Item 7. Management’s Discussion and Analysis
ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF
OPERATIONS
The following is a discussion of our financial condition at December 31,
2025 and 2024 and our results of operations for
the years ended December 31, 2025 and 2024. The purpose of this discussion
is to provide information about our financial
condition and results of operations which is not otherwise apparent
from the consolidated financial statements. The
following discussion and analysis should be read along with our consolidated
financial statements and the related notes
included elsewhere herein. In addition, this discussion and analysis contains
forward-looking statements, so you should
refer to Item 1A, “Risk Factors” and “Special Cautionary Notice Regarding
Forward-Looking Statements”.
This includes
Table 2 “Selected
Financial Data.”
OVERVIEW
The Company was incorporated in 1990 under the laws of the State of Delaware and
became a bank holding company after
it acquired its Alabama predecessor, which was a bank
holding company established in 1984. The Bank, the Company's
principal subsidiary,
is an Alabama state-chartered bank that is a member of the Federal Reserve System and
has operated
continuously since 1907. Both the Company and the Bank are headquartered
in Auburn, Alabama. The Bank conducts its
business primarily in East Alabama, including Lee County and surrounding
areas. The Bank operates full-service branches
in Auburn, Opelika, Notasulga and Valley,
Alabama.
The Bank also operates a loan production office in
Phenix City,
Alabama.
Summary of Results of Operations
Year ended December 31
(Dollars in thousands, except per share data)
2025
2024
Net interest income (a)
$
29,747
$
27,204
Less: tax-equivalent adjustment
73
79
Net interest income (GAAP)
29,674
27,125
Noninterest income
3,119
3,474
Total revenue
32,793
30,599
Provision for credit losses
631
36
Noninterest expense
22,951
22,166
Income tax expense (benefit)
1,956
2,000
Net earnings
$
7,255
$
6,397
Basic and diluted net earnings per share
$
2.08
$
1.83
(a) Tax-equivalent.
See "Table 1 - Explanation of Non-GAAP Financial Measures".
Financial Summary
The Company’s net earnings were
$7.3 million for the full year 2025, compared to $6.4 million for the full year 2024.
Basic and diluted net earnings per share were $2.08 per share for the full year 2025,
compared to $1.83 per share for the full
year 2024.
Net interest income (tax-equivalent) was $29.7 million in 2025, a
9% increase compared to $27.2 million in 2024. This
increase was primarily due to improved net interest margin
and a 2% increase in our interest-earning assets.
The
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 $7.2 million, or 1.27% of total loans, compared
to
$6.9 million, or 1.22% of total loans, at December 31, 2024.
The Company recorded a provision for credit losses of $631 thousand
in 2025 compared to $36 thousand during 2024.
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.
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.
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43
Noninterest income was $3.1 million in 2025 compared to $3.5
million in 2024.
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.
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 and loans, bank-owned life insurance,
and
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
16.06%
at December 31, 2025.
CRITICAL ACCOUNTING POLICIES
The accounting and financial reporting policies of the Company conform with
U.S. generally accepted accounting
principles and with general practices within the banking industry.
In connection with the application of those principles, we
have made judgments and estimates which, in the case of the determination of our
allowance for credit losses, recurring and
non-recurring fair value measurements, and the valuation of deferred tax assets, were critical
to the determination of our
financial position and results of operations.
Allowance for Credit Losses – Loans
The allowance for credit losses is estimated under the CECL methodology set forth
in Financial Accounting Standards
Board (“FASB”) Accounting
Standards Codification (“ASC”) 326,
Financial Instruments – Credit Losses
. The allowance
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 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. See Note 1
- Summary of Significant Accounting Policies and Note 4 - Loans and
Allowance for Credit Losses in the notes to our consolidated financial statements
in this report.
Fair Value
Determination
U.S. 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
derivatives. ASC 820,
Fair Value
Measurements and Disclosures
,
which defines fair value, establishes a framework for measuring fair value
in accordance with U.S. GAAP and expands
disclosures about fair value measurements.
For more information regarding fair value measurements and disclosures,
please refer to Note 1 - Summary of Significant Accounting Policies and Note
14, Fair Value
in the notes to the
consolidated financial statements that accompany this report.
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44
Fair values are based on active market prices of identical assets or liabilities when available.
Comparable assets or
liabilities or a composite of comparable assets in active markets are used when
identical assets or liabilities do not have
readily available active market pricing.
However, some of the Company’s
assets or liabilities lack an available or
comparable trading market characterized by frequent transactions between
willing buyers and sellers. In these cases, fair
value is estimated using pricing models that use discounted cash flows and
other pricing techniques. Pricing models and
their underlying assumptions are based upon management’s
best estimates for appropriate discount rates, default rates,
prepayments, market volatility and other factors, taking into account
current observable market data and experience.
These assumptions may have a significant effect on the reported
fair values of assets and liabilities and the related income
and expense. As such, the use of different models and assumptions,
as well as changes in market conditions, could result in
materially different net earnings and retained earnings results.
Deferred Tax
Asset Valuation
A valuation allowance is recognized for a deferred tax asset if, based on the weight of
available evidence, it is more-likely-
than-not that some portion or the entire deferred tax asset will not be realized. The ultimate
realization of deferred tax assets
is dependent upon the generation of future taxable income during the periods
in which those temporary differences become
deductible. Management considers the scheduled reversal of deferred
tax liabilities, projected future taxable income and tax
planning strategies in making this assessment. At December 31,
2025 we had net deferred tax assets of $6.9
million
included as “other assets”, including $6.5 million resulting from unrealized
losses in our securities portfolio.
Based upon
the level of taxable income over the last three years and projections for future
taxable income over the periods in which the
deferred tax assets are deductible, management believes it is more likely
than not that we will realize the benefits of these
deductible differences at December 31, 2025.
The amount of the deferred tax assets considered realizable, however,
could
be reduced if estimates of future taxable income are reduced.
See Note 1 - Summary of Significant Accounting Policies
and Note 9 – Income Taxes
in the notes to the consolidated financial statements that accompany this report.
Average Balance
Sheet and Interest Rates
Year ended December 31
2025
2024
Average
Yield/
Average
Yield/
(Dollars in thousands)
Balance
Rate
Balance
Rate
Loans and loans held for sale
$
560,476
5.50%
$
568,733
5.23%
Securities - taxable
228,793
2.16%
248,072
2.19%
Securities - tax-exempt (a)
9,173
3.77%
10,084
3.70%
Total securities
237,966
2.23%
258,156
2.25%
Federal funds sold
26,535
4.25%
17,907
5.24%
Interest bearing bank deposits
83,648
4.28%
44,634
5.23%
Total interest-earning
assets
908,625
4.49%
889,430
4.36%
Deposits:
NOW
205,951
1.33%
192,702
1.39%
Savings and money market
253,668
0.97%
251,778
0.86%
Certificates of deposit
184,047
3.20%
195,097
3.46%
Total interest-bearing
deposits
643,666
1.72%
639,577
1.81%
Short-term borrowings
28
7.14%
628
0.48%
Total interest-bearing
liabilities
643,694
1.72%
640,205
1.81%
Net interest income and margin (a)
$
29,747
3.27%
$
27,204
3.06%
(a) Tax-equivalent.
See "Table 1 - Explanation
of Non-GAAP Financial Measures".
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45
RESULTS
OF OPERATIONS
Net Interest Income and Margin
Net interest income (tax-equivalent) was $29.7 million in 2025, a
9% increase compared to $27.2 million in 2024. This
increase was primarily due to improved net interest margin
and a 2% increase in our interest-earning assets.
The
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
18, 2024,
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%
in 2024.
This increase was primarily due to changes in our asset mix, as cash and cash equivalents increased
and securities
declined.
Average interest-earning
assets were $908.6 million during 2025, a 2% increase compared to $889.4 million
during 2024.
The cost of total interest-bearing liabilities decreased by 9 basis points to 1.72%
in 2025 compared to 1.81% in 2024
following decreases to the federal funds rate.
The Company continues to deploy various asset liability management
strategies to manage its risk from interest rate
fluctuations.
Deposit and loan pricing remains competitive in our markets.
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 loans with current market interest rates will
be important to our net interest margin during 2026.
Provision for Credit Losses
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
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.
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,
based on our allowance assessment
methodology, to adequately
cover all expected credit losses as of the date the allowance is determined.
At December 31,
2025, the Company’s allowance for
credit losses was $7.2 million, or 1.27% of total loans, compared to $6.9 million,
or
1.22% of total loans, at December 31, 2024.
Noninterest Income
Year ended December 31
(Dollars in thousands)
2025
2024
Service charges on deposit accounts
$
619
$
614
Mortgage lending
474
608
Bank-owned life insurance
414
403
Other
1,612
1,849
Total noninterest income
$
3,119
$
3,474
The Company’s noninterest income
from mortgage lending is primarily attributable to the (1) origination and sale of
new
mortgage loans, including refinancings 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 customary 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.
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46
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
has elected to measure its MSRs under the amortization method.
Servicing
fee income is reported net of any related amortization expense.
The Company evaluates MSRs for impairment quarterly.
Impairment is determined by grouping MSRs by common
predominant characteristics, such as interest rate and loan type.
If the aggregate carrying amount of a particular group of
MSRs exceeds the group’s aggregate
fair value, a valuation allowance for that group is established.
The valuation
allowance is adjusted as the fair value changes.
An increase in mortgage interest rates typically results in an increase in the
fair value of the MSRs while a decrease in mortgage interest rates typically results in
a decrease in the fair value of MSRs.
The following table presents a breakdown of the Company’s
mortgage lending income for 2025 and 2024.
Year ended December 31
(Dollars in thousands)
2025
2024
Origination income
$
154
$
261
Servicing fees, net
320
347
Total mortgage lending
income
$
474
$
608
The Company’s income from mortgage
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
lending
demand as mortgage interest rates remain elevated.
Other noninterest income was $1.6 million in 2025, compared to $1.8 million in
2024.
The decrease in other noninterest
income was primarily due to decreased fee income on reciprocal deposits sold
through the Intrafi network.
Noninterest Expense
Year ended December 31
(Dollars in thousands)
2025
2024
Salaries and benefits
$
13,154
$
12,534
Net occupancy and equipment
2,353
2,508
Professional fees
1,276
1,188
FDIC and other regulatory assessments
569
564
Other
5,599
5,372
Total noninterest expense
$
22,951
$
22,166
Salaries and benefits increased during 2025 compared to 2024 primarily due
to routine annual increases in salaries and
wages.
The decrease in net occupancy and equipment expense was primarily
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.
Income Tax
Expense
The provision for income taxes 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 and loans, bank-owned life insurance,
and
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
o
f state examination activities, which resulted in additional tax expense.
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47
BALANCE SHEET ANALYSIS
Securities
Securities available-for-sale were $233.3 million at December 31, 2025,
compared to $243.0 million at December 31, 2024.
This decrease reflects a decrease in the amortized cost basis of securities available
-for-sale of $23.4 million, partially offset
by an increase of $13.7 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 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
31, 2025 according to contractual maturity.
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.
December 31, 2025
1 year
1 to 5
5 to 10
After 10
Total
(Dollars in thousands)
or less
years
years
years
Fair Value
Agency obligations
$
—
35,580
18,204
—
53,784
Agency MBS
—
20,112
16,171
125,644
161,927
State and political subdivisions
—
1,590
9,160
6,798
17,548
Total available-for-sale
$
—
57,282
43,535
132,442
233,259
Weighted average yield (1):
Agency obligations
—
1.27%
1.99%
—
1.52%
Agency MBS
—
1.19%
1.83%
2.22%
2.06%
State and political subdivisions
—
1.95%
2.00%
2.42%
2.16%
Total available-for-sale
—
1.26%
1.93%
2.23%
1.94%
(1) Yields are calculated based on amortized cost.
Loans
December 31
(In thousands)
2025
2024
Commercial and industrial
$
58,400
63,274
Construction and land development
56,436
82,493
Commercial real estate
325,521
289,992
Residential real estate
116,554
118,627
Consumer installment
8,421
9,631
Total loans
565,332
564,017
Total loans, net of unearned
income, were $565.3 million at December 31, 2025, and $564.0 million
at December 31, 2024,
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 (10%), and commercial and
industrial (10%).
Approximately 18% of the Company’s
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
mortgage loans with a consumer purpose, the Company had no loans
that required interest only payments at December 31,
2025 and 2024. The Company’s
residential real estate mortgage portfolio does not include any option 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 5.50% in 2025
and 5.23% in 2024.
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48
The specific economic and credit risks associated with our loan portfolio include,
but are not limited to, the effects of
current economic conditions, including the levels of market
interest rates, supply chain disruptions, commercial office
occupancy levels, housing supply shortages, and effects of
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
regulations.
Various
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
loans, investigating the creditworthiness of borrowers and monitoring borrowers’
financial position. Also, we have
established and periodically review,
our lending policies and procedures. Banking regulations limit a bank’s
credit exposure
by prohibiting unsecured loan relationships that exceed 10% of its capital; or
20% of capital, if loans in excess of 10% of
capital are fully secured. Under these regulations, we are prohibited from having
secured loan relationships in excess of
approximately $23.5 million. Furthermore, we have an internal limit for
aggregate credit exposure (loans outstanding plus
unfunded commitments) to a single borrower of $21.2 million. Our loan
policy requires that the Loan Committee of the
Board of Directors approve any loan relationships that exceed this internal
limit. At December 31, 2025, the Bank did not
have any loan relationships
exceeding our internal limit.
We periodically
analyze our commercial loan portfolio to determine if a concentration of
credit risk exists in any one or
more industries. We
use classification systems broadly accepted by the financial services industry
in order to categorize our
commercial borrowers. Loan concentrations to borrowers in the following
classes exceeded 25% of the Bank’s
total risk-
based capital at December 31, 2025 (and related balances at December
31, 2024).
December 31
(In thousands)
2025
2024
Lessors of 1-4 family residential properties
$
56,773
$
58,228
Multi-family residential properties
51,516
43,556
Hotel/motel
47,870
35,210
Shopping centers/strip malls
42,444
37,349
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
to be
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.
Our CECL models rely largely on projections of macroeconomic
conditions to estimate future credit losses.
Macroeconomic factors used in the model include the Alabama unemployment
rate, the Alabama home price index, the
national commercial real estate price index and the Alabama gross state product.
Projections of these macroeconomic
factors, obtained from an independent third party,
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
collectively evaluated pools.
Losses are predicted over a period of time determined to be reasonable and
supportable, and
at the end of the reasonable and supportable period losses are reverted
to long term historical averages.
At December 31,
2025 and 2024, reasonable and supportable periods of 4 quarters were utilized
followed by an 8-quarter straight line
reversion period to long term averages.
See Note 4 to our Financial Statements.
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49
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
(Dollars in thousands)
2025
2024
Allowance for credit losses:
Balance at beginning of period
$
6,871
6,863
Charge-offs:
Commercial and industrial
(142)
(9)
Commercial real estate
(296)
—
Residential real estate
(7)
(61)
Consumer installment
(96)
(114)
Total charge
-offs
(541)
(184)
Recoveries:
Commercial and industrial
30
144
Residential real estate
84
9
Consumer installment
29
45
Total recoveries
143
198
Net (charge-offs) recoveries
(398)
14
Provision for credit losses - Loans
703
(6)
Ending balance
$
7,176
6,871
as a % of loans
1.27
%
1.22
as a % of nonperforming loans
1,489
%
1,366
Net charge-offs as a % of average loans
0.07
%
—
Nonperforming Assets
The Company had $0.5 million in nonperforming assets at both December
31, 2025 and 2024.
The table below provides information concerning total nonperforming
assets and certain asset quality ratios.
December 31
(Dollars in thousands)
2025
2024
Nonperforming assets:
Nonperforming (nonaccrual) loans
$
482
503
Total nonperforming
assets
$
482
503
as a % of loans and other real estate owned
0.09
%
0.09
as a % of total assets
0.05
%
0.05
Nonperforming loans as a % of total loans
0.09
%
0.09
Accruing loans 90 days or more past due
$
—
—
The table below provides information concerning the composition of
nonaccrual loans at December 31, 2025 and 2024,
respectively.
December 31
(In thousands)
2025
2024
Nonaccrual loans:
Commercial and industrial
$
—
99
Construction and land development
—
404
Commercial real estate
378
—
Residential real estate
104
—
Total nonaccrual
loans
$
482
503
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50
The Company discontinues the accrual of interest income when (1)
there is a significant deterioration in the financial
condition of the borrower and full repayment of principal and interest is not
expected or (2) the principal or interest is more
than 90 days past due, unless the loan is both well-secured and in the process
of collection.
There were no loans 90 days past due and still accruing interest at December 31, 2025
and 2024, respectively.
The Company had no other real estate owned at December 31, 2025 and 2024, respectively.
Deposits
December 31
(In thousands)
2025
2024
Noninterest bearing demand
$
268,026
260,874
NOW
214,827
199,883
Money market
170,352
153,916
Savings
92,920
89,904
Certificates of deposit under $250,000
97,458
103,594
Certificates of deposit and other time deposits of $250,000 or more
79,343
87,653
Total deposits
$
922,926
895,824
Total deposits were $922.9
million at December 31, 2025, compared to $895.8 million at December 31, 2024.
The 3%
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
31, 2024.
At December 31, 2025, estimated uninsured deposits totaled $392.9
million, or 43% of total deposits, compared to $359.7
million, or 40% of total deposits at December 31, 2024.
Uninsured amounts are estimated based on the portion of account
balances that exceed FDIC insurance limits.
The Bank’s uninsured deposits at December
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.
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51
The estimated uninsured time deposits by maturity as of December
31, 2025 are presented below.
(Dollars in thousands)
December 31, 2025
Maturity of:
3 months or less
$
15,624
Over 3 months through 6 months
31,140
Over 6 months through 12 months
28,306
Over 12 months
4,273
Total estimated uninsured
time deposits
$
79,343
Other Borrowings
The Company had no long-term debt at December 31, 2025 and 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 at December 31, 2025 and 2024 with no federal funds borrow
ed.
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.
The
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
FHLB-Atlanta, and in the future may borrow from
time to time under the FHLB-Atlanta’s
advance program.
FHLB-Atlanta advances include both fixed and variable terms,
and provide various maturities, and generally are secured by eligible
assets.
The Bank had no borrowings under FHLB-
Atlanta’s advance program
at December 31, 2025 and 2024, respectively.
At those dates, the Bank had $304.9 million and
$296.9 million, respectively,
of available lines of credit at the FHLB-Atlanta.
CAPITAL ADEQUACY
At December 31, 2025, the Company’s
consolidated stockholders’ equity (book value) was $92.1 million, or
$26.35 per
share, compared to $78.3 million, or $22.41 per share, at December 31, 2024. The
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 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.
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, 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
Small Bank Holding
Company Policy.
Accordingly, our capital adequacy
is evaluated at the Bank level, and not for the Company and its
consolidated subsidiaries. The Bank’s
tier 1 leverage ratio was 10.71%, CET1 risk-based capital ratio was 16.06%, tier 1
risk-based capital ratio was 16.06%, and total risk-based capital ratio was 17.14
%
at December 31, 2025. These ratios
exceed the minimum regulatory capital percentages of 5.0% for tier 1 leverage
ratio, 6.5% for CET1 risk-based capital
ratio, 8.0% for tier 1 risk-based capital ratio, and 10.0% for total risk-based
capital ratio to be considered “well capitalized.”
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52
MARKET AND LIQUIDITY RISK MANAGEMENT
Management’s objective is to manage
assets and liabilities to provide a satisfactory,
consistent level of profitability within
the framework of established liquidity,
loan, investment, borrowing, and capital policies. The Bank’s
Asset Liability
Management Committee (“ALCO”) is charged with the
responsibility of monitoring these policies, which are designed to
ensure an acceptable asset/liability composition. Two
critical areas of focus for ALCO are interest rate risk and liquidity
risk management.
Interest Rate Risk Management
In the normal course of business, the Company is exposed to market risk arising from
fluctuations in interest rates because
assets and liabilities may mature or reprice at different times and
at different rates of change.
ALCO measures and
evaluates the interest rate risk so that we can meet customer demands for various types
of loans and deposits. ALCO
determines
the most appropriate amounts of on-balance sheet and off-balance sheet
items. Measurements used to help
manage interest rate sensitivity include an earnings simulation and an
economic value of equity model.
Earnings simulation
Management believes that interest rate risk is best estimated by our earnings simulation
modeling. On at least a quarterly
basis, we simulate the following 12-month time period to determine a baseline
net interest income forecast and the
sensitivity of this forecast to changes in interest rates. The baseline forecast assumes an
unchanged or flat interest rate
environment. Forecasted levels of earning assets, interest-bearing
liabilities, and off-balance sheet financial instruments are
combined with ALCO forecasts of market interest rates for the next 12 months
and other factors in order to produce various
earnings simulations and estimates.
To help limit interest
rate risk, we have guidelines for earnings at risk which seek to limit the variance of
net interest
income from gradual changes in interest rates.
For changes up or down in rates from management’s
flat interest rate
forecast over the next 12 months, policy limits for net interest income variances are
as follows:
+/- 20% for a gradual change of 400 basis points
+/- 15% for a gradual change of 300 basis points
+/- 10% for a gradual change of 200 basis points
+/- 5% for a gradual change of 100 basis points
The following table reports the variance of net interest income over the next 12 months
assuming a gradual change in
interest rates up or down when compared to the baseline net interest income
forecast at December 31, 2025.
Changes in Interest Rates
Net Interest Income % Variance
400 basis points
4.67
%
300 basis points
3.95
200 basis points
2.76
100 basis points
1.40
(100) basis points
(1.97)
(200) basis points
(3.13)
(300) basis points
(4.13)
(400) basis points
(5.16)
At December 31, 2025, our earnings simulation model indicated that
we were in compliance with the policy guidelines
noted above.
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53
Economic Value
of Equity
Economic value of equity (“EVE”) measures the extent that estimated economic
values of our assets, liabilities and off-
balance sheet items will change as a result of interest rate changes. 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
which allows for the re-pricing of all assets, liabilities, and off-balance
sheet items. Further, EVE is measured using values
as of a point in time and does not reflect any actions that ALCO might take in responding
to or anticipating changes in
interest rates, or market and competitive conditions.
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 from our base case by more than the following:
35% for an instantaneous change of +/- 400 basis points
30% for an instantaneous change of +/- 300 basis points
25% for an instantaneous change of +/- 200 basis points
15% for an instantaneous change of +/- 100 basis points
The following table reports the variance of EVE assuming an immediate
change in interest rates up or down when
compared to the baseline EVE at December 31, 2025.
Changes in Interest Rates
EVE % Variance
400 basis points
3.76
%
300 basis points
4.08
200 basis points
3.44
100 basis points
2.21
(100) basis points
(3.41)
(200) basis points
(9.01)
(300) basis points
(17.83)
(400) basis points
(27.26)
At December 31, 2025, our EVE model indicated that we were in compliance
with the policy guidelines noted above.
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. Income associated with interest-earning
assets and costs associated with interest-bearing liabilities
may not be affected uniformly by changes in interest rates.
In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,
although certain assets and liabilities may have
similar maturities or periods of repricing, they may react in different
degrees to changes in market interest rates, and other
economic and market factors, including market perceptions. Interest
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
changes in general market rates. In addition, certain assets, such as adjustable-rate
mortgage loans, have features (generally
referred to as “interest rate caps and floors”) which limit changes in interest rates.
Prepayment and early withdrawal levels
also could deviate significantly from those assumed in calculating the maturity of
certain instruments. The ability of many
borrowers to service their debts also may decrease during periods of rising interest
rates or economic stress, which may
differ across industries and economic sectors.
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,
loan,
investment, borrowing, and capital policies.
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54
The Company may also use derivative financial instruments to improve
the balance between interest-sensitive assets and
interest-sensitive liabilities and as one tool to manage interest rate sensitivity while continuing
to meet the credit and
deposit needs of our customers. 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, and may be designated as
hedging instruments. At December 31, 2025, the Company had one derivative
contract to assist in managing interest rate
sensitivity.
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,
primarily for deposit withdrawals, loan demand and maturing obligations.
Without proper management of its liquidity,
the
Company could experience higher costs of obtaining funds due to insufficient
liquidity, while excessive liquidity
can lead
to a decline in earnings due to the cost of foregoing alternative higher-yielding
investment opportunities.
Liquidity is managed at two levels. The first is the liquidity of the Company.
The second is the liquidity of the Bank. The
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
to regulatory guidelines and requirements. The
Company depends upon dividends from the Bank for liquidity to pay its operating
expenses, debt obligations and
dividends. The Bank’s payment of
dividends depends on its earnings, liquidity,
capital and the absence of any regulatory
restrictions.
The primary source of funding and liquidity for the Company has been dividends
received from the Bank. The Company
depends upon dividends from the Bank for liquidity to pay its operating
expenses, debt obligations, if any,
and cash
dividends on, and repurchases of, Company common stock.
The Bank’s payment of dividends
depends on its earnings,
liquidity, capital and the
absence of any regulatory restrictions.
If needed, the Company could also issue common stock or
other securities.
Primary sources of funding for the Bank include customer deposits, other
borrowings, interest payments on earning assets,
repayments
and maturities of securities and loans, sales of securities, and the sale of loans, particularly
residential mortgage
loans. Primary uses of funds include repayment of maturing obligations
and growing the loan portfolio.
The Bank has access to federal funds lines from various banks and borrowings
from the Federal Reserve discount window,
although it was not used by the Bank.
In addition to these sources, the Bank is eligible to participate in the FHLB-Atlanta’s
advance program to obtain funding for growth and liquidity.
Advances include both fixed and variable terms and may
be
taken out with varying maturities. At December 31, 2025, the Bank
had no FHLB-Atlanta advances outstanding and
available credit from the FHLB-Atlanta of $304.9 million. At December
31, 2025, the Bank also had $65.2 million of
available federal funds lines with no borrowings outstanding.
The following table presents additional information about our contractual
obligations as of December 31, 2025, which by
their terms had contractual maturity and termination dates subsequent
to December 31, 2025:
Payments due by period
1 year
1 to 3
3 to 5
More than
(Dollars in thousands)
Total
or less
years
years
5 years
Contractual obligations:
Deposit maturities (1)
$
922,926
910,388
9,726
2,812
—
Operating lease obligations
157
55
102
—
—
Total
$
923,083
910,443
9,828
2,812
—
(1) Deposits with no stated maturity (demand, NOW, money market, and savings deposits) are presented
in the "1 year or less" column
Management believes that the Company and the Bank have adequate
sources of liquidity to meet all known contractual
obligations and unfunded commitments, including loan commitments and reasonable
borrower, depositor,
and creditor
requirements over the next 12 months.
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55
Off-Balance Sheet Arrangements
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. Because these commitments generally
have fixed expiration dates and may expire without
being drawn upon, the total commitment level does not necessarily represent
future cash requirements. If needed to fund
these outstanding commitments, the Bank could use its cash and cash
equivalents, deposits with other banks, liquidate
federal funds sold or a portion of its securities available-for-sale, or draw on its available
credit facilities or raise deposits.
Residential mortgage lending and servicing activities
We primarily
sell conforming residential mortgage loans in the secondary market to Fannie Mae
while retaining the
servicing of these loans (MSRs). The sale agreements for these residential mortgage
loans with Fannie Mae and other
investors include various representations and warranties regarding
the origination and characteristics of the residential
mortgage loans. 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 securing the loan,
compliance with loan criteria set forth in the applicable agreement, compliance
with applicable federal, state, and local
laws, among other matters.
The Bank sells mortgage loans to Fannie Mae and services these on an actual/actual basis.
As a result, the Bank is not
obligated to make any advances to Fannie Mae on principal and interest
on such mortgage loans where the borrower is
entitled to forbearance.
As of December 31, 2025, the unpaid principal balance of residential mortgage
loans, which we have originated and sold,
but retained the servicing rights (MSRs) totaled $188.8 million. Although
these loans are generally sold on a non-recourse
basis, except for breaches of customary seller representations and warranties,
we may have to repurchase residential
mortgage loans in cases where we breach such representations or warranties
or the other terms of the sale, such as where we
fail to deliver required documents or the documents we deliver are defective.
Investors also may require the repurchase of a
mortgage loan when an early payment default underwriting review reveals
significant underwriting deficiencies, even if the
mortgage loan has subsequently been brought current. 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
occurred. We
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
good communications with our residential
mortgage investors.
We service all residential
mortgage loans originated and sold by us to Fannie Mae. As servicer,
our primary duties are to:
(1) collect payments due from borrowers; (2) advance certain delinquent
payments of principal and interest; (3) maintain
and administer any hazard, title, or primary mortgage insurance policies relating
to the mortgage loans; (4) maintain any
required escrow accounts for payment of taxes and insurance and
administer escrow payments; and (5) foreclose on
defaulted mortgage loans or take other actions to mitigate the potential losses to
investors consistent with the agreements
governing our rights and duties as servicer.
The agreement under which we act as servicer generally specifies our
standards of responsibility for actions taken by us in
such capacity and provides protection against expenses and liabilities incurred
by us when acting in compliance with the
respective servicing agreements. However,
if we commit a material breach of our obligations as servicer,
we may be subject
to termination if the breach is not cured within a specified period following notice.
The standards governing servicing and
the possible remedies for violations of such standards are determined
by servicing guides issued by Fannie Mae as well as
our contracts with Fannie Mae. Remedies could include repurchase of an affected
loan.
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
in frequency if investors more aggressively
pursue all means of recovering losses on their purchased loans. As of December
31, 2025, we believe that this exposure is
not material due to the historical level of repurchase requests and loss trends,
the results of our quality control reviews, and
the fact that 99% of our residential mortgage loans serviced for Fannie
Mae were current as of such date. We
maintain
ongoing communications with our investors and will continue to evaluate
this exposure by monitoring the level and number
of repurchase requests as well as the delinquency rates in our investor portfolios.
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56
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-whole
requests at December 31, 2025.
Effects of Inflation and Changing Prices
The consolidated financial statements and related consolidated financial
data presented herein have been prepared in
accordance with GAAP and practices within the banking industry which
require the measurement of financial position and
operating results in terms of historical dollars without considering
the changes in the relative purchasing power of money
over time due to inflation. 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
than the effects of general levels of inflation.
Inflation can increase our noninterest expenses. It also can affect
our customers’ behaviors, the mix of deposits between
interest and noninterest bearing, the levels of interest rates we have to pay on
our deposits and other borrowings, and the
interest rates we earn on our earning assets. The difference between
our interest expense and interest income is also affected
by the shape of the yield curve and the speeds and amounts at which our various assets and
liabilities, respectively, reprice
in response to interest rate changes. The yield curve was inverted during
most of 2024, until September, when it began
to
normalize.
An inverted yield curve means shorter term interest rates are higher than longer term interest
rates. This results
in a lower spread between our costs of funds and our interest income. In 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 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 ASUs have been issued by the FASB
but are not yet effective.
ASU 2025-01,
Income Statement Reporting Comprehensive Income
- Expense Disaggregation Disclosures
(Subtopic 220-
40): 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
to
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. ASU 2025-01
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
and is not
expected to have a significant impact on the Company’s
consolidated financial statements.
ASU 2025-06,
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. ASU
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.
ASC 2025-11,
Interim Reporting (Topic
270): Narrow-Scope Improvement
s,
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. ASC 2025-11
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
s
tatements.
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57
Table 1
– Explanation of Non-GAAP Financial Measures
In addition to results presented in accordance with GAAP,
this annual report on Form 10-K includes certain designated net
interest income amounts presented on a tax-equivalent basis, a non-GAAP financial
measure, including the presentation of
total revenue and the calculation of the efficiency ratio.
The Company believes the presentation of net interest income on a tax-equivalent
basis provides comparability of net
interest income from both taxable and tax-exempt sources and facilitates comparability
within the industry. Although
the
Company believes these non-GAAP financial measures enhance investors’
understanding of its business and performance,
these non-GAAP financial measures should not be considered an alternative
to GAAP.
The reconciliation of these non-
GAAP financial measures from GAAP to non-GAAP is presented below.
Year ended December 31
(In thousands)
2025
2024
2023
2022
2021
Net interest income (GAAP)
$
29,674
27,125
26,328
27,166
23,990
Tax-equivalent adjustment
73
79
417
456
470
N
et interest income (Tax-equivalent)
$
29,747
27,204
26,745
27,622
24,460
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58
Table 2
- Selected Financial Data
Year ended December 31
(Dollars in thousands, except per share amounts)
2025
2024
2023
2022
2021
Income statement
Tax-equivalent interest income (a)
$
40,841
38,811
34,791
30,001
26,977
Total interest expense
11,094
11,607
8,046
2,379
2,517
Tax equivalent net interest income (a)
29,747
27,204
26,745
27,622
24,460
Provision for credit losses
631
36
135
1,000
(600)
Total noninterest income
3,119
3,474
(2,981)
6,506
4,288
Total noninterest expense
22,951
22,166
22,594
19,823
19,433
Net earnings before income taxes and
tax-equivalent adjustment
9,284
8,476
1,035
13,305
9,915
Tax-equivalent adjustment
73
79
417
456
470
Income tax expense (benefit)
1,956
2,000
(777)
2,503
1,406
Net earnings
$
7,255
6,397
1,395
10,346
8,039
Per share data:
Basic net earnings
$
2.08
1.83
0.40
2.95
2.27
Diluted net earnings
2.08
1.83
0.40
2.95
2.27
Cash dividends declared
$
1.08
1.08
1.08
1.06
1.04
Weighted average shares outstanding - basic
3,493,699
3,493,690
3,498,030
3,510,869
3,545,310
Weighted average shares outstanding - diluted
3,495,036
3,493,690
3,498,030
3,510,869
3,545,310
Shares outstanding
3,493,699
3,493,699
3,493,614
3,503,452
3,520,485
Stockholders' equity (book value)
$
26.35
22.41
21.90
19.42
29.46
Common stock price
High
$
28.47
24.57
24.50
34.49
48.00
Low
19.48
16.63
18.80
22.07
31.32
Period-end
$
26.95
23.49
21.28
23.00
32.30
To earnings ratio (b)
12.96
12.84
53.20
7.80
14.23
To book value
102.28
104.82
97.17
118.43
109.64
Performance ratios:
Return on average equity
8.61
%
8.21
2.05
12.48
7.54
Return on average assets
0.73
%
0.65
0.14
0.96
0.78
Dividend payout ratio
51.92
%
59.02
270.00
35.93
45.81
Average equity to average assets
8.45
%
7.93
6.66
7.72
10.39
Asset Quality:
Allowance for credit losses as a % of:
Loans
1.27
%
1.22
1.23
1.14
1.08
Nonperforming loans
1,489
%
1,366
753
211
1,112
Nonperforming assets as a % of:
Loans and other real estate owned
0.09
%
0.09
0.16
0.54
0.18
Total assets
0.05
%
0.05
0.09
0.27
0.07
Nonperforming loans as % of loans
0.09
%
0.09
0.16
0.54
0.10
Net charge-offs as a % of average loans
0.07
%
—
0.01
0.04
0.02
Capital Adequacy (c):
CET 1 risk-based capital ratio
16.06
%
14.80
14.52
15.39
16.23
Tier 1 risk-based capital ratio
16.06
%
14.80
14.52
15.39
16.23
Total risk-based capital ratio
17.14
%
15.81
15.52
16.25
17.06
Tier 1 leverage ratio
10.71
%
10.49
9.72
10.01
9.35
Other financial data:
Net interest margin (a)
3.27
%
3.06
2.89
2.81
2.55
Effective income tax (benefit) rate
21.24
%
23.82
(125.73)
19.48
14.89
Efficiency ratio (d)
69.83
%
72.25
95.08
58.08
67.60
Selected period end balances:
Securities
$
233,259
243,012
270,910
405,304
421,891
Loans, net of unearned income
565,354
564,017
557,294
504,458
458,364
Allowance for credit losses
7,176
6,871
6,863
5,765
4,939
Total assets
1,018,797
977,324
975,255
1,023,888
1,105,150
Total deposits
922,926
895,824
896,243
950,337
994,243
Total stockholders’ equity
92,053
78,292
76,507
68,041
103,726
(a) Tax-equivalent.
See "Table 1 - Explanation of Non-GAAP Financial Measures".
(b) Calculated by dividing period end share price by
earnings per share for the previous four quarters.
(c) Regulatory capital ratios presented are for the Company's
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.
Table of Contents
59
Table 3
- Average
Balance and Net Interest Income Analysis
Year ended December 31
2025
2024
Interest
Interest
Average
Income/
Yield/
Average
Income/
Yield/
(Dollars in thousands)
Balance
Expense
Rate
Balance
Expense
Rate
Interest-earning assets:
Loans and loans held for sale (1)
$
560,476
$
30,840
5.50%
$
568,733
$
29,735
5.23%
Securities - taxable
228,793
4,949
2.16%
248,072
5,430
2.19%
Securities - tax-exempt (2)
9,173
346
3.77%
10,084
373
3.70%
Total securities
237,966
5,295
2.23%
258,156
5,803
2.25%
Federal funds sold
26,535
1,127
4.25%
17,907
939
5.24%
Interest bearing bank deposits
83,648
3,579
4.28%
44,634
2,334
5.23%
Total interest-earning
assets
908,625
40,841
4.49%
889,430
38,811
4.36%
Cash and due from banks
15,414
17,779
Other assets
72,438
75,059
Total assets
$
996,477
$
982,268
Interest-bearing liabilities:
Deposits:
NOW
$
205,951
2,740
1.33%
$
192,702
2,680
1.39%
Savings and money market
253,668
2,461
0.97%
251,778
2,168
0.86%
Certificates of deposit
184,047
5,891
3.20%
195,097
6,756
3.46%
Total interest-bearing
deposits
643,666
11,092
1.72%
639,577
11,604
1.81%
Short-term borrowings
28
2
7.14%
628
3
0.48%
Total interest-bearing
liabilities
643,694
11,094
1.72%
640,205
11,607
1.81%
Noninterest-bearing deposits
265,978
262,224
Other liabilities
2,578
1,918
Stockholders' equity
84,227
77,921
Total liabilities and
and stockholders' equity
$
996,477
$
982,268
Net interest income and margin
$
29,747
3.27%
$
27,204
3.06%
(1) Average loan
balances are shown net of unearned income and loans on nonaccrual status have
been included
in the computation of average balances.
(2) Yields on tax-exempt securities have been
computed on a tax-equivalent basis using an income tax rate
of 21%.
See Table 1 - Explanation of Non-GAAP
Financial Measures."
Table of Contents
60
Table 4
- Volume
and Rate Variance
Analysis
Year ended December 31, 2025 vs. 2024
Year ended December 31, 2024 vs. 2023
Net
Due to change in
Net
Due to change in
(Dollars in thousands)
Change
Rate (2)
Volume (2)
Change
Rate (2)
Volume (2)
Interest income:
Loans and loans held for sale
$
1,105
1,559
(454)
$
4,810
2,463
2,347
Securities - taxable
(481)
(64)
(417)
(1,778)
133
(1,911)
Securities - tax-exempt (1)
(27)
7
(34)
(1,612)
(57)
(1,555)
Total securities
(508)
(57)
(451)
(3,390)
76
(3,466)
Federal funds sold
188
(178)
366
689
24
665
Interest bearing bank deposits
1,245
(424)
1,669
1,911
26
1,885
Total interest income
$
2,030
900
1,130
$
4,020
2,589
1,431
Interest expense:
Deposits:
NOW
$
60
(116)
176
$
773
783
(10)
Savings and money market
293
275
18
36
359
(323)
Certificates of deposit
(865)
(511)
(354)
2,821
2,128
693
Total interest-bearing
deposits
(512)
(352)
(160)
3,630
3,270
360
Short-term borrowings
(1)
42
(43)
(69)
(56)
(13)
Total interest expense
(513)
(310)
(203)
3,561
3,214
347
Net interest income
$
2,543
1,210
1,333
$
459
(625)
1,084
(1) Yields on tax-exempt securities have been
computed on a tax-equivalent basis using an income
tax rate of 21%.
See "Table 1 - Explanation
of Non-GAAP Financial Measures."
(
2) Changes that are not solely a result of volume or rate have been allocated
to volume.
Table of Contents
61
Table 5
- Net Charge-Offs (Recoveries) to Average
Loans
2025
2024
Net
Net
Net
(recovery)
Net
charge-off
(recoveries)
Average
charge-off
charge-offs
Average
(recovery)
(Dollars in thousands)
charge-off
Loans
ratio
(recoveries)
Loans
ratio
Commercial and industrial
$
112
58,986
0.19
%
$
(135)
71,279
(0.19)
%
Construction and land development
—
82,964
—
—
70,342
—
Commercial real estate
296
293,149
0.10
—
297,140
—
Residential real estate
(77)
117,252
(0.07)
52
118,856
0.04
Consumer installment
67
9,011
0.74
69
10,381
0.66
Total
$
398
561,362
0.07
%
$
(14)
567,998
—
%
Table of Contents
62
Table 6
- Loan Maturities
December 31, 2025
1 year
1 to 5
5 to 15
After 15
(Dollars in thousands)
or less
years
years
years
Total
Commercial and industrial
$
17,529
15,596
23,764
1,511
58,400
Construction and land development
36,103
18,842
1,491
—
56,436
Commercial real estate
56,098
154,297
110,603
4,523
325,521
Residential real estate
6,533
33,027
26,682
50,312
116,554
Consumer installment
2,084
5,264
1,073
—
8,421
Total loans
$
118,347
227,026
163,613
56,346
565,332
Table of Contents
63
Table 7
- Sensitivities to Changes in Interest Rates on Loans Maturing in More
Than One Year
December 31, 2025
Variable
Fixed
(Dollars in thousands)
Rate
Rate
Total
Commercial and industrial
$
330
40,541
40,871
Construction and land development
13,627
6,706
20,333
Commercial real estate
18,289
251,134
269,423
Residential real estate
50,365
59,656
110,021
Consumer installment
189
6,148
6,337
Total loans
$
82,800
364,185
446,985
Table of Contents
64
Table 8
- Allocation of Allowance for Credit Losses
2025
2024
(Dollars in thousands)
Amount
%*
Amount
%*
Commercial and industrial
$
1,129
10.3
$
1,244
11.2
Construction and land development
1,304
10.0
1,059
14.6
Commercial real estate
3,777
57.6
3,842
51.3
Residential real estate
837
20.6
588
21.0
Consumer installment
129
1.5
138
1.7
Total allowance for
credit losses
$
7,176
$
6,871
*
Loan balance in each category expressed as a percentage of total loans.
Table of Contents
65
ITEM 7A.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
The information called for by ITEM 7A is set forth in ITEM 7 under the
caption “Market and Liquidity Risk Management”
and is incorporated herein by reference.