What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-13 compared with 2025-11-12 · 624 added, 820 removed, 632 unchanged (70% of the section changed)

18 unchanged sentences

The holding company structure also provides greater

financial and operating flexibility than is presently permitted to the

financial and operating flexibility than is presently permitted to the Bank.

The Bank has operated continuously since 1907 and currently conducts its business

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Superintendent”).

The Bank has been a member of the FHLB of Atlanta since 1991.

Certain of the statements

The Bank has been a member of the FHLB - Atlanta since 1991.

Certain of the statements made in

discussion and analysis and elsewhere, including information incorporated

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Statements” below.

The following discussion and analysis is intended to provide a better

understanding of various factors related to the results

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

This discussion is intended to supplement and

highlight information contained in the accompanying unaudited condensed

consolidated financial statements and related

notes for the quarters and nine months ended September 30, 2025 and 2024,

as well as the information contained in our

annual report on Form 10-K for the year ended December 31, 2024 and our

interim reports on Form 10-Q for the quarters

ended March 31, 2025 and June 30, 2025.

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

of our results of operations and

financial condition of the Company and the Bank.

This discussion is intended to supplement and highlight information

contained in the accompanying unaudited condensed consolidated financial

statements and related notes for the quarters

ended March 31, 2026 and 2025, as well as the information contained in our Annual

Report on Form 10-K for the year

ended December 31, 2025.

Special Cautionary Notice Regarding Forward-Looking Statements

of the statements made herein under the captions “Management’s

Discussion and Analysis of Financial Condition

and Results of Operations”, “Quantitative and Qualitative Disclosures about

Market Risk”, “Risk Factors” “Description of

Property” and elsewhere, are “forward-looking statements” within the meaning

and protections of Section 27A of the

Securities Act of 1933 and Section 21E of the Securities Exchange

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

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

plans, objectives, goals, expectations,

of the statements made herein under the captions “Business”, “Properties”,

“Risk Factors”, “Management’s

Discussion and Analysis of Financial Condition and Results of Operations”, “Quantitative

and Qualitative Disclosures

about Market Risk”, and elsewhere, are “forward-looking statements” within

the meaning and protections of Section 27A

of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,

as amended (the “Exchange Act”).

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

objectives, goals, expectations,

anticipations, assumptions, estimates, intentions and future performance,

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update any forward-looking statements.

All statements other than statements of historical fact are statements that could

be forward-looking statements.

identify these forward-looking statements through our use of words such

as “may,” “will,” “anticipate,”

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

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

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

similar words and expressions of the future.

These forward-looking

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

All statements,

other than statements of historical fact, could be forward-looking

can identify these

forward-looking statements through our use of words such as “may”,

“will”, “anticipate”,

“assume”, “should”,

“contemplate”, “expect”,

“estimate”, “continue”,

“designed”, “plan”, “point to”, “project”, “could”,

“seek”, and other similar words and expressions of the future.

These forward-looking statements may

not be realized due to a variety of factors, including, without limitation:

the effects of future economic, business and market conditions and

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including inflation, seasonality,

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

and tornadoes, epidemics or pandemics including supply chain disruptions,

inventory volatility, and changes in

consumer behaviors;

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

tariffs, sanctions, the value of the U.S.

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

economic conditions, including inflation,

and consumer and business confidence;

governmental monetary and fiscal policies, including taxes, federal

deficit spending and the debt required to fund

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

in prices and unemployment,

including changes in the Federal Reserve’s

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

of securities through quantitative tightening or easing;

and the timing and speed

of any changes in furtherance of

the Federal Reserve’s long-term inflation

target of 2% while supporting maximum employment;

the effects of the federal government shutdown that began

October 1, 2025 due to federal budget disputes, which

continues and the effects of any resolution of such disputes;

legislative, executive branch and regulatory changes, including changes

by executive orders, the possible

reorganization and/or consolidation of the bank regulatory

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

leadership and personnel, including reductions in the number and experience

of personnel, at the bank and

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

and Budget of these agencies, freezes

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

and the uncertain effects of all

these, including the costs and benefits of such changes;

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

and their release from conservatorship on

the mortgage markets and us as an originator,

seller and servicer of residential mortgage loans;

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

and regulatory actions, which

may cause uncertainty,

wasted implementation costs and time by the industry,

and lengthy delays until ultimate

natural disasters such as hurricanes, tornados,

floods and droughts, epidemics or

pandemics, supply chain disruptions and changes in consumer behaviors;

the effects of war, other conflicts or

attacks, acts of terrorism, trade restrictions, tariffs, sanctions, the

dollar against other currencies, disruptions of supply chains including

energy supplies, or other events that

may affect general economic conditions, and consumer

and business confidence;

governmental fiscal and monetary policies and changes, including

taxes, the amount of federal deficit spending

and the debt to fund such spending, changes in monetary policies, including

changes in the Federal Reserve’s

target federal funds rate and in the Federal Reserve’s

holdings of securities through quantitative tightening or

and the duration that the Federal Reserve will keep its targeted federal

funds rates at or above current target

ranges to meet its long term inflation target of 2%;

changes in market interest rates and the shape of the yield curve on changes in savings,

deposit and payment

behaviors, the levels, composition and costs of deposits, loan demand and mortgage

loan originations, and the

values and liquidity of and interest-sensitive assets and liabilities;

increases in market interest rates that may result in unrealized losses on our

securities portfolio, which adversely

affect our stockholders’ equity for financial reporting purposes and

our tangible equity;

the effects of competition from a wide variety of local, regional,

national and other providers of financial,

investment and insurance services, including the disruptive effects

of financial technology and products, including

stablecoin and other digital assets businesses, which are not subject to the same

regulation, including capital and

liquidity requirements, internal controls, and supervision and examination,

as the Company and the Bank, and

competition from credit unions, which are not subject to federal income taxation;

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

currency and stablecoins (including

rewards or other forms of payments functionally similar to interest), that

increases competition to banks, increases

risks to the payment systems, increases risks of fraud and theft of digital assets and their effects

on customers other

financial institutions, including our counterparties, and confidence

in the financial system, generally;

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

application and enforcement by the

regulators, including capital and liquidity requirements, and changes in

the scope and cost of FDIC insurance;

application by the regulators, including

capital and liquidity requirements, and in the coverage and cost of FDIC deposit insurance;

legislative, executive branch and regulatory changes, including changes

in policy, leadership and personnel,

including reductions in the number and experience of personnel, at the bank

and securities regulators and the

CFPB, and the uncertain effects of all these, including the costs and

benefits of such changes;

the effects of the potential privatization and changes to Fannie Mae

and Freddie Mac and its purchases of

mortgage-backed securities on the mortgage markets and to us as an originator,

seller and servicer of residential

mortgage loans;

the assumptions, judgments and estimates made by the Company,

including those used in the Company’s CECL

models to establish our allowance for credit losses and asset impairments, as well as differences

in, and changes to,

economic, market and credit conditions, including changes in employment

levels and payment behaviors from

those used in our CECL models and loan portfolio reviews;

changes in accounting pronouncements and interpretations;

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

CECL models to establish our

allowance for credit losses and estimate asset impairments, as well as differences

in, and changes to, economic,

market and credit conditions, including changes in borrowers’ credit

risks and payment behaviors from those used

in our CECL models and loan portfolio reviews;

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

composition and costs of deposits, loan demand and mortgage loan originations;

the values and liquidity of loan

collateral, our securities portfolio and interest-sensitive assets and

and the risks and uncertainty of the

amounts realizable on collateral;

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

securities available for sale, which

adversely affect our stockholders’ equity for financial

reporting purposes and our tangible equity;

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

payment behaviors;

changes in borrower credit risks;

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

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may be included as capital for regulatory purposes;

changes in the prices, values and sales volumes of residential and commercial

the effects of competition from a wide variety of local, regional,

national and other providers of financial,

investment and insurance services, including the disruptive effects

of financial technology and other competitors

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

requirements, internal controls, and

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

from credit unions, which are not

subject to federal income taxation;

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

July 18, 2025, and the proposed

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

by Congress, more permissive

policies, regulation and/or enforcement regarding

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

the chartering of new depository institutions focused on crypto coins

and which creates additional competition to

banks and potential disintermediation of deposits, and greater risks to

the payment systems that the banking

industry, including the

Company, relies on, and greater

risks of fraud and theft of digital assets and their effects on

customers, other financial institutions, including our counterparties, financial

stability and confidence in the

financial system, generally;

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

space in our Auburn Center headquarters

and in former office locations;

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

limitation, the related time and costs of

implementing such transactions, integrating operations as part of

these transactions and possible failures to achieve

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

changes in technology or products that may be more difficult, costly,

or less effective than anticipated;

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

vendors’ systems or customers’

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

included in “other assets” on our consolidated balance sheets, if

any, could be reduced

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

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

in the amount of net operating loss

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

the risks that our dividends, share repurchases and discretionary

bonuses are limited by regulation requiring the

maintenance of capital, including a capital conservation buffer

of 2.5% and to the amount of our future earnings

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

changes in our technology or products that may be more difficult,

costly and risky, or less effective

threats of potential cyber-attacks and data breaches, in constantly changing

forms and increasing sophistication,

including through the use of artificial intelligence and state sponsorship

of the attacks;

the estimates that our future taxable income could be inaccurate, and if lower taxable

income is realized from our

operations, the amount of our deferred tax assets that we anticipate will be reduced;

our future earnings and “eligible retained earnings” over rolling four calendar

quarter periods may limit our

ividends, share repurchases and discretionary bonuses;

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

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Summary of Results of Operations

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands, except per share amounts)

Quarter ended March 31,

(Dollars in thousands, except per share data)

Net interest income (a)

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(a) Tax-equivalent.

See "Table 1 - Explanation

of Non-GAAP Financial Measures."

See "Table 1 - Explanation of

Non-GAAP Financial Measures."

Financial Summary

The Company’s net earnings were $2.2

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

for the first nine months of 2024.

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

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

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

of 2025, a 9% increase compared to $20.2

million for the first nine months of 2024.

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

margin and an increase in average interest-earning assets.

million for the first quarter of 2026, a 44% increase compared to $1.5 million

the first quarter of 2025.

Basic and diluted earnings per share were $0.63 per share for the first quarter

of 2026, compared

to $0.44 per share for the first quarter of 2025.

income (tax-equivalent) was $7.8 million for the first quarter of

2026, a 10% increase compared to $7.1 million

for the first quarter of 2025.

This increase was due to growth in average interest-earning assets and improvements

net interest margin.

The Company’s net interest margin

(tax-equivalent) was 3.26%

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

This increase was primarily due to

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

cost of interest-bearing deposits.

of Operations – Average

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

At September 30, 2025, the Company’s

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

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

or 1.22% of total loans, at September 30,

The Company recorded a negative provision for credit losses during the

first nine months of 2025 of $152 thousand,

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

nine months of 2024.

The provision for credit losses

under CECL reflects the Company’s

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

CECL model is largely influenced by economic factors including,

the anticipated Alabama unemployment rate, which may

be affected by government policies, including monetary,

fiscal and other policies, including tariffs.

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

compared to $2.6 million in the first nine months of

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

and other noninterest income.

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

compared to $16.7 million for the first nine months

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

other noninterest expense.

These increases were partially offset by a decrease in net occupancy

and equipment expense.

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

compared to $1.2 million for the first nine months of

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

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

months of 2024.

(tax-equivalent) was 3.28% for the first quarter of 2026 compared

to 3.09% for the first quarter of 2025.

This increase was primarily due to higher yields on interest-earnings assets, a

decrease in our cost of interest-bearing deposits, and a more favorable asset mix.

Average loans were

approximately

$577.5 million in the first quarter of 2026, compared to $566.1 million in the first quarter

The Company recorded a negative provision for credit losses of $(76) thousand

in the first quarter of 2026, compared to a

negative provision of $(10) thousand in the first quarter of 2025.

The provision for credit losses is affected by changes in

overall balance and composition of our loan portfolio and unfunded commitments,

our internal assessment of the credit

quality of the loan portfolio, our expectations about future economic

conditions, and net charge-offs.

Noninterest income was $0.9 million in the first quarter of 2026,

compared to $0.7 million in the first quarter of 2025.

increase was primarily due to mortgage lending income.

Noninterest expense was $5.9 million in the first quarter of 2026

and first quarter of 2025, respectively.

expense was largely unchanged as a decrease in net occupancy and

equipment expense was largely offset by an increase in

professional fees expense.

The provision for income tax expense was $0.6 million for the first quarter of 2026

compared to $0.4 million for the first

quarter of 2025.

The Company's effective tax rate for the first quarter of 2026 was 21.53%, compared

to 20.40% in the first

quarter of 2025.

The Company’s effective

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

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

Company’s investments

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Credits (“NMTCs”).

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

2025 and 2024.

At September 30, 2025,

the Bank’s regulatory capital

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

under current

regulatory standards with a total risk-based capital ratio of 16.49%,

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

tier 1 (“CET1”) ratio of 15.51% at September 30, 2025.

The Company paid cash dividends of $0.27 per share in the first quarter of 2026

At March 31, 2026, 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 17.13%, a tier 1 leverage ratio of

10.60% and a common equity tier 1

“CET1”) ratio of 16.12% at March 31, 2026.

See “Balance Sheet Analysis – Capital Adequacy.”

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

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

share, for the third quarter of 2024.

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

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

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

and improvements in our net interest margin.

The Company’s net interest margin

(tax-equivalent) was 3.30% in the third

quarter of 2025 compared to 3.05% in the third quarter of 2024.

The increase was primarily due to improved yields on

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

The Company recorded a negative provision

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

to a negative provision for credit losses of $127

thousand in the third quarter of 2024.

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

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

compared to $5.5

million for the third quarter of 2024.

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

benefits expense and increases in other

noninterest expense.

Income tax expense was $0.6

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

third quarter of 2024.

The Company’s effective

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

the third quarter of 2024.

CRITICAL ACCOUNTING POLICIES

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Sheet and Interest Rates

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

Interest-earning assets:

Loans and loans held for sale

Securities - taxable

Securities - tax-exempt

Total securities

Federal funds sold

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Total interest-earning

Interest-bearing liabilities:

Savings and money market

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Total interest-bearing

Short-term borrowings

Total interest-bearing

Net interest income and margin (tax-equivalent)

See Tables 4 and 5 –

Average Balances and Net Interest

Income Analysis for the quarters and nine months ended

September 30, 2025 and 2024, and Table

and Rate Variance

Net interest income and margin (tax-equivalent) (a)

(a) See "Table 1 - Explanation

of Non-GAAP Financial Measures."

Net Interest Income and Margin

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

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

million for the first nine months of 2024.

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

margin and an increase in average interest-earning assets.

Net interest income (tax-equivalent) was $7.8 million for the first quarter of

2026, a 10% increase compared to $7.1 million

for the first quarter of 2025.

This increase was due to growth in average interest-earning assets and improvements

net interest margin.

Average interest-earning

assets were $967.3 million during the first quarter of 2026, a 4% increase

compared to $934.4 million during the first quarter of 2025.

The Company’s net interest margin

(tax-equivalent) was

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

3.28% for the first quarter of 2026 compared to 3.09% for the first quarter

This increase was primarily due to

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

cost of our interest-bearing deposits.

March 2022, the Federal Reserve increased the target federal funds

rate by 525 basis points before announcing a 50-basis

points rate reduction on September 18, 2024, its first decrease in rates since its March 2020 COVID

rate reduction,

followed by two 25 basis points reductions in October and December

2024 and another 25 basis point reduction in

September 2025.

At September 30, 2025, the Federal Reserve’s

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

Federal Reserve further reduced its target federal

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

higher yields on interest-earnings assets, a decrease in our cost of interest-bearing

deposits, and a more favorable asset mix.

The Federal Reserve announced a 25-basis points reduction in the target

range for the federal funds rate in each of

September, October and December

At March 31, 2026, the Federal Reserve’s

target federal funds rate range

remained at 3.50% to 3.75%, which the Federal Reserve reaffirmed

at its April 29, 2026 meeting.

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

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

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

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

cash and cash equivalents increased and securities declined.

Average interest-earning

assets were $903.2 million during the

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

during the first nine months of 2024.

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

months of 2025 to 175 basis points,

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

Our deposit costs may fluctuate as we compete for

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

securities and other interest-bearing alternative

8 basis points to 4.39% in the first quarter of 2026

compared to 4.31% in the first quarter of 2025.

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

The cost of interest-bearing liabilities decreased 20 basis points in the first quarter

of 2026 to 1.58%, compared to 1.78% in

the first quarter of 2025 following decreases to the federal funds rate.

The Company continues to deploy various asset liability management

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Deposit and loan pricing remain competitive in our

We believe this challenging

rate environment

will continue throughout the remainder of 2025.

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

earning assets reprice

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

to our net interest

margin during the remainder of 2025.

We believe that interest

rates, inflation and

monetary policy may continue to fluctuate in 2026 and may be challenging

Our ability to compete and manage

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

new loans with current market interest rates will

be important to our net interest margin during the remainder of

Provision for Credit Losses

The Company recorded a negative provision for credit losses during the

first nine months of 2025 of $152 thousand,

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

months of 2024.

Provision expense is affected by organic loan

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

of the loan portfolio, our expectations about future

economic conditions and net charge-offs.

Our CECL model is largely influenced by economic factors including,

Alabama unemployment rate, which may be affected by

government policies, including monetary,

other policies, including tariffs.

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

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

a reduction in the Alabama unemployment

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

from the construction and land

development loan segment to the multifamily loan segment, which carries

lower modeled loss rates, also contributed to the

negative provision for credit losses during

the current period.

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

based on our allowance assessment

The Company recorded a negative provision for credit losses of $(76) thousand

in the first quarter of 2026, compared to a

negative provision of $(10) thousand in the first quarter of 2025.

The provision for credit losses is affected by changes in

overall balance and composition of our loan portfolio and unfunded commitments,

our internal assessment of the credit

quality of the loan portfolio, our expectations about future economic

conditions, and net charge-offs.

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 September 30,

2025, the Company’s allowance for

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

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

total loans, at September 30, 2024.

At March 31, 2026,

the Company’s allowance for credit

losses was $6.8 million or 1.16% of total loans, compared to $7.2 million, or 1.27% of

total loans at December 31, 2025, and $6.8 million, or 1.20% of total loans

at March 31, 2025.

The decrease was primarily

due to refinements in the Company’s

calculation of current expected credit losses (“CECL”).

The decrease was primarily due to refinements in the Company’s

calculation of current expected credit losses (“CECL”).

During the first quarter of 2026, the Company established a new loan

segment within its CECL calculation for municipal

loans, which reduced the allowance for credit losses due to lower expected

credit costs associated with these loans.

this change, municipal loans were included in the commercial and industrial

loan segment for CECL.

Noninterest Income

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

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

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

in a decrease in the fair value of MSRs.

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

a decrease in the fair value of MSRs.

The following table presents a breakdown of the Company’s

mortgage lending income.

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

Origination income

Origination income, net

Servicing fees, net

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The Company’s mortgage

lending income typically fluctuates as mortgage interest rates, housing

sales and refinancings

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

of 2024 due to a

decrease in mortgage lending demand in our primary market area.

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

compared to $2.6 million for the first nine

months of 2024.

The decrease in other noninterest income was primarily due to decreased fee income

on reciprocal

deposits sold through the Intrafi network.

lending income typically fluctuates as mortgage interest rates change.

Origination income

increased due to increased mortgage lending demand in our primary market

Noninterest Expense

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

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Total noninterest expense

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

annual increases in salaries and wages.

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

compared to $1.2 million for the first nine months of

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

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

months of 2024.

The decrease in net occupancy and equipment expense was primarily due

to increased leasing income associated with the

Company’s headquarters.

The increase in professional fees was primarily due to an increase in legal expenses.

Income tax expense was $0.6 million for the first quarter of 2026

compared to $0.4 million for the first quarter of 2025.

The Company's effective tax rate for the first quarter of 2026

was 21.53%, compared to 20.40% in the first quarter of 2025.

The Company’s effective

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

Company’s investments

income tax rate is affected principally by tax-exempt earnings

from the Company’s investments

in municipal securities and loans, BOLI, and NMTCs.

BALANCE SHEET ANALYSIS

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

Securities available-for-sale were $226.8 million at March 31, 2026,

compared to $233.3 million at December 31, 2025.

This decrease reflects the effects of an $18.0 million decrease in the

amortized cost basis of securities available-for-

sale and an increase in the fair value of securities available-for-sale of

$11.4 million.

Unrealized losses on securities

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

interest rates.

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

in the first nine months of 2025

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

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

-for-sale, due to normal paydowns and

maturities, of $6.1 million and a decrease in the fair value of securities available

-for-sale of $0.4 million.

annualized tax-equivalent yields earned on total securities were 1.96%

in the first quarter of 2026 compared to 1.98% in the

first quarter of 2025.

(In thousands)

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Total loans were $582.1

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

at December 31,

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

commercial real estate

(54%), residential real estate (21%), construction and land development (14%)

and commercial and industrial (10%).

million at March 31, 2026, compared to $565.3 million at December 31,

categories represented the majority of the loan portfolio at March 31, 2026:

real estate (57%), residential real

estate (19%), and construction and land development (10%).

Approximately 18% of the Company’s

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

commercial real estate

loans were classified as owner-occupied at March 31, 2026.

During the first quarter of 2026, the Company established a separate municipal

loan segment following growth in these

Prior to this change in presentation, municipal loans were included in the

commercial and industrial loan

Prior period amounts have been revised to conform with the current period presentation.

Within the residential real estate portfolio segment,

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

the Company had junior lien mortgages of approximately $11.6

or 2% of total loans,

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

2025 and December 31, 2024, respectively.

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

Company had no loans that required interest only

payments at September 30, 2025 and December 31, 2024.

and $12.3 million, or 2%, of total loans at March 31, 2026 and December 31, 2025, respectively.

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

had no loans that required interest only

payments at March 31, 2026 and December 31, 2025.

The Company’s

residential real estate mortgage portfolio does

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

residential real estate mortgage portfolio does not

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

amount of other consumer mortgage products

which are generally viewed as high risk.

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

months of 2025 and 5.18% in the first

nine months of 2024.

The average yield earned on loans and loans held for sale was 5.62% in the first quarter

of 2026 and 5.44% in the first

quarter of 2025.

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

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certain credits, interest rate fluctuations, reduced collateral values or

non-existent collateral, title defects, in accurate

non-existent collateral, title defects, inaccurate

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

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may exist in the future.

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

loan-to-value guidelines for collateralized

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

guidelines for collateralized

loans, investigating the creditworthiness of borrowers and monitoring borrowers’

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unfunded commitments) to a single borrower of $21.2 million.

loan policy requires that the Loan Committee of the

policy requires that the Loan Committee of the

Board of Directors approve any loan relationships that exceed this internal

At September 30, 2025, the Bank had no

loan relationships exceeding our internal limit.

At March 31, 2026, the Bank had no loan

relationships exceeding our internal limit.

We periodically

analyze our commercial and industrial and commercial real estate loan

portfolios to determine if a

analyze our commercial and industrial and commercial real estate loan portfolios

to determine if a

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

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classes exceeded 25% of the Bank’s

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

September 30,

total risk-based capital at March 31, 2026 (and related balances at December

(Dollars in thousands)

Lessors of 1-4 family residential properties

Multi-family residential properties

Lessors of 1-4 family residential properties

Shopping centers/strip malls

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Our allowance for credit losses was approximately $6.8 million and $7.2

million at September 30, 2025 and December 31,

respectively, which our management

to be adequate at each of the respective dates.

million at March 31, 2026 and December 31,

2025, respectively,

which our management believed to be adequate at each of the respective dates.

Our allowance for credit

losses as a percentage of total loans was 1.20%

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

losses as a percentage of total loans was 1.16% at March 31, 2026, compared

to 1.27% at December 31, 2025.

During the first quarter of 2026, the Company refined its loan portfolio

segmentation to separately identify municipal loans,

which were previously included within commercial and industrial loans, due

to their recent growth and distinct risk

characteristics.

The allowance for credit losses related to municipal loans is determined using a discounted

methodology incorporating probability of default and loss given default assumptions

derived from external data sources.

As a result of this refinement, the total allowance decreased due to the lower

expected credit losses associated with these

This refinement represents a change in accounting estimate and is accounted for prospectively.

No adjustments

were made to prior periods.

Our CECL models rely largely on projections of macroeconomic

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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,

rate, 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.

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a collective basis for pools of loans with

similar risk characteristics, and for loans that do not share similar risk characteristics

with the collectively evaluated pools,

evaluations are performed on an individual basis.

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 September 30, 2025, reasonable and supportable periods of four

quarters were utilized followed by an eight quarters

straight line reversion period to long term averages.

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 March 31, 2026,

reasonable and supportable periods of 4 quarters were utilized

followed by an 8-quarter straight line reversion period to

long term averages.

The allowance for credit losses by loan category for the first quarter of 2026 and the previous four

quarters is presented

First Quarter

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

(Dollars in thousands)

Commercial and industrial

Construction and land

Commercial real estate

Residential real estate

Consumer installment

Total allowance for

credit losses

* Loan balance in each category expressed as a percentage of total loans.

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

asset quality ratios for the third quarter of 2025 and

asset quality ratios for the first quarter of 2026 and

the previous four quarters is presented below.

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Commercial and industrial

Commercial real estate

Residential real estate

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

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

previous four quarters is presented

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Third Quarter

(Dollars in thousands)

Commercial and industrial

Construction and land

Commercial real estate

Residential real estate

Consumer installment

Total allowance for

credit losses

* Loan balance in each category expressed as a percentage of total loans.

Net charge-offs were $402 thousand for the

first quarter of 2026, compared to net charge-offs of

$64 thousand for the first

quarter of 2025.

Net charge-offs in the

first quarter of 2026 were primarily related to one nonperforming collateral-

dependent loan.

Nonperforming Assets

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

and $0.5 million, respectively,

At March 31, 2026 and December 31, 2025, the Company had $0.1 million and $0.5

million, respectively, in

nonperforming assets.

The table below provides information concerning total nonperforming

assets and certain asset quality ratios for the third

assets and certain asset quality ratios for the first

quarter of 2026 and the previous four quarters.

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Total nonperforming

as a % of loans and OREO

as a % of loans and other real estate owned

as a % of total assets

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The table below provides information concerning the composition of

nonaccrual loans for the third quarter of 2025 and the

nonaccrual loans for the first quarter of 2026 and the

previous four quarters.

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

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

still accruing at September 30, 2025 compared to

none at December 31, 2024.

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

The Company had $208 thousand in loans 90 days or more past due

and still accruing at March 31, 2026 compared to none

at December 31, 2025.

The Company had no other real estate owned at March 31, 2026 or December

(In thousands)

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Total deposits were $931.1

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

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

to an increase in money market and interest-

bearing checking accounts.

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

to $74.1 million at December 31, 2024.

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

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

September 30, 2025, compared to

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

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

nine months of 2025, compared to 1.80% in

first nine months of 2024.

million at March 31, 2026, compared to $922.9 million at December 31, 2025.

bearing deposits were 28% of total deposits at March 31, 2026, compared

to 29% of total deposits at December 31, 2025.

The Company had no brokered deposits at March 31, 2026 and December 31, 2025.

The average rate paid on total interest-bearing

deposits was 1.58% in the first quarter of 2026, compared to 1.78% in first

quarter of 2025.

The Bank participates in the Certificates of Deposit Account Registry Service

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among banks facilitated by IntraFi for the purpose

of improving the FDIC insurance coverage for our depositors.

The Company had reciprocal deposits on balance sheet of

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

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

or 40% of total deposits, compared to $359.7

of improving the FDIC insurance for our depositors.

The Company had reciprocal deposits on its balance sheet of $19.9

million at March 31, 2026, compared to $9.8 million at December

At March 31, 2026, the Company had $96.1

million reciprocal deposits sold, compared to $79.7 million at December

At March 31, 2026, estimated uninsured deposits totaled $383.2

million, or 41% of total deposits, compared to $392.9

million, or 43% of total deposits at December 31, 2025.

Uninsured amounts are estimated based on the portion of account

balances in excess of FDIC insurance limits.

The Bank’s estimated uninsured

deposits at September 30, 2025 and

December 31, 2024 include approximately $207.6 million

and $223.1 million, respectively,

of deposits of state, county and

local governments that are collateralized by securities having an equal fair value

to such deposits.

Excluding estimated

uninsured deposits of state, county and local governments,

our estimated uninsured deposits would have been 18% of total

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

The estimated uninsured time deposits by maturity as of September

30, 2025 is presented below.

balances that exceed FDIC insurance limits.

The Bank’s uninsured deposits at March

31, 2026 and December 31, 2025

include approximately $235.3 million and $228.7 million, respectively,

of deposits of state, county and local governments

that are collateralized by securities.

Deposits of state, county and local governments were 61% and 58%

of our estimated

uninsured deposits at March 31, 2026 and December 31, 2025, respectively.

The estimated uninsured time deposits by maturity as of March 31, 2026

are presented below.

(Dollars in thousands)

September 30, 2025

March 31, 2026

3 months or less

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Other Borrowings and Available

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

The Bank utilizes short and long-

term non-deposit borrowings from time to time.

Short-term borrowings

generally consist of federal funds purchased and

The Company had no long-term debt at March 31, 2026 and December 31, 2025.

The Bank utilizes short and long-term

non-deposit borrowings from time to time.

Short-term borrowings generally

consist of federal funds purchased and

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

The Bank had available federal

funds lines totaling $65.2 million with no federal

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

funds lines totaling $65.2 million with no federal fund borrowings outstanding

at March 31, 2026, and December 31, 2025,

respectively.

The Company had no securities sold under agreements to repurchase,

which generally have been

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

and December 31, 2024.

The Bank is eligible to

borrow from the FRB’s discount window,

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

Bank never borrowed from the Federal Reserve’s

Bank Term Facility Program

(“BTFP”), which ceased making new loans

on March 11, 2024.

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

in the future borrow from time to time under the

FHLB of Atlanta’s advance program.

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

maturities, and are generally secured by eligible assets.

The Bank had no borrowings under FHLB of Atlanta’s

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

Company had no securities sold under agreements to repurchase,

which generally have been entered into

on behalf of certain customers,

at March 31, 2026 and December 31, 2025.

The Bank is eligible to borrow from the FRB’s

discount window, but had

no such borrowings at March 31, 2026 and December 31, 2025.

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

The Bank had no borrowings under FHLB-

Atlanta’s advance program

at March 31, 2026 and December 31, 2025.

At those dates, the Bank had $305.5 million and

$304.9 million, respectively,

of available lines of credit at the FHLB of Atlanta.

of available lines of credit at the FHLB-Atlanta.

CAPITAL ADEQUACY

The Company’s consolidated

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

December 31, 2024, respectively.

The increase from December 31, 2024 was primarily driven by

net earnings of $5.6

million and other comprehensive income due to the change in unrealized

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

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

At March 31, 2026, the Company’s

consolidated stockholders’ equity (book value) was $93.1 million, or $26.62 per

compared to $92.1 million, or $26.35 per share, at December 31, 2025.

The increase from December 31, 2025 was

primarily driven by net earnings of $2.2 million, which was partially offset

by an other comprehensive loss of $0.3 million

due to an increase in unrealized losses on securities available-for-sale, net of

tax, and cash dividends paid of $0.9 million.

Unrealized losses do not affect the Bank’s

regulatory capital purposes.

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

nine months of 2025 and the first nine months of

During July of 2025, the Company granted certain officers

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

common stock pursuant to the Company’s

2024 Equity and Incentive Compensation Plan.

The RSUs are reflected in the

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

were not material to the Company’s financial

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

The Form of Award

Agreement is filed as Exhibit 10.1 to this

Federal Reserve rules require a capital conservation buffer

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

including dividend payments, share repurchases

and certain discretionary bonus payments.

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

Small Bank Holding

capital for regulatory capital purposes.

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

of 2026 and the first quarter of 2025.

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

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 10.72%,

CET1 risk-based capital ratio was 15.51%, tier 1

tier 1 leverage ratio was 10.60%, CET1 risk-based capital ratio was 16.12%,

risk-based capital ratio was 16.12%, and total risk-based capital ratio was 17.13

at September 30, 2025.

exceed the minimum regulatory capital percentages of 5.0% for tier

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

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

capital ratio to be considered “well capitalized.”

The Bank’s capital conservation

buffer was 8.49% at September 30, 2025.

at March 31, 2026.

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.”

The Basel III regulatory capital framework applicable to us includes a “capital

conservation buffer” of CET1 capital.

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.

March 31, 2026, the Bank had a capital conservation buffer of 9.14%.

MARKET AND LIQUIDITY RISK MANAGEMENT

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

rates indicates our balance sheet is

liability sensitive over the forecast period of 12 months.

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

we were in compliance with the policy guidelines

rates indicates our balance sheet is asset

sensitive over the forecast period of 12 months.

At March 31, 2026, our earnings simulation model indicated that we were in

compliance with the policy guidelines noted

Economic Value

2 unchanged sentences

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

values are estimated by discounting expected

Economic values

are estimated by discounting expected

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

8 unchanged sentences

interest rates, or market and competitive conditions.

To help limit interest rate risk,

we have stated policy guidelines for an

To help limit interest rate risk, we have

stated policy guidelines for an

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

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

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

At March 31, 2026, our EVE model indicated that we were in compliance

with our policy guidelines.

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

our net interest income will be affected by

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

of how our net interest income will be affected by

changes in interest rates.

1 unchanged sentence

assets and costs associated with interest-bearing liabilities

may not be affected uniformly by changes in interest

may not be affected uniformly by changes in interest rates.

In addition, the magnitude and duration of changes in interest

5 unchanged sentences

rates on certain types of assets and liabilities fluctuate

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

types of assets and liabilities may lag behind

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

of assets and liabilities may lag behind

changes in general market rates.

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customer transactions and meet their financing needs.

These interest rate

swaps qualify as derivatives, but are not

These interest rate swaps qualify

as derivatives, and may be

designated as hedging instruments.

At September 30, 2025 and December 31, 2024,

the Company had no derivative

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

its interest rate sensitivity.

At March 31, 2026, the Company had two derivative

contracts designated as part of a

hedging relationship to assist in managing its interest rate sensitivity compared

to one such derivative contract at December

Liquidity Risk Management

Liquidity is the Company’s

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

requirements,

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.

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the Bank are separate and distinct legal

entities with different funding needs and sources, and

each are subject to regulatory guidelines and requirements.

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

to regulatory guidelines and requirements.

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

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Primary uses of funds by the Company

include payment of Company expenses, dividends paid to stockholders

nclude payment of Company expenses, dividends paid to stockholders

and Company stock repurchases.

6 unchanged sentences

In addition to

these sources, the Bank is eligible to participate in the FHLB of Atlanta’s

these sources, the Bank is eligible to participate in the FHLB - Atlanta’s

advance program to obtain

1 unchanged sentence

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

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

outstanding and available credit from the

FHLB of $308.6 million.

At September 30, 2025, the Bank also had $65.2

million of available federal funds lines with no

borrowings outstanding.

Primary uses of funds include repayment of maturing

obligations and growing the loan portfolio.

The Company also has access to the FRB discount window.

At March 31, 2026, the Bank had no FHLB - Atlanta advances outstanding

and available credit from the FHLB

of $308.6 million.

At March 31, 2026, the Bank also had $65.2 million of

available federal funds lines with no borrowings

Primary uses of funds include repayment of maturing obligations

and growing the loan portfolio.

Company also has access to the FRB discount window.

Management believes that the Company and the Bank have adequate

6 unchanged sentences

Off-Balance Sheet Arrangements, Commitments, Contingencies and Contractual

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

of $0.8 million and unfunded loan commitments

At March 31, 2026, the Bank had outstanding standby letters of credit of $2.9

million and unfunded loan commitments

outstanding of $55.4 million.

4 unchanged sentences

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

cash equivalents, deposits with other banks, liquidate

cash equivalents,

deposits with other banks, liquidate

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

1 unchanged sentence

Mortgage lending activities

sell residential mortgage loans in the secondary market to Fannie Mae while retaining

the servicing of these

The sale agreements for these residential mortgage loans with Fannie Mae

and other investors include various

customary 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 and compliance with applicable

federal, state, and local laws, among other

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

residential mortgage loans, which we have originated

and sold, but retained the servicing rights, was $193.5 million.

Although these loans are generally sold on a non-recourse

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

reimburse investors for losses incurred (make whole

sell conforming residential mortgage loans in the secondary market to Fannie Mae

while retaining the

servicing of these loans.

The sale agreements for these residential mortgage

loans with Fannie Mae and other investors

include various customary 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 and

compliance with applicable federal, state, and local

laws, among other matters.

As of March 31, 2026, the aggregate unpaid principal balance of residential

mortgage loans, which we have originated and

sold, but retained the servicing rights, was $188.0 million.

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

we may be obligated to repurchase residential mortgage loans or reimburse investors

for losses incurred (make whole

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

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loans to meet investor and secondary market

The Company was not required to repurchase any loans during the

first nine months of 2025 as a result of representation

and warranty provisions contained in the Company’s

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

of 2026 as a result of representation and

warranty provisions contained in the Company’s

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

make-whole requests at September 30, 2025.

make-whole requests at March 31, 2026.

We service all residential

9 unchanged sentences

and (5) foreclose on

defaulted mortgage loans or take other actions to mitigate the potential

losses to investors consistent with the agreements

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

investors consistent with the agreements

governing our rights and duties as servicer.

19 unchanged sentences

their purchased loans.

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

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

As of March 31, 2026, we do not believe that this exposure is material due to the historical level of

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

mortgage loans serviced for Fannie

Mae was current as of such date.

Mae were current as of such date.

We maintain ongoing

communications with our mortgage purchasers and will continue to

evaluate this exposure by monitoring the level and number of repurchase

requests as well as the delinquency rates in our

communications with our mortgage purchasers and will continue

to evaluate this exposure by monitoring the level and number of repurchase requests

as well as the delinquency rates in our

investor portfolios.

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

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

As a result, the Bank is not

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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.

12 unchanged sentences

in response to interest rate changes.

The yield curve was inverted during most of 2024,

until September, when it began

An inverted yield curve means shorter term interest rates are higher

than longer term interest rates.

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

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

onth maturity Treasury securities were higher

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

Net interest income could be affected by asymmetrical changes in the

different interest rate indexes, given that not all of our

assets or liabilities are priced with the same index.

Higher market interest

rates and reductions in the securities held by the

Federal Reserve to reduce inflation generally reduce economic activity and

may reduce loan demand and growth, and may

adversely affect unemployment rates.

In addition, net interest income could be affected by asymmetrical changes

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

Inflation and related

changes in market interest rates, as the Federal Reserve

maintains interest rates to meet its longer-term inflation goal of 2%, also can adversely

affect the values and liquidity of our

loans and securities, the value of collateral securing loans to our borrowers,

and the success of our borrowers and such

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

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

Reserve’s Federal Open Market Committee

(“FOMC”) had three reductions in its target federal funds

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

FOMC reaffirmed its target inflation rate of 2% over

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

decreasing inflation rates and the risks of increasing unemployment,

but would act on incoming data, the evolving outlook

and the balance of the risks of inflation and unemployment levels.

future, the Federal Reserve could further decrease

target interest rates, or could increase such target

rates, depending on the data and its outlook.

On July 31, 2025, the FOMC

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

over the longer run.

about the economic outlook remains elevated.

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

The [FOMC’s] assessments will take

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

conditions, inflation pressures and inflation expectations, and financial

and international developments.”

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

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

it would continue to reduce its holdings of Treasury

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

recently, on October 29, 2025,

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

employment had risen in recent months.

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

to 3.75% to 4.00%.

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

repurchase rates

and daily volume limitations and effective October 30, 2025,

limited the rate of reduction in the Federal Reserve’s

securities holdings, subject to modest deviations for operational reasons:

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

securities maturing in

excess of $5 billion per month.

Beginning December1, all principal payments on Treasury

securities would be rolled over and reinvested.

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

of agency debt and agency MBS

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

in Treasury securities to roughly

match the maturity composition of Treasury

securities outstanding.

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

securities would be reinvested in

Treasury bills.

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

See “Item 1A Risk Factors.”

CURRENT ACCOUNTING DEVELOPMENTS

The following ASU has been issued by the FASB

but is not yet effective.

Improvements to Income Tax

ASU 2023-09 seeks to 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 15, 2024.

The Company does not

xpect 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 Improvements,

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

– Explanation of Non-GAAP Financial Measures

5 unchanged sentences

GAAP financial measure, including the presentation and calculation

of the efficiency ratio.

of our net interest margin and efficiency ratio.

first quarter of 2026, we changed the presentation of net interest income on a tax-equivalent

basis to account for tax-exempt

interest income on municipal loans.

Prior period amounts have been revised herein to conform with the current period

presentation.

These changes had no effect on the presentation

of GAAP net interest income in current or prior periods.

The Company believes the presentation of net interest income on a tax-equivalent

12 unchanged sentences

Tax-equivalent adjustment

Net interest income (Tax

Nine months ended September 30,

(In thousands)

Net interest income (GAAP)

Tax-equivalent adjustment

et interest income (Tax-equivalent)

13 unchanged sentences

Cash dividends declared

Weighted average shares outstanding:

Weighted average shares outstanding - basic

Weighted average shares outstanding - diluted

Shares outstanding, at period end

10 unchanged sentences

Nonperforming assets as a % of:

Loans and other real estate owned

Loans and OREO

Nonperforming loans as a % of total loans

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

Annualized net charge-offs (recoveries) as % of

average loans

Capital Adequacy:

8 unchanged sentences

Selected average balances:

Loans, net of unearned income

Total deposits

1 unchanged sentence

Selected period end balances:

Loans, net of unearned income

Allowance for credit losses

3 unchanged sentences

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

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

per share for the previous four quarters.

(b) Calculated by dividing period end share price by

earnings per share for the previous four quarters.

2 unchanged sentences

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

See Table 1 - Explanation of Non-GAAP Measures.

- Selected Financial Data

Nine months ended September 30,

(Dollars in thousands, except per share amounts)

Results of Operations

Net interest income (a)

tax-equivalent adjustment

Net interest income (GAAP)

Noninterest income

Total revenue

Provision for credit losses

Noninterest expense

Income tax expense

Per share data:

Basic and diluted net earnings

Cash dividends declared

Weighted average shares outstanding:

Shares outstanding, at period end

Common stock price:

To earnings ratio (b)

To book value

Performance ratios:

Annualized return on average equity

Annualized return on average assets

Dividend payout ratio

Asset Quality:

Allowance for credit losses as a % of:

Nonperforming loans

Nonperforming assets as a % of:

Loans and other real estate owned

Nonperforming loans as a % of total loans

Annualized net recoveries as a % of average loans

Capital Adequacy:

CET 1 risk-based capital ratio

Tier 1 risk-based capital ratio

Total risk-based capital ratio

Tier 1 leverage ratio

Other financial data:

Net interest margin (a)

Effective income tax rate

Efficiency ratio (d)

Selected average balances:

Loans, net of unearned income

Total deposits

Total stockholders’ equity

Selected period end balances:

Loans, net of unearned income

Allowance for credit losses

Total deposits

Total stockholders’ equity

(a) Tax-equivalent.

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

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

per share for the previous four quarters.

wholly-owned subsidiary, AuburnBank.

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

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

See Table 1 - Explanation of Non-GAAP Measures.

Balances and Net Interest Income Analysis

Quarter ended September 30,

(Dollars in thousands)

Interest-earning assets:

Loans and loans held for sale (1)

Securities - taxable (2)

Securities - tax-exempt (2)(3)

Total securities

Federal funds sold

Interest bearing bank deposits

Total interest-earning

Cash and due from banks

Interest-bearing liabilities:

Savings and money market

Time deposits

Total interest-bearing

Short-term borrowings

Total interest-bearing

Noninterest-bearing deposits

Other liabilities

Stockholders' equity

Total liabilities and stockholders'

Net interest income and margin (tax-equivalent)

(1) Average loan

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

been included

in the computation of average balances.

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

(3) Yields on tax-exempt securities have been

computed on a tax-equivalent basis using a federal income

tax rate of 21%.

Balances and Net Interest Income Analysis

Nine months ended September 30,

– Average Balances and Net

Interest Income Analysis

Quarter ended March 31,

(Dollars in thousands)

1 unchanged sentence

Loans and loans held for sale (2) (3)

Securities - taxable (2)

Securities - tax-exempt (2)(3)

Total securities

Securities (3) (4)

Federal funds sold

Interest bearing bank deposits

Total interest-earning

Total interest-earning assets

Cash and due from banks

Other assets (5)

Interest-bearing liabilities:

1 unchanged sentence

Time deposits

Total interest-bearing

Short-term borrowings

Total interest-bearing

Total interest-bearing deposits

Total interest-bearing liabilities

Noninterest-bearing deposits

1 unchanged sentence

Stockholders' equity

Total liabilities and stockholders'

Total liabilities and stockholders' equity

Net interest income and margin (tax-equivalent)

(1) Average loan

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

been included

in the computation of average balances.

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

(3) Yields on tax-exempt securities have been

computed on a tax-equivalent basis using a federal income

tax rate of 21%.

(1) In the first quarter of 2026, we changed the presentation of net interest income on a tax-equivalent basis to account for tax-exempt

interest income on municipal loans.

Also, we reclassified average net unrealized gains (losses) on available-for-sale securities to

average other assets so that average total securities are presented on an amortized cost basis in our calculation of net interest margin.

Prior period amounts, including the presentation and calculation of our net interest margin, have been revised to conform with the

current period presentation.

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

(3) Reflects tax-equivalent adjustments, using the statutory federal income tax rate of 21%, in adjusting interest on tax-exempt

municipal loans and securities to a tax-equivalent basis.

(4) Securities are included on an amortized cost basis with yield and net interest margin calculated accordingly.

(5) Includes average net unrealized gains (losses) on securities available-for-sale of $(26.2) and $(33.9) million for the quarters ended

March 31, 2026 and March 31, 2025, respectively.

and Rate Variance

Quarter ended

Nine months ended

September 30, 2025 vs.

Due to change in

Quarter ended March 31, 2026 vs.

Due to change in

2 unchanged sentences

Loans and loans held for sale (1)

Securities - taxable

Securities - tax-exempt (1)

Total securities

Securities (1)

Federal funds sold

5 unchanged sentences

Total interest-bearing

Short-term borrowings

Long-term debt

Total interest expense

Net interest income

(1) Yields on tax-exempt securities have been

computed on a tax-equivalent basis using an income

Net interest income (tax-equivalent)

(1) Yields on tax-exempt municipal loans and

securities have been computed on a tax-equivalent basis using an income

tax rate of 21%.

2 unchanged sentences

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

– Loan Maturities

March 31, 2026

(Dollars in thousands)

Commercial and industrial

Construction and land development

Commercial real estate

Residential real estate

Consumer installment

Sensitivities to Changes in Interest Rates on Loans Maturing in More

Than One Year

March 31, 2026

(Dollars in thousands)

Commercial and industrial

Construction and land development

Commercial real estate

Residential real estate

Consumer installment

AND QUALITATIVE

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis