10-Q

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

June 30, 2023

☐

 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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such 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 during the preceding 12 months (or for such shorter period that the registrant was required

to submit such files). 

Yes

☒

 No

☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting

company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting

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

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for

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

☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

AUBN

NASDAQ

 Global Market

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 August 7, 2023

Common Stock, $0.01 par value per share

3,497,430

 shares

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

INDEX

PAGE

Item 1

3 

4

5

6

7

8

Item 2 

29

49

50

51

52

53

54

55

Item 3

56

Item 4

56

Item 1

56

Item 1A

56

Item 2

57

Item 3

57

Item 4

57

Item 5

57

Item 6

58

3

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

June 30,

December 31,

(Dollars in thousands, except share data)

2023

2022

Assets:

Cash and due from banks

$

19,855

$

11,608

Federal funds sold

1,196

9,300

Interest-bearing bank deposits

8,485

6,346

Cash and cash equivalents

29,536

27,254

Securities available-for-sale 

394,079

405,304

Loans

520,411

504,458

Allowance for credit losses

(6,634)

(5,765)

Loans, net

513,777

498,693

Premises and equipment, net

45,896

46,575

Bank-owned life insurance

19,960

19,952

Other assets

22,882

26,110

Total assets

$

1,026,130

$

1,023,888

Liabilities:

Deposits:

Noninterest-bearing 

$

298,479

$

311,371

Interest-bearing

652,263

638,966

Total deposits

950,742

950,337

Federal funds purchased and securities sold under agreements to repurchase

2,167

2,551

Accrued expenses and other liabilities

2,245

2,959

Total liabilities

955,154

955,847

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

3,800

3,797

Retained earnings

117,781

116,600

Accumulated other comprehensive loss, net

(39,072)

(40,920)

Less treasury stock, at cost -

457,723

 shares and

453,683

 at June 30, 2023

and December 31, 2022, respectively

(11,572)

(11,475)

Total stockholders’ equity

70,976

68,041

Total liabilities and stockholders’ equity

$

1,026,130

$

1,023,888

See accompanying notes to consolidated financial statements

4

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(Unaudited)

Quarter ended June 30,

Six months ended June 30,

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

2023

2022

2023

2022

Interest income:

Loans, including fees

$

6,019

$

4,691

$

11,773

$

9,541

Securities:

Taxable

1,826

1,547

3,691

2,883

Tax-exempt

404

415

807

834

Federal funds sold and interest-bearing bank deposits

144

278

357

341

Total interest income

8,393

6,931

16,628

13,599

Interest expense:

Deposits

1,482

552

2,600

1,137

Short-term borrowings

23

5

31

10

Total interest expense

1,505

557

2,631

1,147

Net interest income

6,888

6,374

13,997

12,452

Provision for credit losses

(362)

—

(296)

(250)

Net interest income after provision for credit losses

7,250

6,374

14,293

12,702

Noninterest income:

Service charges on deposit accounts

154

146

308

288

Mortgage lending

142

187

235

440

Bank-owned life insurance

68

97

224

196

Other

427

418

816

832

Total noninterest income

791

848

1,583

1,756

Noninterest expense:

Salaries and benefits

3,038

2,976

5,965

5,926

Net occupancy and equipment

787

727

1,586

1,161

Professional fees

299

239

637

469

Other

1,701

1,116

3,241

2,403

Total noninterest expense

5,825

5,058

11,429

9,959

Earnings before income taxes

2,216

2,164

4,447

4,499

Income tax expense

288

363

555

617

Net earnings

$

1,928

$

1,801

$

3,892

$

3,882

Net earnings per share:

Basic and diluted

$

0.55

$

0.51

$

1.11

$

1.10

Weighted average shares outstanding:

Basic and diluted

3,500,064

3,513,353

3,501,098

3,515,991

See accompanying notes to consolidated financial statements

5

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2023

2022

2023

2022

Net earnings

$

1,928

$

1,801

$

3,892

$

3,882

Other comprehensive (loss) income, net of tax:

Unrealized net (loss) gain on securities

(3,615)

(10,964)

1,848

(29,310)

Other comprehensive (loss) income

(3,615)

(10,964)

1,848

(29,310)

Comprehensive (loss) income

$

(1,687)

$

(9,163)

$

5,740

$

(25,428)

See accompanying notes to consolidated financial statements

6

AUBURN NATIONAL BANCORPORATION, 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

(loss) income

stock

Total

Quarter ended June 30, 2023

Balance, March 31, 2023

3,500,879

$

39

$

3,798

$

116,798

$

(35,457)

$

(11,538)

$

73,640

Net earnings

—

—

—

1,928

—

—

1,928

Other comprehensive loss

—

—

—

—

(3,615)

—

(3,615)

Cash dividends paid ($

.27

 per share)

—

—

—

(945)

—

—

(945)

Stock repurchases

(1,577)

—

—

—

—

(35)

(35)

Sale of treasury stock

110

—

2

—

—

1

3

Balance, June 30, 2023

3,499,412

$

39

$

3,800

$

117,781

$

(39,072)

$

(11,572)

$

70,976

Quarter ended June 30, 2022

Balance, March 31, 2022

3,516,971

$

39

$

3,795

$

111,123

$

(17,455)

$

(11,091)

$

86,411

Net earnings

—

—

—

1,801

—

—

1,801

Other comprehensive loss

—

—

—

—

(10,964)

—

(10,964)

Cash dividends paid ($

.265

 per share)

—

—

—

(930)

—

—

(930)

Stock repurchases

(7,081)

—

—

—

—

(212)

(212)

Sale of treasury stock

50

—

1

—

—

—

1

Balance, June 30, 2022

3,509,940

$

39

$

3,796

$

111,994

$

(28,419)

$

(11,303)

$

76,107

Six months ended June 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

—

—

—

(821)

—

—

(821)

Net earnings

—

—

—

3,892

—

—

3,892

Other comprehensive income

—

—

—

—

1,848

—

1,848

Cash dividends paid ($

.54

 per share)

—

—

—

(1,890)

—

—

(1,890)

Stock repurchases

(4,225)

—

—

—

—

(99)

(99)

Sale of treasury stock

185

—

3

—

—

2

5

Balance, June 30, 2023

3,499,412

$

39

$

3,800

$

117,781

$

(39,072)

$

(11,572)

$

70,976

Six months ended June 30,2022

Balance, December 31, 2021

3,520,485

$

39

$

3,794

$

109,974

$

891

$

(10,972)

$

103,726

Net earnings

—

—

—

3,882

—

—

3,882

Other comprehensive loss

—

—

—

—

(29,310)

—

(29,310)

Cash dividends paid ($

.53

 per share)

—

—

—

(1,862)

—

—

(1,862)

Stock repurchases

(10,640)

—

—

—

—

(331)

(331)

Sale of treasury stock

95

—

2

—

—

—

2

Balance, June 30, 2022

3,509,940

$

39

$

3,796

$

111,994

$

(28,419)

$

(11,303)

$

76,107

See accompanying notes to consolidated financial statements

7

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Six months ended June 30,

(Dollars in thousands)

2023

2022

Cash flows from operating activities:

Net earnings

$

3,892

$

3,882

Adjustments to reconcile net earnings to net cash provided by

operating activities:

Provision for credit losses

(296)

(250)

Depreciation and amortization

858

631

Premium amortization and discount accretion, net

1,223

1,738

Net gain on sale of loans held for sale

(61)

(349)

Net gain on other real estate owned

—

(162)

Loans originated for sale

(1,219)

(8,027)

Proceeds from sale of loans

1,271

8,666

Increase in cash surrender value of bank-owned life insurance

(172)

(196)

Income recognized from death benefit on bank-owned life insurance

(52)

—

Net decrease (increase) in other assets

3,332

(9,152)

Net (decrease) increase in accrued expenses and other liabilities

(1,401)

7,397

Net cash provided by operating activities

7,375

4,178

Cash flows from investing activities:

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

12,470

29,570

Purchase of securities available-for-sale

—

(77,776)

(Increase) decrease in loans, net

(15,812)

17,519

Net purchases of premises and equipment

(40)

(4,059)

Proceeds from bank-owned life insurance death benefit

216

—

Decrease (increase) in FHLB stock

41

(74)

Proceeds from sale of other real estate owned

—

536

Net cash used in investing activities

(3,125)

(34,284)

Cash flows from financing activities:

Net decrease in noninterest-bearing deposits

(12,892)

(4,924)

Net increase in interest-bearing deposits

13,297

13,379

Net (decrease) increase in federal funds purchased and securities sold 

under agreements to repurchase

(384)

699

Stock repurchases

(99)

(331)

Dividends paid

(1,890)

(1,862)

Net cash (used in) provided by financing activities

(1,968)

6,961

Net change in cash and cash equivalents

2,282

(23,145)

Cash and cash equivalents at beginning of period

27,254

156,259

Cash and cash equivalents at end of period

$

29,536

$

133,114

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Interest

$

2,191

$

1,206

Income taxes

800

731

See accompanying notes to consolidated financial statements

8

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements 

(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Auburn National Bancorporation, Inc. (the “Company”) provides a full range of banking services to individuals and

commercial customers in Lee County, Alabama and surrounding areas through its wholly owned subsidiary, AuburnBank

(the “Bank”). The Company does not have any segments other than banking that are considered material.

Basis of Presentation and Use of Estimates

The unaudited consolidated financial statements in this report have been prepared in accordance with U.S. generally

accepted accounting principles (“GAAP”) for interim financial information. Accordingly, these financial statements do not

include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited

consolidated financial statements include, in the opinion of management, all adjustments necessary to present a fair

statement of the financial position and the results of operations for all periods presented. All such adjustments are of a

normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results of

operations that the Company and its subsidiaries may achieve for future interim periods or the entire year. For further

information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form

10-K for the year ended December 31, 2022.

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 

Significant intercompany transactions and accounts are eliminated in consolidation.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of

the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could

differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term

include the determination of allowance for credit losses investment securities, the determination of the allowance for credit

losses on loans, fair value of financial instruments, and the valuation of deferred tax assets and other real estate owned

(“OREO”).

Revenue Recognition

On January 1, 2018, the Company implemented Accounting Standards Update (“ASU” or “updates”) 2014-09,

 Revenue

from Contracts with Customers

, codified at

 Accounting Standards Codification (“ASC”)

606. The Company adopted ASC

606 using the modified retrospective transition method. The majority of the Company’s revenue stream is generated from

interest income on loans and securities which are outside the scope of ASC 606. 

The Company’s sources of income that fall within the scope of ASC 606 include service charges on deposits, interchange

fees and gains and losses on sales of other real estate, all of which are presented as components of noninterest income. The

following is a summary of the revenue streams that fall within the scope of ASC 606: 

●

Service charges on deposits, investment services, ATM and interchange fees – Fees from these services are either

(i) transaction-based, for which the performance obligations are satisfied when the individual transaction is

processed, or (ii) set periodic service charges, for which the performance obligations are satisfied over the period

the service is provided. Transaction-based fees are recognized at the time the transaction is processed, and periodic

service charges are recognized over the service period.

●

Gains on sales of OREO

 –

A gain on sale should be recognized when a contract for sale exists and control of the

asset has been transferred to the buyer. ASC 606 lists several criteria required to conclude that a contract for sale

exists, including a determination that the institution will collect substantially all of the consideration to which it is

entitled. In addition to the loan-to-value ratio, where the seller provides the purchaser with financing, the analysis

is based on various other factors, including the credit quality of the purchaser, the structure of the loan, and any

other factors that we believe may affect collectability.

9

Subsequent Events 

The Company has evaluated the effects of events and transactions through the date of this filing that have occurred

subsequent to June 30, 2023. The Company does not believe there were any material subsequent events during this period

that would have required further recognition or disclosure in the unaudited consolidated financial statements included in

this report.

Reclassifications

Certain amounts reported in prior periods have been reclassified to conform to the current -period presentation. These

reclassifications had no material effect on the Company’s previously reported net earnings or total stockholders’ equity.

Accounting Standards Adopted in 2023

On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement

of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an

expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an

estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current

conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost,

including loan receivables and held-to-maturity debt securities, and some off -balance sheet credit exposures such as

unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount

expected to be collected by using an allowance for credit losses. 

In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require

credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management

does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the

modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures.

The transition adjustment upon the adoption of CECL on January 1, 2023 included an increase in the allowance for credit

losses on loans of $

1.0

 million, which is presented as a reduction to net loans outstanding, and an increase in the allowance

for credit losses on unfunded loan commitments of $

0.1

 million, which is recorded within other liabilities. The Company

recorded a net decrease to retained earnings of $0.8 million as of January 1, 2023 for the cumulative effect of adopting

CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for

reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be

reported in accordance with previously applicable accounting standards.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-

temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have

any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined

that an allowance for credit losses on available for sale securities was not deemed material. 

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to

reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is

90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that

this policy results in the timely reversal of uncollectible interest.

The Company also adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt

Restructurings and Vintage Disclosures” on January 1, 2023, the effective date of the guidance, on a prospective basis.

ASU 2022-02 eliminated the accounting guidance for TDRs, while enhancing disclosure requirements for certain loan

refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than

applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring

guidance to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, ASU

2022-02 requires an entity to disclose current-period gross write-offs by year of origination for financing receivables within

the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. ASU 2022-02 did not

have a material impact on the Company’s consolidated financial statements.

10

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported

at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and

deferred fees and costs. Accrued interest receivable related to loans is recorded in other assets on the consolidated balance

sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination

costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating

prepayments.

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in

the process of collection, or when management believes, after considering economic and business conditions and collection

efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on

contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days

after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such

loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery

method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status

when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment

performance, and future payments are reasonably assured.

Allowance for Credit Losses – Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net

amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the

uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously

charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the

balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from

both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. 

The Company’s loan loss estimation process includes procedures to appropriately consider the unique characteristics of its

respective loan segments (commercial and industrial, construction and land development, commercial real estate,

multifamily, residential real estate, and consumer loans). These segments are further disaggregated into loan classes, the

level at which credit quality is monitored. See Note 5, Loans and Allowance for Credit Losses, for additional information

about our loan portfolio.

Credit loss assumptions are estimated using a discounted cash flow ("DCF") model for each loan segment, except consumer

loans. The weighted average remaining life method is used to estimate credit loss assumptions for consumer loans. 

The DCF model calculates an expected life-of-loan loss percentage by considering the forecasted probability that a

borrower will default (the “PD”), adjusted for relevant forecasted macroeconomic factors, and LGD, which is the estimate

of the amount of net loss in the event of default. This model utilizes historical correlations between default experience and

certain macroeconomic factors as determined through a statistical regression analysis. The forecasted Alabama

unemployment rate is considered in the model for commercial and industrial, construction and land development,

commercial real estate, multifamily, and residential real estate loans. In addition, forecasted changes in the Alabama home

price index is considered in the model for construction and land development and residential real estate loans; forecasted

changes in the national commercial real estate (“CRE”) price index is considered in the model for commercial real estate

and multifamily loans; and forecasted changes in the Alabama gross state product is considered in the model for

multifamily loans. Projections of these macroeconomic factors, obtained from an independent third party, are utilized to

predict quarterly rates of default based on the statistical PD models. 

Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments and principal

payments (“curtailments”) when appropriate. Management's determination of the contract term excludes expected

extensions, renewals, and modifications unless the extension or renewal option is included in the contract at the reporting

date and is not unconditionally cancellable by the Company. To the extent the lives of the loans in the portfolio extend

beyond the period for which a reasonable and supportable forecast can be made (which is 4 quarters for the Company), the

Company reverts, on a straight-line basis back to the historical rates over an 8 quarter reversion period.

11

The weighted average remaining life method was deemed most appropriate for the consumer loan segment because

consumer loans contain many different payment structures, payment streams and collateral. The weighted average

remaining life method uses an annual charge-off rate over several vintages to estimate credit losses. The average annual

charge-off rate is applied to the contractual term adjusted for prepayments.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are

believed likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may

increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan

review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in

underlying collateral, external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that

foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the

estimated fair value of collateral held at the reporting date, adjusted for selling costs as appropriate. 

Allowance for Credit Losses – Unfunded Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial

letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of

nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the

contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to

extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s consolidated

statements of earnings. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment

at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans,

taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for

unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

On January 1, 2023, the Company recorded an adjustment for unfunded commitments of $77 thousand for the adoption of

ASC 326. At June 30, 2023, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities

was $

0.3

 million.

Provision for Credit Losses

The composition of the provision for (recoveries of) credit losses for the respective periods is presented below.

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2023

2022

2023

2022

Provision for credit losses:

Loans

$

(331)

$

— 

$

(291)

$

(250)

Reserve for unfunded commitments (1)

(31)

— 

(5)

— 

Total provision for credit losses

$

(362)

$

— 

$

(296)

$

(250)

(1)

Reserve requirements for unfunded commitments were reported as a component of other noninterest expense prior

to the adoption of ASC 326.

12

NOTE 2: BASIC AND DILUTED NET EARNINGS PER SHARE

Basic net earnings per share is computed by dividing net earnings by the weighted average common shares outstanding for

the respective period. Diluted net earnings per share reflect the potential dilution that could occur upon exercise of

securities or other rights for, or convertible into, shares of the Company’s common stock. At June 30, 2023 and 2022,

respectively, the Company had no such securities or rights issued or outstanding, and therefore, no dilutive effect to

consider for the diluted net earnings per share calculation.

The basic and diluted net earnings per share computations for the respective periods are presented below

Quarter ended June 30,

Six months ended June 30,

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

2023

2022

2023

2022

Basic and diluted:

Net earnings

$

1,928

$

1,801

$

3,892

$

3,882

Weighted average common shares outstanding

3,500,064

3,513,353

3,501,098

3,515,991

Net earnings per share

$

0.55

$

0.51

$

1.11

$

1.10

NOTE 3: VARIABLE INTEREST ENTITIES

Generally, a variable interest entity (“VIE”) is a corporation, partnership, trust or other legal structure that does not have

equity investors with substantive or proportional voting rights or has equity investors that do not provide sufficient financial

resources for the entity to support its activities. 

At June 30, 2023, the Company did not have any consolidated VIEs to disclose but did have one nonconsolidated VIE,

discussed below.

New Markets Tax Credit Investment

The New Markets Tax Credit (“NMTC”) program provides federal tax incentives to investors to make investments in

distressed communities and promotes economic improvement through the development of successful businesses in these

communities. The NMTC is available to investors over seven years and is subject to recapture if certain events occur

during such period. At June 30, 2023 and December 31, 2022, respectively, the Company had one such investment in the

amounts of $1.9 million and $2.1 million, respectively, which was included in other assets in the consolidated balance

sheets. The Company’s equity investment in the NMTC entity meets the definition of a VIE. While the Company’s

investment exceeds 50% of the outstanding equity interests, the Company does not consolidate the VIE because it does not

meet the characteristics of a primary beneficiary since the Company lacks the power to direct the activities of the VIE.

(Dollars in thousands)

Maximum

Loss Exposure

Asset Recognized

Classification

Type:

New Markets Tax Credit investment

$

1,906

$

1,906

Other assets

13

NOTE 4: SECURITIES

At June 30, 2023 and December 31, 2022, respectively, all securities within the scope of ASC 320,

Investments – Debt and

Equity Securities,

were classified as available-for-sale. The fair value and amortized cost for securities available-for-sale

by contractual maturity at June 30, 2023 and December 31, 2022, respectively, are presented below.

1 year

1 to 5

5 to 10

After 10

Fair

Gross Unrealized 

Amortized

(Dollars in thousands)

or less

years

years

years

Value

Gains

Losses

Cost

June 30, 2023

Agency obligations (a)

$

5,306

59,203

60,643

—

125,152

—

15,422

$

140,574

Agency MBS (a)

—

6,687

31,155

169,138

206,980

—

31,769

238,749

State and political subdivisions

300

1,014

15,354

45,279

61,947

14

4,998

66,931

Total available-for-sale

$

5,606

66,904

107,152

214,417

394,079

14

52,189

$

446,254

December 31, 2022

Agency obligations (a)

$

4,935

50,746

69,936

—

125,617

—

15,826

$

141,443

Agency MBS (a)

—

7,130

27,153

183,877

218,160

—

33,146

251,306

State and political subdivisions

300

642

15,130

45,455

61,527

11

5,681

67,197

Total available-for-sale

$

5,235

58,518

112,219

229,332

405,304

11

54,653

$

459,946

(a) Includes securities issued by U.S. government agencies or government-sponsored entities.

Securities with aggregate fair values of $

215.9

 million and $

208.3

 million at June 30, 2023 and December 31, 2022,

respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, Federal Home Loan

Bank of Atlanta (“FHLB of Atlanta”) advances, and for other purposes required or permitted by law. 

Included in other assets on the accompanying consolidated balance sheets are non-marketable equity investments. The

carrying amounts of non-marketable equity investments were $

1.2

 million at June 30, 2023 and December 31, 2022,

respectively. Non-marketable equity investments include FHLB of Atlanta Stock, Federal Reserve Bank of Atlanta

(“FRB”) stock, and stock in a privately held financial institution.

Gross Unrealized Losses and Fair Value

The fair values and gross unrealized losses on securities at June 30, 2023 and December 31, 2022, respectively, segregated

by those securities that have been in an unrealized loss position for less than 12 months and 12 months or longer, are

presented below.

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(Dollars in thousands)

Value

Losses

Value

Losses

Value

Losses

June 30, 2023:

Agency obligations 

$

17,994

1,243

107,158

14,179

$

125,152

15,422

Agency MBS

22,246

1,332

184,734

30,437

206,980

31,769

State and political subdivisions

17,358

330

39,727

4,668

57,085

4,998

Total 

$

57,598

2,905

331,619

49,284

$

389,217

52,189

December 31, 2022:

Agency obligations 

$

55,931

4,161

69,686

11,665

$

125,617

15,826

Agency MBS

70,293

5,842

147,867

27,304

218,160

33,146

State and political subdivisions

44,777

2,176

13,043

3,505

57,820

5,681

Total 

$

171,001

12,179

230,596

42,474

$

401,597

54,653

14

For the securities in the previous table, the Company assesses whether or not it intends to sell or is more likely than not that

the Company will be required to sell the securities before recovery of the amortized cost basis, which may be maturity. 

Because the Company currently does not intend to sell those securities that have an unrealized loss at June 30, 2023 and it

is not more-likely-than-not that the Company will be required to sell the security before recovery of their amortized cost

bases, which may be maturity, the Company has determined that no provision for credit loss is necessary. In addition, the

Company evaluates whether any portion of the decline in fair value of available-for-sale securities is the result of credit

deterioration, which would require the recognition of a provision to increase the allowance for credit losses. Such

evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings

and any other known adverse conditions related to the specific security. The unrealized losses associated with available-for-

sale securities at June 30, 2023 are driven by changes in market interest rates and are not due to the credit quality of the

securities, and accordingly, no allowance for credit losses is considered necessary related to available-for-sale securities at

June 30, 2023. These securities will continue to be monitored as a part of the Company's ongoing evaluation of credit

quality. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable

that the issuers can make all contractual principal and interest payments.

Realized Gains and Losses

The Company had no realized gains and losses on sale of securities during the quarter and six months ended June 30, 2023

and 2022, respectively.

NOTE 5: LOANS AND ALLOWANCE FOR CREDIT LOSSES

June 30,

December 31,

(Dollars in thousands)

2023

2022

Commercial and industrial

$

61,880

$

66,212

Construction and land development

63,874

66,479

Commercial real estate:

Owner occupied

67,679

61,125

Hotel/motel

37,511

33,378

Multi-family

44,431

41,084

Other

126,180

128,986

Total commercial real estate

275,801

264,573

Residential real estate:

Consumer mortgage

53,674

45,370

Investment property

56,160

52,278

Total residential real estate

109,834

97,648

Consumer installment

9,022

9,546

Total Loans

$

520,411

$

504,458

Loans secured by real estate were approximately

86.4%

 of the Company’s total loan portfolio at June 30, 2023. At June 30,

2023, the Company’s geographic loan distribution was concentrated primarily in Lee County, Alabama, and surrounding

areas.

The loan portfolio segment is defined as the level at which an entity develops and documents a systematic method for

determining its allowance for credit losses. As part of the Company’s quarterly assessment of the allowance, the loan

portfolio included the following portfolio segments: commercial and industrial, construction and land development,

commercial real estate, residential real estate, and consumer installment. Where appropriate, the Company’s loan portfolio

segments are further disaggregated into classes. A class is generally determined based on the initial measurement attribute,

risk characteristics of the loan, and an entity’s method for monitoring and determining credit risk.

The following describes the risk characteristics relevant to each of the portfolio segments and classes.

Commercial and industrial (“C&I”) —

includes loans to finance business operations, equipment purchases, or other needs

for small and medium-sized commercial customers. Also included in this category are loans to finance agricultural

production. Generally, the primary source of repayment is the cash flow from business operations and activities of the

borrower. 

15

Construction and land development (“C&D”) —

includes both loans and credit lines for the purpose of purchasing,

carrying, and developing land into commercial developments or residential subdivisions. Also included are loans and credit

lines for construction of residential, multi-family, and commercial buildings. Generally, the primary source of repayment is

dependent upon the sale or refinance of the real estate collateral.

Commercial real estate (“CRE”) —

includes loans in these classes: 

●

Owner occupied

 – includes loans secured by business facilities to finance business operations, equipment and

owner-occupied facilities primarily for small and medium-sized commercial customers. Generally, the primary

source of repayment is the cash flow from business operations and activities of the borrower, who owns the

property.

●

Hotel/motel

– includes loans for hotels and motels. Generally, the primary source of repayment is dependent upon

income generated from the hotel/motel securing the loan. The underwriting of these loans takes into consideration

the occupancy and rental rates, as well as the financial health of the borrower.

●

Multi-family

 – primarily includes loans to finance income-producing multi-family properties . These include loans

for 5 or more unit residential properties and apartments leased to residents. Generally , the primary source of

repayment is dependent upon income generated from the real estate collateral. The underwriting of these loans

takes into consideration the occupancy and rental rates, as well as the financial health of the respective borrowers. 

●

Other

 – primarily includes loans to finance income-producing commercial properties other than hotels/motels and

multi-family properties, and which are not owner occupied. Loans in this class include loans for neighborhood

retail centers, medical and professional offices, single retail stores, industrial buildings, and warehouses leased to

local and other businesses. Generally, the primary source of repayment is dependent upon income generated from

the real estate collateral. The underwriting of these loans takes into consideration the occupancy and rental rates,

as well as the financial health of the borrower. 

Residential real estate (“RRE”) —

includes loans in these two classes:

●

Consumer mortgage

 – primarily includes first or second lien mortgages and home equity lines of credit to

consumers that are secured by a primary residence or second home. These loans are underwritten in accordance

with the Bank’s general loan policies and procedures which require, among other things, proper documentation of

each borrower’s financial condition, satisfactory credit history , and property value. 

●

Investment property

 – primarily includes loans to finance income-producing 1-4 family residential properties.

Generally, the primary source of repayment is dependent upon income generated from leasing the property

securing the loan. The underwriting of these loans takes into consideration the rental rates and property values, as

well as the financial health of the borrowers. 

Consumer installment —

includes loans to individuals, which may be secured by personal property or are unsecured. Loans

include personal lines of credit, automobile loans, and other retail loans. These loans are underwritten in accordance with

the Bank’s general loan policies and procedures which require, among other things, proper documentation of each

borrower’s financial condition, satisfactory credit history, and, if applicable, property values.

16

The following is a summary of current, accruing past due, and nonaccrual loans by portfolio segment and class as of June

30, 2023 and December 31, 2022.

Accruing

Accruing

Total

30-89 Days

Greater than

Accruing

Non-

Total 

(Dollars in thousands)

Current

Past Due

90 days

Loans

Accrual

Loans

June 30, 2023:

Commercial and industrial

$

61,701

1

—

61,702

178

$

61,880

Construction and land development

63,874

—

—

63,874

—

63,874

Commercial real estate:

Owner occupied

66,860

—

—

66,860

819

67,679

Hotel/motel

37,511

—

—

37,511

—

37,511

Multi-family

44,431

—

—

44,431

—

44,431

Other

126,180

—

—

126,180

—

126,180

Total commercial real estate

274,982

—

—

274,982

819

275,801

Residential real estate:

Consumer mortgage

53,432

118

—

53,550

124

53,674

Investment property

56,117

15

—

56,132

28

56,160

Total residential real estate

109,549

133

—

109,682

152

109,834

Consumer installment

9,000

22

—

9,022

—

9,022

Total

$

519,106

156

—

519,262

1,149

$

520,411

December 31, 2022:

Commercial and industrial

$

65,764

5

—

65,769

443

$

66,212

Construction and land development

66,479

—

—

66,479

—

66,479

Commercial real estate:

Owner occupied

61,125

—

—

61,125

—

61,125

Hotel/motel

33,378

—

—

33,378

—

33,378

Multi-family

41,084

—

—

41,084

—

41,084

Other

126,870

—

—

126,870

2,116

128,986

Total commercial real estate

262,457

—

—

262,457

2,116

264,573

Residential real estate:

Consumer mortgage

45,160

38

—

45,198

172

45,370

Investment property

52,278

—

—

52,278

—

52,278

Total residential real estate

97,438

38

—

97,476

172

97,648

Consumer installment

9,506

40

—

9,546

—

9,546

Total

$

501,644

83

—

501,727

2,731

$

504,458

17

Credit Quality Indicators

The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the

standard asset classification system used by the federal banking agencies. The following table presents credit quality

indicators for the loan portfolio segments and classes by year of origination as of June 30, 2023. These categories are

utilized to develop the associated allowance for credit losses using historical losses adjusted for qualitative and

environmental factors and are defined as follows: 

●

Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if

any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

●

Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or

inadequately protect the Company’s position at some future date. These loans are not adversely classified and do

not expose an institution to sufficient risk to warrant an adverse classification.

●

Substandard Accruing – loans that exhibit a well-defined weakness which presently jeopardizes debt repayment,

even though they are currently performing. These loans are characterized by the distinct possibility that the

Company may incur a loss in the future if these weaknesses are not corrected .

●

Nonaccrual – includes loans where management has determined that full payment of principal and interest is not

expected.

18

(Dollars in thousands)

2023

2022

2021

2020

2019

Prior to

2019

Revolving

Loans

Total 

Loans

June 30, 2023: 

Commercial and industrial

Pass

$

5,888

12,207

14,564

5,926

7,644

8,366

6,810

$

61,405

Special mention

—

—

—

—

—

—

203

203

Substandard

58

—

27

—

9

—

—

94

Nonaccrual

—

—

—

—

178

—

—

178

Total commercial and industrial

5,946

12,207

14,591

5,926

7,831

8,366

7,013

61,880

Current period gross charge-offs

—

—

—

—

—

—

—

—

Construction and land development

Pass

18,973

39,757

2,957

1,584

140

185

278

63,874

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total construction and land development

18,973

39,757

2,957

1,584

140

185

278

63,874

Current period gross charge-offs

—

—

—

—

—

—

—

—

Commercial real estate:

Owner occupied

Pass

9,644

7,779

18,781

11,072

4,864

11,168

3,267

66,575

Special mention

—

—

232

—

—

—

—

232

Substandard

—

—

—

—

53

—

—

53

Nonaccrual

—

—

—

—

819

—

—

819

Total owner occupied

9,644

7,779

19,013

11,072

5,736

11,168

3,267

67,679

Current period gross charge-offs

—

—

—

—

—

—

—

—

Hotel/motel

Pass

6,533

10,087

3,264

1,586

4,022

12,019

—

37,511

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total hotel/motel

6,533

10,087

3,264

1,586

4,022

12,019

—

37,511

Current period gross charge-offs

—

—

—

—

—

—

—

—

19

(Dollars in thousands)

2023

2022

2021

2020

2019

Prior to

2019

Revolving

Loans

Total 

Loans

June 30, 2023: 

Multi-family

Pass

8,039

19,240

1,991

6,213

3,856

3,166

1,926

44,431

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total multi-family

8,039

19,240

1,991

6,213

3,856

3,166

1,926

44,431

Current period gross charge-offs

—

—

—

—

—

—

—

—

Other

Pass

9,264

37,412

32,595

15,241

11,061

19,542

906

126,021

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

159

—

—

—

159

Nonaccrual

—

—

—

—

—

—

—

—

Total other

9,264

37,412

32,595

15,400

11,061

19,542

906

126,180

Current period gross charge-offs

—

—

—

—

—

—

—

—

Residential real estate:

Consumer mortgage

Pass

11,623

20,752

2,769

2,847

1,545

13,125

6

52,667

Special mention

—

—

—

—

—

379

—

379

Substandard

—

—

—

—

—

504

—

504

Nonaccrual

—

—

—

—

—

124

—

124

Total consumer mortgage

11,623

20,752

2,769

2,847

1,545

14,132

6

53,674

Current period gross charge-offs

—

—

—

—

—

—

—

—

Investment property

Pass

8,327

13,638

10,155

13,415

5,911

2,707

1,446

55,599

Special mention

43

250

—

—

—

—

—

293

Substandard

—

—

—

240

—

—

—

240

Nonaccrual

—

—

—

—

—

28

—

28

Total investment property

8,370

13,888

10,155

13,655

5,911

2,735

1,446

56,160

Current period gross charge-offs

—

—

—

—

—

—

—

—

Consumer installment

Pass

2,671

4,595

1,002

369

153

184

—

8,974

Special mention

—

—

1

4

—

—

—

5

Substandard

14

17

10

—

2

—

—

43

Nonaccrual

—

—

—

—

—

—

—

—

Total consumer installment

2,685

4,612

1,013

373

155

184

—

9,022

Current period gross charge-offs

29

24

13

1

—

—

—

67

Total loans

Pass

80,960

165,467

88,078

58,253

39,195

70,461

14,643

517,057

Special mention

43

250

233

4

—

379

203

1,112

Substandard

72

17

37

399

64

504

—

1,093

Nonaccrual

—

—

—

—

997

152

—

1,149

Total loans

$

81,075

165,734

88,348

58,656

40,256

71,496

14,846

$

520,411

Total current period gross charge-offs

$

29

24

13

1

—

—

—

67

20

(Dollars in thousands)

 Pass

 Special

Mention

Substandard

Accruing

Nonaccrual

Total loans

December 31, 2022:

Commercial and industrial

$

65,550

7

212

443

$

66,212

Construction and land development

66,479

—

—

—

66,479

Commercial real estate:

Owner occupied

60,726

238

161

—

61,125

Hotel/motel

33,378

—

—

—

33,378

Multi-family

41,084

—

—

—

41,084

Other

126,700

170

—

2,116

128,986

Total commercial real estate

261,888

408

161

2,116

264,573

Residential real estate:

Consumer mortgage

44,172

439

587

172

45,370

Investment property

51,987

43

248

—

52,278

Total residential real estate

96,159

482

835

172

97,648

Consumer installment

9,498

1

47

—

9,546

Total

$

499,574

898

1,255

2,731

$

504,458

The following table is a summary of the Company’s nonaccrual loans by major categories as of June 30, 2023 and

December 31, 2022.

CECL

Incurred Loss

June 30, 2023

December 31, 2022

Nonaccrual

Nonaccrual

Total

Loans with

Loans with an

Nonaccrual

Nonaccrual

(Dollars in thousands)

No Allowance

Allowance

Loans

Loans

Commercial and industrial

$

178

—

178

$

443

Commercial real estate

819

—

819

2,116

Residential real estate

152

—

152

172

Total 

$

1,149

—

1,149

$

2,731

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to

determine expected credit losses:

(Dollars in thousands)

Real Estate

Business Assets

Total Loans

June 30, 2023:

Commercial and industrial

$

—

178

$

178

Commercial real estate

819

—

819

Total 

$

819

178

$

997

Allowance for Credit Losses

The Company adopted ASC 326 on January 1, 2023, which introduced the CECL methodology for estimating all expected

losses over the life of a financial asset. Under the CECL methodology, the allowance for credit losses is measured on a

collective basis for pools of loans with similar risk characteristics, and for loans that do not share similar risk characteristics

with the collectively evaluated pools, evaluations are performed on an individual basis.

21

The following table details the changes in the allowance for credit losses by portfolio segment for the respective periods.

June 30, 2023

(Dollars in thousands)

Commercial and

industrial

Construction

and land

development

Commercial

real estate

Residential

real estate

Consumer

installment

Total

Quarter ended:

Beginning balance

$

1,232

1,021

3,966

497

105

$

6,821

Charge-offs

—

—

—

—

(56)

(56)

Recoveries

194

—

—

5

1

200

Net recoveries (charge-offs)

194

—

—

5

(55)

144

Provision for credit losses

(228)

(16)

(178)

27

64

(331)

Ending balance

$

1,198

1,005

3,788

529

114

$

6,634

Six months ended:

Beginning balance

$

747

949

3,109

828

132

$

5,765

Impact of adopting ASC 326

532

(17)

873

(347)

(22)

1,019

Charge-offs

—

—

—

—

(67)

(67)

Recoveries

196

—

—

10

2

208

Net recoveries (charge-offs)

196

—

—

10

(65)

141

Provision for credit losses

(277)

73

(194)

38

69

(291)

Ending balance

$

1,198

1,005

3,788

529

114

$

6,634

June 30, 2022

(Dollars in thousands)

Commercial and

industrial

Construction

and land

development

Commercial

real estate

Residential

real estate

Consumer

installment

Total

Quarter ended:

Beginning balance

$

774

508

2,536

737

103

$

4,658

Charge-offs

(4)

—

—

—

(16)

(20)

Recoveries

2

—

22

7

47

78

Net (charge-offs) recoveries

(2)

—

22

7

31

58

Provision for loan losses

(11)

68

(35)

9

(31)

—

Ending balance

$

761

576

2,523

753

103

$

4,716

Six months ended:

Beginning balance

$

857

518

2,739

739

86

$

4,939

Charge-offs

(4)

—

—

—

(64)

(68)

Recoveries

4

—

22

14

55

95

Net recoveries (charge-offs)

—

—

22

14

(9)

27

Provision for loan losses

(96)

58

(238)

—

26

(250)

Ending balance

$

761

576

2,523

753

103

$

4,716

22

The following table presents an analysis of the allowance for loan losses and recorded investment in loans by portfolio

segment and impairment methodology as of June 30, 2022 as determined, prior to the adoption of ASC 326.

Collectively evaluated (1)

Individually evaluated (2)

Total

Allowance

Recorded

Allowance

Recorded

Allowance

Recorded

for loan

investment

for loan

investment

for loan

investment

(In thousands)

losses

in loans

losses

in loans

losses

in loans

June 30, 2022:

Commercial and industrial

$

761

70,087

—

—

761

70,087

Construction and land development

576

38,654

—

—

576

38,654

Commercial real estate

2,523

240,120

—

176

2,523

240,296

Residential real estate

753

85,224

—

—

753

85,224

Consumer installment

103

7,122

—

—

103

7,122

Total

$

4,716

441,207

—

176

4,716

441,383

(1)

Represents loans collectively evaluated for impairment, prior to the adopton of ASC 326, in accordance with ASC 450-20,

Loss

Contingencies, and pursuant to amendments by ASU 2010-20 regarding allowance for non-impaired loans.

(2)

Represents loans individually evaluated for impairment, prior to the adoption of ASC 326, in accordance with ASC 310-30, 

Receivables, and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

23

Impaired loans

The following tables present impaired loans at December 31, 2022 as determined under ASC 310 prior to the adoption of

ASC 326. Loans that have been fully charged-off are not included in the following tables. The related allowance generally

represents the following components that correspond to impaired loans:

●

Individually evaluated impaired loans equal to or greater than $500 thousand secured by real estate (nonaccrual

construction and land development, commercial real estate, and residential real estate loans).

●

Individually evaluated impaired loans equal to or greater than $250 thousand not secured by real estate

(nonaccrual commercial and industrial and consumer installment loans).

The following tables set forth certain information regarding the Company’s impaired loans that were individually evaluated

for impairment at December 31, 2022.

December 31, 2022

(Dollars in thousands)

Unpaid principal

balance (1)

Charge-offs and

payments applied

(2)

Recorded

investment (3)

Related allowance

With no allowance recorded:

Commercial and industrial

$

210

(1)

209

$

—

Commercial real estate:

Owner occupied

858

(3)

855

Total commercial real estate

858

(3)

855

—

Total 

1,068

(4)

1,064

—

With allowance recorded:

Commercial and industrial

234

—

234

$

59

Commercial real estate:

Owner occupied

1,261

—

1,261

446

Total commercial real estate

1,261

—

1,261

446

Total 

1,495

—

1,495

505

Total impaired loans

$

2,563

(4)

2,559

$

505

(1) Unpaid principal balance represents the contractual obligation due from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been

applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.

(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before

 any related allowance for loan losses.

24

Pursuant to the adoption of ASU 2022-02, effective January 1, 2023, the Company prospectively discontinued the

recognition and measurement guidance previously required for troubled debt restructurings (TDRs). As of June 30, 2023,

the Company had no loans that would have previously required disclosure as TDRs.

The following table provides the average recorded investment in impaired loans, if any, by portfolio segment, and the

amount of interest income recognized on impaired loans after impairment by portfolio segment and class during the quarter

and six months ended June 30, 2023 as determined under ASC 310 prior to the adoption of ASC 326.

Quarter ended June 30, 2022

Six months ended June 30, 2022

Average

Total interest

Average

Total interest

recorded

income

recorded

income

(Dollars in thousands)

investment

recognized

investment

recognized

Impaired loans:

Commercial real estate:

Other

$

180

—

$

212

—

Total commercial real estate

180

—

212

—

Residential real estate:

Investment property

—

—

9

—

Total residential real estate

—

—

9

—

Total 

$

180

—

$

221

—

NOTE 6: MORTGAGE SERVICING RIGHTS, NET

Mortgage servicing rights (“MSRs”) are recognized based on the fair value of the servicing rights on the date the

corresponding mortgage loans are sold. An estimate of the fair value of the Company’s MSRs is determined using

assumptions that market participants would use in estimating future net servicing income, including estimates of

prepayment speeds, discount rates, default rates, costs to service, escrow account earnings, contractual servicing fee

income, ancillary income, and late fees. Subsequent to the date of transfer, the Company has elected to measure its MSRs

under the amortization method. Under the amortization method, MSRs are amortized in proportion to, and over the period

of, estimated net servicing income. 

The Company generally sells, without recourse, conforming, fixed-rate, closed-end, residential mortgages to Fannie Mae,

where the Company services the mortgages sold and records MSRs. MSRs are included in other assets on the

accompanying consolidated balance sheets.

The Company evaluates MSRs for impairment on a quarterly basis. Impairment is determined by stratifying MSRs into

groupings based on predominant risk characteristics, such as interest rate and loan type. If, by individual stratum, the

carrying amount of the MSRs exceeds fair value, a valuation allowance is established. The valuation allowance is adjusted

as the fair value changes. Changes in the valuation allowance are recognized in earnings as a component of mortgage

lending income. 

25

The following table details the changes in amortized MSRs and the related valuation allowance for the respective periods.

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2023

2022

2023

2022

MSRs, net:

Beginning balance

$

1,096

$

1,285

$

1,151

$

1,309

Additions, net

9

43

9

97

Amortization expense

(55)

(69)

(110)

(147)

Ending balance

$

1,050

$

1,259

$

1,050

$

1,259

Valuation allowance included in MSRs, net:

Beginning of period

$

—

$

—

$

—

$

—

End of period

—

—

—

—

Fair value of amortized MSRs:

Beginning of period

$

2,419

$

2,277

$

2,369

$

1,908

End of period

2,312

2,547

2,312

2,547

NOTE 7: FAIR VALUE 

Fair Value Hierarchy

 “Fair value” is defined by ASC 820,

Fair Value Measurements and Disclosures

, as the price that would be received to sell

an asset or paid to transfer a liability in an orderly transaction occurring in the principal market (or most advantageous

market in the absence of a principal market) for an asset or liability at the measurement date. GAAP establishes a fair

value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or

liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1—inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active

markets. 

Level 2—inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,

quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable for the

asset or liability, either directly or indirectly. 

Level 3—inputs to the valuation methodology are unobservable and reflect the Company’s own assumptions about the

inputs market participants would use in pricing the asset or liability. 

Level changes in fair value measurements 

Transfers between levels of the fair value hierarchy are generally recognized at the end of each reporting period. The

Company monitors the valuation techniques utilized for each category of financial assets and liabilities to ascertain when

transfers between levels have been affected. The nature of the Company’s financial assets and liabilities generally is such

that transfers in and out of any level are expected to be infrequent. For the six months ended June 30, 2023, there were no

transfers between levels and no changes in valuation techniques for the Company’s financial assets and liabilities.

26

Assets and liabilities measured at fair value on a recurring basis

Securities available-for-sale

Fair values of securities available for sale were primarily measured using Level 2 inputs. For these securities, the Company

obtains pricing data from third party pricing services. These third party pricing services consider observable data that may

include broker/dealer quotes, market spreads, cash flows, benchmark yields, reported trades for similar securities, market

consensus prepayment speeds, credit information, and the securities’ terms and conditions. On a quarterly basis,

management reviews the pricing data received from the third party pricing services for reasonableness given current market

conditions. As part of its review, management may obtain non-binding third party broker/dealer quotes to validate the fair

value measurements. In addition, management will periodically submit pricing information provided by the third party

pricing services to another independent valuation firm on a sample basis. This independent valuation firm will compare the

prices provided by the third party pricing service with its own prices and will review the significant assumptions and

valuation methodologies used with management.

The following table presents the balances of the assets and liabilities measured at fair value on a recurring basis as of June

30, 2023 and December 31, 2022, respectively, by caption, on the accompanying consolidated balance sheets by ASC 820

valuation hierarchy (as described above).

Quoted Prices in

Significant

Active Markets

Other

Significant

for

Observable

Unobservable

Identical Assets

Inputs

Inputs

(Dollars in thousands)

Amount

(Level 1)

(Level 2)

(Level 3)

June 30, 2023:

Securities available-for-sale:

Agency obligations 

$

125,152

—

125,152

—

Agency MBS

206,980

—

206,980

—

State and political subdivisions

61,947

—

61,947

—

Total securities available-for-sale

394,079

—

394,079

—

Total assets at fair value

$

394,079

—

394,079

—

December 31, 2022:

Securities available-for-sale:

Agency obligations 

$

125,617

—

125,617

—

Agency MBS

218,160

—

218,160

—

State and political subdivisions

61,527

—

61,527

—

Total securities available-for-sale

405,304

—

405,304

—

Total assets at fair value

$

405,304

—

405,304

—

Assets and liabilities measured at fair value on a nonrecurring basis

Collateral Dependent Loans

Collateral dependent loans are measured at the fair value of the collateral securing the loan less estimated selling costs. The

fair value of real estate collateral is determined based on real estate appraisals which are generally based on recent sales of

comparable properties which are then adjusted for property specific factors. Non-real estate collateral is valued based on

various sources, including third party asset valuations and internally determined values based on cost adjusted for

depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified within Level 3 of

the hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrower's

underlying financial condition.

27

Mortgage servicing rights, net

MSRs, net, included in other assets on the accompanying consolidated balance sheets, are carried at the lower of cost or

estimated fair value. MSRs do not trade in an active market with readily observable prices. To determine the fair value of

MSRs, the Company engages an independent third party. The independent third party’s valuation model calculates the

present value of estimated future net servicing income using assumptions that market participants would use in estimating

future net servicing income, including estimates of prepayment speeds, discount rates, default rates, costs to service, escrow

account earnings, contractual servicing fee income, ancillary income, and late fees. Periodically, the Company will review

broker surveys and other market research to validate significant assumptions used in the model. The significant

unobservable inputs include prepayment speeds or the constant prepayment rate (“CPR”) and the weighted average

discount rate. Because the valuation of MSRs requires the use of significant unobservable inputs, all of the Company’s

MSRs are classified within Level 3 of the valuation hierarchy.

The following table presents the balances of the assets and liabilities measured at fair value on a nonrecurring basis as of

June 30, 2023 and December 31, 2022, respectively, by caption, on the accompanying consolidated balance sheets and by

FASB ASC 820 valuation hierarchy (as described above):

Quoted Prices in

Active Markets

Other

Significant

for

Observable

Unobservable

Carrying

Identical Assets

Inputs

Inputs

(Dollars in thousands)

Amount

(Level 1)

(Level 2)

(Level 3)

June 30, 2023:

Loans, net

(1)

997

—

—

997

Other assets

(2)

1,050

—

—

1,050

Total assets at fair value

$

2,047

—

—

2,047

December 31, 2022:

Loans, net

(3)

2,054

—

—

2,054

Other assets

(2)

1,151

—

—

1,151

Total assets at fair value

$

3,205

—

—

3,205

(1)

Loans considered collateral dependent under ASC 326.

(2)

Represents MSRs, net, carried at lower of cost or estimated fair value.

(3)

Loans considered impaired under ASC 310-10-35 Receivables, prior to the adoption of ASC 326. This amount reflects the recorded 

investment in impaired loans, net of any related allowance for loan losses.

Quantitative Disclosures for Level 3 Fair Value Measurements

At June 30, 2023 and December 31, 2022, the Company had no Level 3 assets measured at fair value on a recurring basis. 

For Level 3 assets measured at fair value on a non-recurring basis at June 30, 2023 and and December 31, 2022, the

significant unobservable inputs used in the fair value measurements and the range of such inputs with respect to such assets

are presented below.

Range of

Weighted 

Carrying 

Significant 

Unobservable

Average

(Dollars in thousands)

Amount

Valuation Technique

Unobservable Input

Inputs

of Input

June 30, 2023:

Collateral dependent loans

$

997

Appraisal

Appraisal discounts

10.0

-

10.0

%

10.0

%

Mortgage servicing rights, net

1,050

Discounted cash flow

Prepayment speed or CPR

6.1

-

19.7

7.5

Discount rate

9.5

-

11.5

9.5

December 31, 2022:

Impaired loans

$

2,054

Appraisal

Appraisal discounts

10.0

-

10.0

%

10.0

%

Mortgage servicing rights, net

1,151

Discounted cash flow

Prepayment speed or CPR

5.2

-

18.6

7.5

Discount rate

9.5

-

11.5

9.5

28

Fair Value of Financial Instruments

ASC 825,

Financial Instruments

, requires disclosure of fair value information about financial instruments, whether or not

recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the

estimation of the fair value of the Company’s financial instruments are explained below. Where quoted market prices are

not available, fair values are based on estimates using discounted cash flow analyses. Discounted cash flows can be

significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The

following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered

representative of the liquidation value of the Company’s financial instruments, but rather are good-faith estimates of the fair

value of financial instruments held by the Company. ASC 825 excludes certain financial instruments and all nonfinancial

instruments from its disclosure requirements.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments: 

Loans, net 

Fair values for loans were calculated using discounted cash flows. The discount rates reflected current rates at which similar

loans would be made for the same remaining maturities. Expected future cash flows were projected based on contractual

cash flows, adjusted for estimated prepayments. The fair value of loans was measured using an exit price notion.

Time Deposits 

Fair values for time deposits were estimated using discounted cash flows. The discount rates were based on rates currently

offered for deposits with similar remaining maturities. 

The carrying value, related estimated fair value, and placement in the fair value hierarchy of the Company’s financial

instruments at June 30, 2023 and December 31, 2022 are presented below. This table excludes financial instruments for

which the carrying amount approximates fair value. Financial assets for which fair value approximates carrying value

included cash and cash equivalents. Financial liabilities for which fair value approximates carrying value included

noninterest-bearing demand deposits, interest-bearing demand deposits, and savings deposits. Fair value approximates

carrying value in these financial liabilities due to these products having no stated maturity. Additionally, financial

liabilities for which fair value approximates carrying value included overnight borrowings such as federal funds purchased

and securities sold under agreements to repurchase.

Fair Value Hierarchy

Carrying

Estimated

Level 1

Level 2

Level 3

(Dollars in thousands)

amount

fair value

inputs

inputs

Inputs

June 30, 2023:

Financial Assets:

Loans, net (1)

$

513,777

$

482,344

$

—

$

—

$

482,344

Financial Liabilities:

Time Deposits

$

174,529

$

170,342

$

—

$

170,342

$

—

December 31, 2022:

Financial Assets:

Loans, net (1)

$

498,693

$

484,007

$

—

$

—

$

484,007

Financial Liabilities:

Time Deposits

$

150,375

$

150,146

$

—

$

150,146

$

—

(1) Represents loans, net of allowance for credit losses. The fair value of loans was measured using an exit price notion.

29

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

General

The following discussion and analysis is designed to provide a better understanding of various factors related to the results

of operations and financial condition of the Company and the Bank. This discussion is intended to supplement and

highlight information contained in the accompanying unaudited condensed consolidated financial statements and related

notes for the quarters and six months ended June 30, 2023 and 2022, as well as the information contained in our Annual

Report on Form 10-K for the year ended December 31, 2022 and our Quarterly Reports on Form 10-Q. 

Special Cautionary Notice Regarding Forward-Looking Statements

Various of the statements made herein under the captions “Management’s Discussion and Analysis of Financial Condition

and Results of Operations”, “Quantitative and Qualitative Disclosures about Market Risk”, “Risk Factors” “Description of

Property” and elsewhere, are “forward-looking statements” within the meaning and protections of Section 27A of the

Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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

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 different from future results, performance,

achievements or financial condition expressed or implied by such forward-looking statements. You should not expect us to

update any forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking statements. You can

identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,”

“should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “designed”, “plan,” “point to,”

“project,” “could,” “intend,” “seeks,” “model,” “simulations,” “target”, “view”, and other similar words and expressions of

the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:

●

the effects of future economic, business and market conditions and changes, foreign, domestic and local, including

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

tornados, COVID-19 or other epidemics or pandemics including supply chain disruptions, inventory volatility, and

changes in consumer behaviors;

●

the effects of war or other conflicts, acts of terrorism, trade restrictions, sanctions or other events that may affect

general economic conditions;

●

governmental monetary and fiscal policies, including the continuing effects of fiscal and monetary stimuli in

response to the COVID-19 crisis, followed by changes in monetary policies beginning in March 2022 in response

to inflation, including increases in the Federal Reserve’s target federal funds rate and reductions in the Federal

Reserve’s holdings of securities;

●

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, including changes being considered in light of three regional bank failures in California and

New York in March and May 2023;

●

the failure of assumptions and estimates, as well as differences in, and changes to, economic, market and credit

conditions, including changes in borrowers’ credit risks and payment behaviors from those used in our loan

portfolio reviews;

●

the risks of inflation, changes in market interest rates and the shape of the yield curve on the levels, composition

and costs of deposits and borrowings, the values of our securities and loans, loan demand and mortgage loan

originations, and the values and liquidity of loan collateral, securities, and interest-sensitive assets and liabilities,

and the risks and uncertainty of the amounts realizable on collateral;

30

●

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

available for sale, which adversely affect our stockholders’ equity (including tangible stockholders’ equity) for

financial reporting purposes;

●

changes in borrower liquidity and credit risks, and savings, deposit and payment behaviors;

●

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

may be included as capital for regulatory purposes;

●

changes in the prices, values and sales volumes of residential and commercial real 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 effects of financial technology and other competitors

who are not subject to the same regulations as the Company and the Bank and credit unions, which are not subject

to federal income taxation;

●

the failure of assumptions and estimates underlying the establishment of allowances for credit losses, including

asset impairments, losses valuations of assets and liabilities and other estimates;

●

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

headquarters;

●

the risks of mergers, acquisitions and divestitures, including, without limitation, the related time and costs of

implementing such transactions, integrating operations as part of these transactions and possible failures to achieve

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

●

changes in technology or products that may be more difficult, costly, or less effective than anticipated;

●

cyber-attacks and data breaches that may compromise our systems, our vendors’ systems or customers’

information;

●

the risks that our deferred tax assets (“DTAs”) included in “other assets” on our consolidated balance sheets, if

any, could be reduced if estimates of future taxable income from our operations and tax planning strategies are less

than currently estimated, and sales of our capital stock could trigger a reduction in the amount of net operating loss

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

●

other factors and risks described under “Risk Factors” herein and in any of our subsequent reports that we make

with the Securities and Exchange Commission (the “Commission” or “SEC”) under the Exchange Act.

All written or oral forward-looking statements that are we make or are attributable to us are expressly qualified in their

entirety by this cautionary notice. We have no obligation and 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 which such statements otherwise are

made.

31

Summary of Results of Operations

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands, except per share amounts)

2023

2022

2023

2022

Net interest income (a)

$

6,994

$

6,484

$

14,211

$

12,674

Less: tax-equivalent adjustment

106

110

214

222

Net interest income (GAAP)

6,888

6,374

13,997

12,452

Noninterest income 

791

848

1,583

1,756

Total revenue 

7,679

7,222

15,580

14,208

Provision for credit losses

(362)

—

(296)

(250)

Noninterest expense

5,825

5,058

11,429

9,959

Income tax expense

288

363

555

617

Net earnings

$

1,928

$

1,801

$

3,892

$

3,882

Basic and diluted earnings per share

$

0.55

$

0.51

$

1.11

$

1.10

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

Financial Summary

The Company’s net earnings were $3.9 million for the first six months of 2023 and 2022, respectively. Basic and diluted

earnings per share were $1.11 per share for the first six months of 2023, compared to $1.10 per share for the first six

months of 2022. 

Net interest income (tax-equivalent) was $14.2 million for the first six months of 2023, a 12% increase compared to $12.7

million for the first six months of 2022. This increase was primarily due to improvements in the Company’s net interest

margin. The Company’s net interest margin (tax-equivalent) was 3.10% in the first six months of 2023 compared to 2.51%

in the first six months of 2022. This increase was primarily due to a more favorable asset mix and higher yields on interest

earning assets. These higher yields on interest earning assets were partially offset by increased cost of funds. The cost of

funds increased to 82 basis points, compared to 33 basis points in the first six months of 2022, also reflecting higher market

interest rates in the first six months of both 2022 and 2023. Average loans for the first six months of 2023 were $507.2

million, a 17% increase from the first six months of 2022.

At June 30, 2023, the Company’s allowance for credit losses was $6.6 million, or 1.27% of total loans, compared to $5.8

million, or 1.14% of total loans, at December 31, 2022, and $4.7 million, or 1.07% of total loans, at June 30, 2022. The

implementation of CECL required pursuant to Accounting Standards (“ASC”) 326, which was effective January 1, 2023,

increased our allowance for credit losses by $1.0 million, or 0.20% of total loans, as a day one transition adjustment. 

The Company recorded a negative provision for credit losses during the first six months of 2023 of $0.3 million, compared

to a negative provision for credit losses of $0.3 million during the first six months of 2022. The provision for credit losses

under CECL is reflective of the Company’s credit risk profile and the future economic outlook and forecasts. Our CECL

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

provision for credit losses during the first six months of 2023 was primarily related to the resolution of a collateral

dependent nonperforming loan, with a recorded investment of $1.3 million and a corresponding allowance of $0.5 million,

that was collected in full during the second quarter of 2023.

Noninterest income was $1.6 million in the first six months of 2023, compared to $1.8 million in the first six months of

2022. The decrease in noninterest income was primarily due to a decrease in mortgage lending income of $0.2 million as a

result of higher mortgage market interest rates.

Noninterest expense was $11.4 million in the first six months of 2023, compared to $10.0 million for the first six months of

2022. The increase in noninterest expense was primarily due to an increase in net occupancy and equipment expense of

$0.4 million related to the Company’s new headquarters, which opened in June 2022, professional fees expense of $0.2

million, and other noninterest expense of $0.8 million. 

Income tax expense was $0.6 million for the first six months of 2023 and 2022, respectively. The Company's effective tax

rate for the first six months of 2023 was 12.48%, compared to 13.71% in the first six months of 2022. The Company’s

effective income tax rate is principally affected by tax-exempt earnings from the Company’s investment in municipal

securities, bank-owned life insurance (“BOLI”), and New Markets Tax Credits (“NMTCs”).

32

The Company paid cash dividends of $0.54 per share in the first six months of 2023, an increase of 2% from the same

period of 2022. The Company repurchased 4,225 shares for $0.1 million during the first six months of 2023. At June 30,

2023, the Bank’s regulatory capital ratios were well above the minimum amounts required to be “well capitalized” under

current regulatory standards with a total risk-based capital ratio of 16.31%, a tier 1 leverage ratio of 10.23% and a common

equity tier 1 (“CET1”) ratio of 15.33% at June 30, 2023. At June 30, 2023, the Company’s equity to total assets ratio was

6.92%, compared to 6.65% at December 31, 2022, and 7.02% at June 30, 2022 .

For the second quarter of 2023, net earnings were $1.9 million, or $0.55 per share, compared to $1.8 million, or $0.51 per

share, for the second quarter of 2022. Net interest income (tax-equivalent) was $7.0 million for the second quarter of 2023,

an increase of 8% compared to $6.5 million for the second quarter of 2022. This increase was primarily due to

improvements in the Company’s net interest margin. The Company’s net interest margin (tax-equivalent) was 3.03% in the

second quarter of 2023 compared to 2.60% in the second quarter of 2022. The Company recorded a negative provision for

credit losses during the second quarter of 2023 of $0.4 million, compared to no provision for credit losses during the second

quarter 2022. The provision for credit losses was primarily related to the resolution of a collateral dependent

nonperforming loan, with a recorded investment of $1.3 million and a corresponding allowance of $0.5 million, that was

collected in full during the second quarter of 2023. Noninterest income was $0.8 million in the second quarter of 2023 and

2022, respectively. Noninterest expense was $5.8 million in the second quarter of 2023, compared to $5.1 million for the

second quarter of 2022. The increase in noninterest expense was primarily due to increases in other noninterest expense of

$0.4 million. Income tax expense was $0.3 million for the second quarter of 2023, compared to $0.4 million for the second

quarter of 2022. The Company's effective tax rate for the second quarter of 2023 was 13.00%, compared to 16.77% in the

second quarter of 2022. The Company’s effective income tax rate is principally impacted by tax-exempt earnings from the

Company’s investment in municipal securities, bank-owned life insurance, and New Markets Tax Credits.

CRITICAL ACCOUNTING POLICIES

The accounting and financial reporting policies of the Company conform with U.S. generally accepted accounting

principles and with general practices within the banking industry. In connection with the application of those principles, we

have made judgments and estimates which, in the case of the determination of our allowance for credit losses for loans, our

determination of credit losses for investment securities, recurring and non-recurring fair value measurements, the valuation

of other real estate owned, and the valuation of deferred tax assets, were critical to the determination of our financial

position and results of operations. Other policies also require subjective judgment and assumptions and may accordingly

impact our financial position and results of operations. 

Accounting Standards Adopted in 2023

On January 1, 2023, the Company adopted ASC 326 as described more fully in our unaudited financial statements in Part I

of this Quarterly report, especially Note 1, Accounting Standards Adopted in 2023 and Note 5, Loans and Allowance for

Credit Losses. This standard replaced the incurred loss methodology with an expected loss methodology that is referred to

as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining

estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts

and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt

securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets

measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit

losses. 

In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require

credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management

does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the

modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures.

The transition adjustment upon the adoption of CECL on January 1, 2023 included an increase in the allowance for credit

losses on loans of $1.0 million, which is presented as a reduction to net loans outstanding, and an increase in the allowance

for credit losses on unfunded loan commitments of $0.1 million, which is recorded within other liabilities. The Company

recorded a net decrease to retained earnings of $0.8 million as of January 1, 2023 for the cumulative effect of adopting

CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for

reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be

reported in accordance with previously applicable accounting standards.

33

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-

temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have

any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined

that an allowance for credit losses on available for sale securities was not deemed material. 

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to

reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is

90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that

this policy results in the timely reversal of uncollectible interest.

The Company also adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt

Restructurings and Vintage Disclosures” on January 1, 2023, the effective date of the guidance, on a prospective basis.

ASU 2022-02 eliminated the accounting guidance for TDRs, while enhancing disclosure requirements for certain loan

refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than

applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring

guidance to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, ASU

2022-02 requires an entity to disclose current-period gross write-offs by year of origination for financing receivables within

the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. ASU 2022-02 did not

have a material impact on the Company’s consolidated financial statements.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported

at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and

deferred fees and costs. Accrued interest receivable related to loans is recorded in other assets on the consolidated balance

sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination

costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating

prepayments.

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in

the process of collection, or when management believes, after considering economic and business conditions and collection

efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on

contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days

after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such

loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery

method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status

when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment

performance, and future payments are reasonably assured.

Allowance for Credit Losses – Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net

amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the

uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously

charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the

balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from

both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. 

The Company’s loan loss estimation process includes procedures to appropriately consider the unique characteristics of its

loan segments (commercial and industrial, construction and land development, commercial real estate, multifamily,

residential real estate, and consumer loans). These segments are further disaggregated into loan classes, the level at which

credit quality is monitored. See Note 5, Loans and Allowance for Credit Losses, for additional information about our loan

portfolio.

34

Credit loss assumptions are estimated using a discounted cash flow ("DCF") model for each loan segment, except consumer

loans. The weighted average remaining life method is used to estimate credit loss assumptions for consumer loans. 

The DCF model calculates an expected life-of-loan loss percentage by considering the forecasted probability that a

borrower will default (the “PD”), adjusted for relevant forecasted macroeconomic factors, and LGD, which is the estimate

of the amount of net loss in the event of default. This model utilizes historical correlations between default experience and

certain macroeconomic factors as determined through a statistical regression analysis. The forecasted Alabama

unemployment rate is considered in the model for commercial and industrial, construction and land development,

commercial real estate, multifamily, and residential real estate loans. In addition, forecasted changes in the Alabama home

price index is considered in the model for construction and land development and residential real estate loans; forecasted

changes in the national commercial real estate (“CRE”) price index is considered in the model for commercial real estate

and multifamily loans; and forecasted changes in the Alabama gross state product is considered in the model for

multifamily loans. Projections of these macroeconomic factors, obtained from an independent third party, are utilized to

predict quarterly rates of default based on the statistical PD models. 

Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments and principal

payments (“curtailments”) when appropriate. Management's determination of the contract term excludes expected

extensions, renewals, and modifications unless the extension or renewal option is included in the contract at the reporting

date and is not unconditionally cancellable by the Company. To the extent the lives of the loans in the portfolio extend

beyond the period for which a reasonable and supportable forecast can be made (which is 4 quarters for the Company), the

Company reverts, on a straight-line basis back to the historical rates over an 8 quarter reversion period.

The weighted average remaining life method was deemed most appropriate for the consumer loan segment because

consumer loans contain many different payment structures, payment streams and collateral. The weighted average

remaining life method uses an annual charge-off rate over several vintages to estimate credit losses. The average annual

charge-off rate is applied to the contractual term adjusted for prepayments.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are

believed likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may

increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan

review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in

underlying collateral, external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that

foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the

estimated fair value of collateral held at the reporting date, adjusted for selling costs as appro priate. 

Allowance for Credit Losses – Unfunded Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial

letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of

nonperformance by the other party to the financial instrument for off -balance sheet loan commitments is represented by the

contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to

extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s consolidated

statements of earnings. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment

at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans,

taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for

unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

On January 1, 2023, the Company recorded an adjustment for unfunded commitments of $77 thousand for the adoption of

ASC 326. For the six months ended June 30, 2023, the Company recorded a negative provision for credit losses for

unfunded commitments of $5 thousand. At June 30, 2023, the liability for credit losses on off-balance-sheet credit

exposures included in other liabilities was $0.3 million.

35

Assessment for Allowance for Credit Losses – Available -for-Sale Securities

For any securities classified as available-for-sale that are in an unrealized loss position at the balance sheet date, the

Company assesses whether or not it intends to sell the security, or more likely than not will be required to sell the security,

before recovery of its amortized cost basis. If either of these criteria are met, the security's amortized cost basis is written

down to fair value through net income. If neither criterion is met, the Company evaluates whether any portion of the

decline in fair value is the result of credit deterioration. Such evaluations consider the extent to which the amortized cost of

the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific

security. If the evaluation indicates that a credit loss exists, an allowance for credit losses is recorded for the amount by

which the amortized cost basis of the security exceeds the present value of cash flows expected to be collected, limited by

the amount by which the amortized cost exceeds fair value. Any impairment not recognized in the allowance for credit

losses is recognized in other comprehensive income.

The Company is required to own certain stock as a condition of membership, such as the FHLB of Atlanta and Federal

Reserve Bank of Atlanta (“FRB”). These non-marketable equity securities are accounted for at cost which equals par or

redemption value. These securities do not have a readily determinable fair value as their ownership is restricted and there is

no market for these securities. The Company records these non-marketable equity securities as a component of other

assets, which are periodically evaluated for impairment. Management considers these non-marketable equity securities to

be long-term investments. Accordingly, when evaluating these securities for impairment, management considers the

ultimate recoverability of the par value rather than by recognizing temporary declines in value.

Fair Value Determination

U.S. GAAP requires management to value and disclose certain of the Company’s assets and liabilities at fair value,

including investments classified as available-for-sale and derivatives. ASC 820,

Fair Value Measurements and Disclosures

,

which defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP and expands

disclosures about fair value measurements. For more information regarding fair value measurements and disclosures,

please refer to Note 7, Fair Value, of the unaudited consolidated financial statements that accompany this report.

Fair values are based on active market prices of identical assets or liabilities when available. Comparable assets or

liabilities or a composite of comparable assets in active markets are used when identical assets or liabilities do not have

readily available active market pricing. However, some of the Company’s assets or liabilities lack an available or

comparable trading market characterized by frequent transactions between willing buyers and sellers. In these cases, fair

value is estimated using pricing models that use discounted cash flows and other pricing techniques. Pricing models and

their underlying assumptions are based upon management’s best estimates for appropriate discount rates, default rates,

prepayments, market volatility and other factors, taking into account current observable market data and experience.

These assumptions may have a significant effect on the reported fair values of assets and liabilities and the related income

and expense. As such, the use of different models and assumptions, as well as changes in market conditions, could result in

materially different net earnings and retained earnings results. 

Other Real Estate Owned

Other real estate owned or OREO, consists of properties obtained through foreclosure or otherwise in satisfaction of loans

and is reported at the lower of cost or fair value, less estimated costs to sell at the date acquired with any loss recognized as

a charge-off through the allowance for credit losses. Additional OREO losses for subsequent valuation adjustments are

determined on a specific property basis and are included as a component of other noninterest expense along with holding

costs. Any gains or losses on disposal of OREO are also reflected in noninterest expense. Significant judgments and

complex estimates are required in estimating the fair value of OREO, and the period of time within which such estimates

can be considered current is significantly shortened during periods of market volatility. As a result, the net proceeds

realized from sales transactions could differ significantly from appraisals, comparable sales, and other estimates used to

determine the fair value of OREO.

36

Deferred Tax Asset Valuation

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-

than-not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets

is dependent upon the generation of future taxable income during the periods in which those temporary differences become

deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax

planning strategies in making this assessment. At June 30, 2023 we had total deferred tax assets of $13.4 million included

as “other assets”, including $13.1 million resulting from unrealized losses in our securities portfolio. Based upon the level

of taxable income over the last three years and projections for future taxable income over the periods in which the deferred

tax assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible

differences at June 30, 2023. The amount of the deferred tax assets considered realizable, however, could be reduced if

estimates of future taxable income are reduced.

RESULTS OF OPERATIONS

Average Balance Sheet and Interest Rates

Six months ended June 30,

2023

2022

Average

Yield/

Average

Yield/

(Dollars in thousands)

Balance

Rate

Balance

Rate

Loans and loans held for sale 

$

507,176

4.68%

$

434,863

4.42%

Securities - taxable

348,066

2.14%

370,549

1.57%

Securities - tax-exempt 

54,741

3.76%

60,691

3.51%

Total securities 

402,807

2.36%

431,240

1.84%

Federal funds sold

5,619

4.77%

63,021

0.36%

Interest bearing bank deposits

9,805

4.61%

88,008

0.52%

Total interest-earning assets

925,407

3.67%

1,017,132

2.74%

Deposits:

NOW

188,491

0.57%

204,912

0.12%

Savings and money market

296,425

0.48%

338,283

0.20%

Time deposits

160,102

1.71%

157,877

0.88%

Total interest-bearing deposits

645,018

0.81%

701,072

0.33%

Short-term borrowings

3,443

1.82%

4,075

0.50%

Total interest-bearing liabilities

648,461

0.82%

705,147

0.33%

Net interest income and margin (tax-equivalent)

$

14,211

3.10%

$

12,674

2.51%

Net Interest Income and Margin

Net interest income (tax-equivalent) was $14.2 million for the first six months of 2023, a 12% increase compared to $12.7

million for the first six months of 2022. This increase was primarily due to improvements in the Company’s net interest

margin (tax-equivalent). The Company’s net interest margin (tax-equivalent) was 3.10% in the first six months of 2023

compared to 2.51% in the first six months of 2022. This increase was primarily due to a more favorable asset mix and

higher yields on interest earning assets. Since March of 2022, the Federal Reserve increased the target federal funds range

from 0 – 0.25% to 5.00 – 5.25%. The target rate was increased another 25 basis points on July 26, 2023, and further

increases in the target federal funds rate appear likely if inflation remains elevated.

The tax-equivalent yield on total interest-earning assets increased by 93 basis points to 3.67% in the first six months of

2023 compared to 2.74% in the first six months of 2022. This increase was primarily due to changes in our asset mix and

higher market interest rates on interest earning assets. 

The cost of total interest-bearing liabilities increased by 49 basis points to 0.82% in the first six months of 2023 compared

to 0.33% in the first six months of 2022. Our deposit costs may continue to increase as the Federal Reserve increases its

target federal funds rate, market interest rates increase, and as customer behaviors change as a result of inflation and higher

market interest rates on deposits and other alternative investments.

37

The Company continues to deploy various asset liability management strategies to manage its risks from interest rate

fluctuations. Deposit and loan pricing remain competitive in our markets. We believe this challenging rate environment

will continue throughout 2023. Our ability to compete and manage our deposit costs until our interest-earning assets

reprice will be important to maintaining or potentially increasing our net interest margin during the monetary tightening

cycle that we believe will continue throughout 2023.

Provision for Credit Losses

On January 1, 2023, we adopted ASC 326, which introduces the current expected credit losses (CECL) methodology and

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 negative provision for credit losses

during the first six months of 2023 of $0.3 million, compared to a negative provision for credit losses of $0.3 million during

the first six months of 2022. Provision expense is affected by organic loan growth in our loan portfolio, our internal

assessment of the credit quality of the loan portfolio, our expectations about future economic conditions and net charge-

offs. Our CECL model is largely influenced by economic factors including, most notably, the anticipated unemployment

rate, which may be affected by monetary policy. The negative provision for credit losses during the first six months of

2023 was primarily related to the resolution of a collateral dependent nonperforming loan, with a recorded investment of

$1.3 million and a corresponding allowance of $0.5 million, that was collected in full during the second quarter of 2023.

Our allowance for credit losses reflects an amount we believe appropriate, based on our allowance assessment

methodology, to adequately cover all expected future losses as of the date the allowance is determined. At June 30, 2023,

the Company’s allowance for credit losses was $6.6 million, or 1.27% of total loans, compared to $5.8 million, or 1.14% of

total loans, at December 31, 2022, and $4.7 million, or 1.07% of total loans, at June 30, 2022. The implementation of

CECL, as of January 1, 2023, increased our allowance for credit losses by $1.0 million, or 0.20% of total loans, as a day

one transition adjustment to ASC 326.

Noninterest Income

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2023

2022

2023

2022

Service charges on deposit accounts

$

154

$

146

$

308

$

288

Mortgage lending income

142

187

235

440

Bank-owned life insurance

68

97

224

196

Other

427

418

816

832

Total noninterest income

$

791

$

848

$

1,583

$

1,756

The Company’s income from mortgage lending was primarily attributable to the (1) origination and sale of mortgage loans

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

loans originated, origination fees, underwriting fees, and other fees associated with 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 retain the associated MSRs when the loan is sold. 

MSRs are recognized based on the fair value of the servicing right on the date the corresponding mortgage loan is sold. 

Subsequent to the date of transfer, the Company has 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’s aggregate 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 in a decrease in the fair value of MSRs. 

38

The following table presents a breakdown of the Company’s mortgage lending income.

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2023

2022

2023

2022

Origination income

$

57

$

120

$

61

$

349

Servicing fees, net

85

67

174

91

Total mortgage lending income

$

142

$

187

$

235

$

440

The Company’s income from mortgage lending typically fluctuates as mortgage interest rates change and is primarily

attributable to the origination and sale of mortgage loans. Origination income decreased as market interest rates on

mortgage loans increased. The decrease in origination income was partially offset by an increase in servicing fees, net of

related amortization expense as prepayment speeds slowed, resulting in decreased amortization expense. 

Noninterest Expense

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2023

2022

2023

2022

Salaries and benefits

$

3,038

$

2,976

$

5,965

$

5,926

Net occupancy and equipment

787

727

1,586

1,161

Professional fees

299

239

637

469

Other

1,701

1,116

3,241

2,403

Total noninterest expense

$

5,825

$

5,058

$

11,429

$

9,959

The increase in net occupancy and equipment expenses was primarily due to increased expenses related to the Company’s

new headquarters in downtown Auburn. This amount includes depreciation expense and other costs associated with

operating the new headquarters. The Company relocated its main office branch and bank operations into its newly

constructed headquarters during June 2022.

The increase in other noninterest expense was due to various items including FDIC assessments, software costs, ATM and

checkcard expenses, impairment related to a new market tax credit investment, due to the remaining tax credit being less

than the Company’s investment, and a gain on sale of other real estate owned that was realized in the 2022.

Income Tax Expense

Income tax expense was $0.6 million for the first six months of 2023 and 2022, respectively. The Company’s effective

income tax rate for the first six months of 2023 was 12.48%, compared to 13.71% in the first six months of 2022. The

Company’s effective income tax rate is principally impacted by tax-exempt earnings from the Company’s investments in

municipal securities, bank-owned life insurance, and New Markets Tax Credits. 

BALANCE SHEET ANALYSIS

Securities 

Securities available-for-sale were $394.1 million at June 30, 2023, 3% less than the $405.3 million at December 31, 2022. 

This decrease reflects a $13.7 million decrease in the amortized cost basis of securities available -for-sale, offset by an

increase in the fair value of securities available-for-sale of $2.5 million. The average annualized tax-equivalent yields

earned on total securities were 2.36% in the first six months of 2023 and 1.84% in the first six months of 2022.

39

Loans

2023

2022

Second

First

Fourth

Third

Second

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Commercial and industrial

$

61,880

59,602

66,212

70,715

70,117

Construction and land development

63,874

66,500

66,479

54,773

38,654

Commercial real estate

275,801

267,962

264,576

249,527

239,873

Residential real estate

109,834

101,975

97,648

91,469

85,106

Consumer installment

9,022

9,002

9,546

7,551

7,122

Total loans

$

520,411

505,041

504,461

474,035

440,872

Total loans were $520.4 million at June 30, 2023, up 3% compared to $504.5 million at December 31, 2022. Four loan

categories represented the majority of the loan portfolio at June 30, 2023: commercial real estate (53%), residential real

estate (21%), commercial and industrial (12%) and construction and land development (12%). Approximately 25% of the

Company’s commercial real estate loans were classified as owner-occupied at June 30, 2023.

Within the residential real estate portfolio segment, the Company had junior lien mortgages of approximately $8.1 million,

or 2%, and $7.4 million, or 1%, of total loans at June 30, 2023 and December 31, 2022, respectively. For residential real

estate mortgage loans with a consumer purpose, the Company had no loans that required interest only payments at June 30,

2023 and December 31, 2022. The Company’s residential real estate mortgage portfolio does not include any option or

hybrid ARM loans, subprime loans, or any material amount of other consumer mortgage products which are generally

viewed as high risk. 

The average yield earned on loans and loans held for sale was 4.68% in the first six months of 2023 and 4.42% in the first

six months of 2022. 

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 continuing increases in market interest rates, remaining COVID-19

pandemic effects including supply chain disruptions, reduced commercial office occupancy levels, housing supply

shortages and inflation, on our borrowers’ cash flows, real estate market sales 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 dollar volumes of commercial real estate property

sales, real estate industry concentrations, 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 deterioration of borrowers, fraud, and any violation of applicable laws and regulations. Various projects financed

earlier that were based on lower interest rate assumptions than currently in effect may not be as profitable or successful at

higher interest rate currently in effect and currently expected in the future.

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

loans, investigating the creditworthiness of borrowers and monitoring borrowers’ financial position. Also, we have

established and periodically review, lending policies and procedures. Banking regulations limit a bank’s credit exposure by

prohibiting unsecured loan relationships that exceed 10% of its capital; or 20% of capital, if loans in excess of 10% of

capital are fully secured. Under these regulations, we are prohibited from having secured loan relationships in excess of

approximately $23.0 million. Furthermore, we have an internal limit for aggregate credit exposure (loans outstanding plus

unfunded commitments) to a single borrower of $20.7 million. Our loan policy requires that the Loan Committee of the

Board of Directors approve any loan relationships that exceed this internal limit. At June 30, 2023, the Bank had no

relationships exceeding these limits.

40

We periodically analyze our commercial and industrial and commercial real estate loan portfolios to determine if a

concentration of credit risk exists in any one or more industries. We use classification systems broadly accepted by the

financial services industry in order to categorize our commercial borrowers. Loan concentrations to borrowers in the

following classes exceeded 25% of the Bank’s total risk -based capital at June 30, 2023 and December 31, 2022.

June 30,

December 31,

(Dollars in thousands)

2023

2022

Lessors of 1-4 family residential properties

$

56,160

$

52,278

Multi-family residential properties

44,431

41,084

Hotel/motel

37,511

33,378

Allowance for Credit Losses 

The Company maintains the allowance for credit losses at a level that management believes appropriate to adequately cover

the Company’s estimate of expected losses in the loan portfolio. The allowance for credit losses was $6.6 million at June

30, 2023 compared to $5.8 million at December 31, 2022, which management believed to be adequate at each of the

respective dates. The judgments and estimates associated with the determination of the allowance for credit losses are

described under “Critical Accounting Policies.”

On January 1, 2023, we adopted ASC 326, which introduces the current expected credit losses (CECL) methodology and

requires us to estimate all expected credit losses over the remaining life of 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. As of June 30, 2023 and December 31, 2022, our

allowance for credit losses was approximately $6.6 million and $5.8 million, respectively, which our management believes

to be adequate at each of the respective dates. Our allowance for credit losses as a percentage of total loans was 1.27% at

June 30, 2023, up from 1.14% at December 31, 2022.

The increase in the allowance for credit losses is largely the result of the implementation of ASC 326 on January 1, 2023,

which resulted in an adjustment to the opening balance of the allowance for credit losses of $1.0 million. Our CECL models

rely largely on projections of macroeconomic conditions to estimate future credit losses. Macroeconomic factors used in the

model include the Alabama unemployment rate, the Alabama home price index, the national commercial real estate price

index and the Alabama gross state product. Projections of these macroeconomic factors, obtained from an independent third

party, are utilized to predict quarterly rates of default. 

Under the CECL methodology the allowance for credit losses is measured on a collective basis for pools of loans with

similar risk characteristics, and for loans that do not share similar risk characteristics with the collectively evaluated pools,

evaluations are performed on an individual basis. Losses are predicted over a period of time determined to be reasonable

and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages.

At June 30, 2023, reasonable and supportable periods of 4 quarters were utilized followed by an 8 quarter straight line

reversion period to long term averages.

41

A summary of the changes in the allowance for credit losses and certain asset quality ratios for the second quarter of 2023

and the previous four quarters is presented below.

2023

2022

Second

First

Fourth

Third

Second

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Balance at beginning of period

$

6,821

5,765

4,966

4,716

4,658

Impact of adopting ASC 326

—

1,019

—

—

—

Charge-offs:

Commercial and industrial

—

—

(205)

(13)

(4)

Consumer installment

(56)

(11)

(3)

(3)

(16)

Total charge -offs

(56)

(11)

(208)

(16)

(20)

Recoveries

200

8

7

16

78

Net recoveries (charge-offs)

144

(3)

(201)

—

58

Provision for credit losses

(331)

40

1,000

250

—

Ending balance

$

6,634

6,821

5,765

4,966

4,716

as a % of loans

1.27

%

1.35

1.14

1.05

1.07

as a % of nonperforming loans

577

%

255

211

1,431

1,314

Net (recoveries) charge-offs as % of average loans (a)

(0.06)

%

—

0.04

—

(0.05)

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

Nonperforming Assets

At June 30, 2023 the Company had $1.1 million in nonperforming assets compared to $2.7 million at December 31, 2022. 

The decrease in nonperforming assets was primarily related to the resolution of a collateral dependent nonperforming loan,

with a recorded investment of $1.3 million, that was collected in full during the second quarter of 2023.

The table below provides information concerning total nonperforming assets and certain asset quality ratios for the second

quarter of 2023 and the previous four quarters.

2023

2022

Second

First

Fourth

Third

Second

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonperforming assets:

Nonaccrual loans

$

1,149

2,680

2,731

347

359

Total nonperforming assets

$

1,149

2,680

2,731

347

359

as a % of loans and other real estate owned

0.22

%

0.53

0.54

0.07

0.08

as a % of total assets

0.11

%

0.26

0.27

0.03

0.03

Nonperforming loans as a % of total loans

0.22

%

0.53

0.54

0.07

0.08

42

The table below provides information concerning the composition of nonaccrual loans for the second quarter of 2023 and

the previous four quarters.

2023

2022

Second

First

Fourth

Third

Second

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonaccrual loans:

Commercial and industrial

$

178

432

443

—

—

Commercial real estate

819

2,103

2,116

170

176

Residential real estate

152

135

172

177

183

Consumer installment

—

10

—

—

—

Total nonaccrual loans

$

1,149

2,680

2,731

347

359

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 not expected or (2) the principal or interest is

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

The Company had no loans 90 days or more past due and still accruing at June 30, 2023 and December 31, 2022,

respectively.

The Company had no OREO at June 30, 2023 or December 31, 2022.

Deposits

June 30,

December 31,

(In thousands)

2023

2022

Noninterest bearing demand

$

298,479

311,371

NOW

192,083

178,641

Money market

194,435

214,298

Savings

91,216

95,652

Certificates of deposit under $250,000

100,972

93,017

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

73,557

57,358

Total deposits

$

950,742

950,337

Total deposits were $950.7 million at June 30, 2023 and $950.3 million at December 31, 2022. The Company utilizes

brokered deposits as an additional funding source. At June 30, 2023, the Company had $16.0 million in brokered deposits,

compared to none at December 31, 2022. Excluding brokered deposits, customer deposits decreased $15.6 million, or 2%,

during the first six months of 2022. This decrease reflects net outflows to higher yield investment alternatives in a rising

interest rate environment and a decline in balances in existing accounts due to increased customer spending. Noninterest-

bearing deposits were $298.5 million, or 31% of total deposits, at June 30, 2023, compared to $311.4 million, or 33% of

total deposits at December 31, 2022. 

Estimated uninsured deposits totaled $374.8 million and $381.7 million at June 30, 2023 and December 31, 2022,

respectively. Uninsured amounts are estimated based on the portion of account balances in excess of FDIC insurance

limits. The Bank’s uninsured deposits at June 30, 2023 and December 31, 2022 include approximately $166.0 million and

$155.0 million, respectively, of deposits of state, county and local governments that are collateralized by securities having

an equal fair value to such deposits.

The FDIC has proposed a special assessment on uninsured deposits of banks with over $5 billion in uninsured deposits to

the FDIC Deposit Insurance Fund’s costs of the systemic risk determination made in connection with two recent bank

failures. The special assessment will not apply to AuburnBank.

The average rate paid on total interest-bearing deposits was 0.81% in the first six months of 2023 compared to 0.33% in the

first six months of 2022. 

43

Other Borrowings and Available Credit

The Company has no outstanding indebtedness. The Bank borrows other short-term borrowings and long-term debt from

time to time. Short-term borrowings generally consist of federal funds purchased and securities sold under agreements to

repurchase with an original maturity of one year or less. The Bank had available federal funds lines totaling $61.0 million

with no federal funds borrowings outstanding at June 30, 2023, and December 31, 2022, respectively. Securities sold under

agreements to repurchase, which were entered into on behalf of certain customers totaled $2.1 million and $2.6 million at

June 30, 2023 and December 31, 2022, respectively. At June 30, 2023 and December 31, 2022, the Bank had no

borrowings from the Federal Reserve discount window and no borrowings under the Federal Reserve’s new Bank Term

Facility Program (“BTFP”), which opened March 12, 2023.

The Bank is a member of the FHLB of Atlanta and may borrow from time to time under the FHLB of Atlanta’s advance

program to obtain funding for its growth. FHLB advances include both fixed and variable terms and are taken out with

varying maturities, and are generally secured by eligible assets. The Bank had no borrowings under FHLB of Atlanta’s

advance program at June 30, 2023 and December 31, 2022, respectively. At those dates, the Bank had $305.2 million and

$312.6 million, respectively, of available lines of credit at the FHLB of Atlanta.

The average rate paid on the Bank’s short-term borrowings was 1.82% in the first six months of 2023 compared to 0.50%

in the first six months of 2022.

The Company had no long-term debt at June 30, 2023 and December 31, 2022.

CAPITAL ADEQUACY 

The Company’s consolidated stockholders’ equity was $71.0 million and $68.0 million as of June 30, 2023 and December

31, 2022, respectively. The increase from December 31, 2022 was primarily driven by net earnings of $3.9 million and

other comprehensive income due to the change in unrealized gains/losses on securities available-for-sale, net of tax of $1.8

million, partially offset by cash dividends of $1.9 million, the cumulative effect of adopting CECL accounting standard of

$0.8 million and repurchases of the Company’s stock of $0.1 million. Total unrealized losses on available-for-sale

securities declined 5% from $54.7 million on December 31, 2022 to $52.2 million June 30, 2023. These unrealized losses

do not affect the Bank’s capital for regulatory capital purposes. 

The Company paid cash dividends of $0.54 per share in the first six months of 2023, an increase of 2% from the same

period in 2022. The Company’s share repurchases of $0.1 million since December 31, 2022 resulted in 4,225 fewer

outstanding common shares at June 30, 2023. These shares were repurchased at an average cost per share of $23.28.

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

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

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

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

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

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

executive officers. At June 30, 2023, the Bank’s ratio was sufficient to meet the fully phased-in conservation buffer.

Effective March 20, 2020, the Federal Reserve and the other federal banking regulators adopted an interim final rule that

amended the capital conservation buffer. The interim final rule was adopted as a final rule on August 26, 2020. The new

rule revises the definition of “eligible retained income” for purposes of the maximum payout ratio to allow banking

organizations to more freely use their capital buffers to promote lending and other financial intermediation activities, by

making the limitations on capital distributions more gradual. The eligible retained income is now the greater of (i) net

income for the four preceding quarters, net of distributions and associated tax effects not reflected in net income; and (ii)

the average of all net income over the preceding four quarters. This rule only affects the capital buffers, and banking

organizations were encouraged to make prudent capital distribution decisions.

44

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

Company Policy. Accordingly, our capital adequacy is evaluated at the Bank level, and not for the Company and its

consolidated subsidiaries. The Bank’s tier 1 leverage ratio was 10.23%, CET1 risk-based capital ratio was 15.33%, tier 1

risk-based capital ratio was 15.33%, and total risk-based capital ratio was 16.31% at June 30, 2023. These ratios exceed the

minimum regulatory capital percentages of 5.0% for tier 1 leverage ratio, 6.5% for CET1 risk-based capital ratio, 8.0% for

tier 1 risk-based capital ratio, and 10.0% for total risk-based capital ratio to be considered “well capitalized.” The Bank’s

capital conservation buffer was 8.31% at June 30, 2023. 

On July 27, 2023, the Federal Reserve, the Comptroller of the Currency and the FDIC 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 perform on an obligation;

●

Credit risk, which arises from the risk than an obligor fails to perform on an obligation;

●

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

●

Operations risk, which is the risk of losses resulting from inadequate or failed internal process, people, and

systems, or from external events; and

●

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

The proposal would also change the capital requirements for banking organizations with more than $100 billion of assets.

These regulatory proposals are not applicable to the Company.

MARKET AND LIQUIDITY RISK MANAGEMENT

Management’s objective is to manage assets and liabilities to provide a satisfactory, consistent level of profitability within

the framework of established liquidity, loan, investment, borrowing, and capital policies. The Bank’s Asset Liability

Management Committee (“ALCO”) is charged with the responsibility of monitoring these policies, which are designed to

ensure an acceptable asset/liability composition. Two critical 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 arising from fluctuations in interest rates. ALCO

measures and evaluates interest rate risk so that the Bank can meet customer demands for various types of loans and

deposits. Measurements used to help manage interest rate sensitivity include an earnings simulation model and an economic

value of equity (“EVE”) model.

Earnings simulation

. Management believes that interest rate risk is best estimated by our earnings simulation modeling.

Forecasted levels of earning assets, interest-bearing liabilities, and off -balance sheet financial instruments are combined

with ALCO forecasts of market interest rates for the next 12 months and other factors in order to produce various earnings

simulations and estimates. To help limit interest rate risk, we have guidelines for earnings at risk which seek to limit 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 income variances 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 an estimate of exposure under these

scenarios, our modeling under both a gradual and instantaneous change in interest rates indicates our balance sheet is asset

sensitive.

At June 30, 2023, our earnings simulation model indicated that we were in compliance with the policy guidelines noted

above. 

45

Economic Value of Equity

. EVE measures the extent that the estimated economic values of our assets, liabilities, and off-

balance sheet items will change as a result of interest rate changes. Economic values are estimated by discounting expected

cash flows from assets, liabilities, and off-balance sheet items, which establishes a base case EVE. In contrast with our

earnings simulation model, which evaluates interest rate risk over a 12 month timeframe, EVE uses a terminal horizon

which allows for the re-pricing of all assets, liabilities, and off-balance sheet items. Further, EVE is measured using values

as of a point in time and does not reflect any actions that ALCO might take in responding to or anticipating changes in

interest rates, or market and competitive conditions. To help limit interest rate risk, we have stated policy guidelines for an

instantaneous basis point change in interest rates, such that our EVE should not decrease from our base case by more than

the following:

●

45% for an instantaneous change of +/- 400 basis points

●

35% for an instantaneous change of +/- 300 basis points

●

25% for an instantaneous change of +/- 200 basis points

●

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

At June 30, 2023, our EVE model indicated that we were in compliance with our policy guidelines.

Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by

changes in interest rates. Income associated with interest-earning assets 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 different degrees to changes in market interest rates, and other

economic and market factors, including market perceptions. Interest rates on certain types of assets and liabilities fluctuate

in advance of changes in general market rates, while interest rates on other types of assets and liabilities may lag behind

changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally

referred to as “interest rate caps and floors”) which limit changes in interest rates. Prepayments and early withdrawal levels

also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many

borrowers to service their debts also may decrease during periods of rising interest rates or economic stress, which may

differ across industries and economic sectors. ALCO reviews each of 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 improve the balance between interest-sensitive assets and

interest-sensitive liabilities, and as a tool to manage interest rate sensitivity while continuing to meet the credit and deposit

needs of our customers. From time to time, the Company also may enter into back-to-back interest rate swaps to facilitate

customer transactions and meet their financing needs. These interest rate swaps qualify as derivatives, but are not

designated as hedging instruments. At June 30, 2023 and December 31, 2022, the Company had no derivative contracts

designated as part of a hedging relationship to assist in managing its interest rate sensitivity. 

Liquidity Risk Management 

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

primarily for deposit withdrawals, loan demand and maturing obligations. The Company seeks to manage its liquidity to

manage or reduce its costs of funds by maintaining liquidity believed adequate to meet its anticipated funding needs, while

balancing against excessive liquidity that likely would reduce earnings due to the cost of foregoing alternative higher-

yielding assets. 

Liquidity is managed at two levels. The first is the liquidity of the Company. The second is the liquidity of the Bank. The

management of liquidity at both levels is essential, because the Company and the Bank are separate and distinct legal

entities with different funding needs and sources, and each are subject to regulatory guidelines and requirements. The

Company depends upon dividends from the Bank for liquidity to pay its operating expenses, debt obligations and

dividends. The Bank’s payment of dividends depends 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 dividends received 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 dividends paid to stockholders, Company stock repurchases, and payment of Company expenses. 

46

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 borrowings from the Federal Reserve discount

window and the Federal Reserve’s recent BTFP borrowing facility. In addition to these sources, the Bank is a member of

the FHLB of Atlanta and may participate in the FHLB of Atlanta’s advance program to obtain funding for its growth. 

Advances include both fixed and variable terms and may be taken out with varying maturities. At June 30, 2023, the Bank

had a remaining available line of credit with the FHLB of $305.2 million. At June 30, 2023, the Bank also had $61.0

million of available federal funds lines with no borrowings outstanding. Primary uses of funds include repayment of

maturing obligations and growing the loan portfolio. 

Management believes that the Company and the Bank have adequate sources of liquidity to meet all their respective known

contractual obligations and unfunded commitments, including loan commitments and reasonably expected borrower,

depositor, and creditor requirements over the next twelve months. 

Off-Balance Sheet Arrangements, Commitments, Contingencies and Contractual Obligations

At June 30, 2023, the Bank had outstanding standby letters of credit of $0.8 million and unfunded loan commitments

outstanding of $78.7 million. Because these commitments generally have fixed expiration dates and many will expire

without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to

fund these outstanding commitments, the Bank could liquidate federal funds sold or a portion of our securities available-

for-sale, or draw on its available credit facilities or raise deposits. 

Mortgage lending activities

We generally sell residential mortgage loans in the secondary market to Fannie Mae while retaining the servicing of these

loans. The sale agreements for these residential mortgage loans with Fannie Mae and other investors include various

representations and warranties regarding the origination and characteristics of the residential mortgage loans. Although the

representations and warranties vary among investors, they typically cover ownership of the loan, validity of the lien

securing the loan, the absence of delinquent taxes or liens against the property securing the loan, compliance with loan

criteria set forth in the applicable agreement, compliance with applicable federal, state, and local laws, among other

matters.

As of June 30, 2023, the aggregate unpaid principal balance of residential mortgage loans, which we have originated and

sold, but retained the servicing rights, was $221.6 million. Although these loans are generally sold on a non-recourse basis,

we may be obligated to repurchase residential mortgage loans or reimburse investors for losses incurred (make whole

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

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

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

determine if a contractually required repurchase or make whole event has occurred. We seek to reduce and manage the risks

of potential repurchases, make whole requests, or other claims by mortgage loan investors through our underwriting and

quality assurance practices and by servicing mortgage loans to meet investor and secondary market standards.

The Company was not required to repurchase any loans during the first six months of 2023 as a result of representation and

warranty provisions contained in the Company’s sale agreements with Fannie Mae, and had no pending repurchase or

make-whole requests at June 30, 2023.

We service all residential mortgage 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 relating to the mortgage loans; (4) maintain any

required escrow accounts for payment of taxes and insurance and administer escrow payments; and (5) foreclose on

defaulted mortgage loans or take other actions to mitigate the potential losses to investors consistent with the agreements

governing our rights and duties as servicer.

The agreement under which we act as servicer generally specifies standard s of responsibility for actions taken by us in such

capacity and provides protection against expenses and liabilities incurred by us when acting in compliance with the

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

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

servicing and the possible remedies for violations of such standards are determined by our agreement with Fannie Mae and

Fannie Mae’s mortgage servicing guides. Remedies could include repurchase of an affected loan.

47

Although repurchase and make whole requests related to representation and warranty provisions and servicing activities

have been limited to date, it is possible that requests to repurchase mortgage loans or reimburse investors for losses incurred

(make whole requests) may increase in frequency if investors more aggressively pursue all means of recovering losses on

their purchased loans. As of June 30, 2023, we do not believe that this exposure is material due to the historical level of

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

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

this exposure by monitoring the level and number of repurchase requests as well as the delinquency rates in our investor

portfolios.

The Bank sells mortgage loans to Fannie Mae and services these on an actual/actual basis. As a result, the Bank is not

obligated to make any advances to Fannie Mae on principal and interest on such mortgage loans where the borrower is

entitled to forbearance.

Effects of Inflation and Changing Prices

The consolidated financial statements and related consolidated financial data presented herein have been prepared in

accordance with GAAP and practices within the banking industry which require the measurement of financial position and

operating results in terms of historical dollars without considering the changes in the relative purchasing power of money

over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution

are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance

than the effects of general levels of inflation.

Inflation can affect our noninterest expenses. It also can affect the interest rates we have to pay 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 speed at which our assets and liabilities reprice in response

to interest rate changes. The yield curve was inverted on June 30, 2023, which means shorter term interest rates are higher

than longer 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 sales of securities held by the Federal

Reserve to reduce inflation generally reduce economic activity and may reduce loan demand and growth. Inflation and

related changes in market interest rates, as the Federal Reserve acts to meet its long term inflation goal of 2%, also can

adversely affect the values and liquidity of our loans and securities.

Inflation is running at levels unseen in decades and well above the Federal Reserve’s long term inflation goal of 2.0%

annually. Beginning in March 2022, the Federal Reserve has been raising target federal funds interest rates and reducing its

securities holdings in an effort to reduce inflation During 2022, the Federal Reserve increased the target federal funds range

from 0 – 0.25% to 4.25 – 4.50%. The target federal funds rate was increased another 25 basis points on each of January 31,

March 7, May 3 and July 26, 2023 to 5.25-5.50%, and further increases in the target federal funds rate appear likely if

inflation remains elevated. Our deposit costs may increase as the Federal Reserve increases its target federal funds rate,

market interest rates increase, and as customer savings behaviors change as a result of inflation and customers seek higher

market interest rates on deposits and other alternative investments. Monetary efforts to control inflation may also affect

unemployment which is an important component in our CECL model used to estimate our allowance for credit losses.

CURRENT ACCOUNTING DEVELOPMENTS

The following ASU has been issued by the FASB but is not yet effective. 

●

ASU 2023-02,

Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax

Credit Structures Using the Proportional Amortization Method

48

Information about this pronouncement is described in more detail below.

ASU 2023-02,

Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit

Structures Using the Proportional Amortization Method

, The amendments in this Update permit reporting entities to elect

to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are

received, using the proportional amortization method if certain conditions are met. The new standard is effective for fiscal

years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company is currently

evaluating the impact of the new standard on the Company’s consolidated financial statements. 

49

Table 1 – Explanation of Non-GAAP Financial Measures

In addition to results presented in accordance with U.S. generally accepted accounting principles (GAAP), this quarterly

report on Form 10-Q includes certain designated net interest income amounts presented on a tax-equivalent basis, a non-

GAAP financial measure, including the presentation and calculation of the efficiency ratio. 

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

interest income from both taxable and tax-exempt sources and facilitates comparability within the industry. Although the

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 alternative to GAAP. The reconciliations of these non-

GAAP financial measures to their most directly comparable GAAP financial measures are presented below.

2023

2022

Second

First

Fourth

Third

Second

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Net interest income (GAAP)

$

6,888

7,109

7,471

7,243

6,374

Tax-equivalent adjustment

106

108

117

117

110

Net interest income (Tax -equivalent)

$

6,994

7,217

7,588

7,360

6,484

Six months ended June 30,

(In thousands)

2023

2022

Net interest income (GAAP)

$

13,997

12,452

Tax-equivalent adjustment

214

222

Net interest income (Tax -equivalent)

$

14,211

12,674

50

Table 2 - Selected Quarterly Financial Data

2023

2022

Second

First

Fourth

Third

Second

(Dollars in thousands, except per share amounts)

Quarter

Quarter

Quarter

Quarter

Quarter

Results of Operations

Net interest income (a)

$

6,994

7,217

7,588

7,360

6,484

Less: tax-equivalent adjustment

106

108

117

117

110

Net interest income (GAAP)

6,888

7,109

7,471

7,243

6,374

Noninterest income

791

792

3,898

852

848

Total revenue

7,679

7,901

11,369

8,095

7,222

Provision for credit losses

(362) 

66 

1,000 

250 

— 

Noninterest expense

5,825

5,604

4,449

5,415

5,058

Income tax expense 

288

267

1,454

432

363

Net earnings

$

1,928

1,964

4,466

1,998

1,801

Per share data:

Basic and diluted net earnings 

$

0.55

0.56

1.27

0.57

0.51

Cash dividends declared

0.27

0.27

0.265

0.265

0.265

Weighted average shares outstanding:

Basic and diluted

3,500,064

3,502,143

3,504,344

3,507,318

3,513,353

Shares outstanding

3,499,412

3,500,879

3,503,452

3,505,355

3,509,940

Book value

$

20.28

21.03

19.42

17.06

21.68

Common stock price

High

$

24.32

24.50

24.71

29.02

33.57

Low 

18.80

22.55

22.07

23.02

27.04

Period end

21.26

22.66

23.00

23.02

27.04

To earnings ratio

7.21

x

7.79

7.82

10.46

12.52

To book value

105

%

108

118

135

125

Performance ratios:

Return on average equity 

10.37

%

11.44

28.23

10.35

8.26

Return on average assets 

0.75

%

0.77

1.75

0.75

0.66

Dividend payout ratio

49.09

%

48.21

20.87

46.49

51.96

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.27

%

1.35

1.14

1.05

1.07

Nonperforming loans

577

%

255

211

1,431

1,314

Nonperforming assets as a % of:

Loans and other real estate owned

0.22

%

0.53

0.54

0.07

0.08

Total assets 

0.11

%

0.26

0.27

0.03

0.03

Nonperforming loans as a % of total loans

0.22

%

0.53

0.54

0.07

0.08

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

(0.11)

%

— 

0.16

— 

(0.05)

Capital Adequacy: (c)

CET 1 risk-based capital ratio

15.33

%

15.45

15.39

15.39

16.59

Tier 1 risk-based capital ratio

15.33

%

15.45

15.39

15.39

16.59

Total risk-based capital ratio

16.31

%

16.48

16.25

16.16

17.38

Tier 1 leverage ratio

10.23

%

10.07

10.01

9.29

9.16

Other financial data:

Net interest margin (a)

3.03

%

3.17

3.27

3.00

2.60

Effective income tax rate

13.00

%

11.97

24.56

17.78

16.77

Efficiency ratio (b)

74.82

%

69.97

38.73

65.94

68.99

Selected average balances:

Securities

$

402,929

402,684

407,792

432,393

427,426

Loans, net of unearned income

512,066

502,158

490,163

457,722

428,612

Total assets

1,022,874

1,022,938

1,022,863

1,069,973

1,092,759

Total deposits

942,552

948,393

951,122

987,614

999,867

Total stockholders’ equity

74,404

68,655

63,283

77,191

87,247

Selected period end balances: 

Securities

$

394,079

405,692

405,304

411,538

429,220

Loans, net of unearned income

520,411

505,041

504,458

474,035

440,872

Allowance for credit losses

6,634

6,821

5,765

4,966

4,716

Total assets

1,026,130

1,017,746

1,023,888

1,042,559

1,084,251

Total deposits

950,742

939,190

950,337

977,938

1,002,698

Total stockholders’ equity

70,976

73,640

68,041

59,793

76,107

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

(b) Efficiency ratio is the result of noninterest expense divided by the sum of noninterest income and tax-equivalent net interest income.

(c) Regulatory capital ratios presented are for the Company's wholly-owned subsidiary, AuburnBank.

51

Table 3 - Selected Financial Data

Six months ended June 30,

(Dollars in thousands, except per share amounts)

2023

2022

Results of Operations

Net interest income (a)

$

14,211

12,674

Less: tax-equivalent adjustment

214

222

Net interest income (GAAP)

13,997

12,452

Noninterest income

1,583

1,756

Total revenue

15,580

14,208

Provision for credit losses

(296) 

(250) 

Noninterest expense

11,429

9,959

Income tax expense

555

617

Net earnings

$

3,892

3,882

Per share data:

Basic and diluted net earnings 

$

1.11

1.10

Cash dividends declared

0.54

0.53

Weighted average shares outstanding:

Basic and diluted

3,501,098

3,515,991

Shares outstanding, at period end

3,499,412

3,509,940

Book value

$

20.28

21.68

Common stock price:

High

$

24.50

34.49

Low 

18.80

27.04

Period end

21.26

27.04

To earnings ratio

7.21

x

12.52

To book value

105

%

125

Performance ratios:

Return on average equity 

10.91

%

8.10

Return on average assets 

0.76

%

0.70

Dividend payout ratio

48.65

%

48.18

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.27

%

1.07

Nonperforming loans

577

%

1,314

Nonperforming assets as a % of:

Loans and other real estate owned

0.22

%

0.08

Total assets 

0.11

%

0.03

Nonperforming loans as a % of total loans

0.22

%

0.08

Annualized net recoveries as a % of average loans

(0.06)

%

(0.01) 

Capital Adequacy: (c)

CET 1 risk-based capital ratio

15.33

%

16.59

Tier 1 risk-based capital ratio

15.33

%

16.59

Total risk-based capital ratio

16.31

%

17.38

Tier 1 leverage ratio

10.23

%

9.16

Other financial data:

Net interest margin (a)

3.10

%

2.51

Effective income tax rate

12.48

%

13.71

Efficiency ratio (b)

72.36

%

69.02

Selected average balances:

Securities

$

402,807

431,240

Loans, net of unearned income

507,139

434,131

Total assets

1,022,906

1,103,523

Total deposits

945,456

1,001,620

Total stockholders’ equity

71,365

95,822

Selected period end balances: 

Securities

$

394,079

429,220

Loans, net of unearned income

520,411

440,872

Allowance for credit losses

6,634

4,716

Total assets

1,026,130

1,084,251

Total deposits

950,742

1,002,698

Total stockholders’ equity

70,976

76,107

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

(b) Efficiency ratio is the result of noninterest expense divided by the sum of noninterest income and tax-equivalent net interest income. See 

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

(c) Regulatory capital ratios presented are for the Company's wholly-owned subsidiary, AuburnBank.

52

Table 4 - Average Balances and Net Interest Income Analysis

Quarter ended June 30,

2023

2022

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)

$

512,139

$

6,019

4.71%

$

429,182

$

4,691

4.38%

Securities - taxable (2)

347,714

1,826

2.11%

368,618

1,547

1.68%

Securities - tax-exempt (2)(3)

55,215

510

3.70%

58,807

525

3.58%

Total securities 

402,929

2,336

2.33%

427,425

2,072

1.94%

Federal funds sold

3,943

48

4.88%

52,582

82

0.63%

Interest bearing bank deposits

8,023

96

4.80%

92,802

196

0.85%

Total interest-earning assets

927,034

$

8,499

3.68%

1,001,991

$

7,041

2.82%

Cash and due from banks

15,621

15,485

Other assets

80,219

75,283

Total assets

$

1,022,874

$

1,092,759

Interest-bearing liabilities:

Deposits:

NOW

$

189,406

$

287

0.61%

$

208,873

$

62

0.12%

Savings and money market

292,238

414

0.57%

331,097

159

0.19%

Time deposits

164,479

781

1.90%

155,990

331

0.85%

Total interest-bearing deposits

646,123

1,482

0.92%

695,960

552

0.32%

Short-term borrowings

3,835

23

2.41%

4,205

5

0.50%

Total interest-bearing liabilities

649,958

$

1,505

0.93%

700,165

$

557

0.32%

Noninterest-bearing deposits

296,428

303,907

Other liabilities

2,084

1,440

Stockholders' equity

74,404

87,247

Total liabilities and stockholders' equity

$

1,022,874

$

1,092,759

Net interest income and margin (tax-equivalent)

$

6,994

3.03%

$

6,484

2.60%

(1) Average loan balances are shown net of unearned income and loans on nonaccrual status have been included 

 in the computation of average balances.

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

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

tax rate of 21%.

53

Table 5 - Average Balances and Net Interest Income Analysis

Six months ended June 30,

2023

2022

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)

$

507,176

$

11,773

4.68%

$

434,863

$

9,541

4.42%

Securities - taxable

348,066

3,691

2.14%

370,549

2,883

1.57%

Securities - tax-exempt (2)

54,741

1,021

3.76%

60,691

1,056

3.51%

Total securities 

402,807

4,712

2.36%

431,240

3,939

1.84%

Federal funds sold

5,619

133

4.77%

63,021

113

0.36%

Interest bearing bank deposits

9,805

224

4.61%

88,008

228

0.52%

Total interest-earning assets

925,407

$

16,842

3.67%

1,017,132

$

13,821

2.74%

Cash and due from banks

15,574

15,296

Other assets

81,925

71,095

Total assets

$

1,022,906

$

1,103,523

Interest-bearing liabilities:

Deposits:

NOW

$

188,491

$

536

0.57%

$

204,912

$

119

0.12%

Savings and money market

296,425

703

0.48%

338,283

331

0.20%

Time deposits

160,102

1,361

1.71%

157,877

687

0.88%

Total interest-bearing deposits

645,018

2,600

0.81%

701,072

1,137

0.33%

Short-term borrowings

3,443

31

1.82%

4,075

10

0.50%

Total interest-bearing liabilities

648,461

$

2,631

0.82%

705,147

$

1,147

0.33%

Noninterest-bearing deposits

300,439

300,548

Other liabilities

2,642

2,006

Stockholders' equity

71,364

95,822

Total liabilities and stockholders' equity

$

1,022,906

$

1,103,523

Net interest income and margin (tax-equivalent)

$

14,211

3.10%

$

12,674

2.51%

(1) Average loan balances are shown net of unearned income and loans on nonaccrual status have been included 

 in the computation of average balances.

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

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

tax rate of 21%.

54

Table 6 - Allocation of Allowance for Credit Losses

2023

2022

Second Quarter

First Quarter

Fourth Quarter

Third Quarter

Second Quarter

(Dollars in thousands)

Amount

%*

Amount

%*

Amount

%*

Amount

%*

Amount

%*

Commercial and industrial

$

1,198

11.9

$

1,232

11.8

$

747

13.1

$

732

14.9

$

761

15.9

Construction and land 

development

1,005

12.3

1,021

13.2

949

13.2

789

11.6

576

8.8

Commercial real estate

3,788

53.0

3,966

53.0

3,109

52.4

2,561

52.6

2,523

54.4

Residential real estate

529

21.1

497

20.2

828

19.4

783

19.3

753

19.3

Consumer installment

114

1.7

105

1.8

132

1.9

101

1.6

103

1.6

Total allowance for credit

losses

$

6,634

$

6,821

$

5,765

$

4,966

$

4,716

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

55

Table 7 – Estimated Uninsured Time Deposits by Maturity

(Dollars in thousands)

June 30, 2023

Maturity of:

3 months or less

$

11,478

Over 3 months through 6 months

19,713

Over 6 months through 12 months

5,640

Over 12 months

14,226

Total estimated uninsured time deposits

$

51,057

56

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by ITEM 3 is set forth in ITEM 2 under the caption “MARKET AND LIQUIDITY RISK

MANAGEMENT” and is incorporated herein by reference. 

ITEM 4. CONTROLS AND PROCEDURES

The Company, with the participation of its management, including its Chief Executive Officer and Chief Financial Officer,

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

defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act 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 covered by this report, the

Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and

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

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

changes in the Company’s internal control over financial reporting that occurred during the period covered by this report

that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial

reporting.

PART II. 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’s management believe there are no pending or threatened legal, governmental, or regulatory

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

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

year ended December 31, 2022. 

ITEM 1A. RISK FACTORS

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

Item 1A. “RISK FACTORS” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022,

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

Form 10-K are not the only the risks facing our Company. Increases in inflation and the resulting tightening of Federal

Reserve monetary policy by increased target interest rates and reductions in the Federal Reserve’s securities portfolio, have

and is expected to continue to affect mortgage originations and income and the market values of our securities portfolio and

loans. These could also affect our deposit, costs and mixes, and change consumer savings and payment behaviors. 

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially

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

57

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

The Company’s repurchases of its common stock during the second quarter of 2023 were as follows:

Period

Total Number of

Shares Purchased

Average Price

Paid per Share

Total Number of

Shares Purchased as

Part of Publicly

Announced Plans or

Programs

Approximate Dollar

Value of Shares that

May Yet Be

Purchased Under the

Plans or Programs

April 1 - April 30, 2023

303

22.54

303

4,544,286

May 1 - May 31, 2023

1,274

21.73

1,274

4,516,607

June 1 - June 30, 2023

—

—

—

4,516,607

Total

1,577

21.88

1,577

4,516,607

On April 12, 2022, the Board of Directors of Auburn National Bancorporation, Inc. (the "Company") announced that its Board of Directors 

had approved a new stock repurchase program to replace the repurchase program that expired on March 31, 2022. The new program 

authorized the repurchase, from time to time, of up to $5 million of the Company’s issued and outstanding common stock through the 

earliest of (i) the expenditure of $5 million on Share repurchases, (ii) the termination or replacement of the Repurchase Plan and 

(iii) April 15, 2024. The stock repurchases may be open-market or private purchases, negotiated transactions, block purchases, 

and otherwise.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

58

ITEM 6. EXHIBITS

Exhibit 

Number Description 

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 Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document

104

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

* 

 Incorporated by reference from Registrant’s Form 10-Q dated June 30, 2002. 

**

 Incorporated by reference from Registrant’s Form 10-K dated March 31, 2008. 

***

The certifications attached as exhibits 32.1 and 32.2 to this quarterly report on Form 10-Q are “furnished” to the

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

deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. 

59

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to

be signed on its behalf by the undersigned thereunto duly authorized.

AUBURN NATIONAL BANCORPORATION, INC.

 (Registrant)

Date: August 8, 2023 

By: /s/ David A. Hedges 

David A. Hedges

President and CEO

Date: August 8, 2023 

By: /s/

W.

James Walker, IV 

W. James Walker, IV

Senior Vice President and Chief Financial Officer

EX-31.1

AUBURN NATIONAL BANCORPORATION, INC AND SUBSIDIARIES

EXHIBIT 31.1

CERTIFICATION PURSUANT TO 

RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934, 

AS ADOPTED PURSUANT TO 

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 

CERTIFICATION

I, David A. Hedges, certify that: 

1. I have reviewed this Quarterly Report on Form 10-Q of Auburn National Bancorporation, Inc.; 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material

fact necessary to make the statements made, in light of the circumstances under which such statements were made, not

misleading with respect to the period covered by this report; 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in

all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods

presented in this report; 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be

designed under our supervision, to ensure that material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in

which this report is being prepared; 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to

be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting

and the preparation of financial statements for external purposes in accordance with generally accepted

accounting principles; 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered

by this report based on such evaluation; and 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred

during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual

report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control

over financial reporting; and 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over

financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons

performing the equivalent functions): 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial

reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and

report financial information; and 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in

the registrant’s internal control over financial reporting. 

Date: August 8, 2023

/s/ David A. Hedges 

President and Chief Executive Officer

EX-31.2

AUBURN NATIONAL BANCORPORATION, INC AND SUBSIDIARIES

EXHIBIT 31.2

CERTIFICATION PURSUANT TO 

RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934, 

AS ADOPTED PURSUANT TO 

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 

CERTIFICATION

I, W. James Walker, IV, certify that: 

1. I have reviewed this Quarterly Report on Form 10-Q of Auburn National Bancorporation, Inc.; 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material

fact necessary to make the statements made, in light of the circumstances under which such statements were made, not

misleading with respect to the period covered by this report; 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in

all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods

presented in this report; 

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be

designed under our supervision, to ensure that material information relating to the registrant, including its

consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in

which this report is being prepared; 

b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to

be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting

and the preparation of financial statements for external purposes in accordance with generally accepted

accounting principles; 

c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered

by this report based on such evaluation; and 

d)

Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred

during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual

report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control

over financial reporting; and 

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over

financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons

performing the equivalent functions): 

a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial

reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and

report financial information; and 

b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in

the registrant’s internal control over financial reporting. 

Date: August 8, 2023

/s/ W. James Walker, IV

Senior Vice President and Chief Financial Officer

EX-32.1

AUBURN NATIONAL BANCORPORATION, INC AND SUBSIDIARIES

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 

18 U.S.C. SECTION 1350, 

AS ADOPTED PURSUANT TO 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 

In connection with the Quarterly Report of Auburn National Bancorporation, Inc. (the “Company”) on Form 10-Q for the

period ending June 30, 2023, as filed with the Securities and Exchange Commission as of the date hereof (the “Report”), I,

David A. Hedges, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted

pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act

of 1934; and 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and

results of operations of the Company. 

Date: August 8, 2023

/s/ David A. Hedges

David A. Hedges

President and Chief Executive Officer

EX-32.2

AUBURN NATIONAL BANCORPORATION, INC AND SUBSIDIARIES

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 

18 U.S.C. SECTION 1350, 

AS ADOPTED PURSUANT TO 

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 

In connection with the Quarterly Report of Auburn National Bancorporation, Inc. (the “Company”) on Form 10-Q for the

period ending June 30, 2023, as filed with the Securities and Exchange Commission as of the date hereof (the “Report”), I,

W. James Walker, IV, Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §

1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that: 

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act

of 1934; and 

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and

results of operations of the Company. 

Date: August 8, 2023 

/s/ W. James Walker, IV

W. James Walker, IV

Senior Vice President and Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2023	Aug. 07, 2023
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2023
Document Transistion Report	false
Entity File Number	0-26486
Entity Registrant Name	Auburn National Bancorporation, Inc.
Entity Incorporation State	DE
Entity Tax Identification Number	63-0885779
Entity Address Address Line 1	100 N. Gay Street
Entity Address City	Auburn
Entity Address State	AL
Entity Address Postal Zip	36830
City Area Code	334
Local Phone Number	821-9200
Entity current reporting status	Yes
Entity filer category	Non-accelerated Filer
Entity Interactive Data Current	Yes
Entity Small Business	true
Entity Emerging Growth	false
Entity Shell Company	false
Entity common stock shares outstanding		3,497,430
Entity central index key	0000750574
Current fiscal year end date	--12-31
Document Fiscal Year Focus	2023
Document Period Focus	Q2
Amendment flag	false
Title of 12(b) Security	Common Stock, par value $0.01
Trading Symbol	AUBN
Security Exchange Name	NASDAQ

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Assets:
Cash And Due From Banks	$ 19,855	$ 11,608
Federal funds sold	1,196	9,300
Interest bearing bank deposits	8,485	6,346
Cash and cash equivalents	29,536	27,254
Available For Sale Securities Debt Securities	394,079	405,304
Total loans	520,411	504,458
Allowance for credit losses	(6,634)	(5,765)
Loans, net	513,777	498,693
Premises and equipment, net	45,896	46,575
Bank-owned life insurance	19,960	19,952
Other assets	22,882	26,110
Total assets	1,026,130	1,023,888
Deposits:
Noninterest-bearing	298,479	311,371
Interest-bearing	652,263	638,966
Total deposits	950,742	950,337
Federal funds purchased and securities sold under agreements to repurchase	2,167	2,551
Accrued expenses and other liabilities	2,245	2,959
Total liabilities	955,154	955,847
Stockholders' equity:
Preferred stock	0	0
Common stock	39	39
Additional paid-in capital	3,800	3,797
Retained earnings	117,781	116,600
Accumulated other comprehensive loss, net	(39,072)	(40,920)
Less treasury stock, at cost	(11,572)	(11,475)
Total stockholders' equity	70,976	68,041
Total liabilities and stockholders' equity	$ 1,026,130	$ 1,023,888

XML

Consolidated Balance Sheets (Parentheticals) - $ / shares	Jun. 30, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Preferred stock par value	$ 0.01	$ 0.01
Authorized shares, preferred	200,000	200,000
Issued shares, preferred	0	0
Common stock par value	$ 0.01	$ 0.01
Authorized shares, common	8,500,000	8,500,000
Issued shares, common	3,957,135	3,957,135
Treasury stock, shares held	457,723	453,683

XML

Consolidated Statements of Earnings - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Interest income:
Loans, including fees	$ 6,019	$ 4,691	$ 11,773	$ 9,541
Securities - Taxable	1,826	1,547	3,691	2,883
Securities - Tax-exempt	404	415	807	834
Federal funds sold and interest bearing bank deposits	144	278	357	341
Total interest income	8,393	6,931	16,628	13,599
Interest expense:
Deposits	1,482	552	2,600	1,137
Short-term borrowings	23	5	31	10
Total interest expense	1,505	557	2,631	1,147
Net interest income	6,888	6,374	13,997	12,452
Provision for credit losses	(362)	0	(296)	(250)
Net interest income after provision for loan losses	7,250	6,374	14,293	12,702
Noninterest income:
Service charge on deposit accounts	154	146	308	288
Mortgage lending	142	187	235	440
Bank-owned life insurance income	68	97	224	196
Other noninterest income	427	418	816	832
Total noninterest income	791	848	1,583	1,756
Noninterest expense:
Salaries and benefits	3,038	2,976	5,965	5,926
Net occupancy and equipment	787	727	1,586	1,161
Professional fees	299	239	637	469
Other noninterest expense	1,701	1,116	3,241	2,403
Total noninterest expense	5,825	5,058	11,429	9,959
Earnings before income taxes	2,216	2,164	4,447	4,499
Income tax expense	288	363	555	617
Net earnings	$ 1,928	$ 1,801	$ 3,892	$ 3,882
Net earnings per share:
Basic and diluted earnings per share	$ 0.55	$ 0.51	$ 1.11	$ 1.10
Weighted average shares outstanding:
Basic and diluted weighted average shares outstanding	3,500,064	3,513,353	3,501,098	3,515,991

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Statements of Comprehensive Income [Abstract]
Net earnings	$ 1,928	$ 1,801	$ 3,892	$ 3,882
Other comprehensive income, net of tax:
Unrealized net holding gain (loss) on securities	(3,615)	(10,964)	1,848	(29,310)
Other comprehensive income	(3,615)	(10,964)	1,848	(29,310)
Comprehensive income	$ (1,687)	$ (9,163)	$ 5,740	$ (25,428)

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock Member	Additional Paid In Capital Member	Retained Earnings Member	Accumulated Other Comprehensive Income Member	Treasury Stock Member
Balance, shares at Dec. 31, 2021		3,520,485
Balance, Beg at Dec. 31, 2021	$ 103,726	$ 39	$ 3,794	$ 109,974	$ 891	$ (10,972)
Net earnings	3,882			3,882
Other Comprehensive Income (Loss), Net Of Tax	(29,310)				(29,310)
Cash dividends paid	1,862			1,862
Treasury Stock, acquired	(331)					(331)
Treasury Stock, acquired shares		10,640
Sale of treasury stock	2		2
Treasury shares sold		95
Balance, End at Jun. 30, 2022	76,107	$ 39	3,796	111,994	(28,419)	(11,303)
Balance, shares at Jun. 30, 2022		3,509,940
Balance, shares at Mar. 31, 2022		3,516,971
Balance, Beg at Mar. 31, 2022	86,411	$ 39	3,795	111,123	(17,455)	(11,091)
Net earnings	1,801			1,801
Other Comprehensive Income (Loss), Net Of Tax	(10,964)				(10,964)
Cash dividends paid	930			930
Treasury Stock, acquired	(212)					(212)
Treasury Stock, acquired shares		7,081
Sale of treasury stock	1		1
Treasury shares sold		50
Balance, End at Jun. 30, 2022	76,107	$ 39	3,796	111,994	(28,419)	(11,303)
Balance, shares at Jun. 30, 2022		3,509,940
Balance, shares at Dec. 31, 2022		3,503,452
Balance, Beg at Dec. 31, 2022	68,041	$ 39	3,797	116,600	(40,920)	(11,475)
Cumulative Effect Of Accounting Standard				(821)
Net earnings	3,892			3,892
Other Comprehensive Income (Loss), Net Of Tax	1,848				1,848
Cash dividends paid	1,890			1,890
Treasury Stock, acquired	(99)					(99)
Treasury Stock, acquired shares		4,225
Sale of treasury stock	5		3			2
Treasury shares sold		185
Balance, End at Jun. 30, 2023	70,976	$ 39	3,800	117,781	(39,072)	(11,572)
Balance, shares at Jun. 30, 2023		3,499,412
Balance, shares at Mar. 31, 2023		3,500,879
Balance, Beg at Mar. 31, 2023	73,640	$ 39	3,798	116,798	(35,457)	(11,538)
Net earnings	1,928			1,928
Other Comprehensive Income (Loss), Net Of Tax	(3,615)				(3,615)
Cash dividends paid	945			945
Treasury Stock, acquired	(35)					(35)
Treasury Stock, acquired shares		1,577
Sale of treasury stock	3		2			1
Treasury shares sold		110
Balance, End at Jun. 30, 2023	$ 70,976	$ 39	$ 3,800	$ 117,781	$ (39,072)	$ (11,572)
Balance, shares at Jun. 30, 2023		3,499,412

XML

Consolidated Statements of Stockholders' Equity (Parentheticals) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Statement of Stockholders' Equity (Parentheticals)
Cash dividends paid per share	$ 0.27	$ 0.265	$ 0.54	$ 0.53

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Cash flows from operating activities:
Net earnings	$ 3,892	$ 3,882
Adjustments to reconcile net earnings to net cash provided by operating activties:
Provision for credit losses	(296)	(250)
Depreciation and amortization	858	631
Premium amortization and discount accretion, net	1,223	1,738
Net gain on sale of loans held for sale	(61)	(349)
Net gain on other real estate owned		(162)
Loans originated for sale	(1,219)	(8,027)
Proceeds from sale of loans	1,271	8,666
Increase in cash surrender value of bank owned life insurance	(172)	(196)
Income recognized on death benefit of life insurance	(52)
Net (increase) decrease in other assets	3,332	(9,152)
Net (decrease) increase in accrued expenses and other liabilities	(1,401)	7,397
Net cash provided by operating activities	7,375	4,178
Cash flows from investing activities:
Proceeds from prepayments and maturities of securities available-for-sale	12,470	29,570
Purchase of securities available-for-sale	0	(77,776)
Decrease in loans, net	(15,812)	17,519
Net purchases of premises and equipment	(40)	(4,059)
Proceeds from bank-owned life insurance death benefit	(216)
(Increase) decrease in FHLB stock	41	(74)
Proceeds from sale of other real estate owned		536
Net cash (used in) provided by investing activities	(3,125)	(34,284)
Cash flows from financing activities:
Net increase in noninterest-bearing deposits	(12,892)	(4,924)
Net increase in interest-bearing deposits	13,297	13,379
Net increase (decrease) in federal funds purchased and securities sold under agreements to repurchase	(384)	699
Stock repurchases	(99)	(331)
Dividends paid	(1,890)	(1,862)
Net cash provided by financing activities	(1,968)	6,961
Net change in cash and cash equivalents	2,282	(23,145)
Cash and cash equivalents at beginning of period	27,254	156,259
Cash and cash equivalents at end of period	29,536	133,114
Cash paid during the period for:
Interest	2,191	1,206
Income taxes	$ 800	$ 731

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2023

Summary of Signficant Accounting Policies

Summary of Significant Accounting Policies Text Block

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements 

(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Auburn National Bancorporation, Inc. (the “Company”) provides a full range of banking services to individuals and

commercial customers in Lee County, Alabama and surrounding areas through its wholly owned subsidiary, AuburnBank

(the “Bank”). The Company does not have any segments other than banking that are considered material.

Basis of Presentation and Use of Estimates

The unaudited consolidated financial statements in this report have been prepared in accordance with U.S. generally

accepted accounting principles (“GAAP”) for interim financial information. Accordingly, these financial statements do not

include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited

consolidated financial statements include, in the opinion of management, all adjustments necessary to present a fair

statement of the financial position and the results of operations for all periods presented. All such adjustments are of a

normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results of

operations that the Company and its subsidiaries may achieve for future interim periods or the entire year. For further

information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form

10-K for the year ended December 31, 2022.

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 

Significant intercompany transactions and accounts are eliminated in consolidation.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of

the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could

differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term

include the determination of allowance for credit losses investment securities, the determination of the allowance for credit

losses on loans, fair value of financial instruments, and the valuation of deferred tax assets and other real estate owned

(“OREO”).

Revenue Recognition

On January 1, 2018, the Company implemented Accounting Standards Update (“ASU” or “updates”) 2014-09,

 Revenue

from Contracts with Customers

, codified at

 Accounting Standards Codification (“ASC”)

606. The Company adopted ASC

606 using the modified retrospective transition method. The majority of the Company’s revenue stream is generated from

interest income on loans and securities which are outside the scope of ASC 606. 

The Company’s sources of income that fall within the scope of ASC 606 include service charges on deposits, interchange

fees and gains and losses on sales of other real estate, all of which are presented as components of noninterest income. The

following is a summary of the revenue streams that fall within the scope of ASC 606: 

●

Service charges on deposits, investment services, ATM and interchange fees – Fees from these services are either

(i) transaction-based, for which the performance obligations are satisfied when the individual transaction is

processed, or (ii) set periodic service charges, for which the performance obligations are satisfied over the period

the service is provided. Transaction-based fees are recognized at the time the transaction is processed, and periodic

service charges are recognized over the service period.

●

Gains on sales of OREO

 –

A gain on sale should be recognized when a contract for sale exists and control of the

asset has been transferred to the buyer. ASC 606 lists several criteria required to conclude that a contract for sale

exists, including a determination that the institution will collect substantially all of the consideration to which it is

entitled. In addition to the loan-to-value ratio, where the seller provides the purchaser with financing, the analysis

is based on various other factors, including the credit quality of the purchaser, the structure of the loan, and any

other factors that we believe may affect collectability.

Subsequent Events 

The Company has evaluated the effects of events and transactions through the date of this filing that have occurred

subsequent to June 30, 2023. The Company does not believe there were any material subsequent events during this period

that would have required further recognition or disclosure in the unaudited consolidated financial statements included in

this report.

Reclassifications

Certain amounts reported in prior periods have been reclassified to conform to the current -period presentation. These

reclassifications had no material effect on the Company’s previously reported net earnings or total stockholders’ equity.

Accounting Standards Adopted in 2023

On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement

of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an

expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an

estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current

conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost,

including loan receivables and held-to-maturity debt securities, and some off -balance sheet credit exposures such as

unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount

expected to be collected by using an allowance for credit losses. 

In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require

credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management

does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the

modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures.

The transition adjustment upon the adoption of CECL on January 1, 2023 included an increase in the allowance for credit

losses on loans of $

1.0

 million, which is presented as a reduction to net loans outstanding, and an increase in the allowance

for credit losses on unfunded loan commitments of $

0.1

 million, which is recorded within other liabilities. The Company

recorded a net decrease to retained earnings of $0.8 million as of January 1, 2023 for the cumulative effect of adopting

CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for

reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be

reported in accordance with previously applicable accounting standards.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-

temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have

any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined

that an allowance for credit losses on available for sale securities was not deemed material. 

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to

reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is

90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that

this policy results in the timely reversal of uncollectible interest.

The Company also adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt

Restructurings and Vintage Disclosures” on January 1, 2023, the effective date of the guidance, on a prospective basis.

ASU 2022-02 eliminated the accounting guidance for TDRs, while enhancing disclosure requirements for certain loan

refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than

applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring

guidance to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, ASU

2022-02 requires an entity to disclose current-period gross write-offs by year of origination for financing receivables within

the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. ASU 2022-02 did not

have a material impact on the Company’s consolidated financial statements.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported

at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and

deferred fees and costs. Accrued interest receivable related to loans is recorded in other assets on the consolidated balance

sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination

costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating

prepayments.

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in

the process of collection, or when management believes, after considering economic and business conditions and collection

efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on

contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days

after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such

loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery

method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status

when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment

performance, and future payments are reasonably assured.

Allowance for Credit Losses – Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net

amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the

uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously

charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the

balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from

both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. 

The Company’s loan loss estimation process includes procedures to appropriately consider the unique characteristics of its

respective loan segments (commercial and industrial, construction and land development, commercial real estate,

multifamily, residential real estate, and consumer loans). These segments are further disaggregated into loan classes, the

level at which credit quality is monitored. See Note 5, Loans and Allowance for Credit Losses, for additional information

about our loan portfolio.

Credit loss assumptions are estimated using a discounted cash flow ("DCF") model for each loan segment, except consumer

loans. The weighted average remaining life method is used to estimate credit loss assumptions for consumer loans. 

The DCF model calculates an expected life-of-loan loss percentage by considering the forecasted probability that a

borrower will default (the “PD”), adjusted for relevant forecasted macroeconomic factors, and LGD, which is the estimate

of the amount of net loss in the event of default. This model utilizes historical correlations between default experience and

certain macroeconomic factors as determined through a statistical regression analysis. The forecasted Alabama

unemployment rate is considered in the model for commercial and industrial, construction and land development,

commercial real estate, multifamily, and residential real estate loans. In addition, forecasted changes in the Alabama home

price index is considered in the model for construction and land development and residential real estate loans; forecasted

changes in the national commercial real estate (“CRE”) price index is considered in the model for commercial real estate

and multifamily loans; and forecasted changes in the Alabama gross state product is considered in the model for

multifamily loans. Projections of these macroeconomic factors, obtained from an independent third party, are utilized to

predict quarterly rates of default based on the statistical PD models. 

Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments and principal

payments (“curtailments”) when appropriate. Management's determination of the contract term excludes expected

extensions, renewals, and modifications unless the extension or renewal option is included in the contract at the reporting

date and is not unconditionally cancellable by the Company. To the extent the lives of the loans in the portfolio extend

beyond the period for which a reasonable and supportable forecast can be made (which is 4 quarters for the Company), the

Company reverts, on a straight-line basis back to the historical rates over an 8 quarter reversion period.

The weighted average remaining life method was deemed most appropriate for the consumer loan segment because

consumer loans contain many different payment structures, payment streams and collateral. The weighted average

remaining life method uses an annual charge-off rate over several vintages to estimate credit losses. The average annual

charge-off rate is applied to the contractual term adjusted for prepayments.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are

believed likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may

increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan

review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in

underlying collateral, external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that

foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the

estimated fair value of collateral held at the reporting date, adjusted for selling costs as appropriate. 

Allowance for Credit Losses – Unfunded Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial

letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of

nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the

contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to

extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s consolidated

statements of earnings. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment

at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans,

taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for

unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

On January 1, 2023, the Company recorded an adjustment for unfunded commitments of $77 thousand for the adoption of

ASC 326. At June 30, 2023, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities

was $

0.3

 million.

Provision for Credit Losses

The composition of the provision for (recoveries of) credit losses for the respective periods is presented below.

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2023

2022

2023

2022

Provision for credit losses:

Loans

$

(331)

$

— 

$

(291)

$

(250)

Reserve for unfunded commitments (1)

(31)

— 

(5)

— 

Total provision for credit losses

$

(362)

$

— 

$

(296)

$

(250)

(1)

Reserve requirements for unfunded commitments were reported as a component of other noninterest expense prior

to the adoption of ASC 326.

XML

Basic and Diluted Earnings Per Share

6 Months Ended

Jun. 30, 2023

Basic and Diluted Earnings Per Share [Abstract]

Basic and Diluted Earnings Per Share Text Block

NOTE 2: BASIC AND DILUTED NET EARNINGS PER SHARE

Basic net earnings per share is computed by dividing net earnings by the weighted average common shares outstanding for

the respective period. Diluted net earnings per share reflect the potential dilution that could occur upon exercise of

securities or other rights for, or convertible into, shares of the Company’s common stock. At June 30, 2023 and 2022,

respectively, the Company had no such securities or rights issued or outstanding, and therefore, no dilutive effect to

consider for the diluted net earnings per share calculation.

The basic and diluted net earnings per share computations for the respective periods are presented below

Quarter ended June 30,

Six months ended June 30,

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

2023

2022

2023

2022

Basic and diluted:

Net earnings

$

1,928

$

1,801

$

3,892

$

3,882

Weighted average common shares outstanding

3,500,064

3,513,353

3,501,098

3,515,991

Net earnings per share

$

0.55

$

0.51

$

1.11

$

1.10

XML

Variable Interest Entities

6 Months Ended

Jun. 30, 2023

Variable Interest Entity [Abstract]

Variable Interest Entity (Text Block Disclosure]

NOTE 3: VARIABLE INTEREST ENTITIES

Generally, a variable interest entity (“VIE”) is a corporation, partnership, trust or other legal structure that does not have

equity investors with substantive or proportional voting rights or has equity investors that do not provide sufficient financial

resources for the entity to support its activities. 

At June 30, 2023, the Company did not have any consolidated VIEs to disclose but did have one nonconsolidated VIE,

discussed below.

New Markets Tax Credit Investment

The New Markets Tax Credit (“NMTC”) program provides federal tax incentives to investors to make investments in

distressed communities and promotes economic improvement through the development of successful businesses in these

communities. The NMTC is available to investors over seven years and is subject to recapture if certain events occur

during such period. At June 30, 2023 and December 31, 2022, respectively, the Company had one such investment in the

amounts of $1.9 million and $2.1 million, respectively, which was included in other assets in the consolidated balance

sheets. The Company’s equity investment in the NMTC entity meets the definition of a VIE. While the Company’s

investment exceeds 50% of the outstanding equity interests, the Company does not consolidate the VIE because it does not

meet the characteristics of a primary beneficiary since the Company lacks the power to direct the activities of the VIE.

(Dollars in thousands)

Maximum

Loss Exposure

Asset Recognized

Classification

Type:

New Markets Tax Credit investment

$

1,906

$

1,906

Other assets

XML

Securities

6 Months Ended

Jun. 30, 2023

Investments debt and equity securities [Abstract]

Investments In Debt And Marketable Equity Securities And Certain Trading Assets Disclosure Text Block

NOTE 4: SECURITIES

At June 30, 2023 and December 31, 2022, respectively, all securities within the scope of ASC 320,

Investments – Debt and

Equity Securities,

were classified as available-for-sale. The fair value and amortized cost for securities available-for-sale

by contractual maturity at June 30, 2023 and December 31, 2022, respectively, are presented below.

1 year

1 to 5

5 to 10

After 10

Fair

Gross Unrealized 

Amortized

(Dollars in thousands)

or less

years

years

years

Value

Gains

Losses

Cost

June 30, 2023

Agency obligations (a)

$

5,306

59,203

60,643

—

125,152

—

15,422

$

140,574

Agency MBS (a)

—

6,687

31,155

169,138

206,980

—

31,769

238,749

State and political subdivisions

300

1,014

15,354

45,279

61,947

14

4,998

66,931

Total available-for-sale

$

5,606

66,904

107,152

214,417

394,079

14

52,189

$

446,254

December 31, 2022

Agency obligations (a)

$

4,935

50,746

69,936

—

125,617

—

15,826

$

141,443

Agency MBS (a)

—

7,130

27,153

183,877

218,160

—

33,146

251,306

State and political subdivisions

300

642

15,130

45,455

61,527

11

5,681

67,197

Total available-for-sale

$

5,235

58,518

112,219

229,332

405,304

11

54,653

$

459,946

(a) Includes securities issued by U.S. government agencies or government-sponsored entities.

Securities with aggregate fair values of $

215.9

 million and $

208.3

 million at June 30, 2023 and December 31, 2022,

respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, Federal Home Loan

Bank of Atlanta (“FHLB of Atlanta”) advances, and for other purposes required or permitted by law. 

Included in other assets on the accompanying consolidated balance sheets are non-marketable equity investments. The

carrying amounts of non-marketable equity investments were $

1.2

 million at June 30, 2023 and December 31, 2022,

respectively. Non-marketable equity investments include FHLB of Atlanta Stock, Federal Reserve Bank of Atlanta

(“FRB”) stock, and stock in a privately held financial institution.

Gross Unrealized Losses and Fair Value

The fair values and gross unrealized losses on securities at June 30, 2023 and December 31, 2022, respectively, segregated

by those securities that have been in an unrealized loss position for less than 12 months and 12 months or longer, are

presented below.

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(Dollars in thousands)

Value

Losses

Value

Losses

Value

Losses

June 30, 2023:

Agency obligations 

$

17,994

1,243

107,158

14,179

$

125,152

15,422

Agency MBS

22,246

1,332

184,734

30,437

206,980

31,769

State and political subdivisions

17,358

330

39,727

4,668

57,085

4,998

Total 

$

57,598

2,905

331,619

49,284

$

389,217

52,189

December 31, 2022:

Agency obligations 

$

55,931

4,161

69,686

11,665

$

125,617

15,826

Agency MBS

70,293

5,842

147,867

27,304

218,160

33,146

State and political subdivisions

44,777

2,176

13,043

3,505

57,820

5,681

Total 

$

171,001

12,179

230,596

42,474

$

401,597

54,653

For the securities in the previous table, the Company assesses whether or not it intends to sell or is more likely than not that

the Company will be required to sell the securities before recovery of the amortized cost basis, which may be maturity. 

Because the Company currently does not intend to sell those securities that have an unrealized loss at June 30, 2023 and it

is not more-likely-than-not that the Company will be required to sell the security before recovery of their amortized cost

bases, which may be maturity, the Company has determined that no provision for credit loss is necessary. In addition, the

Company evaluates whether any portion of the decline in fair value of available-for-sale securities is the result of credit

deterioration, which would require the recognition of a provision to increase the allowance for credit losses. Such

evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings

and any other known adverse conditions related to the specific security. The unrealized losses associated with available-for-

sale securities at June 30, 2023 are driven by changes in market interest rates and are not due to the credit quality of the

securities, and accordingly, no allowance for credit losses is considered necessary related to available-for-sale securities at

June 30, 2023. These securities will continue to be monitored as a part of the Company's ongoing evaluation of credit

quality. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable

that the issuers can make all contractual principal and interest payments.

Realized Gains and Losses

The Company had no realized gains and losses on sale of securities during the quarter and six months ended June 30, 2023

and 2022, respectively.

XML

Loan and Allowance for Credit Losses

6 Months Ended

Jun. 30, 2023

Loans And Leases Receivable Disclosure [Abstract]

Loans and leases receivable disclosure [Text Block]

NOTE 5: LOANS AND ALLOWANCE FOR CREDIT LOSSES

June 30,

December 31,

(Dollars in thousands)

2023

2022

Commercial and industrial

$

61,880

$

66,212

Construction and land development

63,874

66,479

Commercial real estate:

Owner occupied

67,679

61,125

Hotel/motel

37,511

33,378

Multi-family

44,431

41,084

Other

126,180

128,986

Total commercial real estate

275,801

264,573

Residential real estate:

Consumer mortgage

53,674

45,370

Investment property

56,160

52,278

Total residential real estate

109,834

97,648

Consumer installment

9,022

9,546

Total Loans

$

520,411

$

504,458

Loans secured by real estate were approximately

86.4%

 of the Company’s total loan portfolio at June 30, 2023. At June 30,

2023, the Company’s geographic loan distribution was concentrated primarily in Lee County, Alabama, and surrounding

areas.

The loan portfolio segment is defined as the level at which an entity develops and documents a systematic method for

determining its allowance for credit losses. As part of the Company’s quarterly assessment of the allowance, the loan

portfolio included the following portfolio segments: commercial and industrial, construction and land development,

commercial real estate, residential real estate, and consumer installment. Where appropriate, the Company’s loan portfolio

segments are further disaggregated into classes. A class is generally determined based on the initial measurement attribute,

risk characteristics of the loan, and an entity’s method for monitoring and determining credit risk.

The following describes the risk characteristics relevant to each of the portfolio segments and classes.

Commercial and industrial (“C&I”) —

includes loans to finance business operations, equipment purchases, or other needs

for small and medium-sized commercial customers. Also included in this category are loans to finance agricultural

production. Generally, the primary source of repayment is the cash flow from business operations and activities of the

borrower. 

Construction and land development (“C&D”) —

includes both loans and credit lines for the purpose of purchasing,

carrying, and developing land into commercial developments or residential subdivisions. Also included are loans and credit

lines for construction of residential, multi-family, and commercial buildings. Generally, the primary source of repayment is

dependent upon the sale or refinance of the real estate collateral.

Commercial real estate (“CRE”) —

includes loans in these classes: 

●

Owner occupied

 – includes loans secured by business facilities to finance business operations, equipment and

owner-occupied facilities primarily for small and medium-sized commercial customers. Generally, the primary

source of repayment is the cash flow from business operations and activities of the borrower, who owns the

property.

●

Hotel/motel

– includes loans for hotels and motels. Generally, the primary source of repayment is dependent upon

income generated from the hotel/motel securing the loan. The underwriting of these loans takes into consideration

the occupancy and rental rates, as well as the financial health of the borrower.

●

Multi-family

 – primarily includes loans to finance income-producing multi-family properties . These include loans

for 5 or more unit residential properties and apartments leased to residents. Generally , the primary source of

repayment is dependent upon income generated from the real estate collateral. The underwriting of these loans

takes into consideration the occupancy and rental rates, as well as the financial health of the respective borrowers. 

●

Other

 – primarily includes loans to finance income-producing commercial properties other than hotels/motels and

multi-family properties, and which are not owner occupied. Loans in this class include loans for neighborhood

retail centers, medical and professional offices, single retail stores, industrial buildings, and warehouses leased to

local and other businesses. Generally, the primary source of repayment is dependent upon income generated from

the real estate collateral. The underwriting of these loans takes into consideration the occupancy and rental rates,

as well as the financial health of the borrower. 

Residential real estate (“RRE”) —

includes loans in these two classes:

●

Consumer mortgage

 – primarily includes first or second lien mortgages and home equity lines of credit to

consumers that are secured by a primary residence or second home. These loans are underwritten in accordance

with the Bank’s general loan policies and procedures which require, among other things, proper documentation of

each borrower’s financial condition, satisfactory credit history , and property value. 

●

Investment property

 – primarily includes loans to finance income-producing 1-4 family residential properties.

Generally, the primary source of repayment is dependent upon income generated from leasing the property

securing the loan. The underwriting of these loans takes into consideration the rental rates and property values, as

well as the financial health of the borrowers. 

Consumer installment —

includes loans to individuals, which may be secured by personal property or are unsecured. Loans

include personal lines of credit, automobile loans, and other retail loans. These loans are underwritten in accordance with

the Bank’s general loan policies and procedures which require, among other things, proper documentation of each

borrower’s financial condition, satisfactory credit history, and, if applicable, property values.

The following is a summary of current, accruing past due, and nonaccrual loans by portfolio segment and class as of June

30, 2023 and December 31, 2022.

Accruing

Accruing

Total

30-89 Days

Greater than

Accruing

Non-

Total 

(Dollars in thousands)

Current

Past Due

90 days

Loans

Accrual

Loans

June 30, 2023:

Commercial and industrial

$

61,701

1

—

61,702

178

$

61,880

Construction and land development

63,874

—

—

63,874

—

63,874

Commercial real estate:

Owner occupied

66,860

—

—

66,860

819

67,679

Hotel/motel

37,511

—

—

37,511

—

37,511

Multi-family

44,431

—

—

44,431

—

44,431

Other

126,180

—

—

126,180

—

126,180

Total commercial real estate

274,982

—

—

274,982

819

275,801

Residential real estate:

Consumer mortgage

53,432

118

—

53,550

124

53,674

Investment property

56,117

15

—

56,132

28

56,160

Total residential real estate

109,549

133

—

109,682

152

109,834

Consumer installment

9,000

22

—

9,022

—

9,022

Total

$

519,106

156

—

519,262

1,149

$

520,411

December 31, 2022:

Commercial and industrial

$

65,764

5

—

65,769

443

$

66,212

Construction and land development

66,479

—

—

66,479

—

66,479

Commercial real estate:

Owner occupied

61,125

—

—

61,125

—

61,125

Hotel/motel

33,378

—

—

33,378

—

33,378

Multi-family

41,084

—

—

41,084

—

41,084

Other

126,870

—

—

126,870

2,116

128,986

Total commercial real estate

262,457

—

—

262,457

2,116

264,573

Residential real estate:

Consumer mortgage

45,160

38

—

45,198

172

45,370

Investment property

52,278

—

—

52,278

—

52,278

Total residential real estate

97,438

38

—

97,476

172

97,648

Consumer installment

9,506

40

—

9,546

—

9,546

Total

$

501,644

83

—

501,727

2,731

$

504,458

Credit Quality Indicators

The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the

standard asset classification system used by the federal banking agencies. The following table presents credit quality

indicators for the loan portfolio segments and classes by year of origination as of June 30, 2023. These categories are

utilized to develop the associated allowance for credit losses using historical losses adjusted for qualitative and

environmental factors and are defined as follows: 

●

Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if

any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

●

Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or

inadequately protect the Company’s position at some future date. These loans are not adversely classified and do

not expose an institution to sufficient risk to warrant an adverse classification.

●

Substandard Accruing – loans that exhibit a well-defined weakness which presently jeopardizes debt repayment,

even though they are currently performing. These loans are characterized by the distinct possibility that the

Company may incur a loss in the future if these weaknesses are not corrected .

●

Nonaccrual – includes loans where management has determined that full payment of principal and interest is not

expected.

(Dollars in thousands)

2023

2022

2021

2020

2019

Prior to

2019

Revolving

Loans

Total 

Loans

June 30, 2023: 

Commercial and industrial

Pass

$

5,888

12,207

14,564

5,926

7,644

8,366

6,810

$

61,405

Special mention

—

—

—

—

—

—

203

203

Substandard

58

—

27

—

9

—

—

94

Nonaccrual

—

—

—

—

178

—

—

178

Total commercial and industrial

5,946

12,207

14,591

5,926

7,831

8,366

7,013

61,880

Current period gross charge-offs

—

—

—

—

—

—

—

—

Construction and land development

Pass

18,973

39,757

2,957

1,584

140

185

278

63,874

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total construction and land development

18,973

39,757

2,957

1,584

140

185

278

63,874

Current period gross charge-offs

—

—

—

—

—

—

—

—

Commercial real estate:

Owner occupied

Pass

9,644

7,779

18,781

11,072

4,864

11,168

3,267

66,575

Special mention

—

—

232

—

—

—

—

232

Substandard

—

—

—

—

53

—

—

53

Nonaccrual

—

—

—

—

819

—

—

819

Total owner occupied

9,644

7,779

19,013

11,072

5,736

11,168

3,267

67,679

Current period gross charge-offs

—

—

—

—

—

—

—

—

Hotel/motel

Pass

6,533

10,087

3,264

1,586

4,022

12,019

—

37,511

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total hotel/motel

6,533

10,087

3,264

1,586

4,022

12,019

—

37,511

Current period gross charge-offs

—

—

—

—

—

—

—

—

(Dollars in thousands)

2023

2022

2021

2020

2019

Prior to

2019

Revolving

Loans

Total 

Loans

June 30, 2023: 

Multi-family

Pass

8,039

19,240

1,991

6,213

3,856

3,166

1,926

44,431

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total multi-family

8,039

19,240

1,991

6,213

3,856

3,166

1,926

44,431

Current period gross charge-offs

—

—

—

—

—

—

—

—

Other

Pass

9,264

37,412

32,595

15,241

11,061

19,542

906

126,021

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

159

—

—

—

159

Nonaccrual

—

—

—

—

—

—

—

—

Total other

9,264

37,412

32,595

15,400

11,061

19,542

906

126,180

Current period gross charge-offs

—

—

—

—

—

—

—

—

Residential real estate:

Consumer mortgage

Pass

11,623

20,752

2,769

2,847

1,545

13,125

6

52,667

Special mention

—

—

—

—

—

379

—

379

Substandard

—

—

—

—

—

504

—

504

Nonaccrual

—

—

—

—

—

124

—

124

Total consumer mortgage

11,623

20,752

2,769

2,847

1,545

14,132

6

53,674

Current period gross charge-offs

—

—

—

—

—

—

—

—

Investment property

Pass

8,327

13,638

10,155

13,415

5,911

2,707

1,446

55,599

Special mention

43

250

—

—

—

—

—

293

Substandard

—

—

—

240

—

—

—

240

Nonaccrual

—

—

—

—

—

28

—

28

Total investment property

8,370

13,888

10,155

13,655

5,911

2,735

1,446

56,160

Current period gross charge-offs

—

—

—

—

—

—

—

—

Consumer installment

Pass

2,671

4,595

1,002

369

153

184

—

8,974

Special mention

—

—

1

4

—

—

—

5

Substandard

14

17

10

—

2

—

—

43

Nonaccrual

—

—

—

—

—

—

—

—

Total consumer installment

2,685

4,612

1,013

373

155

184

—

9,022

Current period gross charge-offs

29

24

13

1

—

—

—

67

Total loans

Pass

80,960

165,467

88,078

58,253

39,195

70,461

14,643

517,057

Special mention

43

250

233

4

—

379

203

1,112

Substandard

72

17

37

399

64

504

—

1,093

Nonaccrual

—

—

—

—

997

152

—

1,149

Total loans

$

81,075

165,734

88,348

58,656

40,256

71,496

14,846

$

520,411

Total current period gross charge-offs

$

29

24

13

1

—

—

—

67

(Dollars in thousands)

 Pass

 Special

Mention

Substandard

Accruing

Nonaccrual

Total loans

December 31, 2022:

Commercial and industrial

$

65,550

7

212

443

$

66,212

Construction and land development

66,479

—

—

—

66,479

Commercial real estate:

Owner occupied

60,726

238

161

—

61,125

Hotel/motel

33,378

—

—

—

33,378

Multi-family

41,084

—

—

—

41,084

Other

126,700

170

—

2,116

128,986

Total commercial real estate

261,888

408

161

2,116

264,573

Residential real estate:

Consumer mortgage

44,172

439

587

172

45,370

Investment property

51,987

43

248

—

52,278

Total residential real estate

96,159

482

835

172

97,648

Consumer installment

9,498

1

47

—

9,546

Total

$

499,574

898

1,255

2,731

$

504,458

The following table is a summary of the Company’s nonaccrual loans by major categories as of June 30, 2023 and

December 31, 2022.

CECL

Incurred Loss

June 30, 2023

December 31, 2022

Nonaccrual

Nonaccrual

Total

Loans with

Loans with an

Nonaccrual

Nonaccrual

(Dollars in thousands)

No Allowance

Allowance

Loans

Loans

Commercial and industrial

$

178

—

178

$

443

Commercial real estate

819

—

819

2,116

Residential real estate

152

—

152

172

Total 

$

1,149

—

1,149

$

2,731

The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to

determine expected credit losses:

(Dollars in thousands)

Real Estate

Business Assets

Total Loans

June 30, 2023:

Commercial and industrial

$

—

178

$

178

Commercial real estate

819

—

819

Total 

$

819

178

$

997

Allowance for Credit Losses

The Company adopted ASC 326 on January 1, 2023, which introduced the CECL methodology for estimating all expected

losses over the life of a financial asset. Under the CECL methodology, the allowance for credit losses is measured on a

collective basis for pools of loans with similar risk characteristics, and for loans that do not share similar risk characteristics

with the collectively evaluated pools, evaluations are performed on an individual basis.

The following table details the changes in the allowance for credit losses by portfolio segment for the respective periods.

June 30, 2023

(Dollars in thousands)

Commercial and

industrial

Construction

and land

development

Commercial

real estate

Residential

real estate

Consumer

installment

Total

Quarter ended:

Beginning balance

$

1,232

1,021

3,966

497

105

$

6,821

Charge-offs

—

—

—

—

(56)

(56)

Recoveries

194

—

—

5

1

200

Net recoveries (charge-offs)

194

—

—

5

(55)

144

Provision for credit losses

(228)

(16)

(178)

27

64

(331)

Ending balance

$

1,198

1,005

3,788

529

114

$

6,634

Six months ended:

Beginning balance

$

747

949

3,109

828

132

$

5,765

Impact of adopting ASC 326

532

(17)

873

(347)

(22)

1,019

Charge-offs

—

—

—

—

(67)

(67)

Recoveries

196

—

—

10

2

208

Net recoveries (charge-offs)

196

—

—

10

(65)

141

Provision for credit losses

(277)

73

(194)

38

69

(291)

Ending balance

$

1,198

1,005

3,788

529

114

$

6,634

June 30, 2022

(Dollars in thousands)

Commercial and

industrial

Construction

and land

development

Commercial

real estate

Residential

real estate

Consumer

installment

Total

Quarter ended:

Beginning balance

$

774

508

2,536

737

103

$

4,658

Charge-offs

(4)

—

—

—

(16)

(20)

Recoveries

2

—

22

7

47

78

Net (charge-offs) recoveries

(2)

—

22

7

31

58

Provision for loan losses

(11)

68

(35)

9

(31)

—

Ending balance

$

761

576

2,523

753

103

$

4,716

Six months ended:

Beginning balance

$

857

518

2,739

739

86

$

4,939

Charge-offs

(4)

—

—

—

(64)

(68)

Recoveries

4

—

22

14

55

95

Net recoveries (charge-offs)

—

—

22

14

(9)

27

Provision for loan losses

(96)

58

(238)

—

26

(250)

Ending balance

$

761

576

2,523

753

103

$

4,716

The following table presents an analysis of the allowance for loan losses and recorded investment in loans by portfolio

segment and impairment methodology as of June 30, 2022 as determined, prior to the adoption of ASC 326.

Collectively evaluated (1)

Individually evaluated (2)

Total

Allowance

Recorded

Allowance

Recorded

Allowance

Recorded

for loan

investment

for loan

investment

for loan

investment

(In thousands)

losses

in loans

losses

in loans

losses

in loans

June 30, 2022:

Commercial and industrial

$

761

70,087

—

—

761

70,087

Construction and land development

576

38,654

—

—

576

38,654

Commercial real estate

2,523

240,120

—

176

2,523

240,296

Residential real estate

753

85,224

—

—

753

85,224

Consumer installment

103

7,122

—

—

103

7,122

Total

$

4,716

441,207

—

176

4,716

441,383

(1)

Represents loans collectively evaluated for impairment, prior to the adopton of ASC 326, in accordance with ASC 450-20,

Loss

Contingencies, and pursuant to amendments by ASU 2010-20 regarding allowance for non-impaired loans.

(2)

Represents loans individually evaluated for impairment, prior to the adoption of ASC 326, in accordance with ASC 310-30, 

Receivables, and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

Impaired loans

The following tables present impaired loans at December 31, 2022 as determined under ASC 310 prior to the adoption of

ASC 326. Loans that have been fully charged-off are not included in the following tables. The related allowance generally

represents the following components that correspond to impaired loans:

●

Individually evaluated impaired loans equal to or greater than $500 thousand secured by real estate (nonaccrual

construction and land development, commercial real estate, and residential real estate loans).

●

Individually evaluated impaired loans equal to or greater than $250 thousand not secured by real estate

(nonaccrual commercial and industrial and consumer installment loans).

The following tables set forth certain information regarding the Company’s impaired loans that were individually evaluated

for impairment at December 31, 2022.

December 31, 2022

(Dollars in thousands)

Unpaid principal

balance (1)

Charge-offs and

payments applied

(2)

Recorded

investment (3)

Related allowance

With no allowance recorded:

Commercial and industrial

$

210

(1)

209

$

—

Commercial real estate:

Owner occupied

858

(3)

855

Total commercial real estate

858

(3)

855

—

Total 

1,068

(4)

1,064

—

With allowance recorded:

Commercial and industrial

234

—

234

$

59

Commercial real estate:

Owner occupied

1,261

—

1,261

446

Total commercial real estate

1,261

—

1,261

446

Total 

1,495

—

1,495

505

Total impaired loans

$

2,563

(4)

2,559

$

505

(1) Unpaid principal balance represents the contractual obligation due from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been

applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.

(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before

 any related allowance for loan losses.

Pursuant to the adoption of ASU 2022-02, effective January 1, 2023, the Company prospectively discontinued the

recognition and measurement guidance previously required for troubled debt restructurings (TDRs). As of June 30, 2023,

the Company had no loans that would have previously required disclosure as TDRs.

The following table provides the average recorded investment in impaired loans, if any, by portfolio segment, and the

amount of interest income recognized on impaired loans after impairment by portfolio segment and class during the quarter

and six months ended June 30, 2023 as determined under ASC 310 prior to the adoption of ASC 326.

Quarter ended June 30, 2022

Six months ended June 30, 2022

Average

Total interest

Average

Total interest

recorded

income

recorded

income

(Dollars in thousands)

investment

recognized

investment

recognized

Impaired loans:

Commercial real estate:

Other

$

180

—

$

212

—

Total commercial real estate

180

—

212

—

Residential real estate:

Investment property

—

—

9

—

Total residential real estate

—

—

9

—

Total 

$

180

—

$

221

—

XML

Mortgage Servicing Rights, Net

6 Months Ended

Jun. 30, 2023

Mortgage Servicing [Abstract]

Transfers and Servicing of Financial Assets [Text Block]

NOTE 6: MORTGAGE SERVICING RIGHTS, NET

Mortgage servicing rights (“MSRs”) are recognized based on the fair value of the servicing rights on the date the

corresponding mortgage loans are sold. An estimate of the fair value of the Company’s MSRs is determined using

assumptions that market participants would use in estimating future net servicing income, including estimates of

prepayment speeds, discount rates, default rates, costs to service, escrow account earnings, contractual servicing fee

income, ancillary income, and late fees. Subsequent to the date of transfer, the Company has elected to measure its MSRs

under the amortization method. Under the amortization method, MSRs are amortized in proportion to, and over the period

of, estimated net servicing income. 

The Company generally sells, without recourse, conforming, fixed-rate, closed-end, residential mortgages to Fannie Mae,

where the Company services the mortgages sold and records MSRs. MSRs are included in other assets on the

accompanying consolidated balance sheets.

The Company evaluates MSRs for impairment on a quarterly basis. Impairment is determined by stratifying MSRs into

groupings based on predominant risk characteristics, such as interest rate and loan type. If, by individual stratum, the

carrying amount of the MSRs exceeds fair value, a valuation allowance is established. The valuation allowance is adjusted

as the fair value changes. Changes in the valuation allowance are recognized in earnings as a component of mortgage

lending income. 

The following table details the changes in amortized MSRs and the related valuation allowance for the respective periods.

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2023

2022

2023

2022

MSRs, net:

Beginning balance

$

1,096

$

1,285

$

1,151

$

1,309

Additions, net

9

43

9

97

Amortization expense

(55)

(69)

(110)

(147)

Ending balance

$

1,050

$

1,259

$

1,050

$

1,259

Valuation allowance included in MSRs, net:

Beginning of period

$

—

$

—

$

—

$

—

End of period

—

—

—

—

Fair value of amortized MSRs:

Beginning of period

$

2,419

$

2,277

$

2,369

$

1,908

End of period

2,312

2,547

2,312

2,547

XML

Fair Value Disclosures

6 Months Ended

Jun. 30, 2023

Fair Value Disclosures [Abstract]

Fair Value Disclosures Text Block

NOTE 7: FAIR VALUE 

Fair Value Hierarchy

 “Fair value” is defined by ASC 820,

Fair Value Measurements and Disclosures

, as the price that would be received to sell

an asset or paid to transfer a liability in an orderly transaction occurring in the principal market (or most advantageous

market in the absence of a principal market) for an asset or liability at the measurement date. GAAP establishes a fair

value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or

liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1—inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active

markets. 

Level 2—inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,

quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable for the

asset or liability, either directly or indirectly. 

Level 3—inputs to the valuation methodology are unobservable and reflect the Company’s own assumptions about the

inputs market participants would use in pricing the asset or liability. 

Level changes in fair value measurements 

Transfers between levels of the fair value hierarchy are generally recognized at the end of each reporting period. The

Company monitors the valuation techniques utilized for each category of financial assets and liabilities to ascertain when

transfers between levels have been affected. The nature of the Company’s financial assets and liabilities generally is such

that transfers in and out of any level are expected to be infrequent. For the six months ended June 30, 2023, there were no

transfers between levels and no changes in valuation techniques for the Company’s financial assets and liabilities.

Assets and liabilities measured at fair value on a recurring basis

Securities available-for-sale

Fair values of securities available for sale were primarily measured using Level 2 inputs. For these securities, the Company

obtains pricing data from third party pricing services. These third party pricing services consider observable data that may

include broker/dealer quotes, market spreads, cash flows, benchmark yields, reported trades for similar securities, market

consensus prepayment speeds, credit information, and the securities’ terms and conditions. On a quarterly basis,

management reviews the pricing data received from the third party pricing services for reasonableness given current market

conditions. As part of its review, management may obtain non-binding third party broker/dealer quotes to validate the fair

value measurements. In addition, management will periodically submit pricing information provided by the third party

pricing services to another independent valuation firm on a sample basis. This independent valuation firm will compare the

prices provided by the third party pricing service with its own prices and will review the significant assumptions and

valuation methodologies used with management.

The following table presents the balances of the assets and liabilities measured at fair value on a recurring basis as of June

30, 2023 and December 31, 2022, respectively, by caption, on the accompanying consolidated balance sheets by ASC 820

valuation hierarchy (as described above).

Quoted Prices in

Significant

Active Markets

Other

Significant

for

Observable

Unobservable

Identical Assets

Inputs

Inputs

(Dollars in thousands)

Amount

(Level 1)

(Level 2)

(Level 3)

June 30, 2023:

Securities available-for-sale:

Agency obligations 

$

125,152

—

125,152

—

Agency MBS

206,980

—

206,980

—

State and political subdivisions

61,947

—

61,947

—

Total securities available-for-sale

394,079

—

394,079

—

Total assets at fair value

$

394,079

—

394,079

—

December 31, 2022:

Securities available-for-sale:

Agency obligations 

$

125,617

—

125,617

—

Agency MBS

218,160

—

218,160

—

State and political subdivisions

61,527

—

61,527

—

Total securities available-for-sale

405,304

—

405,304

—

Total assets at fair value

$

405,304

—

405,304

—

Assets and liabilities measured at fair value on a nonrecurring basis

Collateral Dependent Loans

Collateral dependent loans are measured at the fair value of the collateral securing the loan less estimated selling costs. The

fair value of real estate collateral is determined based on real estate appraisals which are generally based on recent sales of

comparable properties which are then adjusted for property specific factors. Non-real estate collateral is valued based on

various sources, including third party asset valuations and internally determined values based on cost adjusted for

depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified within Level 3 of

the hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrower's

underlying financial condition.

Mortgage servicing rights, net

MSRs, net, included in other assets on the accompanying consolidated balance sheets, are carried at the lower of cost or

estimated fair value. MSRs do not trade in an active market with readily observable prices. To determine the fair value of

MSRs, the Company engages an independent third party. The independent third party’s valuation model calculates the

present value of estimated future net servicing income using assumptions that market participants would use in estimating

future net servicing income, including estimates of prepayment speeds, discount rates, default rates, costs to service, escrow

account earnings, contractual servicing fee income, ancillary income, and late fees. Periodically, the Company will review

broker surveys and other market research to validate significant assumptions used in the model. The significant

unobservable inputs include prepayment speeds or the constant prepayment rate (“CPR”) and the weighted average

discount rate. Because the valuation of MSRs requires the use of significant unobservable inputs, all of the Company’s

MSRs are classified within Level 3 of the valuation hierarchy.

The following table presents the balances of the assets and liabilities measured at fair value on a nonrecurring basis as of

June 30, 2023 and December 31, 2022, respectively, by caption, on the accompanying consolidated balance sheets and by

FASB ASC 820 valuation hierarchy (as described above):

Quoted Prices in

Active Markets

Other

Significant

for

Observable

Unobservable

Carrying

Identical Assets

Inputs

Inputs

(Dollars in thousands)

Amount

(Level 1)

(Level 2)

(Level 3)

June 30, 2023:

Loans, net

(1)

997

—

—

997

Other assets

(2)

1,050

—

—

1,050

Total assets at fair value

$

2,047

—

—

2,047

December 31, 2022:

Loans, net

(3)

2,054

—

—

2,054

Other assets

(2)

1,151

—

—

1,151

Total assets at fair value

$

3,205

—

—

3,205

(1)

Loans considered collateral dependent under ASC 326.

(2)

Represents MSRs, net, carried at lower of cost or estimated fair value.

(3)

Loans considered impaired under ASC 310-10-35 Receivables, prior to the adoption of ASC 326. This amount reflects the recorded 

investment in impaired loans, net of any related allowance for loan losses.

Quantitative Disclosures for Level 3 Fair Value Measurements

At June 30, 2023 and December 31, 2022, the Company had no Level 3 assets measured at fair value on a recurring basis. 

For Level 3 assets measured at fair value on a non-recurring basis at June 30, 2023 and and December 31, 2022, the

significant unobservable inputs used in the fair value measurements and the range of such inputs with respect to such assets

are presented below.

Range of

Weighted 

Carrying 

Significant 

Unobservable

Average

(Dollars in thousands)

Amount

Valuation Technique

Unobservable Input

Inputs

of Input

June 30, 2023:

Collateral dependent loans

$

997

Appraisal

Appraisal discounts

10.0

-

10.0

%

10.0

%

Mortgage servicing rights, net

1,050

Discounted cash flow

Prepayment speed or CPR

6.1

-

19.7

7.5

Discount rate

9.5

-

11.5

9.5

December 31, 2022:

Impaired loans

$

2,054

Appraisal

Appraisal discounts

10.0

-

10.0

%

10.0

%

Mortgage servicing rights, net

1,151

Discounted cash flow

Prepayment speed or CPR

5.2

-

18.6

7.5

Discount rate

9.5

-

11.5

9.5

Fair Value of Financial Instruments

ASC 825,

Financial Instruments

, requires disclosure of fair value information about financial instruments, whether or not

recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the

estimation of the fair value of the Company’s financial instruments are explained below. Where quoted market prices are

not available, fair values are based on estimates using discounted cash flow analyses. Discounted cash flows can be

significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The

following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered

representative of the liquidation value of the Company’s financial instruments, but rather are good-faith estimates of the fair

value of financial instruments held by the Company. ASC 825 excludes certain financial instruments and all nonfinancial

instruments from its disclosure requirements.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments: 

Loans, net 

Fair values for loans were calculated using discounted cash flows. The discount rates reflected current rates at which similar

loans would be made for the same remaining maturities. Expected future cash flows were projected based on contractual

cash flows, adjusted for estimated prepayments. The fair value of loans was measured using an exit price notion.

Time Deposits 

Fair values for time deposits were estimated using discounted cash flows. The discount rates were based on rates currently

offered for deposits with similar remaining maturities. 

The carrying value, related estimated fair value, and placement in the fair value hierarchy of the Company’s financial

instruments at June 30, 2023 and December 31, 2022 are presented below. This table excludes financial instruments for

which the carrying amount approximates fair value. Financial assets for which fair value approximates carrying value

included cash and cash equivalents. Financial liabilities for which fair value approximates carrying value included

noninterest-bearing demand deposits, interest-bearing demand deposits, and savings deposits. Fair value approximates

carrying value in these financial liabilities due to these products having no stated maturity. Additionally, financial

liabilities for which fair value approximates carrying value included overnight borrowings such as federal funds purchased

and securities sold under agreements to repurchase.

Fair Value Hierarchy

Carrying

Estimated

Level 1

Level 2

Level 3

(Dollars in thousands)

amount

fair value

inputs

inputs

Inputs

June 30, 2023:

Financial Assets:

Loans, net (1)

$

513,777

$

482,344

$

—

$

—

$

482,344

Financial Liabilities:

Time Deposits

$

174,529

$

170,342

$

—

$

170,342

$

—

December 31, 2022:

Financial Assets:

Loans, net (1)

$

498,693

$

484,007

$

—

$

—

$

484,007

Financial Liabilities:

Time Deposits

$

150,375

$

150,146

$

—

$

150,146

$

—

(1) Represents loans, net of allowance for credit losses. The fair value of loans was measured using an exit price notion.

XML

Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2023

Summary of Signficant Accounting Policies

Nature of Business Policy

General

Auburn National Bancorporation, Inc. (the “Company”) provides a full range of banking services to individuals and

commercial customers in Lee County, Alabama and surrounding areas through its wholly owned subsidiary, AuburnBank

(the “Bank”). The Company does not have any segments other than banking that are considered material.

Basis of Presentation Policy

Basis of Presentation and Use of Estimates

The unaudited consolidated financial statements in this report have been prepared in accordance with U.S. generally

accepted accounting principles (“GAAP”) for interim financial information. Accordingly, these financial statements do not

include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited

consolidated financial statements include, in the opinion of management, all adjustments necessary to present a fair

statement of the financial position and the results of operations for all periods presented. All such adjustments are of a

normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results of

operations that the Company and its subsidiaries may achieve for future interim periods or the entire year. For further

information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form

10-K for the year ended December 31, 2022.

Consolidation Policy

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. 

Significant intercompany transactions and accounts are eliminated in consolidation.

Use of Estimates Policy

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and

assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of

the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could

differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term

include the determination of allowance for credit losses investment securities, the determination of the allowance for credit

losses on loans, fair value of financial instruments, and the valuation of deferred tax assets and other real estate owned

(“OREO”).

Reclassification Policy

Reclassifications

Certain amounts reported in prior periods have been reclassified to conform to the current -period presentation. These

reclassifications had no material effect on the Company’s previously reported net earnings or total stockholders’ equity.

Revenue Recognition Policy

Revenue Recognition

On January 1, 2018, the Company implemented Accounting Standards Update (“ASU” or “updates”) 2014-09,

 Revenue

from Contracts with Customers

, codified at

 Accounting Standards Codification (“ASC”)

606. The Company adopted ASC

606 using the modified retrospective transition method. The majority of the Company’s revenue stream is generated from

interest income on loans and securities which are outside the scope of ASC 606. 

The Company’s sources of income that fall within the scope of ASC 606 include service charges on deposits, interchange

fees and gains and losses on sales of other real estate, all of which are presented as components of noninterest income. The

following is a summary of the revenue streams that fall within the scope of ASC 606: 

●

Service charges on deposits, investment services, ATM and interchange fees – Fees from these services are either

(i) transaction-based, for which the performance obligations are satisfied when the individual transaction is

processed, or (ii) set periodic service charges, for which the performance obligations are satisfied over the period

the service is provided. Transaction-based fees are recognized at the time the transaction is processed, and periodic

service charges are recognized over the service period.

●

Gains on sales of OREO

 –

A gain on sale should be recognized when a contract for sale exists and control of the

asset has been transferred to the buyer. ASC 606 lists several criteria required to conclude that a contract for sale

exists, including a determination that the institution will collect substantially all of the consideration to which it is

entitled. In addition to the loan-to-value ratio, where the seller provides the purchaser with financing, the analysis

is based on various other factors, including the credit quality of the purchaser, the structure of the loan, and any

other factors that we believe may affect collectability.

Subsequent Events Policy

Subsequent Events 

The Company has evaluated the effects of events and transactions through the date of this filing that have occurred

subsequent to June 30, 2023. The Company does not believe there were any material subsequent events during this period

that would have required further recognition or disclosure in the unaudited consolidated financial statements included in

this report.

Accounting Developments

Accounting Standards Adopted in 2023

On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement

of Credit Losses on Financial Instruments (ASC 326). This standard replaced the incurred loss methodology with an

expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an

estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current

conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost,

including loan receivables and held-to-maturity debt securities, and some off -balance sheet credit exposures such as

unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount

expected to be collected by using an allowance for credit losses. 

In addition, CECL made changes to the accounting for available for sale debt securities. One such change is to require

credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management

does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

The Company adopted ASC 326 and all related subsequent amendments thereto effective January 1, 2023 using the

modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures.

The transition adjustment upon the adoption of CECL on January 1, 2023 included an increase in the allowance for credit

losses on loans of $

1.0

 million, which is presented as a reduction to net loans outstanding, and an increase in the allowance

for credit losses on unfunded loan commitments of $

0.1

 million, which is recorded within other liabilities. The Company

recorded a net decrease to retained earnings of $0.8 million as of January 1, 2023 for the cumulative effect of adopting

CECL, which reflects the transition adjustments noted above, net of the applicable deferred tax assets recorded. Results for

reporting periods beginning after January 1, 2023 are presented under CECL while prior period amounts continue to be

reported in accordance with previously applicable accounting standards.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-

temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have

any other-than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, the Company determined

that an allowance for credit losses on available for sale securities was not deemed material. 

The Company elected not to measure an allowance for credit losses for accrued interest receivable and instead elected to

reverse interest income on loans or securities that are placed on nonaccrual status, which is generally when the instrument is

90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company has concluded that

this policy results in the timely reversal of uncollectible interest.

The Company also adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326): Troubled Debt

Restructurings and Vintage Disclosures” on January 1, 2023, the effective date of the guidance, on a prospective basis.

ASU 2022-02 eliminated the accounting guidance for TDRs, while enhancing disclosure requirements for certain loan

refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than

applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring

guidance to determine whether a modification results in a new loan or a continuation of an existing loan. Additionally, ASU

2022-02 requires an entity to disclose current-period gross write-offs by year of origination for financing receivables within

the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured at Amortized Cost. ASU 2022-02 did not

have a material impact on the Company’s consolidated financial statements.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported

at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums and discounts and

deferred fees and costs. Accrued interest receivable related to loans is recorded in other assets on the consolidated balance

sheets. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination

costs, are deferred and recognized in interest income using methods that approximate a level yield without anticipating

prepayments.

The accrual of interest is generally discontinued when a loan becomes 90 days past due and is not well collateralized and in

the process of collection, or when management believes, after considering economic and business conditions and collection

efforts, that the principal or interest will not be collectible in the normal course of business. Past due status is based on

contractual terms of the loan. A loan is considered to be past due when a scheduled payment has not been received 30 days

after the contractual due date.

All accrued interest is reversed against interest income when a loan is placed on nonaccrual status. Interest received on such

loans is accounted for using the cost-recovery method, until qualifying for return to accrual. Under the cost-recovery

method, interest income is not recognized until the loan balance is reduced to zero. Loans are returned to accrual status

when all the principal and interest amounts contractually due are brought current, there is a sustained period of repayment

performance, and future payments are reasonably assured.

Allowance for Credit Losses – Loans

The allowance for credit losses is a valuation account that is deducted from the loans' amortized cost basis to present the net

amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the

uncollectibility of a loan balance is confirmed. Expected recoveries do not exceed the aggregate of amounts previously

charged-off and expected to be charged-off. Accrued interest receivable is excluded from the estimate of credit losses.

The allowance for credit losses represents management’s estimate of lifetime credit losses inherent in loans as of the

balance sheet date. The allowance for credit losses is estimated by management using relevant available information, from

both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. 

The Company’s loan loss estimation process includes procedures to appropriately consider the unique characteristics of its

respective loan segments (commercial and industrial, construction and land development, commercial real estate,

multifamily, residential real estate, and consumer loans). These segments are further disaggregated into loan classes, the

level at which credit quality is monitored. See Note 5, Loans and Allowance for Credit Losses, for additional information

about our loan portfolio.

Credit loss assumptions are estimated using a discounted cash flow ("DCF") model for each loan segment, except consumer

loans. The weighted average remaining life method is used to estimate credit loss assumptions for consumer loans. 

The DCF model calculates an expected life-of-loan loss percentage by considering the forecasted probability that a

borrower will default (the “PD”), adjusted for relevant forecasted macroeconomic factors, and LGD, which is the estimate

of the amount of net loss in the event of default. This model utilizes historical correlations between default experience and

certain macroeconomic factors as determined through a statistical regression analysis. The forecasted Alabama

unemployment rate is considered in the model for commercial and industrial, construction and land development,

commercial real estate, multifamily, and residential real estate loans. In addition, forecasted changes in the Alabama home

price index is considered in the model for construction and land development and residential real estate loans; forecasted

changes in the national commercial real estate (“CRE”) price index is considered in the model for commercial real estate

and multifamily loans; and forecasted changes in the Alabama gross state product is considered in the model for

multifamily loans. Projections of these macroeconomic factors, obtained from an independent third party, are utilized to

predict quarterly rates of default based on the statistical PD models. 

Expected credit losses are estimated over the contractual term of the loan, adjusted for expected prepayments and principal

payments (“curtailments”) when appropriate. Management's determination of the contract term excludes expected

extensions, renewals, and modifications unless the extension or renewal option is included in the contract at the reporting

date and is not unconditionally cancellable by the Company. To the extent the lives of the loans in the portfolio extend

beyond the period for which a reasonable and supportable forecast can be made (which is 4 quarters for the Company), the

Company reverts, on a straight-line basis back to the historical rates over an 8 quarter reversion period.

The weighted average remaining life method was deemed most appropriate for the consumer loan segment because

consumer loans contain many different payment structures, payment streams and collateral. The weighted average

remaining life method uses an annual charge-off rate over several vintages to estimate credit losses. The average annual

charge-off rate is applied to the contractual term adjusted for prepayments.

Additionally, the allowance for credit losses calculation includes subjective adjustments for qualitative risk factors that are

believed likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may

increase or reduce reserve levels and include adjustments for lending management experience and risk tolerance, loan

review and audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, trends in

underlying collateral, external factors and economic conditions not already captured.

Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that

foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the

estimated fair value of collateral held at the reporting date, adjusted for selling costs as appropriate. 

Allowance for Credit Losses – Unfunded Commitments

Financial instruments include off-balance sheet credit instruments, such as commitments to make loans and commercial

letters of credit issued to meet customer financing needs. The Company’s exposure to credit loss in the event of

nonperformance by the other party to the financial instrument for off-balance sheet loan commitments is represented by the

contractual amount of those instruments. Such financial instruments are recorded when they are funded.

The Company records an allowance for credit losses on off-balance sheet credit exposures, unless the commitments to

extend credit are unconditionally cancelable, through a charge to provision for credit losses in the Company’s consolidated

statements of earnings. The allowance for credit losses on off-balance sheet credit exposures is estimated by loan segment

at each balance sheet date under the current expected credit loss model using the same methodologies as portfolio loans,

taking into consideration the likelihood that funding will occur as well as any third-party guarantees. The allowance for

unfunded commitments is included in other liabilities on the Company’s consolidated balance sheets.

On January 1, 2023, the Company recorded an adjustment for unfunded commitments of $77 thousand for the adoption of

ASC 326. At June 30, 2023, the liability for credit losses on off-balance-sheet credit exposures included in other liabilities

was $

0.3

 million.

XML

Summary Significant Accounting Policilies (Table)

6 Months Ended

Jun. 30, 2023

Summary of Signficant Accounting Policies

Accounting Policies [Table Text Block]

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2023

2022

2023

2022

Provision for credit losses:

Loans

$

(331)

$

— 

$

(291)

$

(250)

Reserve for unfunded commitments (1)

(31)

— 

(5)

— 

Total provision for credit losses

$

(362)

$

— 

$

(296)

$

(250)

(1)

Reserve requirements for unfunded commitments were reported as a component of other noninterest expense prior

to the adoption of ASC 326.

XML

Basic and Diluted Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2023

Basic and Diluted Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

Quarter ended June 30,

Six months ended June 30,

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

2023

2022

2023

2022

Basic and diluted:

Net earnings

$

1,928

$

1,801

$

3,892

$

3,882

Weighted average common shares outstanding

3,500,064

3,513,353

3,501,098

3,515,991

Net earnings per share

$

0.55

$

0.51

$

1.11

$

1.10

XML

Variable Interest Entity (Tables)

6 Months Ended

Jun. 30, 2023

Variable Interest Entity [Abstract]

Variable Interest Entity [Table Text Block]

(Dollars in thousands)

Maximum

Loss Exposure

Asset Recognized

Classification

Type:

New Markets Tax Credit investment

$

1,906

$

1,906

Other assets

XML

Securities (Tables)

6 Months Ended

Jun. 30, 2023

Investments debt and equity securities [Abstract]

Available-for-sale Securities [Table Text Block]

1 year

1 to 5

5 to 10

After 10

Fair

Gross Unrealized 

Amortized

(Dollars in thousands)

or less

years

years

years

Value

Gains

Losses

Cost

June 30, 2023

Agency obligations (a)

$

5,306

59,203

60,643

—

125,152

—

15,422

$

140,574

Agency MBS (a)

—

6,687

31,155

169,138

206,980

—

31,769

238,749

State and political subdivisions

300

1,014

15,354

45,279

61,947

14

4,998

66,931

Total available-for-sale

$

5,606

66,904

107,152

214,417

394,079

14

52,189

$

446,254

December 31, 2022

Agency obligations (a)

$

4,935

50,746

69,936

—

125,617

—

15,826

$

141,443

Agency MBS (a)

—

7,130

27,153

183,877

218,160

—

33,146

251,306

State and political subdivisions

300

642

15,130

45,455

61,527

11

5,681

67,197

Total available-for-sale

$

5,235

58,518

112,219

229,332

405,304

11

54,653

$

459,946

(a) Includes securities issued by U.S. government agencies or government-sponsored entities.

Available-for-sale Securities, Continuous Unrealized Loss Position [Table Text Block]

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(Dollars in thousands)

Value

Losses

Value

Losses

Value

Losses

June 30, 2023:

Agency obligations 

$

17,994

1,243

107,158

14,179

$

125,152

15,422

Agency MBS

22,246

1,332

184,734

30,437

206,980

31,769

State and political subdivisions

17,358

330

39,727

4,668

57,085

4,998

Total 

$

57,598

2,905

331,619

49,284

$

389,217

52,189

December 31, 2022:

Agency obligations 

$

55,931

4,161

69,686

11,665

$

125,617

15,826

Agency MBS

70,293

5,842

147,867

27,304

218,160

33,146

State and political subdivisions

44,777

2,176

13,043

3,505

57,820

5,681

Total 

$

171,001

12,179

230,596

42,474

$

401,597

54,653

XML

Loan and Allowance for Credit Losses (Tables)

6 Months Ended

Jun. 30, 2023

Loans And Leases Receivable Disclosure [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

June 30,

December 31,

(Dollars in thousands)

2023

2022

Commercial and industrial

$

61,880

$

66,212

Construction and land development

63,874

66,479

Commercial real estate:

Owner occupied

67,679

61,125

Hotel/motel

37,511

33,378

Multi-family

44,431

41,084

Other

126,180

128,986

Total commercial real estate

275,801

264,573

Residential real estate:

Consumer mortgage

53,674

45,370

Investment property

56,160

52,278

Total residential real estate

109,834

97,648

Consumer installment

9,022

9,546

Total Loans

$

520,411

$

504,458

Past Due Financing Receivables [Table Text Block]

Accruing

Accruing

Total

30-89 Days

Greater than

Accruing

Non-

Total 

(Dollars in thousands)

Current

Past Due

90 days

Loans

Accrual

Loans

June 30, 2023:

Commercial and industrial

$

61,701

1

—

61,702

178

$

61,880

Construction and land development

63,874

—

—

63,874

—

63,874

Commercial real estate:

Owner occupied

66,860

—

—

66,860

819

67,679

Hotel/motel

37,511

—

—

37,511

—

37,511

Multi-family

44,431

—

—

44,431

—

44,431

Other

126,180

—

—

126,180

—

126,180

Total commercial real estate

274,982

—

—

274,982

819

275,801

Residential real estate:

Consumer mortgage

53,432

118

—

53,550

124

53,674

Investment property

56,117

15

—

56,132

28

56,160

Total residential real estate

109,549

133

—

109,682

152

109,834

Consumer installment

9,000

22

—

9,022

—

9,022

Total

$

519,106

156

—

519,262

1,149

$

520,411

December 31, 2022:

Commercial and industrial

$

65,764

5

—

65,769

443

$

66,212

Construction and land development

66,479

—

—

66,479

—

66,479

Commercial real estate:

Owner occupied

61,125

—

—

61,125

—

61,125

Hotel/motel

33,378

—

—

33,378

—

33,378

Multi-family

41,084

—

—

41,084

—

41,084

Other

126,870

—

—

126,870

2,116

128,986

Total commercial real estate

262,457

—

—

262,457

2,116

264,573

Residential real estate:

Consumer mortgage

45,160

38

—

45,198

172

45,370

Investment property

52,278

—

—

52,278

—

52,278

Total residential real estate

97,438

38

—

97,476

172

97,648

Consumer installment

9,506

40

—

9,546

—

9,546

Total

$

501,644

83

—

501,727

2,731

$

504,458

Financing Receivable Credit Quality Indicators [Table Text Block]

(Dollars in thousands)

2023

2022

2021

2020

2019

Prior to

2019

Revolving

Loans

Total 

Loans

June 30, 2023: 

Commercial and industrial

Pass

$

5,888

12,207

14,564

5,926

7,644

8,366

6,810

$

61,405

Special mention

—

—

—

—

—

—

203

203

Substandard

58

—

27

—

9

—

—

94

Nonaccrual

—

—

—

—

178

—

—

178

Total commercial and industrial

5,946

12,207

14,591

5,926

7,831

8,366

7,013

61,880

Current period gross charge-offs

—

—

—

—

—

—

—

—

Construction and land development

Pass

18,973

39,757

2,957

1,584

140

185

278

63,874

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total construction and land development

18,973

39,757

2,957

1,584

140

185

278

63,874

Current period gross charge-offs

—

—

—

—

—

—

—

—

Commercial real estate:

Owner occupied

Pass

9,644

7,779

18,781

11,072

4,864

11,168

3,267

66,575

Special mention

—

—

232

—

—

—

—

232

Substandard

—

—

—

—

53

—

—

53

Nonaccrual

—

—

—

—

819

—

—

819

Total owner occupied

9,644

7,779

19,013

11,072

5,736

11,168

3,267

67,679

Current period gross charge-offs

—

—

—

—

—

—

—

—

Hotel/motel

Pass

6,533

10,087

3,264

1,586

4,022

12,019

—

37,511

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total hotel/motel

6,533

10,087

3,264

1,586

4,022

12,019

—

37,511

Current period gross charge-offs

—

—

—

—

—

—

—

—

(Dollars in thousands)

2023

2022

2021

2020

2019

Prior to

2019

Revolving

Loans

Total 

Loans

June 30, 2023: 

Multi-family

Pass

8,039

19,240

1,991

6,213

3,856

3,166

1,926

44,431

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total multi-family

8,039

19,240

1,991

6,213

3,856

3,166

1,926

44,431

Current period gross charge-offs

—

—

—

—

—

—

—

—

Other

Pass

9,264

37,412

32,595

15,241

11,061

19,542

906

126,021

Special mention

—

—

—

—

—

—

—

—

Substandard

—

—

—

159

—

—

—

159

Nonaccrual

—

—

—

—

—

—

—

—

Total other

9,264

37,412

32,595

15,400

11,061

19,542

906

126,180

Current period gross charge-offs

—

—

—

—

—

—

—

—

Residential real estate:

Consumer mortgage

Pass

11,623

20,752

2,769

2,847

1,545

13,125

6

52,667

Special mention

—

—

—

—

—

379

—

379

Substandard

—

—

—

—

—

504

—

504

Nonaccrual

—

—

—

—

—

124

—

124

Total consumer mortgage

11,623

20,752

2,769

2,847

1,545

14,132

6

53,674

Current period gross charge-offs

—

—

—

—

—

—

—

—

Investment property

Pass

8,327

13,638

10,155

13,415

5,911

2,707

1,446

55,599

Special mention

43

250

—

—

—

—

—

293

Substandard

—

—

—

240

—

—

—

240

Nonaccrual

—

—

—

—

—

28

—

28

Total investment property

8,370

13,888

10,155

13,655

5,911

2,735

1,446

56,160

Current period gross charge-offs

—

—

—

—

—

—

—

—

Consumer installment

Pass

2,671

4,595

1,002

369

153

184

—

8,974

Special mention

—

—

1

4

—

—

—

5

Substandard

14

17

10

—

2

—

—

43

Nonaccrual

—

—

—

—

—

—

—

—

Total consumer installment

2,685

4,612

1,013

373

155

184

—

9,022

Current period gross charge-offs

29

24

13

1

—

—

—

67

Total loans

Pass

80,960

165,467

88,078

58,253

39,195

70,461

14,643

517,057

Special mention

43

250

233

4

—

379

203

1,112

Substandard

72

17

37

399

64

504

—

1,093

Nonaccrual

—

—

—

—

997

152

—

1,149

Total loans

$

81,075

165,734

88,348

58,656

40,256

71,496

14,846

$

520,411

Total current period gross charge-offs

$

29

24

13

1

—

—

—

67

(Dollars in thousands)

 Pass

 Special

Mention

Substandard

Accruing

Nonaccrual

Total loans

December 31, 2022:

Commercial and industrial

$

65,550

7

212

443

$

66,212

Construction and land development

66,479

—

—

—

66,479

Commercial real estate:

Owner occupied

60,726

238

161

—

61,125

Hotel/motel

33,378

—

—

—

33,378

Multi-family

41,084

—

—

—

41,084

Other

126,700

170

—

2,116

128,986

Total commercial real estate

261,888

408

161

2,116

264,573

Residential real estate:

Consumer mortgage

44,172

439

587

172

45,370

Investment property

51,987

43

248

—

52,278

Total residential real estate

96,159

482

835

172

97,648

Consumer installment

9,498

1

47

—

9,546

Total

$

499,574

898

1,255

2,731

$

504,458

Schedule Of Financing Receivables NonAccrual Status [Table Text Block]

CECL

Incurred Loss

June 30, 2023

December 31, 2022

Nonaccrual

Nonaccrual

Total

Loans with

Loans with an

Nonaccrual

Nonaccrual

(Dollars in thousands)

No Allowance

Allowance

Loans

Loans

Commercial and industrial

$

178

—

178

$

443

Commercial real estate

819

—

819

2,116

Residential real estate

152

—

152

172

Total 

$

1,149

—

1,149

$

2,731

Schedule Of Collateral Dependent Loans Individually Evaluated For ACL [Table Text Block]

(Dollars in thousands)

Real Estate

Business Assets

Total Loans

June 30, 2023:

Commercial and industrial

$

—

178

$

178

Commercial real estate

819

—

819

Total 

$

819

178

$

997

Allowance for Credit Losses on Financing Receivables [Table Text Block]

June 30, 2023

(Dollars in thousands)

Commercial and

industrial

Construction

and land

development

Commercial

real estate

Residential

real estate

Consumer

installment

Total

Quarter ended:

Beginning balance

$

1,232

1,021

3,966

497

105

$

6,821

Charge-offs

—

—

—

—

(56)

(56)

Recoveries

194

—

—

5

1

200

Net recoveries (charge-offs)

194

—

—

5

(55)

144

Provision for credit losses

(228)

(16)

(178)

27

64

(331)

Ending balance

$

1,198

1,005

3,788

529

114

$

6,634

Six months ended:

Beginning balance

$

747

949

3,109

828

132

$

5,765

Impact of adopting ASC 326

532

(17)

873

(347)

(22)

1,019

Charge-offs

—

—

—

—

(67)

(67)

Recoveries

196

—

—

10

2

208

Net recoveries (charge-offs)

196

—

—

10

(65)

141

Provision for credit losses

(277)

73

(194)

38

69

(291)

Ending balance

$

1,198

1,005

3,788

529

114

$

6,634

June 30, 2022

(Dollars in thousands)

Commercial and

industrial

Construction

and land

development

Commercial

real estate

Residential

real estate

Consumer

installment

Total

Quarter ended:

Beginning balance

$

774

508

2,536

737

103

$

4,658

Charge-offs

(4)

—

—

—

(16)

(20)

Recoveries

2

—

22

7

47

78

Net (charge-offs) recoveries

(2)

—

22

7

31

58

Provision for loan losses

(11)

68

(35)

9

(31)

—

Ending balance

$

761

576

2,523

753

103

$

4,716

Six months ended:

Beginning balance

$

857

518

2,739

739

86

$

4,939

Charge-offs

(4)

—

—

—

(64)

(68)

Recoveries

4

—

22

14

55

95

Net recoveries (charge-offs)

—

—

22

14

(9)

27

Provision for loan losses

(96)

58

(238)

—

26

(250)

Ending balance

$

761

576

2,523

753

103

$

4,716

Financing Receivable Allowance for Credit Loss Additional Information [Table Text Block]

Collectively evaluated (1)

Individually evaluated (2)

Total

Allowance

Recorded

Allowance

Recorded

Allowance

Recorded

for loan

investment

for loan

investment

for loan

investment

(In thousands)

losses

in loans

losses

in loans

losses

in loans

June 30, 2022:

Commercial and industrial

$

761

70,087

—

—

761

70,087

Construction and land development

576

38,654

—

—

576

38,654

Commercial real estate

2,523

240,120

—

176

2,523

240,296

Residential real estate

753

85,224

—

—

753

85,224

Consumer installment

103

7,122

—

—

103

7,122

Total

$

4,716

441,207

—

176

4,716

441,383

(1)

Represents loans collectively evaluated for impairment, prior to the adopton of ASC 326, in accordance with ASC 450-20,

Loss

Contingencies, and pursuant to amendments by ASU 2010-20 regarding allowance for non-impaired loans.

(2)

Represents loans individually evaluated for impairment, prior to the adoption of ASC 326, in accordance with ASC 310-30, 

Receivables, and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

Impaired Financing Receivables [Table Text Block]

December 31, 2022

(Dollars in thousands)

Unpaid principal

balance (1)

Charge-offs and

payments applied

(2)

Recorded

investment (3)

Related allowance

With no allowance recorded:

Commercial and industrial

$

210

(1)

209

$

—

Commercial real estate:

Owner occupied

858

(3)

855

Total commercial real estate

858

(3)

855

—

Total 

1,068

(4)

1,064

—

With allowance recorded:

Commercial and industrial

234

—

234

$

59

Commercial real estate:

Owner occupied

1,261

—

1,261

446

Total commercial real estate

1,261

—

1,261

446

Total 

1,495

—

1,495

505

Total impaired loans

$

2,563

(4)

2,559

$

505

(1) Unpaid principal balance represents the contractual obligation due from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been

applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.

(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before

 any related allowance for loan losses.

Schedule Of Average Impaired Financing Receivable [Table Text Block]

Quarter ended June 30, 2022

Six months ended June 30, 2022

Average

Total interest

Average

Total interest

recorded

income

recorded

income

(Dollars in thousands)

investment

recognized

investment

recognized

Impaired loans:

Commercial real estate:

Other

$

180

—

$

212

—

Total commercial real estate

180

—

212

—

Residential real estate:

Investment property

—

—

9

—

Total residential real estate

—

—

9

—

Total 

$

180

—

$

221

—

XML

Mortgage Servicing Rights, Net (Tables)

6 Months Ended

Jun. 30, 2023

Mortgage Servicing [Abstract]

Schedule Of Servicing Assets At Fair Value [Table Text Block]

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2023

2022

2023

2022

MSRs, net:

Beginning balance

$

1,096

$

1,285

$

1,151

$

1,309

Additions, net

9

43

9

97

Amortization expense

(55)

(69)

(110)

(147)

Ending balance

$

1,050

$

1,259

$

1,050

$

1,259

Valuation allowance included in MSRs, net:

Beginning of period

$

—

$

—

$

—

$

—

End of period

—

—

—

—

Fair value of amortized MSRs:

Beginning of period

$

2,419

$

2,277

$

2,369

$

1,908

End of period

2,312

2,547

2,312

2,547

XML

Fair Value (Tables)

6 Months Ended

Jun. 30, 2023

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

Quoted Prices in

Significant

Active Markets

Other

Significant

for

Observable

Unobservable

Identical Assets

Inputs

Inputs

(Dollars in thousands)

Amount

(Level 1)

(Level 2)

(Level 3)

June 30, 2023:

Securities available-for-sale:

Agency obligations 

$

125,152

—

125,152

—

Agency MBS

206,980

—

206,980

—

State and political subdivisions

61,947

—

61,947

—

Total securities available-for-sale

394,079

—

394,079

—

Total assets at fair value

$

394,079

—

394,079

—

December 31, 2022:

Securities available-for-sale:

Agency obligations 

$

125,617

—

125,617

—

Agency MBS

218,160

—

218,160

—

State and political subdivisions

61,527

—

61,527

—

Total securities available-for-sale

405,304

—

405,304

—

Total assets at fair value

$

405,304

—

405,304

—

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Table Text Block]

Quoted Prices in

Active Markets

Other

Significant

for

Observable

Unobservable

Carrying

Identical Assets

Inputs

Inputs

(Dollars in thousands)

Amount

(Level 1)

(Level 2)

(Level 3)

June 30, 2023:

Loans, net

(1)

997

—

—

997

Other assets

(2)

1,050

—

—

1,050

Total assets at fair value

$

2,047

—

—

2,047

December 31, 2022:

Loans, net

(3)

2,054

—

—

2,054

Other assets

(2)

1,151

—

—

1,151

Total assets at fair value

$

3,205

—

—

3,205

(1)

Loans considered collateral dependent under ASC 326.

(2)

Represents MSRs, net, carried at lower of cost or estimated fair value.

(3)

Loans considered impaired under ASC 310-10-35 Receivables, prior to the adoption of ASC 326. This amount reflects the recorded 

investment in impaired loans, net of any related allowance for loan losses.

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

Range of

Weighted 

Carrying 

Significant 

Unobservable

Average

(Dollars in thousands)

Amount

Valuation Technique

Unobservable Input

Inputs

of Input

June 30, 2023:

Collateral dependent loans

$

997

Appraisal

Appraisal discounts

10.0

-

10.0

%

10.0

%

Mortgage servicing rights, net

1,050

Discounted cash flow

Prepayment speed or CPR

6.1

-

19.7

7.5

Discount rate

9.5

-

11.5

9.5

December 31, 2022:

Impaired loans

$

2,054

Appraisal

Appraisal discounts

10.0

-

10.0

%

10.0

%

Mortgage servicing rights, net

1,151

Discounted cash flow

Prepayment speed or CPR

5.2

-

18.6

7.5

Discount rate

9.5

-

11.5

9.5

Financial Instruments [Table Text Block]

Fair Value Hierarchy

Carrying

Estimated

Level 1

Level 2

Level 3

(Dollars in thousands)

amount

fair value

inputs

inputs

Inputs

June 30, 2023:

Financial Assets:

Loans, net (1)

$

513,777

$

482,344

$

—

$

—

$

482,344

Financial Liabilities:

Time Deposits

$

174,529

$

170,342

$

—

$

170,342

$

—

December 31, 2022:

Financial Assets:

Loans, net (1)

$

498,693

$

484,007

$

—

$

—

$

484,007

Financial Liabilities:

Time Deposits

$

150,375

$

150,146

$

—

$

150,146

$

—

(1) Represents loans, net of allowance for credit losses. The fair value of loans was measured using an exit price notion.

XML

Summary Significant Accounting Policies (Details) - USD ($)	3 Months Ended	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2023	Jun. 30, 2022
Summary Of Provision For Credit Losses [Abstract]
Loans	$ 331,000	$ 291,000	$ 250,000
Reserve For Unfunded Commitments	31,000	5,000
Total Provision For Credit Losses	$ 362,000	$ 296,000	$ 250,000

XML

Summary Significant Account Policies Textuals (Details) - USD ($) $ in Millions	Jan. 01, 2023	Jun. 30, 2023
Summary of Signficant Accounting Policies
Increase in allowance for credit losses at adoption of ASC 326	$ 1.0
Off Balance Sheet Credit Loss	$ 0.1
Off Balance Sheet Credit Loss Liability		$ 0.3

XML

Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Basic and Diluted Earnings Per Share [Abstract]
Net earnings	$ 1,928	$ 1,801	$ 3,892	$ 3,882
Basic and diluted weighted average shares outstanding	3,500,064	3,513,353	3,501,098	3,515,991
Basic and diluted earnings per share	$ 0.55	$ 0.51	$ 1.11	$ 1.10

XML

Variable Interest Entities (Details) $ in Thousands	Jun. 30, 2023 USD ($)
Maxium Loss Exposure [Member]
Variable Interest Entities [Line Items]
New Markets Tax Credit Investment	$ 1,906
Asset Recognized [Member]
Variable Interest Entities [Line Items]
New Markets Tax Credit Investment	$ 1,906

XML

Security Types (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, within One Year, Fair Value	$ 5,606	$ 5,235
Available-for-sale Securities, Debt Maturities, after One Through Five Years, Fair Value	66,904	58,518
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	107,152	112,219
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	214,417	229,332
Available-for-sale Securities, Fair Value, Total	394,079	405,304
Available For Sale Securities, Gross Unrealized Gains	14	11
Available For Sale Securities, Gross Unrealized Losses	52,189	54,653
Available-for-sale Securities, Amortized Cost Basis	446,254	459,946
US Government and Government Agencies and Authorities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, within One Year, Fair Value	5,306	4,935
Available-for-sale Securities, Debt Maturities, after One Through Five Years, Fair Value	59,203	50,746
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	60,643	69,936
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	0	0
Available-for-sale Securities, Fair Value, Total	125,152	125,617
Available For Sale Securities, Gross Unrealized Gains	0	0
Available For Sale Securities, Gross Unrealized Losses	15,422	15,826
Available-for-sale Securities, Amortized Cost Basis	140,574	141,443
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, within One Year, Fair Value	0	0
Available-for-sale Securities, Debt Maturities, after One Through Five Years, Fair Value	6,687	7,130
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	31,155	27,153
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	169,138	183,877
Available-for-sale Securities, Fair Value, Total	206,980	218,160
Available For Sale Securities, Gross Unrealized Gains	0	0
Available For Sale Securities, Gross Unrealized Losses	31,769	33,146
Available-for-sale Securities, Amortized Cost Basis	238,749	251,306
US States and Political Subdivisions Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, within One Year, Fair Value	300	300
Available-for-sale Securities, Debt Maturities, after One Through Five Years, Fair Value	1,014	642
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	15,354	15,130
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	45,279	45,455
Available-for-sale Securities, Fair Value, Total	61,947	61,527
Available For Sale Securities, Gross Unrealized Gains	14	11
Available For Sale Securities, Gross Unrealized Losses	4,998	5,681
Available-for-sale Securities, Amortized Cost Basis	$ 66,931	$ 67,197

XML

Securities Continuous Unrealized Loss (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 57,598	$ 171,001
Available-for-sale Securities Continuous Unrealized Loss Position Less than 12 Months Aggregate Losses	2,905	12,179
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	331,619	230,596
Available-for-sale Securities Continuous Unrealized Loss Position 12 Months or Longer Aggregate Losses	49,284	42,474
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	389,217	401,597
Available-for-sale Securities Continuous Unrealized Loss Position Aggregate Losses	52,189	54,653
US Government and Government Agencies and Authorities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	17,994	55,931
Available-for-sale Securities Continuous Unrealized Loss Position Less than 12 Months Aggregate Losses	1,243	4,161
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	107,158	69,686
Available-for-sale Securities Continuous Unrealized Loss Position 12 Months or Longer Aggregate Losses	14,179	11,665
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	125,152	125,617
Available-for-sale Securities Continuous Unrealized Loss Position Aggregate Losses	15,422	15,826
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	22,246	70,293
Available-for-sale Securities Continuous Unrealized Loss Position Less than 12 Months Aggregate Losses	1,332	5,842
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	184,734	147,867
Available-for-sale Securities Continuous Unrealized Loss Position 12 Months or Longer Aggregate Losses	30,437	27,304
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	206,980	218,160
Available-for-sale Securities Continuous Unrealized Loss Position Aggregate Losses	31,769	33,146
US States and Political Subdivisions Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	17,358	44,777
Available-for-sale Securities Continuous Unrealized Loss Position Less than 12 Months Aggregate Losses	330	2,176
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	39,727	13,043
Available-for-sale Securities Continuous Unrealized Loss Position 12 Months or Longer Aggregate Losses	4,668	3,505
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	57,085	57,820
Available-for-sale Securities Continuous Unrealized Loss Position Aggregate Losses	$ 4,998	$ 5,681

XML

Securities Gross Realized Gain Loss (Details) $ in Thousands	3 Months Ended
	Jun. 30, 2023 USD ($)
Available-for-sale Securities, Gross Realized Gain (Loss) [Abstract]
Available-for-sale Securities, Gross Realized Gains	$ 0

XML

Securities Textuals (Details) - USD ($) $ in Millions	Jun. 30, 2023	Dec. 31, 2022
Securities (Textuals) [Abstract]
Available-for-sale Securities Pledged as Collateral	$ 215.9	$ 208.3
Cost-method Investments, Aggregate Carrying Amount	$ 1.2

XML

Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022	Jun. 30, 2022
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 520,411	$ 504,458	$ 441,383
Commercial and Industrial Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	61,880	66,212	70,087
Construction And Land Development Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	63,874	66,479	38,654
Commercial Real Estate Owner Occupied Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	67,679	61,125
Commercial Real Estate Hotel Motel [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	37,511	33,378
Commercial Real Estate Multifamily [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	44,431	41,084
Commercial Real Estate Other Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	126,180	128,986
Commercial Real Estate Loans, Total [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	275,801	264,573	240,296
Residential Real Estate Consumer Mortgage Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	53,674	45,370
Residential Real Estate Investment Property Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	56,160	52,278
Residential Real Estate Loans, Total [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	109,834	97,648	85,224
Consumer Installment and Revolving Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 9,022	$ 9,546	$ 7,122

XML

Loans Past Due Analysis (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022	Jun. 30, 2022
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	$ 519,262	$ 501,727
Non Accrual	1,149	2,731
Loans and Leases Receivable, Gross, Carrying Amount	520,411	504,458	$ 441,383
Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	519,106	501,644
Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	156	83
Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Commercial and Industrial Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	61,702	65,769
Non Accrual	178	443
Loans and Leases Receivable, Gross, Carrying Amount	61,880	66,212	70,087
Commercial and Industrial Loans [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	61,701	65,764
Commercial and Industrial Loans [Member] | Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	1	5
Commercial and Industrial Loans [Member] | Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Construction And Land Development Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	63,874	66,479
Loans and Leases Receivable, Gross, Carrying Amount	63,874	66,479	38,654
Construction And Land Development Loans [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	63,874	66,479
Construction And Land Development Loans [Member] | Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Construction And Land Development Loans [Member] | Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Commercial Real Estate Owner Occupied Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	66,860	61,125
Non Accrual	819	0
Loans and Leases Receivable, Gross, Carrying Amount	67,679	61,125
Commercial Real Estate Owner Occupied Loans [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	66,860	61,125
Commercial Real Estate Owner Occupied Loans [Member] | Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Commercial Real Estate Owner Occupied Loans [Member] | Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Commercial Real Estate Hotel Motel [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	37,511	33,378
Loans and Leases Receivable, Gross, Carrying Amount	37,511	33,378
Commercial Real Estate Hotel Motel [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	37,511	33,378
Commercial Real Estate Hotel Motel [Member] | Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Commercial Real Estate Hotel Motel [Member] | Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Commercial Real Estate Multifamily [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	44,431	41,084
Non Accrual	0	0
Loans and Leases Receivable, Gross, Carrying Amount	44,431	41,084
Commercial Real Estate Multifamily [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	44,431	41,084
Commercial Real Estate Multifamily [Member] | Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Commercial Real Estate Multifamily [Member] | Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Commercial Real Estate Other Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	126,180	126,870
Non Accrual	0	2,116
Loans and Leases Receivable, Gross, Carrying Amount	126,180	128,986
Commercial Real Estate Other Loans [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	126,180	126,870
Commercial Real Estate Other Loans [Member] | Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Commercial Real Estate Other Loans [Member] | Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	274,982	262,457
Non Accrual	819	2,116
Loans and Leases Receivable, Gross, Carrying Amount	275,801	264,573	240,296
Commercial Real Estate Loans, Total [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	274,982	262,457
Commercial Real Estate Loans, Total [Member] | Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Commercial Real Estate Loans, Total [Member] | Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Residential Real Estate Consumer Mortgage Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	53,550	45,198
Non Accrual	124	172
Loans and Leases Receivable, Gross, Carrying Amount	53,674	45,370
Residential Real Estate Consumer Mortgage Loans [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	53,432	45,160
Residential Real Estate Consumer Mortgage Loans [Member] | Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	118	38
Residential Real Estate Consumer Mortgage Loans [Member] | Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Residential Real Estate Investment Property Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	56,132	52,278
Non Accrual	28	0
Loans and Leases Receivable, Gross, Carrying Amount	56,160	52,278
Residential Real Estate Investment Property Loans [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	56,117	52,278
Residential Real Estate Investment Property Loans [Member] | Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	15	0
Residential Real Estate Investment Property Loans [Member] | Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Residential Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	109,682	97,476
Non Accrual	152	172
Loans and Leases Receivable, Gross, Carrying Amount	109,834	97,648	85,224
Residential Real Estate Loans, Total [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	109,549	97,438
Residential Real Estate Loans, Total [Member] | Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	133	38
Residential Real Estate Loans, Total [Member] | Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	0	0
Consumer Installment and Revolving Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	9,022	9,546
Non Accrual	0	0
Loans and Leases Receivable, Gross, Carrying Amount	9,022	9,546	$ 7,122
Consumer Installment and Revolving Loans [Member] | Current [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	9,000	9,506
Consumer Installment and Revolving Loans [Member] | Accruing 30 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	22	40
Consumer Installment and Revolving Loans [Member] | Accruing Greater Than 90 days {Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Accruing Loans	$ 0	$ 0

XML

Loan Credit Quality Analysis (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2023	Dec. 31, 2022	Jun. 30, 2022
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	$ 1,149	$ 1,149	$ 2,731
2023	81,075	81,075
2022	165,734	165,734
2021	88,348	88,348
2020	58,656	58,656
2019	40,256	40,256
Prior	71,496	71,496
Revolving Loans	14,846	14,846
Total loans	520,411	520,411	504,458	$ 441,383
Financing Receivable Excluding Accrued Interest Year One Originated Current Fiscal Year Writeoff		29
Financing Receivable Excluding Accrued Interest Year Two Originated Current Fiscal Year Writeoff	24	24
Financing Receivable Excluding Accrued Interest Year Three Originated Current Fiscal Year Writeoff	13	13
Financing Receivable Excluding Accrued Interest Year Four Originated Current Fiscal Year Writeoff		1
FinancingReceivableExcludingAccruedInterestAllowanceForCreditLossWriteoff	67	67
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	80,960	80,960
2022	165,467	165,467
2021	88,078	88,078
2020	58,253	58,253
2019	39,195	39,195
Prior	70,461	70,461
Revolving Loans	14,643	14,643
Total loans	517,057	517,057	499,574
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	43	43
2022	250	250
2021	233	233
2020	4	4
2019	0	0
Prior	379	379
Revolving Loans	203	203
Total loans	1,112	1,112	898
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	72	72
2022	17	17
2021	37	37
2020	399	399
2019	64	64
Prior	504	504
Revolving Loans	0	0
Total loans	1,093	1,093	1,255
NonAccrual [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	997	997
Prior	152	152
Revolving Loans	0	0
Total loans	1,149	1,149
Commercial and Industrial Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	178	178	443
2023	5,946	5,946
2022	12,207	12,207
2021	14,591	14,591
2020	5,926	5,926
2019	7,831	7,831
Prior	8,366	8,366
Revolving Loans	7,013	7,013
Total loans	61,880	61,880	66,212	70,087
Commercial and Industrial Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	5,888	5,888
2022	12,207	12,207
2021	14,564	14,564
2020	5,926	5,926
2019	7,644	7,644
Prior	8,366	8,366
Revolving Loans	6,810	6,810
Total loans	61,405	61,405	65,550
Commercial and Industrial Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	203	203
Total loans	203	203	7
Commercial and Industrial Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	58	58
2022	0	0
2021	27	27
2020	0	0
2019	9	9
Prior	0	0
Revolving Loans	0	0
Total loans	94	94	212
Commercial and Industrial Loans [Member] | NonAccrual [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	178	178
Prior	0	0
Revolving Loans	0	0
Total loans	178	178
Construction And Land Development Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	18,973	18,973
2022	39,757	39,757
2021	2,957	2,957
2020	1,584	1,584
2019	140	140
Prior	185	185
Revolving Loans	278	278
Total loans	63,874	63,874	66,479	38,654
Construction And Land Development Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	18,973	18,973
2022	39,757	39,757
2021	2,957	2,957
2020	1,584	1,584
2019	140	140
Prior	185	185
Revolving Loans	278	278
Total loans	63,874	63,874	66,479
Construction And Land Development Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	0	0	0
Construction And Land Development Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	0	0	0
Construction And Land Development Loans [Member] | NonAccrual [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	0	0
Commercial Real Estate Owner Occupied Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	819	819	0
2023	9,644	9,644
2022	7,779	7,779
2021	19,013	19,013
2020	11,072	11,072
2019	5,736	5,736
Prior	11,168	11,168
Revolving Loans	3,267	3,267
Total loans	67,679	67,679	61,125
Commercial Real Estate Owner Occupied Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	9,644	9,644
2022	7,779	7,779
2021	18,781	18,781
2020	11,072	11,072
2019	4,864	4,864
Prior	11,168	11,168
Revolving Loans	3,267	3,267
Total loans	66,575	66,575	60,726
Commercial Real Estate Owner Occupied Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	232	232
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	232	232	238
Commercial Real Estate Owner Occupied Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	53	53
Prior	0	0
Revolving Loans	0	0
Total loans	53	53	161
Commercial Real Estate Owner Occupied Loans [Member] | NonAccrual [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	819	819
Prior	0	0
Revolving Loans	0	0
Total loans	819	819
Commercial Real Estate Hotel Motel [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	6,533	6,533
2022	10,087	10,087
2021	3,264	3,264
2020	1,586	1,586
2019	4,022	4,022
Prior	12,019	12,019
Revolving Loans	0	0
Total loans	37,511	37,511	33,378
Commercial Real Estate Hotel Motel [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	6,533	6,533
2022	10,087	10,087
2021	3,264	3,264
2020	1,586	1,586
2019	4,022	4,022
Prior	12,019	12,019
Revolving Loans	0	0
Total loans	37,511	37,511	33,378
Commercial Real Estate Hotel Motel [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	0	0	0
Commercial Real Estate Hotel Motel [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	0	0	0
Commercial Real Estate Hotel Motel [Member] | NonAccrual [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	0	0
Commercial Real Estate Multifamily [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	0	0	0
2023	8,039	8,039
2022	19,240	19,240
2021	1,991	1,991
2020	6,213	6,213
2019	3,856	3,856
Prior	3,166	3,166
Revolving Loans	1,926	1,926
Total loans	44,431	44,431	41,084
Commercial Real Estate Multifamily [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	8,039	8,039
2022	19,240	19,240
2021	1,991	1,991
2020	6,213	6,213
2019	3,856	3,856
Prior	3,166	3,166
Revolving Loans	1,926	1,926
Total loans	44,431	44,431	41,084
Commercial Real Estate Multifamily [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	0	0	0
Commercial Real Estate Multifamily [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	0	0	0
Commercial Real Estate Multifamily [Member] | NonAccrual [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	0	0
Commercial Real Estate Other Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	0	0	2,116
2023	9,264	9,264
2022	37,412	37,412
2021	32,595	32,595
2020	15,400	15,400
2019	11,061	11,061
Prior	19,542	19,542
Revolving Loans	906	906
Total loans	126,180	126,180	128,986
Commercial Real Estate Other Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	9,264	9,264
2022	37,412	37,412
2021	32,595	32,595
2020	15,241	15,241
2019	11,061	11,061
Prior	19,542	19,542
Revolving Loans	906	906
Total loans	126,021	126,021	126,700
Commercial Real Estate Other Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	0	0	170
Commercial Real Estate Other Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	159	159
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	159	159	0
Commercial Real Estate Other Loans [Member] | NonAccrual [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	0	0
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	819	819	2,116
Total loans	275,801	275,801	264,573	240,296
Commercial Real Estate Loans, Total [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans			261,888
Commercial Real Estate Loans, Total [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans			408
Commercial Real Estate Loans, Total [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans			161
Residential Real Estate Consumer Mortgage Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	124	124	172
2023	11,623	11,623
2022	20,752	20,752
2021	2,769	2,769
2020	2,847	2,847
2019	1,545	1,545
Prior	14,132	14,132
Revolving Loans	6	6
Total loans	53,674	53,674	45,370
Residential Real Estate Consumer Mortgage Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	11,623	11,623
2022	20,752	20,752
2021	2,769	2,769
2020	2,847	2,847
2019	1,545	1,545
Prior	13,125	13,125
Revolving Loans	6	6
Total loans	52,667	52,667	44,172
Residential Real Estate Consumer Mortgage Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	379	379
Revolving Loans	0	0
Total loans	379	379	439
Residential Real Estate Consumer Mortgage Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	504	504
Revolving Loans	0	0
Total loans	504	504	587
Residential Real Estate Consumer Mortgage Loans [Member] | NonAccrual [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	124	124
Revolving Loans	0	0
Total loans	124	124
Residential Real Estate Investment Property Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	28	28	0
2023	8,370	8,370
2022	13,888	13,888
2021	10,155	10,155
2020	13,655	13,655
2019	5,911	5,911
Prior	2,735	2,735
Revolving Loans	1,446	1,446
Total loans	56,160	56,160	52,278
Residential Real Estate Investment Property Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	8,327	8,327
2022	13,638	13,638
2021	10,155	10,155
2020	13,415	13,415
2019	5,911	5,911
Prior	2,707	2,707
Revolving Loans	1,446	1,446
Total loans	55,599	55,599	51,987
Residential Real Estate Investment Property Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	43	43
2022	250	250
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	293	293	43
Residential Real Estate Investment Property Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	240	240
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	240	240	248
Residential Real Estate Investment Property Loans [Member] | NonAccrual [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	28	28
Revolving Loans	0	0
Total loans	28	28
Residential Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	152	152	172
Total loans	109,834	109,834	97,648	85,224
Residential Real Estate Loans, Total [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans			96,159
Residential Real Estate Loans, Total [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans			482
Residential Real Estate Loans, Total [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Total loans			835
Consumer Installment and Revolving Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	0	0	0
2023	2,685	2,685
2022	4,612	4,612
2021	1,013	1,013
2020	373	373
2019	155	155
Prior	184	184
Revolving Loans	0	0
Total loans	9,022	9,022	9,546	$ 7,122
Financing Receivable Excluding Accrued Interest Year One Originated Current Fiscal Year Writeoff		29
Financing Receivable Excluding Accrued Interest Year Two Originated Current Fiscal Year Writeoff	24	24
Financing Receivable Excluding Accrued Interest Year Three Originated Current Fiscal Year Writeoff	13	13
Financing Receivable Excluding Accrued Interest Year Four Originated Current Fiscal Year Writeoff		1
FinancingReceivableExcludingAccruedInterestAllowanceForCreditLossWriteoff	67	67
Consumer Installment and Revolving Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	2,671	2,671
2022	4,595	4,595
2021	1,002	1,002
2020	369	369
2019	153	153
Prior	184	184
Revolving Loans	0	0
Total loans	8,974	8,974	9,498
Consumer Installment and Revolving Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	1	1
2020	4	4
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	5	5	1
Consumer Installment and Revolving Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	14	14
2022	17	17
2021	10	10
2020	0	0
2019	2	2
Prior	0	0
Revolving Loans	0	0
Total loans	43	43	$ 47
Consumer Installment and Revolving Loans [Member] | NonAccrual [Member]
Financing Receivable, Recorded Investment [Line Items]
2023	0	0
2022	0	0
2021	0	0
2020	0	0
2019	0	0
Prior	0	0
Revolving Loans	0	0
Total loans	$ 0	$ 0

XML

Nonaccural Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Financing Receivable Nonaccrual Status [Line Items]
Financing Receivable Nonaccrual No Allowance	$ 1,149
Financing Receivable, Recorded Investment, Nonaccrual Status	1,149	$ 2,731
Commercial and Industrial Loans [Member]
Financing Receivable Nonaccrual Status [Line Items]
Financing Receivable Nonaccrual No Allowance	178
Financing Receivable, Recorded Investment, Nonaccrual Status	178	443
Commercial Real Estate Loans, Total [Member]
Financing Receivable Nonaccrual Status [Line Items]
Financing Receivable Nonaccrual No Allowance	819
Financing Receivable, Recorded Investment, Nonaccrual Status	819	2,116
Residential Real Estate Loans, Total [Member]
Financing Receivable Nonaccrual Status [Line Items]
Financing Receivable Nonaccrual No Allowance	152
Financing Receivable, Recorded Investment, Nonaccrual Status	152	172
Consumer Installment and Revolving Loans [Member]
Financing Receivable Nonaccrual Status [Line Items]
Financing Receivable, Recorded Investment, Nonaccrual Status	$ 0	$ 0

XML

Collateral Dependent Loans Individually Evaluated (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Jun. 30, 2022
Collateral Dependent Loans [Line Items]
Financing Receivable, Individually Evaluated Collateral Depedent Loans	$ 997	$ 176
Commercial Real Estate Collateral [Member]
Collateral Dependent Loans [Line Items]
Financing Receivable, Individually Evaluated Collateral Depedent Loans	819
Business Assets Collateral [Member]
Collateral Dependent Loans [Line Items]
Financing Receivable, Individually Evaluated Collateral Depedent Loans	178
Commercial and Industrial Loans [Member]
Collateral Dependent Loans [Line Items]
Financing Receivable, Individually Evaluated Collateral Depedent Loans	178
Commercial and Industrial Loans [Member] | Business Assets Collateral [Member]
Collateral Dependent Loans [Line Items]
Financing Receivable, Individually Evaluated Collateral Depedent Loans	178
Commercial Real Estate Loans, Total [Member]
Collateral Dependent Loans [Line Items]
Financing Receivable, Individually Evaluated Collateral Depedent Loans	819
Commercial Real Estate Loans, Total [Member] | Commercial Real Estate Collateral [Member]
Collateral Dependent Loans [Line Items]
Financing Receivable, Individually Evaluated Collateral Depedent Loans	$ 819

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Allowance for Credit Losses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	$ 6,821	$ 4,658	$ 5,765	$ 4,939
Impact of Adoption of ASC 326			1,019
Financing Receivable, Allowance for Credit Losses, Charge-offs	(56)	(20)	(67)	(68)
Financing Receivable, Allowance for Credit Losses, Recoveries	200	78	208	95
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	144	58	141	27
Provision for credit losses1	(331)	0	(291)	(250)
Financing Receivable, Allowance for Credit Losses	6,634	4,716	6,634	4,716
Commercial and Industrial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	1,232	774	747	857
Impact of Adoption of ASC 326			532
Financing Receivable, Allowance for Credit Losses, Charge-offs		(4)	0	(4)
Financing Receivable, Allowance for Credit Losses, Recoveries	194	2	196	4
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	194	(2)	196	0
Provision for credit losses1	(228)	(11)	(277)	(96)
Financing Receivable, Allowance for Credit Losses	1,198	761	1,198	761
Construction And Land Development Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	1,021	508	949	518
Impact of Adoption of ASC 326			(17)
Financing Receivable, Allowance for Credit Losses, Charge-offs		0	0	0
Financing Receivable, Allowance for Credit Losses, Recoveries	0	0	0	0
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	0	0	0	0
Provision for credit losses1	(16)	68	73	58
Financing Receivable, Allowance for Credit Losses	1,005	576	1,005	576
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	3,966	2,536	3,109	2,739
Impact of Adoption of ASC 326			873
Financing Receivable, Allowance for Credit Losses, Charge-offs		0	0	0
Financing Receivable, Allowance for Credit Losses, Recoveries	0	22	0	22
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	0	22	0	22
Provision for credit losses1	(178)	(35)	(194)	(238)
Financing Receivable, Allowance for Credit Losses	3,788	2,523	3,788	2,523
Residential Real Estate Loans, Total [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	497	737	828	739
Impact of Adoption of ASC 326			(347)
Financing Receivable, Allowance for Credit Losses, Charge-offs		0	0	0
Financing Receivable, Allowance for Credit Losses, Recoveries	5	7	10	14
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	5	7	10	14
Provision for credit losses1	27	9	38	0
Financing Receivable, Allowance for Credit Losses	529	753	529	753
Consumer Installment and Revolving Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	105	103	132	86
Impact of Adoption of ASC 326			(22)
Financing Receivable, Allowance for Credit Losses, Charge-offs	(56)	(16)	(67)	(64)
Financing Receivable, Allowance for Credit Losses, Recoveries	1	47	2	55
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	(55)	31	(65)	(9)
Provision for credit losses1	64	(31)	69	26
Financing Receivable, Allowance for Credit Losses	$ 114	$ 103	$ 114	$ 103

XML

Allowance For Credit Losses Additional Information (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022	Jun. 30, 2022
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment			$ 4,716
Financing Receivable, Collectively Evaluated for Impairment			441,207
Financing Receivable, Individually Evaluated for Impairment			176
Allowance for credit losses	$ 6,634	$ 5,765	4,716
Loans and Leases Receivable, Gross, Carrying Amount	520,411	504,458	441,383
Commercial and Industrial Loans [Member]
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment			761
Financing Receivable, Collectively Evaluated for Impairment			70,087
Allowance for credit losses			761
Loans and Leases Receivable, Gross, Carrying Amount	61,880	66,212	70,087
Construction And Land Development Loans [Member]
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment			576
Financing Receivable, Collectively Evaluated for Impairment			38,654
Allowance for credit losses			576
Loans and Leases Receivable, Gross, Carrying Amount	63,874	66,479	38,654
Commercial Real Estate Loans, Total [Member]
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment			2,523
Financing Receivable, Collectively Evaluated for Impairment			240,120
Financing Receivable, Individually Evaluated for Impairment			176
Allowance for credit losses			2,523
Loans and Leases Receivable, Gross, Carrying Amount	275,801	264,573	240,296
Residential Real Estate Loans, Total [Member]
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment			753
Financing Receivable, Collectively Evaluated for Impairment			85,224
Allowance for credit losses			753
Loans and Leases Receivable, Gross, Carrying Amount	109,834	97,648	85,224
Consumer Installment and Revolving Loans [Member]
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment			103
Financing Receivable, Collectively Evaluated for Impairment			7,122
Allowance for credit losses			103
Loans and Leases Receivable, Gross, Carrying Amount	$ 9,022	$ 9,546	$ 7,122

XML

Impaired Loans (Details) $ in Thousands	Dec. 31, 2022 USD ($)
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	$ 1,068
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(4)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	1,064
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	1,495
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	0
Impaired Financing Receivable, with Related Allowance, Recorded Investment	1,495
Impaired Financing Receivable, With Related Allowance, Related Allowance	505
Impaired Financing Receivable, Unpaid Principal Balance	2,563
Impaired Financing Receivable, Charge-off And Payments Applied	(4)
Impaired Financing Receivable, Recorded Investment	2,559
Impaired Financing Receivable, Related Allowance	505
Commercial and Industrial Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	210
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(1)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	209
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	234
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	0
Impaired Financing Receivable, with Related Allowance, Recorded Investment	234
Impaired Financing Receivable, With Related Allowance, Related Allowance	59
Commercial Real Estate Owner Occupied Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	858
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(3)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	855
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	1,261
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	0
Impaired Financing Receivable, with Related Allowance, Recorded Investment	1,261
Impaired Financing Receivable, With Related Allowance, Related Allowance	446
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	858
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(3)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	855
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	1,261
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	0
Impaired Financing Receivable, with Related Allowance, Recorded Investment	1,261
Impaired Financing Receivable, With Related Allowance, Related Allowance	$ 446

XML

Average Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2022
Impaired Financing Receivable Average Recorded Investment [Line Items]
Impaired Financing Receivable Average Recorded Investment	$ 180	$ 221
Impaired Financing Receivable Interest Income Accrual Method	0	0
Commercial Real Estate Other Loans [Member]
Impaired Financing Receivable Average Recorded Investment [Line Items]
Impaired Financing Receivable Average Recorded Investment	180	212
Impaired Financing Receivable Interest Income Accrual Method	0	0
Commercial Real Estate Loans, Total [Member]
Impaired Financing Receivable Average Recorded Investment [Line Items]
Impaired Financing Receivable Average Recorded Investment	180	212
Impaired Financing Receivable Interest Income Accrual Method	0	0
Residential Real Estate Investment Property Loans [Member]
Impaired Financing Receivable Average Recorded Investment [Line Items]
Impaired Financing Receivable Average Recorded Investment	0	9
Impaired Financing Receivable Interest Income Accrual Method	0	0
Residential Real Estate Loans, Total [Member]
Impaired Financing Receivable Average Recorded Investment [Line Items]
Impaired Financing Receivable Average Recorded Investment	0	9
Impaired Financing Receivable Interest Income Accrual Method	$ 0	$ 0

XML

Loans Textuals (Details)	Jun. 30, 2023
Loan and Lease Disclosure (Textuals) [Abstract]
Percentage Of Loans Secured By Real Estate	86.40%

XML

Mortgage Servicing Rights, Net (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Servicing Asset at Amortized Value, Balance [Roll Forward]
Servicing Asset at Amortized Cost, Beginning	$ 1,096	$ 1,285	$ 1,151	$ 1,309
Servicing Asset at Amortized Value, Additions	9	43	9	97
Servicing Asset at Amortized Value, Amortization	55	69	110	147
Servicing Asset at Amortized Cost, Ending	1,050	1,259	1,050	1,259
Valuation Allowance for Impairment of Recognized Servicing Assets, Balance [Abstract]
Valuation Allowance for Impairment of Recognized Servicing Assets, Beginning Balance	0	0	0	0
Valuation Allowance for Impairment of Recognized Servicing Assets, Ending Balance	0	0	0	0
Servicing Asset at Amortized Value, Fair Value [Abstract]
Servicing Asset at Amortized Value, Fair Value, Beginning	2,419	2,277	2,369	1,908
Servicing Asset at Amortized Value, Fair Value, Ending	$ 2,312	$ 2,547	$ 2,312	$ 2,547

XML

Fair Value Recurring (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Fair Value, Measurements, Recurring [Member]
Fair Value Disclosure, Securities Available-for-Sale [Abstract]
Fair Value Disclosure, Agency Obligations	$ 125,152	$ 125,617
Fair Value Disclosure, Agency RMBS	206,980	218,160
Fair Value Disclosure, State and Political Subdivisions	61,947	61,527
Fair Value Disclosure, Securities Available-for-Sale, Total	394,079	405,304
Other Assets, Fair Value Disclosure	394,079	405,304
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value Disclosure, Securities Available-for-Sale [Abstract]
Fair Value Disclosure, Agency Obligations	0	0
Fair Value Disclosure, Agency RMBS	0	0
Fair Value Disclosure, State and Political Subdivisions	0	0
Fair Value Disclosure, Securities Available-for-Sale, Total	0	0
Other Assets, Fair Value Disclosure	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value Disclosure, Securities Available-for-Sale [Abstract]
Fair Value Disclosure, Agency Obligations	125,152	125,617
Fair Value Disclosure, Agency RMBS	206,980	218,160
Fair Value Disclosure, State and Political Subdivisions	61,947	61,527
Fair Value Disclosure, Securities Available-for-Sale, Total	394,079	405,304
Other Assets, Fair Value Disclosure	394,079	405,304
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value Disclosure, Securities Available-for-Sale [Abstract]
Fair Value Disclosure, Agency Obligations	0	0
Fair Value Disclosure, Agency RMBS	0	0
Fair Value Disclosure, State and Political Subdivisions	0	0
Fair Value Disclosure, Securities Available-for-Sale, Total	0	0
Other Assets, Fair Value Disclosure	0	0
Fair Value, Measurements, Nonrecurring [Member]
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Abstract]
Impaired Loans, Fair Value Disclosure	997	2,054
Other Assets Fair Value Nonrecurring	1,050	1,151
Assets, Fair Value Disclosure, Nonrecurring	2,047	3,205
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Abstract]
Impaired Loans, Fair Value Disclosure	0	0
Other Assets Fair Value Nonrecurring	0	0
Assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Abstract]
Impaired Loans, Fair Value Disclosure	0	0
Other Assets Fair Value Nonrecurring	0	0
Assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Abstract]
Impaired Loans, Fair Value Disclosure	997	2,054
Other Assets Fair Value Nonrecurring	1,050	1,151
Assets, Fair Value Disclosure, Nonrecurring	$ 2,047	$ 3,205

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Fair Value Unobservable Inputs (Details) - Fair Value, Measurements, Nonrecurring [Member] - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Impaired Loans [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Assets, Fair Value Disclosure	$ 997	$ 2,054
Impaired Loans [Member] | Appraisal, Appraisal Discount [Member] | Minimum
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Input Percent	10.00%	10.00%
Impaired Loans [Member] | Appraisal, Appraisal Discount [Member] | Maximum
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Input Percent	10.00%	10.00%
Impaired Loans [Member] | Appraisal, Appraisal Discount [Member] | Weighted Average
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Input Percent	10.00%	10.00%
Mortgage Servicing Rights [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Assets, Fair Value Disclosure	$ 1,050	$ 1,151
Mortgage Servicing Rights [Member] | Discounted Cash Flow, Prepayment Speed [Member] | Minimum
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Input Percent	6.10%	5.20%
Mortgage Servicing Rights [Member] | Discounted Cash Flow, Prepayment Speed [Member] | Maximum
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Input Percent	19.70%	18.60%
Mortgage Servicing Rights [Member] | Discounted Cash Flow, Prepayment Speed [Member] | Weighted Average
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Input Percent	7.50%	7.50%
Mortgage Servicing Rights [Member] | Discounted Cash Flow, Discount Rate [Member] | Minimum
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Input Percent	9.50%	9.50%
Mortgage Servicing Rights [Member] | Discounted Cash Flow, Discount Rate [Member] | Maximum
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Input Percent	11.50%	11.50%
Mortgage Servicing Rights [Member] | Discounted Cash Flow, Discount Rate [Member] | Weighted Average
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Input Percent	9.50%	9.50%

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Fair Value Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	$ 513,777	$ 498,693
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	174,529	150,375
Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	482,344	484,007
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	170,342	150,146
Estimate of Fair Value, Fair Value Disclosure [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	0	0
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	0	0
Estimate of Fair Value, Fair Value Disclosure [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	0	0
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	170,342	150,146
Estimate of Fair Value, Fair Value Disclosure [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	482,344	484,007
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	$ 0	$ 0