What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-08-12 compared with 2025-05-02 · 527 added, 352 removed, 871 unchanged (50% of the section changed)

39 unchanged sentences

consolidated financial statements and related

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

notes for the quarters and six months ended June 30, 2025 and 2024,

as well as the information contained in our Annual

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

Report on Form 10-K for the year ended December 31, 2024 and our Quarterly

Reports on Form 10-Q.

Special Cautionary Notice Regarding Forward-Looking Statements

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from future results, performance,

achievements or financial condition expressed or implied by such forwar

d-looking statements.

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

should not expect us to

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These forward-looking

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

statements may not be realized due to a variety of factors, including,

without limitation:

the effects of future economic, business and market conditions and

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deficit spending and the debt required to fund

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

in prices and unemployment,

such spending, changes in monetary policies in response to inflation

and changes in prices and unemployment,

including changes in the Federal Reserve’s

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of securities through quantitative tightening or easing;

and the duration that the

Federal Reserve will keep its

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;

while supporting maximum employment;

legislative, executive branch and regulatory changes, including changes

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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

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

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;

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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;

application and enforcement by the

regulators, including capital and liquidity requirements, and changes in

the scope and cost of FDIC insurance;

changes in accounting pronouncements and interpretations;

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in, and changes to, economic,

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

payment behaviors from those used

market and credit conditions, including changes in borrowers’ credit

risks and payment behaviors from those used

in our CECL models and loan portfolio reviews;

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of financial technology and other competitors

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

internal controls, and

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

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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;

legislation such as the federal GENIUS Act on stablecoins signed into law on

July 18, 2025, and the proposed

CLARITY Act and the Anti-CBDC Surveillance Act bills being considered

by Congress, 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

on customers, other

financial institutions, including our counterparties, financial stability

and confidence in the financial system,

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

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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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or less effective than anticipated;

cyber-attacks and data breaches that may compromise our systems, our vendors’

systems or customers’

cyber-attacks and data breaches that may compromise our systems, our

vendors’ systems or customers’

the risks that our deferred tax assets (“DTAs”)

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any, could be reduced

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

strategies are less

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

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the risks that our dividends, share repurchases and discretionary

bonuses are limited by regulation to the

maintenance of a capital conservation buffer of 2.5% and

our future earnings and “eligible retained earnings” over

rolling four calendar quarter periods;

bonuses are limited by regulation requiring the

maintenance of capital, including a capital conservation buffer

of 2.5% and to the amount of our future earnings

and “eligible retained earnings” over rolling four calendar quarter periods;

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

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and do not undertake to update, revise or correct any of the forward-

looking statements after the date of this report, or after the respective dates on which

such statements otherwise are made.

looking statements after the date of this report, or after the respective dates on

which such statements otherwise are made.

Summary of Results of Operations

Quarter ended March 31,

(Dollars in thousands, except per share data)

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands, except per share amounts)

Net interest income (a)

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(a) Tax-equivalent.

See "Table 1 - Explanation

of Non-GAAP Financial Measures."

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

Financial Summary

The Company’s net earnings were $3.4

$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.

million for the first six months of 2025, compared to $3.1 million

for the first six

months of 2024.

Basic and diluted earnings per share were $0.96 per share for the first six months of 2025,

$0.89 per share for the first six months of 2024.

income (tax-equivalent) was $14.4 million for the first six months

of 2025, an 8% increase compared to $13.4

million for the first six months 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.

margin and an increase in average interest-earning assets.

The Company’s net interest margin

(tax-equivalent) was 3.20% for the first

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

(tax-equivalent) was 3.24%

for the first six months of 2025 compared to 3.05% for the

first six months of 2024.

This increase was primarily due to

improvements in our yields on interest-earning assets, which outpaced increase

in the cost of our interest-bearing deposits.

See “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

At June 30, 2025, the Company’s allowance

for credit losses was $7.0 million, or 1.24% of total loans, compared to $6.9

million, or 1.22% of total loans, at December 31, 2024, and $7.1

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.

CECL model is largely influenced by economic factors including,

the anticipated Alabama unemployment rate, which may

be affected by government policies, including monetary,

million, or 1.24% of total loans, at June 30, 2024.

The Company recorded a provision for credit losses during the first six months

of 2025 of $103 thousand, compared to

$211 thousand during the first six months 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, 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

Noninterest income was $1.5 million in the first six months of 2025,

compared to $1.8 million in the first six months of

The decrease was primarily related to a decrease in mortgage lending income

and other noninterest income.

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.

Noninterest expense was $11.6 million in the

first six months of 2025, compared to $11.2 million for

the first six months of

The increase was primarily related to increases in salaries and benefits expense.

Income tax expense was $0.9 million for the first six months of 2025

compared to $0.6 million for the first six months of

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

was 20.68%, compared to 17.07% in the first six

months of 2024.

The Company’s effective

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.

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

Company’s investments

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

and New Markets Tax

Credits (“NMTCs”).

The Company paid cash dividends of $0.54 per share in the first six months of 2025

At June 30, 2025, the

Bank’s regulatory capital ratios were

well above the minimum amounts required to be “well capitalized” under

regulatory standards with a total risk-based capital ratio of 16.35%,

a tier 1 leverage ratio of 10.64% and a common equity

tier 1 (“CET1”) ratio of 15.32% at June 30, 2025.

See “Balance Sheet Analysis – Capital Adequacy”.

For the second quarter of 2025, net earnings were $1.8 million,

or $0.52 per share, compared to $1.7 million, or $0.50 per

share, for the second quarter of 2024.

Net interest income (tax-equivalent) was $7.4 million for the second quarter of 2025

compared to $6.7 million for the second quarter of 2024.

The increase was due to growth in average interest-earning assets

and improvements in our net interest margin.

The Company’s net interest margin

(tax-equivalent) was 3.27% in the second

quarter of 2025 compared to 3.06% in the second quarter of 2024.

The increase was primarily due to improved yields on

interest-earning assets, and a decrease in our cost of interest-bearing

The Company recorded a charge to provision

for credit losses of $113 thousand in

the second quarter of 2025, compared to a negative provision for credit losses of $123

thousand in the second quarter of 2024.

income was $0.8 million for the second quarter of 2025, compared to

million for the second quarter of 2024.

This decrease was primarily due to a decrease in mortgage lending income and

other noninterest income.

Noninterest expense was $5.7 million in the second quarter of 2025, compared to $5.

for the second quarter of 2024.

The increase in noninterest expense was primarily due to routine increases

in salaries and

benefits expense and increases in professional fees expense.

Income tax expense was $0.5

million for the second quarter of

2025 and 2024, respectively.

The Company’s effective

tax rate for the second quarter of 2025 was 20.92%, compared to

21.50% in the second quarter of 2024.

CRITICAL ACCOUNTING POLICIES

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general practices within the banking industry.

There have been no significant changes to our Critical Accounting Estimates

as described in our Form 10-K as of and for the year ended December 31, 2024.

There have been no significant changes to our Critical Accounting

described in our Form 10-K as of and for the year ended December 31, 2024.

OF OPERATIONS

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Sheet and Interest Rates

Quarter ended March 31,

Six months ended June 30,

(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 (tax-equivalent)

See Tables 4 and 5 –

Average Balances and Net Interest

Income Analysis for the quarters and six months ended June 30,

2025 and 2024, and Table

and Rate Variance

Net Interest Income and Margin

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.

Net interest income (tax-equivalent) was $14.4 million for the first six months

of 2025, an 8% increase compared to $13.4

million for the first six months of 2024.

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

net interest margin and

average interest-earning assets.

margin and an increase in average interest-earning assets.

The Company’s net interest margin

(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,

(tax-equivalent) was 3.24%

in the first six months of 2025 compared to 3.05% in the first six months of 2024.

This increase was primarily due to

improvements in our yields on interest-earning assets, which outpaced increases in

the cost of our interest-bearing deposits.

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,

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%.

At June 30, 2025, the target federal funds rate

ranged from 4.25% - 4.50%, which was maintained at the July 31, 2025

meeting of the Federal Reserve’s Federal Open

Market Committee (“FOMC”) meeting.

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

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.

20 basis points to 4.49% in the first six months of

2025 compared to 4.29% in the first six months of 2024.

This increase was primarily due to changes in our asset mix, as

cash and cash equivalents increased and securities declined.

Average interest-earning

assets were $898.5 million during the

first six months of 2025, a 2% increase compared to $884.2 million during

the first six months of 2024.

The cost of interest-bearing liabilities increased 5 basis points in the first

first six months of 2025 to 176 basis points,

compared to 171 basis points in the first first six months of 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

compete for deposit funds against other banks, money market mutual funds, Treasury

securities and other interest-bearing

alternative investments.

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rate environment

will continue throughout 2025.

Our ability to compete and manage our deposit costs until our interest-earning

reprice and we generate new loans with current market interest rates will be important

to our net interest margin during the

remainder of 2025.

will continue throughout the remainder of 2025.

Our ability to compete and manage our deposit costs until our interest-

earning assets reprice and we generate new loans with current market interest

rates will be important to our net interest

margin during the remainder of 2025.

Provision for Credit Losses

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.

The Company recorded a provision for credit losses during the first six months

of 2025 of $103 thousand, compared to

$211 thousand during the first six months

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 monetary,

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 March 31, 2025,

At June 30, 2025,

the Company’s allowance for credit

losses was $7.0 million, or 1.24% 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.

total loans, at December 31, 2024, and $7.1 million, or 1.24% of total loans, at June 30,

Noninterest Income

Quarter ended March 31,

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

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An increase in mortgage interest rates typically results in an increase in the

fair value of the MSRs while a decrease in mortgage interest rates typically results in

a decrease in the fair value of MSRs.

fair value of the MSRs while a decrease in mortgage interest rates typically results

in a decrease in the fair value of MSRs.

The following table presents a breakdown of the Company’s

mortgage lending income.

Quarter ended March 31,

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

Origination income, net

Origination income

Servicing fees, net

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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.

Origination income decreased in the first six months of 2025 compared to the first six months

of 2024 due to a

decrease in mortgage lending demand in our primary market area.

Other noninterest income was $0.8 million for the first six months of 2025, compared

to $0.9 million for the first six

months of 2024.

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 March 31,

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

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Total noninterest expense

The increase in salaries and benefits was primarily due to routine annual increases

in salaries and wages.

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.

The increase in salaries and benefits expense was primarily due to routine

annual increases in salaries and wages.

Income tax expense was $0.9 million for the first six months of 2025

compared to $0.6 million for the first six months of

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

was 20.68%, compared to 17.07% in the first six

months of 2024.

The Company’s effective

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

Company’s investments

in municipal securities and loans, BOLI, and NMTCs.

BALANCE SHEET ANALYSIS

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

Securities available-for-sale were $239.7 million at June 30, 2025

compared to $243.0 million at December 31, 2024.

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.

decrease reflects an $11.7 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 $8.4 million.

The average annualized tax-equivalent yields earned on total

securities were 2.27%

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

in the first six months of 2025 and 2024, respectively.

(In thousands)

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Total loans were $562.7

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

million at June 30, 2025, a slight decrease compared to $564.0 million at December

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

commercial real estate (50%),

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Approximately 22% of the Company’s

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

commercial real estate loans were classified as owner-occupied at June 30, 2025.

Within the residential real estate portfolio segment,

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or 2% of total loans,

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

and December 31, 2024, respectively.

and $11.2 million, or 2%, of total loans at June 30, 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 March 31, 2025 and December 31, 2024.

payments at June 30, 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

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 5.40% in the first quarter

The average yield earned on loans and loans held for sale was 5.45% in the first six months

of 2025 and 5.12% in the first

quarter of 2024.

six months of 2024.

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

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guidelines for collateralized

loans, investigating the creditworthiness of borrowers and monitoring

borrowers’ financial position.

loans, investigating the creditworthiness of borrowers and monitoring borrowers’

financial position.

Also, we have

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Board of Directors approve any loan relationships that exceed this internal

At March 31, 2025, the Bank had no loan

At June 30, 2025, the Bank had no loan

relationships exceeding our internal limit.

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classes exceeded 25% of the Bank’s

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

total risk-based capital at June 30, 2025 (and related balances at December

(Dollars in thousands)

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Our allowance for credit losses was approximately $7.0 million and $6.9

million at March 31, 2025 and December 31,

respectively, which our management

million at June 30, 2025 and December 31, 2024,

respectively, 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 1.20%

at March 31, 2025,

compared to 1.22% at December 31, 2024.

Our allowance for credit losses

as a percentage of total loans was 1.24%

at June 30, 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 March 31, 2025, reasonable and supportable

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

At June 30, 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 first quarter of 2025 and

the previous four quarters is presented below.

asset quality ratios for the second quarter of 2025

and the previous four quarters is presented below.

(Dollars in thousands)

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(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

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

four quarters is presented

Second Quarter

First Quarter

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Second Quarter

First Quarter

(Dollars in thousands)

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Nonperforming Assets

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

respectively, in nonperforming

At June 30, 2025 and December 31, 2024, the Company had $0.3 million

and $0.5 million, respectively,

in nonperforming

The table below provides information concerning total nonperforming

assets and certain asset quality ratios for the first

assets and certain asset quality ratios for the second

quarter of 2025 and the previous four quarters.

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The table below provides information concerning the composition of

nonaccrual loans for the first quarter of 2025 and the

previous four quarters.

nonaccrual loans for the second quarter of 2025 and

the previous four quarters.

(In thousands)

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Residential real estate

Consumer installment

Total nonaccrual

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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 $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.

The Company had no loans 90 days or more past due and still accruing at June 30, 2025 or December

The Company had no OREO at June 30, 2025 or December 31, 2024.

(In thousands)

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Total deposits were $939.9

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

million at June 30, 2025, compared to $895.8 million at December 31, 2024.

The 5% increase

in deposits compared to December 31, 2024 was primarily related to a decrease

in reciprocal customer deposits sold

through the Intrafi network.

At June 30, 2025

the Company had no reciprocal deposits sold, compared to $74.1 million at

December 31, 2024.

The Company had no brokered deposits at June 30, 2025 and December 31, 2024.

bearing deposits were $268.5 million, or 30% of total deposits, at June 30,

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.

The average rate paid on total interest-bearing deposits was 1.76% 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

six months of 2025, compared to 1.72% in

first six months of 2024.

At June 30, 2025, estimated uninsured deposits totaled $362.2 million,

or 39% of total deposits, compared to $359.7

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

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improving the FDIC insurance coverage for our

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

The Company had reciprocal deposits on balance sheet of $55.2 million at June 30,

2025, compared to $6.9

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The Bank’s estimated uninsured

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

deposits at June 30, 2025 and December 31, 2024 include

approximately $202.6 million and $223.1 million, respectively,

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county and local governments,

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

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

at both June 30,

2025 and December 31, 2024, respectively.

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

The estimated uninsured time deposits by maturity as of June 30,

2025 is presented below.

(Dollars in thousands)

March 31, 2025

June 30, 2025

3 months or less

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Other Borrowings and Available

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.

The Company had no long-term debt at June 30, 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 March 31, 2025, and December 31,

consist of federal funds purchased and securities

sold under agreements to repurchase with an original maturity of one year or less.

The Bank had available federal funds

lines totaling $65.2 million with no federal funds borrowings outstanding

at June 30, 2025, and December 31, 2024,

respectively.

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

Company had no securities sold under agreements to repurchase,

which generally have been entered into

on behalf of certain customers at both June 30, 2025 and December 31, 2024.

The Bank is eligible to borrow from the

FRB’s discount window,

but had no such borrowings at June 30, 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,

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

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

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 progr

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

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.

program at June 30, 2025 and December 31, 2024, respectively.

At those dates, the Bank had $298.9 million and $296.9

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of available lines of credit at the FHLB of Atlanta.

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 $83.1 million and $78.3 million as of March 31,

December 31, 2024, respectively.

The increase from December 31, 2024 was primarily driven by

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

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

stockholders’ equity was $86.1 million and $78.3 million as of June 30,

2025 and December

31, 2024, respectively.

The increase from December 31, 2024 was primarily driven by net earnings of $3.4

other comprehensive income due to the change in unrealized gains/losses on

securities available-for-sale, net of tax of $6.3

million, partially offset by cash dividends of $1.9 million.

Unrealized losses do not affect the Bank’s

regulatory capital purposes.

capital for regulatory

capital purposes.

The Company paid cash dividends of $0.54 per share for both the first

quarter of 2025 and first quarter of 2024.

six months of 2025 and the first six months of 2024.

Federal Reserve rules require a capital conservation buffer

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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

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 15.32%, and total risk-based capital ratio was 16.35%

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

at June 30, 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.

capital conservation buffer was 8.35%

at June 30, 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

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estimate of exposure under these

scenarios, our modeling under both a gradual and instantaneous change in interest

rates indicates our balance sheet is

liability sensitive over the forecast period

of 12 months.

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

compliance with the policy guidelines noted

scenarios, our modeling under both a gradual and instantaneous change in

interest rates indicates our balance sheet is

liability sensitive over the forecast period of 12 months.

At June 30, 2025, our earnings simulation model indicated that we were

in compliance with the policy guidelines noted

Economic Value

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

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

At June 30, 2025, our EVE model indicated that we were in compliance

with our policy guidelines.

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economic and market factors, including market perceptions.

Interest rates on certain types of assets and liabilities fluctuate

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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changes in general market rates.

In addition, certain assets, such as adjustable

-rate mortgage loans, have features (generally

In addition, certain assets, such as adjustable-rate

mortgage loans, have features (generally

referred to as “interest rate caps and floors”) which limit changes in interest rates.

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the balance between interest-sensitive assets and

interest-sensitive liabilities, and as a tool to manage interest rate sensitivity while continuing

to meet the credit and deposit

interest-sensitive liabilities, and as a tool to manage interest rate sensitivity while

continuing to meet the credit and deposit

needs of our customers.

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customer transactions and meet their financing needs.

These interest rate swaps qualify

as derivatives, but are not

These interest rate swaps

qualify as derivatives, but are not

designated as hedging instruments.

At March 31, 2025 and December 31, 2024,

At June 30, 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.

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

Liquidity Risk Management

Liquidity is the Company’s ability to

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

Liquidity is the Company’s

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

requirements,

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the Bank are separate and distinct legal

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

to regulatory guidelines and requirements.

entities with different funding needs and sources, and

each are subject to regulatory guidelines and requirements.

Company depends upon dividends from the Bank for liquidity to pay its operating

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interest payments on earning assets,

repayment and maturity of securities and loans,

and maturity of securities and loans,

sales of securities, and the sale of loans, particularly residential mortgage

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

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

At June 30, 2025, the Bank had no FHLB of Atlanta advances

outstanding and available credit from the FHLB

of $298.9 million.

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

At June 30, 2025, the Bank also had $65.2 million

of available federal funds lines with no borrowings

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Off-Balance Sheet Arrangements, Commitments, Contingencies and Contractual

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

million and unfunded loan commitments

At June 30, 2025, the Bank had outstanding standby letters of credit of $0.8 million

and unfunded loan commitments

outstanding of $64.5 million.

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many will expire

without being drawn upon, the total commitment level does not necessarily

represent future cash requirements.

without being drawn upon, the total commitment level does

not necessarily represent future cash requirements.

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

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federal, state, and local laws, among other

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

As of June 30, 2025, the aggregate unpaid principal balance of residential

mortgage loans, which we have originated and

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Repurchase and

make whole requests are typically reviewed on an individual loan

by loan basis to validate the claims made by the investor

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.

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loans to meet investor and secondary market

The Company was not required to repurchase any loans during the

first quarter of 2025 as a result of representation and

The Company was not required to repurchase any loans during the first six months

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 March 31, 2025.

make-whole requests at June 30, 2025.

We service all residential

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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.

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specified period following notice.

The standards governing servicing and the possible remedies for violations of

The standards governing servicing and the possible remedies for violations

standards are determined by our agreements

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

As of June 30, 2025, we do not believe that this exposure is material due to the historical level

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

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investor portfolios.

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

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

As a result, the Bank is not

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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,

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

liabilities, respectively, reprice

in response to interest rate changes.

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

net interest income

could be affected by

net interest income could be affected by

asymmetrical changes in the different interest rate indexes,

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the Federal Reserve to reduce inflation

generally reduce economic activity and may reduce loan demand

and growth, and may adversely affect unemployment

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

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interest on and principal of our loans to them.

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

in its target federal funds

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%.

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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

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

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expectations, and financial and international developments.”

On July 31, 2025, the FOMC, stated that the “Committee

seeks to achieve maximum employment and inflation at the rate of 2 percent over

the longer run.

Uncertainty about the

economic outlook remains elevated.

The Committee is attentive to the risks to both sides of its dual mandate.

[FOMC’s] assessments will take

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

inflation pressures and inflation expectations, and financial and international

developments.”

CURRENT ACCOUNTING DEVELOPMENTS

2 unchanged sentences

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

Six months ended June 30,

(In thousands)

Net interest income (GAAP)

Tax-equivalent adjustment

Net interest income (Tax

- Selected Quarterly Financial Data

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Performance ratios:

Return on average equity

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) charge-offs 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

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

Six months ended June 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 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

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Nonperforming assets as a % of:

Loans and OREO

Loans and other real estate owned

Nonperforming loans as a % of total loans

Annualized net charge-offs (recoveries) as % of average loans

Annualized net recoveries as a % of average loans

Capital Adequacy:

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Selected average balances:

Securities available-for-sale

Loans, net of unearned income

Total deposits

1 unchanged sentence

Selected period end balances:

Securities available-for-sale

Loans, net of unearned income

Allowance for credit losses

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Balances and Net Interest Income Analysis

Quarter ended March 31,

Quarter ended June 30,

(Dollars in thousands)

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Interest bearing bank deposits

Total interest-earning assets

Total interest-earning

Cash and due from banks

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Time deposits

Total interest-bearing deposits

Total interest-bearing

Short-term borrowings

Total interest-bearing liabilities

Total interest-bearing

Noninterest-bearing deposits

1 unchanged sentence

Stockholders' equity

Total liabilities and stockholders' equity

Total liabilities and stockholders'

Net interest income and margin (tax-equivalent)

(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

(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

Six months ended June 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%.

and Rate Variance

Quarter ended June 30, 2025 vs.

Six months ended June 30, 2025 vs.

Due to change in

(Dollars in thousands)

Interest income:

Loans and loans held for sale

Securities - taxable

Securities - tax-exempt (1)

Total securities

Federal funds sold

Interest bearing bank deposits

Total interest income

Interest expense:

Savings and money market

Certificates of deposit

Total interest-bearing

Short-term borrowings

Long-term debt

Total interest expense

Net interest income

(1) Yields on tax-exempt securities have been

computed on a tax-equivalent basis using an income

tax rate of 21%.

See "Table 1 - Explanation

of Non-GAAP Financial Measures."

(2) Changes that are not solely a result of volume or rate have been allocated

AND QUALITATIVE

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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-Q

Item 2. Management’s Discussion and Analysis