What changed in this filing

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Item 7. Management’s Discussion and Analysis

2026-03-17 compared with 2025-03-11 · 411 added, 495 removed, 875 unchanged (51% of the section changed)

8 unchanged sentences

from the consolidated financial statements.

following discussion and analysis should be read along with our

consolidated financial statements and the related notes

following discussion and analysis should be read along with our consolidated

financial statements and the related notes

included elsewhere herein.

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compared to $1.83 per share for the full

Net earnings for 2023 reflected the sale of $117.6 million

of available-for-sale securities for an after-tax loss of

$(4.7) million, or $(1.35) per share related to the Company’s

balance sheet repositioning strategy in December 2023.

Excluding this non-routine item, net earnings for the full year 2023

would have been $6.1 million, or $1.75 per share.

Net interest income (tax-equivalent) was $29.7 million in 2025, a

1 unchanged sentence

increase was primarily due to improved net interest margin

The Company’s net interest margin

(tax-equivalent) was

3.06% in 2024, compared to 2.89% in 2023.

The increase in net interest margin (tax-equivalent) was primarily

growth and the December 2023 balance sheet repositioning, which resulted

in a more favorable asset mix and higher yields

on interest-earning assets in 2024.

Average loans for 2024 were $568.7

million, a 9% increase from 2023.

and a 2% increase in our interest-earning assets.

Company’s net interest margin

(tax-equivalent) was 3.27% in 2025, compared to 3.06% in 2024.

The increase in net

interest margin (tax-equivalent) was primarily due to improved

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

of interest-bearing deposits.

At December 31, 2025, the Company’s

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

allowance for credit losses was $7.2 million, or 1.27% of total loans, compared

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

Although the balance of the allowance for credit losses was

largely unchanged, the decrease in the allowance for credit

losses as a percentage of total loans was primarily due to

improved economic forecasts.

The Company recorded a provision for credit losses of $631 thousand

in 2025 compared to $36 thousand during 2024.

provision for credit losses under CECL is reflective of the Company’s

credit risk profile and the future economic outlook

and forecasts.

Our CECL model is largely influenced by economic

factors including, most notably,

the anticipated

unemployment rate.

Noninterest income was $3.5 million in 2024 compared to a loss of $3.0

provision for credit losses in 2025 was primarily due to two loans that were individually

A specific reserve was

established for one loan and the other loan was partially charged

The provision for credit losses under CECL is

reflective of the Company’s credit

risk profile and the future economic outlook and forecasts.

Our CECL model is largely

influenced by economic factors including, most notably,

the anticipated unemployment rate.

Noninterest income was $3.1 million in 2025 compared to $3.5

million in 2024.

Excluding the pre-tax securities

loss of $6.3 million related to the balance sheet repositioning strategy in 2023,

noninterest income would have been $3.3

million for 2023.

The decrease was primarily related to a

decrease in mortgage lending income and other noninterest income

Noninterest expense was $23.0 million in 2025 compared to $22.2

million in 2024.

This decrease in noninterest expense

reflects decreases in net occupancy and equipment expenses of $0.4

million, professional fees expense of $0.1

other noninterest expense of $0.2 million.

These decreases were partially offset by increases in salaries and benefits

expense of $0.4

The provision for income taxes expense was $2.0 million for an effective

tax rate of 23.82% for 2024, compared to a tax

benefit of $0.8 million for a negative effective tax rate of (125.73)%

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.

The provision for income tax expense was $2.0 million for an effective

tax rate of 21.24% for 2025, compared to

$2.0 million for an effective tax rate of 23.82% for 2024.

The Company’s effective

income tax rate is

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

investments in municipal securities, bank-owned life

insurance, and New Markets Tax

The effective tax rate increased primarily due to a decrease in the Company’s

investment in municipal securities following the balance sheet restructuring

in the fourth quarter of 2023, and the adoption

of FASB ASU 2023-02

Investments – Equity Method and Joint Ventures

(Topic323) which allows the

amortization method for our NMTC investments, on January 1, 2024.

With the adoption of this ASU, amortization of

NMTCs are now included in income tax expense rather than noninterest

Additionally, the provision

tax expense and the effective tax rates for 2024 included discrete tax

items associated with provision to return adjustments

in conjunction with the final 2023 tax return filing and the resolution of state examination

activities, which resulted in

additional tax expense.

The Company paid cash dividends of $1.08 per share in 2024, unchanged

At December 31, 2024, the Bank’s

regulatory capital ratios were well above the minimum amounts required

to be “well capitalized” under current regulatory

standards with a total risk-based capital ratio of 15.81%, a tier 1 leverage ratio of

10.49% and common equity tier 1 or

(CET1) of 14.80% at December 31, 2024.

income tax rate is affected principally

by tax-exempt earnings from the Company’s

investments in municipal securities and loans, bank-owned life insurance,

New Markets Tax Credits.

The provision for income tax expense and the effective tax rates for

2024 included discrete tax

items associated with provision to return adjustments in conjunction with

the final 2023 tax return filing and the resolution

of state examination activities, which resulted in additional tax expense.

The Company paid cash dividends of $1.08 per share in 2025 and 2024.

At December 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 17.14%, a tier 1 leverage ratio of 10.71%

and common equity tier 1 or (CET1) of

at December 31, 2025.

CRITICAL ACCOUNTING POLICIES

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The allowance for credit losses is estimated under the CECL methodology set forth

in FASB ASC 326.

in Financial Accounting Standards

Board (“FASB”) Accounting

Standards Codification (“ASC”) 326,

Financial Instruments – Credit Losses

The allowance

credit losses reflects management’s

estimate of the amount of credit losses expected to be recognized over

the remaining

life of the loans in our portfolio.

This evaluation requires significant management

judgment and is based upon relevant

available information related to historical default and loss experience,

current and projected economic conditions, and other

portfolio-specific and environmental risk factors.

for credit losses reflects management’s

estimate of the amount of credit losses expected to be recognized over the

remaining life of the loans in our portfolio.

This evaluation requires significant

management judgment and is based upon

relevant available information related to historical default and loss experience,

current and projected economic conditions,

and other portfolio-specific and environmental risk factors.

Losses are predicted

over a reasonable and supportable forecast period,

and at the end of the reasonable and supportable period losses revert to long term historical

The allowance for

credit losses is measured on a collective basis for pools of loans with similar risk characteristics,

and on an individual basis

for loans that do not share similar risk characteristics with the collectively evaluated

There are factors beyond our

control, such as changes in projected economic conditions, real estate markets

or particular industry conditions which may

materially impact asset quality and the adequacy of the allowance for credit

losses and thus the resulting provision for credit

The allowance is adjusted through provision for credit losses and decreased

by charge-offs, net of recoveries of

amounts previously charged-off.

over a reasonable and supportable forecast

period, and at the end of the reasonable and supportable period losses revert

to long term historical averages.

The allowance

for credit losses is measured on a collective basis for pools of loans with similar

risk characteristics, and on an individual

basis for loans that do not share similar risk characteristics with the collectively

evaluated pools.

There are factors beyond

our control, such as changes in projected economic conditions, real estate markets or

particular industry conditions which

may materially impact asset quality and the adequacy of the allowance for

credit losses and thus the resulting provision for

credit losses.

The allowance is adjusted through provision for credit losses and

decreased by charge-offs, net of recoveries

of amounts previously charged-off.

- Summary of Significant Accounting Policies and Note 4 - Loans and

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Determination

GAAP requires management to value and disclose certain of

the Company’s assets and liabilities at fair value,

GAAP requires management to value and disclose certain of the

Company’s assets and liabilities at fair value,

including investments classified as available-for-sale and

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

The ultimate realization of deferred tax assets

realization of deferred tax assets

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

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At December 31,

2024 we had total deferred tax assets of $10.2 million

2025 we had net deferred tax assets of $6.9

included as “other assets”, including $6.5 million resulting from unrealized

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increase was primarily due to improved net interest margin

The Company’s net interest margin

(tax-equivalent) was

3.06% in 2024, compared to 2.89% in 2023.

The increase in net interest margin (tax-equivalent) was primarily

growth and the balance sheet repositioning strategy the Company

completed in the fourth quarter of 2023, which resulted in

a more favorable asset mix and higher yields on interest-earning assets in 2024.

This was partially offset by higher market

interest rates, which increased our cost of funds, generally,

and changes in our deposit mix to higher cost interest-bearing

and a 2% increase in our interest-earning assets.

Company’s net interest margin

(tax-equivalent) was 3.27% in 2025, compared to 3.06% in 2024.

The increase in net

interest margin (tax-equivalent) was primarily due to improved

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

of interest-bearing deposits.

The Federal Reserve announced a 50-basis points rate reduction on September

followed by two 25 basis points reduction in October and December 2024

and by three 25 basis points in September,

October and December 2025.

At year end the target federal funds rate ranged from

3.5% - 3.75%.

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

13 basis points to 4.49% in 2025 compared to 4.36%

Average loans for 2024

were $568.7 million, a 9% increase from 2023.

The cost of total interest-bearing liabilities increased by 59 basis points to 1.81%

This increase was primarily due to changes in our asset mix, as cash and cash equivalents increased

and securities

Average interest-earning

assets were $908.6 million during 2025, a 2% increase compared to $889.4 million

The cost of total interest-bearing liabilities decreased by 9 basis points to 1.72%

in 2025 compared to 1.81% in 2024

Average interest-bearing

deposits were $639.6 million during 2024, a 3% decrease compared to $657.8 million

As of December 31, 2024, average interest-bearing deposits were 71% of average

total deposits compared to 69% on

December 31, 2023.

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 reduction in October and December 2024.

At year end the target

federal funds rate ranged from 4.25% - 4.50%.

following decreases to the federal funds rate.

The Company continues to deploy various asset liability management

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Deposit and loan pricing remains competitive in our markets.

that interest rates, inflation and

monetary policy may continue to fluctuate in 2025 and may be challenging

We believe that interest rates,

inflation and

monetary policy may continue to fluctuate in 2026

and may be challenging as a result.

Our ability to compete and manage

our deposits costs until our interest-earning assets reprice and we generate

new fixed rate loans with current market interest

rates will be important to our net interest margin during

Provision for Credit Losses

The provision for credit losses represents a charge to

earnings necessary to establish an allowance for credit losses that, in

management’s evaluation,

is adequate to provide coverage for all expected credit losses.

The Company recorded a

provision for credit losses of $36 thousand during 2024, compared to $135

thousand for 2023.

new loans with current market interest rates will

be important to our net interest margin during 2026.

Provision for Credit Losses

expense is affected by 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, most notably,

the anticipated unemployment rate, which may be affected by monetary

The Company recorded a provision for credit losses of $631 thousand during

2025, compared to $36 thousand for 2024.

Provision expense is affected by organic loan

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

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.

The provision for credit losses in 2025

was primarily due to two loans that were individually evaluated.

A specific reserve was established for one loan and the

other loan was partially charged off.

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

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2025, the Company’s allowance for

credit losses was $6.9

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

credit losses was $7.2 million, or 1.27% of total loans, compared to $6.9 million,

1.22% of total loans, at December 31, 2024.

Although the balance of the allowance for credit losses was largely

unchanged, the decrease in the allowance for credit losses as a percentage of total

loans was primarily due to improved

economic forecasts.

Noninterest Income

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Bank-owned life insurance

Securities losses, net

Total noninterest income

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

mortgage loans and (2) servicing of mortgage loans.

Origination income, net,

is comprised of gains or losses from the sale

of the mortgage loans originated, origination fees, underwriting fees and other

fees associated with the origination of

mortgage loans, which are netted against the commission expense associated

with these originations.

The Company’s

normal practice is to originate mortgage loans for sale in the secondary market

and to either sell or retain the MSRs when

the loan is sold.

MSRs are recognized based on the fair value of the servicing right on

the date the corresponding mortgage loan is sold.

mortgage loans, including refinancings and (2) servicing of mortgage

Origination income, net, is comprised of gains

or losses from the sale of the mortgage loans originated, origination fees, underwriting

fees and other fees associated with

the origination of mortgage loans, which are netted against the commission expense

associated with these originations.

Company’s customary practice

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

MSRs when the loan is sold.

MSRs are recognized based on the fair value of the servicing right

on the date the corresponding mortgage loan is sold.

Subsequent to the date of transfer, the Company

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The Company’s income from mortgage

lending typically fluctuates as mortgage interest rates change and is primarily

attributable to the origination and sale of new mortgage loans.

The increase in mortgage lending income was primarily

related to the Company increasing the number of mortgage loans originated

for sale during 2024 relative to the number of

mortgage loans originated and held for investment during 2023.

Income from bank-owned life insurance was $403 thousand and

$411 thousand for 2024 and 2023 respectively.

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

2023, income from bank-owned life insurance

would have been $359 thousand for 2023.

Securities losses, net for 2023 were related to the Company selling approximately

$117.6 million of its available-for-sale

securities, resulting in a net loss of approximately $6.3 million as part of its balance

sheet repositioning strategy.

lending typically fluctuates as mortgage interest rates, housing sales and

refinancings change.

Origination income decreased in 2025 compared to 2024 due to a decrease in mortgage

demand as mortgage interest rates remain elevated.

Other noninterest income was $1.6 million in 2025, compared to $1.8 million in

The decrease in other noninterest

income was primarily due to decreased fee income on reciprocal deposits sold

through the Intrafi network.

Noninterest Expense

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The decrease in net occupancy and equipment expense was primarily

due to an increase in leasing income.

The decrease in other noninterest expense was primarily due to the Company’s

adoption of ASU 2023-02 which allows the

proportional amortization method for our NMTC investments, on January

With the adoption of this ASU,

amortization of NMTCs are now included in income tax expense.

During 2023 other noninterest expense included $0.4

million related to our equity method investment in NMTCs.

This decrease was partially offset by various increases in other

noninterest expense accounts during 2024.

due to increased

leasing income associated with the

Company’s headquarters, which

totaled $1.4 million in 2025 compared to $1.0 million in 2024.

The increase in other noninterest expense was due to a variety of miscellaneous

items including increased information

technology and systems expenses and loan-related expenses.

The provision for income taxes expense was $2.0 million for an effective

tax rate of 23.82% for 2024, compared to a tax

benefit of $0.8 million for a negative effective tax rate of (125.73)%

tax rate of 21.24% for 2025, compared to

$2.0 million for an effective tax rate of 23.82% for 2024.

The Company’s effective

income tax rate is

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

investments in municipal securities, bank-owned life

insurance, and New Markets Tax

The effective tax rate increased primarily due to a decrease in

the Company’s

investment in municipal securities following the balance sheet restructuring

in the fourth quarter of 2023, and the adoption

of FASB ASU 2023-02

Investments – Equity Method and Joint Ventures

(Topic323) which allows the

amortization method for our NMTC investments, on January 1, 2024.

With the adoption of this ASU, amortization of

NMTCs are now included in income tax expense rather than noninterest

Additionally, the provision

tax expense and the effective tax rates for 2024 included discrete tax

items associated with provision to return adjustments

in conjunction with the final 2023 tax return filing and the resolution of state examination

activities, which resulted in

additional tax expense.

income tax rate is affected principally

by tax-exempt earnings from the Company’s

investments in municipal securities and loans, bank-owned life insurance,

New Markets Tax Credits.

The provision for income tax expense and the effective

tax rates for 2024 included discrete tax

items associated with provision to return adjustments in conjunction with

the final 2023 tax return filing and the resolution

f state examination activities, which resulted in additional tax expense.

BALANCE SHEET ANALYSIS

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This decrease reflects a decrease in the amortized cost basis of securities available

-for-sale of $27.1 million, and a decrease

of $0.8 million in the fair value of securities available-for-sale.

The decrease in the amortized cost basis of securities

available-for-sale was primarily attributable to normal paydowns and

The average annualized tax-equivalent

yields earned on total securities were 2.25%

-for-sale of $23.4 million, partially offset

by an increase of $13.7 million in the fair value of securities available-for

The decrease in the amortized cost basis of

securities available-for-sale was primarily attributable to normal paydowns

and maturities.

The average annualized tax-

equivalent yields earned on total securities were 2.23%

in 2025 and 2.25% in 2024.

The following table shows the carrying value and weighted average yield

of securities available-for-sale as of December

The following table shows the carrying value and weighted average yield of

securities available-for-sale as of December

31, 2025 according to contractual maturity.

Actual maturities may differ from contractual maturities of mortgage-backed

securities (“MBS”) because the mortgages underlying the securities may

be called or prepaid in whole or in part, with or

Actual maturities of mortgage-backed securities (“MBS”) may differ from

contractual maturities because the mortgages underlying the MBS may be called

or prepaid in whole or in part, with or

without penalty.

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at December 31, 2024,

an increase of $6.7 million, or 1%.

an increase of $1.3 million.

Four loan categories represented the majority of the loan portfolio at December 31, 2025:

commercial real estate (58%), residential real estate (21%), construction

and land development (15%), and

commercial and industrial (11%).

and land development (10%), and commercial and

industrial (10%).

Approximately 18% of the Company’s

commercial real estate loans were classified as

owner-occupied at December 31, 2024.

Within the residential real estate portfolio

the Company had junior lien mortgages of approximately $11.2

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

respectively.

commercial real estate loans were classified as owner-occupied at

December 31, 2025.

Within the residential real estate portfolio segment

the Company had junior lien mortgages of approximately $12.3 million,

or 2%, and $11.2 million, or 2%, of total loans

at December 31, 2025 and 2024, respectively.

For residential real estate

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occupancy levels, housing supply shortages, and effects of

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

volumes and liquidity,

valuations used in making loans and evaluating collateral, availability and

cost of financing

properties, real estate industry concentrations, competitive pressures from

a wide range of other lenders, deterioration in

certain credits, interest rate fluctuations, reduced collateral values or

non-existent collateral, title defects, inaccurate

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

of applicable laws and regulations.

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

currently in effect may not be as profitable

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

may exist in the future.

See “Risk Factors.”

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

guidelines for collateralized

inflation and tariffs on our borrowers’ cash flows, real estate

market sales volumes and liquidity,

valuations used in making loans and evaluating collateral, availability and cost of

financing properties, real estate industry concentrations, competitive pressures

from a wide range of other lenders,

deterioration in certain credits, fluctuations in market interest rates, reduced

collateral values or non-existent collateral, title

defects, inaccurate appraisals, financial deterioration of borrowers, fraud,

and any violation of applicable laws and

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

may not be as profitable or successful at the higher interest rates currently

in effect and which may exist in the future.

“Risk Factors.”

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 December 31, 2024, the Bank had one

loan relationship exceeding our internal limit.

At December 31, 2025, the Bank did not

have any loan relationships

exceeding our internal limit.

We periodically

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Shopping centers/strip malls

Office buildings

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

which required us to estimate all expected

credit losses over the remaining life of our loan portfolio.

The Company maintains the allowance for credit losses at a level

that management believes appropriate to adequately cover the Company’s

estimate of expected losses in the loan portfolio.

The allowance for credit losses was $6.9 million at December 31, 2024 and 2023,

respectively, which management

to be adequate at each of the respective dates.

Our allowance for credit losses as a percentage of total loans was 1.22%

The Company maintains the allowance for credit losses at a level that management

believes appropriate to adequately cover

the Company’s estimate of expected

losses over the remaining life in the loan portfolio.

The allowance for credit losses was

$7.2 million at December 31, 2025,

compared to $6.9 million at December 31, 2024, which management believed

adequate at each of the respective dates.

Our allowance for credit losses as a percentage of total loans was 1.27% at

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

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are utilized to predict quarterly rates of default.

See “Risk Factors”.

Under the CECL methodology the allowance for credit losses is measured on

a collective basis for pools of loans with

similar risk characteristics, and on an individual basis for loans that do not share similar

risk characteristics with the

similar risk characteristics, and on an individual basis for loans that do not share

similar risk characteristics with the

collectively evaluated pools.

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See Note 4 to our Financial Statements.

A summary of the changes in the allowance for credit losses on loans

and certain asset quality ratios for the years ended

December 31, 2024 and 2023 are presented below.

A summary of the changes in the allowance for credit losses on loans and

certain asset quality ratios for the years ended

December 31, 2025 and 2024 is presented below.

Year ended December 31

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Balance at beginning of period

Impact of adopting ASC 326

Commercial and industrial

Commercial real estate

Residential real estate

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Total recoveries

Net recoveries (charge-offs)

(Reversal of) provision for credit losses

Net (charge-offs) recoveries

Provision for credit losses - Loans

Ending balance

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Nonperforming Assets

At December 31, 2024 the Company had $0.5 million in nonperforming

assets compared to $0.9 million at December 31,

The Company had $0.5 million in nonperforming assets at both December

31, 2025 and 2024.

The table below provides information concerning total nonperforming

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and 2024, respectively.

The Company had no OREO at December 31, 2024 and 2023, respectively.

The Company had no other real estate owned at December 31, 2025 and 2024, respectively.

(In thousands)

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Total deposits

Total deposits were stable

and decreased only $0.4 million to $895.8 million at December 31, 2024,

compared to $896.2

million at December 31, 2023.

Noninterest-bearing deposits were $260.9 million, or 29% of total deposits,

31, 2024, compared to $270.7 million, or 30% of total deposits at December 31,

At December 31, 2024, the

Company had $74.1 million reciprocal deposits sold, compared to $59.0

million at December 31, 2023.

The Company had

no brokered deposits at December 31, 2024 and 2023.

The Company had no FHLB-Atlanta advances or other wholesale

borrowings outstanding at December 31, 2024 and 2023.

Total deposits were $922.9

million at December 31, 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.

Noninterest-bearing deposits were 29% of total deposits at both December 31,

2025 and 2024.

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

The Company had no FHLB-Atlanta advances or

other wholesale borrowings outstanding at December 31, 2025 and 2024.

The average rates paid on total interest-bearing deposits were 1.72

in 2025 and 1.81% in 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 FDIC insurance for our depositors.

The Company had reciprocal deposits on balance sheet of $9.8 million at

December 31, 2025, compared to $6.9 million at December 31, 2024.

At December 31, 2025, the Company had $79.7

million reciprocal deposits sold, compared to $74.1 million at December

At December 31, 2025, estimated uninsured deposits totaled $392.9

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

During 2023, the Bank began participating in the Certificates of

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

product (“ICS”), which provide for

reciprocal (“two-way”) transactions among banks facilitated by

IntraFi for the purpose of maximizing FDIC insurance.

Company had reciprocal deposits on balance sheet of $6.9 million at December

31, 2024, compared to none at December

Uninsured amounts are estimated based on the portion of account balances

that exceed FDIC insurance limits.

Uninsured amounts are estimated based on the portion of account

balances that exceed FDIC insurance limits.

The Bank’s uninsured deposits at December

31, 2024 and 2023 include approximately $223.1 million and $206.2 million,

respectively, of deposits

of state, county and local governments that are collateralized by securities having

a fair value equal

to such deposits.

Deposits of state, county and local governments were 62% and 53% of our estimated

uninsured deposits

at December 31, 2024 and 2023, respectively.

31, 2025 and 2024 include

approximately $228.7 million and $223.1 million, respectively,

of deposits of state, county and local governments that are

collateralized by securities.

Deposits of state, county and local governments were 58% and 62% of our estimated uninsured

deposits at December 31, 2025 and 2024, respectively.

The estimated uninsured time deposits by maturity as of December

31, 2024 is presented below.

31, 2025 are presented below.

(Dollars in thousands)

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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

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 and $61.0 million, respectively,

at December 31, 2024 and 2023 with no federal funds borrowed.

Company had no securities sold under agreements to repurchase, which

are entered into on behalf of certain customers, at

December 31, 2024, compared to $1.5 million at December 31, 2023.

The Bank is eligible to borrow from the FRB’s

discount window, but had

no such borrowings at December 31, 2024 and 2023.

The Bank never borrowed from the Federal

Reserve’s Bank Term

Facility Program (“BTFP”) which ceased making new loans on March 11,

$65.2 million at December 31, 2025 and 2024 with no federal funds borrow

The Company had no securities sold under

agreements to repurchase, which are entered into on behalf of certain

customers, at December 31, 2025 and 2024.

Bank is eligible to borrow from the FRB’s discount

window, but had no such

borrowings at December 31, 2025 and 2024.

The 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-Atlanta and has borrowed from the

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of available lines of credit at the FHLB-Atlanta.

The average rates paid on short-term borrowings were 0.48%

and 2.21% in 2024 and 2023, respectively.

CAPITAL ADEQUACY

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share, compared to $78.3 million, or $22.41 per share, at December 31, 2024.

The increase from December 31, 2023 was

primarily driven by net earnings of $6.4 million.

The increase were partially

offset by cash dividends paid of $3.8 million,

other comprehensive loss of $0.6 million related to unrealized gains/losses

on securities available-for-sale, net of tax and

a one-time charge of $0.3 million, net of tax, for the cumulative

effect to adopt the NMTC accounting standard on

January 1, 2024.

Unrealized securities losses do not affect the Bank’s

increase from December 31, 2024 was

primarily driven by net earnings of $7.3 million and other comprehensive

income of $10.2 million due to a decrease in

unrealized losses on securities available-for-sale, net of tax, which was partially

offset by cash dividends paid of

$3.8 million.

Unrealized losses on securities do not affect the Bank’s

capital for regulatory capital purposes.

The Company paid cash dividends of $1.08 per share in 2024, unchanged

from the same period in 2023.

On January 1, 2015, the Company and Bank became subject to the Basel III regulatory

capital framework.

included the implementation of a capital conservation buffer of

CET1 capital of 2.5% that is added to the minimum

requirements for capital adequacy purposes.

A banking organization with a capital conservation buffer

of 2.5% or less is

subject to limitations on “distributions”

from “eligible retained earnings”, including dividend payments,

share repurchases

and certain discretionary bonus payments.

At December 31, 2024

and 2023, the Bank had a capital conservation buffer of

7.81% and 7.52%, respectively.

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

adopted a final rule that amended the

capital conservation buffer.

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

payout ratio to allow banking organizations to more freely

use their capital buffers to promote lending and other financial

intermediation activities, by making the limitations on capital distributions more

The eligible retained income is

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

associated tax effects not reflected

in net income;

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

Banking organizations were

encouraged to make prudent capital distribution decisions.

The Company paid cash dividends of $1.08 per share in 2025 and 2024.

The Company and Bank are subject to the Basel III regulatory capital framework

which includes a capital conservation

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

for capital adequacy purposes.

organization with a capital conservation buffer

of 2.5% or less is subject to limitations on “distributions” from “eligible

retained earnings”, including dividend payments,

share repurchases and certain discretionary bonus payments.

December 31, 2025 and 2024, the Bank had a capital conservation buffer

of 9.14% and 7.81%, respectively.

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

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at December 31, 2025.

exceed the minimum regulatory capital percentages of 5.0% for tier

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

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

ratio, 6.5% for CET1 risk-based capital

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

capital ratio to be considered “well capitalized.”

The Bank’s capital conservation

buffer was 7.81% at December 31, 2024.

MARKET AND LIQUIDITY RISK MANAGEMENT

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at different rates of change.

For example, if liabilities

reprice faster than assets, and interest rates are generally rising, earnings

will initially decline.

In addition, assets and

liabilities may reprice at the same time but by different amounts.

example, when the general level of interest rates is

rising, the Company may increase rates paid on interest bearing demand deposit accounts

and savings deposit accounts by

an amount that is less than the general increase in market interest rates.

-term and long-term market interest rates

may change by different amounts and at different

levels of interest rates and rates of change.

For example, a flattening

yield curve may reduce the interest spread between new loan yields and funding

The yield curve was inverted until it

began to normalize in September 2024.

An inverted yield curve reduces the net interest margin expansion

expected otherwise as interest rates rise.

Further, the remaining maturity of various

assets and liabilities may shorten or

lengthen as interest rates change.

For example, if long-term mortgage

interest rates decline sharply, mortgage

securities in the securities portfolio may prepay earlier than anticipated,

which could reduce earnings.

Interest rates may

also have a direct or indirect effect on loan demand, loan losses, mortgage

origination volume, the fair value of MSRs and

other items affecting earnings.

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

for various types of loans and

ALCO determines the most appropriate amounts of on-balance

sheet and off-balance sheet items.

used to help manage interest rate sensitivity include an earnings simulation

and an economic value of equity model.

ALCO measures and

evaluates the interest rate risk so that we can meet customer demands for various types

of loans and deposits.

the most appropriate amounts of on-balance sheet and off-balance sheet

Measurements used to help

manage interest rate sensitivity include an earnings simulation and an

economic value of equity model.

Earnings simulation

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To help limit interest

rate risk, we have guidelines for earnings at risk which seek to limit the variance of net interest

rate risk, we have guidelines for earnings at risk which seek to limit the variance of

income from gradual changes in interest rates.

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flat interest rate

forecast over the next 12 months, policy limits for net interest income variances

are as follows:

forecast over the next 12 months, policy limits for net interest income variances are

+/- 20% for a gradual change of 400 basis points

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

values are estimated by discounting expected

cash flows from assets, liabilities and off-balance sheet items, to which

establish a base case EVE.

In contrast with our

earnings simulation model which evaluates interest rate risk over a 12-month

Economic values

are estimated by discounting expected

cash flows from assets, liabilities and off-balance sheet items, which are

used to establish a base case EVE.

In contrast with

our earnings simulation model which evaluates interest rate risk over a 12-month

timeframe, EVE uses a terminal horizon

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differ across industries and economic sectors.

ALCO reviews each

of the above interest rate sensitivity analyses along with

several different interest rate scenarios in seeking satisfactory,

consistent levels of profitability within the framework of the

Company’s established liquidity,

loan, investment, borrowing, and capital policies.

Depositors and borrowers may also change their deposit and loan

preferences and behaviors as a result of changes and expected changes in interest rates.

ALCO reviews each of the above interest rate sensitivity analyses along with several

different interest rate scenarios in

seeking satisfactory,

consistent levels of profitability within the framework of the Company’s

established liquidity,

investment, borrowing, and capital policies.

The Company may also use derivative financial instruments to improve

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deposit needs of our customers.

From time to time, the Company may

enter into interest rate swaps (“swaps”) to facilitate

From time to time, the Company may enter

into interest rate swaps (“swaps”) to facilitate

customer transactions and meet their financing needs.

These swaps qualify

as derivatives, but are not designated as hedging

At December 31, 2024 and 2023, the Company had

no derivative contracts to assist in managing interest rate

as derivatives, and may be designated as

hedging instruments.

At December 31, 2025, the Company had one derivative

contract to assist in managing interest rate

The Company had no derivative contracts at December 31, 2024.

Liquidity Risk Management

Liquidity is the Company’s ability to

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

requirements,

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

primarily for deposit withdrawals, loan demand and maturing obligations.

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The second is the liquidity of the Bank.

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

the Bank are separate and distinct legal

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

and the Bank are separate and distinct legal

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

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received from the Bank.

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

debt obligations, if any, and cash

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

expenses, debt obligations, if any,

dividends on, and repurchases of, Company common stock.

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borrowings, interest payments on earning assets,

repayment and maturity of securities and loans, sales of securities, and the

sale of loans, particularly residential mortgage

and maturities of securities and loans, sales of securities, and the sale of loans, particularly

residential mortgage

Primary uses of funds include repayment of maturing obligations

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Off-Balance Sheet Arrangements

At December 31, 2024, the Bank had outstanding standby letters of credit

of $0.7 million and unfunded loan commitments

At December 31, 2025, the Bank had outstanding standby letters of credit of $1.0

million and unfunded loan commitments

outstanding of $48.1 million.

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mortgage loan has subsequently been brought current.

Repurchase demands

are typically reviewed on an individual loan by

Repurchase demands 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 event has

seek to reduce and manage the risks of potential repurchases or other claims by

mortgage loan investors

seek to reduce and manage the risks of potential repurchases or other claims by mortgage

loan investors

through our underwriting, quality assurance and servicing practices, including

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Remedies could include repurchase of an affected

Although to date repurchase requests related to representation and warranty provisions,

and servicing activities have been

Although to date repurchase requests related to representation and warranty

provisions, and servicing activities have been

limited, it is possible that requests to repurchase mortgage loans may increase

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of repurchase requests as well as the delinquency rates in our investor portfolios.

The Company was not required to repurchase any loans during 2024 and 2023 as a result

of representation and warranty

The Company was not required to repurchase any loans during 2025 and

2024 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

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

requests at December 31, 2025.

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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.

As a result, interest rates have a more significant

impact on a financial institution’s performance

As a result, interest rates have a more significant impact

on a financial institution’s performance

than the effects of general levels of inflation.

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most of 2024, until September, when it began

An inverted yield curve which means shorter term interest rates are higher than longer

term interest rates.

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

addition, 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 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.

See “Supervision and Regulation – Fiscal and Monetary Policies” and

“- Recent Developments – New Administration.”

An inverted yield curve means shorter term interest rates are higher than longer term interest

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 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.

See “Supervision and Regulation – Fiscal and Monetary Policies” for

more information regarding changes in monetary

policy and interest rates.

CURRENT ACCOUNTING DEVELOPMENTS

The following ASU has been issued by the FASB

but is not yet effective.

Improvements to Income Tax

Information about this pronouncement is described in more detail below.

Improvements to Income Tax

, the amendments in this Update

enhance the transparency and decision usefulness of income tax disclosures.

For public business entities, the new standard

is effective for annual periods beginning after December

The Company does not expect the new standard to have

a material impact on the Company’s

The following ASUs have been issued by the FASB

but are not yet effective.

Income Statement Reporting Comprehensive Income

- Expense Disaggregation Disclosures

(Subtopic 220-

Clarifying the Effective Date,

clarifies the effective date of ASU 2024-03,

Income Statement Reporting Comprehensive

Income - Expense Disaggregation Disclosures

(Subtopic 220-40):

Disaggregation of

Income Statement Expenses

stipulate that ASU 2024-03 is effective for public business entities for

annual reporting periods beginning after December

15, 2026 and interim reporting periods beginning after December 15,

2027, with early adoption permitted.

will be effective for the Company beginning January 1, 2027

for the Company’s annual consolidated

financial statements

on Form 10-K and January 1, 2028 for the Company’s

quarterly consolidated financial statements on Form 10-Q

expected to have a significant impact on the Company’s

consolidated financial statements.

Intangibles - Goodwill and Other - Internal-Use Software

(Subtopic 350-40),

removes all references to

prescriptive and sequential software development stages and clarifies that the

threshold for when an entity is required to

start capitalizing software costs is when (1) management has authorized

and committed to funding the software project and

(2) it is probable that the project will be completed and the software will be used to perform

the function intended.

2025-06 will be effective for the Company beginning

January 1, 2028, with early adoption permitted, and is not expected to

have a significant impact on the Company’s

consolidated financial statements.

Interim Reporting (Topic

Narrow-Scope Improvement

is intended to provide clarity about the current

interim reporting requirements, provides a list of the interim disclosures required

by all other Codification topics and

establishes a disclosure principle that requires entities to disclose events since the

end of the last annual reporting period

that have a material impact

on the entity.

will be effective for the Company beginning January 1, 2028, with

early adoption permitted, and is not expected to have a significant impact on the Company’s

consolidated financial

– Explanation of Non-GAAP Financial Measures

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Tax-equivalent adjustment

Net interest income (Tax-equivalent)

et interest income (Tax-equivalent)

- Selected Financial Data

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Tax-equivalent adjustment

Income tax expense

Income tax expense (benefit)

Per share data:

Basic and diluted net earnings

Basic net earnings

Diluted net earnings

Cash dividends declared

Weighted average shares outstanding

Basic and diluted

Weighted average shares outstanding - basic

Weighted average shares outstanding - diluted

Shares outstanding

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Common stock price

To earnings ratio (d)

To earnings ratio (b)

To book value

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Nonperforming loans as % of loans

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

Net charge-offs as a % of average loans

Capital Adequacy (c):

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Net interest margin (a)

Effective income tax rate

Efficiency ratio (b)

Effective income tax (benefit) rate

Efficiency ratio (d)

Selected period end balances:

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

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

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

(b) Calculated by dividing period end share price by

earnings per share for the previous four quarters.

wholly-owned subsidiary, AuburnBank.

(d) Calculated by dividing period end share price by

earnings per share for the previous four quarters.

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

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

Balance and Net Interest Income Analysis

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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-K

Item 7. Management’s Discussion and Analysis