Investar Holding Corp

NOTE1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

The Company is a financial holding company, headquartered in Baton Rouge, Louisiana that provides full banking services, excluding trust services, through its wholly-owned banking subsidiary, Investar Bank, National Association, a national bank, primarily to meet the needs of individuals, professionals and small to medium-sized businesses. The Company’s primary markets are in south Louisiana, southeast Texas and Alabama. At * June 30, 2025* , the Company operated 20 full service branches located in Louisiana, three full service branches located in Texas andsix full service branches located in Alabama and had 337 full-time equivalent employees.

Basis of Presentation

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with GAAP for interim financial information and the instructions to Form10-Q and Article10 of Regulation S-X. Accordingly, they donot include information or footnotes necessary for a complete presentation of financial position, results of operations, and cash flows in conformity with GAAP. However, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the financial statements have been included. The results of operations for thethree andsix month periods ended* June 30, 2025* arenot necessarily indicative of the results that* maybe expected for the entire fiscal year. These statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2024*, including the notes thereto, which were included as part of the Company’s Annual Report.

Prior period consolidated financial statements are reclassified whenever necessary to conform to the current period presentation.No reclassifications of prior period balances were material to the consolidated financial statements.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. All significant intercompany accounts and transactions have been eliminated in consolidation.

Segment Reporting

The Company determined that all of its banking operations serve a similar customer base, offer similar products and services, and are managed through similar processes. Therefore, the Company’s banking operations are aggregated intoone reportable operating segment, which generates income principally from interest on loans and, to a lesser extent, securities investments, as well as from fees charged in connection with various loan and deposit services. The CODM is the Chief Executive Officer, who for the purposes of assessing performance, making operating decisions, and allocating Company resources, regularly reviews net income as reported in the accompanying consolidated statements of income. The level of disaggregation and amounts of significant segment income and expenses that are regularly provided to the CODM are the same as those presented in the accompanying consolidated statements of income. Likewise, the measure of segment assets is reported on the accompanying consolidated balance sheets as total assets.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and such differences could be material.

Material estimates that are particularly susceptible to significant change relate to the determination of the ACL. While management uses available information to recognize credit losses on loans, future additions to the ACL* maybe necessary based on changes in economic conditions, changes in conditions of borrowers’ industries or changes in the condition of individual borrowers. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s ACL. Such agencies mayrequire the Company to recognize additions to the ACL based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the ACL may*change materially in the near term. However, the amount of the change that is reasonably possible cannot be estimated.

Other estimates that are susceptible to significant change in the near term relate to the allowance for off-balance sheet credit losses, the fair value of stock-based compensation awards, the determination of other-than-temporary impairments of securities, and the fair value of financial instruments and goodwill. A changing interest rate environment, elevated levels of inflation and changing U.S. trade and tariff policies have made certain estimates more challenging, including those discussed above.

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Accounting Standards Adopted in2025

FASB ASC Topic 740 “Income Taxes - Improvements to Income Tax Disclosures”* Update* No. 2023-09 (“ASU 2023-09”). In* December 2023,the FASB issued ASU2023*-09, which enhances the transparency and decision usefulness of income tax disclosures. ASU2023-09 requires disclosure of additional categories of information about federal, state and foreign income taxes in the rate reconciliation table and requires companies to provide more information about the reconciling items in some categories if a quantitative threshold is met. ASU2023-09 became effective for the Company on* January 1, 2025.The Company will provide the required disclosures in its Annual Report on Form10*-K for the year ended* December 31, 2025,and the adoption of ASU2023*-09 isnot expected to have a material impact on the Company’s consolidated financial statements.

Recent Accounting Pronouncements

FASB “Disclosure Improvements”* Update* No. 2023-06 (“ASU 2023-06”). In* October 2023,the FASB issued ASU2023*-06, which amends the disclosure or presentation requirements related to various topics. The amendment is intended to align GAAP with the SEC’s regulations. ASU2023-06 is required to be applied prospectively, and early adoption is prohibited. For reporting entities subject to the SEC’s existing disclosure requirements, the effective dates of ASU2023-06 will be the date on which the SEC’s removal of that related disclosure requirement from Regulation S-X or Regulation S-K becomes effective. If by* June 30, 2027,the SEC hasnot* removed the applicable requirement from Regulation S-X or Regulation S-K, the pending content of the related amendment will be removed and willnot become effective for any entities. ASU2023-06 isnot expected to have a material impact on the Company’s consolidated financial statements.

FASB ASC Topic 220 “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures: Disaggregation of Income Statement Expenses”Update No. 2024-03 (“ASU 2024-03”). In* November 2024,the FASB issued ASU2024*-03, which requires disaggregated disclosure of income statement expenses in a tabular format in the notes of the financial statements for public business entities. ASU2024-03 is effective on a prospective basis for fiscal years beginning after* December 15, 2026and interim periods within fiscal years beginning after December 15, 2027,*with early adoption and retrospective application permitted. The Company is currently evaluating the provisions of the amendment and the impact on its future consolidated financial statements.

NOTE2. EARNINGS PER SHARE

The following is a summary of the information used in the computation of basic and diluted earnings per common share for thethree andsix months ended* June 30, 2025and2024* (in thousands, except share data).

The weighted average shares that have an antidilutive effect in the calculation of diluted earnings per common share and have been excluded from the computations above are shown below.

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NOTE3. INVESTMENT SECURITIES

Debt Securities

The amortized cost and approximate fair value of investment securities classified as AFS are summarized below as of the dates presented (dollars in thousands).

The Company calculates realized gains and losses on sales of debt securities under the specific identification method. Proceeds from sales of investment securities classified as AFS and gross gains and losses are summarized below for the periods presented (dollars in thousands).

The amortized cost and approximate fair value of investment securities classified as HTM are summarized below as of the dates presented (dollars in thousands).

Securities are classified in the consolidated balance sheets according to management’s intent. The Company hadno securities classified as trading as of* June 30, 2025* or* December 31, 2024*.

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The approximate fair value of AFS securities and unrealized losses, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized below as of the dates presented (dollars in thousands).

At* June 30, 2025*,679 of the Company’s AFS debt securities had unrealized losses totaling 15.2% of the individual securities’ amortized cost basis and 13.1% of the Company’s total amortized cost basis of the AFS investment securities portfolio. At such date,612 of the 679 securities had been in a continuous loss position for over12 months.

The approximate fair value of HTM securities and unrealized losses, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized below as of the dates presented (dollars in thousands).

Unrealized losses are generally due to changes in market interest rates. The Company has the intent to hold these securities either until maturity or a forecasted recovery, and it is more likely thannot that the Company willnot have to sell the securities before the recovery of their amortized cost basis. Due to the nature of the investments, current market prices, and the current interest rate environment, the Company determined that these declines werenot attributable to credit lossesat* June 30, 2025* or* December 31, 2024*.

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The amortized cost and approximate fair value of investment debt securities, by contractual maturity, are shown below as of* June 30, 2025* (dollars in thousands). Actual maturities* maydiffer from contractual maturities due to mortgage-backed securities whereby borrowers may*have the right to call or prepay obligations with or without call or prepayment penalties and certain callable bonds whereby the issuer has the option to call the bonds prior to contractual maturity.

Accrued interest receivable on the Company’s investment securitieswas $2.1 million and $1.9 million at * June 30, 2025* and* December 31, 2024*, respectively, and is included in“Accrued interest receivable” on the accompanying consolidated balance sheets.

At* June 30, 2025*, securities with a carrying value of $40.8 million were pledged to secure certain deposits, borrowings, and other liabilities, compared to $68.1 million in pledged securities at* December 31, 2024*.

Equity Securities

Equity securities at fair value include marketable securities in corporate stocks and mutual funds and totaled $2.6 million at* June 30, 2025* and* December 31, 2024*.

Nonmarketable equity securities primarily consist of FHLB stock and FRB stock. Members of the FHLB and FRB are required to own a certain amount of stock based on the level of borrowings and other factors and* mayinvest in additional amounts. FHLB stock and FRB stock are carried at cost, restricted as to redemption, and periodically evaluated for impairment based on the ultimate recovery of par value. Both cash and stock dividends are reported as income. Nonmarketable equity securities also include investments in other correspondent banks including Independent Bankers Financial Corporation and First National Bankers Bank stock. These investments are carried at cost which approximates fair value. The balance of nonmarketable equity securities at June 30, 2025* and* December 31, 2024* was$15.1 million and$16.5 million, respectively.

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NOTE4. LOANS AND ALLOWANCE FOR CREDIT LOSSES

The Company’s loan portfolio consists of the following categories of loans as of the dates presented (dollars in thousands).

Interest on loans is calculated by using the simple interest method on daily balances of the principal amount outstanding. Loan origination fees, net of direct loan origination costs and commitment fees, are deferred and amortized as an adjustment to yield over the life of the loan, or over the commitment period, as applicable. Unamortized premiums and discounts on loans, included in the total loans balances above, were $0.1 million at both * June 30, 2025* and* December 31, 2024*, and unearned income, or deferred fees, on loans was $1.1 million and $1.0 million at* June 30, 2025* and* December 31, 2024*, respectively, and is also included in the total loans balance in the table above.

The tables below provide an analysis of the aging of loans as of* June 30, 2025* and* December 31, 2024* (dollars in thousands).

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The tables below provide an analysis of nonaccrual loans as of* June 30, 2025* and* December 31, 2024* (dollars in thousands).

Nonaccrual and Past Due Loans

Loans are considered past due if the required principal and interest payments havenot been received as of the date such payments were due. Loans are placed on nonaccrual status when, in management’s opinion, the borrower* maybe unable to meet payment obligations as they become due, as well as when required by regulatory provisions. In determining whether ornot* a borrower* maybe unable to meet payment obligations for each class of loans, the borrower’s debt service capacity is considered through the analysis of current financial information, if available, and/or current information with regard to the collateral position. Regulatory provisions would typically require the placement of a loan on nonaccrual status if (i) principal or interest has been in default for a period of90* days or more unless the loan is both well secured and in the process of collection or (ii) full payment of principal and interest isnot expected. Loans* maybe placed on nonaccrual status regardless of whether ornot* such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income on nonaccrual loans is recognized only to the extent that cash payments are received in excess of principal due. A loan* maybe returned to accrual status when all the principal and interest amounts contractually due are brought current and payment of future principal and interest amounts contractually due are reasonably assured, which is typically evidenced by a sustained period (at leastsix* months) of repayment performance by the borrower.No material interest income was recognized in the consolidated statements of income on nonaccrual loans for thesix months ended* June 30, 2025and2024*.

Collateral Dependent Loans

Collateral dependent loans are loans for which the repayments, on the basis of the Company’s assessment at the reporting date, are expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. Loans that donot share risk characteristics are excluded from the loan pools and evaluated on an individual basis, and the Company has determined to evaluate collateral dependent loans individually for impairment. The ACL for collateral dependent loans is measured based on the difference between the fair value of the collateral and the amortized cost basis of the asset 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 present value 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 costs basis of the financial asset exceeds the fair value of the underlying collateral less estimated cost to sell. The Company’s collateral dependent loans include all nonaccrual loans shown in the tables above at* June 30, 2025* and* December 31, 2024*. The types of collateral that secure collateral dependent loans are discussed under “Portfolio Segment Risk Factors” below.

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Portfolio Segment Risk Factors

The following describes the risk characteristics relevant to each of the Company’s loan portfolio segments.

Construction and Development*-* Construction and development loans are generally made for the purpose of acquisition and development of land to be improved through the construction of commercial and residential buildings. The successful repayment of these types of loans is generally dependent upon a commitment for permanent financing from the Company, or from the sale of the constructed property. These loans carry more risk than commercial or residential real estate loans due to the dynamics of construction projects, changes in interest rates, the long-term financing market, and state and local government regulations. One such risk is that loan funds are advanced upon the security of the property under construction, which is of uncertain value prior to the completion of construction. Thus, it is more difficult to evaluate accurately the total loan funds required to complete a project and to calculate related loan-to-value ratios. The Company attempts to minimize the risks associated with construction lending by limiting loan-to-value ratios as described above. In addition, as to speculative development loans, the Company generally makes such loans only to borrowers that have a positive pre-existing relationship with us. The Company manages risk by using specific underwriting policies and procedures for these types of loans and by avoiding excessive concentrations in anyone business or industry. Construction and development loans are primarily secured by residential and commercial properties, which are under construction and/or redevelopment.

1-4 Family*-* The1-4 family portfolio mainly consists of residential mortgage loans to consumers to finance a primary residence. The majority of these loans are secured byfirst liens on residential properties located in the Company’s market areas and carry risks associated with the creditworthiness of the borrower and changes in the value of the collateral and loan-to-value-ratios. The Company manages these risks through policies and procedures such as limiting loan-to-value ratios at origination, employing experienced underwriting personnel, requiring standards for appraisers, andnot making subprime loans. In thethird quarter of2023, the Company exited the consumer mortgage origination business.

Multifamily- Multifamily loans are normally made to real estate investors to support permanent financing for multifamily residential income producing properties that rely on the successful operation of the property for repayment. This management mainly involves property maintenance and collection of rents due from tenants. This type of lending carries a lower level of risk, as compared to other commercial lending. In addition, underwriting requirements for multifamily properties are stricter than for other nonowner-occupied property types. The Company manages this risk by avoiding concentrations with any particular customer. Multifamily loans are primarily secured byfirst liens on multifamily real estate.

Farmland- Farmland loans are often for land improvements related to agricultural endeavors and* may*include construction of new specialized facilities. These loans are usually repaid through the conversion to permanent financing, or if scheduled loan amortization begins, for the long-term benefit of the borrower’s ongoing operations. Underwriting generally involves intensive analysis of the financial strength of the borrower and guarantor, liquidation value of the subject collateral, the associated unguaranteed exposure, and any available secondary sources of repayment, with the greatest emphasis given to a borrower’s capacity to meet cash flow coverage requirements as set forth by Company policies. Farmland loans are primarily secured by raw land.

Commercial Real Estate- Commercial real estate loans are extensions of credit secured by owner occupied and nonowner-occupied collateral. Underwriting generally involves intensive analysis of the financial strength of the borrower and guarantor, liquidation value of the subject collateral, the associated unguaranteed exposure, and any available secondary sources of repayment, with the greatest emphasis given to a borrower’s capacity to meet cash flow coverage requirements as set forth by Company policies. Commercial real estate loans typically depend on the successful operation and management of the businesses that occupy these properties or the financial stability of tenants occupying the properties. Nonowner-occupied commercial real estate loans typically are dependent, in large part, on the owner’s ability to rent the property and the ability of the tenants to pay rent, whereas owner-occupied commercial real estate loans typically are dependent, in large part, on the success of the owner’s business. General market conditions and economic activity* mayimpact the performance of these types of loans, including fluctuations in the value of real estate, new job creation trends, and tenant vacancy rates. The Company attempts to limit risk by analyzing a borrower’s cash flow and collateral value on an ongoing basis. The Company also typically requires personal guarantees from the principal owners of the property, supported by a review of their personal financial statements, as an additional means of mitigating risk. The Company manages risk by avoiding concentrations in anyone* business or industry. Commercial real estate loans are primarily secured by retail shopping facilities, office and industrial buildings, healthcare facilities, warehouses, and various special purpose commercial properties.

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Commercial and Industrial- Commercial and industrial loans receive similar underwriting treatment as commercial real estate loans in that the repayment source is analyzed to determine its ability to meet cash flow coverage requirements as set forth by Company policies. Repayment of these loans generally comes from the generation of cash flow as the result of the borrower’s business operations. Commercial lending generally involves different risks from those associated with commercial real estate lending or construction lending. Although commercial loans* maybe collateralized by equipment or other business assets (including real estate, if available as collateral), the repayment of these types of loans depends primarily on the creditworthiness and projected cash flow of the borrower (and any guarantors). Thus, the general business conditions of the local economy and the borrower’s ability to sell its products and services, thereby generating sufficient operating revenue to repay us under the agreed upon terms and conditions, are the chief considerations when assessing the risk of a commercial loan. The liquidation of collateral, if any, is considered a secondary source of repayment because equipment and other business assets may,*among other things, be obsolete or of limited resale value. The Company actively monitors certain financial measures of the borrower, including advance rate, cash flow, collateral value and other appropriate credit factors. Commercial and industrial loans also include public finance loans made to governmental entities, which can be taxable or tax-exempt, and are generally repaid using pledged revenue sources including income tax, property tax, sales tax, and utility revenue, among other sources. Commercial and industrial loans are primarily secured by accounts receivable, inventory and equipment.

Consumer- Consumer loans are offered by the Company in order to provide a full range of retail financial services to its customers and include auto loans, credit cards, and other consumer installment loans. Typically, the Company evaluates the borrower’s repayment ability through a review of credit scores and an evaluation of debt to income ratios. Repayment of consumer loans depends upon key consumer economic measures and upon the borrower’s financial stability and is more likely to be adversely affected by divorce, job loss, illness and personal hardships than repayment of other loans. A shortfall in the value of any collateral also* may*pose a risk of loss to the Company for these types of loans. Consumer loans include loans primarily secured by vehicles and unsecured loans.

Credit Quality Indicators

Loans are categorized into risk categories based on relevant information about the ability of borrowers to service their debt, such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The following definitions are utilized for risk ratings, which are consistent with the definitions used in supervisory guidance:

Pass - Loansnot meeting the criteria below are considered pass. These loans have higher credit characteristics and financial strength. The borrowers at least generate profits and cash flow that are in line with peer and industry standards and have debt service coverage ratios above loan covenants and policy guidelines. For some of these loans, a guaranty from a financially capable party mitigates characteristics of the borrower that might otherwise result in a lower grade.

Special Mention - Loans classified as special mention possess some credit deficiencies that need to be corrected to avoid a greater risk of default in the future. For example, financial ratios relating to the borrower* may*have deteriorated. Often, a special mention categorization is temporary while certain factors are analyzed or matters addressed before the loan is re-categorized as either pass or substandard.

Substandard - Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the borrower or the liquidation value of any collateral. If deficiencies arenot addressed, it is likely that this category of loan will result in the Bank incurring a loss. Where a borrower has been unable to adjust to industry or general economic conditions, the borrower’s loan is often categorized as substandard.

Doubtful - Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loss - Loans classified as loss are considered uncollectible and of such little value that their continuance as recorded assets isnot warranted. This classification doesnot mean that the assets have absolutelyno recovery or salvage value, but rather it isnot practical or desirable to defer writing off these assets.

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The tables below present the Company’s loan portfolio by year of origination, category, and credit quality indicator as of* June 30, 2025* and* December 31, 2024* (dollars in thousands). Loans acquired are shown in the table by origination year. The Company had an immaterial amount of revolving loans converted to term loans at* June 30, 2025* and* December 31, 2024*.

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The Company hadno loans that were classified as doubtful or loss at* June 30, 2025* or* December 31, 2024*.

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Loan Participations and Sold Loans

Loan participations and whole loans sold to and serviced for others arenot included in the accompanying consolidated balance sheets, the balances of which were$41.0 million and $38.2 million at* June 30, 2025* and* December 31, 2024*, respectively. The unpaid principal balances of these loans were approximately$220.2 million and $175.0 million at* June 30, 2025* and* December 31, 2024*, respectively.

Loans to Related Parties

In the ordinary course of business, the Company makes loans to related parties including its executive officers, principal stockholders, directors and their immediate family members, as well as to companies of which these individuals are principal owners. Loans outstanding to such related party borrowers amounted to approximately$35.6 million and$43.6 million as of* June 30, 2025* and* December 31, 2024*, respectively. No related party loans were classified as nonperforming or nonaccrual at* June 30, 2025* or* December 31, 2024*.

The table below shows the aggregate principal balance of loans to such related parties as of the dates presented (dollars in thousands).

Allowance for Credit Losses

The Company accounts for the ACL in accordance with FASB ASC Topic326 “Financial Instruments–* Credit Losses*” (“ASC326”), which uses the CECL accounting methodology. The CECL methodology requires that lifetime expected credit losses be recorded at the time the financial asset is originated or acquired, and be adjusted each period as a provision for credit losses for changes in expected lifetime credit losses. The Company developed a CECL model methodology that calculates expected credit losses over the life of the portfolio by analyzing the composition, characteristics and quality of the loan portfolio, as well as prevailing economic conditions and forecasts. The CECL calculation estimates credit losses using a combination of discounted cash flow and remaining life analyses. To the extent the lives of the loans in the portfolio extend beyond the period for which a reasonable and supportable forecast can be made, when necessary, the model reverts back to the historical loss rates adjusted for qualitative factors related to current conditions using afour-quarter reversion period. The Company evaluates the adequacy of the ACL on a quarterly basis.

The ACL is comprised of reserves measured on a collective (pool) basis based on a lifetime loss-rate model when similar risk characteristics exist. For each pool of loans, the Company evaluates and applies qualitative adjustments to the calculated ACL based on several factors, including, butnot limited to, changes in current and expected future economic conditions, changes in the nature and volume of the portfolio, changes in levels of concentrations, changes in the volume and severity of past due loans, changes in lending policies and personnel and changes in the competitive and regulatory environment of the banking industry. Loans that donot share similar risk characteristics with other loans are excluded from the loan pools and individually evaluated for impairment. For collateral dependent loans where the borrower is experiencing financial difficulty, which the Company evaluates independently from the loan pool, the expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral, which is based onthird party appraisals. Individually evaluated loans that arenot collateral dependent are evaluated based on a discounted cash flow methodology. Credits deemed uncollectible are charged to the ACL. Provisions for credit losses and recoveries on loans previously charged off are adjustments to the ACL.

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The Company made the accounting policy election to exclude accrued interest receivable from the amortized cost of loans and the estimate of the ACL. Accrued interest receivable on the Company’s loans was $11.9 million and $12.5 million at* June 30, 2025* and* December 31, 2024*, respectively, and is included in “Accrued interest receivable” on the accompanying consolidated balance sheets.

The table below shows a summary of the activity in the ACL for thethree andsix months ended* June 30, 2025and2024* (dollars in thousands).

The provision for credit losses forthethree months ended* June 30, 2025* was primarily due to changes in the economic forecast and loan mix. The negative provision for credit losses forthesix months ended* June 30, 2025* was primarily due to a $3.3 million recovery during thefirst quarter of2025 of loans previously charged off as a result of a property insurance settlement related toone loan relationship that became impaired in thethird quarter of2021 as a result of Hurricane Ida. The negative provision for credit losses for thethree months ended* June 30, 2024* was primarily due to a decrease in total loans and aging of existing loans. The negative provision for credit losses for thesix months ended* June 30, 2024* was primarily due to a decrease in total loans, aging of existing loans, and, to a lesser extent, the completion of our annual CECL allowance model recalibration, which resulted in lower historical loss rates.

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The following tables outline the activity in the ACL by collateral type for thethree andsix months ended* June 30, 2025and2024*, and show both the allowance and portfolio balances for loans individually and collectively evaluated for impairment as of* June 30, 2025and2024* (dollars in thousands).

Loan Modifications to Borrowers Exper****iencing Financial Difficulty

Occasionally, the Company modifies loans to borrowers in financial distress by providing certain concessions, such as principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination of such concessions. Modifications that donot impact the contractual payments terms, such as covenant waivers, modification of a contingent acceleration clauses, and insignificant payment delays arenot included in the disclosures. When principal forgiveness is provided, the amount of forgiveness is charged-off against the ACL. Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible, the loan (or portion of the loan) is written off. During thesix months ended* June 30, 2025and2024*, the Company didnot provide any modifications under these circumstances to borrowers experiencing financial difficulty.

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NOTE5. STOCKHOLDERS’** EQUITY**

Accumulated Other Comprehensive (Loss) Income

Activity within the balances in accumulated other comprehensive (loss) income, net is shown in the table below (dollars in thousands).

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NOTE6. STOCK-BASED COMPENSATION

Equity Incentive Plan. The Company’s Amended and Restated2017 Long-Term Incentive Compensation Plan (the “Plan”) authorizes the grant of various types of equity awards, such as restricted stock, RSUs, stock options and stock appreciation rights to eligible participants, which include all of the Company’s employees, non-employee directors, and consultants. Under the Plan, a total of 1,200,000 shares of common stock are reserved,600,000 of which were authorized in2021, for issuance to eligible participants pursuant to equity awards under the Plan. The Plan is administered by the Compensation Committee of the Board, which determines, within the provisions of the Plan, those eligible employees to whom, and the times at which, equity awards will be granted. The Compensation Committee, in its discretion,* maydelegate its authority and duties under the Plan to specified officers; however, only the Compensation Committee mayapprove the terms of equity awards to the Company’s executive officers and directors. At June 30, 2025*, approximately 205,635 shares remain available for grant under the plan.

Stock Options

The Company uses a Black-Scholes option pricing model to estimate the fair value of stock-based awards. The Black-Scholes option pricing model incorporates various subjective assumptions, including expected term and expected volatility. Expected volatility was determined based on the historical volatilities of the Company.

The table below shows the assumptions used for the stock options granted during thesix months ended* June 30, 2024*. The Company didnot grant any stock options during thesix months ended* June 30, 2025*.

Stock option expense of $32,000 and $0.1 million is included in “Salaries and employee benefits” in the accompanying consolidated statements of income for thethree andsix months ended* June 30, 2025*, respectively, and $40,000 and $0.1 million for thethree andsix months ended* June 30, 2024*, respectively. At* June 30, 2025*, there was $0.3 million of unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 2.9 years.

The table below summarizes the Company’s stock option activity for the periods presented.

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Restricted Stockand RSUs

Under the Plan, the Company* maygrant restricted stock, RSUs, and other stock-based awards to Plan participants, subject to forfeiture upon the occurrence of certain events until the vesting dates specified in the participant’s award agreement. Historically, the Company granted restricted stock awards to Plan participants. Beginning in2019,* the Company began granting time vested RSUs to its non-employee directors and certain officers of the Company instead, with vesting terms ranging fromtwo years tofive years. The RSUs donot have voting rights and donot receive dividends or dividend equivalents. As of* May 1, 2023,*all of the previously granted shares of restricted stock had vested, and only outstanding RSUs remained.

Compensation expense for RSUs, which is calculated based on the market price of the Company’s common stock at the grant date applied to the total number of units granted, is recognized on a straight-line basis over the requisite service period of generally five years for employees and, through the end of2024, two years for non-employee directors. Beginning on* January 1, 2025,*grants of RSUs to non-employee directors generally vest over a service period offive years. Upon vesting of RSUs, the benefit of tax deductions in excess of recognized compensation expense is reflected as an income tax benefit in the consolidated statements of income.

Compensation expense related RSUs of $0.5 million and $0.9 million is included in the accompanying consolidated statements of income for thethree andsix months ended* June 30, 2025*, respectively, and $0.5 million and $0.8 million for thethree andsix months ended* June 30, 2024*, respectively. The unearned compensation related to these awards is amortized to compensation expense over the vesting period. As of* June 30, 2025*, unearned stock-based compensation cost associated with these awards totaled approximately $5.3 million and is expected to be recognized over a weighted average period of 3.6 years.

The following table summarizes the RSU activity for the periods presented.

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NOTE7. DERIVATIVE FINANCIAL INSTRUMENTS

As part of its liability management, the Company has historically utilized pay-fixed interest rate swaps to manage exposure against the variability in the expected future cash flows (future interest payments) attributable to changes in the1-month SOFR associated with the forecasted issuances of1-month fixed rate debt arising from a rollover strategy. To mitigate credit risk, securities were pledged to the Company by the counterparties in an amount greater than or equal to the gain position of the derivative contracts. Conversely, securities were pledged to the counterparties by the Company in an amount greater than or equal to the loss position of the derivative contracts, if applicable. There wereno assets or liabilities recorded in the accompanying consolidated balance sheets at* June 30, 2025* or* December 31, 2024* associated with the swap contracts, other than interest rate swaps related to customer loans, described below.

Customer Derivatives–** Interest Rate Swaps**

The Company enters into interest rate swaps that allow commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate loan into a fixed-rate loan. The Company then enters into a corresponding swap agreement with athird party in order to economically hedge its exposure through the customer agreement. The interest rate swaps with both the customers andthird parties arenot designated as hedges under FASB ASC Topic815, “Derivatives and Hedging”* (“ASC815”), and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments donot* result in an impact to earnings; however, there* maybe fair value adjustments related to credit quality variations between counterparties, which mayimpact earnings as required by FASB ASC Topic820,* “Fair Value Measurement” (“ASC820”). The Company didnot recognize any net gains or losses in other operating income resulting from fair value adjustments of these swap agreements during thethree andsix months ended* June 30, 2025* and2024.

The table below presents the notional amounts and fair values of the Company’s derivative financial instruments as well as their classification on the accompanying consolidated balance sheets at* June 30, 2025* and* December 31, 2024* (dollars in thousands).

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NOTE8. FAIR VALUES OF FINANCIAL INSTRUMENTS

In accordance with ASC820, disclosure of fair value information about financial instruments, whether ornot recognized in the balance sheet, is required. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date under current market conditions. Fair value is best determined based upon quoted market prices or exit prices. In cases where quoted market prices arenot available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows, and the fair value estimates* may**not* be realized in an immediate settlement of the instruments. Accordingly, the aggregate fair value amounts presented donot represent the underlying value of the Company.

If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques* may*be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

The Company holds SBIC qualified funds and other investment funds that donot have a readily determinable fair value. In accordance with ASC820, these investments are measured at fair value using the net asset value practical expedient and arenot required to be classified in the fair value hierarchy. At both* June 30, 2025* and* December 31, 2024*, the fair values of these investments were $3.8 million and are included in “Other assets” in the accompanying consolidated balance sheets.

Fair Value Hierarchy

In accordance with ASC820, the Company groups its financial assets and financial liabilities measured at fair value inthree levels, based on the markets in which the assets and liabilities are traded, and the reliability of the assumptions used to determine fair value.

Level1 – Valuation is based upon quoted prices for identical assets or liabilities traded in active markets.

Level2 – Valuation is based upon observable inputs other than quoted prices included in level1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that arenot active, or other inputs that are observable or can be corroborated by observable market data.

Level3 – Valuation is based upon unobservable inputs that are supported by little orno market activity and that are significant to the fair value of the assets or liabilities. This includes certain pricing models, discounted cash flow methodologies, and similar techniques that use significant unobservable inputs.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Fair Value of Assets and Liabilities Measured on a Recurring Basis

The following methods and assumptions were used by the Company in estimating the fair value of assets and liabilities valued on a recurring basis:

AFS Investment Securities and Marketable Equity Securities – Where quoted prices are available in an active market, the Company classifies the securities within level1 of the valuation hierarchy. Securities are defined as both long and short positions. Level1 securities include marketable equity securities in corporate stocks and mutual funds.

If quoted market prices arenot available, the Company estimates fair values using pricing models and discounted cash flows that consider standard input factors such as observable market data, benchmark yields, interest rate volatilities, broker/dealer quotes, and credit spreads. Examples of such instruments, which would generally be classified within level2 of the valuation hierarchy if observable inputs are available, include obligations of the U.S. Treasury and U.S. government agencies and corporations, obligations of state and political subdivisions, corporate bonds, residential mortgage-backed securities, and commercial mortgage-backed securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, the Company classifies those securities in level3.

Management monitors the current placement of securities in the fair value hierarchy to determine whether transfers between levels* maybe warranted based on market reference data, which mayinclude reported trades; bids, offers or broker/dealer quotes; benchmark yields and spreads; as well as other reference data. At June 30, 2025* and* December 31, 2024*, substantially all ofthe Company’s level3 investments were obligations of state and political subdivisions. The Company estimated the fair value of these level3 investments using discounted cash flow models, the key inputs of which are the coupon rate, current spreads to the yield curves, and expected repayment dates, adjusted for illiquidity of the local municipal market and sinking funds, if applicable. Option-adjusted models* may*be used for structured or callable notes, as appropriate.

Derivative Financial Instruments – The fair value for interest rate swap agreements is based upon the amounts required to settle the contracts. These derivative instruments are classified in level2 of the fair value hierarchy.

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Assets and liabilities measured at fair value on a recurring basis are summarized in the table below as of the dates indicated (dollars in thousands).

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The Company reviews fair value hierarchy classifications on a quarterly basis. Changes in the Company’s ability to observe inputs to the valuation* maycause reclassification of certain assets or liabilities within the fair value hierarchy. The tables below provide a reconciliation for assets measured at fair value on a recurring basis using significant unobservable inputs, or level3* inputs, for thesix months ended* June 30, 2025and2024* (dollars in thousands).

There wereno liabilities measured at fair value on a recurring basis using level3 inputs at* June 30, 2025* and* December 31, 2024*. For thesix months ended* June 30, 2025and2024*, there wereno gains or losses included in earnings related to the change in fair value of the assets measured on a recurring basis using significant unobservable inputs held at the end of the period.

The following table provides quantitative information about significant unobservable inputs used in fair value measurements of level3 assets measured at fair value on a recurring basis at* June 30, 2025* and* December 31, 2024* (dollars in thousands).

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Fair Value of Assets and Liabilities Measured on a Nonrecurring Basis

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments arenot measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).

The following methods and assumptions were used by the Company in estimating the fair value of assets and liabilities valued on a nonrecurring basis:

Loans Individually Evaluated – For collateral dependent loans where the borrower is experiencing financial difficulty the expected credit loss is measured as the difference between the amortized cost basis of the loan and the fair value of the collateral, which is based onthird party appraisals. Individually evaluated loans that arenot collateral dependent are evaluated based on a discounted cash flow methodology. Credits deemed uncollectible are charged to the ACL. Sincenot all valuation inputs are observable, these nonrecurring fair value determinations are classified as level3.

Other Real Estate Owned–Other real estate owned consists of properties acquired through foreclosure or acceptance of a deed in lieu of foreclosure and real propertyno longer used in the Bank’s business operations. Real estate acquired through foreclosure is initially recorded at fair value at the time of foreclosure, less estimated selling cost, and any related write-down is charged to the ACL. Real propertyno longer used in the Bank’s business operations is recorded at the lower of its net book value or fair value at the date of transfer to other real estate owned. Subsequently, it* maybe necessary to record nonrecurring fair value adjustments for declines in fair value. Fair value, when recorded, is determined based on appraisals by qualified licensed appraisers and adjusted for management’s estimates of costs to sell. Accordingly, values for other real estate owned are classified as level3.*

Quantitative information about assets measured at fair value on a nonrecurring basis based on significant unobservable inputs (level3) is summarized below as of* June 30, 2025* and* December 31, 2024*. There wereno liabilities measured on a nonrecurring basis at* June 30, 2025* or* December 31, 2024* (dollars in thousands).

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Financial Instruments

Accounting guidance requires the disclosure of estimated fair value information about certain on- and off-balance sheet financial instruments, including those financial instruments that arenot measured and reported at fair value on a recurring or nonrecurring basis. The significant methods and assumptions used by the Company to estimate the fair value of financial instruments are discussed below.

Cash and Cash Equivalents– For these short-term instruments, the fair value is the carrying value. The Company classifies these assets in level1 of the fair value hierarchy.

Investment Securities and Equity Securities – The fair value measurement techniques and assumptions for AFS securities and marketable equity securities is discussed earlier in the note. The same measurement techniques and assumptions were applied to the valuation of HTM securities and nonmarketable equity securities including equity in correspondent banks.

Loans– The fair value of portfolio loans, net is determined using an exit price methodology. The exit price methodology is based on a discounted cash flow analysis, in which projected cash flows are based on contractual cash flows adjusted for prepayments for certain loan types (e.g., residential mortgage loans and multifamily loans) and the use of a discount rate based on expected relative risk of the cash flows. The discount rate selected considers loan type, maturity date, a liquidity premium, cost to service, and cost of capital, which is a level3 fair value estimate.

Loans held for sale are measured using quoted market prices when available. If quoted market prices arenot available, comparable market values or discounted cash flow analyses* maybe utilized. The Company classifies these assets in level3* of the fair value hierarchy.

Deposits – The fair values disclosed for noninterest-bearing demand deposits are, by definition, equal to the amount payable on demand at the reporting date (that is, their carrying amounts). These noninterest-bearing deposits are classified in level2 of the fair value hierarchy. All interest-bearing deposits are classified in level3 of the fair value hierarchy. The carrying amounts of variable-rate accounts (for example, interest-bearing checking, savings, and money market accounts), fixed-term money market accounts, and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow analysis that applies market interest rates on comparable instruments to a schedule of aggregated expected monthly maturities on time deposits.

Short-Term Borrowings– The carrying amounts of federal funds purchased, repurchase agreements, and other short-term borrowings approximate their fair values. The Company classifies these borrowings in level2 of the fair value hierarchy.

Long-Term Borrowings, including Junior Subordinated Debt Securities– The fair values of long-term borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements. The fair value of the Company’s long-term debt is therefore classified in level3 in the fair value hierarchy.

Subordinated Debt Securities – The fair value of subordinated debt is estimated based on current market rates on similar debt in the market. The Company classifies this debt in level2 of the fair value hierarchy.

Derivative Financial Instruments – The fair value measurement techniques and assumptions for derivative financial instruments is discussed earlier in the note.

The estimated fair values of the Company’s financial instruments are summarized in the tables below as of the dates indicated (dollars in thousands).

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NOTE9. INCOME TAXES

The income tax expense and the effective tax rate included in the consolidated statements of income are shown in the table below for the periods presented (dollars in thousands).

For thethree andsix months ended* June 30, 2025*, and thethree months ended* June 30, 2024* the effective tax rate differed from the statutory tax rate of 21% primarily due to tax-exempt interest income earned on certain loans and investment securities and income from BOLI. For thesix months ended* June 30, 2024*, the effective tax rate differed from the statutory tax rate of 21% primarily due to tax-exempt interest income earned on certain loans and investment securities and income from BOLI, partially offset by the surrender of approximately $8.4 million of BOLI contracts, which resulted in $0.3 million of income tax expense.

NOTE10. COMMITMENTS AND CONTINGENCIES

Unfunded Commitments

The Company is a party to financial instruments with off-balance sheet risk entered into in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit consisting of loan commitments and standby letters of credit, which arenot included in the accompanying financial statements. Such financial instruments are recorded in the financial statements when they become payable. The credit risk associated with these commitments is evaluated in a manner similar to the ACL on loans. The reserve for unfunded loan commitments was$0.1 million and $42,000 at* June 30, 2025* and* December 31, 2024*, respectively, and is included in “Accrued taxes and other liabilities” in the accompanying consolidated balance sheets.

Commitments to extend credit are agreements to lend money with fixed expiration dates or termination clauses. The Company applies the same credit standards used in the lending process when extending these commitments and periodically reassesses the customer’s creditworthiness through ongoing credit reviews. Since some commitments are expected to expire without being drawn upon, the total commitment amounts donot necessarily represent future cash requirements. Collateral is obtained based on the Company’s assessment of the transaction. Substantially all standby letters of credit issued have expiration dates withinone year.

The table below shows the approximate amounts of the Company’s commitments to extend credit as of the dates presented (dollars in thousands).

Additionally, at* June 30, 2025*, the Company had unfunded commitments of$0.9 million for its investments in SBIC qualified funds and other investment funds.

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NOTE11. LEASES

The Company’s primary leasing activities relate to certain real estate leases entered into in support of the Company’s branch operations. The Company’s lease agreements under which its branch locations are operated have all been designated as operating leases. The Company doesnot lease equipment under operating leases, nor does it have leases designated as finance leases.

Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has lease agreements with lease and non-lease components, which the Company has elected to account for separately, as the non-lease component amounts are readily determinable.

Quantitative information regarding the Company’s operating leases is presented below as of and for thesix months ended* June 30, 2025* and2024 (dollars in thousands).

At both* June 30, 2025* and* December 31, 2024*, the Company’s operating lease ROU assets were $2.0 million, and the Company’s related operating lease liabilities were $2.1 million. The Company’s operating leases have remaining terms ranging from approximatelytwo tosix years, including extension options if the Company is reasonably certain they will be exercised.

Future minimum lease payments due under non-cancelable operating leases at* June 30, 2025* are presented below (dollars in thousands).

At* June 30, 2025*, the Company hadnot entered into any material leases that havenot yet commenced.

The Bank owns its corporate headquarters building, thefirst floor of which is occupied by multiple tenants. The Bank, as lessor, also leases a portion ofone of its branch locations and a former stand-alone ATM location. All tenant leases are operating leases. The Bank, as lessor, recognized lease income of $0.1 million and $0.2 million for thethree andsix month periods ended* June 30, 2025and2024*, respectively.

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NOTE12. SUBSEQUENT EVENTS

Agreement and Plan of Merger with Wichita Falls Bancshares, Inc.

On* July 1, 2025,*the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with WFB, the holding company for First National Bank, headquartered in Wichita Falls, Texas. The Merger Agreement provides for the merger of WFB with and into the Company, with the Company as the surviving corporation. Immediately following the merger, First National Bank will be merged with and into the Bank, with the Bank as the surviving bank.

Under the terms of the Merger Agreement, all of the issued and outstanding shares of WFB common stock will be converted into and represent the right to receive in the aggregate $7.2 million in cash from the Company and 3,955,344 shares of Company common stock, subject to certain adjustments. Based on the Company’s closing stock price of $19.32 as of* June 30, 2025,the transaction is valued at approximately $83.6 million in the aggregate. First National Bank operatesseven* branches andtwo mortgage offices in north Texas and had approximately $1.4 billion in assets at* June 30, 2025.*

Consummation of the transactions contemplated by the Merger Agreement is subject to various customary conditions, including, without limitation, the approval of the shareholders of each of the Company and WFB; the receipt of certain regulatory approvals; the accuracy of the representations and warranties of the parties and compliance by the parties with their respective covenants and obligations under the Merger Agreement (subject to customary materiality qualifiers); and the absence of a material adverse change with respect to WFB.

The Merger Agreement contains certain termination rights, including the right, subject to certain exceptions, of either party to terminate the Merger Agreement if the closing hasnot occurred by* March 31, 2026 (or June 30, 2026*if the only outstanding closing condition is the receipt of all required regulatory approvals), and the right of WFB to terminate the Merger Agreement, subject to certain conditions, to accept a business combination transaction deemed by its board of directors to be superior to the proposed merger. The Merger Agreement provides for the payment by WFB of a termination fee of $3,300,000 upon the termination of the Merger Agreement under certain circumstances.

Private Placement of Series A Preferred Stock

On* July 1, 2025,the Company completed a private placement of 32,500 shares of its newly designated Series A Preferred Stock at a purchase price of $1,000 per share pursuant to securities purchase agreements (collectively, the “Securities Purchase Agreements”) with certain institutional and other accredited investors, for aggregate gross proceeds to the Company of $32.5 million. The net proceeds of the private placement were approximately $30.4 million, after deducting placement agent fees and other offering related expenses. The Company intends to use the net proceeds from the private placement to support the acquisition of WFB and for general corporate purposes, including organic growth and other potential acquisitions. The Series A Preferred Stock is intended to qualify as additional Tier1* capital of the Company. At* June 30, 2025,*the Company had received advanced proceeds from the private placement of $17.3 million, whichare included in “Cash and cash equivalents” in the accompanying consolidated balance sheet, and the Company recorded a corresponding liability, which is included in “Accrued taxes and other liabilities” in the accompanying consolidated balance sheet.

The relative preferences, rights and limitations of the Series A Preferred Stock are set forth in the Company’s Restated Articles of Incorporation, as amended by the Articles of Amendment effective as of* June 30, 2025 (as amended, the “Restated Articles”). Pursuant to the Restated Articles, holders of the Series A Preferred Stock are entitled to receive, when, as and if authorized by the Board, on a non-cumulative basis, quarterly cash dividends at an annual rate equal to 6.5% on the liquidation preference of $1,000 per share, payable in arrears on January 1,** April 1,** July 1and October 1of each year commencing on October 1, 2025.Subject to certain exceptions, the Company is prohibited from paying dividends on, or repurchasing or redeeming its common stock, unless full dividends for the Series A Preferred Stock’s most recently completed dividend period have been declared and paid on all outstanding shares of Series A Preferred Stock. Holders of Series A Preferred Stock have the right, at any time and from time to time, at such holder’s option to convert all or any portion of their Series A Preferred Stock into shares of the Company’s common stock at the rate of 47.619 shares of common stock per share of Series A Preferred Stock (subject to certain adjustments) (the “Conversion Rate”), plus cash in lieu of fractional shares of common stock. The maximum number of shares of common stock that maybe issued upon conversion is 1,600,000 (subject to certain adjustments as described in the Restated Articles). In addition, subject to certain conditions, on or after July 1, 2028,the Company will have the right, at its option, from time to time on any dividend payment date, to cause some or all of the Series A Preferred Stock to be converted into shares of the Company’s common stock at the Conversion Rate if, for20* trading days within a period of30 consecutive trading days, the closing price of the Company’s common stock exceeds $26.25 per share (subject to certain adjustments). The Series A Preferred Stock hasno maturity date and is perpetual unless redeemed by the Company or converted in accordance with the Restated Articles. Subject to certain conditions, the Company* mayredeem, from time to time, in whole or in part, shares of Series A Preferred Stock on any dividend payment date occurring on or after July 1, 2030at a redemption price of $1,000 per share, plus all declared but unpaid dividends thereon, without regard to, or accumulation of, any undeclared dividends. Holders of the Series A Preferred Stock haveno* voting rights, except with respect to certain changes in the terms of the Series A Preferred Stock, certain fundamental business transactions and as otherwise required by applicable law.

If the Company voluntarily or involuntarily liquidates, dissolves or winds up, each holder will be entitled to receive, before any distribution of assets or proceeds is made to holders of the Company’s common stock, cash liquidating distributions in an amount equal to the greater of (i) the liquidation preference of $1,000 per share of, plus all declared but unpaid dividends thereon, without regard to, or accumulation of, any undeclared dividends, and (ii) the amount that such holder would have received in respect of the common stock issuable upon conversion of Series A Preferred Stock had such holder converted such share of Series A Preferred Stock immediately prior to such time. Upon the occurrence of specified “Reorganization Events” as defined in the Restated Articles, such as a merger in which the Company’s common stock is converted into other consideration, each share of Series A Preferred Stock outstanding immediately prior to such Reorganization Event will be entitled to receive, before any distribution of such assets or proceeds is made to holders of the Company’s common stock, in full, the greater of (i) the amount per share equal to the liquidation value of $1,000 per share, plus all declared but unpaid dividends thereon, without regard to, or accumulation of, any undeclared dividends, and (ii) the amount equal to the distribution amount of such assets or proceeds of the Company as was receivable by a holder of the number of shares of the Company’s common stock into which such share of Series A Preferred Stock was convertible immediately prior to such Reorganization Event.

The shares of Series A Preferred Stock sold in the private placement havenot been registered under the Securities Act in reliance on the exemption from registration in Section4(a)(2) of the Securities Act and Rule506(b) of Regulation D of the SEC promulgated under the Securities Act, and, as a result, the shares* may**not* be offered or sold in the U.S. absent a registration statement or exemption from registration.

The Securities Purchase Agreements contain representations and warranties, covenants, and indemnification provisions that are customary for private placements of shares of convertible preferred stock by companies that have securities registered with the SEC. In connection with the execution of the Securities Purchase Agreements, the Company and each of the purchasers entered into a Registration Rights Agreement, pursuant to which the Company agreed at its expense, subject to certain exceptions, to file with the SEC a registration statement to register the resale of the shares of the Company’s common stock issuable to the holders of the Series A Preferred Stock upon conversion thereof. The Company’s obligation to have an effective registration statement covering the resale of the shares of common stock underlying the Series A Preferred Stock continues until such securities (i) are sold or otherwise transferred under an effective registration statement under the Securities Act, (ii) cease to be outstanding, (iii) are transferred in a transaction in which the purchaser’s rights arenot assigned to the transferee of the securities, (iv) are sold in accordance with Rule144 promulgated under the Securities Act (“Rule144”), or (v) become eligible for resale without volume or manner-of-sale restrictions under Rule144 (or any successor rule then in effect) and without the requirement for the Company to be in compliance with the current public information requirement under Rule144.

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