Auburn National Bancorporation, Inc: Form 10-Q for the period ended Mar 31, 2026

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 - 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 our 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

ended March 31, 2026 and 2025, as well as the information contained in our Annual Report on Form 10-K for the year

ended December 31, 2025.

Special Cautionary Notice Regarding Forward-Looking Statements

Various of the statements made herein under the captions “Business”, “Properties”, “Risk Factors”, “Management’s

Discussion and Analysis of Financial Condition and Results of Operations”, “Quantitative and Qualitative Disclosures

about Market Risk”, 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, 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 such as hurricanes, tornados, floods and droughts, epidemics or

pandemics, supply chain disruptions and changes in consumer behaviors;

the effects of war, other conflicts or attacks, acts of terrorism, trade restrictions, tariffs, sanctions, the value of the

U.S. dollar against other currencies, disruptions of supply chains including energy supplies, or other events that

may affect general economic conditions, and consumer and business confidence;

governmental fiscal and monetary policies and changes, including taxes, the amount of federal deficit spending

and the debt to fund such spending, changes in monetary policies, including changes in the Federal Reserve’s

target federal funds rate and 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 to meet its long term inflation target of 2%;

changes in market interest rates and the shape of the yield curve on changes in savings, deposit and payment

behaviors, the levels, composition and costs of deposits, loan demand and mortgage loan originations, and the

values and liquidity of and interest-sensitive assets and liabilities;

increases in market interest rates that may result in unrealized losses on our securities portfolio, which adversely

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

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 products, including

stablecoin and other digital assets businesses, which 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 of digital assets, such as cyber currency and stablecoins (including

rewards or other forms of payments functionally similar to interest), that increases competition to banks, increases

risks to the payment systems, increases risks of fraud and theft of digital assets and their effects on customers other

financial institutions, including our counterparties, and confidence in the financial system, generally;

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

capital and liquidity requirements, and in the coverage and cost of FDIC deposit insurance;

legislative, executive branch and regulatory changes, including changes in policy, leadership and personnel,

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

CFPB, and the uncertain effects of all these, including the costs and benefits of such changes;

the effects of the potential privatization and changes to Fannie Mae and Freddie Mac and its purchases of

mortgage-backed securities on the mortgage markets and to us as an originator, seller and servicer of residential

mortgage loans;

the assumptions, judgments and estimates made by the Company, including those used in the Company’s CECL

models to establish our allowance for credit losses and asset impairments, as well as differences in, and changes to,

economic, market and credit conditions, including changes in employment levels and payment behaviors from

those used in our CECL models and loan portfolio reviews;

changes in accounting pronouncements and interpretations;

changes in borrower credit risks;

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 our technology or products that may be more difficult, costly and risky, or less effective than

anticipated;

threats of potential cyber-attacks and data breaches, in constantly changing forms and increasing sophistication,

including through the use of artificial intelligence and state sponsorship of the attacks;

the estimates that our future taxable income could be inaccurate, and if lower taxable income is realized from our

operations, the amount of our deferred tax assets that we anticipate will be reduced;

our future earnings and “eligible retained earnings” over rolling four calendar quarter periods may limit our

d

ividends, share repurchases and discretionary bonuses; and other factors and risks described under “Risk Factors” herein and in any of our subsequent reports that we make with the Securities and Exchange Commission (the “Commission” or “SEC”) under the Exchange Act.

All written or oral forward-looking statements that 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)

2026

2025

Net interest income (a)

7,832

7,112

Less: tax-equivalent adjustment

99

67

Net interest income (GAAP)

7,733

7,045

Noninterest income

893

747

Total revenue

8,626

7,792

Provision for credit losses

(76)

(10)

Noninterest expense

5,901

5,880

Income tax expense

603

392

Net earnings

2,198

1,530

Basic and diluted earnings per share

0.63

0.44

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

Financial Summary

The Company’s net earnings were $2.2 million for the first quarter of 2026, a 44% increase compared to $1.5 million for

the first quarter of 2025. Basic and diluted earnings per share were $0.63 per share for the first quarter of 2026, compared

to $0.44 per share for the first quarter of 2025.

Net interest income (tax-equivalent) was $7.8 million for the first quarter of 2026, a 10% increase compared to $7.1 million

for the first quarter of 2025. This 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 3.28% for the first quarter of 2026 compared

to 3.09% for the first quarter of 2025. This increase was primarily due to higher yields on interest-earnings assets, a

decrease in our cost of interest-bearing deposits, and a more favorable asset mix. Average loans were approximately

$577.5 million in the first quarter of 2026, compared to $566.1 million in the first quarter of 2025.

The Company recorded a negative provision for credit losses of $(76) thousand in the first quarter of 2026, compared to a

negative provision of $(10) thousand in the first quarter of 2025. The provision for credit losses is affected by changes in

overall balance and composition of our loan portfolio and unfunded commitments, our internal assessment of the credit

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

Noninterest income was $0.9 million in the first quarter of 2026, compared to $0.7 million in the first quarter of 2025. The

increase was primarily due to mortgage lending income.

Noninterest expense was $5.9 million in the first quarter of 2026 and first quarter of 2025, respectively. Noninterest

expense was largely unchanged as a decrease in net occupancy and equipment expense was largely offset by an increase in

professional fees expense.

The provision for income tax expense was $0.6 million for the first quarter of 2026 compared to $0.4 million for the first

quarter of 2025. The Company's effective tax rate for the first quarter of 2026 was 21.53%, compared to 20.40% in the first

quarter of 2025. The Company’s effective income tax rate is principally affected 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 $0.27 per share in the first quarter of 2026 and 2025. At March 31, 2026, 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 17.13%, a tier 1 leverage ratio of 10.60% and a common equity tier 1

“CET1”) ratio of 16.12% at March 31, 2026. See “Balance Sheet Analysis – Capital Adequacy.”

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, 2025.

RESULTS OF OPERATIONS

Average Balance Sheet and Interest Rates

Quarter ended March 31,

2026

2025

Average

Yield/

Average

Yield/

(Dollars in thousands)

Balance

Rate

Balance

Rate

Interest-earning assets:

Loans and loans held for sale

577,847

5.62%

566,267

5.44%

Securities

256,565

1.96%

280,061

1.98%

Federal funds sold

24,352

3.60%

26,865

4.39%

Interest bearing bank deposits

108,509

3.70%

61,235

4.49%

Total interest-earning assets

967,273

4.39%

934,428

4.31%

Interest-bearing liabilities:

Deposits:

NOW

236,218

1.34%

209,222

1.44%

Savings and money market

257,214

0.75%

242,701

0.84%

Time Deposits

179,947

3.10%

190,895

3.34%

Total interest-bearing deposits

673,379

1.58%

642,818

1.78%

Total interest-bearing liabilities

673,379

1.58%

642,818

1.78%

Net interest income and margin (tax-equivalent) (a)

7,832

3.28%

7,112

3.09%

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

Net Interest Income and Margin

Net interest income (tax-equivalent) was $7.8 million for the first quarter of 2026, a 10% increase compared to $7.1 million

for the first quarter of 2025. This increase was due to growth in average interest-earning assets and improvements in our

net interest margin. Average interest-earning assets were $967.3 million during the first quarter of 2026, a 4% increase

compared to $934.4 million during the first quarter of 2025. The Company’s net interest margin (tax-equivalent) was

3.28% for the first quarter of 2026 compared to 3.09% for the first quarter of 2025. This increase was primarily due to

higher yields on interest-earnings assets, a decrease in our cost of interest-bearing deposits, and a more favorable asset mix.

The Federal Reserve announced a 25-basis points reduction in the target range for the federal funds rate in each of

September, October and December 2025. At March 31, 2026, the Federal Reserve’s target federal funds rate range

remained at 3.50% to 3.75%, which the Federal Reserve reaffirmed at its April 29, 2026 meeting.

The tax-equivalent yield on total interest-earning assets increased by 8 basis points to 4.39% in the first quarter of 2026

compared to 4.31% in the first quarter of 2025. This increase was primarily due to a more favorable asset mix.

The cost of interest-bearing liabilities decreased 20 basis points in the first quarter of 2026 to 1.58%, compared to 1.78% in

the first quarter of 2025 following decreases to the federal funds rate.

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 that interest rates, inflation and

monetary policy may continue to fluctuate in 2026 and may be challenging as a result. 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 2026.

Provision for Credit Losses

The Company recorded a negative provision for credit losses of $(76) thousand in the first quarter of 2026, compared to a

negative provision of $(10) thousand in the first quarter of 2025. The provision for credit losses is affected by changes in

overall balance and composition of our loan portfolio and unfunded commitments, our internal assessment of the credit

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

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, 2026,

the Company’s allowance for credit losses was $6.8 million or 1.16% of total loans, compared to $7.2 million, or 1.27% of

total loans at December 31, 2025, and $6.8 million, or 1.20% of total loans at March 31, 2025. The decrease was primarily

due to refinements in the Company’s calculation of current expected credit losses (“CECL”).

The decrease was primarily due to refinements in the Company’s calculation of current expected credit losses (“CECL”).

During the first quarter of 2026, the Company established a new loan segment within its CECL calculation for municipal

loans, which reduced the allowance for credit losses due to lower expected credit costs associated with these loans. Prior to

this change, municipal loans were included in the commercial and industrial loan segment for CECL.

Noninterest Income

Quarter ended March 31,

(Dollars in thousands)

2026

2025

Service charges on deposit accounts

153

155

Mortgage lending income

172

93

Bank-owned life insurance

108

105

Other

460

394

Total noninterest income

893

747

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)

2026

2025

Origination income, net

95

8

Servicing fees, net

77

85

Total mortgage lending income

172

93

The Company’s mortgage lending income typically fluctuates as mortgage interest rates change. Origination income

increased due to increased mortgage lending demand in our primary market area.

Noninterest Expense

Quarter ended March 31,

(Dollars in thousands)

2026

2025

Salaries and benefits

3,370

3,310

Net occupancy and equipment

575

714

Professional fees

449

287

Other

1,507

1,569

Total noninterest expense

5,901

5,880

The decrease in net occupancy and equipment expense was primarily due to increased leasing income associated with the

Company’s headquarters.

The increase in professional fees was primarily due to an increase in legal expenses.

Income Tax Expense

Income tax expense was $0.6 million for the first quarter of 2026 compared to $0.4 million for the first quarter of 2025.

The Company's effective tax rate for the first quarter of 2026 was 21.53%, compared to 20.40% in the first quarter of 2025.

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 $226.8 million at March 31, 2026, compared to $233.3 million at December 31, 2025.

This decrease reflects a decrease in the amortized cost basis of securities available -for-sale, due to normal paydowns and

maturities, of $6.1 million and a decrease in the fair value of securities available -for-sale of $0.4 million. The average

annualized tax-equivalent yields earned on total securities were 1.96% in the first quarter of 2026 compared to 1.98% in the

first quarter of 2025.

Loans

2026

2025

First

Fourth

Third

Second

First

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Commercial and industrial

31,841

33,887

29,647

32,027

31,667

Municipal

35,703

24,513

25,455

27,746

27,394

Construction and land development

60,248

56,436

79,045

93,820

86,403

Commercial real estate

334,602

325,521

298,681

282,868

288,353

Residential real estate

111,143

116,554

116,279

117,160

117,500

Consumer installment

8,524

8,421

8,805

9,093

9,333

Total loans

582,061

565,332

557,912

562,714

560,650

Total loans were $582.1 million at March 31, 2026, compared to $565.3 million at December 31, 2025. Three loan

categories represented the majority of the loan portfolio at March 31, 2026: commercial real estate (57%), residential real

estate (19%), and construction and land development (10%). Approximately 18% of the Company’s commercial real estate

loans were classified as owner-occupied at March 31, 2026.

During the first quarter of 2026, the Company established a separate municipal loan segment following growth in these

balances. Prior to this change in presentation, municipal loans were included in the commercial and industrial loan

segment. Prior period amounts have been revised to conform with the current period presentation.

Within the residential real estate portfolio segment, the Company had junior lien mortgages of approximately $11.6 million,

or 2% of total loans, and $12.3 million, or 2%, of total loans at March 31, 2026 and December 31, 2025, respectively. For

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

payments at March 31, 2026 and December 31, 2025. 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 5.62% in the first quarter of 2026 and 5.44% in the first

quarter of 2025.

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, inaccurate

appraisals, financial deterioration of borrowers, fraud, and any violation of applicable laws and regulations. Various

projects financed earlier that were based on lower interest rate assumptions than currently in effect may not be as profitable

or successful at 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 $23.6 million. Furthermore, we have an internal limit for aggregate credit exposure (loans outstanding plus

unfunded commitments) to a single borrower of $21.2 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, 2026, 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, 2026 (and related balances at December 31,

2025).

March 31,

December 31,

(Dollars in thousands)

2026

2025

Hotel/motel

55,005

47,870

Multi-family residential properties

53,798

51,516

Lessors of 1-4 family residential properties

53,506

56,773

Shopping centers/strip malls

42,263

42,444

Allowance for Credit Losses

Our allowance for credit losses was approximately $6.8 million and $7.2 million at March 31, 2026 and December 31,

2025, 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 1.16% at March 31, 2026, compared to 1.27% at December 31, 2025.

During the first quarter of 2026, the Company refined its loan portfolio segmentation to separately identify municipal loans,

which were previously included within commercial and industrial loans, due to their recent growth and distinct risk

characteristics. The allowance for credit losses related to municipal loans is determined using a discounted cash flow

methodology incorporating probability of default and loss given default assumptions derived from external data sources.

As a result of this refinement, the total allowance decreased due to the lower expected credit losses associated with these

loans. This refinement represents a change in accounting estimate and is accounted for prospectively. No adjustments

were made to prior periods.

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 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 on an individual basis for loans that do not share similar risk characteristics with the

collectively evaluated pools. 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, 2026,

reasonable and supportable periods of 4 quarters were utilized followed by an 8-quarter straight line reversion period to

long term averages.

The allowance for credit losses by loan category for the first quarter of 2026 and the previous four quarters is presented

below.

2026

2025

First Quarter

Fourth Quarter

Third Quarter

Second Quarter

First Quarter

(Dollars in thousands)

Amount

Amount

Amount

Amount

Amount

Commercial and industrial

686

5.5

1,129

10.3

1,126

9.9

1,212

10.6

1,219

10.5

Municipal

154

6.1

n/a

n/a

n/a

n/a

n/a

n/a

n/a

n/a

Construction and land

development

694

10.4

1,304

10.0

1,445

14.2

1,613

16.7

1,401

15.4

Commercial real estate

4,056

57.4

3,777

57.6

3,145

53.5

3,151

50.3

3,153

51.4

Residential real estate

1,029

19.1

837

20.6

836

20.8

866

20.8

861

21.0

Consumer installment

157

1.5

129

1.5

139

1.6

123

1.6

116

1.7

Total allowance for credit losses

6,776

7,176

6,691

6,965

6,750

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

A summary of the changes in the allowance for credit losses and certain asset quality ratios for the first quarter of 2026 and

the previous four quarters is presented below.

2026

2025

First

Fourth

Third

Second

First

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Balance at beginning of period

7,176

6,691

6,965

6,750

6,871

Charge-offs:

Commercial and industrial

(5)

(39)

(3)

(100)

Commercial real estate

(378)

(296)

Residential real estate

(6)

(1)

Consumer installment

(33)

(87)

(9)

Total charge -offs

(416)

(335)

(87)

(18)

(101)

Recoveries

14

30

9

67

37

Net (charge-offs) recoveries

(402)

(305)

(78)

49

(64)

Provision for credit losses - Loans

2

790

(196)

166

(57)

Ending balance

6,776

7,176

6,691

6,965

6,750

as a % of loans

1.16

1.27

1.20

1.24

1.20

as a % of nonperforming loans

6,643

1,489

6,434

2,306

1,298

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

0.28

0.22

0.06

(0.03)

0.05

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

Net charge-offs were $402 thousand for the first quarter of 2026, compared to net charge-offs of $64 thousand for the first

quarter of 2025. Net charge-offs in the first quarter of 2026 were primarily related to one nonperforming collateral-

dependent loan.

Nonperforming Assets

At March 31, 2026 and December 31, 2025, 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 first

quarter of 2026 and the previous four quarters.

2026

2025

First

Fourth

Third

Second

First

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonperforming assets:

Nonaccrual loans

102

482

104

302

520

Total nonperforming assets

102

482

104

302

520

as a % of loans and other real estate owned

0.02

0.09

0.02

0.05

0.09

as a % of total assets

0.01

0.05

0.01

0.03

0.05

Nonperforming loans as a % of total loans

0.02

0.09

0.02

0.05

0.09

Accruing loans 90 days or more past due

208

77

77

The table below provides information concerning the composition of nonaccrual loans for the first quarter of 2026 and the

previous four quarters.

2026

2025

First

Fourth

Third

Second

First

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonaccrual loans:

Commercial and industrial

3

Construction and land development

404

Commercial real estate

378

119

Residential real estate

102

104

104

183

113

Total nonaccrual loans

102

482

104

302

520

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 $208 thousand in loans 90 days or more past due and still accruing at March 31, 2026 compared to none

at December 31, 2025.

The Company had no other real estate owned at March 31, 2026 or December 31, 2025.

Deposits

(In thousands)

2026

2025

Noninterest bearing demand

260,580

268,026

NOW

240,471

214,827

Money market

157,920

170,352

Savings

91,647

92,920

Certificates of deposit under $250,000

100,049

97,458

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

80,442

79,343

Total deposits

931,109

922,926

Total deposits were $931.1 million at March 31, 2026, compared to $922.9 million at December 31, 2025. Noninterest-

bearing deposits were 28% of total deposits at March 31, 2026, compared to 29% of total deposits at December 31, 2025.

The Company had no brokered deposits at March 31, 2026 and December 31, 2025.

The average rate paid on total interest-bearing deposits was 1.58% in the first quarter of 2026, compared to 1.78% in first

quarter of 2025.

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 for our depositors. The Company had reciprocal deposits on its balance sheet of $19.9

million at March 31, 2026, compared to $9.8 million at December 31, 2025. At March 31, 2026, the Company had $96.1

million reciprocal deposits sold, compared to $79.7 million at December 31, 2025.

At March 31, 2026, estimated uninsured deposits totaled $383.2 million, or 41% of total deposits, compared to $392.9

million, or 43% of total deposits at December 31, 2025. Uninsured amounts are estimated based on the portion of account

balances that exceed FDIC insurance limits. The Bank’s uninsured deposits at March 31, 2026 and December 31, 2025

include approximately $235.3 million and $228.7 million, respectively, of deposits of state, county and local governments

that are collateralized by securities. Deposits of state, county and local governments were 61% and 58% of our estimated

uninsured deposits at March 31, 2026 and December 31, 2025, respectively.

The estimated uninsured time deposits by maturity as of March 31, 2026 are presented below.

(Dollars in thousands)

March 31, 2026

Maturity of:

3 months or less

30,525

Over 3 months through 6 months

22,563

Over 6 months through 12 months

23,089

Over 12 months

4,265

Total estimated uninsured time deposits

80,442

Other Borrowings and Available Credit

The Company had no long-term debt at March 31, 2026 and December 31, 2025. 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 fund borrowings outstanding at March 31, 2026, and December 31, 2025,

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

on behalf of certain customers, at March 31, 2026 and December 31, 2025. The Bank is eligible to borrow from the FRB’s

discount window, but had no such borrowings at March 31, 2026 and December 31, 2025.

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

time to time under the FHLB-Atlanta’s advance program. FHLB-Atlanta advances include both fixed and variable terms

and provide various maturities, and generally are secured by eligible assets. The Bank had no borrowings under FHLB-

Atlanta’s advance program at March 31, 2026 and December 31, 2025. At those dates, the Bank had $305.5 million and

$304.9 million, respectively, of available lines of credit at the FHLB-Atlanta.

CAPITAL ADEQUACY

At March 31, 2026, the Company’s consolidated stockholders’ equity (book value) was $93.1 million, or $26.62 per share,

compared to $92.1 million, or $26.35 per share, at December 31, 2025. The increase from December 31, 2025 was

primarily driven by net earnings of $2.2 million, which was partially offset by an other comprehensive loss of $0.3 million

due to an increase in unrealized losses on securities available-for-sale, net of tax, and cash dividends paid 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 2026 and the first quarter of 2025.

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 10.60%, CET1 risk-based capital ratio was 16.12%, tier 1

risk-based capital ratio was 16.12%, and total risk-based capital ratio was 17.13 % at March 31, 2026. 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 Basel III regulatory capital framework applicable to us includes a “capital conservation buffer” of CET1 capital. A

banking organization with a capital conservation buffer of 2.5% or less is subject to limitations on “distributions” from

“eligible retained earnings”, including dividend payments, share repurchases and certain discretionary bonus payments. At

March 31, 2026, the Bank had a capital conservation buffer of 9.14%.

MARKET AND LIQUIDITY RISK MANAGEMENT

Management’s objective is to manage assets and liabilities to provide a satisfactory, consistent level of profitability within

the framework of established liquidity, loan, investment, borrowing, and capital policies. The Bank’s Asset Liability

Management Committee (“ALCO”) is charged with the responsibility of monitoring these policies, which are designed to

ensure an acceptable asset/liability composition. Two critical areas of focus for ALCO are interest rate risk and liquidity

risk management.

Interest Rate Risk Management

In the normal course of business, the Company is exposed to market risk arising from fluctuations in interest rates. ALCO

measures and evaluates interest rate risk so that the Bank can meet customer demands for various types of loans and

deposits. Measurements used to help manage interest rate sensitivity include an earnings simulation model and an economic

value of equity (“EVE”) model.

Earnings simulation

. Management believes that interest rate risk is best estimated by our earnings simulation modeling.

Forecasted levels of earning assets, interest-bearing liabilities, and off-balance sheet financial instruments are combined

with ALCO forecasts of market interest rates for the next 12 months and other factors in order to produce various earnings

simulations and estimates. To help limit interest rate risk, we have guidelines for earnings at risk which seek to limit the

variance of net interest income from gradual changes in interest rates. For changes up or down in rates from management’s

flat interest rate forecast over the next 12 months, policy limits for net interest income variances are as follows:

+/- 20% for a gradual change of 400 basis points

+/- 15% for a gradual change of 300 basis points

+/- 10% for a gradual change of 200 basis points

+/- 5% for a gradual change of 100 basis points

While a gradual change in interest rates was used in the above analysis to provide an estimate of exposure under these

scenarios, our modeling under both a gradual and instantaneous change in interest rates indicates our balance sheet is asset

sensitive over the forecast period of 12 months.

At March 31, 2026, 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, 2026, 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, and may be

designated as hedging instruments. At March 31, 2026, the Company had two derivative contracts designated as part of a

hedging relationship to assist in managing its interest rate sensitivity compared to one such derivative contract at December

31, 2025.

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

nclude 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 - 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, 2026, the Bank had no FHLB - Atlanta advances outstanding and available credit from the FHLB

of $308.6 million. At March 31, 2026, 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, 2026, the Bank had outstanding standby letters of credit of $2.9 million and unfunded loan commitments

outstanding of $55.4 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 conforming 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, 2026, the aggregate unpaid principal balance of residential mortgage loans, which we have originated and

sold, but retained the servicing rights, was $188.0 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 2026 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, 2026.

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, 2026, we do not believe that this exposure is material due to the historical level of

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

Mae were current as of such date. We maintain ongoing communications with our 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. 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. See “Item 1A Risk Factors.”

CURRENT ACCOUNTING DEVELOPMENTS

The following ASUs have been issued by the FASB, but are not yet effective.

ASU 2025-01,

Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-

40): Clarifying the Effective Date,

clarifies the effective date of ASU 2024-03,

Income Statement Reporting Comprehensive

Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses

to

stipulate that ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December

15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. ASU 2025-01

will be effective for the Company beginning January 1, 2027 for the Company’s annual consolidated financial statements

on Form 10-K and January 1, 2028 for the Company’s quarterly consolidated financial statements on Form 10-Q and is not

expected to have a significant impact on the Company’s consolidated financial statements.

ASU 2025-06,

Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40),

removes all references to

prescriptive and sequential software development stages and clarifies that the threshold for when an entity is required to

start capitalizing software costs is when (1) management has authorized and committed to funding the software project and

(2) it is probable that the project will be completed and the software will be used to perform the function intended. ASU

2025-06 will be effective for the Company beginning January 1, 2028, with early adoption permitted, and is not expected to

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

ASC 2025-11,

Interim Reporting (Topic 270): Narrow-Scope Improvements,

is intended to provide clarity about the current

interim reporting requirements, provides a list of the interim disclosures required by all other Codification topics and

establishes a disclosure principle that requires entities to disclose events since the end of the last annual reporting period

that have a material impact on the entity. ASC 2025-11 will be effective for the Company beginning January 1, 2028, with

early adoption permitted, and is not expected to have a significant 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 our net interest margin and efficiency ratio. In the

first quarter of 2026, we changed the presentation of net interest income on a tax-equivalent basis to account for tax-exempt

interest income on municipal loans. Prior period amounts have been revised herein to conform with the current period

presentation. These changes had no effect on the presentation of GAAP net interest income in current or prior periods.

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.

2026

2025

First

Fourth

Third

Second

First

(in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Net interest income (GAAP)

7,733

7,713

7,572

7,344

7,045

Tax-equivalent adjustment

99

67

69

67

67

N

et interest income (Tax-equivalent)

7,832

7,780

7,641

7,411

7,112

Table 2 – Selected Quarterly Financial Data

2026

2025

First

Fourth

Third

Second

First

(Dollars in thousands, except per share amounts)

Quarter

Quarter

Quarter

Quarter

Quarter

Results of Operations

Net interest income (a)

7,832

7,780

7,641

7,411

7,112

Less: tax-equivalent adjustment

99

67

69

67

67

Net interest income (GAAP)

7,733

7,713

7,572

7,344

7,045

Noninterest income

893

754

829

789

747

Total revenue

8,626

8,467

8,401

8,133

7,792

Provision for credit losses

(76)

783

(255)

113

(10)

Noninterest expense

5,901

5,563

5,806

5,702

5,880

Income tax expense

603

456

623

485

392

Net earnings

2,198

1,665

2,227

1,833

1,530

Per share data:

Basic and diluted net earnings

0.63

0.48

0.64

0.52

0.44

Cash dividends declared

0.27

0.27

0.27

0.27

0.27

Weighted average shares outstanding - basic

3,494,229

3,493,699

3,493,699

3,493,699

3,493,699

Weighted average shares outstanding - diluted

3,496,518

3,496,729

3,495,972

3,493,699

3,493,699

Shares outstanding, at period end

3,495,866

3,493,699

3,493,699

3,493,699

3,493,699

Book value

26.62

26.35

28.44

24.64

23.79

Common stock price

High

26.50

27.98

28.47

25.28

23.37

Low

21.01

24.00

23.13

19.48

20.36

Period end:

23.87

26.95

28.44

25.00

21.59

To earnings ratio (b)

10.52

12.96

13.87

13.09

11.42

To book value

89.67

102.28

110.88

101.46

90.75

Performance ratios:

Annualized return on average equity

9.65

7.40

10.65

9.00

7.83

Annualized return on average assets

0.86

0.66

0.89

0.74

0.62

Dividend payout ratio

42.86

56.25

42.19

51.92

61.36

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.16

1.27

1.20

1.24

1.20

Nonperforming loans

6,643

1,489

6,434

2,306

1,298

Nonperforming assets as a % of:

Loans and OREO

0.02

0.09

0.02

0.05

0.09

Total assets

0.01

0.05

0.01

0.03

0.05

Nonperforming loans as a % of total loans

0.02

0.09

0.02

0.05

0.09

Annualized net charge-offs (recoveries) as % of

average loans

0.28

0.22

0.06

(0.03)

0.05

Capital Adequacy: (c)

CET 1 risk-based capital ratio

16.12

16.06

15.51

15.32

15.04

Tier 1 risk-based capital ratio

16.12

16.06

15.51

15.32

15.04

Total risk-based capital ratio

17.13

17.14

16.49

16.35

16.05

Tier 1 leverage ratio

10.60

10.71

10.72

10.64

10.52

Other financial data:

Net interest margin (a)

3.28

3.24

3.21

3.18

3.09

Effective income tax rate

21.53

21.50

21.86

20.92

20.40

Efficiency ratio (d)

67.63

65.19

68.55

69.54

74.82

Selected average balances:

Loans

577,489

559,009

556,233

559,770

566,082

Total assets

1,026,163

1,009,953

997,892

990,523

987,272

Total deposits

930,474

917,178

909,293

905,227

906,805

Total stockholders’ equity

91,088

90,000

83,642

81,447

78,158

Selected period end balances:

Loans

582,040

565,354

557,912

562,714

560,650

Allowance for credit losses

6,776

7,176

6,691

6,965

6,750

Total assets

1,026,946

1,018,797

1,011,184

1,029,224

996,786

Total deposits

931,109

922,926

917,266

939,851

910,503

Total stockholders’ equity

93,061

92,053

89,613

86,071

83,115

(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.

Table 3 – Average Balances and Net Interest Income Analysis

(1)

Quarter ended March 31,

2026

2025

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 (2) (3)

577,847

8,014

5.62%

566,267

7,592

5.44%

Securities (3) (4)

256,565

1,241

1.96%

280,061

1,367

1.98%

Federal funds sold

24,352

216

3.60%

26,865

291

4.39%

Interest bearing bank deposits

108,509

989

3.70%

61,235

678

4.49%

Total interest-earning assets

967,273

10,460

4.39%

934,428

9,928

4.31%

Cash and due from banks

14,153

18,077

Other assets (5)

44,737

34,767

Total assets

1,026,163

987,272

Interest-bearing liabilities:

Deposits:

NOW

236,218

779

1.34%

209,222

743

1.44%

Savings and money market

257,214

473

0.75%

242,701

502

0.84%

Time deposits

179,947

1,376

3.10%

190,895

1,571

3.34%

Total interest-bearing deposits

673,379

2,628

1.58%

642,818

2,816

1.78%

Total interest-bearing liabilities

673,379

2,628

1.58%

642,818

2,816

1.78%

Noninterest-bearing deposits

257,095

263,987

Other liabilities

4,601

2,309

Stockholders' equity

91,088

78,158

Total liabilities and stockholders' equity

1,026,163

987,272

Net interest income and margin (tax-equivalent)

7,832

3.28%

7,112

3.09%

(1) In the first quarter of 2026, we changed the presentation of net interest income on a tax-equivalent basis to account for tax-exempt

interest income on municipal loans. Also, we reclassified average net unrealized gains (losses) on available-for-sale securities to

average other assets so that average total securities are presented on an amortized cost basis in our calculation of net interest margin.

Prior period amounts, including the presentation and calculation of our net interest margin, have been revised to conform with the

current period presentation.

(2) Loans on nonaccrual status have been included in the computation of average balances.

(3) Reflects tax-equivalent adjustments, using the statutory federal income tax rate of 21%, in adjusting interest on tax-exempt

municipal loans and securities to a tax-equivalent basis.

(4) Securities are included on an amortized cost basis with yield and net interest margin calculated accordingly.

(5) Includes average net unrealized gains (losses) on securities available-for-sale of $(26.2) and $(33.9) million for the quarters ended

March 31, 2026 and March 31, 2025, respectively.

Table 4 – Volume and Rate Variance Analysis

Quarter ended March 31, 2026 vs. 2025

Net

Due to change in

(Dollars in thousands)

Change

Rate (2)

Volume (2)

Interest income:

Loans and loans held for sale (1)

422

261

161

Securities (1)

(126)

(15)

(111)

Federal funds sold

(75)

(53)

(22)

Interest bearing bank deposits

311

(120)

431

Total interest income

532

73

459

Interest expense:

Deposits:

NOW

36

(53)

89

Savings and money market

(29)

(56)

27

Certificates of deposit

(195)

(111)

(84)

Total interest-bearing deposits

(188)

(220)

32

Total interest expense

(188)

(220)

32

Net interest income (tax-equivalent)

720

293

427

(1) Yields on tax-exempt municipal loans and 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.

Table 5 – Loan Maturities

March 31, 2026

1 year

1 to 5

5 to 15

After 15

(Dollars in thousands)

or less

years

years

years

Total

Commercial and industrial

14,682

16,680

479

31,841

Municipal

481

1,197

22,086

11,939

35,703

Construction and land development

38,479

20,322

1,447

60,248

Commercial real estate

64,481

190,384

75,324

4,413

334,602

Residential real estate

7,488

38,220

17,334

48,101

111,143

Consumer installment

2,497

5,629

398

8,524

Total loans

128,108

272,432

117,068

64,453

582,061

Table 6 – Sensitivities to Changes in Interest Rates on Loans Maturing in More Than One Year

March 31, 2026

Variable

Fixed

(Dollars in thousands)

Rate

Rate

Total

Commercial and industrial

717

16,442

17,159

Municipal

60

35,162

35,222

Construction and land development

15,592

6,177

21,769

Commercial real estate

18,199

251,922

270,121

Residential real estate

48,789

54,866

103,655

Consumer installment

182

5,845

6,027

Total loans

83,539

370,414

453,953

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/or 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 Federal Reserve’s 2% target rate, since December 2025, the Federal Reserve has maintained its target federal funds

range from 3.50% to 3.75% and in 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. Beginning December 11, 2025, the Federal Reserve began increasing its holdings of

securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years

or less to maintain an ample level of reserves, and reinvested all principal payments on Treasury securities and reinvested

all principal payment on agency securities into Treasury bills. This policy was continued at the Federal Reserve’s April 30,

2026 meeting. The reductions in the target federal funds rates and Federal Reserve purchases of additional securities may

be viewed as a more accommodative monetary policy, which has affected and may 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. The Federal Reserve may or may not continue this accommodative

policy, and has stated that future monetary policy action “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.” Such changes and other 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.

The United States and Israel attacked Iran on February 28, 2026 and hostilities continue subject to various cease fire

arrangements. As a result, shipments of oil through the Straits of Hormuz have been limited, reducing the total volumes of

oil in the international markets and causing oil prices to rise significantly. Supply chains where petroleum is an input have

been adversely affected, and transportation costs, prices and inflation in the United States and elsewhere have increased.

The duration of these hostilities and the long-term effects of the blockage of oil through the Straits of Hormuz and the other

c

osts and effects of these hostilities cannot be predicted.