What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-02 compared with 2024-11-01 · 537 added, 829 removed, 686 unchanged (67% of the section changed)

33 unchanged sentences

Statements” below.

The following discussion and analysis is intended to provide a better

understanding of various factors related to the results

The following discussion and analysis is intended to provide a better understanding

of various factors related to the results

of operations and financial condition of the Company and the Bank.

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consolidated financial statements and related

notes for the quarters and nine months ended September 30, 2024

and 2023, as well as the information contained in our

annual report on Form 10-K for the year ended December 31, 2023 and our

interim reports on Form 10-Q for the quarters

ended March 31, 2024 and June 30, 2024.

notes for the quarters and quarters ended March 31, 2025 and 2024,

as well as the information contained in our Annual

Report on Form 10-K for the year ended December 31, 2024.

Special Cautionary Notice Regarding Forward-Looking Statements

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from future results, performance,

achievements or financial condition expressed or implied by such forward-looking

achievements or financial condition expressed or implied by such forwar

d-looking statements.

should not expect us to

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as “may,” “will,” “anticipate,”

“should,” “indicate,” “would,”

“believe,” “contemplate,” “expect,” “evaluation,” “estimate,” “continue,”

“plan,” “point to,” “project,” “could,” “intend,” “target”

and other similar words and expressions of the future.

forward-looking statements may not be realized due to a variety of factors, including, without

“should,” “indicate,” “would,” “believe,” “contemplate,” “expect,”

“estimate,” “continue,” “designed”, “plan,” “point to,”

“project,” “could,” “intend,” “target,” “seek” and other

similar words and expressions of the future.

These forward-looking

statements may not be realized due to a variety of factors, including, without

the effects of future economic, business and market conditions and

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natural disasters or climate change, such as rising sea and water levels, hurricanes

and tornados, COVID-19 or other health crises, epidemics or pandemics

including supply chain disruptions,

inventory volatility,

and changes in consumer behaviors;

the effects of war or other conflicts, acts of terrorism, trade restrictions

(including tariffs), sanctions or other events

that may affect general economic conditions;

governmental monetary and fiscal policies, including the amount and costs of

borrowing by the federal

government and its agencies, the continuing effects of COVID-19

fiscal and monetary stimuli, and changes in

monetary policies in response to inflation in light of the Federal Reserve’s

target inflation rate of 2% over the

longer term and dual mandate goals of maximum employment and

stable prices, including changes to increase the

Federal Reserve’s reinvestment

of maturing Treasury securities beginning

in June 2024 and mid-September 2024

reduction in the target federal funds rate by 50 basis points

to a target range of 4.75 – 5.00%, among other things

described more full in “Effects of Inflation and Changing Price”;

legislative and regulatory changes, including changes in banking,

securities and tax laws, regulations and rules and

their application by our regulators, including capital and liquidity requirements,

and changes in the scope and cost

of FDIC insurance;

changes in accounting pronouncements and interpretations, including the

required use, beginning January 1, 2023,

of Financial Accounting Standards Board’s

(“FASB”) Accounting

Standards Update (ASU) 2016-13, “Financial

Instruments – Credit Losses (Topic

Measurement of Credit Losses on Financial Instruments,” as well as the

updates issued since June 2016 (collectively,

FASB ASC Topic

326) on Current Expected Credit Losses

(“CECL”), and ASU 2022-02, Troubled Debt

Restructurings and Vintage

Disclosures, which eliminates troubled

debt restructurings (“TDRs”) and related guidance;

and tornadoes, epidemics or pandemics including supply chain disruptions,

inventory volatility, and changes in

consumer behaviors;

the effects of war or other conflicts, acts of terrorism, trade restrictions, tariffs,

sanctions, the value of the U.S.

dollar against other currencies, or other events that may affect general

economic conditions, including inflation,

and consumer and business confidence;

governmental monetary and fiscal policies, including taxes, federal

deficit spending and the debt required to fund

such spending, changes in monetary policies in response to inflation and changes

in prices and unemployment,

including changes in the Federal Reserve’s

target federal funds rate and changes in the Federal Reserve’s

of securities through quantitative tightening or easing;

and the duration that the

Federal Reserve will keep its

targeted federal funds rates at or above current target

ranges in furtherance of its long term inflation target of 2%

and supporting maximum employment;

legislative, executive branch and regulatory changes, including changes

by executive orders, the possible

reorganization and/or consolidation of the bank regulatory

agencies, the SEC and/or the CFPB, changes in the

leadership and personnel, including reductions in the number and

experience of personnel, at the bank and

securities regulators and the CFPB, oversight by the Office of Management

and Budget of these agencies, freezes

on changes in regulations and interpretations, numerous new Executive Orders,

and the uncertain effects of all

these, including the costs and benefits of such changes;

the effects of the potential privatization of Fannie Mae and Freddie Mac

and their release from conservatorship on

the mortgage markets and us as an originator,

seller and servicer of residential mortgage loans;

recent Supreme Court rulings that may lead to more court challenges to regulations

and regulatory actions, which

may cause uncertainty,

wasted implementation costs and time by the industry,

and lengthy delays until ultimate

changes in banking, securities and tax laws, regulations and rules and their

application by the regulators, including

capital and liquidity requirements, and changes in the scope and cost of FDIC insurance;

changes in accounting pronouncements and interpretations;

the failure of assumptions and estimates, including those used in the Company’s

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in, and changes to, economic,

market and credit conditions, including unemployment rates, changes

in borrowers’ credit risks and payment

behaviors from those used in our CECL models and loan portfolio reviews;

market and credit conditions, including changes in borrowers’ credit risks and

payment behaviors from those used

in our CECL models and loan portfolio reviews;

the risks of changes in market interest rates and the shape of the yield curve on customer

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amounts realizable on collateral;

the risks of increases in market interest rates or the continuation of restrictive monetary

policies creating

unrealized losses on our securities available for sale, which adversely affect

our stockholders’ equity for financial

the risks of increases in market interest rates creating unrealized losses on our

securities available for sale, which

adversely affect our stockholders’ equity for financial

reporting purposes and our tangible equity;

changes in borrower liquidity and credit risks, and savings, deposit and payment

changes in borrower liquidity and credit risks, and changes in savings, deposit and

payment behaviors;

changes in the availability and cost of credit and capital in the financial markets, and

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of financial technology and other competitors

who are not subject to the same regulation, including capital, and supervision

and examination, as the Company

and the Bank and credit unions, which are not subject to federal income taxation;

the timing and amount of rental income from third parties following the June 2022

opening of our new

headquarters;

who are not subject to the same regulation, including capital and liquidity requirements,

internal controls, and

supervision and examination, as the Company and the Bank, and competition

from credit unions, which are not

subject to federal income taxation;

more permissive regulation and/or enforcement regarding digital assets, such as cyber

currency and stable coins

that creates additional competition to banks, and greater risks to the

payment systems that the banking industry,

including the Company,

relies on, and greater risks of fraud and theft of digital assets and their effects

customers, other financial institutions, including our counterparties, financial

stability and confidence in the

financial system, generally;

the timing and amount of rental income from third parties from office

space in our Auburn Center headquarters

and in former office locations;

the risks of mergers, acquisitions and divestitures, including, without

limitation, the related time and costs of

implementing such transactions, integrating operations as part of these

transactions and possible failures to achieve

implementing such transactions, integrating operations as part of

these transactions and possible failures to achieve

expected gains, revenue growth and/or expense savings from such transactions;

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any, could be reduced

if estimates of future taxable income from our operations and tax planning strategies

than currently estimated, and sales of our capital stock could trigger a

reduction in the amount of net operating loss

if estimates of future taxable income from our operations and tax planning

strategies are less

than currently estimated, and sales of our capital stock could trigger a reduction

in the amount of net operating loss

carry-forwards that we may be able to utilize for income tax purposes;

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rolling four calendar quarter periods;

other factors and risks described under “Risk Factors” herein, in our Annual Report

on Form 10-K as of and for

the year ended December 31, 2023 filed with the United States Securities and Exchange

Commission (the

“Commission” or “SEC”), and in any of our subsequent reports that we make with

the SEC under the Exchange

All written or oral forward-looking statements that we make or are attributable

to us are expressly qualified in their entirety

other factors and risks described under “Risk Factors” herein and in any of our

subsequent reports that we make

with the Securities and Exchange Commission (the “Commission” or

“SEC”) under the Exchange Act.

All written or oral forward-looking statements that we make or are

attributable to us are expressly qualified in their entirety

by this cautionary notice.

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Summary of Results of Operations

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands, except per share amounts)

Quarter ended March 31,

(Dollars in thousands, except per share data)

Net interest income (a)

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The Company’s net earnings were

million for the first nine months of 2024, compared to $5.4 million for the first nine

months of 2023.

Basic and diluted earnings per share were $1.38 per share for the first nine months

of 2024, compared to

$1.54 per share for the first nine months of 2023.

income (tax-equivalent) was $20.2 million for the first nine months

of 2024, a 2% decrease compared to $20.6

million for the first nine months of 2023.

This decrease was primarily due to a smaller balance sheet partially offset

increase in the Company’s net interest

$1.5 million for the first quarter of 2025, compared to $1.4 million for the first

Basic and diluted earnings per share were $0.44 per share for the first quarter of 2025, compared

to $0.39 per share

for the first quarter of 2024.

income (tax-equivalent) was $7.1 million for the first quarter of

2025, a 6% increase compared to $6.7 million

for the first quarter of 2024.

This increase was primarily due to an increase in the Company’s

net interest margin and an

increase in average interest-earning assets.

The Company’s net interest margin

(tax-equivalent) was 3.20% for the first

nine months of 2024 compared to 2.97% for the first nine months of 2023.

This increase was primarily due to a more

favorable asset mix and higher yields on interest earning assets, which was partially

offset by increased cost of interest-

bearing deposits.

Average loans for the first

nine months of 2024 were $568.9 million, a 11% increase

from the first nine

months of 2023.

Average total securities for the

first nine months of 2024 were $259.2 million compared to $398.8 million

for the first nine months of 2023.

The decrease was primarily the result of the Company’s

balance sheet repositioning in

the fourth quarter of 2024.

See “Results of Operations – Average

Balance Sheet and Interest Rates” and “Net Interest

Income and Margin” below.

At September 30, 2024, the Company’s

allowance for credit losses was $6.9 million, or 1.22% of total loans, compared

quarter of 2025 compared to 3.04% for the first quarter of 2024.

This increase was primarily due to a more favorable asset

mix and improvements in our yields on interest-earning assets, which

outpaced increases

in the cost of our interest-bearing

Average loans for

the first quarter of 2025 were $566.3 million, a 1% increase from the first quarter of 2024.

“Results of Operations – Average

Balance Sheet and Interest Rates” and “Net Interest Income and Margin”

At March 31, 2025, the Company’s

allowance for credit losses was $6.8 million, or 1.20% of total loans, compared to

million, or 1.22% of total loans, at December 31, 2024, and $7.2

million, or 1.24% of total loans, at September 30,

The Company recorded a provision for credit losses during the first nine

months of 2024 of $0.1

million, compared to a

negative provision of $0.2 million during the first nine months of 2023.

The provision for credit losses under CECL

reflects the Company’s

million, or 1.27% of total loans, at March 31, 2024.

The Company recorded a negative provision for credit losses during the

first quarter of 2025 of $10 thousand, compared to

a charge to provision for credit losses of $334 thousand

during the first quarter of 2024.

The provision for credit losses

under CECL reflects the Company’s

evaluation of its credit risk profile and its future economic outlook and forecasts.

Our CECL model

is largely influenced by economic factors including, most notably,

the anticipated unemployment rate.

The increase in the

provision for credit losses during the first nine months of 2024, as compared

to the first nine months of 2023, was related to

changes in the composition of, and increases in, loans as well as changes in

the economic forecasts used in our CECL

Noninterest income was $2.6 million in the first nine months of 2024,

compared to $2.4 million in the first nine months of

The increase was primarily related to an increase in mortgage lending income

CECL model is largely influenced by economic factors including,

the anticipated Alabama unemployment rate, which may

be affected by government policies, including monetary,

fiscal and other policies, including tariffs.

Noninterest income was $0.8 million in the first quarter of 2025,

compared to $0.9 million in the first quarter of 2024.

decrease was primarily related to a decrease in mortgage lending income

and other noninterest income.

Noninterest expense was $16.7 million in the first nine months of 2024,

compared to $16.8 million for the first nine months

The decrease was primarily related to decreases in net occupancy and equipment

expense and other noninterest

These decreases were partially offset by an increase in salaries and benefits

Income tax expense was $1.2 million for the first nine months of 2024

compared to $0.7 million for the first nine months of

The Company's effective tax rate for the first nine months of 2024

was 19.48%, compared to 12.05% in the first nine

months of 2023.

Noninterest expense was $5.9 million in the first quarter of 2025,

compared to $5.7 million for the first quarter of 2024.

The increase was primarily related to routine increases in salaries and

benefits expense.

Income tax expense was $0.4 million for the first quarter of 2025

compared to $0.2 million for the first quarter of 2024.

The Company's effective tax rate for the first quarter of 2025

was 20.40%, compared to 10.68% in the first quarter of 2024.

The Company’s effective

income tax rate is affected principally by tax-exempt earnings from

Company’s investments

in municipal securities, bank-owned life insurance (“BOLI”), and New Markets Tax

The effective tax rate increased primarily due to a decrease

in the Company’s investment in municipal

securities following the balance sheet restructuring in the fourth quarter

of 2023, and the adoption of FASB

Investments – Equity Method and Joint Ventures

(Topic 323) which

allows the proportional amortization method for our

NMTC investments, on January 1, 2024.

With the adoption of this ASU, amortization

of NMTCs are now included in

income tax expense rather than noninterest expense.

The Company paid cash dividends of $0.81 per share in the first nine months of

2024 and 2023.

At September 30, 2024,

the Bank’s regulatory capital

ratios were well above the minimum amounts required to be “well capitalized”

under current

regulatory standards with a total risk-based capital ratio of 15.76%,

a tier 1 leverage ratio of 10.43% and a common equity

tier 1 (“CET1”) ratio of 14.75% at September 30, 2024.

For the third quarter of 2024, net earnings were $1.7 million, or $0.50

per share, compared to $1.5 million, or $0.43 per

share, for the third quarter of 2023.

Net interest income (tax-equivalent) was $6.8 million for the third quarter

compared to $6.4 million for the third quarter of 2023.

The increase was primarily due a more favorable asset mix and

higher yields on interest earning assets partially offset

by increases in the cost of interest-bearing deposits.

The Company’s

net interest margin (tax-equivalent) was 3.05% in the third

quarter of 2024 compared to 2.73% in the third quarter of 2023.

The Company recorded a negative provision for credit losses during the

third quarter of 2024 of $0.1

million, compared to a

provision of $0.1 million for the third quarter of 2023.

Noninterest income was $0.8 million for the third quarter of 2024

compared to $0.9 million for the third quarter of 2023.

This decrease was primarily due to a decrease in other noninterest

Noninterest expense was $5.5 million in the third quarter of 2024 compared to $5.4

million for the third quarter of

The increase in noninterest expense was primarily due to an increase in salaries and benefits

expense which was

partially offset by decreases in net occupancy and equipment expense

and FDIC and other regulatory assessments expense.

Income tax expense was $0.5

million for the third quarter of 2024, compared to $0.2 million for the third

quarter of 2023.

This increase was due to an increase in the level of earnings before taxes and the

Company’s effective

tax rate, which

increased to 23.46% in the third quarter of 2024 from 10.90% in the third quarter of

This increase was related to a

decrease in the Company’s investment

in municipal securities, and the adoption of ASU 2023-02, as described

income tax rate is affected principally by tax-exempt earnings

from the Company’s investments

in municipal securities and loans, bank-owned life insurance (“BOLI”), and

The Company paid cash dividends of $0.27 per share in the first quarter of 2025

At March 31, 2025, the Bank’s

regulatory capital ratios were well above the minimum amounts required

to be “well capitalized” under current regulatory

standards with a total risk-based capital ratio of 16.05%, a tier 1 leverage ratio of

10.52% and a common equity tier 1

(“CET1”) ratio of 15.04% at March 31, 2025.

CRITICAL ACCOUNTING POLICIES

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Sheet and Interest Rates

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

Interest-earning assets:

Loans and loans held for sale

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Total interest-earning

Interest-bearing liabilities:

Savings and money market

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Net Interest Income and Margin

Net interest income (tax-equivalent) was $20.2 million for the first nine

months of 2024, a 2% decrease compared to $20.6

million for the first nine months of 2023.

This decrease was primarily due to a smaller balance sheet partially offset

increase in the Company’s net interest

Net interest income (tax-equivalent) was $7.1 million for the first quarter

of 2025, a 6% increase compared to $6.7 million

for the first quarter of 2024.

This increase was primarily due to an increase in the Company’s

net interest margin and

average interest-earning assets.

The Company’s net interest margin

(tax-equivalent) was 3.05% in the first

nine months of 2024 compared to 2.97% in the first nine months of 2023.

This increase was primarily due a more

favorable asset mix and higher yields on interest-earning assets, which

was partially offset by higher market interest rates,

which increased our cost of funds, generally,

and changes in our deposit mix to higher cost interest bearing deposits.

cost of interest-bearing liabilities increased to 180 basis points in the first nine

months ended months of 2024, compared to

102 basis points in the first nine months ended months of 2023.

Average interest-bearing

deposits were $640.2 million

during the first nine months of 2024,

a 1% decrease compared to $649.6 million during the first nine months of 2023.

September 30, 2024, average interest-bearing deposits were 71% of

average total deposits compared to 69% on September

Since March 2022, the Federal Reserve increased the target

federal funds rate by 525 basis points before

announcing a 50 basis points rate reduction on September 18, 2024,

its first decrease in rates since its March 2020 COVID

rate reduction.

At September 30, 2024, the target federal funds rate ranged from 4.75%

(tax-equivalent) was 3.20% in the first quarter of 2025

compared to 3.04% in the first quarter of 2024.

This increase was primarily due to a more favorable asset mix and

improvements in our yields on interest-earning assets, which was partially offset

by higher market interest rates, which

increased our cost of funds, generally.

Since March 2022, the Federal Reserve increased the target federal funds rate

525 basis points before announcing a 50-basis points rate reduction on

September 18, 2024, its first decrease in rates since

its March 2020 COVID rate reduction,

followed by two 25 basis points reductions in October and December

March 31, 2025, the target federal funds rate ranged from 4.25% - 4.50%.

The tax-equivalent yield on total interest-earning assets increased by

65 basis points to 4.35% in the first nine months of

2024 compared to 3.70% in the first nine months of 2023.

This increase was primarily due to the Company’s

balance sheet

repositioning strategy in the fourth quarter of 2023, which improved

our asset mix, and loan growth combined with higher

market interest rates on interest earning assets.

loans for the first nine months of 2024 were $568.9 million, an

11% increase from the first nine months of

The cost of total interest-bearing liabilities increased by 78 basis points to 1.80%

in the first nine months of 2024 compared

to 1.02% in the first nine months of 2023.

Our deposit costs may continue to increase as we compete for deposit funds

against other banks, money market mutual funds, Treasury

securities and other interest-bearing alternative investments.

27 basis points to 4.48% in the first quarter of 2025

compared to 4.21% in the first quarter of 2024.

This increase was primarily due to improved asset mix, and higher market

interest rates on interest earning assets.

The cost of interest-bearing liabilities increased to 178 basis points in

the first quarter ended of 2025, compared to 162 basis

points in the first quarter ended of 2024.

Average interest-bearing

deposits were $642.8 million during the first quarter of

a 1% increase compared to $638.0 million during the first quarter of 2024.

Average interest-bearing

deposits were

71% of average total deposits for both March 31, 2025 and 2024.

Our deposit costs may continue to increase as we

compete for deposit funds against other banks, money

market mutual funds, Treasury securities and other interest-bearing

alternative investments.

The Company continues to deploy various asset liability management

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Provision for Credit Losses

On January 1, 2023, we adopted ASC 326 and its CECL methodology,

which requires us to estimate all expected credit

losses over the remaining life of our loans.

the provision for credit losses represents a charge to earnings

necessary to establish an allowance for credit losses that, in management's evaluation,

is adequate to provide coverage for

all expected credit losses.

The Company recorded a provision for credit losses during

the first nine months of 2024 of $0.1

million, compared to a negative provision for credit losses of $0.2 million

during the first nine months of 2023.

expense is affected by organic loan growth

in our loan portfolio, our internal assessment of the credit quality of the loan

portfolio, our expectations about future economic conditions and net charge

Our CECL model is largely influenced

by economic factors including, most notably,

the anticipated

unemployment rate, which may be affected by monetary

The Company recorded a negative provision for credit losses during the

first quarter of 2025 of $10 thousand, compared to

a charge to provision for credit losses of $334 thousand during

the first quarter of 2024.

Provision expense is affected by

organic loan growth in our loan portfolio, our internal assessment

of the credit quality of the loan portfolio, our

expectations about future economic conditions and net charge-offs.

Our CECL model is largely influenced by economic

factors including, the anticipated Alabama unemployment

rate, which may be affected by government policies, including

fiscal and other policies, including tariffs.

Our allowance for credit losses reflects an amount we believe appropriate,

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cover all expected credit losses as of the date the allowance is determined.

At September 30,

2024, the Company’s allowance for

credit losses was $6.9 million, or 1.22% of total loans, compared to $6.9 million,

1.23% of total loans, at December 31, 2023, and $6.8 million, or 1.24% of

total loans, at September 30, 2023.

At March 31, 2025,

the Company’s allowance for credit

losses was $6.8 million, or 1.20% of total loans, compared to $6.9 million, or 1.22% of

total loans, at December 31, 2024, and $7.2 million, or 1.27% of total loans, at March 31, 2024.

Noninterest Income

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

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Total noninterest income

The Company’s income from mortgage

lending is primarily attributable to the (1) origination and sale of mortgage loans

and (2) servicing of mortgage loans.

Origination income, net, is comprised of gains

or losses from the sale of the mortgage

loans originated, origination fees, underwriting fees, and other fees associated

with the origination of loans, which are

netted against the commission expense associated with these originations.

The Company’s normal practice is to originate

The Company’s mortgage

lending income includes income from the (1) origination and sale of mortgage

loans and (2)

servicing of mortgage loans.

Origination income, net, is comprised

of gains or losses from the sale of the mortgage loans

originated, origination fees, underwriting fees, and other fees associated with

the origination of loans, which are netted

against the commission expense associated with these originations.

Company’s normal practice is to originate

mortgage loans for sale in the secondary market and to either sell or retain

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the date the corresponding mortgage loan is sold.

Subsequent to the date of transfer, the Company

has elected to measure its MSRs under the amortization method.

fee income is reported net of any related amortization expense.

The Company has elected to measure its MSRs under the amortization

Servicing fee income is reported net of any

related amortization expense.

The Company evaluates MSRs for impairment on a quarterly basis.

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mortgage lending income.

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

Origination income

Origination income, net

Servicing fees, net

Total mortgage lending

The Company’s income from mortgage

lending typically fluctuates as mortgage interest rates change and is primarily

attributable to the origination and sale of mortgage loans.

The increase in mortgage lending income was primarily related

to the Company increasing the number of mortgage loans held for sale during

2024 relative to the number of mortgage

loans held for investment during 2023.

Income from bank-owned life insurance was $301 thousand and

$311 thousand for the first nine months of 2024,

respectively.

Excluding a $52 thousand non-taxable death benefit received during the first

quarter of 2023, income from

bank-owned life insurance would have been $259 thousand for the

first nine months of 2023.

Other noninterest income was $1.4 million for the first nine months of 2024,

compared to $1.3 million for the first nine

months of 2023.

The increase in other noninterest income was primarily due to increased fee income

on one-way sell

reciprocal deposits sold through the Intrafi network.

The Company’s mortgage

lending income typically fluctuates as mortgage interest rates, housing

sales and refinancings

Origination income decreased in the first quarter of 2025 compared to the first quarter

of 2024 due to a decrease in

mortgage lending demand in our primary market area.

Other noninterest income was $0.4 million for the first quarter of 2025, compared

to $0.5 million for the first quarter of

The decrease in other noninterest income was primarily due to decreased

fee income on reciprocal deposits sold

through the Intrafi network.

Noninterest Expense

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

5 unchanged sentences

in salaries and wages.

The decrease in net occupancy and equipment expense was primarily due

to an increase in leasing income.

The decrease in other noninterest expense was primarily

due to the Company’s adoption of ASU 2023-02

which allows the

proportional amortization method for our NMTC investments, on January

With the adoption of this ASU,

amortization of NMTCs are now included in income tax expense.

During the first nine months of 2023, other noninterest

expense included $303 thousand related to our equity method investment

Income tax expense was $1.2 million during the first nine months of

2024 compared to $0.7 million during the first nine

months of 2023.

The Company's effective tax rate for the first nine months of 2024

was 19.48%, compared to 12.05% in

the first nine months of 2023.

The Company’s effective

income tax rate is affected principally by tax-exempt earnings

from the Company’s investments in municipal

securities, BOLI, and NMTCs.

The effective tax rate increased primarily

due to a decrease in the Company’s investment

in municipal securities following the balance sheet restructuring in the

fourth quarter of 2023, and the adoption of FASB

ASU 2023-02 Investments – Equity Method and Joint Ventures

323) which allows the proportional amortization method for our NMTC investments,

on January 1, 2024.

adoption of this ASU, amortization of NMTCs are now included in income

tax expense rather than noninterest expense.

Income tax expense was $0.4 million during the first quarter of

2025 compared to $0.2 million during the first quarter of

The Company's effective tax rate for the first quarter of 2025

was 20.40%, compared to 10.68% in the first quarter of

The Company’s effective income

tax rate is affected principally by tax-exempt earnings from the Company’s

investments in municipal securities and loans, BOLI, and NMTCs.

BALANCE SHEET ANALYSIS

Securities available-for-sale were $258.3 million at September 30, 2024,

Securities available-for-sale were $242.5 million at March 31, 2025,

compared to $243.0 million at December 31, 2024.

This decrease reflects a $20.7 million decrease in the amortized cost basis of

securities available-for-sale and an

increase in the fair value of securities available-for-sale of $8.1 million.

The average annualized tax-equivalent yields

earned on total securities were 2.26%

in the first nine months of 2024 and 2.35% in the first nine months of 2023.

This decrease reflects a $6.2 million decrease in the amortized cost basis of securities

available-for-sale and an increase in

the fair value of securities available-for-sale of $5.7 million.

The average annualized tax-equivalent yields earned on total

securities were 2.30%

in the first quarter of 2025 and 2.26% in the first quarter of 2024.

(In thousands)

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Total loans were $560.7

million at September 30, 2024, a 2% increase compared to $557.3 million

at December 31, 2023.

Four loan categories represented the majority of the loan portfolio at September

million at March 31, 2025, a 1% decrease compared to $564.0 million at December

Four loan categories represented the majority of the loan portfolio at March

commercial real estate (51%),

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Approximately 21% of the Company’s

commercial real estate loans were classified as owner-occupied at September 30,

commercial real estate loans were classified as owner-occupied at March 31, 2025.

Within the residential real estate portfolio segment,

the Company had junior lien mortgages of approximately $10.1 million,

the Company had junior lien mortgages of approximately $11.3

or 2% of total loans,

and $8.7 million, or 2%, of total loans at September 30, 2024 and December 31, 2023,

respectively.

For residential real estate mortgage loans with a consumer purpose, the Company

and $11.2 million, or 2%, of total loans at March 31, 2025

and December 31, 2024, respectively.

residential real estate mortgage loans with a consumer purpose, the Company

had no loans that required interest only

payments at September 30, 2024 and December 31, 2023.

payments at March 31, 2025 and December 31, 2024.

The Company’s

residential real estate mortgage portfolio does

not include any option or hybrid ARM loans, subprime loans, or any material

amount of other consumer mortgage products

residential real estate mortgage portfolio does not

include any option or hybrid ARM loans, subprime loans, or any

material amount of other consumer mortgage products

which are generally viewed as high risk.

The average yield earned on loans and loans held for sale was 5.18% in the first nine

months of 2024 and 4.71% in the first

nine months of 2023.

The average yield earned on loans and loans held for sale was 5.40% in the first quarter

of 2025 and 5.01% in the first

quarter of 2024.

The specific economic and credit risks associated with our loan portfolio include,

but are not limited to, the effects of

current economic conditions, including inflation and the continuing

increases in market interest rates, remaining COVID-19

pandemic effects including supply chain disruptions, reduced

commercial office occupancy levels, housing supply

shortages and inflation on our borrowers’ cash flows, real estate market

sales volumes and liquidity,

valuations used in

making loans and evaluating collateral, reduced credit availability,

(especially for commercial real estate) generally and

higher costs of financing properties, which reduce the transaction and dollar

volumes of commercial real estate property

Other risks we face include, among other things, real estate industry

concentrations, competitive pressures from a

wide range of other lenders, deterioration in certain credits, interest rate fluctuations,

reduced collateral values or non-

existent collateral, title defects, inaccurate appraisals, financial deterioration

of borrowers, fraud, and any violation of

applicable laws and regulations.

current economic conditions, including the levels of market interest rates, supply

chain disruptions, commercial office

occupancy levels, housing supply shortages, and effects of

inflation on our borrowers’ cash flows, real estate market sales

volumes and liquidity,

valuations used in making loans and evaluating collateral, availability and

cost of financing

properties, real estate industry concentrations, competitive pressures from

a wide range of other lenders, deterioration in

certain credits, interest rate fluctuations, reduced collateral values or

non-existent collateral, title defects, in accurate

appraisals, financial deterioration of borrowers, fraud, and any violation

of applicable laws and regulations.

projects financed earlier that were based on lower interest rate assumptions than

currently in effect may not be as profitable or successful at the

higher interest rates currently in effect and currently

expected in the future.

The Company attempts to reduce these economic and credit risks through

its loan-to-value guidelines for collateralized

loans, investigating the creditworthiness of borrowers and monitoring borrowers’

financial position.

currently in effect may not be as profitable

or successful at the higher interest rates currently in effect and which

may exist in the future.

The Company attempts to reduce these economic and credit risks through its loan-to-value

guidelines for collateralized

loans, investigating the creditworthiness of borrowers and monitoring

borrowers’ financial position.

Also, we have

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unfunded commitments) to a single borrower of $20.5 million.

policy requires that the Loan Committee of the

loan policy requires that the Loan Committee of the

Board of Directors approve any loan relationships that exceed this internal

At September 30, 2024, the Bank had one

loan relationship exceeding our internal limit.

At March 31, 2025, the Bank had no loan

relationships exceeding our internal limit.

We periodically

analyze our commercial and industrial and commercial real estate loan

portfolios to determine if a

analyze our commercial and industrial and commercial real estate loan portfolios

to determine if a

concentration of credit risk exists in any one or more industries.

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classes exceeded 25% of the Bank’s

total risk-based capital at September 30, 2024 and December 31, 2023.

September 30,

total risk-based capital at March 31, 2025 (and related balances at

(Dollars in thousands)

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Allowance for Credit Losses

1, 2023, we adopted ASC 326, which introduced the current expected loss (“CECL”) methodology,

requires us to estimate all expected credit losses over the remaining life

of our loan portfolio.

2023, the allowance for credit losses represents an amount that, in management's evaluation,

is adequate to provide

coverage for all expected future credit losses on outstanding loans.

Our allowance for credit losses was approximately $6.9

million at both September 30, 2024 and December 31, 2023, which our management

believed to be adequate at each of the

respective dates.

Our allowance for credit losses as a percentage of total

loans was 1.22%

at September 30, 2024, compared

at December 31, 2023.

Our allowance for credit losses was approximately $6.8 million and $6.9

million at March 31, 2025 and December 31,

respectively, which our management

to be adequate at each of the respective dates.

Our allowance for credit

losses as a percentage of total loans was 1.20%

at March 31, 2025,

compared to 1.22% at December 31, 2024.

Our CECL models rely largely on projections of macroeconomic

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losses are reverted to long term historical averages.

At September 30, 2024, reasonable and supportable periods of four

quarters were utilized followed by an eight quarter

straight line reversion period to long term averages.

At March 31, 2025, reasonable and supportable

periods of four quarters were utilized followed by an eight quarters straight

line reversion period to long term averages.

A summary of the changes in the allowance for credit losses and certain

asset quality ratios for the third quarter of 2024 and

asset quality ratios for the first quarter of 2025 and

the previous four quarters is presented below.

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Consumer installment

Net recoveries (charge-offs)

Provision for (reversal of) credit losses

Net (charge-offs) recoveries

Provision for credit losses - Loans

Ending balance

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as a % of nonperforming loans

Net (recoveries) charge-offs as % of average

(a) Net (recoveries) charge-offs are annualized.

The allowance for credit losses by loan category for the third quarter of 2024 and the

previous four quarters is presented

Third Quarter

Second Quarter

Net charge-offs (recoveries) as % of average

(a) Net charge-offs (recoveries) are annualized.

The allowance for credit losses by loan category for the first quarter of 2025 and the previous four

quarters is presented

First Quarter

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Third Quarter

Second Quarter

First Quarter

(Dollars in thousands)

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Nonperforming Assets

At September 30, 2024 and December 31, 2023, the Company had $0.8 million

and $0.9 million, respectively,

nonperforming assets.

At both March 31, 2025 and December 31, 2024, the Company had $0.5 million,

respectively, in nonperforming

The table below provides information concerning total nonperforming

assets and certain asset quality ratios for the third

assets and certain asset quality ratios for the first

quarter of 2025 and the previous four quarters.

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Total nonperforming

as a % of loans and other real estate owned

as a % of loans and OREO

as a % of total assets

Nonperforming loans as a % of total loans

Accruing loans 90 days or more past due

The table below provides information concerning the composition of

nonaccrual loans for the third quarter of 2024 and the

nonaccrual loans for the first quarter of 2025 and the

previous four quarters.

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Commercial and industrial

Construction and land development

Commercial real estate

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90 days or more past due, unless the loan is both well-secured and in the process of

The Company had no loans 90 days or more past due and still accruing

at September 30, 2024 and December 31, 2023,

respectively.

The Company had no OREO at September 30, 2024 or December 31, 2023.

The Company had $77 thousand in loans 90 days or more past due and still accruing

at March 31, 2025 compared to none

December 31, 2024.

The Company had no OREO at March 31, 2025 or December 31, 2024.

(In thousands)

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Total deposits were $910.5

million at September 30, 2024, compared

to $896.2 million at December 31, 2023.

September 30, 2024 the Company had $37.8 million reciprocal deposits sold, compared

to $59.0 million at December 31,

The Company had no brokered deposits at September 30, 2024 compared

to $46.6 million outstanding at September

30, 2023, and none at December 31, 2023.

Noninterest-bearing deposits were $270.2 million, or 30% of total deposits, at

September 30, 2024, compared to $270.7 million, or 30% of total deposits at December

The average rate paid on total interest-bearing deposits was 1.80% in

the first nine months of 2024, compared to 1.02% in

first nine months of 2023.

At September 30, 2024, estimated uninsured deposits totaled $355.1 million,

or 39% of total deposits, compared to $356.3

million, or 40% of total deposits at December 31, 2023.

During 2023, the Bank began participating in the Certificates of

Deposit Account Registry Service (the “CDARS”) and the Insured Cash Sweep

product (“ICS”), which provide for

reciprocal (“two-way”) transactions among banks

facilitated by IntraFi for the purpose of improving the FDIC insurance

coverage for our depositors.

The total of reciprocal deposits at September 30, 2024 was $16.3 million,

compared to none at

million at March 31, 2025, compared to $895.8 million at December 31, 2024.

bearing deposits were $271.7 million, or 30% of total deposits, at March

31, 2025, compared to $260.9 million, or 29% of

total deposits at December 31, 2024.

At March 31, 2025 the Company had $64.7 million reciprocal deposits sold,

compared to $74.1 million at December 31, 2024.

The Company had no brokered deposits at March 31, 2025 and

December 31, 2024.

Uninsured amounts are estimated based on the portion of account balances in excess of

insurance limits.

The Bank’s uninsured deposits

at September 30, 2024 and December 31, 2023 include approximately

$214.9 million and $206.2 million, respectively,

of deposits of state, county and local governments that are collateralized

by securities having an equal fair value to such deposits.

The estimated uninsured time deposits by maturity as of September

The average rate paid on total interest-bearing deposits was 1.78% in the first

quarter of 2025, compared to 1.62% in first

quarter of 2024.

At March 31, 2025, estimated uninsured deposits totaled $366.7

million, or 40% of total deposits, compared to $359.7

million, or 40% of total deposits at December 31, 2024.

The Bank participates in the Certificates of Deposit Account

Registry Service (the “CDARS”) and the Insured Cash Sweep product

(“ICS”), which provide for reciprocal (“two-way”)

transactions among banks facilitated by IntraFi for the purpose of

improving the FDIC insurance coverage for our

The Company had reciprocal deposits on balance sheet of $10.0 million at March

31, 2025, compared to $6.9

million at December 31, 2024.

Uninsured amounts are estimated based on the portion of account balances in excess

FDIC insurance limits.

The Bank’s estimated uninsured

deposits at March 31, 2025 and December 31, 2024 include

approximately $221.8 million and $223.1 million, respectively,

of deposits of state, county and local governments that are

collateralized by securities having an equal fair value to such deposits.

Excluding estimated uninsured deposits of state,

county and local governments,

our estimated uninsured deposits would have been 16% and 15% of total deposits

31, 2025 and December 31, 2024, respectively.

The estimated uninsured time deposits by maturity as of March 31, 2025

is presented below.

(Dollars in thousands)

September 30, 2024

March 31, 2025

3 months or less

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time deposits

The FDIC issued a special assessment of 3.36 basis points for a projected eight quarters

on large banks with more than $5

billion of uninsured deposits to pay for the federal government’s

systemic risk determination to insure all depositors in

connection with the March 2023 failures of Silicon Valley

Bank and Signature Bank.

These special assessments do not

apply to the Bank.

Other Borrowings and Available

The Company had no long-term debt at September 30, 2024 and December

The Bank utilizes short and long-

term non-deposit borrowings from time to time.

Short-term borrowings

generally consist of federal funds purchased and

securities sold under agreements to repurchase with an original maturity of one

year or less.

The Company had no long-term debt at March 31, 2025 and December 31, 2024.

The Bank utilizes short and long-term

non-deposit borrowings from time to time.

Short-term borrowings generally

consist of federal funds purchased and

securities sold under agreements to repurchase with an original maturity of one year

The Bank had available federal

funds lines totaling $65.2 million with no federal funds borrowings

outstanding at September 30, 2024, and December 31,

outstanding at March 31, 2025, and December 31,

2024, respectively.

The Company had no securities sold under agreements to repurchase, which were

entered into on behalf

of certain customers at September 30, 2024 compared to $1.5 million

at December 31, 2023.

The Bank is eligible to

borrow from the FRB’s discount window,

but had no such borrowings at September 30, 2024 and December 31, 2023.

bank never borrowed from the Federal Reserve’s

The Company had no securities sold under agreements to repurchase,

which generally have been

entered into on behalf of certain customers at both March 31, 2025

and December 31, 2024.

The Bank is eligible to borrow

from the FRB’s discount window,

but had no such borrowings at March 31, 2025 and December 31, 2024.

The Bank never

borrowed from the Federal Reserve’s

Bank Term Facility Program

(“BTFP”), which ceased making new loans

on March 11, 2024.

(“BTFP”), which ceased making new loans on March

The Bank is a member of the FHLB of Atlanta and has borrowed, and may

in the future borrow from time to time under the

FHLB of Atlanta’s advance program

to obtain funding for its growth.

FHLB advances include both fixed and variable rates

and are taken out with varying maturities, and are generally secured by eligible

The Bank had no borrowings under

FHLB of Atlanta’s advance program

at September 30, 2024 and December 31, 2023, respectively.

At those dates, the Bank

million and $309.1 million, respectively,

FHLB of Atlanta’s advance

FHLB advances include both fixed and variable rates and are taken out

maturities, and are generally secured by eligible assets.

The Bank had no borrowings under FHLB of Atlanta’s

program at March 31, 2025 and December 31, 2024, respectively.

At those dates, the Bank had $293.1 million and $296.9

million, respectively,

of available lines of credit at the FHLB of Atlanta.

Advances include

both fixed and variable interest rates and varying maturities may be used.

The Bank also has access to the FRB discount

The average rate paid on the Bank’s

short-term borrowings was 0.48% in the first nine months of 2024

compared to 2.43%

in the first nine months of 2023.

The Bank had average short term borrowings of $0.8 million in the first nine months of

a 78% decrease compared to $3.7 million during the first nine months of 2023.

The Bank had no short-term borrowings in the first quarter of 2025.

The average rate paid on the Bank’s short

borrowings was 0.51%

in the first quarter of 2024.

The Bank had average short term borrowings of $1.6 million during the

first quarter of 2024.

CAPITAL ADEQUACY

The Company’s consolidated

stockholders’ equity was $84.3 million and $76.5 million as of September

stockholders’ equity was $83.1 million and $78.3 million as of March 31,

December 31, 2024, respectively.

1 unchanged sentence

net earnings of $1.5

million and other comprehensive income due to the change

in unrealized gains/losses on securities available-for-sale, net of

million and other comprehensive income due to the change in unrealized

gains/losses on securities available-for-sale, net of

tax of $4.2 million, partially offset by cash dividends of $0.9 million.

and the cumulative effect of adopting the new NMTC

accounting standard of $0.3 million.

Total unrealized losses, net

of tax, on available-for-sale securities decreased from

$29.0 million on December 31, 2023 to $22.9 million September 30, 2024.

These unrealized losses do not affect the

Bank’s capital for regulatory

capital purposes.

Unrealized losses do not affect the Bank’s

regulatory capital purposes.

The Company paid cash dividends of $0.27 per share for both the first

nine months of 2024 and first nine months of 2023.

On January 1, 2015, the Company and Bank became subject to the rules of the

Basel III regulatory capital framework and

related Dodd-Frank Wall

Street Reform and Consumer Protection Act changes.

The rules included the implementation of a

capital conservation buffer that is added to the minimum

quarter of 2025 and first quarter of 2024.

Federal Reserve rules require a capital conservation buffer

of CET1 capital of 2.5% that is added to the minimum

requirements for capital adequacy purposes.

conservation buffer was subject to a three-year phase-in period

that began on January 1, 2016 and was fully phased-in on

January 1, 2019 at 2.5%.

A banking organization with a capital conservation buffer

of less than the required amount will be

subject to limitations on capital distributions, including dividend payments and

certain discretionary bonus payments to

executive officers.

On August 26, 2020, the Federal Reserve and the other federal banking regulators

adopted a final rule that amended the

capital conservation buffer.

The new rule revises the definition of “eligible retained income” for purposes of

payout ratio to allow banking organizations to more freely

use their capital buffers to promote lending and other financial

intermediation activities, by making the limitations on capital distributions

more gradual.

The eligible retained income is

now the greater of (i) net income for the four preceding quarters, net of distributions

and associated tax effects not reflected

in net income;

and (ii) the average of all net income over the preceding four

This rule only affects the capital

buffers, and banking organizations were encouraged

to make prudent capital distribution decisions.

The Federal Reserve has treated us as a “small bank holding company’ under the Federal

Reserve’s Small Bank Holding

of 2.5% or less is

subject to limitation on “distributions” from “eligible retained earnings”,

including dividend payments, share repurchases

and certain discretionary bonus payments.

“eligible retained income” is the greater of (i) net income for the four preceding

quarters, net of distributions and associated tax effects

not reflected in net income;

and (ii) the average of all net income

over the preceding four quarters.

The Federal Reserve has treated us as a “small bank holding company’ under the

Federal Reserve’s Small Bank Holding

Company Policy.

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risk-based capital ratio was 15.04%, and total risk-based capital ratio was 16.05%

at September 30, 2024.

exceed the minimum regulatory capital percentages of 5.0% for tier

1 leverage ratio, 6.5% for CET1 risk-based capital

ratio, 8.0% for tier 1 risk-based capital ratio, and 10.0% for total risk-based

capital ratio to be considered “well capitalized.”

The Bank’s capital conservation

buffer was 7.76% at September 30, 2024 exceeded the fully phased

-in capital conservation

buffer, and such buffer

did not limit capital distributions, share repurchases or discretionary bonuses to the

available earnings.

On July 27, 2023, the Federal Reserve, the Comptroller of the Currency and the

FDIC issued a joint notice of proposed

rulemaking to implement the Basel III endgame components.

The proposal which is subject to public comment and change

only applies to banks and holding companies with $100 billion or more of assets.

The proposal includes provisions dealing

Credit risk, which arises from the risk that an obligor fails to perform

on an obligation;

Market risk, which results from changes in the value of trading positions;

Operational risk, which is the risk of losses resulting from inadequate or failed internal

process, people, and

systems, or from external events;

Credit valuation adjustment risk, which results from the risk of losses on

certain derivative contracts.

The Basel III endgame regulatory proposals are not applicable to the Company

The Federal Reserve has

indicated that it is revising and expects to re-propose these rules applicable

to larger organizations than the Company.

at March 31, 2025.

These ratios exceed

the minimum regulatory capital percentages of 5.0% for tier 1 leverage ratio,

6.5% for CET1 risk-based capital ratio, 8.0%

for tier 1 risk-based capital ratio, and 10.0% for total risk-based capital ratio

to be considered “well capitalized.”

Bank’s capital conservation

buffer was 8.05% at March 31, 2025.

MARKET AND LIQUIDITY RISK MANAGEMENT

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Interest Rate Risk Management

In the normal course of business, the Company is exposed to market risk arising

from fluctuations in interest rates.

measures and evaluates interest rate risk so that the Bank can meet customer demands

for various types of loans and

In the normal course of business, the Company is exposed to market risk arising from

fluctuations in interest rates.

measures and evaluates interest rate risk so that the Bank can meet customer

demands for various types of loans and

Measurements used to help manage interest rate sensitivity include

24 unchanged sentences

of 12 months.

At September 30, 2024, our earnings simulation model indicated that

we were in compliance with the policy guidelines

At March 31, 2025, our earnings simulation model indicated that we were in

compliance with the policy guidelines noted

Economic Value

4 unchanged sentences

are estimated by discounting expected

cash flows from assets, liabilities, and off-balance

sheet items, which establishes a base case EVE.

cash flows from assets, liabilities, and off-balance sheet

items, which establishes a base case EVE.

In contrast with our

2 unchanged sentences

which allows for the re-pricing of all assets, liabilities, and off-balance

Further, EVE is measured using

Further, EVE is measured using values

as of a point in time and does not reflect any actions that ALCO might take in responding

10 unchanged sentences

15% for an instantaneous change of +/- 100 basis points

At September 30, 2024, our EVE model indicated that we were in compliance

At March 31, 2025, our EVE model indicated that we were in compliance

with our policy guidelines.

Each of the above analyses may not, on its own, be an accurate indicator of

how our net interest income will be affected by

Each of the above analyses may not, on its own, be an accurate indicator of how our

net interest income will be affected by

changes in interest rates.

8 unchanged sentences

economic and market factors, including market perceptions.

rates on certain types of assets and liabilities fluctuate

Interest rates on certain types of assets and liabilities fluctuate

in advance of changes in general market rates, while interest rates on other types

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designated as hedging instruments.

At September 30, 2024 and December

31, 2023, the Company had no derivative

contracts designated as part of a hedging relationship to assist in managing

its interest rate sensitivity.

At March 31, 2025 and December 31, 2024,

the Company had no derivative contracts

designated as part of a hedging relationship to assist in managing its interest rate sensitivity.

Liquidity Risk Management

Liquidity is the Company’s ability to

convert assets into cash equivalents in order to meet daily cash flow requirements,

convert assets into cash equivalents in order to meet daily cash flow

requirements,

primarily for deposit withdrawals, loan demand and maturing obligations.

8 unchanged sentences

The second is the liquidity of the Bank.

management of liquidity at both levels is essential, because the Company

and the Bank are separate and distinct legal

management of liquidity at both levels is essential, because the Company and

the Bank are separate and distinct legal

entities with different funding needs and sources, and each are subject

27 unchanged sentences

Advances include both fixed and variable terms and may be taken out with varying

At September 30, 2024, the Bank had no FHLB of Atlanta advances

outstanding and available credit from the

FHLB of $307.7 million.

At September 30, 2024, the Bank also had $65.2 million

of available federal funds lines with no

borrowings outstanding.

Primary uses of funds include repayment of maturing

obligations and growing the loan portfolio.

The Company also has access to the FRB discount window.

At March 31, 2025, the Bank had no FHLB of Atlanta advances

outstanding and available credit from the FHLB

of $293.1 million.

At March 31, 2025, the Bank also had $65.2 million

of available federal funds lines with no borrowings

Primary uses of funds include repayment of maturing obligations

and growing the loan portfolio.

Company also has access to the FRB discount window.

Management believes that the Company and the Bank have adequate

6 unchanged sentences

Off-Balance Sheet Arrangements, Commitments, Contingencies and Contractual

At September 30, 2024, the Bank had outstanding standby letters of credit

of $0.6 million and unfunded loan commitments

At March 31, 2025, the Bank had outstanding standby letters of credit of $0.8

million and unfunded loan commitments

outstanding of $70.6 million.

3 unchanged sentences

represent future cash requirements.

If needed, to

fund these outstanding commitments, the Bank could use its cash and

14 unchanged sentences

securing the loan, compliance with

loan criteria set forth in the applicable agreement, compliance with applicable federal,

state, and local laws, among other

As of September 30, 2024, the aggregate unpaid principal balance of

residential mortgage loans, which we have originated

and sold, but retained the servicing rights, was $207.5 million.

Although these loans are generally sold on a non-recourse

basis, we may be obligated to repurchase residential mortgage loans or

reimburse investors for losses incurred (make whole

requests) if a loan review reveals a potential breach of seller representations

loan criteria set forth in the applicable agreement and compliance with applicable

federal, state, and local laws, among other

As of March 31, 2025, the aggregate unpaid principal balance of residential

mortgage loans, which we have originated and

sold, but retained the servicing rights, was $200.1 million.

Although these loans are generally sold on a non-recourse basis,

we may be obligated to repurchase residential mortgage loans or reimburse

investors for losses incurred (make whole

requests) if a loan review reveals a potential breach of our seller representations

and warranties.

Upon receipt of a repurchase

or make whole request, we work with investors to arrive at a mutually agreeable

Repurchase and make whole

requests are typically reviewed on an individual loan by loan basis to validate the

claims made by the investor and to

determine if a contractually required repurchase or make whole event

has occurred.

reduce and manage the risks

of potential repurchases, make whole requests, or other claims by mortgage

loan investors through our underwriting and

quality assurance practices and by servicing mortgage loans to meet investor

and secondary market standards.

Upon receipt of a

repurchase or make whole request, we work with investors to arrive at a mutually

agreeable resolution.

Repurchase and

make whole requests are typically reviewed on an individual loan

by loan basis to validate the claims made by the investor

and to determine if a contractually required repurchase or make whole event has occurred.

We seek to reduce

the risks of potential repurchases, make whole requests, or other claims by mortgage

loan investors through our

underwriting and quality assurance practices and by servicing mortgage

loans to meet investor and secondary market

The Company was not required to repurchase any loans during the

first nine months of 2024 as a result of representation

and warranty provisions contained in the Company’s

first quarter of 2025 as a result of representation and

warranty provisions contained in the Company’s

sale agreements with Fannie Mae, and had no pending repurchase or

make-whole requests at September 30, 2024.

make-whole requests at March 31, 2025.

We service all residential

9 unchanged sentences

and (5) foreclose on

defaulted mortgage loans or take other actions to mitigate the potential

losses to investors consistent with the agreements

defaulted mortgage loans or take other actions to mitigate the potential losses to

investors consistent with the agreements

governing our rights and duties as servicer.

The agreements

under which we act as servicer generally specifies standards

of responsibility for actions taken by us in

such capacity and provides protection against expenses and liabilities incurred

by us when acting in compliance with the

respective servicing agreements.

However, if we commit a material breach of

our obligations as servicer, we may be

subject to termination if the breach is not cured within a specified period following

The standards governing

servicing and the possible remedies for violations of such standards are determined

by our agreements

with Fannie Mae and

Fannie Mae’s mortgage servicing

Remedies could include repurchase of an affected loan.

Our mortgage servicing agreements

generally specify our standards

of responsibility as servicer and provide protection

against expenses and liabilities incurred by us when acting in compliance with these

servicing agreements.

However, if we

commit a material breach of our obligations as servicer,

we may be subject to termination if the breach is not cured within a

specified period following notice.

The standards governing servicing and the possible remedies for violations of

standards are determined by our agreements

with Fannie Mae and Fannie Mae’s mortgage servicing

could include repurchase of an affected loan.

Although repurchase and make whole requests related to representation

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investors for losses incurred

(make whole requests) may increase in frequency if investors more aggressively pursue

all means of recovering losses on

(make whole requests) may increase in frequency if investors more aggressively

pursue all means of recovering losses on

their purchased loans.

As of September 30, 2024, we do not believe that this exposure is material due to the historical level

of repurchase requests and loss trends, in addition to the fact that 99% of our residential

As of March 31, 2025, we do not believe that this exposure is material due to the historical level of

repurchase requests and loss trends, in addition to the fact that 99% of our residential

mortgage loans serviced for Fannie

Mae were current as of such date.

Mae was current as of such date.

We maintain ongoing

communications with our investors and will continue to evaluate

this exposure by monitoring the level and number of repurchase requests as well as the delinquency

rates in our investor

The Bank sells mortgage loans to Fannie Mae and services these on an actual/actual basis.

communications with our mortgage purchasers and will continue to

evaluate this exposure by monitoring the level and number of repurchase

requests as well as the delinquency rates in our

investor portfolios.

The Bank sells mortgage loans to Fannie Mae and services these on an actual/actual

As a result, the Bank is not

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are monetary in nature.

As a result, interest rates have a more significant

impact on a financial institution’s performance

As a result, interest rates have a more significant impact

on a financial institution’s performance

than the effects of general levels of inflation.

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our customers’ behaviors, the mix of deposits between

interest and noninterest bearing, and the levels of interest rates we have to

pay on our deposits and other borrowings, and

the interest rates we earn on our earning assets.

The difference between our interest expense and interest income is also

affected by the shape of the yield curve and the speeds at which our

assets and liabilities, respectively,

reprice in response

to interest rate changes.

Although inflation decreased in the most recent quarter,

the yield curve continued to be inverted

through September 30, 2024, which means shorter term interest rates are higher

interest and noninterest bearing, the levels of interest rates we have to pay on

our deposits and other borrowings, and the

interest rates we earn on our earning assets.

The difference between

our interest expense and interest income is also affected

by the shape of the yield curve and the speeds and amounts at which our various assets and liabilities, respectively,

in response to interest rate changes.

The yield curve was inverted during most of 2024,

until September, when it began to

An inverted yield curve means shorter term interest rates are higher

than longer term interest rates.

in a lower spread between our costs of funds and our interest income.

In addition, net interest income could be affected by

net interest income

could be affected by

asymmetrical changes in the different interest rate indexes,

given that not all of our assets or liabilities are priced with the

Higher market interest rates and reductions in the securities held by the Federal Reserve to reduce

generally reduce economic activity and may reduce loan demand and growth,

and may adversely affect unemployment

Inflation and related changes in market interest rates, as the Federal Reserve maintains

interest rates to meet its

longer term inflation goal of 2%, also can adversely affect

the values and liquidity of our loans and securities, the value of

Higher market interest rates and reductions in the securities held by

the Federal Reserve to reduce inflation

generally reduce economic activity and may reduce loan demand

and growth, and may adversely affect unemployment

Inflation and related changes in market interest rates, as the Federal Reserve

maintains interest rates to meet its

longer-term inflation goal of 2%, also can adversely affect the values

and liquidity of our loans and securities, the value of

collateral securing loans to our borrowers, and the success of our borrowers and

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interest on and principal of our loans to them.

Beginning in March 2022, the Federal Reserve, the Federal Reserve increased

its target federal funds range from 0 – 0.25%

to 4.25 – 4.50% to fight inflation.

The target federal funds rate was increased another 25 basis points on each

31, March 7, May 3 and July 26, 2023 to 5.25 – 5.50%.

The Federal Reserve has indicated it will maintain higher target

rates and restrictive monetary policy to meet its goals of (i) 2% target

inflation rate over the longer term and (ii) maximum

employment goals.

The Federal Reserve’s Open Market Committee

(“FOMC”) reaffirmed its commitment in May 2024 to

the 2% inflation objective and announced that it “does not expect it will be appropriate

to reduce the target range until it has

gained greater confidence that inflation is moving substantially toward 2%.”

Further, beginning in June 2024, the FOMC

relaxed its monetary policy by slowing its monthly reduction of

Treasury securities from $60 billion to $25 billion, while

maintaining the $35 monthly reduction of agency debt and agency mortgage

-backed securities at $35 billion.

On September 18, 2024, in light of inflation moderating, the FOMC reduced its target

federal funds rate range by 50 basis

points to 4.75% to 5.00%.

While the FOMC reaffirmed its target inflation rate of 2% over

the longer run, it indicated it was

“recalibrating” its policy based on decreasing inflation rates and the risks of

increasing unemployment, but would act on

incoming data, the evolving outlook and the balance of the risks of inflation

and unemployment levels.

In the future, the

Federal Reserve could further decrease target interest

rates, or could increase such target rates, depending on the data

Our deposit costs increased as the Federal Reserve increased its target federal

funds rate to fight inflation, market interest

rates increased, and as customers moved to interest bearing deposits to earn

interest on their funds, and at higher interest

Monetary policy efforts to control inflation may also affect

unemployment which is an important component in our

CECL model used to estimate our allowance for credit losses.

As inflation and market interest rates and expectations

regarding these declined in the three months ended September 30, 2024,

the values of our securities investments held for

sale increased, which increased our stockholders’ equity.

See “Item 1A.

Risk Factors” in this Report for additional information about

inflation, interest rates and related risks.

Beginning in September 2024, in light of inflation moderating, the FOMC had three reductions

in its target federal funds

rate range totaling 100 basis points to 4.25% to 4.50%.

While the FOMC reaffirmed

its target inflation rate of 2% over the

longer run, it indicated it was “recalibrating” its policy based on decreas

ing inflation rates and the risks of increasing

unemployment, but would act on incoming data, the evolving outlook

and the balance of the risks of inflation and

unemployment levels.

In the future, the Federal Reserve could further

decrease target interest rates, or could increase such

target rates, depending on the data and its outlook.

The FOMC stated on March 19, 2025 that its “assessments will take

into account a wide range of information, including readings on labor market

conditions, inflation pressures and inflation

expectations, and financial and international developments.”

CURRENT ACCOUNTING DEVELOPMENTS

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Improvements to Income Tax

ASU 2023-09 seeks to enhance the transparency and decision usefulness of income

tax disclosures.

ASU 2023-09 seeks to enhance the transparency and decision usefulness of

income tax disclosures.

For public business

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Net interest income (Tax

Nine months ended September 30,

(In thousands)

Net interest income (GAAP)

Tax-equivalent adjustment

Net interest income (Tax

- Selected Quarterly Financial Data

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Nonperforming assets as a % of:

Loans and other real estate owned

Loans and OREO

Nonperforming loans as a % of total loans

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Selected average balances:

Loans, net of unearned income

Total deposits

Total stockholders’ equity

Selected period end balances:

Loans, net of unearned income

Allowance for credit losses

Total deposits

Total stockholders’ equity

(a) Tax-equivalent.

See "Table 1 - Explanation of Non-GAAP Financial Measures."

(b) Calculated by dividing period end share price by

earnings per share for the previous four quarters.

wholly-owned subsidiary, AuburnBank.

(d) Efficiency ratio is the result of noninterest expense divided by

the sum of noninterest income and tax-equivalent net interest income.

See Table 1 - Explanation of Non-GAAP Measures.

- Selected Financial Data

Nine months ended September 30,

(Dollars in thousands, except per share amounts)

Results of Operations

Net interest income (a)

tax-equivalent adjustment

Net interest income (GAAP)

Noninterest income

Total revenue

Provision for (reversal of) credit losses

Noninterest expense

Income tax expense

Per share data:

Basic and diluted net earnings

Cash dividends declared

Weighted average shares outstanding:

Basic and diluted

Shares outstanding, at period end

Common stock price:

To earnings ratio (b)

To book value

Performance ratios:

Annualized return on average equity

Annualized return on average assets

Dividend payout ratio

Asset Quality:

Allowance for credit losses as a % of:

Nonperforming loans

Nonperforming assets as a % of:

Loans and other real estate owned

Nonperforming loans as a % of total loans

Annualized net recoveries as a % of average loans

Capital Adequacy:

CET 1 risk-based capital ratio

Tier 1 risk-based capital ratio

Total risk-based capital ratio

Tier 1 leverage ratio

Other financial data:

Net interest margin (a)

Effective income tax rate

Efficiency ratio (d)

Selected average balances:

Loans, net of unearned income

Securities available-for-sale

Total deposits

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Selected period end balances:

Loans, net of unearned income

Securities available-for-sale

Allowance for credit losses

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Balances and Net Interest Income Analysis

Quarter ended September 30,

(Dollars in thousands)

Interest-earning assets:

Loans and loans held for sale (1)

Securities - taxable (2)

Securities - tax-exempt (2)(3)

Total securities

Federal funds sold

Interest bearing bank deposits

Total interest-earning

Cash and due from banks

Interest-bearing liabilities:

Savings and money market

Time deposits

Total interest-bearing

Short-term borrowings

Total interest-bearing

Noninterest-bearing deposits

Other liabilities

Stockholders' equity

Total liabilities and stockholders'

Net interest income and margin (tax-equivalent)

(1) Average loan

balances are shown net of unearned income and loans on nonaccrual status have

been included

in the computation of average balances.

(2) Includes average net unrealized gains (losses) on investment securities available

(3) Yields on tax-exempt securities have been

computed on a tax-equivalent basis using a federal income

tax rate of 21%.

Balances and Net Interest Income Analysis

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

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Interest bearing bank deposits

Total interest-earning

Total interest-earning assets

Cash and due from banks

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Time deposits

Total interest-bearing

Total interest-bearing deposits

Short-term borrowings

Total interest-bearing

Total interest-bearing liabilities

Noninterest-bearing deposits

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Stockholders' equity

Total liabilities and stockholders'

Total liabilities and stockholders' equity

Net interest income and margin (tax-equivalent)

(1) Average loan

balances are shown net of unearned income and loans on nonaccrual status have

been included

in the computation of average balances.

(1) Loans on nonaccrual status have been included in the computation of average balances.

(2) Includes average net unrealized gains (losses) on

investment securities available for sale

(3) Yields on tax-exempt securities have been

computed on a tax-equivalent basis using a federal income

(3) Yields on tax-exempt securities have been computed on a tax-equivalent basis using a federal income

tax rate of 21%.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis