Auburn National Bancorporation, Inc: Form 10-Q for the period ended Mar 31, 2025

OPERATIONS

General

Auburn National Bancorporation, Inc. (the “Company”) is a bank holding company registered with the Board of Governors

of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding Company Act of 1956, as amended (the

“BHC Act”). The Company was incorporated in Delaware in 1990, and in 1994 it succeeded its Alabama predecessor as the

bank holding company controlling AuburnBank, an Alabama state member bank with its principal office in Auburn,

Alabama (the “Bank”). The Company and its predecessor have controlled the Bank since 1984. As a bank holding

company, the Company may diversify into a broader range of financial services and other business activities than currently

are permitted to the Bank under applicable laws and regulations. The holding company structure also provides greater

financial and operating flexibility than is presently permitted to the Bank.

The Bank has operated continuously since 1907 and currently conducts its business primarily in East Alabama, including

Lee County and surrounding areas. The Bank has been a member of the Federal Reserve System since April 1995. The

Bank’s primary regulators are the Federal Reserve and the Alabama Superintendent of Banks (the “Alabama

Superintendent”). The Bank has been a member of the FHLB of Atlanta since 1991. Certain of the statements made in this

discussion and analysis and elsewhere, including information incorporated herein by reference to other documents, are

“forward-looking statements” as more fully described under “Special Cautionary Notice Regarding Forward-Looking

Statements” below.

The following discussion and analysis is intended 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 quarters ended March 31, 2025 and 2024, as well as the information contained in our Annual

Report on Form 10-K for the year ended December 31, 2024.

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 forwar d-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,” “target,” “seek” 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 locally,

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

and tornadoes, epidemics or pandemics including supply chain disruptions, inventory volatility, and changes in

consumer behaviors;

the effects of war or other conflicts, acts of terrorism, trade restrictions, tariffs, sanctions, the value of the U.S.

dollar against other currencies, or other events that may affect general economic conditions, including inflation,

and consumer and business confidence;

governmental monetary and fiscal policies, including taxes, federal deficit spending and the debt required to fund

such spending, changes in monetary policies in response to inflation and changes in prices and unemployment,

including changes in the Federal Reserve’s target federal funds rate and changes in the Federal Reserve’s holdings

of securities through quantitative tightening or easing; and the duration that the Federal Reserve will keep its

targeted federal funds rates at or above current target ranges in furtherance of its long term inflation target of 2%

and supporting maximum employment;

legislative, executive branch and regulatory changes, including changes by executive orders, the possible

reorganization and/or consolidation of the bank regulatory agencies, the SEC and/or the CFPB, changes in the

leadership and personnel, including reductions in the number and experience of personnel, at the bank and

securities regulators and the CFPB, oversight by the Office of Management and Budget of these agencies, freezes

on changes in regulations and interpretations, numerous new Executive Orders, and the uncertain effects of all

these, including the costs and benefits of such changes;

the effects of the potential privatization of Fannie Mae and Freddie Mac and their release from conservatorship on

the mortgage markets and us as an originator, seller and servicer of residential mortgage loans;

recent Supreme Court rulings that may lead to more court challenges to regulations and regulatory actions, which

may cause uncertainty, wasted implementation costs and time by the industry, and lengthy delays until ultimate

resolution;

changes in banking, securities and tax laws, regulations and rules and their application by the regulators, including

capital and liquidity requirements, and changes in the scope and cost of FDIC insurance;

changes in accounting pronouncements and interpretations;

the failure of assumptions and estimates, including those used in the Company’s CECL models to establish our

allowance for credit losses and estimate asset impairments, 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 CECL models and loan portfolio reviews;

the risks of changes in market interest rates and the shape of the yield curve on customer behaviors; the levels,

composition and costs of deposits, loan demand and mortgage loan originations; the values and liquidity of loan

collateral, our securities portfolio and interest-sensitive assets and liabilities; and the risks and uncertainty of the

amounts realizable on collateral;

the risks of increases in market interest rates creating unrealized losses on our securities available for sale, which

adversely affect our stockholders’ equity for financial reporting purposes and our tangible equity;

changes in borrower liquidity and credit risks, and changes in 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 regulation, including capital and liquidity requirements, internal controls, and

supervision and examination, as the Company and the Bank, and competition from credit unions, which are not

subject to federal income taxation;

more permissive regulation and/or enforcement regarding digital assets, such as cyber currency and stable coins

that creates additional competition to banks, and greater risks to the payment systems that the banking industry,

including the Company, relies on, and greater risks of fraud and theft of digital assets and their effects on

customers, other financial institutions, including our counterparties, financial stability and confidence in the

financial system, generally;

the timing and amount of rental income from third parties from office space in our Auburn Center headquarters

and in former office locations;

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;

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

maintenance of a capital conservation buffer of 2.5% and our future earnings and “eligible retained earnings” over

rolling four calendar quarter periods;

other factors and risks described under “Risk Factors” herein and in any of 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 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.

Summary of Results of Operations

Quarter ended March 31,

(Dollars in thousands, except per share data)

2025

2024

Net interest income (a)

7,062

6,677

Less: tax-equivalent adjustment

17

20

Net interest income (GAAP)

7,045

6,657

Noninterest income

747

887

Total revenue

7,792

7,544

Provision for credit losses

(10)

334

Noninterest expense

5,880

5,675

Income tax expense

392

164

Net earnings

1,530

1,371

Basic and diluted earnings per share

0.44

0.39

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

Financial Summary

The Company’s net earnings were $1.5 million for the first quarter of 2025, compared to $1.4 million for the first quarter of

2024. Basic and diluted earnings per share were $0.44 per share for the first quarter of 2025, compared to $0.39 per share

for the first quarter of 2024.

Net interest income (tax-equivalent) was $7.1 million for the first quarter of 2025, a 6% increase compared to $6.7 million

for the first quarter of 2024. This increase was primarily due to an increase in the Company’s net interest margin and an

increase in average interest-earning assets. The Company’s net interest margin (tax-equivalent) was 3.20% for the first

quarter of 2025 compared to 3.04% for the first quarter of 2024. This increase was primarily due to a more favorable asset

mix and improvements in our yields on interest-earning assets, which outpaced increases in the cost of our interest-bearing

deposits. Average loans for the first quarter of 2025 were $566.3 million, a 1% increase from the first quarter of 2024. See

“Results of Operations – Average Balance Sheet and Interest Rates” and “Net Interest Income and Margin” below.

At March 31, 2025, the Company’s allowance for credit losses was $6.8 million, or 1.20% of total loans, compared to $6.9

million, or 1.22% of total loans, at December 31, 2024, and $7.2 million, or 1.27% of total loans, at March 31, 2024.

The Company recorded a negative provision for credit losses during the first quarter of 2025 of $10 thousand, compared to

a charge to provision for credit losses of $334 thousand during the first quarter of 2024. The provision for credit losses

under CECL reflects the Company’s evaluation of its credit risk profile and its future economic outlook and forecasts. Our

CECL model is largely influenced by economic factors including, the anticipated Alabama unemployment rate, which may

be affected by government policies, including monetary, fiscal and other policies, including tariffs.

Noninterest income was $0.8 million in the first quarter of 2025, compared to $0.9 million in the first quarter of 2024. The

decrease was primarily related to a decrease in mortgage lending income and other noninterest income.

Noninterest expense was $5.9 million in the first quarter of 2025, compared to $5.7 million for the first quarter of 2024.

The increase was primarily related to routine increases in salaries and benefits expense.

Income tax expense was $0.4 million for the first quarter of 2025 compared to $0.2 million for the first quarter of 2024.

The Company's effective tax rate for the first quarter of 2025 was 20.40%, compared to 10.68% in the first quarter of 2024.

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

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

The Company paid cash dividends of $0.27 per share in the first quarter of 2025 and 2024. At March 31, 2025, 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 16.05%, a tier 1 leverage ratio of 10.52% and a common equity tier 1

(“CET1”) ratio of 15.04% at March 31, 2025.

CRITICAL ACCOUNTING POLICIES

The accounting principles we follow and our methods of applying these principles conform with U.S. GAAP and with

general practices within the banking industry. There have been no significant changes to our Critical Accounting Estimates

as described in our Form 10-K as of and for the year ended December 31, 2024.

RESULTS OF OPERATIONS

Average Balance Sheet and Interest Rates

Quarter ended March 31,

2025

2024

Average

Yield/

Average

Yield/

(Dollars in thousands)

Balance

Rate

Balance

Rate

Interest-earning assets:

Loans and loans held for sale

566,267

5.40%

560,942

5.01%

Securities - taxable

231,325

2.25%

257,229

2.21%

Securities - tax-exempt

9,263

3.72%

10,377

3.64%

Total securities

240,588

2.30%

267,606

2.26%

Federal funds sold

26,865

4.39%

17,980

5.57%

Interest bearing bank deposits

61,235

4.49%

37,790

5.37%

Total interest-earning assets

894,955

4.48%

884,318

4.21%

Interest-bearing liabilities:

Deposits:

NOW

209,222

1.44%

196,648

1.31%

Savings and money market

242,701

0.84%

241,792

0.57%

Time Deposits

190,895

3.34%

199,562

3.20%

Total interest-bearing deposits

642,818

1.78%

638,002

1.62%

Short-term borrowings

0.00%

1,592

0.51%

Total interest-bearing liabilities

642,818

1.78%

639,594

1.62%

Net interest income and margin (tax-equivalent)

7,062

3.20%

6,677

3.04%

Net Interest Income and Margin

Net interest income (tax-equivalent) was $7.1 million for the first quarter of 2025, a 6% increase compared to $6.7 million

for the first quarter of 2024. This increase was primarily due to an increase in the Company’s net interest margin and

average interest-earning assets. The Company’s net interest margin (tax-equivalent) was 3.20% in the first quarter of 2025

compared to 3.04% in the first quarter of 2024. This increase was primarily due to a more favorable asset mix and

improvements in our yields on interest-earning assets, which was partially offset by higher market interest rates, which

increased our cost of funds, generally. Since March 2022, the Federal Reserve increased the target federal funds rate by

525 basis points before announcing a 50-basis points rate reduction on September 18, 2024, its first decrease in rates since

its March 2020 COVID rate reduction, followed by two 25 basis points reductions in October and December 2024. At

March 31, 2025, the target federal funds rate ranged from 4.25% - 4.50%.

The tax-equivalent yield on total interest-earning assets increased by 27 basis points to 4.48% in the first quarter of 2025

compared to 4.21% in the first quarter of 2024. This increase was primarily due to improved asset mix, and higher market

interest rates on interest earning assets.

The cost of interest-bearing liabilities increased to 178 basis points in the first quarter ended of 2025, compared to 162 basis

points in the first quarter ended of 2024. Average interest-bearing deposits were $642.8 million during the first quarter of

2025, a 1% increase compared to $638.0 million during the first quarter of 2024. Average interest-bearing deposits were

71% of average total deposits for both March 31, 2025 and 2024. Our deposit costs may continue to increase as we

compete for deposit funds against other banks, money market mutual funds, Treasury securities and other interest-bearing

alternative investments.

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 2025. Our ability to compete and manage our deposit costs until our interest-earning assets

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

remainder of 2025.

Provision for Credit Losses

The Company recorded a negative provision for credit losses during the first quarter of 2025 of $10 thousand, compared to

a charge to provision for credit losses of $334 thousand during the first quarter of 2024. 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, the anticipated Alabama unemployment rate, which may be affected by government policies, including

monetary, fiscal and other policies, including tariffs.

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

methodology, to adequately cover all expected credit losses as of the date the allowance is determined. At March 31, 2025,

the Company’s allowance for credit losses was $6.8 million, or 1.20% of total loans, compared to $6.9 million, or 1.22% of

total loans, at December 31, 2024, and $7.2 million, or 1.27% of total loans, at March 31, 2024.

Noninterest Income

Quarter ended March 31,

(Dollars in thousands)

2025

2024

Service charges on deposit accounts

155

156

Mortgage lending income

93

150

Bank-owned life insurance

105

102

Other

394

479

Total noninterest income

747

887

The Company’s mortgage lending income includes income from 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.

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.

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

Quarter ended March 31,

(Dollars in thousands)

2025

2024

Origination income, net

8

57

Servicing fees, net

85

93

Total mortgage lending income

93

150

The Company’s mortgage lending income typically fluctuates as mortgage interest rates, housing sales and refinancings

change. Origination income decreased in the first quarter of 2025 compared to the first quarter of 2024 due to a decrease in

mortgage lending demand in our primary market area.

Other noninterest income was $0.4 million for the first quarter of 2025, compared to $0.5 million for the first quarter of

2024. The decrease in other noninterest income was primarily due to decreased fee income on reciprocal deposits sold

through the Intrafi network.

Noninterest Expense

Quarter ended March 31,

(Dollars in thousands)

2025

2024

Salaries and benefits

3,310

3,071

Net occupancy and equipment

714

763

Professional fees

287

326

Other

1,569

1,515

Total noninterest expense

5,880

5,675

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

Income Tax Expense

Income tax expense was $0.4 million during the first quarter of 2025 compared to $0.2 million during the first quarter of

2024. The Company's effective tax rate for the first quarter of 2025 was 20.40%, compared to 10.68% in the first quarter of

2024. The Company’s effective income tax rate is affected principally by tax-exempt earnings from the Company’s

investments in municipal securities and loans, BOLI, and NMTCs.

BALANCE SHEET ANALYSIS

Securities

Securities available-for-sale were $242.5 million at March 31, 2025, compared to $243.0 million at December 31, 2024.

This decrease reflects a $6.2 million decrease in the amortized cost basis of securities available-for-sale and an increase in

the fair value of securities available-for-sale of $5.7 million. The average annualized tax-equivalent yields earned on total

securities were 2.30% in the first quarter of 2025 and 2.26% in the first quarter of 2024.

Loans

2025

2024

First

Fourth

Third

Second

First

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Commercial and industrial

59,061

63,274

61,510

77,627

78,920

Construction and land development

86,403

82,493

77,956

73,688

58,909

Commercial real estate

288,353

289,992

297,773

297,232

300,484

Residential real estate

117,500

118,627

118,582

119,427

118,240

Consumer installment

9,333

9,631

9,878

10,094

10,967

Total loans

560,650

564,017

565,699

578,068

567,520

Total loans were $560.7 million at March 31, 2025, a 1% decrease compared to $564.0 million at December 31, 2024.

Four loan categories represented the majority of the loan portfolio at March 31, 2025: commercial real estate (51%),

residential real estate (21%), construction and land development (15%) and commercial and industrial (11%).

Approximately 21% of the Company’s commercial real estate loans were classified as owner-occupied at March 31, 2025.

Within the residential real estate portfolio segment, the Company had junior lien mortgages of approximately $11.3 million,

or 2% of total loans, and $11.2 million, or 2%, of total loans at March 31, 2025 and December 31, 2024, respectively. For

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

payments at March 31, 2025 and December 31, 2024. 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 5.40% in the first quarter of 2025 and 5.01% in the first

quarter of 2024.

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

current economic conditions, including the levels of market interest rates, supply chain disruptions, commercial office

occupancy levels, housing supply shortages, and effects of inflation on our borrowers’ cash flows, real estate market sales

volumes and liquidity, valuations used in making loans and evaluating collateral, availability and cost of financing

properties, 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, in accurate

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 the higher interest rates currently in effect and which may exist 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 $22.8 million. Furthermore, we have an internal limit for aggregate credit exposure (loans outstanding plus

unfunded commitments) to a single borrower of $20.5 million. Our loan policy requires that the Loan Committee of the

Board of Directors approve any loan relationships that exceed this internal limit. At March 31, 2025, the Bank had no loan

relationships exceeding our internal limit.

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. Loans to borrowers in each of the following

classes exceeded 25% of the Bank’s total risk-based capital at March 31, 2025 (and related balances at December 31,

2024).

March 31,

December 31,

(Dollars in thousands)

2025

2024

Lessors of 1-4 family residential properties

57,841

58,228

Multi-family residential properties

43,198

43,556

Shopping centers/strip malls

36,731

37,349

Hotel/motel

34,607

35,210

Office Buildings

28,314

29,780

Allowance for Credit Losses

Our allowance for credit losses was approximately $6.8 million and $6.9 million at March 31, 2025 and December 31,

2024, respectively, which our management believed to be adequate at each of the respective dates. Our allowance for credit

losses as a percentage of total loans was 1.20% at March 31, 2025, compared to 1.22% at December 31, 2024.

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 March 31, 2025, reasonable and supportable periods of four quarters were utilized followed by an eight quarters straight

line reversion period to long term averages.

A summary of the changes in the allowance for credit losses and certain asset quality ratios for the first quarter of 2025 and

the previous four quarters is presented below.

2025

2024

First

Fourth

Third

Second

First

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Balance at beginning of period

6,871

6,876

7,142

7,215

6,863

Charge-offs:

Commercial and industrial

(99)

(9)

Residential real estate

(1)

(7)

(54)

Consumer installment

(31)

(40)

(19)

(24)

Total charge -offs

(100)

(38)

(94)

(28)

(24)

Recoveries

36

54

34

19

91

Net (charge-offs) recoveries

(64)

16

(60)

(9)

67

Provision for credit losses - Loans

(57)

(21)

(206)

(64)

285

Ending balance

6,750

6,871

6,876

7,142

7,215

as a % of loans

1.20

1.22

1.22

1.24

1.27

as a % of nonperforming loans

1,298

1,366

887

900

822

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

0.05

(0.01)

0.04

0.01

(0.05)

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

The allowance for credit losses by loan category for the first quarter of 2025 and the previous four quarters is presented

below.

2025

2024

First Quarter

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

(Dollars in thousands)

Amount

Amount

Amount

Amount

Amount

Commercial and industrial

1,219

10.5

1,244

11.2

1,160

10.9

1,366

13.4

1,415

13.9

Construction and land

development

1,401

15.4

1,059

14.6

985

13.8

942

12.7

840

10.4

Commercial real estate

3,153

51.4

3,842

51.5

3,989

52.6

4,091

51.5

4,202

53.0

Residential real estate

861

21.0

588

21.0

595

21.0

603

20.7

613

20.8

Consumer installment

116

1.7

138

1.7

147

1.7

140

1.7

145

1.9

Total allowance for credit losses

6,750

6,871

6,876

7,142

7,215

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

Nonperforming Assets

At both March 31, 2025 and December 31, 2024, the Company had $0.5 million, respectively, in nonperforming assets.

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

quarter of 2025 and the previous four quarters.

2025

2024

First

Fourth

Third

Second

First

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonperforming assets:

Nonaccrual loans

520

503

775

794

878

Total nonperforming assets

520

503

775

794

878

as a % of loans and OREO

0.09

0.09

0.14

0.14

0.15

as a % of total assets

0.05

0.05

0.08

0.08

0.09

Nonperforming loans as a % of total loans

0.09

0.09

0.14

0.14

0.15

Accruing loans 90 days or more past due

77

The table below provides information concerning the composition of nonaccrual loans for the first quarter of 2025 and the

previous four quarters.

2025

2024

First

Fourth

Third

Second

First

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonaccrual loans:

Commercial and industrial

3

99

Construction and land development

404

404

Commercial real estate

735

753

765

Residential real estate

113

40

41

97

Consumer installment

16

Total nonaccrual loans

520

503

775

794

878

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 $77 thousand in loans 90 days or more past due and still accruing at March 31, 2025 compared to none

at December 31, 2024.

The Company had no OREO at March 31, 2025 or December 31, 2024.

Deposits

(In thousands)

2025

2024

Noninterest bearing demand

271,749

260,874

NOW

211,093

199,883

Money market

152,160

153,916

Savings

86,116

89,904

Certificates of deposit under $250,000

100,954

103,594

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

88,431

87,653

Total deposits

910,503

895,824

Total deposits were $910.5 million at March 31, 2025, compared to $895.8 million at December 31, 2024. Noninterest-

bearing deposits were $271.7 million, or 30% of total deposits, at March 31, 2025, compared to $260.9 million, or 29% of

total deposits at December 31, 2024. At March 31, 2025 the Company had $64.7 million reciprocal deposits sold,

compared to $74.1 million at December 31, 2024. The Company had no brokered deposits at March 31, 2025 and

December 31, 2024.

The average rate paid on total interest-bearing deposits was 1.78% in the first quarter of 2025, compared to 1.62% in first

quarter of 2024.

At March 31, 2025, estimated uninsured deposits totaled $366.7 million, or 40% of total deposits, compared to $359.7

million, or 40% of total deposits at December 31, 2024. The Bank participates in the Certificates of Deposit Account

Registry Service (the “CDARS”) and the Insured Cash Sweep product (“ICS”), which provide for reciprocal (“two-way”)

transactions among banks facilitated by IntraFi for the purpose of improving the FDIC insurance coverage for our

depositors. The Company had reciprocal deposits on balance sheet of $10.0 million at March 31, 2025, compared to $6.9

million at December 31, 2024. Uninsured amounts are estimated based on the portion of account balances in excess of

FDIC insurance limits. The Bank’s estimated uninsured deposits at March 31, 2025 and December 31, 2024 include

approximately $221.8 million and $223.1 million, respectively, of deposits of state, county and local governments that are

collateralized by securities having an equal fair value to such deposits. Excluding estimated uninsured deposits of state,

county and local governments, our estimated uninsured deposits would have been 16% and 15% of total deposits at March

31, 2025 and December 31, 2024, respectively.

The estimated uninsured time deposits by maturity as of March 31, 2025 is presented below.

(Dollars in thousands)

March 31, 2025

Maturity of:

3 months or less

23,844

Over 3 months through 6 months

13,022

Over 6 months through 12 months

19,381

Over 12 months

2,434

Total estimated uninsured time deposits

58,681

Other Borrowings and Available Credit

The Company had no long-term debt at March 31, 2025 and December 31, 2024. The Bank utilizes short and long-term

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

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

funds lines totaling $65.2 million with no federal funds borrowings outstanding at March 31, 2025, and December 31,

2024, respectively. The Company had no securities sold under agreements to repurchase, which generally have been

entered into on behalf of certain customers at both March 31, 2025 and December 31, 2024. The Bank is eligible to borrow

from the FRB’s discount window, but had no such borrowings at March 31, 2025 and December 31, 2024. The Bank never

borrowed from the Federal Reserve’s Bank Term Facility Program (“BTFP”), which ceased making new loans on March

11, 2024.

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

FHLB of Atlanta’s advance program. FHLB advances include both fixed and variable rates and are taken out with varying

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

program at March 31, 2025 and December 31, 2024, respectively. At those dates, the Bank had $293.1 million and $296.9

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

The Bank had no short-term borrowings in the first quarter of 2025. The average rate paid on the Bank’s short -term

borrowings was 0.51% in the first quarter of 2024. The Bank had average short term borrowings of $1.6 million during the

first quarter of 2024.

CAPITAL ADEQUACY

The Company’s consolidated stockholders’ equity was $83.1 million and $78.3 million as of March 31, 2025 and

December 31, 2024, respectively. The increase from December 31, 2024 was primarily driven by net earnings of $1.5

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

tax of $4.2 million, partially offset by cash dividends of $0.9 million. Unrealized losses do not affect the Bank’s capital for

regulatory capital purposes.

The Company paid cash dividends of $0.27 per share for both the first quarter of 2025 and first quarter of 2024.

Federal Reserve rules require a capital conservation buffer of CET1 capital of 2.5% that is added to the minimum

requirements for capital adequacy purposes. A banking organization with a capital conservation buffer of 2.5% or less is

subject to limitation on “distributions” from “eligible retained earnings”, including dividend payments, share repurchases

and certain discretionary bonus payments. “eligible retained income” is 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.

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 10.52 %, CET1 risk-based capital ratio was 15.04%, tier 1

risk-based capital ratio was 15.04%, and total risk-based capital ratio was 16.05% at March 31, 2025. 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 8.05% at March 31, 2025.

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

liability sensitive over the forecast period of 12 months.

At March 31, 2025, our earnings simulation model indicated that we were in compliance with the policy guidelines noted

above.

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:

35% for an instantaneous change of +/- 400 basis points

30% for an instantaneous change of +/- 300 basis points

25% for an instantaneous change of +/- 200 basis points

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

At March 31, 2025, 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 March 31, 2025 and December 31, 2024, 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, and Federal Reserve Regulation W restricts Company borrowings from, and other transactions with, the Bank.

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 payment of Company expenses, dividends paid to stockholders and Company stock repurchases.

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. In addition to these sources, the Bank is eligible to participate in the FHLB of Atlanta’s advance program to obtain

funding for growth and liquidity. Advances include both fixed and variable terms and may be taken out with varying

maturities. At March 31, 2025, the Bank had no FHLB of Atlanta advances outstanding and available credit from the FHLB

of $293.1 million. At March 31, 2025, the Bank also had $65.2 million of available federal funds lines with no borrowings

outstanding. Primary uses of funds include repayment of maturing obligations and growing the loan portfolio. The

Company also has access to the FRB discount window.

Management believes that the Company and the Bank have adequate 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 March 31, 2025, the Bank had outstanding standby letters of credit of $0.8 million and unfunded loan commitments

outstanding of $70.6 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 use its cash and cash equivalents, deposits with other banks, 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

customary 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 and compliance with applicable federal, state, and local laws, among other

matters.

As of March 31, 2025, the aggregate unpaid principal balance of residential mortgage loans, which we have originated and

sold, but retained the servicing rights, was $200.1 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 our 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 quarter of 2025 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 March 31, 2025.

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.

Our mortgage servicing agreements generally specify our standards of responsibility as servicer and provide protection

against expenses and liabilities incurred by us when acting in compliance with these 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 agreements with Fannie Mae and Fannie Mae’s mortgage servicing guides. Remedies

could include repurchase of an affected loan.

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 March 31, 2025, 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 was current as of such date. We maintain ongoing communications with our mortgage purchasers 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 increase our noninterest expenses. It also can affect our customers’ behaviors, the mix of deposits between

interest and noninterest bearing, the levels of interest rates we have to pay on our deposits and other borrowings, and the

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

by the shape of the yield curve and the speeds and amounts at which our various assets and liabilities, respectively, reprice

in response to interest rate changes. The yield curve was inverted during most of 2024, until September, when it began to

normalize. An inverted yield curve means shorter term interest rates are higher than longer term interest rates. This results

in a lower spread between our costs of funds and our interest income. In addition, net interest income could be affected by

asymmetrical changes in the different interest rate indexes, given that not all of our assets or liabilities are priced with the

same index. Higher market interest rates and reductions in the securities held by the Federal Reserve to reduce inflation

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

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

longer-term inflation goal of 2%, also can adversely affect the values and liquidity of our loans and securities, the value of

collateral securing loans to our borrowers, and the success of our borrowers and such borrowers’ available cash to pay

interest on and principal of our loans to them.

Beginning in September 2024, in light of inflation moderating, the FOMC had three reductions in its target federal funds

rate range totaling 100 basis points to 4.25% to 4.50%. While the FOMC reaffirmed its target inflation rate of 2% over the

longer run, it indicated it was “recalibrating” its policy based on decreas ing inflation rates and the risks of increasing

unemployment, but would act on incoming data, the evolving outlook and the balance of the risks of inflation and

unemployment levels. In the future, the Federal Reserve could further decrease target interest rates, or could increase such

target rates, depending on the data and its outlook. The FOMC stated on March 19, 2025 that its “assessments will take

into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation

expectations, and financial and international developments.”

CURRENT ACCOUNTING DEVELOPMENTS

The following ASU has been issued by the FASB but is not yet effective.

ASU 2023-09,

Income Taxes (Topic 740): Improvements to Income Tax disclosures

ASU 2023-09 seeks to enhance the transparency and decision usefulness of income tax disclosures. For public business

entities, the new standard is effective for annual periods beginning after December 15, 2024. The Company does not

expect the new standard to have a material impact on the Company’s consolidated financial statements.

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.

2025

2024

First

Fourth

Third

Second

First

(in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Net interest income (GAAP)

7,045

6,969

6,790

6,709

6,657

Tax-equivalent adjustment

17

19

21

19

20

Net interest income (Tax -equivalent)

7,062

6,988

6,811

6,728

6,677

Table 2 - Selected Quarterly Financial Data

2025

2024

First

Fourth

Third

Second

First

(Dollars in thousands, except per share amounts)

Quarter

Quarter

Quarter

Quarter

Quarter

Results of Operations

Net interest income (a)

7,062

6,988

6,811

6,728

6,677

Less: tax-equivalent adjustment

17

19

21

19

20

Net interest income (GAAP)

7,045

6,969

6,790

6,709

6,657

Noninterest income

747

845

846

896

887

Total revenue

7,792

7,814

7,636

7,605

7,544

Provision for credit losses

(10)

(48)

(127)

(123)

334

Noninterest expense

5,880

5,472

5,500

5,519

5,675

Income tax expense

392

830

531

475

164

Net earnings

1,530

1,560

1,732

1,734

1,371

Per share data:

Basic and diluted net earnings

0.44

0.45

0.50

0.50

0.39

Cash dividends declared

0.27

0.27

0.27

0.27

0.27

Weighted average shares outstanding:

Basic and diluted

3,493,699

3,493,699

3,493,699

3,493,699

3,493,663

Shares outstanding, at period end

3,493,699

3,493,699

3,493,699

3,493,699

3,493,699

Book value

23.79

22.41

24.14

21.53

21.32

Common stock price

High

23.37

24.57

24.35

19.25

21.55

Low

20.36

20.06

17.50

16.63

18.82

Period end:

21.59

23.49

22.90

18.29

19.27

To earnings ratio (b)

11.42

12.77

91.60

101.61

83.78

To book value

91

105

95

85

90

Performance ratios:

Annualized return on average equity

7.83

7.49

9.10

9.63

7.13

Annualized return on average assets

0.62

0.63

0.71

0.71

0.56

Dividend payout ratio

61.36

60.00

54.00

54.00

69.23

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.20

1.22

1.22

1.24

1.27

Nonperforming loans

1,298

1,366

887

900

822

Nonperforming assets as a % of:

Loans and OREO

0.09

0.09

0.14

0.14

0.15

Total assets

0.05

0.05

0.08

0.08

0.09

Nonperforming loans as a % of total loans

0.09

0.09

0.14

0.14

0.15

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

0.05

(0.01)

0.04

0.01

(0.05)

Capital Adequacy: (c)

CET 1 risk-based capital ratio

15.04

14.80

14.75

14.47

14.62

Tier 1 risk-based capital ratio

15.04

14.80

14.75

14.47

14.62

Total risk-based capital ratio

16.05

15.81

15.76

15.49

15.69

Tier 1 leverage ratio

10.52

10.49

10.43

10.39

10.34

Other financial data:

Net interest margin (a)

3.20

3.09

3.05

3.06

3.04

Effective income tax rate

20.40

34.73

23.46

21.50

10.68

Efficiency ratio (d)

75.30

69.86

71.83

72.39

75.03

Selected average balances:

Securities available-for-sale

240,588

255,168

251,723

258,228

267,606

Loans

566,082

567,634

571,651

573,443

560,757

Total assets

987,272

991,275

982,656

978,107

976,930

Total deposits

906,805

904,605

904,860

900,673

897,051

Total stockholders’ equity

78,158

83,325

76,113

72,059

76,948

Selected period end balances:

Securities available-for-sale

242,468

243,012

258,285

254,359

260,770

Loans

560,650

564,017

565,699

578,068

567,520

Allowance for credit losses

6,750

6,871

6,876

7,142

7,215

Total assets

996,786

977,324

990,143

1,025,054

979,039

Total deposits

910,503

895,824

901,724

946,405

899,673

Total stockholders’ equity

83,115

78,292

84,336

75,209

74,489

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

(b) Calculated by dividing period end share price by earnings per share for the previous four quarters.

(c) Regulatory capital ratios presented are for the Company's wholly-owned subsidiary, AuburnBank.

(d) Efficiency ratio is the result of noninterest expense divided by the sum of noninterest income and tax-equivalent net interest income.

See Table 1 - Explanation of Non-GAAP Measures.

Table 3 - Average Balances and Net Interest Income Analysis

Quarter ended March 31,

2025

2024

Interest

Interest

Average

Income/

Yield/

Average

Income/

Yield/

(Dollars in thousands)

Balance

Expense

Rate

Balance

Expense

Rate

Interest-earning assets:

Loans and loans held for sale (1)

566,267

7,543

5.40%

560,942

6,990

5.01%

Securities - taxable (2)

231,325

1,281

2.25%

257,229

1,411

2.21%

Securities - tax-exempt (2)(3)

9,263

85

3.72%

10,377

94

3.64%

Total securities

240,588

1,366

2.30%

267,606

1,505

2.26%

Federal funds sold

26,865

291

4.39%

17,980

249

5.57%

Interest bearing bank deposits

61,235

678

4.49%

37,790

505

5.37%

Total interest-earning assets

894,955

9,878

4.48%

884,318

9,249

4.21%

Cash and due from banks

18,077

17,772

Other assets

74,240

74,840

Total assets

987,272

976,930

Interest-bearing liabilities:

Deposits:

NOW

209,222

742

1.44%

196,648

640

1.31%

Savings and money market

242,701

502

0.84%

241,792

340

0.57%

Time deposits

190,895

1,572

3.34%

199,562

1,590

3.20%

Total interest-bearing deposits

642,818

2,816

1.78%

638,002

2,570

1.62%

Short-term borrowings

0.00%

1,592

2

0.51%

Total interest-bearing liabilities

642,818

2,816

1.78%

639,594

2,572

1.62%

Noninterest-bearing deposits

263,987

259,050

Other liabilities

2,309

1,338

Stockholders' equity

78,158

76,948

Total liabilities and stockholders' equity

987,272

976,930

Net interest income and margin (tax-equivalent)

7,062

3.20%

6,677

3.04%

(1) 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%.

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.

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.

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. The persistence of inflation above the Federal Reserve’s long

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

interest rates and reductions in the Federal Reserve’s securities portfolio, have and are expected to continue to affect the

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

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

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

borrower’s operating costs, expected returns and cash flows available to service our loans. 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.