, data, trade secrets, proprietary business information, pricing and profitability information and policies, strategic planning, commitments, plans, procedures, litigation, pending litigation and other information not generally available to the public (collectively, "**Confidential Information**"). Executive shall not directly or indirectly use, disclose, copy or make lists of Confidential Information for the benefit of anyone other than the Employer, either during or after Executive's employment with the Employer, except to the extent such disclosure is authorized in writing by the Employer, required by law or any competent administrative agency or judicial authority, or otherwise as reasonably necessary or appropriate in connection with the performance by Executive of Executive's duties hereunder. If Executive receives a subpoena or other court order or is otherwise required by law to provide information to a governmental authority or other person concerning the activities of the Employer or any of its Affiliates, or Executive's activities in connection with the business of the Employer or any of its Affiliates, Executive shall immediately notify the Employer of such subpoena, court order or other requirement and deliver forthwith to the Employer a copy thereof and any attachments and non-privileged correspondence related thereto. Executive shall take reasonable precautions to protect against the inadvertent disclosure of Confidential Information. Executive shall abide by the Employer's reasonable policies, as in effect from time to time, respecting avoidance of interests conflicting with those of the Employer and its Affiliates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Accordingly, Executive has the right to disclose in confidence trade secrets to federal, state, and local government officials, or to an attorney, for the sole purpose of reporting or investigating a suspected violation of law. Executive also has the right to disclose trade secrets in a document filed in a lawsuit or other proceeding, but only if the filing is made under seal and protected from public disclosure. Nothing in this Agreement is intended to conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are expressly allowed by 18 U.S.C. § 1833(b). Nothing in this Agreement shall be construed to authorize, or limit liability for, an act that is otherwise prohibited by law, such as the unlawful access of material by unauthorized means.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) Nothing contained in this **Section 7(a)** shall limit Executive's ability to file a charge or complaint with any governmental, administrative or judicial agency (each, an "**Agency**") pursuant to any applicable whistleblower statute or program (each, a "**Whistleblower Program**"). Executive acknowledges that this **Section 7(a)** does not limit (i) Executive's ability to communicate, in connection with a charge or complaint pursuant to any Whistleblower Program with any Agency or otherwise participate in any investigation or proceeding that may be conducted by such Agency, including providing documents or other information, without notice to the Employer, or (ii) Executive's right to receive an award for information provided to such Agency pursuant to any Whistleblower Program.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **<u>Documents and Property</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) All records, files, documents and other materials or copies thereof relating to the business of the Employer or its Affiliates that Executive prepares, receives or uses shall be and remain the sole property of the Employer and, other than in connection with the performance by Executive of Executive's duties hereunder, shall not be removed from the premises of the Employer or any of its Affiliates without the Employer's prior written consent, and shall be promptly returned to the Employer upon Executive's termination of employment for any reason, together with all copies (including copies or recordings in electronic form), abstracts, notes or reproductions of any kind made from or about the records, files, documents or other materials.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Executive acknowledges that Executive's access to and permission to use the Employer's and any Affiliate's computer systems, networks and equipment, and all Employer and Affiliate information contained therein, is restricted to legitimate business purposes on behalf of the Employer. Any other access to or use of such systems, network, equipment and information is without authorization and is prohibited except that Executive may use an Employer-provided computer for reasonable personal use in accordance with the Employer's technology use policy as in effect from time to time. The restrictions contained in this **Section 7(b)** extend to any personal computers or other electronic devices of Executive that are used for business purposes relating to the Employer or any Affiliate. Executive shall not transfer any Employer or Affiliate information to any personal computer or other electronic device that is not otherwise used for any business purpose relating to the Employer. Upon the termination of Executive's employment with the Employer for any reason, Executive's authorization to access and permission to use the Employer's and any Affiliate's computer systems, networks and equipment, and any Employer and Affiliate information contained therein, shall cease.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **<u>Remedies for Breach of Restrictive Covenant</u>.** Executive has reviewed the provisions of this Agreement with legal counsel or has been given adequate opportunity to seek such counsel, and Executive acknowledges that the covenants contained in this **Section 7** are reasonable in all respects. Executive further acknowledges that the restrictions contained in this **Section 7** are reasonable and necessary for the protection of the legitimate business interests of the Employer, that they create no undue hardships, that any violation of these restrictions would cause substantial injury to the Employer and such interests, and that such restrictions were a material inducement to the Employer to enter into this Agreement. In the event of any violation or threatened violation of these restrictions, the Employer, in addition to and not in limitation of, any other rights, remedies or damages available to the Employer under this Agreement or otherwise at law or in equity, shall be entitled to preliminary and permanent injunctive relief to prevent or restrain any such violation by Executive and any and all persons directly or indirectly acting for or with Executive, as the case may be.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) **<u>Other Agreements</u>.** In the event of the existence of any other agreement between the Parties that contains restrictive covenants that conflict with any of the provisions of this **Section 7**, then the more restrictive of such provisions from such agreements shall control for the period during which such agreements would otherwise be in effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**8. <u>Regulatory Suspension and Termination</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the affairs of the Employer by a notice served under Section 8(e)(3) (12 U.S.C. § 1818(e)(3)) or 8(g) (12 U.S.C. § 1818(g)) of the Federal Deposit Insurance Act, as amended ("**FDIA**"), the Employer's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Employer may in its discretion: (i) pay Executive all or part of the compensation withheld while the obligations herein were suspended; and (ii) reinstate (in whole or in part) any of the obligations which were suspended.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If Executive is removed and/or permanently prohibited from participating in the conduct of the affairs of the Employer by an order issued under Section 8(e) (12 U.S.C. § 1818(e)) or 8(g) (12 U.S.C. § 1818(g)) of the FDIA, all obligations of the Employer under this Agreement shall terminate as of the effective date of the order, but vested rights of the Parties shall not be affected.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) If the Employer is in default as defined in Section 3(x) (12 U.S.C. § 1813(x)(1)) of the FDIA, all obligations of the Employer under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the Parties.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) All obligations of the Employer under this Agreement shall be terminated, except to the extent it is determined by the Federal Deposit Insurance Corporation (the "**FDIC**") that continuation of the Agreement is necessary for the continued operation of the institution, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Employer under the authority contained in Section 13(c) (12 U.S.C. § 1823(c)) of the FDIA, or when the Employer is determined by any appropriate regulator of the Employer to be in an unsafe or unsound condition. Any rights of the Parties that have already vested, however, shall not be affected by such action.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) (12 U.S.C. § 1828(k)) of the FDIA.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**9. <u>Notices</u>.** Notices and all other communications under this Agreement shall be in writing and shall be deemed given when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Employer:

Tri-County Financial Group, Inc.<br> Attention: Chief Executive Officer<br> 706 Washington Street,

Mendota, IL 61342<br>

If to Executive: Executive's last address on file with the Employer

or to such other address as either Party may furnish to the other in writing, except that notices of changes of address shall be effective only upon receipt.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**10. <u>Applicable Law; Arbitration; and Attorney's Fees</u>.** All questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement shall be governed by the internal laws of the State of Illinois applicable to agreements made and wholly to be performed in such state without regard to conflicts of law provisions of any jurisdiction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**11. <u>Entire Agreement</u>.** This Agreement constitutes the entire agreement between the Parties concerning the subject matter hereof, and supersedes all prior negotiations, undertakings, agreements and arrangements with respect thereto, whether written or oral. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement and all other provisions shall remain in full force and effect. The various covenants and provisions of this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Without limiting the generality of the foregoing, if the scope of any covenant contained in this Agreement is too broad to permit enforcement to its full extent, such covenant shall be enforced to the maximum extent permitted by law, and such scope may be judicially modified accordingly.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**12. <u>Withholding of Taxes</u>.** The Employer and its Affiliates may withhold from any benefits payable under this Agreement all federal, state, city and other taxes as may be required pursuant to any law, governmental regulation or ruling.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**13. <u>No Assignment</u>.** Executive's rights to receive benefits under this Agreement shall not be assignable or transferable whether by pledge, creation of a security interest or otherwise, other than a transfer by will or by the laws of descent or distribution. In the event of any attempted assignment or transfer contrary to this **Section 13**, the Employer shall have no liability to pay any amount so attempted to be assigned or transferred. This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**14. <u>Successors</u>.** This Agreement shall be binding upon and inure to the benefit of the Employer, its successors and assigns.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**15. <u>Amendment</u>.** Except as provided under **Section 16**, this Agreement may not be amended or modified except by written agreement signed by the Parties.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**16. <u>Code Section 409A</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) This Agreement may be amended to the extent necessary (including retroactively) by the Employer, without Executive's consent, to avoid the application of taxes or interest under Code Section 409A, while maintaining to the maximum extent practicable the original intent of this Agreement, provided that the Employer is under no obligation to amend this Agreement for purposes of Code Section 409A. If it is determined that any payments or benefits due hereunder upon Executive's termination of employment are subject to Code Section 409A, no such payments or benefits shall be payable unless such termination constitutes a "separation from service" within the meaning of Code Section 409A. To the extent any reimbursements or in-kind benefit payments under this Agreement are subject to Code Section 409A, such reimbursements and in-kind benefit payments shall be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv). This **Section 16** shall not be construed as a guarantee of any particular tax effect for Executive's benefits under this Agreement and the Employer does not guarantee that any such benefits will satisfy the provisions of Code Section 409A or any other provision of the Code. For purposes of Code Section 409A, each payment hereunder and any installment payments shall be deemed separate payments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Notwithstanding any provision of this Agreement to the contrary, if Executive is determined to be a "specified employee" (as defined in Code Section 409A) as of the Termination Date, then the six (6)-month payment delay rule under Code Section 409A shall apply as set forth therein, to the extent applicable. All delayed payments shall be accumulated and paid in a lump-sum payment as of the first day of the seventh month following the Termination Date (or, if earlier, as of Executive's death). Any portion of the benefits hereunder that were not otherwise due to be paid during the six (6)-month period following the Termination Date shall be paid to Executive in accordance with the payment schedule established herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**17. <u>Waiver</u>.** The failure of any Party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such Party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**18. <u>Survival</u>.** The provisions of **Sections 5** through **21** shall survive the termination of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**19. <u>Representations by Executive</u>.** Executive acknowledges and agrees that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Executive has been and hereby is advised in writing to consult with an attorney prior to executing this Agreement; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Executive was given at least fourteen (14) days to consider whether to execute this Agreement, although Executive may execute it sooner if desired.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**20. <u>Counterparts</u>**. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, shall have the same effect as physical delivery of the paper document bearing an original signature.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**21. <u>Definitions</u>.** As used in this Agreement, the terms defined in this **Section 21** have the meanings set forth below.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) "**Affiliate**" means each company, corporation, partnership, financial institution or other entity that, directly or indirectly, is controlled by, controls, or is under common control with, the Employer, where "control" means (i) the ownership of more than fifty percent (50%) of the Voting Securities or other voting or equity interests of any corporation, partnership, joint venture or other business entity or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such corporation, partnership, joint venture or other business entity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) "**Agency**" has the meaning set forth in **Section 7(a)(iii)**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) "**Agreement**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) "**Annual Base Salary**" has the meaning set forth in **Section 3**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) "**Board**" means the board of directors of the Employer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) "**Code**" means the Internal Revenue Code of 1986, as amended.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) "**Company**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) "**Confidential Information**" has the meaning set forth in **Section 7(a)(i)**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) "**Disability**" means that (i) Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) Executive is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) consecutive months under an accident or health plan covering employees of the Employer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) "**Effective Date**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) "**Employer**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) "**Employment Period**" has the meaning set forth in **Section 1**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) "**Executive**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) "**FDIA**" has the meaning set forth in **Section 8(a)**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) "**FDIC**" has the meaning set forth in **Section 8(d)**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) "**Incentive Bonus**" has the meaning set forth in **Section 3**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) "**Minimum Benefits**" means, as applicable, the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Executive's earned but unpaid Annual Base Salary for the period ending on the Termination Date; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Executive's accrued but unpaid vacation time for the period ending on the Termination Date, if any.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) "**Parties**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s) "**Qualifying Termination**" means the termination of Executive's employment with the Employer, following the Effective Date and prior to the end of the Employment Period, by the Employer other than a Termination for Cause (excluding, for the avoidance of doubt, any termination as a result of Executive's death or Disability).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(t) "**Release**" means a general release and waiver which is reasonably acceptable to the Employer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(u) "**Restrictive Covenants**" has the meaning set forth in **Section 7**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) "**Severance Amount**" means, for a Qualifying Termination that occurs during the Employment Period, an amount equal to two hundred percent (200%) of Executive's Annual Base Salary as of Executive's Termination Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(w) "**Termination Date**" means the date of termination of Executive's employment with the Employer for any reason.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) "**Termination for Cause**" means only a termination of Executive's employment with the Employer as a result of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Executive's willful and continuing failure, that is not remedied within twenty (20) days after receipt of written notice of such failure from the Employer, to perform Executive's obligations hereunder;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Executive's conviction of, or the pleading of *nolo contendere* to, a crime of embezzlement or fraud or a felony under the laws of the United States or any state thereof;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) Executive's breach of fiduciary responsibility;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) an act of dishonesty by Executive that is materially injurious to the Employer or any of its Affiliates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) Executive's material violation of any of the Employer's or the Company's written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) Executive's willful unauthorized disclosure of Confidential Information.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(y) "**Voting Securities**" means any securities that ordinarily possess the power to vote in the election of directors without the happening of any precondition or contingency.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(z) "**Whistleblower Program**" has the meaning set forth in **Section 7(a)(iii)**.

[Signature Page Follows]

**In witness whereof**, the Parties have executed this Agreement as of the Effective Date.

 

---

| | | |
|:---|:---|:---|
| **First State Bank** | **First State Bank** | **Kirk Ross** |
| **By:** | /s/ Timothy McConville | /s/ Kirk Ross |
|  |  | (Signature) |
| **Name**: | <u>Timothy McConville</u> | <u>[●]</u> |
|  |  | (Address) |
| **Its:** | <u>CEO of Tri-County Financial Group, Inc.</u> | <u>[●]</u> |
|  |  | (Address) |

---

## Exhibit 10.4

**Exhibit 10.4**

**First State Bank**

**<u>Employment Agreement</u>**

This **Employment Agreement** (this "**Agreement**") is made and entered into as of March 8, 2024 (the "**Effective Date**"), by and between **First State Bank** (the "**Employer**"), a wholly-owned banking subsidiary of **Tri-County Financial Group, Inc.** (the "**Company**"), and Lana J. Eddy ("**Executive**," and together with the Employer, each a "**Party**" and collectively, the "**Parties**").

**Recitals**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**A.** The Employer desires to employ Executive as the Chief Financial Officer and Cashier of the Employer pursuant to the terms of this Agreement, and Executive desires to be employed pursuant to the terms of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**B.** The Parties have made commitments to each other on a variety of important issues concerning Executive's employment, including the performance that will be expected of Executive, the compensation Executive will be paid, how long and under what circumstances Executive will remain employed and the financial details relating to any decision that either the Employer or Executive may make to terminate this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**C.** The Parties desire to enter into this Agreement as of the Effective Date and, to the extent provided herein, to have this Agreement supersede all of the terms of all prior employment agreements between the Parties, whether or not in writing, and any such prior employment agreements shall become null and void as of the Effective Date, and the parties thereunder shall have no rights or interests therein.

**Agreements**

In consideration of the foregoing and the mutual promises and covenants of the Parties set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, hereby expressly covenant and agree as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**1. <u>Employment Period</u>.** The Employer shall employ Executive, and Executive shall be so employed, during the Employment Period in accordance with the terms of this Agreement. The "**Employment Period**" shall be the period beginning on the Effective Date and ending on the date that is one year following the Effective Date, provided that beginning on the Effective Date, the Employment Period shall automatically be extended by one (1) day for each day that passes, so that the Employment Period shall always be one year, unless sooner terminated as provided herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**2. <u>Duties</u>.** During the Employment Period, Executive shall devote Executive's full business time, energies and talents to serving as the Employer's Chief Financial Officer and Cashier at the direction of the President and Chief Executive Officer of the Employer (the "**CEO**"). Executive shall have such duties and responsibilities as may be assigned to Executive from time to time by the CEO, which duties and responsibilities shall be commensurate with Executive's position, shall perform all duties assigned to Executive faithfully and efficiently, subject to the direction of the CEO and shall have such authorities and powers as are inherent to the undertakings applicable to Executive's position and necessary to carry out the responsibilities and duties required of Executive hereunder. Executive shall perform the duties required by this Agreement at the Employer's Mendota, Illinois headquarters, or such other location agreed to by the Parties, unless the nature of such duties requires otherwise. Notwithstanding the foregoing provisions of this **Section** ‎**2**, during the Employment Period, Executive may devote reasonable time to activities other than those required under this Agreement, including activities of a charitable, educational, religious or similar nature (including professional associations) to the extent such activities do not, in the reasonable judgment of the CEO, inhibit, prohibit, interfere with or conflict with Executive's duties under this Agreement or conflict in any material way with the business of the Employer or an Affiliate; *provided, however,* that Executive shall not serve on the board of directors of any business (other than the Employer or any Affiliate) or hold any other position with any business without receiving the prior written consent of the CEO.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**3. <u>Compensation and Benefits</u>.** Subject to the terms of this Agreement, during the Employment Period, while Executive is employed by the Employer, the Employer shall compensate Executive for Executive's services as follows:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) *Annual Base Salary.* Executive shall be compensated with a salary at an annual rate of Two Hundred Twenty Thousand Dollars ($220,000) (the "**Annual Base Salary**"), which shall be payable in accordance with the normal payroll practices of the Employer then in effect. Executive's Annual Base Salary shall be reviewed annually thereafter in accordance with the Employer's normal salary review practices. Executive's Annual Base Salary shall be pro-rated for Executive's first year of employment.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) *Annual Incentive Bonus.* At the sole discretion of the Board, Executive shall be eligible to receive a discretionary annual incentive bonus (each, the "**Incentive Bonus**") from the Employer for each fiscal year ending during the Employment Period. Executive must be employed by the Employer on the date of payment of the Incentive Bonus in order to be eligible to receive such bonus. Executive's Incentive Bonus, if any, for Executive's first year of employment shall be pro-rated.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) *Reimbursement of Expenses*. The Employer shall reimburse Executive, in accordance with and subject to Executive's compliance with the Employer's expense reimbursement policy, for Executive's necessary and reasonable out-of-pocket expenses incurred in the ordinary course of performance of Executive's duties hereunder.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) *Other Benefits*. During the Employment Period, Executive and Executive's dependents, as the case may be, shall be eligible to participate, subject to the terms thereof, in all benefit plans and programs of the Employer as may be in effect from time to time with respect to similarly situated executives employed by the Employer. The Employer, or its applicable affiliate, may amend or terminate any and all such benefits plans and programs at any time and from time to time.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**4. <u>Rights upon Termination</u>.** Executive's right to benefits, if any, for periods after the Termination Date shall be determined in accordance with this **Section** ‎**4**:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **<u>Minimum Benefits</u>.** If the Termination Date occurs during the Employment Period for any reason, Executive shall be entitled to the Minimum Benefits in addition to any other benefits to which Executive may be entitled under the following provisions of this **Section** ‎**4** or the express terms of any employee benefit plan or as required by law. Any Minimum Benefits to be provided to Executive pursuant to this **Section** ‎**4**‎**(a)** shall be provided within thirty (30) days after the Termination Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **<u>Termination for Cause; Death; Disability; Voluntary Resignation; Executive Non-Renewal</u>.** If the Termination Date occurs during the Employment Period and is a result of a Termination for Cause, Executive's death or Disability, or a voluntary termination by Executive or if Executive provides notice of non-renewal of this Agreement, then, other than the Minimum Benefits, Executive shall have no right to benefits under this Agreement (and the Employer and its Affiliates shall have no obligation to provide any such benefits) for periods after the Termination Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **<u>Termination other than a Termination for Cause</u>.** If Executive's employment is subject to a Qualifying Termination, then, in addition to the Minimum Benefits, subject to the Release requirements of **Section 5** and the Executive meeting the restrictive covenants under **Section 7**, the Employer shall pay Executive a lump sum payment in an amount equal to the Severance Amount on the first Employer payroll date that occurs on or following the sixtieth (60th) day following the Termination Date, but in no event later than two and one-half months (2½) months following the end of the year in which the Termination Date occurs.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) **<u>Other Benefits</u>.** Executive's rights following a termination of employment with the Employer and its Affiliates for any reason with respect to any benefits, incentives or awards provided to Executive pursuant to the terms of any plan, program or arrangement sponsored or maintained by the Employer or an Affiliate, whether tax-qualified or not, which are not specifically addressed herein, shall be subject to the terms of such plan, program or arrangement, and this Agreement shall have no effect upon such terms except as specifically provided herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) **<u>Removal from any Boards and Positions</u>.** Upon Executive's termination of employment for any reason under this Agreement, Executive shall be deemed to resign (i) if a member, from the Board and the board of directors of any Affiliate and any other board to which Executive has been appointed or nominated by or on behalf of the Employer, (ii) from each position with the Employer, or any Affiliate, including as an officer of the Employer, or any of its Affiliates and (iii) as a fiduciary of any employee benefit plan of the Employer or any of its Affiliates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**5. <u>Release</u>.** Notwithstanding any provision of this Agreement to the contrary, no payment shall be owed to Executive under Section 4(c) unless Executive executes and delivers to the Employer a Release within forty-five (45) days following the Termination Date, and any applicable revocation period has expired prior to the sixtieth (60<sup>th</sup>) day following the Termination Date. Except as specifically provided herein, the Employer shall have no further obligations to Executive under this Agreement following Executive's termination of employment for any reason.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**6. <u>Excise Tax Limitation</u>.** It is the intention of the Parties that no portion of any payment under this Agreement, or payments to or for the benefit of Executive under any other agreement or plan, be deemed to be an "excess parachute payment," as such term is defined under Code Section 280G and the regulations promulgated thereunder. The present value of payments to or for the benefit of Executive in the nature of compensation, receipt of which is contingent on (i) a change in the ownership or effective control of the Employer or any of its Affiliates, or (ii) a change in the ownership of a substantial portion of the assets of the Employer or any of its Affiliates (in each case, within the meaning of Code Section 280G and the regulations promulgated thereunder), and to which Code Section 280G applies, shall not exceed an amount equal to $1.00 less than the maximum amount that may be paid without a loss of deduction under Code Section 280G(a). Any modification, reduction or elimination of payments necessary to accomplish the foregoing shall be done in accordance with applicable provisions of Code Section 409A.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**7. <u>Restrictive Covenants</u>.** Executive acknowledges that Executive has been and will continue to be provided intimate knowledge of the business practices, trade secrets, and other confidential and proprietary information of the Employer and its Affiliates (including the Confidential Information), which, if exploited by Executive, would seriously, adversely, and irreparably affect the interests of the Employer and its Affiliates and the ability of each to continue its business and, therefore, Executive hereby agrees to be bound by the restrictions contained in this **Section** ‎**7** (the "**Restrictive Covenants**").

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) **<u>Confidential Information</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Executive acknowledges that, during the course of Executive's employment with the Employer, Executive may produce and have access to confidential and/or proprietary, non-public information concerning the Employer or its Affiliates, including marketing materials, financial and other information concerning customers and prospective customers, customer lists, records, data, trade secrets, proprietary business information, pricing and profitability information and policies, strategic planning, commitments, plans, procedures, litigation, pending litigation and other information not generally available to the public (collectively, "**Confidential Information**"). Executive shall not directly or indirectly use, disclose, copy or make lists of Confidential Information for the benefit of anyone other than the Employer, either during or after Executive's employment with the Employer, except to the extent such disclosure is authorized in writing by the Employer, required by law or any competent administrative agency or judicial authority, or otherwise as reasonably necessary or appropriate in connection with the performance by Executive of Executive's duties hereunder. If Executive receives a subpoena or other court order or is otherwise required by law to provide information to a governmental authority or other person concerning the activities of the Employer or any of its Affiliates, or Executive's activities in connection with the business of the Employer or any of its Affiliates, Executive shall immediately notify the Employer of such subpoena, court order or other requirement and deliver forthwith to the Employer a copy thereof and any attachments and non-privileged correspondence related thereto. Executive shall take reasonable precautions to protect against the inadvertent disclosure of Confidential Information. Executive shall abide by the Employer's reasonable policies, as in effect from time to time, respecting avoidance of interests conflicting with those of the Employer and its Affiliates.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Executive shall not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney, and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. Accordingly, Executive has the right to disclose in confidence trade secrets to federal, state, and local government officials, or to an attorney, for the sole purpose of reporting or investigating a suspected violation of law. Executive also has the right to disclose trade secrets in a document filed in a lawsuit or other proceeding, but only if the filing is made under seal and protected from public disclosure. Nothing in this Agreement is intended to conflict with 18 U.S.C. § 1833(b) or create liability for disclosures of trade secrets that are expressly allowed by 18 U.S.C. § 1833(b). Nothing in this Agreement shall be construed to authorize, or limit liability for, an act that is otherwise prohibited by law, such as the unlawful access of material by unauthorized means.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) Nothing contained in this **Section** ‎**7**‎**(a)** shall limit Executive's ability to file a charge or complaint with any governmental, administrative or judicial agency (each, an "**Agency**") pursuant to any applicable whistleblower statute or program (each, a "**Whistleblower Program**"). Executive acknowledges that this **Section** ‎**7**‎**(a)** does not limit (i) Executive's ability to communicate, in connection with a charge or complaint pursuant to any Whistleblower Program with any Agency or otherwise participate in any investigation or proceeding that may be conducted by such Agency, including providing documents or other information, without notice to the Employer, or (ii) Executive's right to receive an award for information provided to such Agency pursuant to any Whistleblower Program.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) **<u>Documents and Property</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) All records, files, documents and other materials or copies thereof relating to the business of the Employer or its Affiliates that Executive prepares, receives or uses shall be and remain the sole property of the Employer and, other than in connection with the performance by Executive of Executive's duties hereunder, shall not be removed from the premises of the Employer or any of its Affiliates without the Employer's prior written consent, and shall be promptly returned to the Employer upon Executive's termination of employment for any reason, together with all copies (including copies or recordings in electronic form), abstracts, notes or reproductions of any kind made from or about the records, files, documents or other materials.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Executive acknowledges that Executive's access to and permission to use the Employer's and any Affiliate's computer systems, networks and equipment, and all Employer and Affiliate information contained therein, is restricted to legitimate business purposes on behalf of the Employer. Any other access to or use of such systems, network, equipment and information is without authorization and is prohibited except that Executive may use an Employer-provided computer for reasonable personal use in accordance with the Employer's technology use policy as in effect from time to time. The restrictions contained in this **Section** ‎**7**‎**(b)** extend to any personal computers or other electronic devices of Executive that are used for business purposes relating to the Employer or any Affiliate. Executive shall not transfer any Employer or Affiliate information to any personal computer or other electronic device that is not otherwise used for any business purpose relating to the Employer. Upon the termination of Executive's employment with the Employer for any reason, Executive's authorization to access and permission to use the Employer's and any Affiliate's computer systems, networks and equipment, and any Employer and Affiliate information contained therein, shall cease.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) **<u>Remedies for Breach of Restrictive Covenant</u>.** Executive has reviewed the provisions of this Agreement with legal counsel or has been given adequate opportunity to seek such counsel, and Executive acknowledges that the covenants contained in this **Section** ‎**7** are reasonable in all respects. Executive further acknowledges that the restrictions contained in this **Section** ‎**7** are reasonable and necessary for the protection of the legitimate business interests of the Employer, that they create no undue hardships, that any violation of these restrictions would cause substantial injury to the Employer and such interests, and that such restrictions were a material inducement to the Employer to enter into this Agreement. In the event of any violation or threatened violation of these restrictions, the Employer, in addition to and not in limitation of, any other rights, remedies or damages available to the Employer under this Agreement or otherwise at law or in equity, shall be entitled to preliminary and permanent injunctive relief to prevent or restrain any such violation by Executive and any and all persons directly or indirectly acting for or with Executive, as the case may be.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) **<u>Other Agreements</u>.** In the event of the existence of any other agreement between the Parties that contains restrictive covenants that conflict with any of the provisions of this **Section** ‎**7**, then the more restrictive of such provisions from such agreements shall control for the period during which such agreements would otherwise be in effect.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**8. <u>Regulatory Suspension and Termination</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) If Executive is suspended from office and/or temporarily prohibited from participating in the conduct of the affairs of the Employer by a notice served under Section 8(e)(3) (12 U.S.C. § 1818(e)(3)) or 8(g) (12 U.S.C. § 1818(g)) of the Federal Deposit Insurance Act, as amended ("**FDIA**"), the Employer's obligations under this Agreement shall be suspended as of the date of service, unless stayed by appropriate proceedings. If the charges in the notice are dismissed, the Employer may in its discretion: (i) pay Executive all or part of the compensation withheld while the obligations herein were suspended; and (ii) reinstate (in whole or in part) any of the obligations which were suspended.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) If Executive is removed and/or permanently prohibited from participating in the conduct of the affairs of the Employer by an order issued under Section 8(e) (12 U.S.C. § 1818(e)) or 8(g) (12 U.S.C. § 1818(g)) of the FDIA, all obligations of the Employer under this Agreement shall terminate as of the effective date of the order, but vested rights of the Parties shall not be affected.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) If the Employer is in default as defined in Section 3(x) (12 U.S.C. § 1813(x)(1)) of the FDIA, all obligations of the Employer under this Agreement shall terminate as of the date of default, but this subsection shall not affect any vested rights of the Parties.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) All obligations of the Employer under this Agreement shall be terminated, except to the extent it is determined by the Federal Deposit Insurance Corporation (the "**FDIC**") that continuation of the Agreement is necessary for the continued operation of the institution, at the time the FDIC enters into an agreement to provide assistance to or on behalf of the Employer under the authority contained in Section 13(c) (12 U.S.C. § 1823(c)) of the FDIA, or when the Employer is determined by any appropriate regulator of the Employer to be in an unsafe or unsound condition. Any rights of the Parties that have already vested, however, shall not be affected by such action.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) Any payments made to Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) (12 U.S.C. § 1828(k)) of the FDIA.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**9. <u>Notices</u>.** Notices and all other communications under this Agreement shall be in writing and shall be deemed given when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to the Employer:

Tri-County Financial Group, Inc.<br> Attention: Chief Executive Officer<br> 706 Washington Street,

Mendota, IL 61342<br>

If to Executive: Executive's last address on file with the Employer

or to such other address as either Party may furnish to the other in writing, except that notices of changes of address shall be effective only upon receipt.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**10. <u>Applicable Law; Arbitration; and Attorney's Fees</u>.** All questions concerning the construction, validity and interpretation of this Agreement and the performance of the obligations imposed by this Agreement shall be governed by the internal laws of the State of Illinois applicable to agreements made and wholly to be performed in such state without regard to conflicts of law provisions of any jurisdiction.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**11. <u>Entire Agreement</u>.** This Agreement constitutes the entire agreement between the Parties concerning the subject matter hereof, and supersedes all prior negotiations, undertakings, agreements and arrangements with respect thereto, whether written or oral. If a court of competent jurisdiction determines that any provision of this Agreement is invalid or unenforceable, then the invalidity or unenforceability of that provision shall not affect the validity or enforceability of any other provision of this Agreement and all other provisions shall remain in full force and effect. The various covenants and provisions of this Agreement are intended to be severable and to constitute independent and distinct binding obligations. Without limiting the generality of the foregoing, if the scope of any covenant contained in this Agreement is too broad to permit enforcement to its full extent, such covenant shall be enforced to the maximum extent permitted by law, and such scope may be judicially modified accordingly.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**12. <u>Withholding of Taxes</u>.** The Employer and its Affiliates may withhold from any benefits payable under this Agreement all federal, state, city and other taxes as may be required pursuant to any law, governmental regulation or ruling.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**13. <u>No Assignment</u>.** Executive's rights to receive benefits under this Agreement shall not be assignable or transferable whether by pledge, creation of a security interest or otherwise, other than a transfer by will or by the laws of descent or distribution. In the event of any attempted assignment or transfer contrary to this **Section** ‎**13**, the Employer shall have no liability to pay any amount so attempted to be assigned or transferred. This Agreement shall inure to the benefit of and be enforceable by Executive's personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**14. <u>Successors</u>.** This Agreement shall be binding upon and inure to the benefit of the Employer, its successors and assigns.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**15. <u>Amendment</u>.** Except as provided under **Section 16**, this Agreement may not be amended or modified except by written agreement signed by the Parties.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**16. <u>Code Section 409A</u>.**

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) This Agreement may be amended to the extent necessary (including retroactively) by the Employer, without Executive's consent, to avoid the application of taxes or interest under Code Section 409A, while maintaining to the maximum extent practicable the original intent of this Agreement, provided that the Employer is under no obligation to amend this Agreement for purposes of Code Section 409A. If it is determined that any payments or benefits due hereunder upon Executive's termination of employment are subject to Code Section 409A, no such payments or benefits shall be payable unless such termination constitutes a "separation from service" within the meaning of Code Section 409A. To the extent any reimbursements or in-kind benefit payments under this Agreement are subject to Code Section 409A, such reimbursements and in-kind benefit payments shall be made in accordance with Treasury Regulation Section 1.409A-3(i)(1)(iv). This **Section** ‎**16** shall not be construed as a guarantee of any particular tax effect for Executive's benefits under this Agreement and the Employer does not guarantee that any such benefits will satisfy the provisions of Code Section 409A or any other provision of the Code. For purposes of Code Section 409A, each payment hereunder and any installment payments shall be deemed separate payments.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Notwithstanding any provision of this Agreement to the contrary, if Executive is determined to be a "specified employee" (as defined in Code Section 409A) as of the Termination Date, then the six (6)-month payment delay rule under Code Section 409A shall apply as set forth therein, to the extent applicable. All delayed payments shall be accumulated and paid in a lump-sum payment as of the first day of the seventh month following the Termination Date (or, if earlier, as of Executive's death). Any portion of the benefits hereunder that were not otherwise due to be paid during the six (6)-month period following the Termination Date shall be paid to Executive in accordance with the payment schedule established herein.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**17. <u>Waiver</u>.** The failure of any Party to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such Party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**18. <u>Survival</u>.** The provisions of **Sections 5** through **21** shall survive the termination of this Agreement.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**19. <u>Representations by Executive</u>.** Executive acknowledges and agrees that:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) Executive has been and hereby is advised in writing to consult with an attorney prior to executing this Agreement; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) Executive was given at least fourteen (14) days to consider whether to execute this Agreement, although Executive may execute it sooner if desired.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**20. <u>Counterparts</u>**. This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together will constitute one and the same instrument. Counterpart signature pages to this Agreement transmitted by facsimile transmission, by electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, shall have the same effect as physical delivery of the paper document bearing an original signature.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;**21. <u>Definitions</u>.** As used in this Agreement, the terms defined in this **Section 21** have the meanings set forth below.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(a) "**Affiliate**" means each company, corporation, partnership, financial institution or other entity that, directly or indirectly, is controlled by, controls, or is under common control with, the Employer, where "control" means (i) the ownership of more than fifty percent (50%) of the Voting Securities or other voting or equity interests of any corporation, partnership, joint venture or other business entity or (ii) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such corporation, partnership, joint venture or other business entity.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(b) "**Agency**" has the meaning set forth in **Section** ‎**7(a)(iii)**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(c) "**Agreement**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(d) "**Annual Base Salary**" has the meaning set forth in **Section** ‎**3**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(e) "**Board**" means the board of directors of the Employer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(f) "**Code**" means the Internal Revenue Code of 1986, as amended.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(g) "**Company**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(h) "**Confidential Information**" has the meaning set forth in **Section** ‎**7(a)(i)**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) "**Disability**" means that (i) Executive is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, or (ii) Executive is, by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement benefits for a period of not less than three (3) consecutive months under an accident or health plan covering employees of the Employer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(j) "**Effective Date**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(k) "**Employer**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(l) "**Employment Period**" has the meaning set forth in **Section** ‎**1**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(m) "**Executive**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(n) "**FDIA**" has the meaning set forth in **Section** ‎**8(a)**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(o) "**FDIC**" has the meaning set forth in **Section** ‎**8(d)**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(p) "**Incentive Bonus**" has the meaning set forth in **Section** ‎**3**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(q) "**Minimum Benefits**" means, as applicable, the following:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Executive's earned but unpaid Annual Base Salary for the period ending on the Termination Date; and

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Executive's accrued but unpaid vacation time for the period ending on the Termination Date, if any.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(r) "**Parties**" has the meaning set forth in the Preamble.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(s) "**Qualifying Termination**" means the termination of Executive's employment with the Employer, following the Effective Date and prior to the end of the Employment Period, by the Employer other than a Termination for Cause (excluding, for the avoidance of doubt, any termination as a result of Executive's death or Disability).

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(t) "**Release**" means a general release and waiver which is reasonably acceptable to the Employer.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(u) "**Restrictive Covenants**" has the meaning set forth in **Section** ‎**7**.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) "**Severance Amount**" means, for a Qualifying Termination that occurs during the Employment Period, an amount equal to one hundred percent (100%) of Executive's Annual Base Salary as of Executive's Termination Date.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(w) "**Termination Date**" means the date of termination of Executive's employment with the Employer for any reason.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(x) "**Termination for Cause**" means only a termination of Executive's employment with the Employer as a result of:

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(i) Executive's willful and continuing failure, that is not remedied within twenty (20) days after receipt of written notice of such failure from the Employer, to perform Executive's obligations hereunder;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(ii) Executive's conviction of, or the pleading of *nolo contendere* to, a crime of embezzlement or fraud or a felony under the laws of the United States or any state thereof;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iii) Executive's breach of fiduciary responsibility;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(iv) an act of dishonesty by Executive that is materially injurious to the Employer or any of its Affiliates;

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(v) Executive's material violation of any of the Employer's or the Company's written policies or codes of conduct, including written policies related to discrimination, harassment, performance of illegal or unethical activities, and ethical misconduct; or

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(vi) Executive's willful unauthorized disclosure of Confidential Information.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(y) "**Voting Securities**" means any securities that ordinarily possess the power to vote in the election of directors without the happening of any precondition or contingency.

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;(z) "**Whistleblower Program**" has the meaning set forth in **Section** ‎**7(a)(iii)**.

[Signature Page Follows]

**In witness whereof**, the Parties have executed this Agreement as of the Effective Date.

 

---

| | | |
|:---|:---|:---|
| **First State Bank** | **First State Bank** | **Lana J. Eddy** |
| **By:** | /s/ Timothy McConville | /s/ Lana J. Eddy |
|  |  | (Signature) |
| **Name**: | Timothy McConville | [●] |
|  |  | (Address) |
| **Its:** | CEO of Tri-County Financial Group, Inc. | [●] |
|  |  | (Address) |

---

## Exhibit 10.5

**Exhibit 10.5**

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## Exhibit 10.6

**Exhibit 10.6**

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## Exhibit 21.1

**Exhibit 21.1**

**<u>Subsidiaries of Tri-County Financial Group, Inc.</u>**

The following entities comprise the direct and indirect Subsidiaries of the Company:

---

| | |
|:---|:---|
| **Name** | **Jurisdiction of Incorporation or Organization** |
| First State Bank | Illinois |
| First State Mortgage Services, LLC | Illinois |
| Tri-County Insurance Services, Inc. (d/b/a First State Insurance) | Illinois |

---

## Exhibit 23.2

**Exhibit 23.2**

![](ex23-2_001.jpg)

**Consent of Independent Registered Public Accounting Firm**

We consent to the use in this Registration Statement on Form S-1 of Tri-County Financial Group, Inc. (the "Company") of our report dated March 3, 2025, with respect to the consolidated financial statements of the Company. We also consent to the reference to our firm under the caption "Experts" in the Registration Statement.

 **/s/ Forvis Mazars, LLP** 

**St. Louis, Missouri**

**June 16, 2025**

Forvis Mazars, LLP is an independent member of Forvis Mazars Global Limited

## Ex-Filing

?xml version='1.0' encoding='ASCII'?

**Exhibit 107**

**Calculation of Filing Fee Tables**

**** 

**Table 1: Newly Registered and Carry Forward Securities**

---

| | | | | | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Note #** | **Security<br> Type**  | **Security Class Title** | **Fee Calculation or Carry Forward Rule** | **Amount Registered** | **Proposed Maximum Offering Price Per Unit** | **Maximum Aggregate Offering Price** | **Fee<br> Rate** | **Amount of Registration Fee** | **Carry Forward Form Type** | **Carry Forward File Number** | **Carry Forward Initial Effective Date** | **Filing Fee Previously Paid in Connection with Unsold Securities to be Carried Forward** |
|  | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** | **Newly Registered Securities** |
| Fees to Be Paid | 1 | Equity | Common Stock | 457(o) | 563064 |  | 24774816 | 0.00015310 | 3793.02 |  |  |  |  |
| Fees Previously Paid |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** | **Carry Forward Securities** |
| Carry Forward Securities |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  |  | **Total Offering Amounts:** | **Total Offering Amounts:** | **Total Offering Amounts:** | **Total Offering Amounts:** |  | 24774816 |  | 3793.02 |  |  |  |  |
|  |  | **Total Fees Previously Paid:** | **Total Fees Previously Paid:** | **Total Fees Previously Paid:** | **Total Fees Previously Paid:** |  |  |  |  |  |  |  |  |
|  |  | **Total Fee Offsets:** | **Total Fee Offsets:** | **Total Fee Offsets:** | **Total Fee Offsets:** |  |  |  |  |  |  |  |  |
|  |  | **Net Fee Due:** | **Net Fee Due:** | **Net Fee Due:** | **Net Fee Due:** |  |  |  | 3793.02 |  |  |  |  |

---

---

| | |
|:---|:---|
| **Fee Note #**<br> (see instructions) | **Fee Note text**<br> (10,000-character limit) |
|  | The filing fee is calculated in accordance with 457(o) of the Securities Act of 1933, as amended. |

---