Auburn National Bancorporation Inc.
08/12/2025 | Press release | Distributed by Public on 08/12/2025 10:28
Quarterly Report for Quarter Ending June 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION AND RESULTSOF
OPERATIONS
General
Auburn National Bancorporation, Inc. (the "Company") is a bank holdingcompany registered with the Board of Governors
of the Federal Reserve System (the "Federal Reserve") under the Bank HoldingCompany Act of 1956, as amended (the
"BHC Act"). The Company was incorporated in Delaware in 1990, and in1994 it succeeded its Alabama predecessor as the
bank holding company controlling AuburnBank, an Alabama state memberbank with its principal office in Auburn,
Alabama (the "Bank"). The Company and its predecessor have controlledthe Bank since 1984.As a bank holding
company, the Companymay diversify into a broader range of financial services and other business activities thancurrently
are permitted to the Bank under applicable laws and regulations.The holding company structure also provides greater
financial and operating flexibility than is presently permitted to theBank.
The Bank has operated continuously since 1907 and currently conducts its businessprimarily in East Alabama, including
Lee County and surrounding areas.The Bank has been a member of the Federal Reserve System since April 1995.The
Bank's primary regulators are theFederal Reserve and the Alabama Superintendent of Banks (the "Alabama
Superintendent").The Bank has been a member of the FHLB of Atlanta since 1991. Certain of the statementsmade in this
discussion and analysis and elsewhere, including information incorporatedherein by reference to other documents, are
"forward-looking statements" as more fully described under "Special CautionaryNotice Regarding Forward-Looking
Statements" below.
The following discussion and analysis is intended to provide a better understandingof 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 condensedconsolidated financial statements and related
notes for the quarters and six months ended June 30, 2025 and 2024,as well as the information contained in our Annual
Report on Form 10-K for the year ended December 31, 2024 and our QuarterlyReports on Form 10-Q.
Special Cautionary Notice Regarding Forward-Looking Statements
Variousof the statements made herein under the captions "Management'sDiscussion and Analysis of Financial Condition
and Results of Operations", "Quantitative and Qualitative Disclosures aboutMarket Risk", "Risk Factors" "Description of
Property" and elsewhere, are "forward-looking statements" within the meaningand protections of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities ExchangeAct 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,and involve known and unknown risks,
uncertainties and other factors, which may be beyond our control,and which may cause the actual results, performance,
achievements or financial condition of the Company to be materially differentfrom future results, performance,
achievements or financial condition expressed or implied by such forward-lookingstatements.Youshould not expect us to
update any forward-looking statements.
All statements other than statements of historical fact are statements that couldbe forward-looking statements.Youcan
identify these forward-looking statements through our use of words suchas "may," "will," "anticipate,""assume,"
"should," "indicate," "would," "believe," "contemplate," "expect,""estimate," "continue," "designed," "plan," "point to,"
"project," "could," "intend," "target," "seek" and othersimilar 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 andchanges, foreign, domestic and locally,
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 generaleconomic conditions, including inflation,
and consumer and business confidence;
●
governmental monetary and fiscal policies, including taxes, federaldeficit spending and the debt required to fund
such spending, changes in monetary policies in response to inflationand changes in prices and unemployment,
including changes in the Federal Reserve'starget federal funds rate and changes in the Federal Reserve'sholdings
of securities through quantitative tightening or easing; and the duration thatthe Federal Reserve will keep its
targeted federal funds rates at or above current targetranges in furtherance of its long-term inflation target of 2%
while supporting maximum employment;
●
legislative, executive branch and regulatory changes, including changesby executive orders, the possible
reorganization and/or consolidation of the bank regulatoryagencies, the SEC and/or the CFPB, changes in the
leadership and personnel, including reductions in the number and experienceof personnel, at the bank and
securities regulators and the CFPB, oversight by the Office of Managementand Budget of these agencies, freezes
on changes in regulations and interpretations, numerous new ExecutiveOrders, 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 Macand 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 regulationsand regulatory actions, which
may cause uncertainty,wasted implementation costs and time by the industry,and lengthy delays until ultimate
resolution;
●
changes in banking, securities and tax laws, regulations and rules and theirapplication and enforcement by the
regulators, including capital and liquidity requirements, and changes inthe scope and cost of FDIC insurance;
●
changes in accounting pronouncements and interpretations;
●
the failure of assumptions and estimates, including those used in the Company'sCECL models to establish our
allowance for credit losses and estimate asset impairments, as well as differencesin, and changes to, economic,
market and credit conditions, including changes in borrowers' creditrisks 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 customerbehaviors; the levels,
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 andliabilities; and the risks and uncertainty of the
amounts realizable on collateral;
●
the risks of increases in market interest rates creating unrealized losses on oursecurities available for sale, which
adversely affect our stockholders' equity for financialreporting purposes and our tangible equity;
●
changes in borrower liquidity and credit risks, and changes in savings, deposit andpayment behaviors;
●
changes in the availability and cost of credit and capital in the financial markets, andthe types of instruments that
may be included as capital for regulatory purposes;
●
changes in the prices, values and sales volumes of residential and commercialreal estate;
●
the effects of competition from a wide variety of local, regional,national and other providers of financial,
investment and insurance services, including the disruptive effectsof financial technology and other competitors
who are not subject to the same regulation, including capital and liquidityrequirements, internal controls, and
supervision and examination, as the Company and the Bank, and competitionfrom credit unions, which are not
subject to federal income taxation;
●
legislation such as the federal GENIUS Act on stablecoins signed into law onJuly 18, 2025, and the proposed
CLARITY Act and the Anti-CBDC Surveillance Act bills being consideredby Congress, more permissive
regulation and/or enforcement regarding digital assets, such as cyber currencyand stable coins that creates
additional competition to banks, and greater risks to the payment systems that thebanking industry,including the
Company, relies on,and greater risks of fraud and theft of digital assets and their effectson customers, other
financial institutions, including our counterparties, financial stabilityand confidence in the financial system,
generally;
●
the timing and amount of rental income from third parties from officespace in our Auburn Center headquarters
and in former office locations;
●
the risks of mergers, acquisitions and divestitures, including, withoutlimitation, the related time and costs of
implementing such transactions, integrating operations as part of thesetransactions 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, ourvendors' systems or customers'
information;
●
the risks that our deferred tax assets ("DTAs")included in "other assets" on our consolidated balance sheets, if
any, could be reducedif estimates of future taxable income from our operations and tax planning strategiesare less
than currently estimated, and sales of our capital stock could trigger a reductionin 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 discretionarybonuses are limited by regulation requiring the
maintenance of capital, including a capital conservation bufferof 2.5% and to the amount of our future earnings
and "eligible retained earnings" over rolling four calendar quarter periods;
●
other factors and risks described under "Risk Factors" herein and in any of oursubsequent reports that we make
with the Securities and Exchange Commission (the "Commission" or"SEC") under the Exchange Act.
All written or oral forward-looking statements that we make or areattributable to us are expressly qualified in their entirety
by this cautionary notice.We have no obligationand do not undertake to update, revise or correct any of the forward-
looking statements after the date of this report, or after the respective dates onwhich such statements otherwise are made.
Summary of Results of Operations
Quarter ended June 30,
Six months ended June 30,
(Dollars in thousands, except per share amounts)
2025
2024
2025
2024
Net interest income (a)
$
7,363
$
6,728
$
14,425
$
13,405
Less: tax-equivalent adjustment
Net interest income (GAAP)
7,344
6,709
14,389
13,366
Noninterest income
1,536
1,783
Total revenue
8,133
7,605
15,925
15,149
Provision for credit losses
(123)
Noninterest expense
5,702
5,519
11,582
11,194
Income tax expense
Net earnings
$
1,833
$
1,734
$
3,363
$
3,105
Basic and diluted earnings per share
$
0.52
$
0.50
$
0.96
$
0.89
(a) Tax-equivalent.See "Table 1 - Explanation of Non-GAAP Financial Measures."
Financial Summary
The Company's net earnings were $3.4million for the first six months of 2025, compared to $3.1 millionfor the first six
months of 2024.Basic and diluted earnings per share were $0.96 per share for the first six months of 2025,compared to
$0.89 per share for the first six months of 2024.
Net interestincome (tax-equivalent) was $14.4 million for the first six monthsof 2025, an 8% increase compared to $13.4
million for the first six months of 2024.This increase was primarily due to an increase in the Company'snet interest
margin and an increase in average interest-earning assets.The Company's net interest margin(tax-equivalent) was 3.24%
for the first six months of 2025 compared to 3.05% for thefirst six months of 2024.This increase was primarily due to
improvements in our yields on interest-earning assets, which outpaced increasesin the cost of our interest-bearing deposits.
See "Results of Operations - AverageBalance Sheet and Interest Rates" and "Net Interest Income and Margin"below.
At June 30, 2025, the Company's allowancefor credit losses was $7.0 million, or 1.24% of total loans, compared to $6.9
million, or 1.22% of total loans, at December 31, 2024, and $7.1million, or 1.24% of total loans, at June 30, 2024.
The Company recorded a provision for credit losses during the first six monthsof 2025 of $103 thousand, compared to
$211 thousand during the first six months of 2024.The provision for credit losses under CECL reflects the Company's
evaluation of its credit risk profile and its future economic outlookand forecasts.Our CECL model is largely influenced by
economic factors including, the anticipated Alabama unemploymentrate, which may be affected by government policies,
including monetary,fiscal and other policies, including tariffs.
Noninterest income was $1.5 million in the first six months of 2025,compared to $1.8 million in the first six months of
2024.The decrease was primarily related to a decrease in mortgage lending incomeand other noninterest income.
Noninterest expense was $11.6 million in thefirst six months of 2025, compared to $11.2 million forthe first six months of
2024.The increase was primarily related to increases in salaries and benefits expense.
Income tax expense was $0.9 million for the first six months of 2025compared to $0.6 million for the first six months of
2024.The Company's effective tax rate for the first six months of 2025was 20.68%, compared to 17.07% in the first six
months of 2024.The Company's effectiveincome tax rate is affected principally by tax-exempt earnings fromthe
Company's investmentsin municipal securities and loans, bank-owned life insurance ("BOLI"),and New Markets Tax
Credits ("NMTCs").
The Company paid cash dividends of $0.54 per share in the first six months of 2025and 2024.At June 30, 2025, the
Bank's regulatory capital ratios werewell above the minimum amounts required to be "well capitalized" undercurrent
regulatory standards with a total risk-based capital ratio of 16.35%,a tier 1 leverage ratio of 10.64% and a common equity
tier 1 ("CET1") ratio of 15.32% at June 30, 2025.See "Balance Sheet Analysis - Capital Adequacy".
For the second quarter of 2025, net earnings were $1.8 million,or $0.52 per share, compared to $1.7 million, or $0.50 per
share, for the second quarter of 2024.Net interest income (tax-equivalent) was $7.4 million for the second quarter of 2025
compared to $6.7 million for the second quarter of 2024.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 3.27% in the second
quarter of 2025 compared to 3.06% in the second quarter of 2024.The increase was primarily due to improved yields on
interest-earning assets, and a decrease in our cost of interest-bearingdeposits.The Company recorded a charge to provision
for credit losses of $113 thousand inthe second quarter of 2025, compared to a negative provision for credit losses of $123
thousand in the second quarter of 2024.Noninterestincome was $0.8 million for the second quarter of 2025, compared to
$0.9million for the second quarter of 2024.This decrease was primarily due to a decrease in mortgage lending income and
other noninterest income.Noninterest expense was $5.7 million in the second quarter of 2025, compared to $5.5million
for the second quarter of 2024.The increase in noninterest expense was primarily due to routine increasesin salaries and
benefits expense and increases in professional fees expense.Income tax expense was $0.5million for the second quarter of
2025 and 2024, respectively.The Company's effectivetax rate for the second quarter of 2025 was 20.92%, compared to
21.50% in the second quarter of 2024.
CRITICAL ACCOUNTING POLICIES
The accounting principles we follow and our methods of applyingthese principles conform with U.S. GAAP and with
general practices within the banking industry.There have been no significant changes to our Critical AccountingPolicies as
described in our Form 10-K as of and for the year ended December 31, 2024.
RESULTSOF OPERATIONS
Average BalanceSheet and Interest Rates
Six months ended June 30,
2025
2024
Average
Yield/
Average
Yield/
(Dollars in thousands)
Balance
Rate
Balance
Rate
Loans and loans held for sale
$
563,086
5.45%
$
567,434
5.12%
Securities - taxable
231,201
2.21%
252,623
2.21%
Securities - tax-exempt
9,180
3.80%
10,294
3.65%
Total securities
240,381
2.27%
262,917
2.27%
Federal funds sold
26,282
4.38%
17,669
5.50%
Interest bearing bank deposits
68,777
4.44%
36,171
5.33%
Total interest-earningassets
898,526
4.49%
884,191
4.29%
Deposits:
NOW
204,069
1.37%
193,755
1.37%
Savings and money market
248,233
0.93%
248,227
0.71%
Time deposits
187,763
3.27%
195,863
3.34%
Total interest-bearingdeposits
640,065
1.76%
637,845
1.72%
Short-term borrowings
5.27%
1,262
0.48%
Total interest-bearingliabilities
640,120
1.76%
639,107
1.71%
Net interest income and margin (tax-equivalent)
$
14,425
3.24%
$
13,405
3.05%
See Tables 4 and 5 -Average Balances and Net InterestIncome Analysis for the quarters and six months ended June 30,
2025 and 2024, and Table6 - Volumeand Rate VarianceAnalysis.
Net Interest Income and Margin
Net interest income (tax-equivalent) was $14.4 million for the first six monthsof 2025, an 8% increase compared to $13.4
million for the first six months of 2024.This increase was primarily due to an increase in the Company'snet interest
margin and an increase in average interest-earning assets.The Company's net interest margin(tax-equivalent) was 3.24%
in the first six months of 2025 compared to 3.05% in the first six months of 2024.This increase was primarily due to
improvements in our yields on interest-earning assets, which outpaced increases inthe cost of our interest-bearing deposits.
Since March 2022, the Federal Reserve increased the target federalfunds rate by 525 basis points before announcing a 50-
basis points rate reduction on September 18, 2024, its first decrease inrates since its March 2020 COVID rate reduction,
followed by two 25 basis points reductions in October and December2024.At June 30, 2025, the target federal funds rate
ranged from 4.25% - 4.50%, which was maintained at the July 31, 2025meeting of the Federal Reserve's Federal Open
Market Committee ("FOMC") meeting.
The tax-equivalent yield on total interest-earning assets increased by20 basis points to 4.49% in the first six months of
2025 compared to 4.29% in the first six 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-earningassets were $898.5 million during the
first six months of 2025, a 2% increase compared to $884.2 million duringthe first six months of 2024.
The cost of interest-bearing liabilities increased 5 basis points in the firstfirst six months of 2025 to 176 basis points,
compared to 171 basis points in the first first six months of 2024.Our deposit costs may continue to increase as we
compete for deposit funds against other banks, money market mutual funds, Treasurysecurities and other interest-bearing
alternative investments.
The Company continues to deploy various asset liability managementstrategies to manage its risks from interest rate
fluctuations. Deposit and loan pricing remain competitive in ourmarkets.We believe this challengingrate 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 interestrates will be important to our net interest
margin during the remainder of 2025.
Provision for Credit Losses
The Company recorded a provision for credit losses during the first six monthsof 2025 of $103 thousand, compared to
$211 thousand during the first six monthsof 2024.Provision expense is affected by organic loan growth in our loan
portfolio, our internal assessment of the credit quality of the loan portfolio, ourexpectations about future economic
conditions and net charge-offs.Our CECL model is largely influenced by economic factors including,the anticipated
Alabama unemployment rate, which may be affected bygovernment policies, including monetary,fiscal and other policies,
including tariffs.
Our allowance for credit losses reflects an amount we believe appropriate,based on our allowance assessment
methodology, to adequatelycover all expected credit losses as of the date the allowance is determined.At June 30, 2025,
the Company's allowance for creditlosses was $7.0 million, or 1.24% of total loans, compared to $6.9 million, or 1.22% of
total loans, at December 31, 2024, and $7.1 million, or 1.24% of total loans, at June 30,2024.
Noninterest Income
Quarter ended June 30,
Six months ended June 30,
(Dollars in thousands)
2025
2024
2025
2024
Service charges on deposit accounts
$
$
$
$
Mortgage lending income
Bank-owned life insurance
Other
Total noninterest income
$
$
$
1,536
$
1,783
The Company's mortgagelending income includes income from the (1) origination and sale of mortgageloans and (2)
servicing of mortgage loans. Origination income, net, is comprisedof gains or losses from the sale of the mortgage loans
originated, origination fees, underwriting fees, and other fees associated withthe origination of loans, which are netted
against the commission expense associated with these originations. TheCompany's normal practice is to originate
mortgage loans for sale in the secondary market and to either sell or retainthe associated MSRs when the loan is sold.
MSRs are recognized based on the fair value of the servicing right onthe date the corresponding mortgage loan is sold.
The Company has elected to measure its MSRs under the amortizationmethod.Servicing fee income is reported net of any
related amortization expense.
The Company evaluates MSRs for impairment on a quarterly basis.Impairment is determined by grouping MSRs by
common predominant characteristics, such as interest rate and loan type.If the aggregate carrying amount of a particular
group of MSRs exceeds the group'saggregate fair value, a valuation allowance for that group is established.The valuation
allowance is adjusted as the fair value changes.An increase in mortgage interest rates typically results in an increase in the
fair value of the MSRs while a decrease in mortgage interest rates typically resultsin a decrease in the fair value of MSRs.
The following table presents a breakdown of the Company'smortgage lending income.
Quarter ended June 30,
Six months ended June 30,
(Dollars in thousands)
2025
2024
2025
2024
Origination income
$
$
$
$
Servicing fees, net
Total mortgage lendingincome
$
$
$
$
The Company's mortgagelending income typically fluctuates as mortgage interest rates, housingsales and refinancings
change.Origination income decreased in the first six months of 2025 compared to the first six monthsof 2024 due to a
decrease in mortgage lending demand in our primary market area.
Other noninterest income was $0.8 million for the first six months of 2025, comparedto $0.9 million for the first six
months of 2024.The decrease in other noninterest income was primarily due to decreased fee incomeon reciprocal
deposits sold through the Intrafi network.
Noninterest Expense
Quarter ended June 30,
Six months ended June 30,
(Dollars in thousands)
2025
2024
2025
2024
Salaries and benefits
$
3,258
$
3,140
$
6,568
$
6,211
Net occupancy and equipment
1,318
1,366
Professional fees
Other
1,455
1,462
3,024
2,977
Total noninterest expense
$
5,702
$
5,519
$
11,582
$
11,194
The increase in salaries and benefits expense was primarily due to routineannual increases in salaries and wages.
Income TaxExpense
Income tax expense was $0.9 million for the first six months of 2025compared to $0.6 million for the first six months of
2024.The Company's effective tax rate for the first six months of 2025was 20.68%, compared to 17.07% in the first six
months of 2024.The Company's effectiveincome tax rate is affected principally by tax-exempt earnings fromthe
Company's investmentsin municipal securities and loans, BOLI, and NMTCs.
BALANCE SHEET ANALYSIS
Securities
Securities available-for-sale were $239.7 million at June 30, 2025,compared to $243.0 million at December 31, 2024.This
decrease reflects an $11.7 million decreasein the amortized cost basis of securities available-for-sale and an increase in the
fair value of securities available-for-sale of $8.4 million.The average annualized tax-equivalent yields earned on total
securities were 2.27%in the first six months of 2025 and 2024, respectively.
Loans
2025
2024
Second
First
Fourth
Third
Second
(In thousands)
Quarter
Quarter
Quarter
Quarter
Quarter
Commercial and industrial
$
59,773
59,061
63,274
61,510
77,627
Construction and land development
93,820
86,403
82,493
77,956
73,688
Commercial real estate
282,868
288,353
289,992
297,773
297,232
Residential real estate
117,159
117,500
118,627
118,582
119,427
Consumer installment
9,094
9,333
9,631
9,878
10,094
Total loans
$
562,714
560,650
564,017
565,699
578,068
Total loans were $562.7million at June 30, 2025, a slight decrease compared to $564.0 million at December31, 2024.
Four loan categories represented the majority of the loan portfolio at June30, 2025: commercial real estate (50%),
residential real estate (21%), construction and land development (17%)and commercial and industrial (11%).
Approximately 22% of the Company'scommercial real estate loans were classified as owner-occupied at June 30, 2025.
Within the residential real estate portfolio segment,the Company had junior lien mortgages of approximately $11.7million,
or 2% of total loans,and $11.2 million, or 2%, of total loans at June 30, 2025 andDecember 31, 2024, respectively.For
residential real estate mortgage loans with a consumer purpose, the Companyhad no loans that required interest only
payments at June 30, 2025 and December 31, 2024. The Company'sresidential real estate mortgage portfolio does not
include any option or hybrid ARM loans, subprime loans, or any materialamount of other consumer mortgage products
which are generally viewed as high risk.
The average yield earned on loans and loans held for sale was 5.45% in the first six monthsof 2025 and 5.12% in the first
six months of 2024.
The specific economic and credit risks associated with our loan portfolio include,but are not limited to, the effects of
current economic conditions, including the levels of market interest rates, supplychain disruptions, commercial office
occupancy levels, housing supply shortages, and effects ofinflation on our borrowers' cash flows, real estate market sales
volumes and liquidity,valuations used in making loans and evaluating collateral, availability andcost of financing
properties, real estate industry concentrations, competitive pressures froma wide range of other lenders, deterioration in
certain credits, interest rate fluctuations, reduced collateral values ornon-existent collateral, title defects, in accurate
appraisals, financial deterioration of borrowers, fraud, and any violationof applicable laws and regulations. Various
projects financed earlier that were based on lower interest rate assumptions thancurrently in effect may not be as profitable
or successful at the higher interest rates currently in effect and whichmay exist in the future.
The Company attempts to reduce these economic and credit risks through its loan-to-valueguidelines for collateralized
loans, investigating the creditworthiness of borrowers and monitoring borrowers'financial position. Also, we have
established and periodically review,lending policies and procedures. Banking regulations limit a bank'scredit exposure by
prohibiting unsecured loan relationships that exceed 10% of its capital; or20% of capital, if loans in excess of 10% of
capital are fully secured. Under these regulations, we are prohibited from havingsecured loan relationships in excess of
approximately $23.1 million.Furthermore, we have an internal limit for aggregate credit exposure (loansoutstanding plus
unfunded commitments) to a single borrower of $20.8 million. Ourloan policy requires that the Loan Committee of the
Board of Directors approve any loan relationships that exceed this internallimit.At June 30, 2025, the Bank had no loan
relationships exceeding our internal limit.
We periodicallyanalyze our commercial and industrial and commercial real estate loan portfoliosto determine if a
concentration of credit risk exists in any one or more industries. Weuse classification systems broadly accepted by the
financial services industry in order to categorize our commercial borrowers.Loans to borrowers in each of the following
classes exceeded 25% of the Bank'stotal risk-based capital at June 30, 2025 (and related balances at December31, 2024).
June 30,
December 31,
(Dollars in thousands)
2025
2024
Lessors of 1-4 family residential properties
$
57,947
$
58,228
Multi-family residential properties
42,807
43,556
Shopping centers/strip malls
35,960
37,349
Hotel/motel
34,064
35,210
Office Buildings
25,960
29,780
Allowance for Credit Losses
Our allowance for credit losses was approximately $7.0 million and $6.9million at June 30, 2025 and December 31, 2024,
respectively, which ourmanagement believedto be adequate at each of the respective dates. Our allowance for credit losses
as a percentage of total loans was 1.24%at June 30, 2025, compared to 1.22% at December 31, 2024.
Our CECL models rely largely on projections of macroeconomicconditions to estimate future credit losses.
Macroeconomic factors used in the model include the Alabama unemploymentrate, the Alabama home price index, the
national commercial real estate price index and the Alabama gross state product.Projections of these macroeconomic
factors, obtained from an independent third party,are utilized to predict quarterly rates of default.
Under the CECL methodology the allowance for credit losses is measured ona collective basis for pools of loans with
similar risk characteristics, and for loans that do not share similar risk characteristicswith the collectively evaluated pools,
evaluations are performed on an individual basis. Losses are predicted overa period of time determined to be reasonable
and supportable, and at the end of the reasonable and supportable periodlosses are reverted to long term historical averages.
At June 30, 2025, reasonable and supportable periods of four quarterswere utilized followed by an eight quarters straight
line reversion period to long term averages.
A summary of the changes in the allowance for credit losses and certainasset quality ratios for the second quarter of 2025
and the previous four quarters is presented below.
2025
2024
Second
First
Fourth
Third
Second
(Dollars in thousands)
Quarter
Quarter
Quarter
Quarter
Quarter
Balance at beginning of period
$
6,750
6,871
6,876
7,142
7,215
Charge-offs:
Commercial and industrial
(3)
(99)
-
-
(9)
Residential real estate
(6)
(1)
(7)
(54)
-
Consumer installment
(9)
-
(31)
(40)
(19)
Total charge-offs
(18)
(100)
(38)
(94)
(28)
Recoveries
Net (charge-offs) recoveries
(64)
(60)
(9)
Provision for credit losses - Loans
(57)
(21)
(206)
(64)
Ending balance
$
6,965
6,750
6,871
6,876
7,142
as a % of loans
1.24
%
1.20
1.22
1.22
1.24
as a % of nonperforming loans
2,306
%
1,298
1,366
Net charge-offs (recoveries) as % of averageloans (a)
(0.03)
%
0.05
(0.01)
0.04
0.01
(a) Net charge-offs (recoveries) are annualized.
The allowance for credit losses by loan category for the second quarter of 2025 and the previousfour quarters is presented
below.
2025
2024
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Second Quarter
(Dollars in thousands)
Amount
%*
Amount
%*
Amount
%*
Amount
%*
Amount
%*
Commercial and industrial
$
1,212
10.6
$
1,219
10.5
$
1,244
11.2
$
1,160
10.9
$
1,366
13.4
Construction and land
development
1,613
16.7
1,401
15.4
1,059
14.6
13.8
12.7
Commercial real estate
3,151
50.3
3,153
51.4
3,842
51.5
3,989
52.6
4,091
51.5
Residential real estate
20.8
21.0
21.0
21.0
20.7
Consumer installment
1.6
1.7
1.7
1.7
1.7
Total allowance forcredit losses
$
6,965
$
6,750
$
6,871
$
6,876
$
7,142
* Loan balance in each category expressed as a percentage of total loans.
Nonperforming Assets
At June 30, 2025 and December 31, 2024, the Company had $0.3 millionand $0.5 million, respectively,in nonperforming
assets.
The table below provides information concerning total nonperformingassets and certain asset quality ratios for the second
quarter of 2025 and the previous four quarters.
2025
2024
Second
First
Fourth
Third
Second
(Dollars in thousands)
Quarter
Quarter
Quarter
Quarter
Quarter
Nonperforming assets:
Nonaccrual loans
$
Total nonperformingassets
$
as a % of loans and OREO
0.05
%
0.09
0.09
0.14
0.14
as a % of total assets
0.03
%
0.05
0.05
0.08
0.08
Nonperforming loans as a % of total loans
0.05
%
0.09
0.09
0.14
0.14
Accruing loans 90 days or more past due
$
-
-
-
-
The table below provides information concerning the composition ofnonaccrual loans for the second quarter of 2025 and
the previous four quarters.
2025
2024
Second
First
Fourth
Third
Second
(In thousands)
Quarter
Quarter
Quarter
Quarter
Quarter
Nonaccrual loans:
Commercial and industrial
$
-
-
-
Construction and land development
-
-
-
Commercial real estate
-
-
Residential real estate
-
Total nonaccrualloans
$
The Company discontinues the accrual of interest income when (1)there is a significant deterioration in the financial
condition of the borrower and full repayment of principal and interest is notexpected or (2) the principal or interest is
90 days or more past due, unless the loan is both well-secured and in the process ofcollection.
The Company had no loans 90 days or more past due and still accruing at June 30, 2025 or December31, 2024.
The Company had no OREO at June 30, 2025 or December 31, 2024.
Deposits
(In thousands)
2025
2024
Noninterest bearing demand
$
268,468
260,874
NOW
199,398
199,883
Money market
203,791
153,916
Savings
86,476
89,904
Certificates of deposit under $250,000
99,995
103,594
Certificates of deposit and other time deposits of $250,000 or more
81,723
87,653
Total deposits
$
939,851
895,824
Total deposits were $939.9million at June 30, 2025, compared to $895.8 million at December 31, 2024.The 5% increase
in deposits compared to December 31, 2024 was primarily related to a decreasein reciprocal customer deposits sold
through the Intrafi network.At June 30, 2025the Company had no reciprocal deposits sold, compared to $74.1 million at
December 31, 2024.The Company had no brokered deposits at June 30, 2025 and December 31, 2024.Noninterest-
bearing deposits were $268.5 million, or 30% of total deposits, at June 30,2025, compared to $260.9 million, or 29% of
total deposits at December 31, 2024.
The average rate paid on total interest-bearing deposits was 1.76% in the firstsix months of 2025, compared to 1.72% in
first six months of 2024.
At June 30, 2025, estimated uninsured deposits totaled $362.2 million,or 39% of total deposits, compared to $359.7
million, or 40% of total deposits at December 31, 2024.The Bank participates in the Certificates of Deposit Account
Registry Service (the "CDARS") and the Insured Cash Sweep product("ICS"), which provide for reciprocal ("two-way")
transactions among banks facilitated by IntraFi for the purpose ofimproving the FDIC insurance coverage for our
depositors.The Company had reciprocal deposits on balance sheet of $55.2 million at June 30,2025, compared to $6.9
million at December 31, 2024.Uninsured amounts are estimated based on the portion of account balances in excessof
FDIC insurance limits.The Bank's estimated uninsureddeposits at June 30, 2025 and December 31, 2024 include
approximately $202.6 million and $223.1 million, respectively,of deposits of state, county and local governments that are
collateralized by securities having an equal fair value to such deposits.Excluding estimated uninsured deposits of state,
county and local governments,our estimated uninsured deposits would have been 15% of total depositsat both June 30,
2025 and December 31, 2024, respectively.
The estimated uninsured time deposits by maturity as of June 30,2025 is presented below.
(Dollars in thousands)
June 30, 2025
Maturity of:
3 months or less
$
13,116
Over 3 months through 6 months
37,317
Over 6 months through 12 months
2,398
Over 12 months
2,392
Total estimated uninsuredtime deposits
$
55,223
Other Borrowings and AvailableCredit
The Company had no long-term debt at June 30, 2025 and December 31, 2024.The Bank utilizes short and long-term non-
deposit borrowings from time to time. Short-term borrowings generallyconsist of federal funds purchased and securities
sold under agreements to repurchase with an original maturity of one year or less.The Bank had available federal funds
lines totaling $65.2 million with no federal funds borrowings outstandingat June 30, 2025, and December 31, 2024,
respectively. TheCompany had no securities sold under agreements to repurchase,which generally have been entered into
on behalf of certain customers at both June 30, 2025 and December 31, 2024.The Bank is eligible to borrow from the
FRB's discount window,but had no such borrowings at June 30, 2025 and December 31, 2024.The Bank never borrowed
from the Federal Reserve's BankTerm 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 futureborrow from time to time under the
FHLB of Atlanta's advance program.FHLB advances include both fixed and variable rates and are taken out with varying
maturities, and are generally secured by eligible assets.The Bank had no borrowings under FHLB of Atlanta'sadvance
program at June 30, 2025 and December 31, 2024, respectively.At those dates, the Bank had $298.9 million and $296.9
million, respectively,of available lines of credit at the FHLB of Atlanta.
CAPITAL ADEQUACY
The Company's consolidatedstockholders' equity was $86.1 million and $78.3 million as of June 30,2025 and December
31, 2024, respectively.The increase from December 31, 2024 was primarily driven by net earnings of $3.4million and
other comprehensive income due to the change in unrealized gains/losses onsecurities available-for-sale, net of tax of $6.3
million, partially offset by cash dividends of $1.9 million.Unrealized losses do not affect the Bank'scapital for regulatory
capital purposes.
The Company paid cash dividends of $0.54 per share for both the firstsix months of 2025 and the first six months of 2024.
Federal Reserve rules require a capital conservation bufferof CET1 capital of 2.5% that is added to the minimum
requirements for capital adequacy purposes.A banking organization with a capital conservation bufferof 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'sSmall Bank Holding
Company Policy.Accordingly, our capitaladequacy is evaluated at the Bank level, and not for the Company and its
consolidated subsidiaries.The Bank's tier 1 leverage ratio was 10.64%, CET1 risk-based capital ratio was 15.32%, tier 1
risk-based capital ratio was 15.32%, and total risk-based capital ratio was 16.35%at June 30, 2025. These ratios exceed the
minimum regulatory capital percentages of 5.0% for tier 1 leverageratio, 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 ratioto be considered "well capitalized."The Bank's
capital conservation buffer was 8.35%at June 30, 2025.
MARKET AND LIQUIDITY RISK MANAGEMENT
Management's objective is to manageassets and liabilities to provide a satisfactory,consistent level of profitability within
the framework of established liquidity,loan, investment, borrowing, and capital policies. The Bank'sAsset Liability
Management Committee ("ALCO") is charged with theresponsibility of monitoring these policies, which are designed to
ensure an acceptable asset/liability composition. Twocritical areas of focus for ALCO are interest rate risk and liquidity
risk management.
Interest Rate Risk Management
In the normal course of business, the Company is exposed to market risk arisingfrom fluctuations in interest rates. ALCO
measures and evaluates interest rate risk so that the Bank can meet customer demandsfor various types of loans and
deposits. Measurements used to help manage interest rate sensitivity includean earnings simulation model and an economic
value of equity ("EVE") model.
Earnings simulation
. Management believes that interest rate risk is best estimated by our earningssimulation modeling.
Forecasted levels of earning assets, interest-bearing liabilities, andoff-balance sheet financial instruments are combined
with ALCO forecasts of market interest rates for the next 12 months and other factorsin order to produce various earnings
simulations and estimates. Tohelp limit interest rate risk, we have guidelines for earnings at risk which seek tolimit the
variance of net interest income from gradual changes in interest rates.For changes up or down in rates from management's
flat interest rate forecast over the next 12 months, policy limits for net interest incomevariances are as follows:
●
+/- 20% for a gradual change of 400 basis points
●
+/- 15% for a gradual change of 300 basis points
●
+/- 10% for a gradual change of 200 basis points
●
+/- 5% for a gradual change of 100 basis points
While a gradual change in interest rates was used in the above analysis to provide anestimate of exposure under these
scenarios, our modeling under both a gradual and instantaneous change ininterest rates indicates our balance sheet is
liability sensitive over the forecast period of 12 months.
At June 30, 2025, our earnings simulation model indicated that we werein compliance with the policy guidelines noted
above.
Economic Valueof Equity
. EVE measures the extent that the estimated economic values of ourassets, liabilities, and off-
balance sheet items will change as a result of interest rate changes. Economic valuesare estimated by discounting expected
cash flows from assets, liabilities, and off-balance sheetitems, which establishes a base case EVE. In contrast with our
earnings simulation model, which evaluates interest rate risk over a 12-monthtimeframe, EVE uses a terminal horizon
which allows for the re-pricing of all assets, liabilities, and off-balancesheet items. Further, EVE is measured using values
as of a point in time and does not reflect any actions that ALCO might take in respondingto or anticipating changes in
interest rates, or market and competitive conditions.To help limit interest rate risk, we havestated policy guidelines for an
instantaneous basis point change in interest rates, such that our EVE should not decreasefrom our base case by more than
the following:
●
35% for an instantaneous change of +/- 400 basis points
●
30% for an instantaneous change of +/- 300 basis points
●
25% for an instantaneous change of +/- 200 basis points
●
15% for an instantaneous change of +/- 100 basis points
At June 30, 2025, our EVE model indicated that we were in compliancewith our policy guidelines.
Each of the above analyses may not, on its own, be an accurate indicator of how ournet interest income will be affected by
changes in interest rates. Income associated with interest-earningassets and costs associated with interest-bearing liabilities
may not be affected uniformly by changes in interest rates.In addition, the magnitude and duration of changes in interest
rates may have a significant impact on net interest income. For example,although certain assets and liabilities may have
similar maturities or periods of repricing, they may react in differentdegrees to changes in market interest rates, and other
economic and market factors, including market perceptions. Interestrates on certain types of assets and liabilities fluctuate
in advance of changes in general market rates, while interest rates on other typesof assets and liabilities may lag behind
changes in general market rates. In addition, certain assets, such as adjustable-ratemortgage loans, have features (generally
referred to as "interest rate caps and floors") which limit changes in interest rates.Prepaymentsand early withdrawal levels
also could deviate significantly from those assumed in calculating the maturity ofcertain instruments. The ability of many
borrowers to service their debts also may decrease during periods of rising interestrates or economic stress, which may
differ across industries and economic sectors. ALCO reviews eachof the above interest rate sensitivity analyses along with
several different interest rate scenarios in seeking satisfactory,consistent levels of profitability within the framework of the
Company's established liquidity,loan, investment, borrowing, and capital policies.
The Company may also use derivative financial instruments to improvethe balance between interest-sensitive assets and
interest-sensitive liabilities, and as a tool to manage interest rate sensitivity whilecontinuing to meet the credit and deposit
needs of our customers. From time to time, the Company also mayenter into back-to-back interest rate swaps to facilitate
customer transactions and meet their financing needs. These interest rate swapsqualify as derivatives, but are not
designated as hedging instruments. At June 30, 2025 and December 31, 2024,the Company had no derivative contracts
designated as part of a hedging relationship to assist in managing its interest ratesensitivity.
Liquidity Risk Management
Liquidity is the Company'sability to convert assets into cash equivalents in order to meet daily cash flowrequirements,
primarily for deposit withdrawals, loan demand and maturing obligations.The Company seeks to manage its liquidity to
manage or reduce its costs of funds by maintaining liquidity believedadequate to meet its anticipated funding needs, while
balancing against excessive liquidity that likely would reduce earningsdue to the cost of foregoing alternative higher-
yielding assets.
Liquidity is managed at two levels. The first is the liquidity of the Company.The second is the liquidity of the Bank. The
management of liquidity at both levels is essential, because the Company andthe Bank are separate and distinct legal
entities with different funding needs and sources, andeach are subject to regulatory guidelines and requirements.The
Company depends upon dividends from the Bank for liquidity to pay its operatingexpenses, debt obligations and
dividends,and Federal Reserve Regulation W restricts Company borrowings from, and othertransactions with, the Bank.
The Bank's payment of dividendsdepends on its earnings, liquidity,capital and the absence of regulatory restrictions on
such dividends.
The primary source of funding and liquidity for the Company has been dividendsreceived from the Bank.If needed, the
Company could also borrow money,or issue common stock or other securities.Primary uses of funds by the Company
include payment of Company expenses, dividends paid to stockholdersand Company stock repurchases.
Primary sources of funding for the Bank include customer deposits, other borrowings,interest payments on earning assets,
repaymentand maturity of securities and loans,sales of securities, and the sale of loans, particularly residential mortgage
loans.The Bank has access to federal funds lines from various banks and borrowingsfrom the Federal Reserve discount
window. In addition tothese sources, the Bank is eligible to participate in the FHLB of Atlanta'sadvance program to obtain
funding for growth and liquidity.Advances include both fixed and variable terms and may be taken out with varying
maturities. At June 30, 2025, the Bank had no FHLB of Atlanta advancesoutstanding and available credit from the FHLB
of $298.9 million. At June 30, 2025, the Bank also had $65.2 millionof available federal funds lines with no borrowings
outstanding. Primary uses of funds include repayment of maturing obligationsand growing the loan portfolio.The
Company also has access to the FRB discount window.
Management believes that the Company and the Bank have adequatesources of liquidity to meet all their respective known
contractual obligations and unfunded commitments, including loancommitments and reasonablyexpected borrower,
depositor, and creditor requirements overthe next twelve months.
Off-Balance Sheet Arrangements, Commitments, Contingencies and ContractualObligations
At June 30, 2025, the Bank had outstanding standby letters of credit of $0.8 millionand unfunded loan commitments
outstanding of $64.5 million.Because these commitments generally have fixed expiration dates andmany will expire
without being drawn upon, the total commitment level doesnot necessarily represent future cash requirements. If needed to
fund these outstanding commitments, the Bank could use its cash andcash equivalents,deposits with other banks, liquidate
federal funds sold or a portion of our securities available-for-sale, ordraw on its available credit facilities or raise deposits.
Mortgage lending activities
We generallysell residential mortgage loans in the secondary market to Fannie Mae while retainingthe servicing of these
loans. The sale agreements for these residential mortgage loans with Fannie Maeand other investors include various
customary representations and warranties regarding the originationand characteristics of the residential mortgage loans.
Although the representations and warranties vary among investors, theytypically cover ownership of the loan, validity of
the lien securing the loan, the absence of delinquent taxes or liens against the propertysecuring the loan, compliance with
loan criteria set forth in the applicable agreement and compliance with applicablefederal, state, and local laws, among other
matters.
As of June 30, 2025, the aggregate unpaid principal balance of residentialmortgage loans, which we have originated and
sold, but retained the servicing rights, was $196.3 million.Although these loans are generally sold on a non-recourse basis,
we may be obligated to repurchase residential mortgage loans or reimburseinvestors for losses incurred (make whole
requests) if a loan review reveals a potential breach of our seller representationsand warranties.Upon receipt of a
repurchase or make whole request, we work with investors to arrive at a mutuallyagreeable resolution. Repurchase and
make whole requests are typically reviewed on an individual loan by loanbasis to validate the claims made by the investor
and to determine if a contractually required repurchase or make whole event has occurred.We seek to reduceand manage
the risks of potential repurchases, make whole requests, or other claims by mortgageloan investors through our
underwriting and quality assurance practices and by servicing mortgageloans to meet investor and secondary market
standards.
The Company was not required to repurchase any loans during the first six monthsof 2025 as a result of representation and
warranty provisions contained in the Company'ssale agreements with Fannie Mae, and had no pending repurchase or
make-whole requests at June 30, 2025.
We service all residentialmortgage loans originated and sold by us to Fannie Mae.As servicer, our primary duties are to:
(1) collect payments due from borrowers;(2) advance certain delinquent payments of principal and interest;(3) maintain
and administer any hazard, title, or primary mortgage insurance policies relatingto the mortgage loans;(4) maintain any
required escrow accounts for payment of taxes and insurance andadminister escrow payments;and (5) foreclose on
defaulted mortgage loans or take other actions to mitigate the potentiallosses to investors consistent with the agreements
governing our rights and duties as servicer.
Our mortgage servicing agreementsgenerally specify our standardsof responsibility as servicer and provide protection
against expenses and liabilities incurred by us when acting in compliance with theseservicing agreements.However, if we
commit a material breach of our obligations as servicer,we may be subject to termination if the breach is not cured within a
specified period following notice.The standards governing servicing and the possible remedies for violationsof such
standards are determined by our agreementswith Fannie Mae and Fannie Mae's mortgage servicingguides.Remedies
could include repurchase of an affected loan.
Although repurchase and make whole requests related to representationand warranty provisions and servicing activities
have been limited to date, it is possible that requests to repurchase mortgage loans or reimburseinvestors for losses incurred
(make whole requests) may increase in frequency if investors more aggressively pursueall means of recovering losses on
their purchased loans.As of June 30, 2025, we do not believe that this exposure is material due to the historical levelof
repurchase requests and loss trends, in addition to the fact that 99% of our residentialmortgage loans serviced for Fannie
Mae was current as of such date.We maintain ongoingcommunications with our mortgage purchasers and will continue to
evaluate this exposure by monitoring the level and number of repurchaserequests 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.As a result, the Bank is not
obligated to make any advances to Fannie Mae on principal and intereston such mortgage loans where the borrower is
entitled to forbearance.
Effects of Inflation and Changing Prices
The consolidated financial statements and related consolidated financialdata presented herein have been prepared in
accordance with GAAP and practices within the banking industry whichrequire the measurement of financial position and
operating results in terms of historical dollars without consideringthe changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all theassets and liabilities of a financial institution
are monetary in nature. As a result, interest rates have a more significant impacton a financial institution's performance
than the effects of general levels of inflation.
Inflation can increase our noninterest expenses. It also can affectour customers' behaviors, the mix of deposits between
interest and noninterest bearing, the levels of interest rates we have to pay onour deposits and other borrowings, and the
interest rates we earn on our earning assets. The difference betweenour interest expense and interest income is also affected
by the shape of the yield curve and the speeds and amounts at which our various assets andliabilities, respectively, reprice
in response to interest rate changes. The yield curve was inverted during most of2024, until September, when it began to
normalize. An inverted yield curve means shorter term interest rates are higherthan longer term interest rates. This results
in a lower spread between our costs of funds and our interest income. In addition,net interest income could be affected by
asymmetrical changes in the different interest rate indexes,given that not all of our assets or liabilities are priced with the
same index. Higher market interest rates and reductions in the securities held bythe Federal Reserve to reduce inflation
generally reduce economic activity and may reduce loan demand and growth,and may adversely affect unemployment
rates. Inflation and related changes in market interest rates, as the Federal Reservemaintains interest rates to meet its
longer-term inflation goal of 2%, also can adversely affect the valuesand liquidity of our loans and securities, the value of
collateral securing loans to our borrowers, and the success of our borrowers andsuch borrowers' available cash to pay
interest on and principal of our loans to them.
Beginning in September 2024, in light of inflation moderating, the FOMC hadthree reductions in its target federal funds
rate range totaling 100 basis points to 4.25% to 4.50%. While the FOMC reaffirmedits target inflation rate of 2% over the
longer run, it indicated it was "recalibrating" its policy based on decreasinginflation rates and the risks of increasing
unemployment, but would act on incoming data, the evolving outlookand the balance of the risks of inflation and
unemployment levels. In the future, the Federal Reserve could furtherdecrease target interest rates, or could increase such
target rates, depending on the data and its outlook.The FOMC stated on March 19, 2025 that its "assessments will take
into account a wide range of information, including readings on labor marketconditions, inflation pressures and inflation
expectations, and financial and international developments."On July 31, 2025, the FOMC, stated that the "Committee
seeks to achieve maximum employment and inflation at the rate of 2 percent overthe longer run.Uncertainty 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 takeinto account a wide range of information, including readings on labor marketconditions,
inflation pressures and inflation expectations, and financial and internationaldevelopments."
CURRENT ACCOUNTING DEVELOPMENTS
The following ASU has been issued by the FASBbut is not yet effective.
●
ASU 2023-09,
Income Taxes(Topic 740):Improvements to Income Taxdisclosures
ASU 2023-09 seeks to enhance the transparency and decision usefulness of incometax disclosures.For public business
entities, the new standard is effective for annual periods beginningafter December 15, 2024.The Company does not
expect the new standard to have a material impact on the Company'sconsolidated financial statements.
Table 1- Explanation of Non-GAAP Financial Measures
In addition to results presented in accordance with U.S. generally acceptedaccounting principles (GAAP), this quarterly
report on Form 10-Q includes certain designated net interest incomeamounts presented on a tax-equivalent basis, a non-
GAAP financial measure, including the presentation and calculationof the efficiency ratio.
The Company believes the presentation of net interest income on a tax-equivalentbasis provides comparability of net
interest income from both taxable and tax-exempt sources and facilitates comparabilitywithin the industry. Althoughthe
Company believes these non-GAAP financial measures enhance investors'understanding of its business and performance,
these non-GAAP financial measures should not be considered an alternativeto GAAP.The reconciliationsof these non-
GAAP financial measures to their most directly comparable GAAP financial measuresare presented below.
2025
2024
Second
First
Fourth
Third
Second
(In thousands)
Quarter
Quarter
Quarter
Quarter
Quarter
Net interest income (GAAP)
$
7,344
7,045
6,969
6,790
6,709
Tax-equivalent adjustment
Net interest income (Tax-equivalent)
$
7,363
7,062
6,988
6,811
6,728
Six months ended June 30,
(In thousands)
2025
2024
Net interest income (GAAP)
$
14,389
13,366
Tax-equivalent adjustment
Net interest income (Tax-equivalent)
$
14,425
13,405
Table 2- Selected Quarterly Financial Data
2025
2024
Second
First
Fourth
Third
Second
(Dollars in thousands, except per share amounts)
Quarter
Quarter
Quarter
Quarter
Quarter
Results of Operations
Net interest income (a)
$
7,363
7,062
6,988
6,811
6,728
Less: tax-equivalent adjustment
Net interest income (GAAP)
7,344
7,045
6,969
6,790
6,709
Noninterest income
Total revenue
8,133
7,792
7,814
7,636
7,605
Provision for credit losses
(10)
(48)
(127)
(123)
Noninterest expense
5,702
5,880
5,472
5,500
5,519
Income tax expense
Net earnings
$
1,833
1,530
1,560
1,732
1,734
Per share data:
Basic and diluted net earnings
$
0.52
0.44
0.45
0.50
0.50
Cash dividends declared
0.27
0.27
0.27
0.27
0.27
Weighted average shares outstanding:
Basic and diluted
3,493,699
3,493,699
3,493,699
3,493,699
3,493,699
Shares outstanding, at period end
3,493,699
3,493,699
3,493,699
3,493,699
3,493,699
Book value
$
24.64
23.79
22.41
24.14
21.53
Common stock price
High
$
25.28
23.37
24.57
24.35
19.25
Low
19.48
20.36
20.06
17.50
16.63
Period end
25.00
21.59
23.49
22.90
18.29
To earnings ratio (b)
13.09
x
11.42
12.77
91.60
101.61
To book value
%
Performance ratios:
Return on average equity
9.00
%
7.83
7.49
9.10
9.63
Return on average assets
0.74
%
0.62
0.63
0.71
0.71
Dividend payout ratio
51.92
%
61.36
60.00
54.00
54.00
Asset Quality:
Allowance for credit losses as a % of:
Loans
1.24
%
1.20
1.22
1.22
1.24
Nonperforming loans
2,306
%
1,298
1,366
Nonperforming assets as a % of:
Loans and other real estate owned
0.05
%
0.09
0.09
0.14
0.14
Total assets
0.03
%
0.05
0.05
0.08
0.08
Nonperforming loans as a % of total loans
0.05
%
0.09
0.09
0.14
0.14
Annualized net (recoveries) charge-offs as a % of average loans
(0.03)
%
0.05
(0.01)
0.04
0.01
Capital Adequacy: (c)
CET 1 risk-based capital ratio
15.32
%
15.04
14.80
14.75
14.47
Tier 1 risk-based capital ratio
15.32
%
15.04
14.80
14.75
14.47
Total risk-based capital ratio
16.35
%
16.05
15.81
15.76
15.49
Tier 1 leverage ratio
10.64
%
10.52
10.49
10.43
10.39
Other financial data:
Net interest margin (a)
3.27
%
3.20
3.09
3.05
3.06
Effective income tax rate
20.92
%
20.40
34.73
23.46
21.50
Efficiency ratio (d)
69.95
%
75.30
69.86
71.83
72.39
Selected average balances:
Securities
$
240,177
240,588
255,168
251,723
258,228
Loans, net of unearned income
559,770
566,082
567,634
571,651
573,443
Total assets
990,523
987,272
991,275
982,656
978,107
Total deposits
905,227
906,805
904,605
904,860
900,673
Total stockholders' equity
81,447
78,158
83,325
76,113
72,059
Selected period end balances:
Securities
$
239,681
242,468
243,012
258,285
254,359
Loans, net of unearned income
562,714
560,650
564,017
565,699
578,068
Allowance for credit losses
6,965
6,750
6,871
6,876
7,142
Total assets
1,029,224
996,786
977,324
990,143
1,025,054
Total deposits
939,851
910,503
895,824
901,724
946,405
Total stockholders' equity
86,071
83,115
78,292
84,336
75,209
(a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures."
(b) Calculated by dividing period end share price byearnings per share for the previous four quarters.
(c) Regulatory capital ratios presented are for the Company'swholly-owned subsidiary, AuburnBank.
(d) Efficiency ratio is the result of noninterest expense divided bythe sum of noninterest income and tax-equivalent net interest income.
See Table 1 - Explanation of Non-GAAP Measures.
Table 3- Selected Financial Data
Six months ended June 30,
(Dollars in thousands, except per share amounts)
2025
2024
Results of Operations
Net interest income (a)
$
14,425
13,405
Less: tax-equivalent adjustment
Net interest income (GAAP)
14,389
13,366
Noninterest income
1,536
1,783
Total revenue
15,925
15,149
Provision for credit losses
Noninterest expense
11,582
11,194
Income tax expense
Net earnings
$
3,363
3,105
Per share data:
Basic and diluted net earnings
$
0.96
0.89
Cash dividends declared
0.54
0.54
Weighted average shares outstanding:
Basic and diluted
3,493,699
3,493,681
Shares outstanding, at period end
3,493,699
3,493,699
Book value
$
24.64
21.53
Common stock price:
High
$
25.28
21.55
Low
19.48
16.63
Period end
25.00
18.29
To earnings ratio (b)
13.09
x
101.61
To book value
%
Performance ratios:
Annualized return on average equity
8.26
%
8.34
Annualized return on average assets
0.68
%
0.64
Dividend payout ratio
56.25
%
60.67
Asset Quality:
Allowance for credit losses as a % of:
Loans
1.24
%
1.24
Nonperforming loans
2,306
%
Nonperforming assets as a % of:
Loans and other real estate owned
0.05
%
0.14
Total assets
0.03
%
0.08
Nonperforming loans as a % of total loans
0.05
%
0.14
Annualized net recoveries as a % of average loans
0.01
%
(0.02)
Capital Adequacy: (c)
CET 1 risk-based capital ratio
15.32
%
14.47
Tier 1 risk-based capital ratio
15.32
%
14.47
Total risk-based capital ratio
16.35
%
15.49
Tier 1 leverage ratio
10.64
%
10.39
Other financial data:
Net interest margin (a)
3.24
%
3.05
Effective income tax rate
20.68
%
17.07
Efficiency ratio (d)
72.56
%
73.70
Selected average balances:
Securities
$
240,381
262,917
Loans, net of unearned income
562,909
567,100
Total assets
988,907
977,518
Total deposits
906,011
898,862
Total stockholders' equity
81,447
74,503
Selected period end balances:
Securities
$
239,681
254,359
Loans, net of unearned income
562,714
578,068
Allowance for credit losses
6,965
7,142
Total assets
1,029,224
1,025,054
Total deposits
939,851
946,405
Total stockholders' equity
86,071
75,209
(a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures."
(b) Calculated by dividing period end share price byearnings per share for the previous four quarters.
(c) Regulatory capital ratios presented are for the Company'swholly-owned subsidiary, AuburnBank.
(d) Efficiency ratio is the result of noninterest expense divided bythe sum of noninterest income and tax-equivalent net interest income.
See Table 1 - Explanation of Non-GAAP Measures.
Table 4- AverageBalances and Net Interest Income Analysis
Quarter ended June 30,
2025
2024
Interest
Interest
Average
Income/
Yield/
Average
Income/
Yield/
(Dollars in thousands)
Balance
Expense
Rate
Balance
Expense
Rate
Interest-earning assets:
Loans and loans held for sale (1)
$
559,939
$
7,676
5.50%
$
573,926
$
7,451
5.22%
Securities - taxable (2)
231,078
1,250
2.17%
248,018
1,371
2.22%
Securities - tax-exempt (2)(3)
9,098
3.81%
10,210
3.66%
Total securities
240,176
1,337
2.23%
258,228
1,464
2.28%
Federal funds sold
25,705
4.37%
17,357
5.42%
Interest bearing bank deposits
76,237
4.40%
34,553
5.28%
Total interest-earningassets
902,057
$
10,129
4.50%
884,064
$
9,603
4.37%
Cash and due from banks
15,936
18,072
Other assets
72,530
75,971
Total assets
$
990,523
$
978,107
Interest-bearing liabilities:
Deposits:
NOW
$
198,973
$
1.31%
$
190,861
$
1.42%
Savings and money market
253,704
1.02%
254,663
0.84%
Time deposits
184,666
1,471
3.19%
192,164
1,666
3.49%
Total interest-bearingdeposits
637,343
2,766
1.74%
637,688
2,874
1.81%
Short-term borrowings
5.27%
0.43%
Total interest-bearingliabilities
637,453
$
2,767
1.74%
638,619
$
2,875
1.81%
Noninterest-bearing deposits
267,884
262,985
Other liabilities
3,739
4,444
Stockholders' equity
81,447
72,059
Total liabilities and stockholders'equity
$
990,523
$
978,107
Net interest income and margin (tax-equivalent)
$
7,362
3.27%
$
6,728
3.06%
(1) Average loanbalances are shown net of unearned income and loans on nonaccrual status havebeen included
in the computation of average balances.
(2) Includes average net unrealized gains (losses) on investment securities availablefor sale
(3) Yields on tax-exempt securities have beencomputed on a tax-equivalent basis using a federal income
tax rate of 21%.
Table 5- AverageBalances and Net Interest Income Analysis
Six months ended June 30,
2025
2024
Interest
Interest
Average
Income/
Yield/
Average
Income/
Yield/
(Dollars in thousands)
Balance
Expense
Rate
Balance
Expense
Rate
Interest-earning assets:
Loans and loans held for sale (1)
$
563,086
$
15,219
5.45%
$
567,434
$
14,441
5.12%
Securities - taxable (2)
231,201
2,531
2.21%
252,623
2,782
2.21%
Securities - tax-exempt (2)(3)
9,180
3.80%
10,294
3.65%
Total securities
240,381
2,704
2.27%
262,917
2,969
2.27%
Federal funds sold
26,282
4.38%
17,669
5.50%
Interest bearing bank deposits
68,777
1,514
4.44%
36,171
5.33%
Total interest-earningassets
898,526
$
20,008
4.49%
884,191
$
18,852
4.29%
Cash and due from banks
17,001
17,922
Other assets
73,380
75,405
Total assets
$
988,907
$
977,518
Interest-bearing liabilities:
Deposits:
NOW
$
204,069
$
1,391
1.37%
$
193,755
$
1,316
1.37%
Savings and money market
248,233
1,147
0.93%
248,227
0.71%
Time deposits
187,763
3,044
3.27%
195,863
3,256
3.34%
Total interest-bearingdeposits
640,065
5,582
1.76%
637,845
5,444
1.72%
Short-term borrowings
5.27%
1,262
0.48%
Total interest-bearingliabilities
640,120
$
5,583
1.76%
639,107
$
5,447
1.71%
Noninterest-bearing deposits
265,946
261,017
Other liabilities
3,030
2,891
Stockholders' equity
79,811
74,503
Total liabilities and stockholders'equity
$
988,907
$
977,518
Net interest income and margin (tax-equivalent)
$
14,425
3.24%
$
13,405
3.05%
(1) Average loanbalances are shown net of unearned income and loans on nonaccrual status havebeen included
in the computation of average balances.
(2) Includes average net unrealized gains (losses) on investment securities availablefor sale
(3) Yields on tax-exempt securities have beencomputed on a tax-equivalent basis using a federal income
tax rate of 21%.
Table 6-Volumeand Rate VarianceAnalysis
Quarter ended June 30, 2025 vs. 2024
Six months ended June 30, 2025 vs. 2024
Net
Due to change in
Net
Due to change in
(Dollars in thousands)
Change
Rate (2)
Volume (2)
Change
Rate (2)
Volume (2)
Interest income:
Loans and loans held for sale
$
(170)
$
(155)
Securities - taxable
(121)
(33)
(88)
(251)
(9)
(242)
Securities - tax-exempt (1)
(8)
(10)
(14)
(21)
Total securities
(129)
(31)
(98)
(265)
(2)
(263)
Federal funds sold
(45)
(98)
Interest bearing bank deposits
(76)
(161)
Total interest income
$
$
1,155
Interest expense:
Deposits:
NOW
$
(27)
(55)
$
Savings and money market
(1)
(2)
Certificates of deposit
(194)
(138)
(56)
(214)
(74)
(140)
Total interest-bearingdeposits
(107)
(78)
(29)
(75)
Short-term borrowings
-
(7)
(2)
(22)
Long-term debt
-
-
-
-
-
-
Total interest expense
(107)
(71)
(36)
(97)
Net interest income
$
$
1,021
(1) Yields on tax-exempt securities have beencomputed on a tax-equivalent basis using an income
tax rate of 21%.See "Table 1 - Explanationof Non-GAAP Financial Measures."
(2) Changes that are not solely a result of volume or rate have been allocatedto volume.
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