Auburn National Bancorporation(AUBN) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This part covers the company's unaudited consolidated financial statements and management's discussion and analysis Item 1 Financial Statements This section presents the unaudited consolidated financial statements, including balance sheets, earnings, comprehensive income, equity, and cash flows, with explanatory notes Consolidated Balance Sheets (Unaudited) This section provides a snapshot of the company's financial position at specific dates, detailing assets, liabilities, and equity Consolidated Balance Sheet Highlights (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total assets | $1,029,224 | $977,324 | | Total liabilities | $943,153 | $899,032 | | Total stockholders' equity | $86,071 | $78,292 | Consolidated Statements of Earnings (Unaudited) This section details the company's financial performance over specific periods, reporting revenues, expenses, and net earnings Consolidated Statements of Earnings Highlights (Six months ended June 30, Dollars in thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net interest income | $14,389 | $13,366 | | Net earnings | $3,363 | $3,105 | | Basic and diluted net earnings per share | $0.96 | $0.89 | Consolidated Statements of Comprehensive Income (Unaudited) This section presents net earnings and other comprehensive income items, reflecting changes in equity from non-owner sources Consolidated Statements of Comprehensive Income Highlights (Six months ended June 30, Dollars in thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net earnings | $3,363 | $3,105 | | Change in fair value on available-for-sale securities, net of tax | $6,302 | $(2,255) | | Comprehensive income | $9,665 | $850 | Consolidated Statements of Stockholders' Equity (Unaudited) This section outlines changes in stockholders' equity, including net earnings, other comprehensive income, and dividends Consolidated Statements of Stockholders' Equity Highlights (Six months ended June 30, Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Balance, beginning of period | $78,292 | $76,507 (Dec 31, 2023) | | Net earnings | $3,363 | $3,105 | | Other comprehensive income (loss) | $6,302 | $(2,255) | | Cash dividends paid | $(1,886) | $(1,887) | | Balance, end of period | $86,071 | $75,209 | Consolidated Statements of Cash Flows (Unaudited) This section reports cash inflows and outflows from operating, investing, and financing activities over specific periods Consolidated Statements of Cash Flows Highlights (Six months ended June 30, Dollars in thousands) | Cash Flow Activity | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,764 | $6,136 | | Net cash provided by (used in) investing activities | $11,900 | $(9,795) | | Net cash provided by financing activities | $42,141 | $46,789 | | Net change in cash and cash equivalents | $58,805 | $43,130 | | Cash and cash equivalents at end of period | $152,159 | $114,499 | Notes to Consolidated Financial Statements (Unaudited) This section provides detailed explanations and disclosures supporting the consolidated financial statements NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the key accounting principles and methods used in preparing the financial statements - Auburn National Bancorporation, Inc. provides banking services through its wholly-owned subsidiary, AuburnBank, primarily in Lee County, Alabama, and surrounding areas[13] - The unaudited consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and include management's estimates and assumptions, which could differ from actual results[14][16] - No new accounting guidance was adopted in the first six months of 2025[19] NOTE 2: SECURITIES This note details the company's investment securities, including available-for-sale portfolios and unrealized gains/losses Securities Available-for-Sale (Fair Value, Dollars in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Agency obligations | $53,546 | $52,411 | | Agency MBS | $169,119 | $173,676 | | State and political subdivisions | $17,016 | $16,925 | | Total available-for-sale | $239,681 | $243,012 | - Gross unrealized losses on securities totaled $31.1 million at June 30, 2025, primarily due to changes in interest rates, not credit quality, and no write-down or allowance for credit losses was deemed necessary[25][26] - No realized gains or losses on the sale of securities occurred during the quarters and six months ended June 30, 2025 and 2024[27] NOTE 3: LOANS AND ALLOWANCE FOR CREDIT LOSSES This note provides information on the loan portfolio, its composition, and the allowance for credit losses Total Loans by Category (Dollars in thousands) | Loan Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commercial and industrial | $59,773 | $63,274 | | Construction and land development | $93,820 | $82,493 | | Commercial real estate | $282,868 | $289,992 | | Residential real estate | $117,159 | $118,627 | | Consumer installment | $9,094 | $9,631 | | Total Loans | $562,714 | $564,017 | - Loans secured by real estate constituted approximately 87.8% of the total loan portfolio at June 30, 2025, with geographic concentration primarily in Lee County, Alabama[28] Nonaccrual Loans (Dollars in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commercial real estate | $119 | $0 | | Residential real estate | $183 | $0 | | Commercial and industrial | $0 | $99 | | Construction and land development | $0 | $404 | | Total Nonaccrual Loans | $302 | $503 | Allowance for Credit Losses (ACL) (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | June 30, 2024 | | :--- | :--- | :--- | :--- | | ACL Ending Balance | $6,965 | $6,871 | $7,142 | | Provision for credit losses (Six months) | $110 | N/A | $221 | NOTE 4: MORTGAGE SERVICING RIGHTS, NET This note describes the company's mortgage servicing rights, their valuation, and related amortization - Mortgage servicing rights (MSRs) are recognized at fair value upon loan sale and amortized over the period of estimated net servicing income. The Company generally sells conforming, fixed-rate residential mortgages to Fannie Mae, retaining servicing rights[50][51] Mortgage Servicing Rights (MSRs), Net (Dollars in thousands) | Metric | Quarter ended June 30, 2025 | Quarter ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | MSRs, net: Beginning balance | $857 | $965 | $892 | $992 | | Additions, net | $11 | $15 | $17 | $27 | | Amortization expense | $(41) | $(38) | $(82) | $(77) | | Ending balance | $827 | $942 | $827 | $942 | NOTE 5: FAIR VALUE This note explains the fair value measurements of financial instruments, categorized by input hierarchy - Fair value measurements are categorized into a three-level hierarchy (Level 1: quoted prices in active markets, Level 2: observable inputs other than Level 1, Level 3: unobservable inputs)[55][56][57] Assets Measured at Fair Value on a Recurring Basis (Level 2, Dollars in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Agency obligations | $53,546 | $52,411 | | Agency MBS | $169,119 | $173,676 | | State and political subdivisions | $17,016 | $16,925 | | Total securities available-for-sale | $239,681 | $243,012 | Assets Measured at Fair Value on a Nonrecurring Basis (Level 2 & 3, Dollars in thousands) | Category | Fair Value Hierarchy | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | :--- | | Loans held for sale | Level 2 | $186 | $0 | | Mortgage servicing rights, net | Level 3 | $827 | $892 | | Collateral dependent loans | Level 3 | $0 | $503 | Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, operational results, balance sheet trends, capital adequacy, and risk management strategies General This section provides an overview of the company's business and operational focus - Auburn National Bancorporation, Inc. is a bank holding company controlling AuburnBank, an Alabama state member bank, operating primarily in East Alabama[75][76] Special Cautionary Notice Regarding Forward-Looking Statements This notice advises readers about the inherent uncertainties and risks associated with forward-looking statements in the report - The report contains forward-looking statements subject to various risks and uncertainties, including economic conditions, governmental policies, regulatory changes, interest rate fluctuations, and competition[78][79][80][81] - The Company does not undertake to update, revise, or correct any forward-looking statements after the report date[83] Summary of Results of Operations This section summarizes key financial performance metrics, including net earnings, net interest income, and noninterest items Key Financial Highlights (Six Months Ended June 30, Dollars in thousands) | Metric | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net earnings | $3,363 | $3,105 | 8.3% | | Basic and diluted EPS | $0.96 | $0.89 | 7.9% | | Net interest income (tax-equivalent) | $14,425 | $13,405 | 7.6% | | Net interest margin (tax-equivalent) | 3.24% | 3.05% | +0.19 pp | | Noninterest income | $1,536 | $1,783 | -13.8% | | Noninterest expense | $11,582 | $11,194 | 3.5% | | Income tax expense | $877 | $639 | 37.2% | | Effective tax rate | 20.68% | 17.07% | +3.61 pp | - The increase in net interest income was driven by an improved net interest margin and growth in average interest-earning assets, with yields on assets outpacing deposit cost increases[88] - Noninterest income decreased primarily due to lower mortgage lending income and other noninterest income, while noninterest expense rose due to increased salaries and benefits[91] CRITICAL ACCOUNTING POLICIES This section highlights the accounting policies that require significant judgment and estimation by management - No significant changes to critical accounting policies were reported compared to the Annual Report on Form 10-K for the year ended December 31, 2024[95] RESULTS OF OPERATIONS This section provides a detailed analysis of the company's financial performance, including income and expense components Average Balance Sheet and Interest Rates This section presents average balances of assets and liabilities, along with their corresponding yields and rates Average Balances and Yields/Rates (Six Months Ended June 30, Dollars in thousands) | Category | 2025 Average Balance | 2025 Yield/Rate | 2024 Average Balance | 2024 Yield/Rate | | :--- | :--- | :--- | :--- | :--- | | Loans and loans held for sale | $563,086 | 5.45% | $567,434 | 5.12% | | Total interest-earning assets | $898,526 | 4.49% | $884,191 | 4.29% | | Total interest-bearing deposits | $640,065 | 1.76% | $637,845 | 1.72% | | Total interest-bearing liabilities | $640,120 | 1.76% | $639,107 | 1.71% | Net Interest Income and Margin This section analyzes the components of net interest income and the factors influencing the net interest margin - Net interest income (tax-equivalent) increased by 8% to $14.4 million for the first six months of 2025, driven by a 19 basis point increase in net interest margin to 3.24%[97] - The tax-equivalent yield on total interest-earning assets rose by 20 basis points to 4.49%, while the cost of interest-bearing liabilities increased by 5 basis points to 1.76%[98][99] - The Federal Reserve reduced the target federal funds rate by 100 basis points in late 2024, with the rate at 4.25%-4.50% at June 30, 2025[97] Provision for Credit Losses This section discusses the provision for credit losses and its impact on the allowance for credit losses Provision for Credit Losses (Six months ended June 30, Dollars in thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Provision for credit losses | $103 | $211 | - The allowance for credit losses was $7.0 million, or 1.24% of total loans, at June 30, 2025, compared to $6.9 million (1.22%) at December 31, 2024, and $7.1 million (1.24%) at June 30, 2024[102] - The CECL model is influenced by economic factors such as the anticipated Alabama unemployment rate[101] Noninterest Income This section details the various sources of income generated from non-lending activities Noninterest Income (Six Months Ended June 30, Dollars in thousands) | Category | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Service charges on deposit accounts | $307 | $309 | -0.6% | | Mortgage lending income | $224 | $330 | -32.1% | | Bank-owned life insurance | $206 | $201 | 2.5% | | Other | $799 | $943 | -15.3% | | Total noninterest income | $1,536 | $1,783 | -13.8% | - The decrease in mortgage lending income was due to reduced demand in the primary market area, while other noninterest income declined due to decreased fee income on reciprocal deposits[107][108] Noninterest Expense This section outlines the operating expenses incurred by the company, excluding interest expenses Noninterest Expense (Six Months Ended June 30, Dollars in thousands) | Category | 2025 | 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Salaries and benefits | $6,568 | $6,211 | 5.7% | | Net occupancy and equipment | $1,318 | $1,366 | -3.4% | | Professional fees | $672 | $640 | 5.0% | | Other | $3,024 | $2,977 | 1.6% | | Total noninterest expense | $11,582 | $11,194 | 3.5% | - The increase in total noninterest expense was primarily driven by routine annual increases in salaries and wages[109] Income Tax Expense This section reports the income tax expense and the effective tax rate for the reporting periods Income Tax Expense and Effective Tax Rate (Six Months Ended June 30, Dollars in thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Income tax expense | $877 | $639 | | Effective tax rate | 20.68% | 17.07% | - The effective income tax rate is influenced by tax-exempt earnings from municipal securities, bank-owned life insurance (BOLI), and New Markets Tax Credits (NMTCs)[110] BALANCE SHEET ANALYSIS This section provides a detailed analysis of the company's assets, liabilities, and equity components Securities This section analyzes the company's investment securities portfolio, including available-for-sale holdings Securities Available-for-Sale (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Securities available-for-sale | $239,681 | $243,012 | - The decrease in securities available-for-sale was due to an $11.7 million decrease in amortized cost basis, partially offset by an $8.4 million increase in fair value[111] - The average annualized tax-equivalent yield on total securities remained stable at 2.27% for the first six months of both 2025 and 2024[111] Loans This section details the composition and trends of the company's loan portfolio Total Loans by Category (Dollars in thousands) | Loan Category | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Commercial real estate | $282,868 | $289,992 | | Residential real estate | $117,159 | $118,627 | | Construction and land development | $93,820 | $82,493 | | Commercial and industrial | $59,773 | $63,274 | | Total loans | $562,714 | $564,017 | - Total loans slightly decreased to $562.7 million at June 30, 2025, from $564.0 million at December 31, 2024. Commercial real estate, residential real estate, construction and land development, and commercial and industrial loans constitute the majority of the portfolio[112] - The average yield on loans and loans held for sale increased to 5.45% in the first six months of 2025 from 5.12% in the same period of 2024[114] Allowance for Credit Losses This section discusses the allowance for credit losses, its calculation, and adequacy relative to the loan portfolio Allowance for Credit Losses (ACL) (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | ACL | $7,000 | $6,900 | | ACL as % of total loans | 1.24% | 1.22% | - The CECL models use macroeconomic factors like the Alabama unemployment rate, home price index, national commercial real estate price index, and Alabama gross state product to estimate future credit losses[120] Net (Charge-offs) Recoveries as % of Average Loans (Annualized) | Period | 2025 Q2 | 2025 Q1 | 2024 Q4 | 2024 Q3 | 2024 Q2 | | :--- | :--- | :--- | :--- | :--- | :--- | | Net (charge-offs) recoveries as % of average loans | (0.03)% | 0.05% | (0.01)% | 0.04% | 0.01% | Nonperforming Assets This section reports on assets that are not generating income or are experiencing payment defaults Nonperforming Assets (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total nonperforming assets | $302 | $503 | | Nonperforming assets as % of total assets | 0.03% | 0.05% | | Nonperforming loans as % of total loans | 0.05% | 0.09% | - The Company had no loans 90 days or more past due and still accruing, and no OREO at June 30, 2025, or December 31, 2024[129][130] Deposits This section analyzes the company's deposit base, including types of deposits and their cost Total Deposits (Dollars in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Total deposits | $939,851 | $895,824 | 4.9% | | Noninterest-bearing deposits | $268,468 | $260,874 | 2.9% | | Noninterest-bearing deposits as % of total deposits | 30% | 29% | +1 pp | - The 5% increase in total deposits was primarily due to a decrease in reciprocal customer deposits sold through the Intrafi network, with no reciprocal deposits sold at June 30, 2025, compared to $74.1 million at December 31, 2024[131] - The average rate paid on total interest-bearing deposits increased to 1.76% in the first six months of 2025 from 1.72% in the same period of 2024[132] Other Borrowings and Available Credit This section details the company's other funding sources and available lines of credit - The Company had no long-term debt, federal funds borrowings, or FHLB advances outstanding at June 30, 2025, and December 31, 2024[136][137] Available Lines of Credit (Dollars in millions) | Source | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | FHLB of Atlanta | $298.9 | $296.9 | | Federal funds lines | $65.2 | $65.2 | CAPITAL ADEQUACY This section assesses the company's capital position and compliance with regulatory capital requirements Regulatory Capital Ratios (AuburnBank) | Ratio | June 30, 2025 | Minimum for "Well Capitalized" | | :--- | :--- | :--- | | Total risk-based capital ratio | 16.35% | 10.0% | | Tier 1 leverage ratio | 10.64% | 5.0% | | Common equity tier 1 (CET1) ratio | 15.32% | 6.5% | - Consolidated stockholders' equity increased to $86.1 million at June 30, 2025, from $78.3 million at December 31, 2024, primarily due to net earnings and other comprehensive income from securities[138] - The Bank's capital conservation buffer was 8.35% at June 30, 2025, well above the 2.5% requirement, indicating no limitations on distributions[140][141] MARKET AND LIQUIDITY RISK MANAGEMENT This section describes the strategies and models used to manage interest rate and liquidity risks Interest Rate Risk Management This section details how the company manages exposure to changes in interest rates through various models - The Asset Liability Management Committee (ALCO) manages interest rate risk using earnings simulation and economic value of equity (EVE) models[143] - Earnings simulation modeling indicates compliance with policy guidelines, limiting net interest income variance for gradual interest rate changes (e.g., +/- 5% for 100 basis points, +/- 20% for 400 basis points)[144][145][146] - EVE modeling, which measures changes in economic values of assets and liabilities due to instantaneous interest rate changes, also showed compliance with policy guidelines (e.g., EVE should not decrease by more than 15% for +/- 100 basis points)[147][152] Liquidity Risk Management This section outlines the company's approach to ensuring sufficient cash and funding to meet obligations - Liquidity is managed at both the Company and Bank levels, with primary funding for the Company from Bank dividends and for the Bank from customer deposits and other borrowings[151][153][154] - Management believes both the Company and the Bank have adequate liquidity to meet all known contractual obligations and unfunded commitments over the next twelve months[155] - The Bank has access to $298.9 million in FHLB lines of credit and $65.2 million in federal funds lines, with no outstanding borrowings at June 30, 2025[154] Off-Balance Sheet Arrangements, Commitments, Contingencies and Contractual Obligations This section discloses financial commitments and potential liabilities not recorded on the balance sheet - At June 30, 2025, the Bank had $0.8 million in outstanding standby letters of credit and $64.5 million in unfunded loan commitments[156] - The Company sells residential mortgage loans to Fannie Mae, retaining servicing rights, and may be obligated to repurchase loans for breaches of representations and warranties, though no repurchases were required in the first six months of 2025[157][158][159] - The aggregate unpaid principal balance of residential mortgage loans serviced for Fannie Mae was $196.3 million at June 30, 2025, with 99% being current[158][162] Effects of Inflation and Changing Prices This section discusses the impact of inflation and interest rate changes on the company's financial performance - Interest rates significantly impact financial institutions more than general inflation, affecting noninterest expenses, deposit mix, and interest income/expense spreads[164][165] - The yield curve was inverted for most of 2024, leading to lower spreads between funding costs and interest income[165] - The FOMC reduced the target federal funds rate by 100 basis points in late 2024, to 4.25%-4.50% at June 30, 2025, in response to moderating inflation and unemployment risks[166] CURRENT ACCOUNTING DEVELOPMENTS This section provides updates on new accounting standards and their potential impact on the company - ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax disclosures," is effective for annual periods beginning after December 15, 2024, and is not expected to materially impact the Company's financial statements[167] Table 1 – Explanation of Non-GAAP Financial Measures This table reconciles non-GAAP financial measures to their most directly comparable GAAP counterparts - This table provides reconciliations of non-GAAP financial measures, specifically net interest income on a tax-equivalent basis, to their most directly comparable GAAP financial measures[168][169] Net Interest Income Reconciliation (Six Months Ended June 30, Dollars in thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net interest income (GAAP) | $14,389 | $13,366 | | Tax-equivalent adjustment | $36 | $39 | | Net interest income (Tax-equivalent) | $14,425 | $13,405 | Table 2 – Selected Quarterly Financial Data This table presents key financial performance indicators on a quarterly basis Selected Quarterly Financial Data (Q2 2025 vs Q2 2024, Dollars in thousands) | Metric | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Net earnings | $1,833 | $1,734 | | Basic and diluted net earnings per share | $0.52 | $0.50 | | Net interest income (tax-equivalent) | $7,363 | $6,728 | | Noninterest income | $789 | $896 | | Noninterest expense | $5,702 | $5,519 | | Return on average equity | 9.00% | 9.63% | | Return on average assets | 0.74% | 0.71% | | Efficiency ratio | 69.95% | 72.39% | Table 3 – Selected Financial Data This table provides a summary of key financial data for the reported periods Selected Financial Data (Six Months Ended June 30, Dollars in thousands) | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net earnings | $3,363 | $3,105 | | Basic and diluted net earnings per share | $0.96 | $0.89 | | Net interest income (tax-equivalent) | $14,425 | $13,405 | | Noninterest income | $1,536 | $1,783 | | Noninterest expense | $11,582 | $11,194 | | Annualized return on average equity | 8.26% | 8.34% | | Annualized return on average assets | 0.68% | 0.64% | | Efficiency ratio | 72.56% | 73.70% | Table 4 – Average Balances and Net Interest Income Analysis – for the quarter ended June 30, 2025 and 2024 This table analyzes average balances and net interest income for the specified quarters Average Balances and Net Interest Income Analysis (Quarter Ended June 30, Dollars in thousands) | Category | Q2 2025 Average Balance | Q2 2025 Yield/Rate | Q2 2024 Average Balance | Q2 2024 Yield/Rate | | :--- | :--- | :--- | :--- | :--- | | Loans and loans held for sale | $559,939 | 5.50% | $573,926 | 5.22% | | Total interest-earning assets | $902,057 | 4.50% | $884,064 | 4.37% | | Total interest-bearing deposits | $637,343 | 1.74% | $637,688 | 1.81% | | Net interest income (tax-equivalent) | N/A | 3.27% | N/A | 3.06% | Table 5 – Average Balances and Net Interest Income Analysis – for the six months ended June 30, 2025 and 2024 This table analyzes average balances and net interest income for the specified six-month periods Average Balances and Net Interest Income Analysis (Six Months Ended June 30, Dollars in thousands) | Category | 2025 Average Balance | 2025 Yield/Rate | 2024 Average Balance | 2024 Yield/Rate | | :--- | :--- | :--- | :--- | :--- | | Loans and loans held for sale | $563,086 | 5.45% | $567,434 | 5.12% | | Total interest-earning assets | $898,526 | 4.49% | $884,191 | 4.29% | | Total interest-bearing deposits | $640,065 | 1.76% | $637,845 | 1.72% | | Net interest income (tax-equivalent) | N/A | 3.24% | N/A | 3.05% | Table 6 – Volume and Rate Variance Analysis for the quarter and six months ended June 30, 2025 This table breaks down changes in net interest income due to volume and rate fluctuations Net Interest Income Volume and Rate Variance (Six Months Ended June 30, 2025 vs. 2024, Dollars in thousands) | Category | Net Change | Due to change in Rate | Due to change in Volume | | :--- | :--- | :--- | :--- | | Total interest income | $1,155 | $672 | $483 | | Total interest expense | $134 | $231 | $(97) | | Net interest income | $1,021 | $441 | $580 | - For the six months ended June 30, 2025, the increase in net interest income was primarily driven by both rate and volume changes, with volume contributing more to the increase than rate[179] Item 3 Quantitative and Qualitative Disclosures About Market Risk This section refers to the market and liquidity risk management discussion within Item 2, which details the Company's strategies for managing interest rate risk through earnings simulation and economic value of equity models, and liquidity risk by ensuring adequate funding sources for both the Company and its Bank subsidiary - The disclosures about market risk are incorporated by reference from the "MARKET AND LIQUIDITY RISK MANAGEMENT" section in Item 2[180] Item 4 Controls and Procedures The Company's management, including the CEO and CFO, evaluated the effectiveness of its disclosure controls and procedures as of June 30, 2025, concluding they were effective. No material changes in internal control over financial reporting occurred during the period - The Company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2025[181] - No material changes in internal control over financial reporting occurred during the period covered by the report[181] PART II. OTHER INFORMATION This part includes legal proceedings, risk factors, equity sales, defaults, and other required disclosures Item 1 Legal Proceedings The Company and Bank are involved in routine legal proceedings, but management believes no pending or threatened proceedings are expected to have a material adverse effect on their financial condition or results of operations - Management believes there are no legal, governmental, or regulatory proceedings that are expected to have a material adverse effect on the Company's or Bank's financial condition or results of operations[182] Item 1A Risk Factors This section highlights that readers should consider the risk factors detailed in the Company's Annual Report on Form 10-K for 2024. It specifically notes that persistent inflation, tightened Federal Reserve monetary policy, and increased interest rates continue to affect market values of securities and loans, deposit costs, and borrower cash flows, leading to unrealized losses in stockholders' equity - Readers should carefully consider risk factors discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[183] - Persistent inflation and tightened Federal Reserve monetary policy have adversely affected stockholders' equity due to unrealized losses on securities and loans, and continue to impact deposit costs and borrower cash flows[183] Item 2 Unregistered Sales of Equity Securities and Use of Proceeds The Company did not engage in any unregistered sales of common stock or other equity securities during the second quarter of 2025 - The Company did not sell any common stock or other equity securities during the second quarter of 2025[184] Item 3 Defaults Upon Senior Securities This item is not applicable to the Company for the reporting period - Not applicable[185] Item 4 Mine Safety Disclosures This item is not applicable to the Company for the reporting period - Not applicable[186] Item 5 Other Information This item is not applicable to the Company for the reporting period - Not applicable[187] Item 6 Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications from the CEO and CFO under the Sarbanes-Oxley Act, and XBRL interactive data files, with references to previous filings where applicable - Includes certifications (31.1, 31.2, 32.1, 32.2) from the CEO and CFO, and XBRL interactive data files (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104)[188] - Certifications under Section 906 of the Sarbanes-Oxley Act are "furnished" and not "filed" for purposes of Section 18 of the Securities Exchange Act of 1934[189] SIGNATURES This section contains the official signatures of the company's authorized officers, certifying the report's accuracy - The report is signed by David A. Hedges, President and CEO, and W. James Walker, IV, Senior Vice President and Chief Financial Officer, on August 12, 2025[191]