What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-08 compared with 2021-03-09 · 1154 added, 1425 removed, 1003 unchanged (72% of the section changed)

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AND SUPPLEMENTARY

Report of Independent Registered Public Accounting

The Board of Directors and Stockholders

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets

Consolidated Statements of Earnings

Consolidated Statements of Comprehensive Income

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes To Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board

of Directors of

Auburn National Bancorporation, Inc.

and Subsidiary

Opinion on the Financial Statements

audited the accompanying

consolidated balance

sheets of Auburn

National Bancorporation,

subsidiaries (the

consolidated statements

comprehensive income, stockholders’ equity,

and cash flows for the years then ended,

and the related notes to the

consolidated financial

statements and

schedules (collectively,

the “financial

We have audited the accompanying

consolidated balance sheets of Auburn National Bancorporation, Inc.

(the “Company”) as of December 31, 2021 and 2020, the related consolidated

statements of earnings, comprehensive

income, stockholders’ equity and cash flows for the years then ended, and the related notes

to the consolidated financial

statements (collectively, the “financial

statements”).

the financial

statements present fairly,

In our opinion, the financial statements present fairly,

in all material

respects, the financial

position of the

Company as of

December 31, 20

and the results of

its operations and its

cash flows for the

years then ended, in

conformity with accounting principles

generally accepted in the United States of America.

respects, the financial position of the Company as of December 31, 2021

and 2020, and the results of its operations and its

cash flows for the years then ended, in conformity with accounting principles

generally accepted in the United States of

Basis for Opinion

These financial statements are the

responsibility of the Comp

any’s management.

responsibility is to express an opinion

on the Company’s

consolidated financial

statements based on

accounting firm registered

the Public Company Accounting Oversight Board

(United States) (PCAOB) and are required to be

independent with

in accordance

federal securities

the applicabl

regulations of

Securities and Exchange Commission and the PCAOB.

in accordance

Those standards

perform the audits to

obtain reasonable assurance

about whether the

financial statements are

These financial statements are the responsibility of the Company’s

Our responsibility is to express an opinion

on the Company’s financial statements

based on our audits.

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 U.S.

federal securities laws and the applicable

rules and regulations of the Securities and

Exchange Commission and the PCAOB.

our audits in accordance with the standards of the PCAOB.

Those standards require that

perform the audits 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

of expressing an

the effectiveness

Company’s internal

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.

we express no such opinion.

Our audits included performing

procedures to assess the

risks of material misstatement

of the financial statements,

due to error or fraud,

and performing procedures that

respond to those risks.

procedures included examining, on

basis, evidence regarding

the amounts and

disclosures in the

financial statements.

audits also included

evaluating the

accounting principles

used and significant estimates

made by management, as well

as evaluating the overall presentation

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

included examining, on a test

basis, evidence regarding the amounts and disclosures in the financial statements.

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.

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Critical Audit Matter

The critical audit

matter communicated below

arising from the

current period audit

of the financial

as communicated

communicated to

committee and

disclosures that

financial statements

involved especially

challenging, subjective,

The communication of the

critical audit matter doe

not alter in any way our opinion

on the financial

statements, taken as a whole, and we are

not, by communicating the critical audit matter

below, providing separate

on the critical audit matters or on the accounts or disclosures to

which they relate.

The critical audit matter communicated below is a matter arising from the current period

audit of the financial statements

that were communicated or required to be communicated to the audit committee and that:

relate to accounts or

disclosures that are material to the financial statements and (2) involved our especially challenging,

subjective or complex

The communication of critical audit matters does not alter in any way our opinion

on the financial statements,

taken as a whole, and we are not, by communicating the critical audit matter below,

providing separate opinions on the

critical audit matter or on the accounts or disclosures to which they relate.

Allowance for Loan Losses

the Company’s

consolidated financial

statements, the

loan portfolio

$462.5 million

allowance for

Company in Note 1,

the evaluation of the

allowance for loan

losses is inherently

subjective as it requires

estimates that are

susceptible to significant

revision as more

information becomes available.

The allowance for

loan losses is

evaluated on a

regular basis and is based

upon the Company’s

review of the collectability

of the loans in

light of historical experience,

nature and volume

portfolio, adverse situations

that may affect

the borrower’s

ability to repay,

As described in Note 5 to the Company’s consolidated

financial statements, the Company has a gross loan portfolio of

$460.5 million and related allowance for loan losses of $4.9 million as of December

As described by the

Company in Note 1, the evaluation of the allowance for loan losses is inherently subjective

as it requires estimates that are

susceptible to significant revision as more information becomes available.

The allowance

for loan losses is evaluated on a

regular basis and is based upon the Company’s

review of the collectability of the loans in light of historical experience, the

nature and volume of the loan portfolio, adverse situations that may affect the

borrower’s ability to repay,

estimated value

of any underlying collateral, and prevailing economic conditions.

We identified

the Company’s

the allowance

for loan losses

as a critical

audit matter.

We identified the Company’s

estimate of the allowance for loan losses as a critical audit matter.

The principal

considerations for our

determination of the allowance

for loan losses

as a critical

audit matter related

to the high degree

subjectivity in

the Company’s

determining the

qualitative factors.

Auditing these

complex judgments

assumptions by

involves especially

challenging auditor

evidence and effort required to address these matters,

including the extent of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit

matter included:

the relevance

reasonableness of

assumptions related

to evaluation

loan portfolio,

current economic conditions,

and other risk

factors used in

development of the

qualitative factors

for collectively

considerations for our determination of the allowance for loan losses as a critical audit

matter related to the high degree of

subjectivity in the Company’s judgments in

determining the qualitative factors.

Auditing these complex judgments

assumptions by the Company involves especially challenging auditor judgment due to

the nature and extent of audit

evidence and effort required to address these matters, including the extent

of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included

the following:

We evaluated the relevance and

the reasonableness of assumptions related to evaluation of the loan portfolio,

current economic conditions, and other risk factors used in development of the qualitative

factors for collectively

evaluated loans.

the reasonableness

of assumptions

in developing

the qualitative

comparing these

to internally

developed and

third-party sources,

audit evidence

/s/ Elliott Davis, LLC

We have served as the

Company's auditor since 2015.

We evaluated the reasonableness

of assumptions and data used by the Company in developing the qualitative

factors by comparing these data points to internally developed and third-party sources,

and other audit evidence

Elliott Davis, LLC

We have served as the Company's

auditor since 2015.

Greenville, South Carolina

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Total deposits

Federal funds purchased and securities sold under agreements

to repurchase

Federal funds purchased and securities sold under agreements to repurchase

Accrued expenses and other liabilities

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Total stockholders’ equity

Total liabilities and

stockholders’ equity

Total liabilities and stockholders’

See accompanying notes to consolidated financial statements

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Provision for loan losses

Net interest income after provision for

Net interest income after provision for loan

Noninterest income:

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Bank-owned life insurance

Gain from loan guarantee program

Securities gains (losses), net

Securities gains, net

Total noninterest income

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(Dollars in thousands)

Other comprehensive income, net of tax:

Unrealized net holding gain on securities

Reclassification adjustment for net (gain) loss on securities

Other comprehensive (loss) income, net of tax:

Unrealized net holding (loss) gain on securities

Reclassification adjustment for net gain on securities

recognized in net earnings

Other comprehensive income

Other comprehensive (loss) income

Comprehensive income

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Cash dividends paid ($

Stock repurchases

Sale of treasury stock

Balance, December 31, 2020

Other comprehensive income

Other comprehensive loss

Cash dividends paid ($

Stock repurchases

Sale of treasury stock

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Cash flows from operating activities:

Adjustments to reconcile net earnings to net cash provided

Adjustments to reconcile net earnings to net cash provided by

operating activities:

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Premium amortization and discount accretion, net

Deferred tax benefit

Net (gain) loss on securities available for sale

Deferred tax expense (benefit)

Net gain on securities available for sale

Net gain on sale of loans held for sale

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Income recognized from death benefit on bank-owned life insurance

Net increase in other assets

Net increase in accrued expenses and other liabilities

Net decrease (increase) in other assets

Net (decrease) increase in accrued expenses and other liabilities

Net cash provided by operating activities

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Purchase of securities available-for-sale

(Increase) decrease in loans, net

Decrease (increase) in loans, net

Net purchases of premises and equipment

(Increase) decrease in FHLB stock

Decrease (increase) in FHLB stock

Purchase of New Markets Tax

Credit investment

Proceeds from bank-owned life insurance death benefit

Proceeds from sale of other real estate owned

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flows from financing activities:

Net increase (decrease) in noninterest-bearing deposits

Net increase in noninterest-bearing deposits

Net increase in interest-bearing deposits

Net increase (decrease) in federal funds purchased and securities sold

Net increase in federal funds purchased and securities sold

under agreements to repurchase

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Dividends paid

Net cash provided by (used in) financing activities

Net cash provided by financing activities

Net change in cash and cash equivalents

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Cash and cash equivalents at end of period

Supplemental disclosures of cash flow

Cash paid (received) during the period for:

Gain from loan guarantee program

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Supplemental disclosure of non-cash transactions:

Initial recognition of operating lease right of use assets

Initial recognition of operating lease liabilities

Real estate acquired through foreclosure

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Auburn National Bancorporation, Inc.

(the “Company”) is a bank holding

company whose primary business is conducted

(the “Company”) is a bank holding company

whose primary business is conducted

by its wholly-owned subsidiary,

AuburnBank (the “Bank”).

AuburnBank is a commercial bank located

The Bank provides a full range of banking services in its

primary market area, Lee County,

which includes the

AuburnBank is a commercial bank located in Auburn,

The Bank provides a full range of banking services in its primary market area,

Lee County, which includes the

Auburn-Opelika Metropolitan Statistical Area.

Basis of Presentation

The consolidated financial statements include the accounts of

the Company and its wholly-owned subsidiaries.

The consolidated financial statements include the accounts of the Company and

its wholly-owned subsidiaries.

intercompany transactions and accounts are eliminated in consolidation.

COVID-19 Uncertainty

COVID-19 has adversely affected, and may continue to

adversely affect economic activity globally,

COVID-19 has adversely affected, and may continue to adversely affect

economic activity globally,

nationally and locally.

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market interest rates declined significantly.

federal banking agencies encouraged financial institutions to

prudently work with borrowers and passed legislation to

provide relief from reporting loan classifications due to modifications

related to the COVID-19 outbreak.

COVID-19 has caused us to modify our business practices, including

employee travel, employee work locations, and

cancellation of physical participation in meetings, events and

The rapid development and fluidity of this

situation precludes any predication as to the ultimate impact

of the COVID-19 outbreak.

federal banking agencies encouraged financial institutions to prudently

work with borrowers and passed legislation to

provide relief from reporting loan classifications due to modifications related to the COVID

-19 outbreak.

The spread of

COVID-19 has caused us to modify our business practices, including employee travel,

employee work locations, and

cancellation of physical participation in meetings, events and conferences.

development and fluidity of this

situation precludes any predication as to the ultimate impact of the COVID-19 outbreak.

Nevertheless, the outbreak

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Revenue from Contracts with Customers

The Company adopted ASC 606 using the modified retrospective

The Company adopted ASC 606 using the modified retrospective transition

The majority of the

Company’s revenue stream is generated

from interest income on loans and deposits which are outside

the scope of ASC

The Company’s sources of income that

fall within the scope of ASC 606 include service charges

on deposits, investment

services, interchange fees and gains and losses on sales of other

real estate, all of which are presented as components of

Company’s revenue stream is generated from

interest income on loans and deposits which are outside the scope of ASC

The Company’s sources of income that fall

within the scope of ASC 606 include service charges on deposits, investment

services, interchange fees and gains and losses on sales of other real estate, all of which are

presented as components of

noninterest income.

The following is a summary of the revenue streams

that fall within the scope of ASC 606:

The following is a summary of the revenue streams that fall within the

scope of ASC 606:

Service charges on deposits, investment services, ATM

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are satisfied over the period the service is provided.

Transaction-based fees are recognized at the time

the transaction is processed, and periodic service charges

are recognized

Transaction-based fees are recognized at the time the transaction

is processed, and periodic service charges are recognized

over the service period.

Gains on sales of other real estate

A gain on sale should be recognized when a contract for sale exists and

control of the

A gain on sale should be recognized when a contract for sale exists and control of the

asset has been transferred to the buyer.

ASC 606 lists several criteria required to conclude that a contract

for sale exists,

including a determination that the institution will collect substantially

all of the consideration to which it is entitled.

addition to the loan-to-value, the analysis is based on various other

factors, including the credit quality of the borrower,

structure of the loan, and any other factors that may affect

collectability.

lists several criteria required to conclude that a contract for sale exists,

including a determination that the institution will collect substantially all of the consideration

to which it is entitled.

addition to the loan-to-value, the analysis is based on various other factors, including the credit

quality of the borrower, the

structure of the loan, and any other factors that may affect collectability.

Use of Estimates

The preparation of financial statements in conformity with U.S.

generally accepted accounting principles requires

management to make estimates and assumptions that affect

the reported amounts of assets and liabilities and the disclosure

of contingent assets and liabilities as of the balance sheet date

and the reported amounts of income and expense during the

generally accepted

accounting principles requires

management to make estimates and assumptions that affect the reported

amounts of assets and liabilities and the disclosure

of contingent assets and liabilities as of the balance sheet date and the reported

amounts of income and expense during the

reporting period.

Actual results could differ from those

Material estimates that are particularly susceptible to

significant change in the near term include the determination

of the allowance for loan losses, fair value measurements,

valuation of other real estate owned, and valuation of deferred

Actual results could differ from those estimates.

Material estimates

that are particularly susceptible to

significant change in the near term include the determination of the allowance

for loan losses, fair value measurements,

valuation of other real estate owned, and valuation of deferred tax assets.

Change in Accounting Estimate

During the fourth quarter of 2019, the Company reassessed its estimate

of the useful lives of certain fixed assets.

Company revised its original useful life estimate for certain land improvements,

buildings and improvements

and furniture,

During the fourth quarter of 2019, the Company reassessed its estimate of the useful lives

of certain fixed assets.

Company revised its original useful life estimate for certain land improvements, buildings

and improvements and furniture,

fixtures and equipment, with a carrying value of $

million at December 31, 2019, to correspond with estimated

demolition dates planned as part of the redevelopment project

for our main campus.

demolition dates planned as part of the redevelopment project for its

This is considered a change in

accounting estimate, per ASC 250-10, where adjustments should

be made prospectively.

of this change in

accounting estimate on the 2020 and 2019 consolidated

financial statements, respectively, was

a decrease in net earnings of

accounting estimate, per ASC 250-10, where adjustments should be made prospectively.

The effects of this change in

accounting estimate on the 2021 and 2020 consolidated financial statements, respectively,

was a decrease in net earnings of

thousand, or $

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Reclassifications

Certain amounts reported in the prior period have been reclassified

to conform to the current-period presentation.

Certain amounts reported in the prior period have been reclassified to conform to the

current-period presentation.

reclassifications had no impact on the Company’s

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Subsequent Events

The Company has evaluated the effects of events

or transactions through the date of this filing that ha

The Company has evaluated the effects of events or transactions through

the date of this filing that have occurred

subsequent to December 31, 2021.

The Company does not believe

there are any material subsequent events that would

The Company does not believe there are

any material subsequent events that would

require further recognition or disclosure.

Standards Adopted in 2020

In 2020, the Company adopted new guidance related to the following

Accounting Standards Update (“Update” or “ASU”):

Measurement (Topic

Disclosure Framework – Changes

to the Disclosure

Requirements for Fair Value

Intangibles – Goodwill and Other – Internal Use Software

(Subtopic 350-40):

Accounting for Implementation Costs Incurred

in a Cloud Computing Arrangement that is a Service Contract.

Information about these pronouncements is described in more

detail below.

Measurement (Topic

Disclosure Framework – Changes

to the Disclosure Requirements

improves the disclosure requirements on fair value measurements

by eliminating the

requirements to disclose (i) the amount of and reasons for transfers

between Level 1 and Level 2 of the fair value hierarchy;

(ii) the policy for timing of transfers between levels;

the valuation processes for Level 3 fair value measurements.

This ASU also added specific disclosure requirements for fair

value measurements for public entities including the

requirement to disclose the changes in unrealized gains and

losses for the period included in other comprehensive income

for recurring Level 3 fair value measurements and the range and

weighted average of significant unobservable inputs used

to develop Level 3 fair value measurements.

The amendments in this ASU are effective for all

entities for fiscal years beginning after December 15,

2019, and all

interim periods within those fiscal years.

Early adoption was permitted

upon issuance of the ASU.

Entities are permitted to

early adopt amendments that remove or modify disclosures and

delay the adoption of the additional disclosures until their

effective date.

The Company adopted this ASU on January

Adoption of this guidance did not have a material

impact on the Company’s consolidated

financial statements.

Intangibles – Goodwill and Other – Internal Use Software

(Subtopic 350-40):

Accounting for

Implementation Costs Incurred in

a Cloud Computing Arrangement that is a Service Contract

aligns the requirements for

capitalizing implementation costs incurred in a hosting arrangement that

is a service contract with the requirements for

capitalizing implementation costs incurred to develop or

obtain internal-use software (and hosting arrangements that

include internal-use software license).

This ASU requires entities to

use the guidance in FASB

ASC 350-40, Intangibles -

Goodwill and Other - Internal Use Software, to determine whether

to capitalize or expense implementation costs related to

the service contract.

This ASU also requires entities to (i) expense capitalized

implementation costs of a hosting

arrangement that is a service contract over the term of the hosting

(ii) present the expense related to the

capitalized implementation costs in the same line item on the

income statement as fees associated with the hosting element

of the arrangement;

(iii) classify payments for capitalized implementation

costs in the statement of cash flows in the same

manner as payments made for fees associated with the hosting

and (iv) present the capitalized implementation

costs in the same balance sheet line item that a prepayment for

the fees associated with the hosting arrangement would be

The amendments in this ASU are effective for fiscal years

beginning after December 15, 2019 and interim periods

those fiscal years.

Early adoption was permitted.

The Company adopted

this ASU on January 1, 2020.

Adoption of this

guidance did not have a material impact on the Company’s

consolidated financial statements.

Accounting Standards Adopted in 2021

In 2021, the Company did not adopt any new accounting guidance.

Cash Equivalents

Cash equivalents include cash on hand, cash items in process

of collection, amounts due from banks, including interest

Cash equivalents include cash on hand, cash items in process of collection, amounts due

from banks, including interest

bearing deposits with other banks, and federal funds sold.

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intention at the date of purchase.

At December 31, 2020,

At December 31, 2021, all

Company’s securities were classified

as available-for-sale.

Securities available-for

-sale are used as part of the Company’s

Securities available-for-sale are

used as part of the Company’s

interest rate risk management strategy,

and they may be sold in response to changes in interest rates,

changes in prepayment

and they may be sold in response to changes in interest rates, changes in prepayment

risks or other factors.

All securities classified as available-for-sale

are recorded at fair value with any unrealized gains and

losses reported in accumulated other comprehensive income

(loss), net of the deferred income tax effects.

dividends on securities, including the amortization of premiums and

accretion of discounts are recognized in interest

All securities classified as available-for-sale are recorded

at fair value with any unrealized gains and

losses reported in accumulated other comprehensive income (loss), net of the deferred

income tax effects.

dividends on securities, including the amortization of premiums and accretion of discounts

are recognized in interest

income using the effective interest method.

Premiums are amortized to the earliest call date while discounts are

Premiums are amortized to the earliest call date while discounts are accreted

over the estimated life of the security.

Realized gains and losses from the sale of securities are

determined using the

Realized gains and losses from the sale of securities are determined using the

specific identification method.

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whether there have been events or economic

circumstances to indicate that a security on which there is an

unrealized loss is other-than-temporarily impaired.

For debt securities with an unrealized loss, an other-than

-temporary impairment write-down is triggered when (1)

circumstances to indicate that a security on which there is an unrealized loss is other-than-temporarily

For debt securities with an unrealized loss, an other-than-temporary

impairment write-down is triggered when (1) the

Company has the intent to sell a debt security,

(2) it is more likely than not that the Company will be required

debt security before recovery of its amortized cost basis, or

(3) the Company does not expect to recover the entire amortized

(2) it is more likely than not that the Company will be required to sell the

debt security before recovery of its amortized cost basis, or (3) the Company does

not expect to recover the entire amortized

cost basis of the debt security.

If the Company has the intent to sell a debt security or if it is more

likely than not that it will

If the Company has the intent to sell a debt security or if it is more likely than not that it

be required to sell the debt security before recovery,

the other-than-temporary write-down is equal to the entire

between the debt security’s amortized

cost and its fair value.

the other-than-temporary write-down is equal to the entire difference

between the debt security’s amortized cost

and its fair value.

If the Company does not intend to sell the security or it is not

more likely than not that it will be required to sell the security

before recovery, the other

-than-temporary impairment write-

down is separated into the amount that is credit related (credit loss component)

and the amount due to all other factors.

credit loss component is recognized in earnings, as a realized

loss in securities gains (losses), and is the difference between

the security’s amortized cost basis and

the present value of its expected future cash flows.

more likely than not that it will be required to sell the security before recovery,

the other-than-temporary impairment write-

down is separated into the amount that is credit related (credit loss component) and the amount due to all other

credit loss component is recognized in earnings, as a realized loss in securities gains (losses),

and is the difference between

the security’s amortized cost basis and the present

value of its expected future cash flows.

The remaining difference

between the security’s fair value and

the present value of future expected cash flows is due to

factors that are not credit

related and is recognized in other comprehensive income, net

of applicable taxes.

between the security’s fair value and the present

value of future expected cash flows is due to factors that are not credit

related and is recognized in other comprehensive income, net of applicable taxes.

Loans held for sale

Loans originated and intended for sale in the secondary market are

carried at the lower of cost or estimated fair value in the

Loans originated and intended for sale in the secondary market are carried at the lower of

cost or estimated fair value in the

Loan sales are recognized when the transaction closes, the proceeds

are collected, and ownership is transferred.

Continuing involvement, through the sales agreement, consists of the

right to service the loan for a fee for the life of the

Continuing involvement, through the sales agreement, consists of the right to service the loan

for a fee for the life of the

loan, if applicable.

Gains on the sale of loans held for sale are recorded net of related

costs, such as commissions, and

reflected as a component of mortgage lending income in the consolidated

statements of earnings.

Gains on the sale of loans held for sale are recorded net of related costs, such as commissions,

reflected as a component of mortgage lending income in the consolidated statements

In the course of conducting the Bank’s

mortgage lending activities of originating mortgage loans and selling those

mortgage lending activities of originating mortgage loans and selling those loans in

the secondary market, the Bank makes various representations and

warranties to the purchaser of the mortgage loans.

Every loan closed by the Bank’s

mortgage center is run through a government agency automated

underwriting system.

Any exceptions noted during this process are remedied prior to

Every loan closed by the Bank’s mortgage

center is run through a government agency automated underwriting system.

Any exceptions noted during this process are remedied prior to sale.

These representations and warranties also apply to

underwriting the real estate appraisal opinion of value for the

collateral securing these loans.

underwriting the real estate appraisal opinion of value for the collateral securing these

Failure by the Company to

comply with the underwriting and/or appraisal standards could

result in the Company being required to repurchase the

mortgage loan or to reimburse the investor for losses incurred

(make whole requests) if such failure cannot be cured by the

comply with the underwriting and/or appraisal standards could result in the Company

being required to repurchase the

mortgage loan or to reimburse the investor for losses incurred (make whole requests)

if such failure cannot be cured by the

Company within the specified period following discovery.

Loans are reported at their outstanding principal balances, net

of any unearned income, charge-offs, and any

deferred fees

Loans are reported at their outstanding principal balances, net of any unearned

income, charge-offs, and any deferred fees

or costs on originated loans.

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Loan origination fees,

net of certain loan origination costs, are deferred and recognized

in interest income over the contractual life of the loan

net of certain loan origination costs, are deferred and recognized in interest income over the

contractual life of the loan

using the effective interest method.

Loan commitment fees

are generally deferred and amortized on a straight-line basis

over the commitment period, which results in a recorded

amount that approximates fair value.

The accrual of interest on loans is discontinued when there is

a significant deterioration in the financial condition of the

borrower and full repayment of principal and interest is not expected

or the principal or interest is more than 90 days past

due, unless the loan is both well-collateralized and in the process

of collection.

Loan commitment fees are

generally deferred and amortized on a straight-line basis

over the commitment period, which results in a recorded amount that approximates fair

The accrual of interest on loans is discontinued when there is a significant deterioration

in the financial condition of the

borrower and full repayment of principal and interest is not expected or the principal or

interest is more than 90 days past

due, unless the loan is both well-collateralized and in the process of collection.

all interest accrued but not

collected for loans that are placed on nonaccrual status is reversed

against current interest income.

collected for loans that are placed on nonaccrual status is reversed against current

interest income.

Interest collections on

nonaccrual loans are generally applied as principal reductions.

The Company determines past due or delinquency status of

The Company determines

past due or delinquency status of a

loan based on contractual payment terms.

A loan is considered impaired when it is probable the Company

will be unable to collect all principal and interest payments

A loan is considered impaired when it is probable the Company will be unable to collect all

principal and interest payments

due according to the contractual terms of the loan agreement.

Individually identified impaired loans are measured based on

Individually identified impaired

loans are measured based on

the present value of expected payments using the loan’s

original effective rate as the discount rate, the

loan’s observable

market price, or the fair value of the collateral if the loan is collateral

If the recorded investment in the impaired

loan exceeds the measure of fair value, a valuation allowance may be

established as part of the allowance for loan losses.

Changes to the valuation allowance are recorded as

a component of the provision for loan losses.

Impaired loans also include troubled debt restructurings (“TD

In the normal course of business, management may

grant concessions to borrowers who are experiencing financial

concessions granted most frequently for

TDRs involve reductions or delays in required payments of principal

and interest for a specified time, the rescheduling of

payments in accordance with a bankruptcy plan or the charge

-off of a portion of the loan.

In most cases, the conditions

the credit also warrant nonaccrual status, even after the restructuring

original effective rate as the discount rate, the loan’s

market price, or the fair value of the collateral if the loan is collateral dependent.

If the recorded

investment in the impaired

loan exceeds the measure of fair value, a valuation allowance may be established as part of

the allowance for loan losses.

Changes to the valuation allowance are recorded as a component of the provision for loan

Impaired loans also include troubled debt restructurings (“TDRs”).

In the normal

course of business, management may

grant concessions to borrowers who are experiencing financial difficulty.

The concessions granted most frequently for

TDRs involve reductions or delays in required payments of principal and interest

for a specified time, the rescheduling of

payments in accordance with a bankruptcy plan or the charge-off

of a portion of the loan.

In most cases, the conditions of

the credit also warrant nonaccrual status, even after the restructuring occurs.

As part of the credit approval process, the

restructured loans are evaluated for adequate collateral

protection in determining the appropriate accrual status at the time

restructured loans are evaluated for adequate collateral protection in determining

the appropriate accrual status at the time

of restructuring.

TDR loans may be returned to accrual status

if there has been at least a six-month sustained period

TDR loans may be returned to accrual status if there has been at least a six-month

sustained period of

repayment performance by the borrower.

The Company began offering short-term loan modifications

to assist borrowers during the COVID-19 pandemic.

modification meets certain conditions, the modification does not

need to be accounted for as a TDR.

The Company began offering short-term loan modifications to assist borrowers

during the COVID-19 pandemic.

modification meets certain conditions, the modification does not need to be

accounted for as a TDR.

For more information,

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Allowance for Loan Losses

The allowance for loan losses is maintained at a level that manage

ment believes is adequate to absorb probable losses

The allowance for loan losses is maintained at a level that management believes

is adequate to absorb probable losses

inherent in the loan portfolio.

Loan losses are charged

against the allowance when they are known.

Loan losses are charged against the allowance

when they are known.

Subsequent recoveries

are credited to the allowance.

determination of the adequacy of the allowance is based on

an evaluation of

the portfolio, current economic conditions, growth, composition

of the loan portfolio, homogeneous pools of loans, risk

ratings of specific loans, historical loan loss factors, identified

impaired loans and other factors

related to the portfolio.

evaluation is performed quarterly and is inherently subjective,

as it requires various material estimates that are susceptible

to significant change, including the amounts and timing of future cash

flows expected to be received on any impaired loans.

In addition, regulatory agencies, as an integral part of their examination

process, will periodically review the Company’s

allowance for loan losses, and may require the Company to record

additions to the allowance based on their judgment about

determination of the adequacy of the allowance is based on an evaluation

the portfolio, current economic conditions, growth, composition of the loan portfolio,

homogeneous pools of loans, risk

ratings of specific loans, historical loan loss factors, identified impaired loans and

other factors related to the portfolio.

evaluation is performed quarterly and is inherently subjective, as it requires various

material estimates that are susceptible

to significant change, including the amounts and timing of future cash flows expected

to be received on any impaired loans.

In addition, regulatory agencies, as an integral part of their examination process,

will periodically review the Company’s

allowance for loan losses, and may require the Company to record additions to the allowance

based on their judgment about

information available to them at the time of their examinations.

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Land is carried at cost.

Land improvements, buildings and improvements,

and furniture, fixtures, and equipment are carried

at cost, less accumulated depreciation computed on a straight

-line method over the useful lives of the assets or the expected

Land improvements, buildings and improvements, and furniture,

fixtures, and equipment are carried

at cost, less accumulated depreciation computed on a straight-line method over the

useful lives of the assets or the expected

terms of the leases, if shorter.

terms include lease option periods to the extent that the exercise

of such options is

terms include lease option periods to the extent that the exercise of such options is

reasonably assured.

Nonmarketable equity investments

Nonmarketable equity investments include equity securities that are

not publicly traded and securities acquired for various

The Bank is required to maintain certain minimum levels

of equity investments with certain regulatory and other

entities in which the Bank has an ongoing business relationship

based on the Bank’s common stock

and surplus (with

regard to the relationship with the Federal Reserve Bank) or outstanding

borrowings (with regard to the relationship with

Nonmarketable equity investments include equity securities that are not publicly traded

and securities acquired for various

The Bank is required to maintain certain minimum levels of equity investments

with certain regulatory and other

entities in which the Bank has an ongoing business relationship based on the Bank’s

common stock and surplus (with

regard to the relationship with the Federal Reserve Bank) or outstanding borrowings (with

regard to the relationship with

the Federal Home Loan Bank of Atlanta).

These nonmarketable

equity securities are accounted for at cost which equals par

These nonmarketable equity securities

are accounted for at cost which equals par

or redemption value.

These securities do not have a readily determinable

fair value as their ownership is restricted and there

These securities do not have a readily determinable fair value as their

ownership is restricted and there

is no market for these securities.

These securities can only be

redeemed or sold at their par value and only to the respective

These securities can only be redeemed or sold

at their par value and only to the respective

issuing government supported institution or to another member

The Company records these nonmarketable

equity securities as a component of other assets, which are periodically

evaluated for impairment.

equity securities as a component of other assets, which are periodically evaluated for

Management considers

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securities for

impairment, management considers the ultimate recoverability

of the par value rather than by recognizing temporary

impairment, management considers the ultimate recoverability of the par

value rather than by recognizing temporary

declines in value.

Mortgage Servicing Rights

The Company recognizes as assets the rights to service mortgage loans for others, known as

determines the fair value of MSRs at the date the loan is transferred.

An estimate of the Company’s MSRs is determined

using assumptions that market participants would use in estimating future

net servicing income, including estimates of

prepayment speeds, discount rate, default rates, cost to service, escrow account earnings,

contractual servicing fee income,

ancillary income, and late fees.

Subsequent to the date of transfer, the Company

has elected to measure its MSRs under the amortization method.

the amortization method, MSRs are amortized in proportion to, and over the period

of, estimated net servicing income.

amortization of MSRs is analyzed monthly and is adjusted to reflect changes in prepayment

speeds, as well as other factors.

MSRs are evaluated for impairment based on the fair value of those assets.

Impairment is determined by stratifying MSRs

into groupings based on predominant risk characteristics, such as interest rate and loan type.

If, by individual stratum, the

carrying amount of the MSRs exceeds fair value, a valuation allowance is established

through a charge to earnings.

valuation allowance is adjusted as the fair value changes.

MSRs are included in the other assets category in the

accompanying consolidated balance sheets.

Transfers of Financial

Transfers of an entire financial asset (i.e.

sales), a group of entire financial assets, or a participating interest

loan sales), a group

of entire financial assets, or a participating interest in an entire

financial asset (i.e.

loan participations sold) are accounted for

as sales when control over the assets have 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 that right) to pledge or exchange the

loan participations sold) are accounted for as sales when control

over the assets have 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 that right)

to pledge or exchange the

transferred assets, and (3) the Company does not maintain effective

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agreement to repurchase them before their maturity.

Mortgage Servicing Rights

The Company recognizes as assets the rights to service mortgage loans

for others, known as MSRs.

determines the fair value of MSRs at the date the loan is transferred.

An estimate of the Company’s

MSRs is determined

using assumptions that market participants would use in estimating

future net servicing income, including estimates of

prepayment speeds, discount rate, default rates, cost to service,

escrow account earnings, contractual servicing fee income,

ancillary income, and late fees.

Subsequent to the date of transfer, the Company

has elected to measure its MSRs under the amortization method.

the amortization method, MSRs are amortized in proportion

to, and over the period of, estimated net servicing income.

amortization of MSRs is analyzed monthly and is adjusted to reflect

changes in prepayment speeds, as well as other factors.

MSRs are evaluated for impairment based on the fair value of those

the amortization method, MSRs are amortized in proportion to, and over

the period of, estimated net servicing income.

amortization of MSRs is analyzed monthly and is adjusted to reflect changes in prepayment

speeds, as well as other factors.

MSRs are evaluated for impairment based on the fair value of those assets.

Impairment is determined by stratifying MSRs

into groupings based on predominant risk characteristics, such

as interest rate and loan type.

into groupings based on predominant risk characteristics, such as interest rate and loan type.

If, by individual stratum, the

carrying amount of the MSRs exceeds fair value, a valuation

allowance is established through a charge to earnings.

carrying amount of the MSRs exceeds fair value, a valuation allowance is established

through a charge to earnings.

valuation allowance is adjusted as the fair value changes.

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Securities sold under agreements to repurchase

Securities sold under agreements to repurchase generally mature

less than one year from the transaction date.

sold under agreements to repurchase are reflected as a secured

borrowing in the accompanying consolidated balance sheets

Securities sold under agreements to repurchase generally mature less than one

year from the transaction date.

sold under agreements to repurchase are reflected as a secured borrowing in the accompanying consolidated

balance sheets

at the amount of cash received in connection with each transaction.

Deferred tax assets and liabilities are the expected future tax amounts

for the temporary differences between carrying

amounts and tax bases of assets and liabilities, computed using enacted

A valuation allowance, if needed, reduces

Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences

between carrying

amounts and tax bases of assets and liabilities, computed using enacted tax rates.

valuation allowance, if needed, reduces

deferred tax assets to the amount expected to be realized.

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assets in the accompanying consolidated balance sheets.

Income tax expense or benefit for the year is allocated among continuing

operations and other comprehensive income

Income tax expense or benefit for the year is allocated among continuing operations and other

comprehensive income

(loss), as applicable.

The amount allocated to continuing operations

is the income tax effect of the pretax income or loss

The amount allocated to continuing operations is the income tax effect

of the pretax income or loss

from continuing operations that occurred during the year,

plus or minus income tax effects of (1) changes

circumstances that cause a change in judgment about the realization

of deferred tax assets in future years, (2) changes in

income tax laws or rates, and (3) changes in income tax status,

subject to certain exceptions.

plus or minus income tax effects of (1) changes in certain

circumstances that cause a change in judgment about the realization of deferred tax assets in future

years, (2) changes in

income tax laws or rates, and (3) changes in income tax status, subject to certain exceptions.

The amount allocated to other

comprehensive income (loss) is related solely to changes in the valuation

allowance on items that are normally accounted

for in other comprehensive income (loss) such as unrealized

gains or losses on available-for-sale securities.

comprehensive income (loss) is related solely to changes in the valuation allowance on items

that are normally accounted

for in other comprehensive income (loss) such as unrealized gains or losses on available

-for-sale securities.

In accordance with ASC 740,

, a tax position is recognized as a benefit only if it is “more likely than not”

the tax position would be sustained in a tax examination, with a tax examination

being presumed to occur.

recognized is the largest amount of tax benefit that

is greater than 50% likely of being realized on examination.

positions not meeting the “more likely than not” test, no tax benefit

It is the Company’s

policy to recognize

interest and penalties related to income tax matters in income

The Company and its wholly-owned subsidiaries

, a tax position is recognized as a benefit only if it is “more likely than not” that

the tax position would be sustained in a tax examination, with a tax examination being presumed

recognized is the largest amount of tax benefit that is greater than 50% likely of

being realized on examination.

positions not meeting the “more likely than not” test, no tax benefit is recorded.

It is the Company’s policy to recognize

interest and penalties related to income tax matters in income tax expense.

The Company and

its wholly-owned subsidiaries

file a consolidated income tax return

Fair Value Measureme

Measurements,

which defines fair value, establishes a framework for measuring fair value

generally accepted accounting principles and expands disclosures about

fair value measurements.

which defines fair value, establishes a framework for measuring fair value in U.S.

generally accepted accounting principles and expands disclosures about fair value

measurements.

ASC 820 applies only to

fair-value measurements that are already required

or permitted by other accounting standards.

fair-value measurements that are already required or

permitted by other accounting standards.

The definition of fair value

focuses on the exit price, i.e., the price

that would be received to sell an asset or paid to transfer a liability in

transaction between market participants at the measurement date,

not the entry price, i.e., the price that would be paid to

acquire the asset or received to assume the liability at the measurement

The statement emphasizes that fair value is a

focuses on the exit price, i.e., 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, not the entry price, i.e., the price that would be paid to

acquire the asset or received to assume the liability at the measurement date.

The statement

emphasizes that fair value is a

market-based measurement;

not an entity-specific measurement.

Therefore, the fair value measurement should be

determined based on the assumptions that market participants

use in pricing the asset or liability.

information related to fair value measurements, please refer

to Note 15, Fair Value.

the fair value measurement should be

determined based on the assumptions that market participants would use in pricing

the asset or liability.

information related to fair value measurements, please refer to Note 14, Fair

BASIC AND DILUTED NET EARNINGS PER SHARE

Basic net earnings per share is computed by dividing net earnings

by the weighted average common shares outstanding for

Diluted net earnings per share reflect the potential dilution that could

occur upon exercise of securities or other

rights for, or convertible into, shares of

the Company’s common stock.

Basic net earnings per share is computed by dividing net earnings by the weighted average

common shares outstanding for

Diluted net earnings per share reflect the potential dilution that could occur upon

exercise of securities or other

rights for, or convertible into, shares of the Company’s

common stock.

As of December 31, 2021 and 2020, respectively,

the Company had no such securities or other rights issued or

outstanding, and therefore, no dilutive effect to consider

the Company had no such securities or other rights issued or outstanding, and therefore,

no dilutive effect to consider for

the diluted net earnings per share calculation.

The basic and diluted net earnings per share computations for

the respective years are presented below.

The basic and diluted net earnings per share computations for the respective years are

presented below.

Year ended December 31

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Net earnings per share

RESTRICTED CASH BALANCES

Regulation D of the Federal Reserve Act requires that banks

maintain reserve balances with the Federal Reserve Bank

(“FRB”) based principally on the type and amount of their deposits.

Effective March 26, 2020, the FRB no longer requires

banks to maintain reserve balances on deposit with the FRB.

The Bank did not have a required reserve balance at the FRB

at December 31, 2019.

INTEREST ENTITIES

Generally, a variable interest entity (“VIE”)

is a corporation, partnership, trust or other legal structure that does not have

equity investors with substantive or proportional voting rights or has equity investors

that do not provide sufficient financial

resources for the entity to support its activities.

At December 31, 2021, the Company did not have any consolidated VIEs to

disclose but did have one nonconsolidated

VIE, discussed below.

New Markets Tax

Credit Investment

The New Markets Tax Credit

(“NMTC”) program provides federal tax incentives to investors to make investments in

distressed communities and promotes economic improvement through the development

of successful businesses in these

The NMTC is available to investors over seven years and is subject to recapture if certain events occur

during such period.

At December 31, 2021, the Company had one such investment in the amount of $2.2 million,

was included in other assets in the consolidated balance sheets, compared

to none at December 31, 2020.

The Company’s

equity investment meets the definition of a VIE.

While the Company’s

investment exceeds 50% of the outstanding equity

interests, the Company does not consolidate the VIE because it does not

meet the characteristics of a primary beneficiary

since the Company lacks the power to direct the activities of the VIE.

(Dollars in thousands)

Loss Exposure

Asset Recognized

Classification

New Markets Tax Credit investment

At December 31, 2021 and 2020, respectively,

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were classified as available-for-sale.

The fair value and amortized cost for securities available-for-sale

The fair value and amortized cost for securities available-for-sale by

contractual maturity at December 31, 2021 and 2020, respectively,

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(a) Includes securities issued by U.S.

government agencies or

government sponsored entities.

government agencies or government sponsored

Expected maturities of

these securities may differ from contractual maturities because

issues may have the right to call or repay obligations

these securities may differ from contractual maturities because issues

may have the right to call or repay obligations

with or without prepayment penalties.

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million at December 31, 2021 and 2020, respectively,

were pledged to secure public deposits, securities sold under

agreements to repurchase, Federal Home Loan Bank

(“FHLB”) advances, and for other purposes required or permitted

Included in other assets on the accompanying consolidated balance sheets

are nonmarketable equity investments.

were pledged to secure public deposits, securities sold under agreements to repurchase,

Federal Home Loan Bank

(“FHLB”) advances, and for other purposes required or permitted by law.

Included in other assets on the accompanying consolidated balance sheets are nonmarketable

equity investments.

carrying amounts of nonmarketable equity investments were $

million at December 31, 2020 and 2019, respectively.

Nonmarketable equity investments include FHLB of Atlanta

stock, Federal Reserve Bank (“FRB”) stock, and stock in a

privately held financial institution.

million and $

million at December 31, 2021 and 2020,

respectively.

Nonmarketable equity investments include FHLB of Atlanta stock,

Federal Reserve Bank (“FRB”) stock, and

stock in a privately held financial institution.

Gross Unrealized Losses and Fair Value

The fair values and gross unrealized losses on securities at December 31,

31, 2020 and 2019, respectively,

segregated by those

securities that have been in an unrealized loss position for

less than 12 months and 12 months or more are presented below.

2021 and 2020, respectively, segregated

securities that have been in an unrealized loss position for less than 12 months and 12

months or more are presented below.

Less than 12 Months

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State and political subdivisions

For the securities in the previous table, the Company does not

have the intent to sell and has determined it is not more likely

than not that the Company will be required to sell the security

before recovery of the amortized cost basis, which may be

For the securities in the previous table, the Company does not have the intent to sell and has determined it is

not more likely

than not that the Company will be required to sell the security before recovery of the

amortized cost basis, which may be

On a quarterly basis,

the Company assesses each security for credit impairment.

debt securities, the Company

For debt securities, the

evaluates, where necessary,

whether credit impairment exists by comparing the present value

of the expected cash flows to

whether credit impairment exists by comparing the present value of the expected cash

the securities’ amortized cost basis.

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the Company considers all relevant information including:

the length of time and the extent to which the fair value has been

less than the amortized cost basis;

the length of time and the extent to which the fair value has been less than the amortized

adverse conditions specifically related to the security,

an industry, or a geographic

area (for example, changes in

an industry, or a geographic area

(for example, changes in

the financial condition of the issuer of the security,

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in the financial

condition of the underlying loan obligors, including changes in technology

or the discontinuance of a segment of

the business that may affect the future earnings potential of

the issuer or underlying loan obligors of the security or

condition of the underlying loan obligors, including changes in technology or the discontinuance of

the business that may affect the future earnings potential of the issuer or

underlying loan obligors of the security or

changes in the quality of the credit enhancement);

the historical and implied volatility of the fair value of the security;

the payment structure of the debt security and the likelihood of the issuer

being able to make payments that

the payment structure of the debt security and the likelihood of the issuer being able to make payments

increase in the future;

failure of the issuer of the security to make scheduled interest

or principal payments;

failure of the issuer of the security to make scheduled interest or principal payments;

any changes to the rating of the security by a rating agency;

recoveries or additional declines in fair value subsequent to the

balance sheet date.

recoveries or additional declines in fair value subsequent to the balance sheet date.

Agency obligations

The unrealized losses associated with agency obligations were

primarily driven by changes in interest rates and not due to

The unrealized losses associated with agency obligations were primarily driven by changes

in interest rates and not due to

the credit quality of the securities.

These securities were issued

government agencies or government-sponsored

entities and did not have any credit losses given the explicit government

guarantee or other government support.

These securities were issued by U.S.

agencies or government-sponsored

entities and did not have any credit losses given the explicit government guarantee

or other government support.

Agency mortgage-backed securities (“MBS”)

The unrealized losses associated with agency MBS were primarily

driven by changes in interest rates and not due to the

The unrealized losses associated with agency MBS were primarily driven by changes

in interest rates and not due to the

credit quality of the securities.

These securities were issued by U.S.

government agencies or government-sponsored entities

and did not have any credit losses given the explicit government guarantee

or other government support.

government agencies

or government-sponsored entities

and did not have any credit losses given the explicit government guarantee or other government

Securities of U.S.

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The unrealized losses associated with securities of U.S.

political subdivisions were primarily driven by changes

states and political subdivisions

were primarily driven by changes

in interest rates and were not due to the credit quality of the securities.

Some of these securities are guaranteed by a bond

insurer, but management did not rely on the

guarantee in making its investment decision.

These securities

will continue to

be monitored as part of the Company’s

quarterly impairment

analysis, but are expected to perform even if the rating

Some of these securities

are guaranteed by a bond

insurer, but management did not rely on the guarantee

in making its investment decision.

These securities will continue

be monitored as part of the Company’s quarterly

impairment analysis, but are expected to perform even if the rating

agencies reduce the credit rating of the bond insurers.

As a result, the

Company expects to recover the entire amortized cost

As a result, the Company expects to

recover the entire amortized cost

basis of these securities.

The carrying values of the Company’s

investment securities could decline in the future if the financial

condition of an

issuer deteriorates and the Company determines it is probable

that it will not recover the entire amortized cost basis for the

As a result, there is

a risk that other-than-temporary impairment charges

may occur in the future.

The carrying values of the Company’s investment

securities could decline in the future if the financial condition of an

issuer deteriorates and the Company determines it is probable that it will not recover the entire

amortized cost basis for the

As a result, there is a risk that other-than-temporary

impairment charges may occur in the future.

Other-Than-Temporarily

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component of the loss is recognized in earnings.

2020 and 2019, respectively, the Company

had no credit-impaired debt securities and there were no additions

or reductions in the credit loss component of credit-impaired

debt securities during the years ended December 31, 2020

December 31, 2021 and 2020, respectively,

the Company had no credit-impaired debt securities and there were no additions

or reductions in the credit loss component of credit-impaired debt securities during the

years ended December 31, 2021 and

2020, respectively.

Realized Gains and Losses

The following table presents the gross realized gains and losses on sales

related to securities.

The following table presents the gross realized gains and losses on sales related to securities.

Year ended December 31

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Gross realized losses

Realized gains (losses), net

Realized gains, net

LOANS AND ALLOWANCE

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At December 31,

2020, the Company’s geographic

loan distribution was concentrated primarily in Lee County,

2021, the Company’s geographic loan

distribution was concentrated primarily in Lee County,

Alabama and surrounding

In accordance with ASC 310,

, a portfolio segment is defined as the level at which an entity develops

documents a systematic method for determining its allowance

for loan losses.

As part of the Company’s

assessment of the allowance, the loan portfolio is disaggregated

into the following portfolio segments:

, a portfolio segment is defined as the level at which an entity develops and

documents a systematic method for determining its allowance for loan losses.

As part of the Company’s quarterly

assessment of the allowance, the loan portfolio is disaggregated into the

following portfolio segments:

commercial and

industrial, construction and land development, commercial real

estate, residential real estate and consumer installment.

Where appropriate, the Company’s

loan portfolio segments are further disaggregated into classes.

determined based on the initial measurement attribute, risk characteristics

of the loan, and an entity’s method

industrial, construction and land development, commercial real estate, residential real

estate and consumer installment.

Where appropriate, the Company’s loan portfolio

segments are further disaggregated into classes.

A class is generally

determined based on the initial measurement attribute, risk characteristics of the loan,

and an entity’s method for

monitoring and determining credit risk.

The following describe the risk characteristics relevant to each

of the portfolio segments and classes.

The following describe the risk characteristics relevant to each of the portfolio segments

Commercial and industrial (“C&I”) —

includes loans to finance business operations, equipment purchases,

or other needs

includes loans to finance business operations, equipment purchases, or

for small and medium-sized commercial customers.

included in this category are loans to finance agricultural

Generally, the primary source

of repayment is the cash flow from business operations and activities

a participating lender in the PPP.

PPP loans are forgivable in whole or in part, if the proceeds

for payroll and other permitted purposes in accordance with

the requirements of the PPP.

Also included

in this category are loans to finance agricultural

Generally, the primary source of repayment

is the cash flow from business operations and activities of the

We are a participating lender

PPP loans are forgivable in whole or in part, if the proceeds are used

for payroll and other permitted purposes in accordance with the requirements of the PPP.

As of December 31, 2021, the

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million included in this category.

PPP loans with an aggregate outstanding principal balance of $

million included in this category at

December 31, 2020.

Construction and land development (“C&D”) —

includes both loans and credit lines for the purpose of purchasing,

carrying and developing land into commercial developments or

residential subdivisions.

carrying and developing land into commercial developments or residential subdivisions.

Also included are loans and lines

for construction of residential, multi-family and commercial buildings.

Generally the primary source of repayment is

Generally the primary

source of repayment is

dependent upon the sale or refinance of the real estate collateral.

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(1) owner occupied (2)

(2) multi-family

and (3) other.

Owner occupied

– includes loans secured by business facilities to finance business operations,

equipment and

owner-occupied facilities primarily for small and medium-sized

commercial customers.

– includes loans secured by business facilities to finance business operations, equipment and

owner-occupied facilities primarily for small and medium-sized commercial customers.

Generally the primary source

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– includes loans for hotels and motels.

Generally, the primary

source of repayment is dependent upon

Generally, the primary source

of repayment is dependent upon

income generated from the real estate collateral.

1 unchanged sentence

occupancy and rental rates, as well as the financial health of the borrower.

– primarily includes loans to finance income-producing multi-family

Loans in this class include

loans for 5 or more unit residential property and apartments leased

to residents.

Generally, the primary

repayment is dependent upon income generated from the real

estate collateral.

– primarily includes loans to finance income-producing multi-family properties.

Loans in this

class include

loans for 5 or more unit residential property and apartments leased to residents.

the primary source of

repayment is dependent upon income generated from the real estate collateral.

The underwriting of these loans takes

into consideration the occupancy and rental rates, as well as the financial

health of the borrower.

into consideration the occupancy and rental rates, as well as the financial health of the

– primarily includes loans to finance income-producing commercial properties.

Loans in this class include loans

for neighborhood retail centers, hotels, medical and professional offices,

single retail stores, industrial buildings,

Loans in this class include

for neighborhood retail centers, hotels, medical and professional offices, single

retail stores, industrial buildings, and

warehouses leased generally to local businesses and residents.

Generally the

primary source of repayment is dependent

the primary source of repayment is dependent

upon income generated from the real estate collateral.

The underwriting

of these loans takes into consideration the

The underwriting of these loans takes into consideration

occupancy and rental rates as well as the financial health of the borrower.

1 unchanged sentence

includes loans disaggregated into two classes:

(1) consumer mortgage

(1) consumer mortgage and (2)

investment property.

Consumer mortgage

– primarily includes first or second lien mortgages and home equity

lines to consumers that are

– primarily includes first or second lien mortgages and home equity lines to consumers

secured by a primary residence or second home.

These loans are underwritten in

accordance with the Bank’s general

loan policies and procedures which require, among other things, proper

documentation of each borrower’s financial

These loans are underwritten in accordance

with the Bank’s general

loan policies and procedures which require, among other things, proper documentation of each borrower’s

condition, satisfactory credit history and property value.

Investment property

– primarily includes loans to finance income-producing 1-4 family

residential properties.

Generally, the primary source

of repayment is dependent upon income generated from leasing the

property securing the

The underwriting of these loans takes into consideration the rental

rates as well as the financial health of the

– primarily includes loans to finance income-producing 1-4 family residential properties.

the primary source of repayment is dependent upon income generated from leasing the property

The underwriting of these loans takes into consideration the rental rates as

well as the financial health of the

Consumer installment —

includes loans to individuals both secured by personal property

and unsecured.

includes loans to individuals both secured by personal property and unsecured.

Loans include

1 unchanged sentence

These loans are underwritten in accordance with the

Bank’s general loan policies and

procedures which require, among other things, proper

documentation of each borrower’s

Bank’s general loan policies and procedures

which require, among other things, proper documentation of each borrower’s

financial condition, satisfactory credit history,

and if applicable, property value.

The following is a summary of current, accruing past due and

nonaccrual loans by portfolio class as of December 31,

The following is a summary of current, accruing past due and nonaccrual loans by portfolio

class as of December 31, 2021

(In thousands)

21 unchanged sentences

Consumer installment

The gross interest income which would have been recorded

under the original terms of those nonaccrual loans had they

The gross interest income which would have been recorded under the original terms of those

nonaccrual loans had they

been accruing interest, amounted to approximately $

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Recovery of previously charged-off loans

Net recoveries (charge-offs)

Net (charge-offs) recoveries

Provision for loan losses

Ending balance

The Company assesses the adequacy of its allowance for loan

losses prior to the end of each calendar quarter.

The Company assesses the adequacy of its allowance for loan losses prior

to the end of each calendar quarter.

the allowance is based upon management’s

evaluation of the loan portfolio, past loan loss experience,

current asset quality

trends, known and inherent risks in the portfolio, adverse situations

that may affect a borrower’s ability to

repay (including

the timing of future payment), the estimated value of any underlying

collateral, composition of the loan portfolio, economic

conditions, industry and peer bank loan loss rates and other pertinent

factors, including regulatory recommendations.

evaluation is inherently subjective as it requires material estimates including

the amounts and timing of future cash flows

expected to be received on impaired loans that may be susceptible

to significant change.

Loans are charged off, in whole

in part, when management believes that the full collectability of the

loan is unlikely.

may be partially charged-off

after a “confirming event” has occurred which serves to validate

that full repayment pursuant to the terms of the loan is

The Company deems loans impaired when, based on current information

and events, it is probable that the Company will

be unable to collect all amounts due according to the contractual

terms of the loan agreement.

evaluation of the loan portfolio, past loan loss experience, current asset quality

trends, known and inherent risks in the portfolio, adverse situations that may affect

a borrower’s ability to repay (including

the timing of future payment), the estimated value of any underlying collateral,

composition of the loan portfolio, economic

conditions, industry and peer bank loan loss rates and other pertinent factors, including regulatory

recommendations.

evaluation is inherently subjective as it requires material estimates including the amounts

and timing of future cash flows

expected to be received on impaired loans that may be susceptible to significant change.

charged off, in whole or

in part, when management believes that the full collectability of the loan is unlikely.

A loan may be partially charged-off

after a “confirming event” has occurred which serves to validate that full repayment pursuant

to the terms of the loan is

The Company deems loans impaired when, based on current information and events,

it is probable that the Company will

be unable to collect all amounts due according to the contractual terms of the loan agreement.

Collection of all amounts due

according to the contractual terms means that both the interest

and principal payments of a loan will be collected as

according to the contractual terms means that both the interest and principal payments of

a loan will be collected as

scheduled in the loan agreement.

An impairment allowance is recognized if the fair value of the

loan is less than the recorded investment in the loan.

An impairment allowance is recognized if the fair value of the loan is less than the recorded

investment in the loan.

impairment is recognized through the allowance.

Loans that are

impaired are recorded at the present value of expected

future cash flows discounted at the loan’s

effective interest rate, or if the loan is collateral dependent,

measurement is

based on the fair value of the collateral, less estimated disposal

The level of allowance maintained is believed by management to

be adequate to absorb probable losses inherent in the

Loans that are impaired are

recorded at the present value of expected

future cash flows discounted at the loan’s effective

interest rate, or if the loan is collateral dependent, impairment

measurement is based on the fair value of the collateral, less estimated disposal costs.

The level of allowance maintained is believed by management to be adequate

to absorb probable losses inherent in the

portfolio at the balance sheet date.

The allowance is increased

by provisions charged to expense and decreased by charge-

offs, net of recoveries of amounts previously charged

In assessing the adequacy of the allowance, the Company also

considers the results of its ongoing internal, independent

The allowance is increased by provisions charged

to expense and decreased by charge-

offs, net of recoveries of amounts previously charged-off.

In assessing the adequacy of the allowance, the Company also considers the results of its

ongoing internal, independent

loan review process.

The Company’s

loan review process assists in determining whether there are

loans in the portfolio

whose credit quality has weakened over time and evaluating the risk characteristics

of the entire loan portfolio.

Company’s loan review process includes

the judgment of management, the input from our independent

loan reviewers, and

reviews that may have been conducted by bank regulatory agencies

as part of their examination process.

incorporates loan review results in the determination of whether

or not it is probable that it will be able to collect all

amounts due according to the contractual terms of a loan.

The Company’s loan

review process assists in determining whether there are loans in the portfolio

whose credit quality has weakened over time and evaluating the risk characteristics of the

entire loan portfolio.

Company’s loan review process includes the judgment

of management, the input from our independent loan reviewers, and

reviews that may have been conducted by bank regulatory agencies as part of their examination

incorporates loan review results in the determination of whether or not it is probable

that it will be able to collect all

according to the contractual terms of a loan.

As part of the Company’s quarterly assessment

of the allowance, management divides the loan portfolio

into five segments:

commercial and industrial, construction and land development, commercial

real estate, residential real estate, and consumer

of the allowance, management divides the loan portfolio into five segments:

commercial and industrial, construction and land development, commercial real estate, residential

real estate, and consumer

installment loans.

The Company analyzes each segment and

estimates an allowance allocation for each loan segment.

The allocation of the allowance for loan losses begins with a

process of estimating the probable losses inherent for these

The Company analyzes each segment and estimates an allowance allocation

for each loan segment.

The allocation of the allowance for loan losses begins with a process of estimating the

probable losses inherent for these

types of loans.

The estimates for these loans are established by category

and based on the Company’s internal

The estimates for these loans are established by category and based

on the Company’s internal system of

credit risk ratings and historical loss data.

The estimated loan loss allocation

rate for the Company’s internal system

credit risk grades is based on its experience with similarly graded

For loan segments where the Company believes

does not have sufficient historical loss data, the Company

may make adjustments based, in part, on loss rates of peer

At December 31, 2020 and 2019, and for the years then ended,

the Company adjusted its historical loss rates for the

commercial real estate portfolio segment based, in part, on loss rates of peer

The estimated loan loss allocation for all five loan portfolio segments

is then adjusted for management’s

The estimated loan loss allocation rate for the Company’s

internal system of

credit risk grades is based on its experience with similarly graded loans.

loan segments where the Company believes it

does not have sufficient historical loss data, the Company may

make adjustments based, in part, on loss rates of peer bank

At December 31, 2021 and 2020, and for the years then ended, the Company adjusted

its historical loss rates for the

commercial real estate portfolio segment based, in part, on loss rates of peer bank groups.

The estimated loan loss allocation for all five loan portfolio segments is then adjusted for management’s

probable losses for several “qualitative and environmental” factors.

The allocation for qualitative and environmental factors

is particularly subjective and does not lend itself to exact mathematical

This amount represents estimated

probable inherent credit losses which exist, but have not yet been

identified, as of the balance sheet date, and are based

upon quarterly trend assessments in delinquent and nonaccrual

loans, credit concentration changes, prevailing economic

conditions, changes in lending personnel experience, changes

in lending policies or procedures and other influencing

The allocation

for qualitative and environmental factors

is particularly subjective and does not lend itself to exact mathematical calculation.

amount represents estimated

probable inherent credit losses which exist, but have not yet been identified,

as of the balance sheet date, and are based

upon quarterly trend assessments in delinquent and nonaccrual loans, credit concentration

changes, prevailing economic

conditions, changes in lending personnel experience, changes in lending policies or

procedures and other influencing

These qualitative and environmental factors are considered

for each of the five loan segments and the allowance

allocation, as determined by the processes noted above, is increased

or decreased based on the incremental assessment of

allocation, as determined by the processes noted above, is increased or decreased

based on the incremental assessment of

these factors.

The Company regularly re-evaluates its practices in determining the

allowance for loan losses.

The Company regularly re-evaluates its practices in determining the allowance

for loan losses.

Since the fourth quarter of

2016, the Company has increased its look-back period each quarter

to incorporate the effects of at least one economic

2016, the Company has increased its look-back period each quarter to incorporate

the effects of at least one economic

downturn in its loss history.

Company believes the extension of its look-back period

is appropriate due to the risks

believes the extension of its look-back period is appropriate due to the risks

inherent in the loan portfolio.

Absent this extension, the early

cycle periods in which the Company experienced significant

losses would be excluded from the determination of the allowance for

loan losses and its balance would decrease.

year ended December 31, 2020, the Company increased its look

-back period to 47 quarters to continue to include losses

Absent this extension, the early cycle periods in

which the Company experienced significant

losses would be excluded from the determination of the allowance for loan losses and its balance

would decrease.

year ended December 31, 2021, the Company increased its look-back period

to 51 quarters to continue to include losses

incurred by the Company beginning with the first quarter of 2009.

The Company will likely continue to increase its look-

back period to incorporate the effects of at least one

economic downturn in its loss history.

Company will likely continue to increase its look-

back period to incorporate the effects of at least one economic

downturn in its loss history.

During 2020, the Company

adjusted certain qualitative and economic factors related to changes in

economic conditions driven by the impact of the

COVID-19 pandemic and resulting adverse economic conditions,

including higher unemployment in our primary market

adjusted certain qualitative and economic factors related to changes in economic conditions

driven by the impact of the

COVID-19 pandemic and resulting adverse economic conditions, including

higher unemployment in our primary market

During 2021, the Company adjusted certain qualitative and economic factors to reflect

improvements in economic

conditions in our primary market area.

Further adjustments may be made in the future as a result of the ongoing COVID-19

-19 pandemic.

The following table details the changes in the allowance for loan

losses by portfolio segment for the years ended December

The following table details the changes in the allowance for loan losses by portfolio segment

for the years ended December

31, 2021 and 2020.

6 unchanged sentences

Balance, December 31, 2021

The following table presents an analysis of the allowance for

loan losses and recorded investment in loans by portfolio

segment and impairment methodology as of December 31, 2020

The following table presents an analysis of the allowance for loan losses and recorded

investment in loans by portfolio

segment and impairment methodology as of December 31, 2021 and 2020.

Collectively evaluated (1)

13 unchanged sentences

Consumer installment

(1) Represents loans collectively evaluated for impairment in accordance

with ASC 450-20,

(1) Represents loans collectively evaluated for impairment

in accordance with ASC 450-20,

Loss Contingencies

(formerly FAS 5), and pursuant to amendments by ASU 2010-20 regarding allowance for unimpaired loans.

(2) Represents loans individually evaluated for impairment in accordance

with ASC 310-30,

(formerly FAS 5), and pursuant to amendments by ASU 2010-20 regarding allowance for

unimpaired loans.

(2) Represents loans individually evaluated for impairment

in accordance with ASC 310-30,

FAS 114), and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

Credit Quality Indicators

The credit quality of the loan portfolio is summarized no less frequently

than quarterly using categories similar to the

The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories

similar to the

standard asset classification system used by the federal banking agencies.

1 unchanged sentence

indicators for the loan portfolio segments and classes.

categories are utilized to develop the associated allowance for

loan losses using historical losses adjusted for qualitative and

environmental factors and are defined as follows:

Pass – loans which are well protected by the current net worth

and paying capacity of the obligor (or guarantors, if

any) or by the fair value, less cost to acquire and sell, of any underlying

These categories are utilized to develop

the associated allowance for

loan losses using historical losses adjusted for qualitative and environmental factors

and are defined as follows:

Pass – loans which are well protected by the current net worth and paying capacity of the

obligor (or guarantors, if

any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

Special Mention – loans with potential weakness that may,

if not reversed or corrected, weaken the credit or

inadequately protect the Company’s

position at some future date.

These loans are not adversely classified

not expose an institution to sufficient risk to warrant an

adverse classification.

Substandard Accruing – loans that exhibit a well-defined weakness which

presently jeopardizes debt repayment,

inadequately protect the Company’s position

at some future date.

These loans are not adversely classified and do

not expose an institution to sufficient risk to warrant an adverse classification.

Substandard Accruing – loans that exhibit a well-defined weakness which presently jeopardizes

debt repayment,

even though they are currently performing.

These loans are characterized

by the distinct possibility that the

Company may incur a loss in the future if these weaknesses are

not corrected.

Nonaccrual – includes loans where management has determined

that full payment of principal and interest is in

These loans are characterized by the distinct possibility

Company may incur a loss in the future if these weaknesses are not corrected.

Nonaccrual – includes loans where management has determined that full payment

of principal and interest is in

(In thousands)

21 unchanged sentences

Consumer installment

During the fourth quarter of 2019, the Company recognized a

gain of $1.7 million resulting from the termination of a Loan

Guarantee Program (the “Program”) operated by the State of

The payment of $1.7

million received by the

Company in October 2019 was recorded as a gain and included

in noninterest income on the accompanying consolidated

statements of earnings.

The Program required a 1% fee on the commitment balance at

origination and in return the

Company received a guarantee of up to 50% of losses in the

event of the borrower's default.

The Company had

outstanding totaling $

million that were enrolled in the Program prior to its termination by the

State of Alabama.

Despite being enrolled in the Program, these loans would have met the

Company's normal loan underwriting criteria at

All of these loans were categorized as Pass within the Company's

credit quality asset classification at the date

of the Program’s termination.

Impaired loans

1 unchanged sentence

impaired loans.

Loans which have been fully charged

Loans which have been fully charged-off do

not appear in the following table.

The related allowance generally

represents the following components which correspond

The related allowance generally represents the

following components which correspond

to impaired loans:

Individually evaluated impaired loans equal to or greater than $500

thousand secured by real estate (nonaccrual

construction and land development, commercial real estate, and

residential real estate).

Individually evaluated impaired loans equal to or greater than $250

thousand not secured by real estate

Individually evaluated impaired loans equal to or greater than $500 thousand secured

by real estate (nonaccrual

construction and land development, commercial real estate, and residential real estate).

Individually evaluated impaired loans equal to or greater than $250 thousand not secured

by real estate

(nonaccrual commercial and industrial and consumer loans).

The following table sets forth certain information regarding the

Company’s impaired loans

that were individually evaluated

The following table sets forth certain information regarding the Company’s

impaired loans that were individually evaluated

for impairment at December 31, 2021 and 2020.

9 unchanged sentences

impaired loans

(1) Unpaid principal balance represents the contractual obligation due

from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments

that have been

(1) Unpaid principal balance represents the contractual obligation

due from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well

as interest payments that have been

applied against the outstanding principal balance.

(3) Recorded investment represents the unpaid principal balance less

charge-offs and payments applied;

(3) Recorded investment represents the unpaid principal balance

less charge-offs and payments applied;

it is shown before

4 unchanged sentences

With no allowance recorded:

Commercial and industrial

Total commercial real estate

Investment property

Total residential real estate

impaired loans

(1) Unpaid principal balance represents the contractual obligation due

from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments

that have been

(1) Unpaid principal balance represents the contractual obligation

due from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well

as interest payments that have been

applied against the outstanding principal balance.

(3) Recorded investment represents the unpaid principal balance less

charge-offs and payments applied;

(3) Recorded investment represents the unpaid principal balance

less charge-offs and payments applied;

it is shown before

any related allowance for loan losses.

The following table provides the average recorded investment in impaired

loans and the amount of interest income

recognized on impaired loans after impairment by portfolio segment

The following table provides the average recorded investment in impaired loans and

the amount of interest income

recognized on impaired loans after impairment by portfolio segment and class.

Year ended December 31, 2021

4 unchanged sentences

Impaired loans:

Commercial and industrial

Commercial real estate:

Owner occupied

Total commercial real estate

6 unchanged sentences

Section 4013 of the CARES Act, “Temporary

From Troubled Debt Restructurings,” provides

banks the option to temporarily suspend certain requirements

340-10 TDR classifications for a limited period of time to account

for the effects of COVID-19.

From Troubled Debt Restructurings,” provides banks the option

to temporarily suspend certain requirements under ASC

340-10 TDR classifications for a limited period of time to account for the effects

In addition, the Interagency

Statement on COVID-19 Loan Modifications, encourages banks

to work prudently with borrowers and describes the

Statement on COVID-19 Loan Modifications, encourages banks to

work prudently with borrowers and describes the

agencies’ interpretation of how accounting rules under ASC 310

310-40, “Troubled Debt Restructurings by Creditors,”

-40, “Troubled Debt Restructurings by Creditors,” apply

certain COVID-19-related modifications.

The Interagency Statement

on COVID-19 Loan Modifications was supplemented

on June 23, 2020 by the Interagency Examiner Guidance for Assessing

Safety and Soundness Considering the Effect of the

The Interagency Statement on

COVID-19 Loan Modifications was supplemented

on June 23, 2020 by the Interagency Examiner Guidance for Assessing Safety and

Soundness Considering the Effect of the

COVID-19 Pandemic on Institutions.

If a loan modification is eligible, a bank may elect to account for

the loan under

If a loan modification is eligible, a bank may elect to account for the loan under

section 4013 of the CARES Act.

If a loan modification is not

eligible under section 4013, or if the bank elects not to

account for the loan modification under section 4013, the Revised Statement

includes criteria when a bank may presume a

If a loan modification is not eligible under section 4013,

or if the bank elects not to

account for the loan modification under section 4013, the Revised Statement includes

criteria when a bank may presume a

loan modification is not a TDR in accordance with ASC 310-40.

The Company evaluates loan extensions or modifications not

qualified under Section 4013 of the CARES Act or under the

The Company evaluates loan extensions or modifications not qualified under

Section 4013 of the CARES Act or under the

Interagency Statement on COVID-19 Loan Modifications in accordance

with FASB ASC 340

-10 with respect to the

with FASB ASC 340-10 with respect to the

classification of the loan as a TDR.

In the normal course of business, management may grant concessions

to borrowers that

In the normal course of business, management may grant concessions to borrowers

are experiencing financial difficulty.

A concession may include, but is not limited to, delays in required

principal and interest for a specified period, reduction of the stated

interest rate of the loan, reduction of accrued interest,

extension of the maturity date, or reduction of the face amount or

maturity amount of the debt.

A concession may include, but is not limited to, delays in required payments of

principal and interest for a specified period, reduction of the stated interest rate of the loan,

reduction of accrued interest,

extension of the maturity date, or reduction of the face amount or maturity amount of the debt.

A concession has been

granted when, as a result of the restructuring, the Bank does not expect

to collect, when due, all amounts owed, including

granted when, as a result of the restructuring, the Bank does not expect to collect,

when due, all amounts owed, including

interest at the original stated rate.

A concession may have also been granted if the debtor is not able

to access funds

elsewhere at a market rate for debt with similar risk characteristics

as the restructured debt.

A concession may have also been granted if the debtor is not able to access funds

elsewhere at a market rate for debt with similar risk characteristics as the restructured

In making the determination of

whether a loan modification is a TDR, the Company considers

the individual facts and circumstances surrounding each

whether a loan modification is a TDR, the Company considers the individual facts

and circumstances surrounding each

modification.

As part of the credit approval process, the restructured loans are evaluated

for adequate collateral protection

As part of the credit approval process, the restructured loans are evaluated for

adequate collateral protection

in determining the appropriate accrual status at the time of restructure.

Similar to other impaired loans, TDRs are measured for impairment

based on the present value of expected payments using

Similar to other impaired loans, TDRs are measured for impairment based on the present value of expected

payments using

the loan’s original effective

interest rate as the discount rate, or the fair value of the collateral,

less selling costs if the loan is

interest rate as the discount rate, or the fair value of the collateral, less selling costs if the

collateral dependent.

If the recorded investment in the loan exceeds

the measure of fair value, impairment is recognized by

establishing a valuation allowance as part of the allowance for

loan losses or a charge-off to the allowance for

In periods subsequent to the modification, all TDRs are evaluated

individually, including

those that have payment defaults,

If the recorded investment in the loan exceeds the measure of

fair value, impairment is recognized by

establishing a valuation allowance as part of the allowance for loan losses or a charge

-off to the allowance for loan losses.

In periods subsequent to the modification, all TDRs are evaluated individually,

including those that have payment defaults,

for possible impairment.

At December 31, 2019 the Company had no TDRs.

The following is a summary of accruing and nonaccrual TDRs

related loan losses, by portfolio segment and class at December

The following is a summary of accruing and nonaccrual TDRs and the related loan losses, by portfolio

segment and class at

December 31, 2021 and 2020.

(In thousands)

4 unchanged sentences

Total residential real estate

At December 31, 2020, there were no significant outstanding commitments

to advance additional funds to customers whose

loans had been restructured.

There were no loans modified in a TDR during the year ended

(In thousands)

December 31, 2020

The following table summarizes loans

modified in a TDR during the year ended December 31,

2020 both before and after modification.

Commercial real estate:

Total commercial real estate

Investment property

Total residential real estate

At December 31, 2021 there were no significant outstanding commitments to advance

additional funds to customers whose

loans had been restructured.

The following table summarizes loans modified in a TDR during the respective periods

before and after modification.

($ in thousands)

4 unchanged sentences

Total residential real estate

There were no loans modified in a TDR in 2021.

Four loans were modified in a TDR during the year ended December 31,

The only concession granted by the

Company was related to a delay in the required payment of principal

and/or interest.

During the years ended December 31, 2020 and 2019,

respectively, the Company had

no loans modified in a TDR within

the previous 12 months for which there was a payment default

(defined as 90 days or more past due).

2020 the only concession granted by the Company was related to a delay in the required

payment of principal and/or

During the years ended December 31, 2021 and 2020, respectively,

the Company had no loans modified in a TDR within

the previous 12 months for which there was a payment default (defined as 90 days or

more past due).

PREMISES AND EQUIPMENT

Premises and equipment at December 31, 2020

and 2019 is presented below

Premises and equipment at December 31, 2021 and 2020 is presented below

(Dollars in thousands)

10 unchanged sentences

2020, respectively, and is a component

of net occupancy and equipment expense in the consolidated

statements of earnings.

MORTGAGE SERVICING RIGHTS,

MSRs are recognized based

on the fair value

of the servicing rights

on the date the

corresponding mortgage loans

Company’s MSRs

is determined

using assumptions

participants would

future net servicing

income, including estimates

of prepayment speeds,

discount rate, default

rates, cost to

service, escrow

account earnings, contractual

servicing fee income,

ancillary income, and

Subsequent to the

date of transfer,

the amortization

amortization method,

of net occupancy and equipment expense in the consolidated statements of earnings.

For more information related to depreciation expense, please refer to “Change in

Accounting Estimate” in Note 1,

Summary of Significant Accounting Policies.

MORTGAGE SERVICING

MSRs are recognized

fair value of

the servicing rights

the corresponding mortgage

loans are sold.

servicing income,

including estimates

of prepayment

speeds, discount

rate, default

account earnings,

contractual servicing

ancillary income,

Subsequent to

amortized in proportion

to, and over the

period of, estimated

net servicing income.

fee income is recorded

related amortization expense and recognized in earnings as part

of mortgage lending income.

The Company has recorded MSRs related to loans sold without

recourse to Fannie Mae.

the period of,

estimated net servicing

fee income is

related amortization expense and recognized in earnings as part of mortgage lending

The Company has recorded MSRs related to loans sold without recourse to

The Company generally sells

conforming, fixed-rate, closed-end, residential mortgages to Fannie

conforming, fixed-rate, closed-end, residential mortgages to Fannie Mae.

MSRs are included in other assets on the

2 unchanged sentences

Impairment is determined by stratifying MSRs into

groupings based on predominant risk characteristics, such as interest

rate and loan type.

groupings based on predominant risk characteristics, such as interest rate and loan type.

If, by individual stratum, the

carrying amount of the MSRs exceeds fair value, a valuation

allowance is established.

carrying amount of the MSRs exceeds fair value, a valuation allowance is established.

The valuation allowance is adjusted

as the fair value changes.

Changes in the valuation allowance are recognized

in earnings as a component of mortgage

Changes in the valuation allowance are recognized in earnings as a component

lending income.

The following table details the changes in amortized MSRs and

the related valuation allowance for the years ended

The following table details the changes in amortized MSRs and the related valuation allowance for

the years ended

December 31, 2021 and 2020.

11 unchanged sentences

End of period

Data and assumptions used in the fair value calculation related

to MSRs at December 31,

Data and assumptions used in the fair value calculation related to MSRs at December

31, 2021 and 2020, respectively,

15 unchanged sentences

December 31, 2021

At December 31, 2020, the scheduled maturities of certificates

of deposit and other time deposits are presented below.

At December 31, 2021, the scheduled maturities of certificates of deposit and other time

deposits are presented below.

(Dollars in thousands)

December 31, 2021

Total certificates of deposit

and other time deposits

Total certificates of deposit and

other time deposits

Additionally, at December 31,

2 unchanged sentences

million, respectively, of certificates

of deposit and other time deposits were issued in denominations

greater than $250 thousand.

At December 31, 2020 and 2019, the amount of deposit accounts in

overdraft status that were reclassified to loans on the

of deposit and other time deposits were issued in denominations greater than $250

At December 31, 2021 and 2020, the amount of deposit accounts in overdraft status that

were reclassified to loans on the

accompanying consolidated balance sheets was not material.

SHORT-TERM BORROWINGS

At December 31, 2020 and 2019, the composition of short-term borrowings

is presented below.

(Dollars in thousands)

Federal funds purchased:

As of December 31

Average during the year

Maximum outstanding at

any month-end

Securities sold under

agreements to repurchase:

As of December 31

Average during the year

Maximum outstanding at

any month-end

Federal funds purchased represent unsecured overnight borrowings

from other financial institutions by the Bank.

had available federal fund lines totaling $

.0 million with none outstanding at December 31, 2020.

Securities sold under agreements to repurchase represent short

-term borrowings with maturities less than one year

collateralized by a portion of the Company’s

securities portfolio.

Securities with an aggregate carrying value of $

million and $

million at December 31, 2020 and 2019, respectively,

were pledged to secure securities sold under

agreements to repurchase.

LEASE COMMITMENTS

We lease certain

office facilities and equipment under operating leases.

Rent expense for all operating leases totaled $

million for both the years ended December 31, 2020 and 2019.

We lease certain office

facilities and equipment under operating leases.

Rent expense for all

operating leases totaled $

million for both years ended December 31, 2021 and 2020.

On January 1, 2019, we adopted a new accounting standard

which required the recognition of certain operating leases on our

balance sheet as lease right of use assets (reported as

component of other assets) and related lease liabilities (reported

as a component of accrued expenses and other liabilities).

which required the recognition of certain operating leases on our balance sheet as lease right of

use assets (reported as

component of other assets) and related lease liabilities (reported as a component of accrued

expenses and other liabilities).

Aggregate lease right of use assets were $

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thousand at December 31, 2021 and 2020, respectively.

expense includes amounts related to items that are not included

in the determination of lease right of use assets including

expense includes amounts related to items that are not included in the determination of lease

right of use assets including

expenses related to short-term leases totaling $

million for the year ended December 31, 2021.

Lease payments under operating leases that were applied to

our operating lease liability totaled $

Lease payments under operating leases that were applied to our operating lease liability totaled

thousand during the

year ended December 31, 2021.

The following table reconciles

future undiscounted lease payments due under non-

cancelable operating leases (those amounts subject to recognition) to

the aggregate operating lease liability as of December

The following table reconciles future undiscounted

lease payments due under non-

cancelable operating leases (those amounts subject to recognition) to the aggregate operating lease

liability as of December

(Dollars in thousands)

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included in the accompanying consolidated balance sheets

Weighted-average

lease terms in years

Weighted-average

discount rate

OTHER COMPREHENSIVE INCOME (LOSS)

Weighted-average lease terms

Weighted-average discount rate

OTHER COMPREHENSIVE (LOSS) INCOME

Comprehensive income

is defined as

the change in

equity from all

transactions other

than those with

stockholders, and

other comprehensive

income (loss).

Other comprehensive

income (loss)

all transactions

stockholders,

comprehensive

December 31, 2021 and 2020, is presented below.

(Dollars in thousands)

Unrealized net holding loss on securities

Reclassification adjustment for net gain on securities recognized in net earnings

Other comprehensive loss

Unrealized net holding gain on securities

Reclassification adjustment for net gain on securities recognized

in net earnings

Reclassification adjustment for net gain on securities recognized in net earnings

Other comprehensive income

Unrealized net holding gain on securities

Reclassification adjustment for net loss on securities recognized

in net earnings

Other comprehensive loss

For the years ended December 31, 2020 and 2019 the components

of income tax expense from continuing operations are

For the years ended December 31, 2021 and 2020 the components of income tax expense

from continuing operations are

presented below.

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Total deferred

income tax benefit

Total income tax expense

income tax expense (benefit)

Total income tax expense

differs from the amounts computed by applying the

statutory federal income tax rate of 21% to

Total income tax expense differs

from the amounts computed by applying the statutory federal income tax rate of 21%

earnings before income taxes.

A reconciliation of the differences for the years ended

A reconciliation of the differences for the years ended December 31,

2021 and 2020, is

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federal tax effect

New Markets Tax Credit

Bank-owned life insurance

Total income tax expense

The Company had a net deferred tax liability of $1.5

million and $9 thousand included in other liabilities ts on the

consolidated balance sheets at December 31, 2020

and 2019, respectively.

The tax effects of temporary differences

give rise to significant portions of the deferred tax assets and

deferred tax liabilities at December 31,

2020 and 2019 are

presented below.

At December 31, 2021, the Company had a net deferred tax asset of $0.4

million included in other assets on the

consolidated balance sheet and at December 31, 2020, a deferred tax liability of $1.5

million included in other liabilities on

the consolidated balance sheet.

The tax effects of temporary differences that give rise to significant

portions of the deferred

tax assets and deferred tax liabilities at December 31, 2021 and 2020 are presented

(Dollars in thousands)

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Right of use asset

New Markets Tax Credit investment

Total deferred

tax liabilities

Net deferred tax liability

A valuation allowance is recognized for a deferred tax asset if, based

on the weight of available evidence, it is more-likely-

than-not that some portion of the entire deferred tax asset will not be

Net deferred tax asset (liability)

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available

evidence, it is more-likely-

than-not that some portion of the entire deferred tax asset will not be realized.

The ultimate realization of deferred tax

assets is dependent upon the generation of future taxable income during

the periods in which those temporary differences

assets is dependent upon the generation of future taxable income during the periods

in which those temporary differences

become deductible.

Management considers the scheduled reversal of deferred

tax liabilities, projected future taxable

Management considers the scheduled reversal of deferred tax liabilities,

projected future taxable

income and tax planning strategies in making this assessment.

Based upon the level of historical taxable income and

projection for future taxable income over the periods which the

temporary differences resulting in the remaining

tax assets are deductible, management believes it is more-likely

-than-not that the Company will realize the benefits of

Based upon the level of historical

taxable income and

projection for future taxable income over the periods which the temporary differences

resulting in the remaining deferred

tax assets are deductible, management believes it is more-likely-than

-not that the Company will realize the benefits of these

deductible differences at December 31, 2021.

The amount of the deferred tax assets considered realizable,

however, could

be reduced in the near term if estimates of future taxable income are

The amount of the deferred tax assets considered realizable, however,

be reduced in the near term if estimates of future taxable income are reduced.

The change in the net deferred tax asset for the years ended December 31, 2021

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(Dollars in thousands)

Net deferred tax (liability) asset:

Net deferred tax asset (liability):

Balance, beginning of year

Deferred tax benefit (expense) related to continuing operations

Stockholders' equity, for

accumulated other comprehensive (income) loss

Deferred tax (expense) benefit related to continuing operations

Stockholders' equity, for accumulated

other comprehensive loss (income)

Balance, end of year

Income Taxes,

defines the threshold for recognizing the benefits of tax return positions in

the financial statements

defines the threshold for recognizing the benefits of tax return positions in the financial statements

as “more-likely-than-not” to be sustained by the taxing authority.

This section also provides guidance on the de-

recognition, measurement, and classification of income tax uncertainties

in interim periods.

recognition, measurement, and classification of income tax uncertainties in interim

As of December 31, 2021, the

Company had no unrecognized tax benefits related to federal or

state income tax matters.

Company had no unrecognized tax benefits related to federal or state income tax matters.

The Company does not anticipate

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December 31, 2021.

As of December 31, 2020, the Company has accrued no interest and no

penalties related to uncertain

As of December 31, 2021, the Company has accrued no interest and no penalties related to uncertain

tax positions.

It is the Company’s policy to

recognize interest and penalties related to income tax matters

in income tax

It is the Company’s policy to recognize interest

and penalties related to income tax matters in income tax

The Company and its subsidiaries file consolidated U.S.

and State of Alabama income tax returns.

federal and State of Alabama income

The Company is

currently open to audit under the statute of limitations by the Internal Revenue

Service and the State of Alabama for the

currently open to audit under the statute of limitations by the Internal Revenue Service and the State of

Alabama for the

years ended December 31, 2018 through 2021.

EMPLOYEE BENEFIT PLAN

The Company sponsors a qualified defined contribution retirement

plan, the Auburn National Bancorporation, Inc.

The Company sponsors a qualified defined contribution retirement plan, the Auburn National

Bancorporation, Inc.

Plan (the "Plan").

Eligible employees may contribute up to 100% of eligible compensation,

subject to statutory limits upon

Eligible employees may contribute up to 100% of eligible compensation, subject to statutory limits

completion of 2 months of service.

Furthermore, the Company allows employer Safe Harbor

contributions.

Participants are

Furthermore, the Company allows employer Safe Harbor contributions.

immediately vested in employer Safe Harbor contributions.

he Company's matching contributions on behalf of

participants were equal to $1.00 for each $1.00 contributed

by participants, up to 3% of the participants' eligible

compensation, and $0.50 for every $1.00 contributed by participants,

up to 5% of the participants' eligible compensation,

for a maximum matching contribution of 4% of the participants' eligible

Company's matching contributions on behalf of

participants were equal to $1.00 for each $1.00 contributed by participants, up to 3% of the

participants' eligible

compensation, and $0.50 for every $1.00 contributed by participants, above 3% up to 5%

of the participants' eligible

compensation, for a maximum matching contribution of 4% of the participants' eligible

compensation.

Company matching contributions to

the Plan were $

thousand and $

thousand for the years ended December 31, 2020 and 2019,

respectively, and are

included in salaries and benefits expense.

Company matching

contributions to the Plan were approximately $

million for the years ended December 31, 2021 and 2020, respectively,

and are included in salaries and benefits expense.

COMMITMENTS AND CONTINGENT LIABILITIES

Credit-Related Financial Instruments

The Company is party to credit related financial instruments with

off-balance sheet risk in the normal course of business

The Company is party to credit related 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

These financial instruments include commitments to extend credit and standby

letters of credit.

Such commitments involve, to varying degrees, elements of credit

and interest rate risk in excess of the

Such commitments involve, to varying degrees, elements of credit and interest rate

risk in excess of the

amount recognized in the consolidated balance sheets.

The Company’s exposure to

credit loss is represented by the contractual amount of these commitments.

follows the same credit policies in making commitments as it

does for on-balance sheet instruments.

At December 31, 2020 and 2019, the following financial instruments

were outstanding whose contract amount represents

The Company’s exposure to credit

loss is represented by the contractual amount of these commitments.

follows the same credit policies in making commitments as it does for on-balance sheet

At December 31, 2021 and 2020, the following financial instruments were outstanding

whose contract amount represents

(Dollars in thousands)

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Standby letters of credit

Commitments to extend credit are agreements to lend to a customer

as long as there is no violation of any condition

Commitments to extend credit are agreements to lend to a customer as long as there is no violation

of any condition

established in the agreement.

Commitments generally have fixed expiration dates or other termination

clauses and may

Commitments generally have fixed expiration dates or other termination clauses

require payment of a fee.

The commitments for lines of credit may expire

without being drawn upon.

The commitments for lines of credit may expire without being

Therefore, total

commitment amounts do not necessarily represent future cash

requirements.

commitment amounts do not necessarily represent future cash requirements.

The amount of collateral obtained, if it is

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evaluation of the customer.

Standby letters of credit are conditional commitments issued by

the Company to guarantee the performance of a customer

Standby letters of credit are conditional commitments issued by the Company to

guarantee the performance of a customer

to a third party.

The credit risk involved in issuing letters of credit

is essentially the same as that involved in extending loan

The credit risk involved in issuing letters of credit is essentially the same

as that involved in extending loan

facilities to customers.

The Company holds various assets as collateral, including

accounts receivable, inventory,

equipment, marketable securities, and property to support

those commitments for which collateral is deemed necessary.

The Company has recorded a liability for the estimated fair

value of these standby letters of credit in the amount of $

The Company holds various assets as collateral, including accounts receivable,

equipment, marketable securities, and property to support those commitments

for which collateral is deemed necessary.

The Company has recorded a liability for the estimated fair value of these standby letters

of credit in the amount of $

thousand and $

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Other Commitments

At December 31, 2020, the Company has a contract with a construction

company for $

million to construct a new bank

headquarters in Auburn, Alabama.

At December 31, 2021, the Company has contracts with construction companies

for an aggregate of $

construct a new headquarters in Auburn, Alabama.

As of December 31, 2021, the Company has paid $

million under

these contracts with a balance to finish, including retainage, of $

Contingent Liabilities

The Company and the Bank are involved in various legal proceedings,

arising in connection with their business.

opinion of management, based upon consultation with legal counsel,

the ultimate resolution of these proceeding will not

have a material adverse effect upon the consolidated

financial condition or results of operations of the Company

The Company and the Bank are involved in various legal proceedings, arising in connection

with their business.

opinion of management, based upon consultation with legal counsel, the ultimate resolution

of these proceeding will not

have a material adverse effect upon the consolidated financial

condition or results of operations of the Company and the

“Fair value” is defined by ASC 820,

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, as the price that would be received to sell

an asset or paid to transfer a liability in an orderly transaction occurring

in the principal market (or most advantageous

market in the absence of a principal market) for an asset or

liability at the measurement date.

an asset or paid to transfer a liability in an orderly transaction occurring in the principal market

(or most advantageous

market in the absence of a principal market) for an asset or liability at the measurement date.

GAAP establishes a fair

value hierarchy for valuation inputs that gives the highest priority to

quoted prices in active markets for identical assets or

value hierarchy for valuation inputs that gives the highest priority to quoted prices

in active markets for identical assets or

liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

Level 1—inputs to the valuation methodology are quoted prices, unadjusted,

for identical assets or liabilities in active

Level 2—inputs to the valuation methodology include quoted

prices for similar assets and liabilities in active markets,

quoted prices for identical or similar assets or liabilities in markets

that are not active, or inputs that are observable for the

asset or liability, either directly

or indirectly.

Level 3—inputs to the valuation methodology are unobservable

and reflect the Company’s own assumptions

Level 1—inputs to the valuation methodology are quoted prices, unadjusted, for identical

assets or liabilities in active

Level 2—inputs to the valuation methodology include quoted prices for similar assets and

liabilities in active markets,

quoted prices for identical or similar assets or liabilities in markets that are not active, or

inputs that are observable for the

asset or liability, either directly or

Level 3—inputs to the valuation methodology are unobservable and reflect the

Company’s own assumptions about the

inputs market participants would use in pricing the asset or liability.

Level changes in fair value measurements

Transfers between levels of the fair value hierarchy

are generally recognized at the end of the reporting period.

Company monitors the valuation techniques utilized for each

category of financial assets and liabilities to ascertain when

Transfers between levels of the fair value hierarchy are generally

recognized at the end of the reporting period.

Company monitors the valuation techniques utilized for each category of

financial assets and liabilities to ascertain when

transfers between levels have been affected.

The nature of the Company’s financial

assets and liabilities generally is such

The nature of the Company’s financial assets

and liabilities generally is such

that transfers in and out of any level are expected to be infrequent.

For the years ended December 31, 2020 and

were no transfers between levels and no changes in valuation techniques

for the Company’s financial

assets and liabilities.

Assets and liabilities measured at fair value

on a recurring basis

For the years ended December

31, 2021 and 2020, there

were no transfers between levels and no changes in valuation techniques for the Company’s

financial assets and liabilities.

Assets and liabilities measured at fair value on a recurring

Securities available-for-sale

Fair values of securities available for sale were primarily measured

using Level 2 inputs.

Fair values of securities available for sale were primarily measured using

Level 2 inputs.

For these securities, the Company

obtains pricing from third party pricing services.

These third party pricing services consider observable data

include broker/dealer quotes, market spreads, cash flows, market consensus

prepayment speeds, benchmark yields, reported

trades for similar securities, credit information and the securities’ terms

and conditions.

These third party pricing services consider observable data that may

include broker/dealer quotes, market spreads, cash flows, market consensus prepayment

speeds, benchmark yields, reported

trades for similar securities, credit information and the securities’ terms and conditions.

On a quarterly basis, management

reviews the pricing received from the third party pricing services

for reasonableness given current market conditions.

reviews the pricing received from the third party pricing services for reasonableness

given current market conditions.

part of its review, management

may obtain non-binding third party broker quotes to validate the fair value measurements.

In addition, management will periodically submit pricing provided

by the third party pricing services to another

In addition, management will periodically submit pricing provided by the third party

pricing services to another

independent valuation firm on a sample basis.

This independent valuation firm will compare the price

provided by the

third-party pricing service with its own price and will review the significant

assumptions and valuation methodologies used

This independent valuation firm will compare the price provided

third-party pricing service with its own price and will review the significant assumptions

and valuation methodologies used

with management.

The following table presents the balances of the assets and liabilities

measured at fair value on a recurring as of December

The following table presents the balances of the assets and liabilities measured at fair value

on a recurring as of December

31, 2021 and 2020, respectively,

by caption, on the accompanying consolidated balance sheets by ASC 820

820 valuation

hierarchy (as described above).

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State and political subdivisions

Total securities available

Total securities available-for-sale

assets at fair value

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State and political subdivisions

Total securities available

Total securities available-for-sale

assets at fair value

Assets and liabilities measured at fair value

on a nonrecurring basis

Assets and liabilities measured at fair value on a nonrecurring

Loans held for sale

Loans held for sale are carried at the lower of cost or fair value.

Fair values of loans held for sale are determined using

Fair values of loans held for

sale are determined using

quoted market secondary market prices for similar loans.

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Loans considered impaired under ASC 310-10-35,

, are loans for which, based on current information

events, it is probable that the Company will be unable to collect

all principal and interest payments due in accordance with

, are loans for which, based on current information and

events, it is probable that the Company will be unable to collect all principal and interest

payments due in accordance with

the contractual terms of the loan agreement.

Impaired loans can be measured based on the present value

payments using the loan’s original

effective rate as the discount rate, the loan’s

observable market price, or the fair value of

Impaired loans can be measured based on the present value of expected

payments using the loan’s original effective

rate as the discount rate, the loan’s observable

market price, or the fair value of

the collateral less selling costs if the loan is collateral dependent.

The fair value of impaired loans were primarily measured based on

the value of the collateral securing these loans.

Impaired loans are classified within Level 3 of the fair value

Collateral may be

real estate and/or business assets

The fair value of impaired loans were primarily measured based on the value of the collateral

securing these loans.

Impaired loans are classified within Level 3 of the fair value hierarchy.

Collateral may be real estate and/or business assets

including equipment, inventory,

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These appraisals may utilize a single valuation

approach or a combination of approaches including comparable

sales and the income approach.

approach or a combination of approaches including comparable sales and the income

Appraised values are

discounted for costs to sell and may be discounted further based on

management’s historical knowledge,

changes in market

conditions from the date of the most recent appraisal, and/or

management’s expertise and knowledge of the

discounted for costs to sell and may be discounted further based on management’s

historical knowledge, changes in market

conditions from the date of the most recent appraisal, and/or management’s

expertise and knowledge of the customer and

the customer’s business.

Such discounts by management are subjective and are typically

significant unobservable inputs

Such discounts by management are subjective and are typically significant unobservable

for determining fair value.

Impaired loans are reviewed and evaluated on at least a quarterly

basis for additional

Impaired loans are reviewed and evaluated on at least a quarterly basis

for additional

impairment and adjusted accordingly,

based on the same factors discussed above.

Other real estate owned

Other real estate

owned, consisting of properties obtained through foreclosure or in satisfaction

of loans, are initially

recorded at the lower of the loan’s carrying amount or

the fair value less costs to sell upon transfer of the loans to other real

Subsequently, other real

estate is carried at the lower of carrying value or fair value less costs to sell.

Fair values are

generally based on third party appraisals of the property and are classified within

Level 3 of the fair value hierarchy.

appraisals are sometimes further discounted based on management’s

historical knowledge, and/or changes in market

conditions from the date of the most recent appraisal, and/or management’s

expertise and knowledge of the customer and

the customer’s business.

Such discounts are typically significant

unobservable inputs for determining fair value.

where the carrying amount exceeds the fair value, less costs to sell, a loss is recognized

in noninterest expense.

Mortgage servicing rights, net

Mortgage servicing rights, net, included in other assets on the accompanying

consolidated balance sheets, are carried at the

Mortgage servicing rights, net, included in other assets on the accompanying consolidated

balance sheets, are carried at the

lower of cost or estimated fair value.

MSRs do not trade in an active market with readily observable

the fair value of MSRs, the Company engages an independent

MSRs do not trade in an active market with readily observable prices.

the fair value of MSRs, the Company engages an independent third party.

The independent third party’s

valuation model

calculates the present value of estimated future net servicing

income using assumptions that market participants would use

in estimating future net servicing income, including estimates of prepayment

speeds, discount rate, default rates, cost to

service, escrow account earnings, contractual servicing fee income,

ancillary income, and late fees.

calculates the present value of estimated future net servicing income using assumptions

that market participants would use

in estimating future net servicing income, including estimates of prepayment speeds, discount

rate, default rates, cost to

service, escrow account earnings, contractual servicing fee income, ancillary

income, and late fees.

Periodically, the

Company will review broker surveys and other market research

to validate significant assumptions used in the model.

significant unobservable inputs include prepayment speeds or

the constant prepayment rate (“CPR”) and the weighted

Company will review broker surveys and other market research to validate significant

assumptions used in the model.

significant unobservable inputs include prepayment speeds or the constant prepayment rate

(“CPR”) and the weighted

average discount rate.

Because the valuation of MSRs requires the use of significant unobservable

inputs, all of the

Because the valuation of MSRs requires the use of significant unobservable inputs, all of the

Company’s MSRs are classified

within Level 3 of the valuation hierarchy.

The following table presents the balances of the assets and liabilities

measured at fair value on a nonrecurring basis as of

The following table presents the balances of the assets and liabilities measured

at fair value on a nonrecurring basis as of

December 31, 2021 and

2019, respectively, by caption, on the

accompanying consolidated balance sheets and by ASC 820

2020, respectively, by caption, on the accompanying

consolidated balance sheets and by ASC 820

valuation hierarchy (as described above):

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Loans considered impaired under ASC 310-10-35 Receivables.

This amount reflects the recorded investment in

This amount reflects the recorded

investment in

impaired loans, net of any related allowance for loan losses.

Represents MSRs, net carried at lower of cost or estimated fair value.

At December 31, 2020 and 2019 and for the years then ended,

the Company had no Level 3 assets measured at fair value on

Represents other real estate owned and MSRs, net both of which are carried at lower of cost or

estimated fair value.

At December 31, 2021 and 2020 and for the years then ended, the Company had no Level

3 assets measured at fair value on

a recurring basis.

For Level 3 assets measured at fair value on a non-recurring basis

as of December 31, 2020 and 2019, the

significant unobservable inputs used in the fair value measurements

are presented below.

For Level 3 assets measured at fair value on a non-recurring basis as of December

31, 2021 and 2020, the

significant unobservable inputs used in the fair value measurements are presented

(Dollars in thousands)

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Appraisal discounts

Other real estate owned

Appraisal discounts

Mortgage servicing rights, net

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Financial Instruments

, requires disclosure of fair value information about financial

, requires disclosure of fair value information about financial instruments,

whether or not

recognized on the face of the balance sheet, for which it is practicable

to estimate that value.

recognized on the face of the balance sheet, for which it is practicable to estimate that

The assumptions used in the

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Where quoted market prices are

not available, fair values are based on estimates using discounted

cash flow analyses.

Discounted cash flows can be

significantly affected by the assumptions used,

including the discount rate and estimates of future cash flows.

following fair value estimates cannot be substantiated by comparison

to independent markets and should not be considered

not available, fair values are based on estimates using discounted cash flow analyses.

cash flows can be

significantly affected by the assumptions used, including the discount rate

and estimates of future cash flows.

following fair value estimates cannot be substantiated by comparison to independent

markets and should not be considered

representative of the liquidation value of the Company’s

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nonfinancial instruments from its disclosure requirements.

The following methods and assumptions were used by the Company in

estimating the fair value of its financial instruments:

The following methods and assumptions were used by the Company in estimating the

fair value of its financial instruments:

Fair values for loans were calculated using discounted cash flows.

discount rates reflected current rates at which similar

The discount rates reflected

current rates at which similar

loans would be made for the same remaining maturities.

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cash flows, adjusted for estimated prepayments.

The fair value of loans was measured using an exit

price notion.

The fair value of loans was measured using an exit price

Loans held for sale

Fair values of loans held for sale are determined using quoted

market secondary market prices for similar loans.

Fair values of loans held for sale are determined using quoted market secondary

market prices for similar loans.

Time Deposits

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for loan losses.

The fair value of loans was measured using an exit price notion.

The fair value of loans was measured using an exit

price notion.

RELATED PARTY

The Bank has made, and expects in the future to continue to make

in the ordinary course of business, loans to directors

The Bank has made, and expects in the future to continue to make in the ordinary course

of business, loans to directors and

executive officers of the Company,

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opinion, these loans were made in the

ordinary course of business at normal credit terms, including

interest rate and collateral requirements, and do not represent

ordinary course of business at normal credit terms, including interest rate and collateral

requirements, and do not represent

more than normal credit risk.

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New loans/advances

Changes in directors and executive officers

Loans outstanding at December 31, 2021

During 2020 and 2019, certain executive officers and

directors of the Company and the Bank, including companies with

which they are affiliated, were deposit customers of

Total deposits for

these persons at December 31, 2020 and

During 2021 and 2020, certain executive officers and directors

of the Company and the Bank, including companies with

which they are affiliated, were deposit customers of the bank.

Total deposits for these persons

at December 31, 2021 and

2020 amounted to $

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RESTRICTIONS AND CAPITAL

As required by the Economic Growth, Regulatory Relief, and Consumer

Protection Act in August 2018, the Federal

Reserve Board issued an interim final rule that expanded applicability

of the Board’s small bank holding

company policy

As required by the Economic Growth, Regulatory Relief, and Consumer Protection

Act in August 2018, the Federal

Reserve Board issued an interim final rule that expanded applicability of the Board’s

small bank holding company policy

The interim final rule raised the policy statement’s

asset threshold from $1 billion to $3 billion in total

consolidated assets for a bank holding company or savings and

loan holding company that:

consolidated assets for a bank holding company or savings and loan holding company that:

(1) is not engaged in significant

nonbanking activities;

(2) does not conduct significant off

-balance sheet activities;

(2) does not conduct significant off-balance sheet

and (3) does not have a material amount

of debt or equity securities, other than trust-preferred securities,

The interim final rule provides that, if

warranted for supervisory purposes, the Federal Reserve may exclude

a company from the threshold increase.

of debt or equity securities, other than trust-preferred securities, outstanding.

interim final rule provides that, if

warranted for supervisory purposes, the Federal Reserve may exclude a company from

the threshold increase.

believes the Company meets the conditions of the Federal Reserve’s

small bank holding company policy statement and is

therefore excluded from consolidated capital requirements at

December 31, 2020.

The Bank remains subject to regulatory capital requirements

administered by the federal banking agencies.

therefore excluded from consolidated capital requirements at December 31,

The Bank remains subject to regulatory capital requirements administered by the

federal 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.

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

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 classification are

also subject to qualitative judgments by the regulators

The capital amounts and classification are also subject

to qualitative judgments by the regulators

about components, risk weightings and other factors.

As of December 31, 2020, the Bank is “well capitalized” under

the regulatory framework for prompt corrective action.

be categorized as “well capitalized,” the Bank must maintain minimum

common equity Tier 1, total risk-based,

based, and Tier 1 leverage ratios as set forth

in the table.

Management has not received any notification from the

regulators that changes the Bank’s

regulatory capital status.

The actual capital amounts and ratios for the Bank and the aforementioned

minimums as of December 31, 2020 and 2019

As of December 31, 2021, the Bank is “well capitalized” under the regulatory framework

for prompt corrective action.

be categorized as “well capitalized,” the Bank must maintain minimum common equit

Tier 1, total risk-based, Tier

based, and Tier 1 leverage ratios as set forth in the table.

has not received any notification from the Bank's

regulators that changes the Bank’s regulatory capital

The actual capital amounts and ratios for the Bank and the aforementioned minimums as

of December 31, 2021 and 2020

are presented below.

14 unchanged sentences

Total Risk-Based Capital

Dividends paid by the Bank are a principal source of funds available

to the Company for payment of dividends to its

Dividends paid by the Bank are a principal source of funds available to the Company for

payment of dividends to its

stockholders and for other needs.

Applicable federal and state

statutes and regulations impose restrictions on the amounts

Applicable federal and state statutes and regulations impose

restrictions on the amounts of

dividends that may be declared by the subsidiary bank.

law and Federal Reserve policy restrict the Bank from

declaring dividends in excess of the sum of the current year’s

earnings plus the retained net earnings from the preceding

State law and Federal Reserve policy

restrict the Bank from

declaring dividends in excess of the sum of the current year’s earnings

plus the retained net earnings from the preceding

two years without prior approval.

In addition to the formal statutes

and regulations, regulatory authorities also consider the

adequacy of the Bank’s total capital

in relation to its assets, deposits, and other such items.

Capital adequacy

considerations

In addition to the formal statutes and regulations,

regulatory authorities also consider the

adequacy of the Bank’s total capital in relation to its assets,

deposits, and other such items.

Capital adequacy considerations

could further limit the availability of dividends from the Bank.

At December 31,

2021, the Bank could have declared

3 unchanged sentences

limitation, approximately $

million of the Company’s investment

in the Bank was restricted from transfer in the form

million of the Company’s investment in the Bank

was restricted from transfer in the form

of dividends.

2 unchanged sentences

(PARENT COMPANY)

The Parent Company’s condensed

balance sheets and related condensed statements of earnings

and cash flows are as

The Parent Company’s condensed balance sheets

and related condensed statements of earnings and cash flows are as

CONDENSED BALANCE SHEETS

5 unchanged sentences

Stockholders' equity

Total liabilities and

stockholders' equity

Total liabilities and stockholders'

CONDENSED STATEMENTS

18 unchanged sentences

provided by operating activities:

Net (increase) decrease in other assets

Net decrease (increase) in other assets

Net decrease in other liabilities

8 unchanged sentences

Cash and cash equivalents at end of period

CHANGES IN AND DISAGREEMENTS WITH

ACCOUNTANTS ON ACCOUNTING

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND

FINANCIAL DISCLOSURE

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data