Auburn National Bancorporation, Inc: Form 10-Q for the period ended Sep 30, 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 nine months ended September 30, 2025 and 2024, as well as the information contained in our

annual report on Form 10-K for the year ended December 31, 2024 and our interim reports on Form 10-Q for the quarters

ended March 31, 2025 and June 30, 2025.

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,” “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 timing and speed of any changes in furtherance of

the Federal Reserve’s long-term inflation target of 2% while supporting maximum employment;

the effects of the federal government shutdown that began October 1, 2025 due to federal budget disputes, which

continues and the effects of any resolution of such disputes;

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 and enforcement 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;

legislation such as the federal GENIUS Act on stablecoins signed into law on July 18, 2025, and the proposed

CLARITY Act and the Anti-CBDC Surveillance Act bills being considered by Congress, more permissive

policies, regulation and/or enforcement regarding digital assets, such as cyber currency and stable coins, including

the chartering of new depository institutions focused on crypto coins and which creates additional competition to

banks and potential disintermediation of deposits, 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 requiring the

maintenance of capital, including a capital conservation buffer of 2.5% and to the amount of our future earnings

and “eligible retained earnings” over rolling four calendar quarter periods;

other factors and risks described under “Risk Factors” herein and in any of 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 September 30,

Nine months ended September 30,

(Dollars in thousands, except per share amounts)

2025

2024

2025

2024

Net interest income (a)

7,590

6,811

22,015

20,216

Less: tax-equivalent adjustment

18

21

54

60

Net interest income (GAAP)

7,572

6,790

21,961

20,156

Noninterest income

829

846

2,365

2,629

Total revenue

8,401

7,636

24,326

22,785

Provision for credit losses

(255)

(127)

(152)

84

Noninterest expense

5,806

5,500

17,388

16,694

Income tax expense

623

531

1,500

1,170

Net earnings

2,227

1,732

5,590

4,837

Basic and diluted earnings per share

0.64

0.50

1.60

1.38

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

Financial Summary

The Company’s net earnings were $5.6 million for the first nine months of 2025, a 16% increase compared to $4.8 million

for the first nine months of 2024. Basic and diluted earnings per share were $1.60 per share for the first nine months of

2025, compared to $1.38 per share for the first nine months of 2024.

Net interest income (tax-equivalent) was $22.0 million for the first nine months of 2025, a 9% increase compared to $20.2

million for the first nine months 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 3.26%

for the first nine months of 2025 compared to 3.05% for the first nine months of 2024. This increase was primarily due to

improvements in our yields on interest-earning assets, and a decrease in our cost of interest-bearing deposits. See “Results

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

At September 30, 2025, the Company’s allowance for credit losses was $6.7 million, or 1.20% of total loans, compared to

$6.9 million, or 1.22% of total loans, at December 31, 2024, and $6.9 million, or 1.22% of total loans, at September 30,

The Company recorded a negative provision for credit losses during the first nine months of 2025 of $152 thousand,

compared to a charge to provision of $84 thousand during the first nine months 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 $2.4 million in the first nine months of 2025, compared to $2.6 million in the first nine months of

2024. The decrease was primarily related to a decrease in mortgage lending income and other noninterest income.

Noninterest expense was $17.4 million in the first nine months of 2025, compared to $16.7 million for the first nine months

of 2024. The increase was primarily related to increases in salaries and benefits expense and other noninterest expense.

These increases were partially offset by a decrease in net occupancy and equipment expense.

Income tax expense was $1.5 million for the first nine months of 2025 compared to $1.2 million for the first nine months of

2024. The Company's effective tax rate for the first nine months of 2025 was 21.16%, compared to 19.48% in the first nine

months 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 New Markets Tax

Credits (“NMTCs”).

The Company paid cash dividends of $0.81 per share in the first nine months of 2025 and 2024. At September 30, 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 16.49%, a tier 1 leverage ratio of 10.72% and a common equity

tier 1 (“CET1”) ratio of 15.51% at September 30, 2025. See “Balance Sheet Analysis – Capital Adequacy”.

For the third quarter of 2025, net earnings were $2.2 million, or $0.64 per share, compared to $1.7 million, or $0.50 per

share, for the third quarter of 2024. Net interest income (tax-equivalent) was $7.6 million for the third quarter of 2025

compared to $6.8 million for the third quarter of 2024. The increase was due to growth in average interest-earning assets

and improvements in our net interest margin. The Company’s net interest margin (tax-equivalent) was 3.30% in the third

quarter of 2025 compared to 3.05% in the third quarter of 2024. The increase was primarily due to improved yields on

interest-earning assets, and a decrease in our cost of interest-bearing deposits. The Company recorded a negative provision

for credit losses of $255 thousand in the third quarter of 2025, compared to a negative provision for credit losses of $127

thousand in the third quarter of 2024. Noninterest income was $0.8 million for the third quarter of 2025 and 2024.

Noninterest expense was $5.8 million in the third quarter of 2025, compared to $5.5 million for the third quarter of 2024.

The increase in noninterest expense was primarily due to increases in salaries and benefits expense and increases in other

noninterest expense. Income tax expense was $0.6 million for the third quarter of 2025 compared to $0.5 million for the

third quarter of 2024. The Company’s effective tax rate for the third quarter of 2025 was 21.86%, compared to 23.46% in

the third quarter of 2024.

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 Policies 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

Nine months ended September 30,

2025

2024

Average

Yield/

Average

Yield/

(Dollars in thousands)

Balance

Rate

Balance

Rate

Loans and loans held for sale

560,946

5.48%

568,939

5.18%

Securities - taxable

230,165

2.18%

248,923

2.20%

Securities - tax-exempt

9,131

3.79%

10,235

3.71%

Total securities

239,296

2.24%

259,158

2.26%

Federal funds sold

26,717

4.38%

18,014

5.47%

Interest bearing bank deposits

76,254

4.46%

39,530

5.47%

Total interest-earning assets

903,213

4.51%

885,641

4.35%

Deposits:

NOW

202,381

1.35%

193,428

1.41%

Savings and money market

254,095

1.01%

250,146

0.79%

Time deposits

185,355

3.22%

196,584

3.45%

Total interest-bearing deposits

641,831

1.75%

640,158

1.80%

Short-term borrowings

37

3.61%

838

0.48%

Total interest-bearing liabilities

641,868

1.75%

640,996

1.80%

Net interest income and margin (tax-equivalent)

22,015

3.26%

20,216

3.05%

See Tables 4 and 5 – Average Balances and Net Interest Income Analysis for the quarters and nine months ended

September 30, 2025 and 2024, and Table 6 – Volume and Rate Variance Analysis.

Net Interest Income and Margin

Net interest income (tax-equivalent) was $22.0 million for the first nine months of 2025, a 9% increase compared to $20.2

million for the first nine months 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 3.26%

in the first nine months of 2025 compared to 3.05% in the first nine months of 2024. This increase was primarily due to

improvements in our yields on interest-earning assets, and a decrease in our cost of our interest-bearing deposits. 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 and another 25 basis point reduction in

September 2025. At September 30, 2025, the Federal Reserve’s target federal funds rate ranged from 4.00% to 4.25%. The

Federal Reserve further reduced its target federal funds rate range to 3.75% to 4.00% on October 29, 2025.

The tax-equivalent yield on total interest-earning assets increased by 16 basis points to 4.51% in the first nine months of

2025 compared to 4.35% in the first nine months of 2024. This increase was primarily due to changes in our asset mix, as

cash and cash equivalents increased and securities declined. Average interest-earning assets were $903.2 million during the

first nine months of 2025, a 2% increase compared to $885.6 million during the first nine months of 2024.

The cost of interest-bearing liabilities decreased 5 basis points in the first first nine months of 2025 to 175 basis points,

compared to 180 basis points in the first first nine months of 2024. Our deposit costs may fluctuate 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 the remainder of 2025. Our ability to compete and manage our deposit costs until our interest-

earning assets reprice and we generate new loans with current market 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 nine months of 2025 of $152 thousand,

compared to a charge of $84 thousand during the first nine months 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. The negative provision for the first nine months of 2025 was primarily driven by

improvements in the economic forecasts utilized in the model, most notably a reduction in the Alabama unemployment

rate. The reclassification, upon completion of construction of two multifamily projects, from the construction and land

development loan segment to the multifamily loan segment, which carries lower modeled loss rates, also contributed to the

negative provision for credit losses during the current period.

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 September 30,

2025, the Company’s allowance for credit losses was $6.7 million, or 1.20% of total loans, compared to $6.9 million, or

1.22% of total loans, at December 31, 2024, and $6.9 million, or 1.22% of total loans, at September 30, 2024.

Noninterest Income

Quarter ended September 30,

Nine months ended September 30,

(Dollars in thousands)

2025

2024

2025

2024

Service charges on deposit accounts

154

154

461

463

Mortgage lending income

167

133

391

463

Bank-owned life insurance

103

100

309

301

Other

405

459

1,204

1,402

Total noninterest income

829

846

2,365

2,629

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 September 30,

Nine months ended September 30,

(Dollars in thousands)

2025

2024

2025

2024

Origination income

93

52

150

194

Servicing fees, net

74

81

241

269

Total mortgage lending income

167

133

391

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

change. Origination income decreased in the first nine months of 2025 compared to the first nine months of 2024 due to a

decrease in mortgage lending demand in our primary market area.

Other noninterest income was $2.4 million for the first nine months of 2025, compared to $2.6 million for the first nine

months 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 September 30,

Nine months ended September 30,

(Dollars in thousands)

2025

2024

2025

2024

Salaries and benefits

3,375

3,148

9,943

9,359

Net occupancy and equipment

598

614

1,916

1,980

Professional fees

312

291

984

931

Other

1,521

1,447

4,545

4,424

Total noninterest expense

5,806

5,500

17,388

16,694

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

Income Tax Expense

Income tax expense was $1.5 million for the first nine months of 2025 compared to $1.2 million for the first nine months of

2024. The Company's effective tax rate for the first nine months of 2025 was 21.16%, compared to 19.48% in the first nine

months 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 $236.4 million at September 30, 2025, compared to $243.0 million at December 31,

2024. This decrease reflects the effects of an $18.0 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 $11.4 million. Unrealized losses on securities

declined 29% in the first nine months of 2025, primarily due to decreases in market interest rates.

The average annualized tax-equivalent yields earned on total securities were 2.24 % in the first nine months of 2025

compared to 2.26% in the first nine months of 2024.

Loans

2025

2024

Third

Second

First

Fourth

Third

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Commercial and industrial

55,102

59,773

59,061

63,274

61,510

Construction and land development

79,045

93,820

86,403

82,493

77,956

Commercial real estate

298,681

282,868

288,353

289,992

297,773

Residential real estate

116,279

117,160

117,500

118,627

118,582

Consumer installment

8,805

9,093

9,333

9,631

9,878

Total loans

557,912

562,714

560,650

564,017

565,699

Total loans were $557.9 million at September 30, 2025, a slight decrease compared to $564.0 million at December 31,

2024. Four loan categories represented the majority of the loan portfolio at September 30, 2025: commercial real estate

(54%), residential real estate (21%), construction and land development (14%) and commercial and industrial (10%).

Approximately 21% of the Company’s commercial real estate loans were classified as owner-occupied at September 30,

Within the residential real estate portfolio segment, the Company had junior lien mortgages of approximately $12.2 million,

or 2% of total loans, and $11.2 million, or 2%, of total loans at September 30, 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 September 30, 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 5.48% in the first nine months of 2025 and 5.18% in the first

nine months of 2024.

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

current economic conditions, including the levels of market interest rates, 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. Vario us

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 $23.3 million. Furthermore, we have an internal limit for aggregate credit exposure (loans outstanding plus

unfunded commitments) to a single borrower of $20.9 million. Our loan policy requires that the Loan Committee of the

Board of Directors approve any loan relationships that exceed this internal limit. At September 30, 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 September 30, 2025 (and related balances at December 31,

2024).

September 30,

December 31,

(Dollars in thousands)

2025

2024

Lessors of 1-4 family residential properties

56,860

58,228

Multi-family residential properties

51,543

43,556

Shopping centers/strip malls

34,387

37,349

Hotel/motel

34,686

35,210

Allowance for Credit Losses

Our allowance for credit losses was approximately $6.7 million and $6.9 million at September 30, 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 September 30, 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 September 30, 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 third quarter of 2025 and

the previous four quarters is presented below.

2025

2024

Third

Second

First

Fourth

Third

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Balance at beginning of period

6,965

6,750

6,871

6,876

7,142

Charge-offs:

Commercial and industrial

(3)

(100)

Residential real estate

(6)

(1)

(7)

(54)

Consumer installment

(87)

(9)

(31)

(40)

Total charge -offs

(87)

(18)

(101)

(38)

(94)

Recoveries

9

67

37

54

34

Net (charge-offs) recoveries

(78)

49

(64)

16

(60)

Provision for credit losses - Loans

(196)

166

(57)

(21)

(206)

Ending balance

6,691

6,965

6,750

6,871

6,876

as a % of loans

1.20

1.24

1.20

1.22

1.22

as a % of nonperforming loans

6,434

2,306

1,298

1,366

887

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

0.06

(0.03)

0.05

(0.01)

0.04

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

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

below.

2025

2024

Third Quarter

Second Quarter

First Quarter

Fourth Quarter

Third Quarter

(Dollars in thousands)

Amount

Amount

Amount

Amount

Amount

Commercial and industrial

1,126

9.9

1,212

10.6

1,219

10.5

1,244

11.2

1,160

10.9

Construction and land

development

1,445

14.2

1,613

16.7

1,401

15.4

1,059

14.6

985

13.8

Commercial real estate

3,145

53.5

3,151

50.3

3,153

51.4

3,842

51.5

3,989

52.6

Residential real estate

836

20.8

866

20.8

861

21.0

588

21.0

595

21.0

Consumer installment

139

1.6

123

1.6

116

1.7

138

1.7

147

1.7

Total allowance for credit losses

6,691

6,965

6,750

6,871

6,876

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

Nonperforming Assets

At September 30, 2025 and December 31, 2024, the Company had $0.1 million and $0.5 million, respectively, in

nonperforming assets.

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

quarter of 2025 and the previous four quarters.

2025

2024

Third

Second

First

Fourth

Third

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonperforming assets:

Nonaccrual loans

104

302

520

503

775

Total nonperforming assets

104

302

520

503

775

as a % of loans and OREO

0.02

0.05

0.09

0.09

0.14

as a % of total assets

0.01

0.03

0.05

0.05

0.08

Nonperforming loans as a % of total loans

0.02

0.05

0.09

0.09

0.14

Accruing loans 90 days or more past due

77

77

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

previous four quarters.

2025

2024

Third

Second

First

Fourth

Third

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonaccrual loans:

Commercial and industrial

3

99

Construction and land development

404

404

Commercial real estate

119

735

Residential real estate

104

183

113

40

Total nonaccrual loans

104

302

520

503

775

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 September 30, 2025 compared to

none at December 31, 2024.

The Company had no OREO at September 30, 2025 or December 31, 2024.

Deposits

(In thousands)

2025

2024

Noninterest bearing demand

266,793

260,874

NOW

211,187

199,883

Money market

172,224

153,916

Savings

86,105

89,904

Certificates of deposit under $250,000

96,613

103,594

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

84,344

87,653

Total deposits

917,266

895,824

Total deposits were $917.3 million at September 30, 2025, compared to $895.8 million at December 31, 2024. The 2%

increase in deposits compared to December 31, 2024 was primarily related to an increase in money market and interest-

bearing checking accounts. At September 30, 2025 the Company had $33.0 million in reciprocal deposits sold, compared

to $74.1 million at December 31, 2024. The Company had no brokered deposits at September 30, 2025 and December 31,

2024. Noninterest-bearing deposits were $266.8 million, or 29% of total deposits, at September 30, 2025, compared to

$260.9 million, or 29% of total deposits at December 31, 2024.

The average rate paid on total interest-bearing deposits was 1.75% in the first nine months of 2025, compared to 1.80% in

first nine months of 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

$34.1 million at September 30, 2025, compared to $6.9 million at December 31, 2024.

At September 30, 2025, estimated uninsured deposits totaled $369.1 million, or 40% of total deposits, compared to $359.7

million, or 40% of total deposits 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 September 30, 2025 and

December 31, 2024 include approximately $207.6 million and $223.1 million, respectively, of deposits of state, county and

local governments that are collateralized by securities having an equal fair value to such deposits. Excluding estimated

uninsured deposits of state, county and local governments, our estimated uninsured deposits would have been 18% of total

deposits at September 30, 2025 and 15% of total deposits at December 31, 2024.

The estimated uninsured time deposits by maturity as of September 30, 2025 is presented below.

(Dollars in thousands)

September 30, 2025

Maturity of:

3 months or less

37,525

Over 3 months through 6 months

6,289

Over 6 months through 12 months

8,673

Over 12 months

3,107

Total estimated uninsured time deposits

55,594

Other Borrowings and Available Credit

The Company had no long-term debt at September 30, 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 September 30, 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 September 30, 2025 and December 31, 2024. The Bank is eligible to

borrow from the FRB’s discount window, but had no such borrowings at September 30, 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 September 30, 2025 and December 31, 2024, respectively. At those dates, the Bank had $308.6 million and

$296.9 million, respectively, of available lines of credit at the FHLB of Atlanta.

CAPITAL ADEQUACY

The Company’s consolidated stockholders’ equity was $89.6 million and $78.3 million as of September 30, 2025 and

December 31, 2024, respectively. The increase from December 31, 2024 was primarily driven by net earnings of $5.6

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

tax of $8.6 million, partially offset by cash dividends of $2.8 million. Unrealized losses do not affect the Bank’s capital for

regulatory capital purposes.

The Company paid cash dividends of $0.81 per share for both the first nine months of 2025 and the first nine months of

During July of 2025, the Company granted certain officers restricted stock units (“RSUs”) on 3,030 shares of Company

common stock pursuant to the Company’s 2024 Equity and Incentive Compensation Plan. The RSUs are reflected in the

consolidated statements of stockholders’ equity and in earnings per share, were not material to the Company’s financial

condition, results of operations, or cash flows for the period. The Form of Award Agreement is filed as Exhibit 10.1 to this

report.

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.

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 10.72%, CET1 risk-based capital ratio was 15.51%, tier 1

risk-based capital ratio was 15.51%, and total risk-based capital ratio was 16.49% at September 30, 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 8.49% at September 30, 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 September 30, 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 September 30, 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 September 30, 2025 and December 31, 2024, the Company had no derivative

contracts designated as part of a hedging relationship to assist in managing its interest 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 September 30, 2025, the Bank had no FHLB of Atlanta advances outstanding and available credit from the

FHLB of $308.6 million. At September 30, 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 September 30, 2025, the Bank had outstanding standby letters of credit of $0.8 million and unfunded loan commitments

outstanding of $61.1 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 September 30, 2025, the aggregate unpaid principal balance of residential mortgage loans, which we have originated

and sold, but retained the servicing rights, was $193.5 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 nine months 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 September 30, 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 September 30, 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. As of October 31, 2025, yields on one- and two-

m

onth maturity Treasury securities were higher than other Treasury securities with maturities of 10 years or less.

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 Federal Reserve’s Federal Open Market Committee

(“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

decreasing 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. On July 31, 2025, the FOMC

stated that it seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty

about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate. …

The [FOMC’s] assessments will take into account a wide range of information, including readings on labor market

conditions, inflation pressures and inflation expectations, and financial and international developments.”

On September 17, 2025, the FOMC reduced its target federal funds rate range 25 basis points to 4.00% to 4.25%, and stated

it would continue to reduce its holdings of Treasury and agency debt and mortgage-backed securities (“MBS”). Most

recently, on October 29, 2025, the FOMC noted inflation had risen and was somewhat elevated, and that downside risks to

employment had risen in recent months. As a result, the FOMC reduced its target federal funds rate range 25 basis points

to 3.75% to 4.00%. The FOMC took further action with respect to its overnight repurchase and reverse repurchase rates

and daily volume limitations and effective October 30, 2025, limited the rate of reduction in the Federal Reserve’s

securities holdings, subject to modest deviations for operational reasons:

The Federal Reserve will roll over and reinvest at auction principal payments on Treasury securities maturing in

excess of $5 billion per month.

Beginning December1, all principal payments on Treasury securities would be rolled over and reinvested.

Reinvest the amount of principal payments from the Federal Reserve's holdings of agency debt and agency MBS

received in October and November that exceeds a cap of $35 billion per month in Treasury securities to roughly

match the maturity composition of Treasury securities outstanding.

Beginning, all principal payments from the Federal Reserve's holdings of agency securities would be reinvested in

Treasury bills.

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

e

xpect 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

Third

Second

First

Fourth

Third

(in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Net interest income (GAAP)

7,572

7,344

7,045

6,969

6,790

Tax-equivalent adjustment

18

19

17

19

21

Net interest income (Tax -equivalent)

7,590

7,363

7,062

6,988

6,811

Nine months ended September 30,

(In thousands)

2025

2024

Net interest income (GAAP)

21,961

20,156

Tax-equivalent adjustment

54

60

N

et interest income (Tax-equivalent)

22,015

20,216

Table 2 - Selected Quarterly Financial Data

2025

2024

Third

Second

First

Fourth

Third

(Dollars in thousands, except per share amounts)

Quarter

Quarter

Quarter

Quarter

Quarter

Results of Operations

Net interest income (a)

7,590

7,363

7,062

6,988

6,811

Less: tax-equivalent adjustment

18

19

17

19

21

Net interest income (GAAP)

7,572

7,344

7,045

6,969

6,790

Noninterest income

829

789

747

845

846

Total revenue

8,401

8,133

7,792

7,814

7,636

Provision for credit losses

(255)

113

(10)

(48)

(127)

Noninterest expense

5,806

5,702

5,880

5,472

5,500

Income tax expense

623

485

392

830

531

Net earnings

2,227

1,833

1,530

1,560

1,732

Per share data:

Basic and diluted net earnings

0.64

0.52

0.44

0.45

0.50

Cash dividends declared

0.27

0.27

0.27

0.27

0.27

Weighted average shares outstanding:

Basic

3,493,699

3,493,699

3,493,699

3,493,699

3,493,699

Diluted

3,495,972

3,493,699

3,493,699

3,493,699

3,493,699

Shares outstanding, at period end

3,493,699

3,493,699

3,493,699

3,493,699

3,493,699

Book value

25.65

24.64

23.79

22.41

24.14

Common stock price:

High

28.47

25.28

23.37

24.57

24.35

Low

23.13

19.48

20.36

20.06

17.50

Period end:

28.44

25.00

21.59

23.49

22.90

To earnings ratio (b)

13.87

x

13.09

11.42

12.77

91.60

To book value

111

101

91

105

95

Performance ratios:

Annualized return on average equity

10.65

9.00

7.83

7.49

9.10

Annualized return on average assets

0.89

0.74

0.62

0.63

0.71

Dividend payout ratio

42.19

51.92

61.36

60.00

54.00

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.20

1.24

1.20

1.22

1.22

Nonperforming loans

6,434

2,306

1,298

1,366

887

Nonperforming assets as a % of:

Loans and other real estate owned

0.02

0.05

0.09

0.09

0.14

Total assets

0.01

0.03

0.05

0.05

0.08

Nonperforming loans as a % of total loans

0.02

0.05

0.09

0.09

0.14

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

0.06

(0.03)

0.05

(0.01)

0.04

Capital Adequacy: (c)

CET 1 risk-based capital ratio

15.51

15.32

15.04

14.80

14.75

Tier 1 risk-based capital ratio

15.51

15.32

15.04

14.80

14.75

Total risk-based capital ratio

16.49

16.35

16.05

15.81

15.76

Tier 1 leverage ratio

10.72

10.64

10.52

10.49

10.43

Other financial data:

Net interest margin (a)

3.30

3.27

3.20

3.09

3.05

Effective income tax rate

21.86

20.92

20.40

34.73

23.46

Efficiency ratio (d)

68.96

69.95

75.30

69.86

71.83

Selected average balances:

Securities

237,161

240,177

240,588

255,168

251,723

Loans, net of unearned income

556,233

559,770

566,082

567,634

571,651

Total assets

997,892

990,523

987,272

991,275

982,656

Total deposits

909,293

905,227

906,805

904,605

904,860

Total stockholders’ equity

83,642

81,447

78,158

83,325

76,113

Selected period end balances:

Securities

236,420

239,681

242,468

243,012

258,285

Loans, net of unearned income

557,912

562,714

560,650

564,017

565,699

Allowance for credit losses

6,691

6,965

6,750

6,871

6,876

Total assets

1,011,184

1,029,224

996,786

977,324

990,143

Total deposits

917,266

939,851

910,503

895,824

901,724

Total stockholders’ equity

89,613

86,071

83,115

78,292

84,336

(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 - Selected Financial Data

Nine months ended September 30,

(Dollars in thousands, except per share amounts)

2025

2024

Results of Operations

Net interest income (a)

22,015

20,216

Less: tax-equivalent adjustment

54

60

Net interest income (GAAP)

21,961

20,156

Noninterest income

2,365

2,629

Total revenue

24,326

22,785

Provision for credit losses

(152)

84

Noninterest expense

17,388

16,694

Income tax expense

1,500

1,170

Net earnings

5,590

4,837

Per share data:

Basic and diluted net earnings

1.60

1.38

Cash dividends declared

0.81

0.81

Weighted average shares outstanding:

Basic

3,493,699

3,493,687

Diluted

3,494,465

3,493,687

Shares outstanding, at period end

3,493,699

3,493,699

Book value

25.65

24.14

Common stock price:

High

28.47

24.35

Low

19.48

16.63

Period end

28.44

22.90

To earnings ratio (b)

13.87

x

91.60

To book value

111

95

Performance ratios:

Annualized return on average equity

9.06

8.59

Annualized return on average assets

0.75

0.66

Dividend payout ratio

50.63

58.70

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.20

1.22

Nonperforming loans

6,434

887

Nonperforming assets as a % of:

Loans and other real estate owned

0.02

0.14

Total assets

0.01

0.08

Nonperforming loans as a % of total loans

0.02

0.14

Annualized net recoveries as a % of average loans

0.02

Capital Adequacy: (c)

CET 1 risk-based capital ratio

15.51

14.75

Tier 1 risk-based capital ratio

15.51

14.75

Total risk-based capital ratio

16.49

15.76

Tier 1 leverage ratio

10.72

10.43

Other financial data:

Net interest margin (a)

3.26

3.05

Effective income tax rate

21.16

19.48

Efficiency ratio (d)

71.32

73.08

Selected average balances:

Securities

239,296

259,158

Loans, net of unearned income

560,659

568,628

Total assets

991,935

979,243

Total deposits

907,105

900,876

Total stockholders’ equity

82,281

75,044

Selected period end balances:

Securities

236,420

258,285

Loans, net of unearned income

557,912

565,699

Allowance for credit losses

6,691

6,876

Total assets

1,011,184

990,143

Total deposits

917,266

901,724

Total stockholders’ equity

89,613

84,336

(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 4 - Average Balances and Net Interest Income Analysis

Quarter ended September 30,

2025

2024

Interest

Interest

Average

Income/

Yield/

Average

Income/

Yield/

(Dollars in thousands)

Balance

Expense

Rate

Balance

Expense

Rate

Interest-earning assets:

Loans and loans held for sale (1)

556,736

7,793

5.55%

571,917

7,642

5.32%

Securities - taxable (2)

228,127

1,220

2.12%

241,604

1,327

2.19%

Securities - tax-exempt (2)(3)

9,034

86

3.78%

10,119

97

3.81%

Total securities

237,161

1,306

2.18%

251,723

1,424

2.25%

Federal funds sold

27,572

304

4.37%

18,696

255

5.43%

Interest bearing bank deposits

90,964

1,027

4.48%

46,174

659

5.68%

Total interest-earning assets

912,433

10,430

4.54%

888,510

9,980

4.47%

Cash and due from banks

13,627

17,909

Other assets

71,832

76,237

Total assets

997,892

982,656

Interest-bearing liabilities:

Deposits:

NOW

199,060

650

1.30%

192,781

729

1.50%

Savings and money market

265,627

763

1.14%

253,943

614

0.96%

Time deposits

180,618

1,427

3.13%

198,009

1,826

3.67%

Total interest-bearing deposits

645,305

2,840

1.75%

644,733

3,169

1.96%

Short-term borrowings

2

Total interest-bearing liabilities

645,305

2,840

1.75%

644,735

3,169

1.96%

Noninterest-bearing deposits

263,988

260,127

Other liabilities

4,957

1,681

Stockholders' equity

83,642

76,113

Total liabilities and stockholders' equity

997,892

982,656

Net interest income and margin (tax-equivalent)

7,590

3.30%

6,811

3.05%

(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%.

Table 5 - Average Balances and Net Interest Income Analysis

Nine months ended September 30,

2025

2024

Interest

Interest

Average

Income/

Yield/

Average

Income/

Yield/

(Dollars in thousands)

Balance

Expense

Rate

Balance

Expense

Rate

Interest-earning assets:

Loans and loans held for sale (1)

560,946

23,012

5.48%

568,939

22,082

5.18%

Securities - taxable (2)

230,165

3,751

2.18%

248,923

4,109

2.20%

Securities - tax-exempt (2)(3)

9,131

259

3.79%

10,235

284

3.71%

Total securities

239,296

4,010

2.24%

259,158

4,393

2.26%

Federal funds sold

26,717

875

4.38%

18,014

738

5.47%

Interest bearing bank deposits

76,254

2,541

4.46%

39,530

1,619

5.47%

Total interest-earning assets

903,213

30,438

4.51%

885,641

28,832

4.35%

Cash and due from banks

15,864

17,917

Other assets

72,858

75,685

Total assets

991,935

979,243

Interest-bearing liabilities:

Deposits:

NOW

202,381

2,042

1.35%

193,428

2,045

1.41%

Savings and money market

254,095

1,910

1.01%

250,146

1,486

0.79%

Time deposits

185,355

4,470

3.22%

196,584

5,082

3.45%

Total interest-bearing deposits

641,831

8,422

1.75%

640,158

8,613

1.80%

Short-term borrowings

37

1

3.61%

838

3

0.48%

Total interest-bearing liabilities

641,868

8,423

1.75%

640,996

8,616

1.80%

Noninterest-bearing deposits

265,274

260,718

Other liabilities

2,512

2,485

Stockholders' equity

82,281

75,044

Total liabilities and stockholders' equity

991,935

979,243

Net interest income and margin (tax-equivalent)

22,015

3.26%

20,216

3.05%

(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%.

Table 6 –Volume and Rate Variance Analysis

Quarter ended

Nine months ended

September 30, 2025 vs. 2024

September 30, 2025 vs. 2024

Net

Due to change in

Net

Due to change in

(Dollars in thousands)

Change

Rate (2)

Volume (2)

Change

Rate (2)

Volume (2)

Interest income:

Loans and loans held for sale

151

342

(191)

930

1,275

(345)

Securities - taxable

(107)

(38)

(69)

(358)

(48)

(310)

Securities - tax-exempt (1)

(11)

(1)

(10)

(25)

7

(32)

Total securities

(118)

(39)

(79)

(383)

(41)

(342)

Federal funds sold

49

(49)

98

137

(147)

284

Interest bearing bank deposits

368

(139)

507

922

(299)

1,221

Total interest income

450

115

335

1,606

788

818

Interest expense:

Deposits:

NOW

(79)

(101)

22

(3)

(91)

88

Savings and money market

149

113

36

424

395

29

Certificates of deposit

(399)

(266)

(133)

(612)

(336)

(276)

Total interest-bearing deposits

(329)

(254)

(75)

(191)

(32)

(159)

Short-term borrowings

(2)

20

(22)

Long-term debt

Total interest expense

(329)

(254)

(75)

(193)

(12)

(181)

Net interest income

779

369

410

1,799

800

999

(1) Yields on tax-exempt securities have been computed on a tax-equivalent basis using an income

tax rate of 21%. See "Table 1 - Explanation of Non-GAAP Financial Measures."

2) Changes that are not solely a result of volume or rate have been allocated to volume.

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 may 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 securities losses that have adversely affected our stockholders’ equity. Although inflation has remained above

the 2% rate, during the last year the Federal Reserve has reduced its target federal funds range from 5.25% to 5.50% to

3.75% to 4.00%, and on October 29, 2025 announced that it would end the roll-off of maturing securities it held beginning

December 1, 2025 as the Federal Reserve sought to meet its dual mandate of maximum employment and 2% inflation over

the longer run. These actions, and the changes from tighter to more accommodative monetary policy 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 borrowers’ 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

b

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