Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,D.C.20549

FORM

10-Q

(Mark One)

☒

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended

September 30, 2024

☐

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period __________ to __________

Commission File Number:

0-26486

Auburn National Bancorporation, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

63-0885779

(I.R.S. Employer

Identification No.)

100 N. Gay Street

Auburn

,

Alabama

36830

(

334

)

821-9200

(Address and telephone number of principal executive offices)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

AUBN

NASDAQ

Global Market

Indicatebycheckmarkwhethertheregistrant(1) hasfiledallreportsrequiredtobefiledbySection 13or15(d)oftheSecurities

Exchange Actof 1934during thepreceding 12 months(or forsuch shorterperiod thatthe registrantwas requiredto filesuch reports),

and (2) has been subject to such filing requirements for the past 90 days.

Yes

☒

No

☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and

posted pursuant to Rule 405 of Regulation S-T

(§232.405 of this chapter)

during the preceding 12 months (or for such shorter period

that the registrant was required to submit such files).

Yes

☒

No

☐

Indicate by checkmark whether theregistrant is alarge accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting

companyoranemerginggrowthcompany.Seethedefinitionsof"largeacceleratedfiler,""acceleratedfiler,""smallerreporting

company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

Ifanemerginggrowthcompany,indicatebycheckmarkiftheregistranthaselectednottousetheextendedtransitionperiodfor

complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes

☐

No

☒

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class

Outstanding at October 31, 2024

Common Stock, $0.01 par value per share

3,493,699

shares

Table of Contents

AUBURN NATIONAL BANCORPORATION, INC. ANDSUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

PAGE

Item 1

Financial Statement

Consolidated Balance Sheets (Unaudited) as of September 30, 2024 and December 31, 2023

3

Consolidated Statements of Earnings (Unaudited) for the quarter and nine months ended September 30,

2024 and 2023

4

Consolidated Statements of Comprehensive Income (Unaudited) for the quarter and nine months ended

September 30, 2024 and 2023

5

Consolidated Statements of Stockholders' Equity (Unaudited) for the quarter and nine months ended

September 30, 2024 and 2023

6

Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2024 and

2023

7

Notes to Consolidated Financial Statements (Unaudited

)

8

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

27

Table 1 - Explanation of Non-GAAP Financial Measures

44

Table 2 - Selected Quarterly Financial Data

45

Table 3 - Selected Financial Data

46

Table 4 - Average Balances and Net Interest Income Analysis - for the quarter ended September 30,

2024 and 2023

47

Table 5 - Average Balances and Net Interest Income Analysis - for the nine months ended September

30, 2024 and 2023

48

Item 3

Quantitative and Qualitative Disclosures About Market Risk

49

Item 4

Controls and Procedures

49

PART II. OTHER INFORMATION

Item 1

Legal Proceedings

49

Item 1A

Risk Factors

49

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

50

Item 3

Defaults Upon Senior Securities

50

Item 4

Mine Safety Disclosures

50

Item 5

Other Information

50

Item 6

Exhibits

51

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3

PART1.FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AUBURN NATIONALBANCORPORATION,INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

September 30,

December 31,

(Dollars in thousands, except share data)

2024

2023

Assets:

Cash and due from banks

$

24,449

$

27,127

Federal funds sold

10,325

31,412

Interest-bearing bank deposits

55,056

12,830

Cash and cash equivalents

89,830

71,369

Securities available-for-sale

258,285

270,910

Loans held for sale

565

-

Loans

565,699

557,294

Allowance for credit losses

(6,876)

(6,863)

Loans, net

558,823

550,431

Premises and equipment, net

46,236

45,535

Bank-owned life insurance

17,411

17,110

Other assets

18,993

19,900

Total assets

$

990,143

$

975,255

Liabilities:

Deposits:

Noninterest-bearing

$

270,244

$

270,723

Interest-bearing

631,480

625,520

Total deposits

901,724

896,243

Federal funds purchased and securities sold under agreements to repurchase

-

1,486

Accrued expenses and other liabilities

4,083

1,019

Total liabilities

905,807

898,748

Stockholders' equity:

Preferred stock of $

.01

par value; authorized

200,000

shares;

no shares issued

-

-

Common stock of $

.01

par value; authorized

8,500,000

shares;

issued

3,957,135

shares

39

39

Additional paid-in capital

3,802

3,801

Retained earnings

115,142

113,398

Accumulated other comprehensive loss, net

(22,946)

(29,029)

Less treasury stock, at cost -

463,436

shares and

463,521

at September 30, 2024

and December 31, 2023, respectively

(11,701)

(11,702)

Total stockholders'equity

84,336

76,507

Total liabilities and stockholders'equity

$

990,143

$

975,255

See accompanying notes to consolidated financial statements

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4

AUBURN NATIONALBANCORPORATION,INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(Unaudited)

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands, except share and per share data)

2024

2023

2024

2023

Interest income:

Loans, including fees

$

7,641

$

6,373

$

22,082

$

18,146

Securities:

Taxable

1,327

1,783

4,109

5,474

Tax-exempt

77

402

225

1,209

Federal funds sold and interest-bearing bank deposits

914

85

2,356

442

Total interest income

9,959

8,643

28,772

25,271

Interest expense:

Deposits

3,169

2,334

8,613

4,934

Short-term borrowings

-

37

3

68

Total interest expense

3,169

2,371

8,616

5,002

Net interest income

6,790

6,272

20,156

20,269

Provision for (reversal of) credit losses

(127)

105

84

(191)

Net interest income after provision for creditlosses

6,917

6,167

20,072

20,460

Noninterest income:

Service charges on deposit accounts

154

148

463

456

Mortgage lending

133

110

463

345

Bank-owned life insurance

100

87

301

311

Other

459

520

1,402

1,336

Total noninterest income

846

865

2,629

2,448

Noninterest expense:

Salaries and benefits

3,148

2,844

9,359

8,809

Net occupancy and equipment

614

755

1,980

2,341

Professional fees

291

261

931

898

Other

1,447

1,502

4,424

4,743

Total noninterest expense

5,500

5,362

16,694

16,791

Earnings before income taxes

2,263

1,670

6,007

6,117

Income tax expense

531

182

1,170

737

Net earnings

$

1,732

$

1,488

$

4,837

$

5,380

Net earnings per share:

Basic and diluted

$

0.50

$

0.43

$

1.38

$

1.54

Weighted average sharesoutstanding:

Basic and diluted

3,493,699

3,496,411

3,493,687

3,499,518

See accompanying notes to consolidated financial statements

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5

AUBURN NATIONALBANCORPORATION,INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

2024

2023

2024

2023

Net earnings

$

1,732

$

1,488

$

4,837

$

5,380

Other comprehensive income (loss):

Unrealized gain (loss) on securities

11,133

(13,275)

8,121

(10,808)

Related tax (expense) benefit

(2,795)

3,334

(2,038)

2,715

Other comprehensive income (loss), net of tax

8,338

(9,941)

6,083

(8,093)

Comprehensive income (loss)

$

10,070

$

(8,453)

$

10,920

$

(2,713)

See accompanying notes to consolidated financial statements

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6

AUBURN NATIONALBANCORPORATION,INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

(Unaudited)

Accumulated

Common

Additional

other

Shares

Common

paid-in

Retained

comprehensive

Treasury

(Dollars in thousands, except share data)

Outstanding

Stock

capital

earnings

income (loss)

stock

Total

Quarter ended September 30, 2024

Balance, June 30, 2024

3,493,699

$

39

$

3,802

$

114,353

$

(31,284)

$

(11,701)

$

75,209

Net earnings

-

-

-

1,732

-

-

1,732

Other comprehensive income

-

-

-

-

8,338

-

8,338

Cash dividends paid ($

.27

per share)

-

-

-

(943)

-

-

(943)

Balance, September 30, 2024

3,493,699

$

39

$

3,802

$

115,142

$

(22,946)

$

(11,701)

$

84,336

Quarter ended September 30, 2023

Balance, June 30, 2023

3,499,412

$

39

$

3,800

$

117,781

$

(39,072)

$

(11,572)

$

70,976

Net earnings

-

-

-

1,488

-

-

1,488

Other comprehensive loss

-

-

-

-

(9,941)

-

(9,941)

Cash dividends paid ($

.27

per share)

-

-

-

(943)

-

-

(943)

Stock repurchases

(5,883)

-

-

-

-

(130)

(130)

Sale of treasury stock

85

-

1

-

-

-

1

Balance, September 30, 2023

3,493,614

$

39

$

3,801

$

118,326

$

(49,013)

$

(11,702)

$

61,451

Nine months ended September 30, 2024

Balance, December 31, 2023

3,493,614

$

39

$

3,801

$

113,398

$

(29,029)

$

(11,702)

$

76,507

Cumulative effect of change in accounting

standard ASC 326

-

-

-

(263)

-

-

(263)

Net earnings

-

-

-

4,837

-

-

4,837

Other comprehensive income

-

-

-

-

6,083

-

6,083

Cash dividends paid ($

.81

per share)

-

-

-

(2,830)

-

-

(2,830)

Sale of treasury stock

85

-

1

-

-

1

2

Balance, September 30, 2024

3,493,699

$

39

$

3,802

$

115,142

$

(22,946)

$

(11,701)

$

84,336

Nine months ended September 30, 2023

Balance, December 31, 2022

3,503,452

$

39

$

3,797

$

116,600

$

(40,920)

$

(11,475)

$

68,041

Cumulative effect of change in accounting

standard ASU 2023-12

-

-

-

(821)

-

-

(821)

Net earnings

-

-

-

5,380

-

-

5,380

Other comprehensive loss

-

-

-

-

(8,093)

-

(8,093)

Cash dividends paid ($

.81

per share)

-

-

-

(2,833)

-

-

(2,833)

Stock repurchases

(10,108)

-

-

-

-

(229)

(229)

Sale of treasury stock

270

-

4

-

-

2

6

Balance, September 30, 2023

3,493,614

$

39

$

3,801

$

118,326

$

(49,013)

$

(11,702)

$

61,451

See accompanying notes to consolidated financial statements

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7

AUBURN NATIONALBANCORPORATION,INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Nine months ended September 30,

(Dollars in thousands)

2024

2023

Cash flows from operating activities:

Net earnings

$

4,837

$

5,380

Adjustments to reconcile net earnings to net cash provided by

operating activities:

Provision for (reversal of) credit losses

84

(191)

Depreciation and amortization

1,402

1,278

Premium amortization and discount accretion, net

1,155

1,834

Net gain on sale of loans held for sale

(194)

(81)

Loans originated for sale

(8,427)

(3,417)

Proceeds from sale of loans

8,002

3,482

Increase in cash surrender value of bank-owned life insurance

(301)

(259)

Income recognized from death benefit on bank-owned life insurance

-

(52)

Net (increase) decrease in other assets

(1,545)

47

Net increase in accrued expenses and other liabilities

2,996

2,672

Net cash provided by operating activities

8,009

10,693

Cash flows from investing activities:

Proceeds from prepayments and maturities of securities available-for-sale

19,592

19,377

Increase in loans, net

(8,407)

(41,025)

Net purchases of premises and equipment

(1,930)

(170)

Proceeds from bank-owned life insurance death benefit

-

216

Proceeds from surrender of bank-owned life insurance

-

3,037

Decrease (increase) in FHLB stock

32

(164)

Net cash provided by (used in) investing activities

9,287

(18,729)

Cash flows from financing activities:

Net decrease in noninterest-bearing deposits

(479)

(32,717)

Net increase in interest-bearing deposits

5,960

46,982

Net decrease in federal funds purchased and securities sold

under agreements to repurchase

(1,486)

(810)

Stock repurchases

-

(229)

Dividends paid

(2,830)

(2,833)

Net cash provided by financing activities

1,165

10,393

Net change in cash and cash equivalents

18,461

2,357

Cash and cash equivalents at beginning of period

71,369

27,254

Cash and cash equivalents at end of period

$

89,830

$

29,611

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Interest

$

8,433

$

4,384

Income taxes

589

800

See accompanying notes to consolidated financial statements

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NOTE 5: LOANS AND ALLOWANCEFOR CREDIT LOSSES

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The composition of the provision for (reversal of) credit losses for the respectiveperiods is presented below.

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ITEM 2. 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 betterunderstanding 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 condensedconsolidated financial statements and related

notes for the quarters and nine months ended September 30, 2024and 2023, as well as the information contained in our

annual report on Form 10-K for the year ended December 31, 2023 and ourinterim reports on Form 10-Q for the quarters

ended March 31, 2024 and June 30, 2024.

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," "evaluation," "estimate," "continue,""designed",

"plan," "point to," "project," "could," "intend," "target"and other similar words and expressions of the future. These

forward-looking statements may not be realized due to a variety of factors, including, withoutlimitation:

●

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 tornados, COVID-19 or other health crises, epidemics or pandemicsincluding supply chain disruptions,

inventory volatility,and changes in consumer behaviors;

●

the effects of war or other conflicts, acts of terrorism, trade restrictions(including tariffs), sanctions or other events

that may affect general economic conditions;

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28

●

governmental monetary and fiscal policies, including the amount and costs ofborrowing by the federal

government and its agencies, the continuing effects of COVID-19fiscal and monetary stimuli, and changes in

monetary policies in response to inflation in light of the Federal Reserve'starget inflation rate of 2% over the

longer term and dual mandate goals of maximum employment andstable prices, including changes to increase the

Federal Reserve's reinvestmentof maturing Treasury securities beginningin June 2024 and mid-September 2024

reduction in the target federal funds rate by 50 basis pointsto a target range of 4.75 - 5.00%, among other things

described more full in "Effects of Inflation and Changing Price";

●

legislative and regulatory changes, including changes in banking,securities and tax laws, regulations and rules and

their application by our regulators, including capital and liquidity requirements,and changes in the scope and cost

of FDIC insurance;

●

changes in accounting pronouncements and interpretations, including therequired use, beginning January 1, 2023,

of Financial Accounting Standards Board's("FASB") AccountingStandards Update (ASU) 2016-13, "Financial

Instruments - Credit Losses (Topic326): Measurement of Credit Losses on Financial Instruments," as well as the

updates issued since June 2016 (collectively,FASB ASC Topic326) on Current Expected Credit Losses

("CECL"), and ASU 2022-02, Troubled DebtRestructurings and VintageDisclosures, which eliminates troubled

debt restructurings ("TDRs") and related guidance;

●

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 unemployment rates, changesin borrowers' credit risks and payment

behaviors from those used in our CECL models and loan portfolio reviews;

●

the risks of changes in market interest rates and the shape of the yield curve on 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 or the continuation of restrictive monetarypolicies creating

unrealized losses on our securities available for sale, which adversely affectour stockholders' equity for financial

reporting purposes and our tangible equity;

●

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

●

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 supervisionand examination, as the Company

and the Bank and credit unions, which are not subject to federal income taxation;

●

the timing and amount of rental income from third parties following the June 2022opening of our new

headquarters;

●

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, our vendors'systems or customers'

information;

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29

●

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 areduction in the amount of net operating loss

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

●

the risks that our dividends, share repurchases and discretionarybonuses are limited by regulation to the

maintenance of a capital conservation buffer of 2.5% andour future earnings and "eligible retained earnings" over

rolling four calendar quarter periods;

●

other factors and risks described under "Risk Factors" herein, in our Annual Reporton Form 10-K as of and for

the year ended December 31, 2023 filed with the United States Securities and ExchangeCommission (the

"Commission" or "SEC"), and in any of our subsequent reports that we make withthe SEC under the Exchange

Act.

All written or oral forward-looking statements that we make or are attributableto 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 on whichsuch statements otherwise are made.

Summary of Results of Operations

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands, except per share amounts)

2024

2023

2024

2023

Net interest income (a)

$

6,811

$

6,380

$

20,216

$

20,591

Less: tax-equivalent adjustment

21

108

60

322

Net interest income (GAAP)

6,790

6,272

20,156

20,269

Noninterest income

846

865

2,629

2,448

Total revenue

7,636

7,137

22,785

22,717

Provision for credit losses

(127)

105

84

(191)

Noninterest expense

5,500

5,362

16,694

16,791

Income tax expense

531

182

1,170

737

Net earnings

$

1,732

$

1,488

$

4,837

$

5,380

Basic and diluted earnings per share

$

0.50

$

0.43

$

1.38

$

1.54

(a) Tax-equivalent.See "Table 1 - Explanationof Non-GAAP Financial Measures."

Financial Summary

The Company's net earnings were $4.8million for the first nine months of 2024, compared to $5.4 million for the first nine

months of 2023.Basic and diluted earnings per share were $1.38 per share for the first nine monthsof 2024, compared to

$1.54 per share for the first nine months of 2023.

Net interestincome (tax-equivalent) was $20.2 million for the first nine monthsof 2024, a 2% decrease compared to $20.6

million for the first nine months of 2023.This decrease was primarily due to a smaller balance sheet partially offsetby an

increase in the Company's net interestmargin.The Company's net interest margin(tax-equivalent) was 3.05% for the first

nine months of 2024 compared to 2.97% for the first nine months of 2023.This increase was primarily due to a more

favorable asset mix and higher yields on interest earning assets, which was partiallyoffset by increased cost of interest-

bearing deposits.Average loans for the firstnine months of 2024 were $568.9 million, a 11% increasefrom the first nine

months of 2023.Average total securities for thefirst nine months of 2024 were $259.2 million compared to $398.8 million

for the first nine months of 2023.The decrease was primarily the result of the Company'sbalance sheet repositioning in

the fourth quarter of 2024.See "Results of Operations - AverageBalance Sheet and Interest Rates" and "Net Interest

Income and Margin" below.

At September 30, 2024, the Company'sallowance for credit losses was $6.9 million, or 1.22% of total loans, comparedto

$6.9 million, or 1.23% of total loans, at December 31, 2023, and $6.8million, or 1.24% of total loans, at September 30,

2023.

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30

The Company recorded a provision for credit losses during the first ninemonths of 2024 of $0.1million, compared to a

negative provision of $0.2 million during the first nine months of 2023.The provision for credit losses under CECL

reflects the Company'sevaluation of its credit risk profile and its future economic outlook and forecasts.Our CECL model

is largely influenced by economic factors including, most notably,the anticipated unemployment rate.The increase in the

provision for credit losses during the first nine months of 2024, as comparedto the first nine months of 2023, was related to

changes in the composition of, and increases in, loans as well as changes inthe economic forecasts used in our CECL

model.

Noninterest income was $2.6 million in the first nine months of 2024,compared to $2.4 million in the first nine months of

2023.The increase was primarily related to an increase in mortgage lending incomeand other noninterest income.

Noninterest expense was $16.7 million in the first nine months of 2024,compared to $16.8 million for the first nine months

of 2023.The decrease was primarily related to decreases in net occupancy and equipmentexpense and other noninterest

expense.These decreases were partially offset by an increase in salaries and benefitsexpense.

Income tax expense was $1.2 million for the first nine months of 2024compared to $0.7 million for the first nine months of

2023.The Company's effective tax rate for the first nine months of 2024was 19.48%, compared to 12.05% in the first nine

months of 2023.The Company's effectiveincome tax rate is affected principally by tax-exempt earnings fromthe

Company's investmentsin municipal securities, bank-owned life insurance ("BOLI"), and New Markets TaxCredits

("NMTCs").The effective tax rate increased primarily due to a decreasein the Company's investment in municipal

securities following the balance sheet restructuring in the fourth quarterof 2023, and the adoption of FASBASU 2023-02

Investments - Equity Method and Joint Ventures(Topic 323) whichallows the proportional amortization method for our

NMTC investments, on January 1, 2024.With the adoption of this ASU, amortizationof NMTCs are now included in

income tax expense rather than noninterest expense.

The Company paid cash dividends of $0.81 per share in the first nine months of2024 and 2023.At September 30, 2024,

the Bank's regulatory capitalratios were well above the minimum amounts required to be "well capitalized"under current

regulatory standards with a total risk-based capital ratio of 15.76%,a tier 1 leverage ratio of 10.43% and a common equity

tier 1 ("CET1") ratio of 14.75% at September 30, 2024.

For the third quarter of 2024, net earnings were $1.7 million, or $0.50per share, compared to $1.5 million, or $0.43 per

share, for the third quarter of 2023.Net interest income (tax-equivalent) was $6.8 million for the third quarterof 2024

compared to $6.4 million for the third quarter of 2023.The increase was primarily due a more favorable asset mix and

higher yields on interest earning assets partially offsetby increases in the cost of interest-bearing deposits.The Company's

net interest margin (tax-equivalent) was 3.05% in the thirdquarter of 2024 compared to 2.73% in the third quarter of 2023.

The Company recorded a negative provision for credit losses during thethird quarter of 2024 of $0.1million, compared to a

provision of $0.1 million for the third quarter of 2023.Noninterest income was $0.8 million for the third quarter of 2024

compared to $0.9 million for the third quarter of 2023.This decrease was primarily due to a decrease in other noninterest

income.Noninterest expense was $5.5 million in the third quarter of 2024 compared to $5.4million for the third quarter of

2023.The increase in noninterest expense was primarily due to an increase in salaries and benefitsexpense which was

partially offset by decreases in net occupancy and equipment expenseand FDIC and other regulatory assessments expense.

Income tax expense was $0.5million for the third quarter of 2024, compared to $0.2 million for the thirdquarter of 2023.

This increase was due to an increase in the level of earnings before taxes and theCompany's effectivetax rate, which

increased to 23.46% in the third quarter of 2024 from 10.90% in the third quarter of2023.This increase was related to a

decrease in the Company's investmentin municipal securities, and the adoption of ASU 2023-02, as describedabove.

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 Accounting Estimates

as described in our Form 10-K as of and for the year ended December 31, 2023.

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31

RESULTSOF OPERATIONS

Average BalanceSheet and Interest Rates

Nine months ended September 30,

2024

2023

Average

Yield/

Average

Yield/

(Dollars in thousands)

Balance

Rate

Balance

Rate

Loans and loans held for sale

$

568,939

5.18%

$

514,706

4.71%

Securities - taxable

248,923

2.20%

344,136

2.13%

Securities - tax-exempt

10,235

3.71%

54,615

3.75%

Total securities

259,158

2.26%

398,751

2.35%

Federal funds sold

18,014

5.47%

4,372

4.86%

Interest bearing bank deposits

39,530

5.47%

8,118

4.66%

Total interest-earningassets

885,641

4.35%

925,947

3.70%

Deposits:

NOW

193,428

1.41%

189,586

0.75%

Savings and money market

250,146

0.79%

291,988

0.63%

Time deposits

196,584

3.45%

168,000

1.99%

Total interest-bearingdeposits

640,158

1.80%

649,574

1.02%

Short-term borrowings

838

0.48%

3,748

2.43%

Total interest-bearingliabilities

640,996

1.80%

653,322

1.02%

Net interest income and margin (tax-equivalent)

$

20,216

3.05%

$

20,591

2.97%

Net Interest Income and Margin

Net interest income (tax-equivalent) was $20.2 million for the first ninemonths of 2024, a 2% decrease compared to $20.6

million for the first nine months of 2023.This decrease was primarily due to a smaller balance sheet partially offsetby a

increase in the Company's net interestmargin.The Company's net interest margin(tax-equivalent) was 3.05% in the first

nine months of 2024 compared to 2.97% in the first nine months of 2023.This increase was primarily due a more

favorable asset mix and higher yields on interest-earning assets, whichwas partially offset by higher market interest rates,

which increased our cost of funds, generally,and changes in our deposit mix to higher cost interest bearing deposits.The

cost of interest-bearing liabilities increased to 180 basis points in the first ninemonths ended months of 2024, compared to

102 basis points in the first nine months ended months of 2023.Average interest-bearingdeposits were $640.2 million

during the first nine months of 2024,a 1% decrease compared to $649.6 million during the first nine months of 2023.As of

September 30, 2024, average interest-bearing deposits were 71% ofaverage total deposits compared to 69% on September

30, 2023.Since March 2022, the Federal Reserve increased the targetfederal funds rate by 525 basis points before

announcing a 50 basis points rate reduction on September 18, 2024,its first decrease in rates since its March 2020 COVID

rate reduction.At September 30, 2024, the target federal funds rate ranged from 4.75%- 5.00%.

The tax-equivalent yield on total interest-earning assets increased by65 basis points to 4.35% in the first nine months of

2024 compared to 3.70% in the first nine months of 2023.This increase was primarily due to the Company'sbalance sheet

repositioning strategy in the fourth quarter of 2023, which improvedour asset mix, and loan growth combined with higher

market interest rates on interest earning assets. Averageloans for the first nine months of 2024 were $568.9 million, an

11% increase from the first nine months of2023.

The cost of total interest-bearing liabilities increased by 78 basis points to 1.80%in the first nine months of 2024 compared

to 1.02% in the first nine months of 2023.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 2024.Our ability to compete and manage our deposit costs until our interest-earningassets

reprice and we generate new loans with current market interest rates will be importantto our net interest margin during the

remainder of 2024.

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32

Provision for Credit Losses

On January 1, 2023, we adopted ASC 326 and its CECL methodology,which requires us to estimate all expected credit

losses over the remaining life of our loans. Accordingly,the provision for credit losses represents a charge to earnings

necessary to establish an allowance for credit losses that, in management's evaluation,is adequate to provide coverage for

all expected credit losses. The Company recorded a provision for credit losses duringthe first nine months of 2024 of $0.1

million, compared to a negative provision for credit losses of $0.2 millionduring the first nine months of 2023.Provision

expense is affected by organic loan growthin our loan portfolio, our internal assessment of the credit quality of the loan

portfolio, our expectations about future economic conditions and net charge-offs.Our CECL model is largely influenced

by economic factors including, most notably,the anticipatedunemployment rate, which may be affected by monetary

policy.

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 September 30,

2024, the Company's allowance forcredit losses was $6.9 million, or 1.22% of total loans, compared to $6.9 million,or

1.23% of total loans, at December 31, 2023, and $6.8 million, or 1.24% oftotal loans, at September 30, 2023.

Noninterest Income

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

2024

2023

2024

2023

Service charges on deposit accounts

$

154

$

148

$

463

$

456

Mortgage lending income

133

110

463

345

Bank-owned life insurance

100

87

301

311

Other

459

520

1,402

1,336

Total noninterest income

$

846

$

865

$

2,629

$

2,448

The Company's income from mortgagelending is primarily attributable to the (1) origination and sale of mortgage loans

and (2) servicing of mortgage loans. Origination income, net, is comprised of gainsor losses from the sale of the mortgage

loans originated, origination fees, underwriting fees, and other fees associatedwith the origination of loans, which are

netted against the commission expense associated with these originations.The Company's normal practice is to originate

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

Subsequent to the date of transfer, the Companyhas elected to measure its MSRs under the amortization method.Servicing

fee income is reported net of any related amortization expense.

The Company evaluates MSRs for impairment 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 results ina decrease in the fair value of MSRs.

The following table presents a breakdown of the Company'smortgage lending income.

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

2024

2023

2024

2023

Origination income

$

52

$

20

$

194

$

81

Servicing fees, net

81

90

269

264

Total mortgage lendingincome

$

133

$

110

$

463

$

345

The Company's income from mortgagelending typically fluctuates as mortgage interest rates change and is primarily

attributable to the origination and sale of mortgage loans.The increase in mortgage lending income was primarily related

to the Company increasing the number of mortgage loans held for sale during2024 relative to the number of mortgage

loans held for investment during 2023.

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33

Income from bank-owned life insurance was $301 thousand and$311 thousand for the first nine months of 2024,and 2023

respectively.Excluding a $52 thousand non-taxable death benefit received during the firstquarter of 2023, income from

bank-owned life insurance would have been $259 thousand for thefirst nine months of 2023.

Other noninterest income was $1.4 million for the first nine months of 2024,compared to $1.3 million for the first nine

months of 2023.The increase in other noninterest income was primarily due to increased fee incomeon one-way sell

reciprocal deposits sold through the Intrafi network.

Noninterest Expense

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

2024

2023

2024

2023

Salaries and benefits

$

3,148

$

2,844

$

9,359

$

8,809

Net occupancy and equipment

614

755

1,980

2,341

Professional fees

291

261

931

898

Other

1,447

1,502

4,424

4,743

Total noninterest expense

$

5,500

$

5,362

$

16,694

$

16,791

The increase in salaries and benefits was primarily due to routine annual increasesin salaries and wages.

The decrease in net occupancy and equipment expense was primarily dueto an increase in leasing income.

The decrease in other noninterest expense was primarilydue to the Company's adoption of ASU 2023-02which allows the

proportional amortization method for our NMTC investments, on January1, 2024.With the adoption of this ASU,

amortization of NMTCs are now included in income tax expense.During the first nine months of 2023, other noninterest

expense included $303 thousand related to our equity method investmentin NMTCs.

Income TaxExpense

Income tax expense was $1.2 million during the first nine months of2024 compared to $0.7 million during the first nine

months of 2023.The Company's effective tax rate for the first nine months of 2024was 19.48%, compared to 12.05% in

the first nine months of 2023.The Company's effectiveincome tax rate is affected principally by tax-exempt earnings

from the Company's investments in municipalsecurities, BOLI, and NMTCs.The effective tax rate increased primarily

due to a decrease in the Company's investmentin municipal securities following the balance sheet restructuring in the

fourth quarter of 2023, and the adoption of FASBASU 2023-02 Investments - Equity Method and Joint Ventures(Topic

323) which allows the proportional amortization method for our NMTC investments,on January 1, 2024.With the

adoption of this ASU, amortization of NMTCs are now included in incometax expense rather than noninterest expense.

BALANCE SHEET ANALYSIS

Securities

Securities available-for-sale were $258.3 million at September 30, 2024,compared to $270.9 million at December 31,

2023.This decrease reflects a $20.7 million decrease in the amortized cost basis ofsecurities available-for-sale and an

increase in the fair value of securities available-for-sale of $8.1 million.The average annualized tax-equivalent yields

earned on total securities were 2.26%in the first nine months of 2024 and 2.35% in the first nine months of 2023.

Table of Contents

34

Loans

2024

2023

Third

Second

First

Fourth

Third

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Commercial and industrial

$

61,510

77,627

78,920

73,374

66,014

Construction and land development

77,956

73,688

58,909

68,329

70,129

Commercial real estate

297,773

297,232

300,484

287,307

281,964

Residential real estate

118,582

119,427

118,240

117,457

117,150

Consumer installment

9,878

10,094

10,967

10,827

10,353

Total loans

$

565,699

578,068

567,520

557,294

545,610

Total loans were $565.7million at September 30, 2024, a 2% increase compared to $557.3 millionat December 31, 2023.

Four loan categories represented the majority of the loan portfolio at September30, 2024: commercial real estate (53%),

residential real estate (21%), construction and land development (14%)and commercial and industrial (11%).

Approximately 21% of the Company'scommercial real estate loans were classified as owner-occupied at September 30,

2024.

Within the residential real estate portfolio segment,the Company had junior lien mortgages of approximately $10.1 million,

or 2% of total loans,and $8.7 million, or 2%, of total loans at September 30, 2024 and December 31, 2023,respectively.

For residential real estate mortgage loans with a consumer purpose, the Companyhad no loans that required interest only

payments at September 30, 2024 and December 31, 2023. 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 5.18% in the first ninemonths of 2024 and 4.71% in the first

nine months of 2023.

The specific economic and credit risks associated with our loan portfolio include,but are not limited to, the effects of

current economic conditions, including inflation and the continuingincreases in market interest rates, remaining COVID-19

pandemic effects including supply chain disruptions, reducedcommercial office occupancy levels, housing supply

shortages and inflation on our borrowers' cash flows, real estate marketsales volumes and liquidity,valuations used in

making loans and evaluating collateral, reduced credit availability,(especially for commercial real estate) generally and

higher costs of financing properties, which reduce the transaction and dollarvolumes of commercial real estate property

sales.Other risks we face include, among other things, real estate industryconcentrations, competitive pressures from a

wide range of other lenders, deterioration in certain credits, interest rate fluctuations,reduced collateral values or non-

existent collateral, title defects, inaccurate appraisals, financial deteriorationof borrowers, fraud, and any violation of

applicable laws and regulations. Variousprojects financed earlier that were based on lower interest rate assumptions than

currently in effect may not be as profitable or successful at thehigher interest rates currently in effect and currently

expected in the future.

The Company attempts to reduce these economic and credit risks throughits loan-to-value guidelines 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 $22.6 million.Furthermore, we have an internal limit for aggregate credit exposure (loansoutstanding plus

unfunded commitments) to a single borrower of $20.3 million. Our loanpolicy requires that the Loan Committee of the

Board of Directors approve any loan relationships that exceed this internallimit.At September 30, 2024, the Bank had one

loan relationship exceeding our internal limit.

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35

We periodicallyanalyze our commercial and industrial and commercial real estate loanportfolios to 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 September 30, 2024 and December 31, 2023.

September 30,

December 31,

(Dollars in thousands)

2024

2023

Lessors of 1-4 family residential properties

$

59,317

$

56,912

Multi-family residential properties

43,789

45,841

Hotel/motel

37,913

39,131

Shopping centers/strip malls

33,506

27,128

Office Buildings

30,505

30,871

Allowance for Credit Losses

On January1, 2023, we adopted ASC 326, which introduced the current expected loss ("CECL") methodology,which

requires us to estimate all expected credit losses over the remaining lifeof our loan portfolio. Accordingly,beginning in

2023, the allowance for credit losses represents an amount that, in management's evaluation,is adequate to provide

coverage for all expected future credit losses on outstanding loans.Our allowance for credit losses was approximately $6.9

million at both September 30, 2024 and December 31, 2023, which our managementbelieved to be adequate at each of the

respective dates. Our allowance for credit losses as a percentage of totalloans was 1.22%at September 30, 2024, compared

to 1.23%at December 31, 2023.

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 September 30, 2024, reasonable and supportable periods of fourquarters were utilized followed by an eight quarter

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 third quarter of 2024 and

the previous four quarters is presented below.

2024

2023

Third

Second

First

Fourth

Third

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Balance at beginning of period

$

7,142

7,215

6,863

6,778

6,634

Charge-offs:

Commercial and industrial

-

(9)

-

(164)

-

Residential real estate

(54)

-

-

-

-

Consumer installment

(40)

(19)

(24)

(20)

(18)

Total charge-offs

(94)

(28)

(24)

(184)

(18)

Recoveries

34

19

91

11

4

Net recoveries (charge-offs)

(60)

(9)

67

(173)

(14)

Provision for (reversal of) credit losses

(206)

(64)

285

258

158

Ending balance

$

6,876

7,142

7,215

6,863

6,778

as a % of loans

1.22

%

1.24

1.27

1.23

1.24

as a % of nonperforming loans

887

%

900

822

753

559

Net (recoveries) charge-offs as % of averageloans (a)

0.04

%

0.01

(0.05)

0.13

0.01

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

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36

The allowance for credit losses by loan category for the third quarter of 2024 and theprevious four quarters is presented

below.

2024

2023

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Third Quarter

(Dollars in thousands)

Amount

%*

Amount

%*

Amount

%*

Amount

%*

Amount

%*

Commercial and industrial

$

1,160

10.9

$

1,366

13.4

$

1,415

13.9

$

1,288

13.2

$

1,215

12.1

Construction and land

development

985

13.8

$

942

12.7

$

840

10.4

$

960

12.3

$

1,073

12.9

Commercial real estate

3,989

52.6

$

4,091

51.5

$

4,202

53.0

$

3,921

51.5

$

3,803

51.6

Residential real estate

595

21.0

$

603

20.7

$

613

20.8

$

546

21.1

$

551

21.5

Consumer installment

147

1.7

$

140

1.7

$

145

1.9

$

148

1.9

$

136

1.9

Total allowance forcredit losses

$

6,876

$

7,142

$

7,215

$

6,863

$

6,778

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

Nonperforming Assets

At September 30, 2024 and December 31, 2023, the Company had $0.8 millionand $0.9 million, respectively,in

nonperforming assets.

The table below provides information concerning total nonperformingassets and certain asset quality ratios for the third

quarter of 2024 and the previous four quarters.

2024

2023

Third

Second

First

Fourth

Third

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonperforming assets:

Nonaccrual loans

$

775

794

878

911

1,213

Total nonperformingassets

$

775

794

878

911

1,213

as a % of loans and other real estate owned

0.14

%

0.14

0.15

0.16

0.22

as a % of total assets

0.08

%

0.08

0.09

0.09

0.12

Nonperforming loans as a % of total loans

0.14

%

0.14

0.15

0.16

0.22

The table below provides information concerning the composition ofnonaccrual loans for the third quarter of 2024 and the

previous four quarters.

2024

2023

Third

Second

First

Fourth

Third

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonaccrual loans:

Commercial and industrial

$

-

-

-

-

162

Commercial real estate

735

753

765

783

801

Residential real estate

40

41

97

128

250

Consumer installment

-

-

16

-

-

Total nonaccrualloans

$

775

794

878

911

1,213

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 accruingat September 30, 2024 and December 31, 2023,

respectively.

The Company had no OREO at September 30, 2024 or December 31, 2023.

Table of Contents

37

Deposits

(In thousands)

2024

2023

Noninterest bearing demand

$

270,244

270,723

NOW

193,751

190,724

Money market

161,789

148,040

Savings

86,489

88,541

Certificates of deposit under $250,000

105,634

100,572

Certificates of deposit and other time deposits of $250,000 or more

83,817

97,643

Total deposits

$

901,724

896,243

Total deposits were $901.7million at September 30, 2024, comparedto $896.2 million at December 31, 2023.At

September 30, 2024 the Company had $37.8 million reciprocal deposits sold, comparedto $59.0 million at December 31,

2023.The Company had no brokered deposits at September 30, 2024 comparedto $46.6 million outstanding at September

30, 2023, and none at December 31, 2023.Noninterest-bearing deposits were $270.2 million, or 30% of total deposits, at

September 30, 2024, compared to $270.7 million, or 30% of total deposits at December31, 2023.

The average rate paid on total interest-bearing deposits was 1.80% inthe first nine months of 2024, compared to 1.02% in

first nine months of 2023.

At September 30, 2024, estimated uninsured deposits totaled $355.1 million,or 39% of total deposits, compared to $356.3

million, or 40% of total deposits at December 31, 2023.During 2023, the Bank began participating in the Certificates of

Deposit Account Registry Service (the "CDARS") and the Insured Cash Sweepproduct ("ICS"), which provide for

reciprocal ("two-way") transactions among banksfacilitated by IntraFi for the purpose of improving the FDIC insurance

coverage for our depositors.The total of reciprocal deposits at September 30, 2024 was $16.3 million,compared to none at

December 31, 2023.Uninsured amounts are estimated based on the portion of account balances in excess ofFDIC

insurance limits.The Bank's uninsured depositsat September 30, 2024 and December 31, 2023 include approximately

$214.9 million and $206.2 million, respectively,of deposits of state, county and local governments that are collateralized

by securities having an equal fair value to such deposits.

The estimated uninsured time deposits by maturity as of September30, 2024 is presented below.

(Dollars in thousands)

September 30, 2024

Maturity of:

3 months or less

$

36,447

Over 3 months through 6 months

8,261

Over 6 months through 12 months

9,012

Over 12 months

2,347

Total estimated uninsuredtime deposits

$

56,067

The FDIC issued a special assessment of 3.36 basis points for a projected eight quarterson large banks with more than $5

billion of uninsured deposits to pay for the federal government'ssystemic risk determination to insure all depositors in

connection with the March 2023 failures of Silicon ValleyBank and Signature Bank.These special assessments do not

apply to the Bank.

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38

Other Borrowings and AvailableCredit

The Company had no long-term debt at September 30, 2024 and December31, 2023.The Bank utilizes short and long-

term non-deposit borrowings from time to time. Short-term borrowingsgenerally consist of federal funds purchased and

securities sold under agreements to repurchase with an original maturity of oneyear or less.The Bank had available federal

funds lines totaling $65.2 million with no federal funds borrowingsoutstanding at September 30, 2024, and December 31,

2023, respectively.The Company had no securities sold under agreements to repurchase, which wereentered into on behalf

of certain customers at September 30, 2024 compared to $1.5 millionat December 31, 2023.The Bank is eligible to

borrow from the FRB's discount window,but had no such borrowings at September 30, 2024 and December 31, 2023.The

bank never borrowed from the Federal Reserve'sBank Term Facility Program("BTFP"), which ceased making new loans

on March 11, 2024.

The Bank is a member of the FHLB of Atlanta and has borrowed, and mayin the future borrow from time to time under the

FHLB of Atlanta's advance programto obtain funding for its growth.FHLB advances include both fixed and variable rates

and are taken out with varying maturities, and are generally secured by eligibleassets.The Bank had no borrowings under

FHLB of Atlanta's advance programat September 30, 2024 and December 31, 2023, respectively.At those dates, the Bank

had $307.7million and $309.1 million, respectively,of available lines of credit at the FHLB of Atlanta.Advances include

both fixed and variable interest rates and varying maturities may be used.The Bank also has access to the FRB discount

window.

The average rate paid on the Bank'sshort-term borrowings was 0.48% in the first nine months of 2024compared to 2.43%

in the first nine months of 2023.The Bank had average short term borrowings of $0.8 million in the first nine months of

2024,a 78% decrease compared to $3.7 million during the first nine months of 2023.

CAPITAL ADEQUACY

The Company's consolidatedstockholders' equity was $84.3 million and $76.5 million as of September30, 2024 and

December 31, 2023, respectively.The increase from December 31, 2023 was primarily driven bynet earnings of $4.8

million and other comprehensive income due to the changein unrealized gains/losses on securities available-for-sale, net of

tax of $6.1 million, partially offset by cash dividends of $2.8 million,and the cumulative effect of adopting the new NMTC

accounting standard of $0.3 million.Total unrealized losses, netof tax, on available-for-sale securities decreased from

$29.0 million on December 31, 2023 to $22.9 million September 30, 2024.These unrealized losses do not affect the

Bank's capital for regulatorycapital purposes.

The Company paid cash dividends of $0.81 per share for both the firstnine months of 2024 and first nine months of 2023.

On January 1, 2015, the Company and Bank became subject to the rules of theBasel III regulatory capital framework and

related Dodd-Frank WallStreet Reform and Consumer Protection Act changes.The rules included the implementation of a

capital conservation buffer that is added to the minimumrequirements for capital adequacy purposes.The capital

conservation buffer was subject to a three-year phase-in periodthat began on January 1, 2016 and was fully phased-in on

January 1, 2019 at 2.5%.A banking organization with a capital conservation bufferof less than the required amount will be

subject to limitations on capital distributions, including dividend payments andcertain discretionary bonus payments to

executive officers.

On August 26, 2020, the Federal Reserve and the other federal banking regulatorsadopted a final rule that amended the

capital conservation buffer.The new rule revises the definition of "eligible retained income" for purposes ofthe maximum

payout ratio to allow banking organizations to more freelyuse their capital buffers to promote lending and other financial

intermediation activities, by making the limitations on capital distributionsmore gradual.The eligible retained income is

now the greater of (i) net income for the four preceding quarters, net of distributionsand associated tax effects not reflected

in net income; and (ii) the average of all net income over the preceding fourquarters.This rule only affects the capital

buffers, and banking organizations were encouragedto make prudent capital distribution decisions.

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39

The Federal Reserve has treated us as a "small bank holding company' under the FederalReserve's Small 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 10.43%, CET1 risk-based capital ratio was 14.75%, tier 1

risk-based capital ratio was 14.75%, and total risk-based capital ratio was 15.76%at September 30, 2024. These ratios

exceed the minimum regulatory capital percentages of 5.0% for tier1 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-basedcapital ratio to be considered "well capitalized."

The Bank's capital conservationbuffer was 7.76% at September 30, 2024 exceeded the fully phased-in capital conservation

buffer, and such bufferdid not limit capital distributions, share repurchases or discretionary bonuses to theextent of

available earnings.

On July 27, 2023, the Federal Reserve, the Comptroller of the Currency and theFDIC issued a joint notice of proposed

rulemaking to implement the Basel III endgame components.The proposal which is subject to public comment and change

only applies to banks and holding companies with $100 billion or more of assets.The proposal includes provisions dealing

with:

●

Credit risk, which arises from the risk that an obligor fails to performon an obligation;

●

Market risk, which results from changes in the value of trading positions;

●

Operational risk, which is the risk of losses resulting from inadequate or failed internalprocess, people, and

systems, or from external events; and

●

Credit valuation adjustment risk, which results from the risk of losses oncertain derivative contracts.

The Basel III endgame regulatory proposals are not applicable to the Companyor the Bank.The Federal Reserve has

indicated that it is revising and expects to re-propose these rules applicableto larger organizations than the Company.

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 in interestrates indicates our balance sheet is

liability sensitive over the forecast periodof 12 months.

At September 30, 2024, our earnings simulation model indicated thatwe were in compliance with the policy guidelines

noted above.

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40

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-balancesheet items, 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 usingvalues

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 September 30, 2024, 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 ofhow our net 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 adjustablerate mortgage 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 while continuingto 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 swaps qualifyas derivatives, but are not

designated as hedging instruments. At September 30, 2024 and December31, 2023, the Company had no derivative

contracts designated as part of a hedging relationship to assist in managingits interest rate sensitivity.

Liquidity Risk Management

Liquidity is the Company's ability toconvert assets into cash equivalents in order to meet daily cash flow requirements,

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 Companyand the Bank are separate and distinct legal

entities with different funding needs and sources, and each are subjectto 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.

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41

Primary sources of funding for the Bank include customer deposits, other borrowings,interest payments on earning assets,

repayment and 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 September 30, 2024, the Bank had no FHLB of Atlanta advancesoutstanding and available credit from the

FHLB of $307.7 million. At September 30, 2024, the Bank also had $65.2 millionof available federal funds lines with no

borrowings outstanding. Primary uses of funds include repayment of maturingobligations and 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 September 30, 2024, the Bank had outstanding standby letters of creditof $0.6 million and unfunded loan commitments

outstanding of $77.6 million.Because these commitments generally have fixed expiration dates andmany will expire

without being drawn upon, the total commitment level does not necessarilyrepresent 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, compliance with applicable federal,state, and local laws, among other

matters.

As of September 30, 2024, the aggregate unpaid principal balance ofresidential mortgage loans, which we have originated

and sold, but retained the servicing rights, was $207.5 million.Although these loans are generally sold on a non-recourse

basis, we may be obligated to repurchase residential mortgage loans orreimburse investors for losses incurred (make whole

requests) if a loan review reveals a potential breach of seller representationsand warranties.Upon receipt of a repurchase

or make whole request, we work with investors to arrive at a mutually agreeableresolution. Repurchase and make whole

requests are typically reviewed on an individual loan by loan basis to validate theclaims made by the investor and to

determine if a contractually required repurchase or make whole eventhas occurred. We seek toreduce and 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 mortgage loans to meet investorand secondary market standards.

The Company was not required to repurchase any loans during thefirst nine months of 2024 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 September 30, 2024.

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.

The agreementsunder which we act as servicer generally specifies standardsof responsibility for actions taken by us in

such capacity and provides protection against expenses and liabilities incurredby us when acting in compliance with the

respective servicing agreements.However, if we commit a material breach ofour obligations as servicer, we may be

subject to termination if the breach is not cured within a specified period followingnotice.The standards governing

servicing and the possible remedies for violations of such standards are determinedby our agreementswith Fannie Mae and

Fannie Mae's mortgage servicingguides.Remedies could include repurchase of an affected loan.

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42

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 September 30, 2024, we do not believe that this exposure is material due to the historical level

of repurchase requests and loss trends, in addition to the fact that 99% of our residentialmortgage loans serviced for Fannie

Mae were current as of such date.We maintain ongoingcommunications with our investors and will continue to evaluate

this exposure by monitoring the level and number of repurchase requests as well as the delinquencyrates 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 significantimpact on 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, and the levels of interest rates we have topay on our deposits and other borrowings, and

the interest rates we earn on our earning assets.The difference between our interest expense and interest income is also

affected by the shape of the yield curve and the speeds at which ourassets and liabilities, respectively,reprice in response

to interest rate changes.Although inflation decreased in the most recent quarter,the yield curve continued to be inverted

through September 30, 2024, which 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 by the Federal Reserve to reduceinflation

generally reduce economic activity and may reduce loan demand and growth,and may adversely affect unemployment

rates.Inflation and related changes in market interest rates, as the Federal Reserve maintainsinterest rates to meet its

longer term inflation goal of 2%, also can adversely affectthe values and 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 March 2022, the Federal Reserve, the Federal Reserve increasedits target federal funds range from 0 - 0.25%

to 4.25 - 4.50% to fight inflation.The target federal funds rate was increased another 25 basis points on eachof January

31, March 7, May 3 and July 26, 2023 to 5.25 - 5.50%.The Federal Reserve has indicated it will maintain higher target

rates and restrictive monetary policy to meet its goals of (i) 2% targetinflation rate over the longer term and (ii) maximum

employment goals.The Federal Reserve's Open Market Committee("FOMC") reaffirmed its commitment in May 2024 to

the 2% inflation objective and announced that it "does not expect it will be appropriateto reduce the target range until it has

gained greater confidence that inflation is moving substantially toward 2%."Further, beginning in June 2024, the FOMC

relaxed its monetary policy by slowing its monthly reduction ofTreasury securities from $60 billion to $25 billion, while

maintaining the $35 monthly reduction of agency debt and agency mortgage-backed securities at $35 billion.

On September 18, 2024, in light of inflation moderating, the FOMC reduced its targetfederal funds rate range by 50 basis

points to 4.75% to 5.00%.While the FOMC reaffirmed its target inflation rate of 2% overthe longer run, it indicated it was

"recalibrating" its policy based on decreasing inflation rates and the risks ofincreasing unemployment, but would act on

incoming data, the evolving outlook and the balance of the risks of inflationand unemployment levels.In the future, the

Federal Reserve could further decrease target interestrates, or could increase such target rates, depending on the dataand

its outlook.

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43

Our deposit costs increased as the Federal Reserve increased its target federalfunds rate to fight inflation, market interest

rates increased, and as customers moved to interest bearing deposits to earninterest on their funds, and at higher interest

rates.Monetary policy efforts to control inflation may also affectunemployment which is an important component in our

CECL model used to estimate our allowance for credit losses.As inflation and market interest rates and expectations

regarding these declined in the three months ended September 30, 2024,the values of our securities investments held for

sale increased, which increased our stockholders' equity.

See "Item 1A. Risk Factors" in this Report for additional information aboutinflation, interest rates and related risks.

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.

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44

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.

2024

2023

Third

Second

First

Fourth

Third

(in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Net interest income (GAAP)

$

6,790

6,709

6,657

6,059

6,272

Tax-equivalent adjustment

21

19

20

95

108

Net interest income (Tax-equivalent)

$

6,811

6,728

6,677

6,154

6,380

Nine months ended September 30,

(In thousands)

2024

2023

Net interest income (GAAP)

$

20,156

20,269

Tax-equivalent adjustment

60

322

Net interest income (Tax-equivalent)

$

20,216

20,591

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45

Table 2- Selected Quarterly Financial Data

2024

2023

Third

Second

First

Fourth

Third

(Dollars in thousands, except per share amounts)

Quarter

Quarter

Quarter

Quarter

Quarter

Results of Operations

Net interest income (a)

$

6,811

6,728

6,677

6,154

6,380

Less: tax-equivalent adjustment

21

19

20

95

108

Net interest income (GAAP)

6,790

6,709

6,657

6,059

6,272

Noninterest income

846

896

887

(5,429)

865

Total revenue

7,636

7,605

7,544

630

7,137

Provision for credit losses

(127)

(123)

334

326

105

Noninterest expense

5,500

5,519

5,675

5,803

5,362

Income tax expense

531

475

164

(1,514)

182

Net earnings

$

1,732

1,734

1,371

(3,985)

1,488

Per share data:

Basic and diluted net earnings

$

0.50

0.50

0.39

(1.14)

0.43

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

3,493,663

3,493,614

3,496,411

Shares outstanding, at period end

3,493,699

3,493,699

3,493,699

3,493,614

3,493,614

Book value

$

24.14

21.53

21.32

21.90

17.59

Common stock price:

High

$

24.35

19.25

21.55

21.99

22.80

Low

17.50

16.63

18.82

19.72

20.85

Period end:

22.90

18.29

19.27

21.28

21.50

To earnings ratio (b)

91.60

x

101.61

83.78

53.20

7.65

To book value

95

%

85

90

97

122

Performance ratios:

Annualized return on average equity

9.10

%

9.63

7.13

(26.40)

8.59

Annualized return on average assets

0.71

%

0.71

0.56

(1.56)

0.58

Dividend payout ratio

54.00

%

54.00

69.23

(23.68)

62.79

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.22

%

1.24

1.27

1.23

1.24

Nonperforming loans

887

%

900

822

753

559

Nonperforming assets as a % of:

Loans and other real estate owned

0.14

%

0.14

0.15

0.16

0.22

Total assets

0.08

%

0.08

0.09

0.09

0.12

Nonperforming loans as a % of total loans

0.14

%

0.14

0.15

0.16

0.22

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

0.04

%

0.01

(0.05)

0.13

0.01

Capital Adequacy: (c)

CET 1 risk-based capital ratio

14.75

%

14.47

14.62

14.52

15.01

Tier 1 risk-based capital ratio

14.75

%

14.47

14.62

14.52

15.01

Total risk-based capital ratio

15.76

%

15.49

15.69

15.52

15.98

Tier 1 leverage ratio

10.43

%

10.39

10.34

9.72

10.26

Other financial data:

Net interest margin (a)

3.05

%

3.06

3.04

2.65

2.73

Effective income tax rate

23.46

%

21.50

10.68

(27.53)

10.90

Efficiency ratio (d)

71.83

%

72.39

75.03

800.41

74.01

Selected average balances:

Securities

$

251,723

258,228

267,606

354,065

390,772

Loans, net of unearned income

571,651

573,443

560,757

550,938

529,382

Total assets

982,656

978,107

976,930

1,020,476

1,020,980

Total deposits

904,860

900,673

897,051

953,674

942,533

Total stockholders' equity

76,113

72,059

76,948

60,372

69,269

Selected period end balances:

Securities

$

258,285

254,359

260,770

270,910

373,286

Loans, net of unearned income

565,699

578,068

567,520

557,294

545,610

Allowance for credit losses

6,876

7,142

7,215

6,863

6,778

Total assets

990,143

1,025,054

979,039

975,255

1,030,724

Total deposits

901,724

946,405

899,673

896,243

964,602

Total stockholders' equity

84,336

75,209

74,489

76,507

61,451

(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.

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46

Table 3- Selected Financial Data

Nine months ended September 30,

(Dollars in thousands, except per share amounts)

2024

2023

Results of Operations

Net interest income (a)

$

20,216

20,591

Less: tax-equivalent adjustment

60

322

Net interest income (GAAP)

20,156

20,269

Noninterest income

2,629

2,448

Total revenue

22,785

22,717

Provision for (reversal of) credit losses

84

(191)

Noninterest expense

16,694

16,791

Income tax expense

1,170

737

Net earnings

$

4,837

5,380

Per share data:

Basic and diluted net earnings

$

1.38

1.54

Cash dividends declared

0.81

0.81

Weighted average shares outstanding:

Basic and diluted

3,493,687

3,499,518

Shares outstanding, at period end

3,493,699

3,493,614

Book value

$

24.14

17.59

Common stock price:

High

$

24.35

24.50

Low

16.63

18.80

Period end

22.90

21.50

To earnings ratio (b)

91.60

x

7.65

To book value

95

%

122

Performance ratios:

Annualized return on average equity

8.59

%

10.15

Annualized return on average assets

0.66

%

0.70

Dividend payout ratio

58.70

%

52.60

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.22

%

1.24

Nonperforming loans

887

%

559

Nonperforming assets as a % of:

Loans and other real estate owned

0.14

%

0.22

Total assets

0.08

%

0.12

Nonperforming loans as a % of total loans

0.14

%

0.22

Annualized net recoveries as a % of average loans

-

%

(0.03)

Capital Adequacy: (c)

CET 1 risk-based capital ratio

14.75

%

15.01

Tier 1 risk-based capital ratio

14.75

%

15.01

Total risk-based capital ratio

15.76

%

15.98

Tier 1 leverage ratio

10.43

%

10.26

Other financial data:

Net interest margin (a)

3.05

%

2.97

Effective income tax rate

19.48

%

12.05

Efficiency ratio (d)

73.08

%

72.88

Selected average balances:

Securities

$

259,158

398,751

Loans, net of unearned income

568,628

514,635

Total assets

979,243

1,022,257

Total deposits

900,876

944,471

Total stockholders' equity

75,044

70,659

Selected period end balances:

Securities

$

258,285

373,286

Loans, net of unearned income

565,699

545,610

Allowance for credit losses

6,876

6,778

Total assets

990,143

1,030,724

Total deposits

901,724

964,602

Total stockholders' equity

84,336

61,451

(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.

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47

Table 4- AverageBalances and Net Interest Income Analysis

Quarter ended September 30,

2024

2023

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)

$

571,917

$

7,642

5.32%

$

529,521

$

6,373

4.77%

Securities - taxable (2)

241,604

1,327

2.19%

336,406

1,783

2.10%

Securities - tax-exempt (2)(3)

10,119

97

3.81%

54,366

510

3.72%

Total securities

251,723

1,424

2.25%

390,772

2,293

2.33%

Federal funds sold

18,696

255

5.43%

1,918

26

5.38%

Interest bearing bank deposits

46,174

659

5.68%

4,799

59

4.88%

Total interest-earningassets

888,510

$

9,980

4.47%

927,010

$

8,751

3.75%

Cash and due from banks

17,909

14,345

Other assets

76,237

79,625

Total assets

$

982,656

$

1,020,980

Interest-bearing liabilities:

Deposits:

NOW

$

192,781

$

729

1.50%

$

191,849

$

534

1.10%

Savings and money market

253,943

614

0.96%

283,152

661

0.93%

Time deposits

198,009

1,826

3.67%

183,539

1,139

2.46%

Total interest-bearingdeposits

644,733

3,169

1.96%

658,540

2,334

1.41%

Short-term borrowings

2

-

0.00%

4,347

37

3.38%

Total interest-bearingliabilities

644,735

$

3,169

1.96%

662,887

$

2,371

1.42%

Noninterest-bearing deposits

260,127

283,993

Other liabilities

1,681

4,831

Stockholders' equity

76,113

69,269

Total liabilities and stockholders'equity

$

982,656

$

1,020,980

Net interest income and margin (tax-equivalent)

$

6,811

3.05%

$

6,380

2.73%

(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%.

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48

Table 5- AverageBalances and Net Interest Income Analysis

Nine months ended September 30,

2024

2023

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)

$

568,939

$

22,082

5.18%

$

514,706

$

18,146

4.71%

Securities - taxable (2)

248,923

4,109

2.20%

344,136

5,474

2.13%

Securities - tax-exempt (2)(3)

10,235

284

3.71%

54,615

1,531

3.75%

Total securities

259,158

4,393

2.26%

398,751

7,005

2.35%

Federal funds sold

18,014

738

5.47%

4,372

159

4.86%

Interest bearing bank deposits

39,530

1,619

5.47%

8,118

283

4.66%

Total interest-earningassets

885,641

$

28,832

4.35%

925,947

$

25,593

3.70%

Cash and due from banks

17,917

15,160

Other assets

75,685

81,150

Total assets

$

979,243

$

1,022,257

Interest-bearing liabilities:

Deposits:

NOW

$

193,428

$

2,045

1.41%

$

189,586

$

1,067

0.75%

Savings and money market

250,146

1,486

0.79%

291,988

1,368

0.63%

Time deposits

196,584

5,082

3.45%

168,000

2,499

1.99%

Total interest-bearingdeposits

640,158

8,613

1.80%

649,574

4,934

1.02%

Short-term borrowings

838

3

0.48%

3,748

68

2.43%

Total interest-bearingliabilities

640,996

$

8,616

1.80%

653,322

$

5,002

1.02%

Noninterest-bearing deposits

260,718

294,897

Other liabilities

2,485

3,379

Stockholders' equity

75,044

70,659

Total liabilities and stockholders'equity

$

979,243

$

1,022,257

Net interest income and margin (tax-equivalent)

$

20,216

3.05%

$

20,591

2.97%

(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) oninvestment securities available for sale

(3) Yields on tax-exempt securities have beencomputed on a tax-equivalent basis using a federal income

tax rate of 21%.

Table of Contents

49

ITEM 3.QUANTITATIVEAND QUALITATIVEDISCLOSURES ABOUT MARKET RISK

The information called for by ITEM 3 is set forth in ITEM 2 under thecaption "MARKET AND LIQUIDITY RISK

MANAGEMENT" and is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

The Company, with the participationof its management, including its Chief Executive Officer andChief Financial Officer,

carried out an evaluation of the effectiveness of the design andoperation of its disclosure controls and procedures (as

defined in Rules 13a-15(e) and 15d-15(e) under the Securities ExchangeAct of 1934, as amended) as of the end of the

period covered by this report. Based upon that evaluation and as of the end of the period coveredby this report, the

Company's Chief Executive Officerand Chief Financial Officer concluded that the Company'sdisclosure controls and

procedures were effective to allow timely decisions regarding disclosurein its reports that the Company files or submits to

the Securities and Exchange Commission under the Securities ExchangeAct of 1934, as amended. There have been no

changes in the Company's internalcontrol over financial reporting that occurred during the period covered by this report

that have materially affected, or are reasonablylikely to materially affect, the Company'sinternal control over financial

reporting.

PARTII. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of its business, the Company and the Bank are, from time to time,involved in legal proceedings. The

Company's and Bank'smanagement believe there are no pending or threatened legal, governmental,or regulatory

proceedings that, upon resolution, are expected to have a material adverse effectupon the Company's or the Bank's

financial condition or results of operations. See also, Part I, Item 3 of the Company'sAnnual Report on Form 10-K for the

year ended December 31, 2023.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully considerthe factors discussed in Part I,

Item 1A. "RISK FACTORS"in the Company's AnnualReport on Form 10-K for the year ended December 31, 2023,

which could materially affect our business, financial conditionor future results. The risks described in our annual report on

Form 10-K are not the only the risks facing our Company.The persistence of inflation above the Federal Reserve'slong

term targets, and the maintenance of or further increases in,tightened Federal Reserve monetary policy by increased target

interest rates and reductions in the Federal Reserve'ssecurities portfolio, have and are expected to continue to affectthe

levels of interest rates, mortgage originations and income, the market values ofour securities portfolio and loans and have

resulted in unrealized losses that have adversely affected our stockholders'equity.These have affected and are expected to

continue to affect our deposit costs and mixes, and consumer savingsand payment behaviors.These may also affect our

borrower's operating costs, expected returns and cash flowsavailable to service our loans.Additional risks and

uncertainties not currently known to us or that we currently deem to beimmaterial also may materially adversely affect our

business, financial condition, and/or operating results in the future.

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50

ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company did not sell any common stock or other equity securities duringthe third quarter of 2024.

ITEM 3.DEFAULTSUPON SENIOR SECURITIES

Not applicable.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.OTHER INFORMATION

Not applicable.

Table of Contents

51

ITEM 6.EXHIBITS

Exhibit

NumberDescription

3.1

Certificate of Incorporation of Auburn National Bancorporation, Inc. and all amendments thereto.*

3.2

Amended and Restated Bylaws of Auburn National Bancorporation, Inc., adopted as of November 13, 2007. **

31.1

Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section

302 of the Sarbanes-Oxley Act of 2002, by David A. Hedges, President and Chief Executive Officer.

31.2

Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section

302 of the Sarbanes-Oxley Act of 2002, by W. James Walker, IV, Senior Vice President and Chief Financial

Officer.

32.1

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002, by David A. Hedges, President and Chief Executive Officer.***

32.2

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002, by W. James Walker, IV, Senior Vice President and Chief Financial Officer.***

101.INS

XBRL Instance Document

101.SCH

XBRL TaxonomyExtension Schema Document

101.CAL

XBRL TaxonomyExtension Calculation Linkbase Document

101.LAB

XBRL TaxonomyExtension Label Linkbase Document

101.PRE

XBRL TaxonomyExtension Presentation Linkbase Document

101.DEF

XBRL TaxonomyExtension Definition Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and containedin Exhibit 101)

*

Incorporated by reference from Registrant'sForm 10-Q dated June 30, 2002.

**

Incorporated by reference from Registrant'sForm 10-K dated March 31, 2008.

***

The certifications attached as exhibits 32.1 and 32.2 to this quarterly reporton Form 10-Q are "furnished" to the

Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-OxleyAct of 2002 and shall not be

deemed "filed" by the Company for purposes of Section 18 of the SecuritiesExchange Act of 1934, as amended.

Table of Contents

SIGNATURES

Pursuant tothe requirementsof theSecurities ExchangeAct of1934, theregistrant hasduly causedthis reportto

be signed on its behalf by the undersigned thereunto dulyauthorized.

AUBURN NATIONALBANCORPORATION,INC.

(Registrant)

Date:November 1, 2024

By:/s/ David A. Hedges

David A. Hedges

President and CEO

Date:November 1, 2024

By:/s/

W.

James Walker,IV

W. James Walker,IV

Senior Vice President andChief Financial Officer