What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-11-12 compared with 2025-08-12 · 464 added, 410 removed, 988 unchanged (47% 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 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 and our Quarterly

Reports on Form 10-Q.

notes for the quarters and nine months ended September 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 and our

interim reports on Form 10-Q for the quarters

ended March 31, 2025 and June 30, 2025.

Special Cautionary Notice Regarding Forward-Looking Statements

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Act of 1934, as amended (the “Exchange Act”).

Forward-looking statements include statements with respect to our beliefs, plans,

objectives, goals, expectations,

Forward-looking statements include statements with respect to our beliefs,

plans, objectives, goals, expectations,

anticipations, assumptions, estimates, intentions and future performance,

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These forward-looking

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

without limitation:

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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consumer behaviors;

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

sanctions, the value of the U.S.

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

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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

targeted federal funds rates at or above current target

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

while supporting maximum employment;

and the timing and speed

of any changes in furtherance of

the Federal Reserve’s long-term inflation

target of 2% while supporting maximum employment;

the effects of the federal government shutdown that began

October 1, 2025 due to federal budget disputes, which

continues and the effects of any resolution of such disputes;

legislative, executive branch and regulatory changes, including changes

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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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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,

policies, regulation and/or enforcement regarding

digital assets, such as cyber currency and stable coins, including

the chartering of new depository institutions focused on crypto coins

and which creates additional competition to

banks and potential disintermediation of deposits, 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, generally;

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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“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

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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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 June 30,

Six months ended June 30,

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands, except per share amounts)

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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 $5.6

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.

million for the first nine months of 2025, a 16% increase compared to $4.8 million

for the first nine months of 2024.

Basic and diluted earnings per share were $1.60 per share for the first nine months

2025, compared to $1.38 per share for the first nine months of 2024.

income (tax-equivalent) was $22.0 million for the first nine months

of 2025, a 9% increase compared to $20.2

million for the first nine months of 2024.

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

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(tax-equivalent) was 3.26%

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

first six months of 2024.

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

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

improvements in our yields on interest-earning assets, and a decrease in our

cost of interest-bearing deposits.

of Operations – Average

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

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 1.24% 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,

At September 30, 2025, the Company’s

allowance for credit losses was $6.7 million, or 1.20% of total loans, compared

$6.9 million, or 1.22% of total loans, at December 31, 2024, and $6.9 million,

or 1.22% of total loans, at September 30,

The Company recorded a negative provision for credit losses during the

first nine months of 2025 of $152 thousand,

compared to a charge to provision of $84 thousand during the first

nine 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.

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 $1.5 million in the first six months of 2025,

compared to $1.8 million in the first six months of

Noninterest income was $2.4 million in the first nine months of 2025,

compared to $2.6 million in the first nine months of

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

and other noninterest income.

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

Noninterest expense was $17.4 million in the first nine months of 2025,

compared to $16.7 million for the first nine months

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

other noninterest expense.

These increases were partially offset by a decrease in net occupancy

and equipment expense.

Income tax expense was $1.5 million for the first nine months of 2025

compared to $1.2 million for the first nine months of

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

was 21.16%, compared to 19.48% in the first nine

months of 2024.

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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

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

2025 and 2024.

At September 30, 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 16.49%,

a tier 1 leverage ratio of 10.72% and a common equity

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

tier 1 (“CET1”) ratio of 15.51% at September 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.

For the third quarter of 2025, net earnings were $2.2 million, or $0.64

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

share, for the third quarter of 2024.

Net interest income (tax-equivalent) was $7.6 million for the third quarter of 2025

compared to $6.8 million for the third quarter of 2024.

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

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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.

(tax-equivalent) was 3.30% in the third

quarter of 2025 compared to 3.05% in the third 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.

The Company recorded a negative provision

for credit losses of $255 thousand in the third quarter of 2025, compared

to a negative provision for credit losses of $127

thousand in the third quarter of 2024.

Noninterest income was $0.8 million for the third quarter of 2025 and 2024.

Noninterest expense was $5.8 million in the third quarter of 2025,

compared to $5.5

million for the third quarter of 2024.

The increase in noninterest expense was primarily due to increases in salaries and

benefits expense and increases in other

noninterest expense.

Income tax expense was $0.6

million for the second quarter of

2025 and 2024, respectively.

million for the third quarter of 2025 compared to $0.5 million for the

third quarter of 2024.

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.

tax rate for the third quarter of 2025 was 21.86%, compared to 23.46% in

the third quarter of 2024.

CRITICAL ACCOUNTING POLICIES

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Sheet and Interest Rates

Six months ended June 30,

Nine months ended September 30,

(Dollars in thousands)

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Average Balances and Net Interest

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

2025 and 2024, and Table

Income Analysis for the quarters and nine months ended

September 30, 2025 and 2024, and Table

and Rate Variance

Net Interest Income and Margin

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.

Net interest income (tax-equivalent) was $22.0 million for the first nine

months of 2025, a 9% increase compared to $20.2

million for the first nine months of 2024.

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

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(tax-equivalent) was 3.26%

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

in the first nine months of 2025 compared to 3.05% in the first nine months

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,

improvements in our yields on interest-earning assets, and a decrease in our

cost of our interest-bearing deposits.

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

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.

2024 and another 25 basis point reduction in

September 2025.

At September 30, 2025, the Federal Reserve’s

target federal funds rate ranged from 4.00% to 4.25%.

Federal Reserve further reduced its target federal

funds rate range to 3.75% to 4.00% on October 29, 2025.

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

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

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

16 basis points to 4.51% in the first nine months of

2025 compared to 4.35% in the first nine months of 2024.

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

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assets were $903.2 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

alternative investments.

first nine months of 2025, a 2% increase compared to $885.6 million

during the first nine months of 2024.

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

months of 2025 to 175 basis points,

compared to 180 basis points in the first first nine months of 2024.

Our deposit costs may fluctuate as we compete for

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

securities and other interest-bearing alternative

The Company continues to deploy various asset liability management

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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

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 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.

The Company recorded a negative provision for credit losses during the

first nine months of 2025 of $152 thousand,

compared to a charge of $84 thousand during the first nine

months 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 monetary,

fiscal and other policies,

including tariffs.

other policies, including tariffs.

The negative provision for the first nine months of 2025 was primarily driven

improvements in the economic forecasts utilized in the model, most notably

a reduction in the Alabama unemployment

The reclassification, upon completion of construction of two multifamily projects,

from the construction and land

development loan segment to the multifamily loan segment, which carries

lower modeled loss rates, also contributed to the

negative provision for credit losses during

the current period.

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 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 1.24% of total loans, at June 30,

At September 30,

2025, the Company’s allowance for

credit losses was $6.7 million, or 1.20% of total loans, compared to $6.9 million, or

1.22% of total loans, at December 31, 2024, and $6.9 million, or 1.22% of

total loans, at September 30, 2024.

Noninterest Income

Quarter ended June 30,

Six months ended June 30,

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

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mortgage lending income.

Quarter ended June 30,

Six months ended June 30,

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

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sales and refinancings

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

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

Other noninterest income was $2.4 million for the first nine months of 2025,

compared to $2.6 million for the first nine

months of 2024.

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Noninterest Expense

Quarter ended June 30,

Six months ended June 30,

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

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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

Income tax expense was $1.5 million for the first nine months of 2025

compared to $1.2 million for the first nine months of

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

was 21.16%, compared to 19.48% in the first nine

months of 2024.

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BALANCE SHEET ANALYSIS

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

Securities available-for-sale were $236.4 million at September 30, 2025,

compared to $243.0 million at December 31,

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 six months of 2025 and 2024, respectively.

This decrease reflects the effects of an $18.0 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

$11.4 million.

Unrealized losses on securities

declined 29% in the first nine months of 2025, primarily due to decreases in market

interest rates.

The average annualized tax-equivalent yields earned on total securities were 2.24

in the first nine months of 2025

compared to 2.26% in the first nine months of 2024.

(In thousands)

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Total loans were $557.9

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

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

at December 31,

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

commercial real estate

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Approximately 21% of the Company’s

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

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

Within the residential real estate portfolio segment,

the Company had junior lien mortgages of approximately $11.7

the Company had junior lien mortgages of approximately $12.2 million,

or 2% of total loans,

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 June 30, 2025 and December 31, 2024.

and $11.2 million, or 2%, of total loans at September 30,

2025 and December 31, 2024, respectively.

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

Company had no loans that required interest only

payments at September 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

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 5.45% in the first six months

of 2025 and 5.12% in the first

six months of 2024.

The average yield earned on loans and loans held for sale was 5.48% in the first nine

months of 2025 and 5.18% in the first

nine months of 2024.

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

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may exist in the future.

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

guidelines for collateralized

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’

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Board of Directors approve any loan relationships that exceed this internal

At June 30, 2025, the Bank had no loan

relationships exceeding our internal limit.

At September 30, 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 June 30, 2025 (and related balances at December

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

September 30,

(Dollars in thousands)

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Shopping centers/strip malls

Office Buildings

Allowance for Credit Losses

Our allowance for credit losses was approximately $6.7 million and $6.9

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

respectively, which our

management believed

million at September 30, 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 1.24%

at June 30, 2025, compared to 1.22% at December 31, 2024.

Our allowance for credit

losses as a percentage of total loans was 1.20%

at September 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 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.

At September 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 second quarter of 2025

and the previous four quarters is presented below.

asset quality ratios for the third 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 second quarter of 2025 and the previous

four quarters is presented

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

previous four quarters is presented

Third Quarter

Second Quarter

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Third Quarter

Second Quarter

(Dollars in thousands)

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Nonperforming Assets

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

At September 30, 2025 and December 31, 2024, the Company had $0.1 million

and $0.5 million, respectively,

in nonperforming

nonperforming assets.

The table below provides information concerning total nonperforming

assets and certain asset quality ratios for the second

assets and certain asset quality ratios for the third

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 second quarter of 2025 and

the previous four quarters.

nonaccrual loans for the third quarter of 2025 and the

previous four quarters.

(In thousands)

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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 June 30, 2025 or December

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

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

still accruing at September 30, 2025 compared to

none at December 31, 2024.

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

(In thousands)

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Total deposits were $917.3

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.

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

increase in deposits compared to December 31, 2024 was primarily related

to an increase in money market and interest-

bearing checking accounts.

At September 30, 2025 the Company had $33.0 million in reciprocal deposits sold,

to $74.1 million at December 31, 2024.

The Company had no brokered deposits at September 30, 2025 and December 31,

Noninterest-bearing deposits were $266.8 million, or 29% of total deposits, at

September 30, 2025, compared to

$260.9 million, or 29% of total deposits at December 31, 2024.

The average rate paid on total interest-bearing deposits was 1.75% in the first

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,

nine months of 2025, compared to 1.80% in

first nine months of 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 depositors.

The Company had reciprocal deposits on balance sheet of

$34.1 million at September 30, 2025, compared to $6.9 million at December

At September 30, 2025, estimated uninsured deposits totaled $369.1 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 $55.2 million at June 30,

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.

Uninsured amounts are estimated based on the portion of account

balances in excess of FDIC insurance limits.

The Bank’s estimated uninsured

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

approximately $202.6 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 15% of total deposits

at both June 30,

2025 and December 31, 2024, respectively.

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

deposits at September 30, 2025 and

December 31, 2024 include approximately $207.6 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 18% of total

deposits at September 30, 2025 and 15% of total deposits at December 31, 2024.

The estimated uninsured time deposits by maturity as of September

30, 2025 is presented below.

(Dollars in thousands)

June 30, 2025

September 30, 2025

3 months or less

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Other Borrowings and Available

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 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,

The Company had no long-term debt at September 30, 2025 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

The Bank had available federal

funds lines totaling $65.2 million with no federal

funds borrowings outstanding at September 30, 2025, and December 31,

2024, respectively.

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 progr

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

The Company had no securities sold under agreements to repurchase,

which generally have been

entered into on behalf of certain customers at both September 30, 2025

and December 31, 2024.

The Bank is eligible to

borrow from the FRB’s discount window,

but had no such borrowings at September 30, 2025 and December 31, 2024.

Bank never borrowed from the Federal Reserve’s

Bank Term Facility Program

(“BTFP”), which ceased making new loans

on March 11, 2024.

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.

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

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

At those dates, the Bank had $308.6 million and

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The Company’s consolidated

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.

stockholders’ equity was $89.6 million and $78.3 million as of September

December 31, 2024, respectively.

The increase from December 31, 2024 was primarily driven by

net earnings of $5.6

million and other comprehensive income due to the change in unrealized

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

tax of $8.6 million, partially offset by cash dividends of $2.8 million.

Unrealized losses do not affect the Bank’s

capital for regulatory

capital purposes.

regulatory capital purposes.

The Company paid cash dividends of $0.81 per share for both the first

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

nine months of 2025 and the first nine months of

During July of 2025, the Company granted certain officers

restricted stock units (“RSUs”) on 3,030 shares of Company

common stock pursuant to the Company’s

2024 Equity and Incentive Compensation Plan.

The RSUs are reflected in the

consolidated statements of stockholders’ equity and in earnings per share,

were not material to the Company’s financial

condition, results of operations, or cash flows for the period.

The Form of Award

Agreement is filed as Exhibit 10.1 to this

Federal Reserve rules require a capital conservation buffer

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risk-based capital ratio was 15.51%, and total risk-based capital ratio was 16.49%

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.”

capital conservation buffer was 8.35%

at June 30, 2025.

at September 30, 2025.

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 8.49% at September 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.

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

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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

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

At September 30, 2025, our earnings simulation model indicated that

we were in compliance with the policy guidelines

Economic Value

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balance sheet items will change as a result of interest rate changes.

Economic values

are estimated by discounting expected

values are estimated by discounting expected

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

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interest rates, or market and competitive conditions.

To help limit interest rate risk, we have

stated policy guidelines for an

To help limit interest rate risk,

we have stated policy guidelines for an

instantaneous basis point change in interest rates, such that our EVE should not decrease

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

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

At September 30, 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.

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assets and costs associated with interest-bearing liabilities

may not be affected uniformly by changes in interest rates.

may not be affected uniformly by changes in interest

In addition, the magnitude and duration of changes in interest

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rates on certain types of assets and liabilities fluctuate

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

of assets and liabilities may lag behind

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

types of assets and liabilities may lag behind

changes in general market 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 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

At September 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.

Liquidity Risk Management

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interest payments on earning assets,

and maturity of securities and loans,

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

outstanding and available credit from the FHLB

of $298.9 million.

At June 30, 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.

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

outstanding and available credit from the

FHLB of $308.6 million.

At September 30, 2025, 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.

Management believes that the Company and the Bank have adequate

6 unchanged sentences

Off-Balance Sheet Arrangements, Commitments, Contingencies and Contractual

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

and unfunded loan commitments

At September 30, 2025, the Bank had outstanding standby letters of credit

of $0.8 million and unfunded loan commitments

outstanding of $61.1 million.

1 unchanged sentence

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

cash equivalents,

deposits with other banks, liquidate

cash equivalents, deposits with other banks, liquidate

federal funds sold or a portion of our securities available-for-sale, or

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and characteristics of the residential mortgage loans.

Although the representations and warranties vary among investors, they

typically cover ownership of the loan, validity of

Although the representations and warranties vary among

investors, they typically cover ownership of the loan, validity of

the lien securing the loan, the absence of delinquent taxes or liens against the property

2 unchanged sentences

federal, state, and local laws, among other

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

mortgage loans, which we have originated and

sold, but retained the servicing rights, was $196.3 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

As of September 30, 2025, the aggregate unpaid principal balance of

residential mortgage loans, which we have originated

and sold, but retained the servicing rights, was $193.5 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 our seller representations

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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 six months

of 2025 as a result of representation and

warranty provisions contained in the Company’s

The Company was not required to repurchase any loans during the

first nine 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 June 30, 2025.

make-whole requests at September 30, 2025.

We service all residential

21 unchanged sentences

specified period following notice.

The standards governing servicing and the possible remedies for violations

The standards governing servicing and the possible remedies for violations of

standards are determined by our agreements

5 unchanged sentences

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 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

As of September 30, 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

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over time due to inflation.

Unlike most industrial companies, virtually all the

assets and liabilities of a financial institution

Unlike most industrial companies, virtually all

the assets and liabilities of a financial institution

are monetary in nature.

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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, reprice

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,

2024, until September, when it began to

until September, when it began

An inverted yield curve means shorter term interest rates are higher

1 unchanged sentence

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

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 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

such borrowers’ available cash to pay

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

As of October 31, 2025, yields on one- and two-

onth maturity Treasury securities were higher

than other Treasury securities with maturities of 10 years or less.

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 same index.

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 rates.

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 such

borrowers’ available cash to pay interest on and principal of our loans to them.

Beginning in September 2024, in light of inflation moderating, the Federal

Reserve’s Federal Open Market Committee

(“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 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 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.”

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.

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.

future, the Federal Reserve could further decrease

target interest rates, or could increase such target

rates, depending on the data and its outlook.

On July 31, 2025, the FOMC

stated that it seeks to achieve maximum employment and inflation at the rate of 2 percent

over the longer run.

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

The [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.”

conditions, inflation pressures and inflation expectations, and financial

and international developments.”

On September 17, 2025, the FOMC reduced its target federal funds

rate range 25 basis points to 4.00% to 4.25%, and stated

it would continue to reduce its holdings of Treasury

and agency debt and mortgage-backed securities (“MBS”).

recently, on October 29, 2025,

the FOMC noted inflation had risen and was somewhat elevated, and that downside

employment had risen in recent months.

As a result, the FOMC reduced its target federal funds rate range 25 basis points

to 3.75% to 4.00%.

The FOMC took further action with respect to its overnight repurchase and reverse

repurchase rates

and daily volume limitations and effective October 30, 2025,

limited the rate of reduction in the Federal Reserve’s

securities holdings, subject to modest deviations for operational reasons:

The Federal Reserve will roll over and reinvest at auction principal payments on Treasury

securities maturing in

excess of $5 billion per month.

Beginning December1, all principal payments on Treasury

securities would be rolled over and reinvested.

Reinvest the amount of principal payments from the Federal Reserve's holdings

of agency debt and agency MBS

received in October and November that exceeds a cap of $35 billion per month

in Treasury securities to roughly

match the maturity composition of Treasury

securities outstanding.

Beginning, all principal payments from the Federal Reserve's holdings of agency

securities would be reinvested in

Treasury bills.

CURRENT ACCOUNTING DEVELOPMENTS

8 unchanged sentences

The Company does not

expect the new standard to have a material impact on the Company’s

xpect the new standard to have a material impact on the Company’s

consolidated financial statements.

22 unchanged sentences

Net interest income (Tax

Six months ended June 30,

Nine months ended September 30,

(In thousands)

1 unchanged sentence

Tax-equivalent adjustment

Net interest income (Tax

et interest income (Tax-equivalent)

- Selected Quarterly Financial Data

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Weighted average shares outstanding:

Basic and diluted

Shares outstanding, at period end

3 unchanged sentences

Performance ratios:

Return on average equity

Return on average assets

Annualized return on average equity

Annualized return on average assets

Dividend payout ratio

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Nonperforming loans as a % of total loans

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

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

Capital Adequacy:

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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.

(b) Calculated by dividing period end share price by earnings

per share for the previous four quarters.

4 unchanged sentences

- Selected Financial Data

Six months ended June 30,

Nine months ended September 30,

(Dollars in thousands, except per share amounts)

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Weighted average shares outstanding:

Basic and diluted

Shares outstanding, at period end

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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.

(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.

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

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

See Table 1 - Explanation of Non-GAAP Measures.

Balances and Net Interest Income Analysis

Quarter ended June 30,

Quarter ended September 30,

(Dollars in thousands)

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Balances and Net Interest Income Analysis

Six months ended June 30,

Nine months ended September 30,

(Dollars in thousands)

28 unchanged sentences

and Rate Variance

Quarter ended June 30, 2025 vs.

Six months ended June 30, 2025 vs.

Quarter ended

Nine months ended

September 30, 2025 vs.

Due to change in

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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