What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-11 compared with 2026-05-13 · 493 added, 293 removed, 963 unchanged (45% of the section changed)

26 unchanged sentences

Superintendent”).

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

Certain of the statements made in

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

Certain of the statements

discussion and analysis and elsewhere, including information incorporated

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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.

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 quarter and six months ended June 30, 2026 and 2025, as well as the information

contained in our Annual

Report on Form 10-K for the year ended December 31, 2025 and our Quarterly

Reports on Form 10-Q.

Special Cautionary Notice Regarding Forward-Looking Statements

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

the effects of future economic, business and market conditions and

changes, foreign, domestic and locally,

the effects of future economic, business and market conditions

and changes, foreign, domestic and locally,

including inflation, seasonality,

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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;

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,

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application by the regulators, including

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

capital and liquidity requirements, greater nonbank participation in the

Federal Reserve payments system, and in

the coverage and cost of FDIC deposit insurance;

legislative, executive branch and regulatory changes, including changes

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quarter periods may limit our

ividends, share repurchases and discretionary bonuses;

dividends, 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 March 31,

(Dollars in thousands, except per share data)

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands, except per share amounts)

Net interest income (a)

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(a) Tax-equivalent.

See "Table 1 - Explanation of

Non-GAAP Financial Measures."

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

Financial Summary

The Company’s net earnings were $4.5

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.

million for the first six months of 2026, a 34% increase compared to $3.4 million

for the first six months of 2025.

Basic and diluted earnings per share were $1.29 per share for the first six months of 2026,

compared to $0.96 per share for the first six months of 2025.

Net interest income (tax-equivalent) was $15.8 million for the first six months

of 2026, a 9% increase compared to $14.5

million for the first six months of 2025.

This 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 3.28% 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

(tax-equivalent) was 3.31% for the first six

months of 2026 compared to 3.13% for the first six months of 2025.

This increase was primarily due to higher yields on

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

a more favorable asset mix.

Average loans

were approximately $580.2 million in the first six months of 2026, compared

to $563.1 million in the first six months of

The Company recorded a negative provision for credit losses of $(324) 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 principally affected by tax-exempt earnings from

Company’s investments

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

and New Markets Tax

Credits (“NMTCs”).

The Company paid cash dividends of $0.27 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.

in the first six months of 2026, compared

to a charge to provision for credit losses of $103 thousand in the first six

months 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-

Noninterest income was $1.8 million in the first six months of 2026, compared

to $1.5 million in the first six months of

The increase was primarily due to increased mortgage lending income and bank-owned

life insurance (“BOLI”)

income related to non-taxable death benefits received during the

second quarter of 2026.

Noninterest expense was $12.0 million in the first six months of 2026, compared

to $11.6 million in the first six months of

The increase was primarily due to a $0.4 million loss contingency accrual recorded in other

noninterest expense

during the second quarter of 2026, partially offset by a decrease in net

occupancy and equipment expense.

See “Note 6 –

Commitments and Contingent Liabilities” to the accompanying consolidated

financial statements.

The provision for income tax expense was $1.2 million for the first six months

of 2026 compared to $0.9 million for the

first six months of 2025.

The Company’s effective tax

rate for the first six months of 2026 was 21.26%, compared to

20.68% in the first six months of 2025.

The Company’s effective income

tax rate is principally affected by tax-exempt

earnings from the Company’s investments

in municipal securities and loans, BOLI, and New Markets Tax

The Company paid cash dividends of $0.54 per share in the first six months of 2026

At June 30, 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 17.24%,

a tier 1 leverage ratio of 10.65% and a common equity

tier 1 (“CET1”) ratio of 16.26% at June 30, 2026.

See “Balance Sheet Analysis – Capital Adequacy.”

For the second quarter of 2026, net earnings were $2.3 million, or $0.66

per share, compared to $1.8 million, or $0.52 per

share, for the second quarter of 2025, a 27% increase in earnings per share.

Net interest income (tax-equivalent) was $8.0

million for the second quarter of 2026 compared to $7.4 million for the

second quarter of 2025.

The increase was due to

growth in average interest-earning assets and improvements in our net interest

The Company’s net interest margin

(tax-equivalent) was 3.33% in the second quarter of 2026 compared

to 3.18% in the second quarter of 2025.

was primarily due to higher yields on interest-earning assets, a more favorable

asset mix, and a decrease in our cost of

interest-bearing deposits.

The Company recorded a negative provision for credit losses of $(248) thousand

in the second

quarter of 2026, compared to a provision for credit losses of $113

thousand in the second quarter of 2025.

income was $0.9 million for the second quarter of 2026, compared

to $0.8 million for the second quarter of 2025, primarily

reflecting an increase in BOLI income from non-taxable death benefits

received during the second quarter of 2026.

Noninterest expense was $6.1 million in the second quarter of 2026, compared

to $5.7 million in the second quarter of

2025, with the increase primarily due to the $0.4 million loss contingency accrual

recorded in other noninterest expense.

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

to $0.5 million for the second quarter of

The Company’s effective tax

rate for the second quarter of 2026 was 21.00%, compared to 20.92% in the second

quarter of 2025.

CRITICAL ACCOUNTING POLICIES

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Sheet and Interest Rates

Quarter ended March 31,

Six months ended June 30,

(Dollars in thousands)

Interest-earning assets:

Loans and loans held for sale

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Total interest-earning

Interest-bearing liabilities:

Savings and money market

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Total interest-bearing

Short-term borrowings

Total interest-bearing

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

(a) See "Table 1 - Explanation

of Non-GAAP Financial Measures."

Net interest income and margin (tax-equivalent)

Net Interest Income and Margin

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.

Net interest income (tax-equivalent) was $15.8 million for the first six months

of 2026, a 9% increase compared to $14.5

million for the first six months of 2025.

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

improvements in our 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.

assets were $965.2 million during the first six months of

2026, a 3% increase compared to $935.2 million during the first six months of 2025.

The Company’s net interest margin

(tax-equivalent) was

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

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.

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.

(tax-equivalent) was 3.31% for the first six months of 2026 compared to 3.13%

for the first six months of 2025.

increase was primarily due to higher yields on interest-earning assets, a more

favorable asset mix, and a decrease in our cost

of interest-bearing deposits.

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

range for the federal

funds rate in each of September, October

and December 2025.

At June 30, 2026, the Federal Reserve’s target

federal funds

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

at its July 29, 2026 meeting.

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

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.

8 basis points to 4.42% in the first six months of 2026

compared to 4.34% in the first six months of 2025.

This increase was primarily due to higher yields on loans and a more

favorable asset mix.

The cost of interest-bearing liabilities decreased 16 basis points in the first six months

of 2026 to 1.60%, compared to

1.76% in the first six months of 2025, following decreases to the federal

The Company continues to deploy various asset liability management

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fluctuations.

Deposit and loan pricing remain competitive in our

We believe that interest

rates, inflation and

Deposit and loan pricing remain competitive in our markets.

We believe that interest rates,

inflation and

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

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The Company recorded a negative provision for credit losses of $(324) thousand

in the first quarter of 2026, compared to a

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

in the first six months of 2026, compared

to a charge to provision for credit losses of $103 thousand in the first six

months of 2025.

For the second quarter of 2026,

the Company recorded a negative provision for credit losses of $(248) thousand,

compared to a charge to provision for

credit losses of $113 thousand in the second quarter

The provision for credit losses is affected by changes in

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cover all expected credit losses as of the date the allowance is determined.

At March 31, 2026,

At June 30, 2026,

the Company’s allowance for credit

losses was $6.6 million, or 1.14% 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.

total loans, at December 31, 2025.

The decrease from December 31, 2025 was primarily due to refinements

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 losses associated with these loans.

Prior to this change, municipal loans were included

in the commercial and industrial loan segment for CECL.

Noninterest Income

Quarter ended March 31,

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

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servicing of mortgage loans.

Origination income, net, is comprised

of gains or losses from the sale of the 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

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against the commission expense associated with these originations.

Company’s normal practice is to originate

The Company’s normal practice is to originate

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

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mortgage lending income.

Quarter ended March 31,

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

Origination income, net

Origination income

Servicing fees, net

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increased due to increased mortgage lending demand in our primary market

area, which was partially offset by a decrease

in servicing fees, net of related amortization expense.

Income from bank-owned life insurance increased due to non-taxable

death benefits received during the second quarter of

Noninterest Expense

Quarter ended March 31,

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

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Total noninterest expense

The increase in other noninterest expense was primarily due to a $0.4 million

loss contingency accrual recorded during the

second quarter of 2026 related to the release of a mortgage lien in connection

with a commercial lending relationship.

Company has submitted a claim to its insurer for recovery,

but no insurance recovery has been recognized in the second

quarter 2026 results.

See “Note 6 – Commitments and Contingent Liabilities” to the accompanying consolidated

The decrease in net occupancy and equipment expense was primarily due

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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 increase in professional fees for the first six months of 2026 was primarily due

to an increase in legal expenses.

Income tax expense was $1.2 million for the first six months of 2026, compared

to $0.9 million for the first six months of

The increase was primarily due to the level of pre-tax earnings.

The Company’s effective tax

rate was 21.26% for

the first six months of 2026, compared to 20.68% for the first six months of 2025.

The Company’s effective

income tax rate is affected principally by tax-exempt earnings

from the Company’s investments

in municipal securities and loans, BOLI, and NMTCs.

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 $226.8 million at March 31, 2026,

Securities available-for-sale were $220.7 million at June 30, 2026

compared to $233.3 million at December 31, 2025.

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.

decrease reflects a decrease in the amortized cost basis of securities available-for

-sale, primarily due to normal paydowns

and maturities, of $11.8 million and a decrease

in the fair value of securities available-for-sale of $0.8 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 the first six months of 2026 compared to 1.97% in

the first six months of 2025.

(In thousands)

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Total loans were $579.9

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 March 31, 2026.

million at June 30, 2026, compared to $565.3 million at December 31,

Three loan categories

represented the majority of the loan portfolio at June 30, 2026:

real estate (58%), residential real estate (20%),

and construction and land development (10%).

Approximately 17% of the Company’s commercial

real estate loans were

classified as owner-occupied at June 30, 2026.

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

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or 2% of total loans,

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

and $12.3 million, or 2%, of total loans at June 30, 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.

payments at June 30, 2026 and December 31, 2025.

The Company’s

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which are generally viewed as high risk.

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

The average yield earned on loans and loans held for sale was 5.66% in the first six months

of 2026 and 5.49% in the first

quarter of 2025.

six months of 2025.

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

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Also, we have

established and periodically review,

lending policies and procedures.

established and periodically review lending policies and procedures.

Banking regulations limit a bank’s

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

policy requires that the Loan Committee of the

Our loan policy

requires that the Loan Committee of the

Board of Directors approve any loan relationships that exceed this internal

At March 31, 2026, the Bank had no loan

At June 30, 2026, the Bank had no loan

relationships exceeding our internal limit.

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classes exceeded 25% of the Bank’s

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

total risk-based capital at June 30, 2026 (and related balances at December

(Dollars in thousands)

Multi-family residential properties

Multifamily residential properties

Lessors of 1-4 family residential properties

2 unchanged sentences

Our allowance for credit losses was approximately $6.6 million and $7.2

million at March 31, 2026 and December 31,

2025, respectively,

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

million at June 30, 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 1.16% at March 31, 2026, compared

losses as a percentage of total loans was 1.14% at June 30, 2026, compared

to 1.27% at December 31, 2025.

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to long term historical averages.

At March 31, 2026,

At June 30, 2026,

reasonable and supportable periods of 4 quarters were utilized

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long term averages.

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

quarters is presented

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

four quarters is presented

Second Quarter

First Quarter

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Second Quarter

First Quarter

(Dollars in thousands)

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

asset quality ratios for the first quarter of 2026 and

the previous four quarters is presented below.

asset quality ratios for the second quarter of 2026

and the previous four quarters is presented below.

(Dollars in thousands)

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Net charge-offs were $380 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 March 31, 2026 and December 31, 2025, the Company had $0.1 million and $0.5

million, respectively, in

first six months of 2026, compared to net charge-offs

of $16 thousand for the

first six months of 2025.

Net charge-offs in

the first six months of 2026 were primarily related to one nonperforming

collateral-dependent loan.

Nonperforming Assets

At June 30, 2026 and December 31, 2025, the Company had $0.1 million

and $0.5 million, respectively,

in nonperforming

The table below provides information concerning total nonperforming

assets and certain asset quality ratios for the first

assets and certain asset quality ratios for the second

quarter of 2026 and the previous four quarters.

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The table below provides information concerning the composition of

nonaccrual loans for the first quarter of 2026 and the

previous four quarters.

nonaccrual loans for the second quarter of 2026 and

the previous four quarters.

(In thousands)

Nonaccrual loans:

Commercial and industrial

Construction and land development

Commercial real estate

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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 $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

The Company had no loans 90 days or more past due and still accruing at June 30, 2026 or December

The Company had no other real estate owned at June 30, 2026 or December 31, 2025.

(In thousands)

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Total deposits were $988.3

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

(the “CDARS”) and the Insured Cash Sweep

million at June 30, 2026, compared to $922.9 million at December 31, 2025.

The increase was

primarily due to fluctuations in reciprocal customer deposits retained on balance

sheet and growth in money market account

balances, partially offset by lower noninterest-bearing

demand deposits.

Noninterest-bearing deposits were 26% of total

deposits at June 30, 2026, compared to 29% of total deposits at December 31,

The Company had no brokered

deposits at June 30, 2026 and December 31, 2025.

The average rate paid on total interest-bearing deposits was 1.60% in the first six months

of 2026, compared to 1.76% in

the first six months of 2025.

The Bank participates in the Certificates of Deposit Account Registry Service (the

“CDARS”) and the Insured Cash Sweep

product (“ICS”), which provide for reciprocal (“two-way”) transactions

among banks facilitated by IntraFi for the purpose

of improving the FDIC insurance for our depositors.

of improving the FDIC insurance coverage for our depositors.

The Company had reciprocal deposits on its balance sheet of

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

$82.3 million at June 30, 2026, compared to $9.8 million at December 31,

At June 30, 2026, the Company had no

reciprocal deposits sold, compared to $79.7 million at December 31, 2025.

At June 30, 2026, estimated uninsured deposits totaled $380.4 million, or

38% of total deposits, compared to $392.9

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

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balances that exceed FDIC insurance limits.

The Bank’s uninsured deposits at March

The Bank’s uninsured deposits at June

30, 2026 and December 31, 2025

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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

uninsured deposits at June 30, 2026 and December 31, 2025, respectively.

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

2026 are presented below.

(Dollars in thousands)

March 31, 2026

June 30, 2026

3 months or less

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Other Borrowings and Available

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.

The Company had no long-term debt at June 30, 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 fund borrowings outstanding

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

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 $73.2 million and $65.2 million, with no federal fund borrowings

outstanding at June 30, 2026, and December

31, 2025, 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 eligible to borrow from the FRB’s discount

window, but had no

such borrowings at

June 30, 2026 and December 31, 2025.

The Bank is a member of the FHLB-Atlanta and has borrowed from the

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Atlanta’s advance program

at March 31, 2026 and December 31, 2025.

at June 30, 2026 and December 31, 2025.

At those dates, the Bank had $307.9 million and

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CAPITAL ADEQUACY

At March 31, 2026, the Company’s

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

At June 30, 2026, the Company’s consolidated

stockholders’ equity (book value) was $93.9 million, or $26.91 per share,

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

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primarily driven by net earnings of $4.5 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.

by cash dividends paid of $1.9 million, an other

comprehensive loss of $0.6 million due to an increase in unrealized losses on securities

available-for-sale, net of tax, and

stock repurchases of $0.2 million.

Unrealized losses do not affect the Bank’s

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’s equity-to-assets ratio

was 8.65% at June 30, 2026, compared to 9.04% at December 31, 2025.

The decrease in

the equity-to-assets ratio was due primarily to balance sheet growth

from retaining all reciprocal deposits on balance sheet

at June 30, 2026.

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

of 2026 and the first six months of 2025.

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

Small Bank Holding

Company Policy.

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consolidated subsidiaries.

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

The Bank’s tier 1 leverage ratio was 10.65%,

CET1 risk-based capital ratio was 16.26%, tier 1

risk-based capital ratio was 16.26%, and total risk-based capital ratio was 17.24%

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

at June 30, 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.”

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and certain discretionary bonus payments.

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

June 30, 2026, the Bank had a capital conservation buffer

MARKET AND LIQUIDITY RISK MANAGEMENT

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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

At June 30, 2026, our earnings simulation model indicated that we were

in compliance with the policy guidelines noted

Economic Value

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

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

At June 30, 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.

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designated as hedging instruments.

At March 31, 2026, the Company had two derivative

contracts designated as part of a

At June 30, 2026, the Company had

two derivative contracts designated as part of a

hedging relationship to assist in managing its interest rate sensitivity compared

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interest payments on earning assets,

repayment and maturity of securities and loans,

and maturities of securities and loans,

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

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

At March 31, 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.

At June 30, 2026, the Bank had no FHLB - Atlanta advances outstanding

and available credit from the FHLB of

$307.9 million.

At June 30, 2026, the Bank also had $73.2 million of

available uncommitted federal funds lines with no

borrowings outstanding.

Primary uses of funds include repayment of maturing

obligations and growing the loan portfolio.

The Company also has access to the FRB discount window.

Management believes that the Company and the Bank have adequate

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Off-Balance Sheet Arrangements, Commitments, Contingencies and Contractual

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

At June 30, 2026, the Bank had outstanding standby letters of credit of $2.

million and unfunded loan commitments

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laws, among other matters.

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

As of June 30, 2026, the aggregate unpaid principal balance of residential

mortgage loans, which we have originated and

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loans to meet investor and secondary market

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

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

of 2026 as a result of representation and

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

make-whole requests at March 31, 2026.

make-whole requests at June 30, 2026.

We service all residential

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their purchased loans.

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

As of June 30, 2026, we do not believe that this exposure is material due to the historical level

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

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investor portfolios.

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

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

As a result, the Bank is not

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our 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 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.

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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%,

market interest rates and in the size of the Federal Reserve’s

securities holdings in response to inflation can affect

activity, loan demand

and growth, and unemployment rates.

Although the Federal Reserve reduced its target

federal funds

rate range in late 2025 and has resumed purchases of Treasury

securities, inflation remains above the Federal Reserve’s

longer-term 2% goal, and future monetary policy actions are uncertain.

and related changes in market interest rates

also can adversely affect the values and liquidity of our

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consolidated financial statements.

Financial Instruments – Credit Losses (Topic

Purchased Loans

, expands the population of acquired

loans accounted for under the “gross-up” approach, previously limited

to purchased financial assets with credit

deterioration, to include acquired non-PCD loans that qualify as purchased

seasoned loans.

ASU 2025-08 will be effective

for the Company beginning January 1, 2027, on a prospective basis, with early

adoption permitted.

Because the Company

has not historically acquired or purchased loans, ASU 2025-08 is not expected

to have a significant impact on the

Company’s consolidated

financial statements.

Derivatives and Hedging (Topic

Hedge Accounting Improvements

, amends Topic 815 to

accounting more closely with an entity’s

risk management activities, including amendments related to similar risk

assessments for cash flow hedges, hedges of forecasted interest payments on variable

-rate debt, and certain other hedging

ASU 2025-09 will be effective for the Company beginning

January 1, 2027, with early adoption permitted, and

is not expected to have a significant impact on the Company’s

consolidated financial statements.

Interim Reporting (Topic

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that have a material impact on the entity.

ASC 2025-11 will be effective

ASU 2025-11 will be effective

for the Company beginning January 1, 2028, with

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Tax-equivalent adjustment

Net interest income (Tax

Six months ended June 30,

(In thousands)

Net interest income (GAAP)

Tax-equivalent adjustment

et interest income (Tax-equivalent)

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Cash dividends declared

Weighted average shares outstanding - basic

Weighted average shares outstanding - diluted

Weighted average shares outstanding:

Shares outstanding, at period end

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Performance ratios:

Return on average equity

Return on average assets

Dividend payout ratio

Asset Quality:

Allowance for credit losses as a % of:

Nonperforming loans

Nonperforming assets as a % of:

Loans and other real estate owned

Nonperforming loans as a % of total loans

Annualized net charge-offs (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 income.

See Table 1 - Explanation of Non-GAAP Measures.

- Selected Financial Data

Six months ended June 30,

(Dollars in thousands, except per share amounts)

Results of Operations

Net interest income (a)

tax-equivalent adjustment

Net interest income (GAAP)

Noninterest income

Total revenue

Provision for credit losses

Noninterest expense

Income tax expense

Per share data:

Basic and diluted net earnings

Cash dividends declared

Weighted average shares outstanding:

Shares outstanding, at period end

Common stock price:

To earnings ratio (b)

To book value

Performance ratios:

Annualized return on average equity

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Nonperforming assets as a % of:

Loans and OREO

Loans and other real estate owned

Nonperforming loans as a % of total loans

Annualized net charge-offs (recoveries) as % of

average loans

Annualized net charge-offs as a % of average loans

Capital Adequacy:

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Selected average balances:

Loans, net of unearned income

Total deposits

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Selected period end balances:

Loans, net of unearned income

Allowance for credit losses

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

– Average Balances and Net

Interest Income Analysis

Quarter ended March 31,

See Table 1 - Explanation of Non-GAAP Measures.

Balances and Net Interest Income Analysis (1)

Quarter ended June 30,

(Dollars in thousands)

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Interest-bearing bank deposits

Total interest-earning assets

Total interest-earning

Cash and due from banks

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Time deposits

Total interest-bearing deposits

Total interest-bearing liabilities

Total interest-bearing

Short-term borrowings

Total interest-bearing

Noninterest-bearing deposits

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Stockholders' equity

Total liabilities and stockholders' equity

Total liabilities and stockholders'

Net interest income and margin (tax-equivalent)

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(5) Includes average net unrealized gains (losses) on securities available-for-sale of $(26.2) and $(33.8) million for the quarters ended

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

June 30, 2026 and June 30, 2025, respectively.

Balances and Net Interest Income Analysis (1)

Six months ended June 30,

(Dollars in thousands)

Interest-earning assets:

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

Securities (3) (4)

Federal funds sold

Interest-bearing bank deposits

Total interest-earning

Cash and due from banks

Other assets (5)

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) 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 $(26.1) and $(36.6) million for the first six months

ended June 30, 2026 and June 30, 2025, respectively.

and Rate Variance

Quarter ended March 31, 2026 vs.

Quarter ended

Six months ended

June 30, 2026 vs.

Due to change in

(Dollars in thousands)

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Total interest-bearing

Short-term borrowings

Long-term debt

Total interest expense

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

Net interest income

(1) Yields on tax-exempt securities have been

computed on a tax-equivalent basis using an income

tax rate of 21%.

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– Loan Maturities

March 31, 2026

June 30, 2026

(Dollars in thousands)

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Than One Year

March 31, 2026

June 30, 2026

(Dollars in thousands)

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis