AUBURN NATIONAL BANCORPORATION, INC 10-Q

ITEM 1. FINANCIAL STATEMENTS AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) March 31, December 31, (Dollars in thousands, except share data) 2025 2024 Assets: Cash and due from banks $ 22,179 $ 15,142 Federal funds sold 30,123 37,200 Interest-bearing bank deposits 66,354 41,012 Cash and cash equivalents 118,656 93,354 Securities available-for-sale 242,468 243,012 Loans held for sale 290 — Loans 560,650 564,017 Allowance for credit losses ( 6,750 ) ( 6,871 ) Loans, net 553,900 557,146 Premises and equipment, net 45,673 45,931 Bank-owned life insurance 17,618 17,513 Other assets 18,181 20,368 Total assets $ 996,786 $ 977,324 Liabilities: Deposits: Noninterest-bearing $ 271,749 $ 260,874 Interest-bearing 638,754 634,950 Total deposits 910,503 895,824 Accrued expenses and other liabilities 3,168 3,208 Total liabilities 913,671 899,032 Stockholders' equity: Preferred stock of $ .01 par value; authorized 200,000 shares; no shares issued — — Common stock of $ .01 par value; authorized 8,500,000 shares; issued 3,957,135 shares 39 39 Additional paid-in capital 3,802 3,802 Retained earnings 116,346 115,759 Accumulated other comprehensive loss, net ( 25,371 ) ( 29,607 ) Less treasury stock, at cost - 463,436 shares at both March 31, 2025 and December 31, 2024, respectively ( 11,701 ) ( 11,701 ) Total stockholders’ equity 83,115 78,292 Total liabilities and stockholders’ equity $ 996,786 $ 977,324 See accompanying notes to consolidated financial statements Table of Contents 4 AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES Consolidated Statements of Earnings (Unaudited) Quarter ended March 31, (Dollars in thousands, except share and per share data) 2025 2024 Interest income: Loans, including fees $ 7,543 $ 6,990 Securities Taxable 1,281 1,411 Tax-exempt 68 74 Federal funds sold and interest bearing bank deposits 969 754 Total interest income 9,861 9,229 Interest expense: Deposits 2,816 2,570 Short-term borrowings — 2 Total interest expense 2,816 2,572 Net interest income 7,045 6,657 Provision for credit losses ( 10 ) 334 Net interest income after provision for credit losses 7,055 6,323 Noninterest income: Service charges on deposit accounts 155 156 Mortgage lending 93 150 Bank-owned life insurance 105 102 Other 394 479 Total noninterest income 747 887 Noninterest expense: Salaries and benefits 3,310 3,071 Net occupancy and equipment 714 763 Professional fees 287 326 Other 1,569 1,515 Total noninterest expense 5,880 5,675 Earnings before income taxes 1,922 1,535 Income tax expense 392 164 Net earnings $ 1,530 $ 1,371 Net earnings per share: Basic and diluted $ 0.44 $ 0.39 Weighted average shares outstanding: Basic and diluted 3,493,699 3,493,663 See accompanying notes to consolidated financial statements Table of Contents 5 AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Loss) (Unaudited) Quarter ended March 31, (Dollars in thousands) 2025 2024 Net earnings $ 1,530 $ 1,371 Other comprehensive income (loss), net of tax: Unrealized net holding gain (loss) on securities, net of tax expense of $ 1,421 and tax benefit of $ 734 , respectively 4,236 ( 2,184 ) Other comprehensive income (loss) 4,236 ( 2,184 ) Comprehensive income (loss) $ 5,766 $ ( 813 ) See accompanying notes to consolidated financial statements Table of Contents 6 AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (Unaudited) Accumulated Common Additional other Shares Common paid-in Retained comprehensive Treasury (Dollars in thousands, except share data) Outstanding Stock capital earnings loss stock Total Quarter ended March 31, 2025 Balance, December 31, 2024 3,493,699 $ 39 3,802 115,759 ( 29,607 ) ( 11,701 ) $ 78,292 Net earnings — — — 1,530 — — 1,530 Other comprehensive income — — — — 4,236 — 4,236 Cash dividends paid ($ .27 per share) — — — ( 943 ) — — ( 943 ) Balance, March 31, 2025 3,493,699 $ 39 3,802 116,346 ( 25,371 ) ( 11,701 ) $ 83,115 Quarter ended March 31, 2024 Balance, December 31, 2023 3,493,614 $ 39 3,801 113,398 ( 29,029 ) ( 11,702 ) $ 76,507 Cumulative effect of change in accounting standard — — — ( 263 ) — — ( 263 ) Net earnings — — — 1,371 — — 1,371 Other comprehensive loss — — — — ( 2,184 ) — ( 2,184 ) Cash dividends paid ($ .27 per share) — — — ( 943 ) — — ( 943 ) Sale of treasury stock 85 — 1 — — — 1 Balance, March 31, 2024 3,493,699 $ 39 3,802 113,563 ( 31,213 ) ( 11,702 ) $ 74,489 See accompanying notes to consolidated financial statements Table of Contents 7 AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Quarter ended March 31, (Dollars in thousands) 2025 2024 Cash flows from operating activities: Net earnings $ 1,530 $ 1,371 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for credit losses (10) 334 Depreciation and amortization 528 434 Premium amortization and discount accretion, net 354 386 Net gain on sale of loans held for sale ( 8 ) ( 57 ) Loans originated for sale ( 1,470 ) ( 3,123 ) Proceeds from sale of loans 1,182 2,993 Increase in cash surrender value of bank-owned life insurance ( 105 ) ( 102 ) Net decrease (increase) in other assets 713 ( 1,500 ) Net (decrease) increase in accrued expenses and other liabilities ( 87 ) 2,345 Net cash provided by operating activities 2,627 3,081 Cash flows from investing activities: Proceeds from prepayments and maturities of securities available-for-sale 5,847 6,836 Decrease (increase) in loans, net 3,303 ( 10,208 ) Net purchases of premises and equipment ( 211 ) ( 1,043 ) Decrease in FHLB stock — 32 Net cash provided by (used in) investing activities 8,939 ( 4,383 ) Cash flows from financing activities: Net increase (decrease) in noninterest-bearing deposits 10,875 ( 7,239 ) Net increase in interest-bearing deposits 3,804 10,669 Net increase in federal funds purchased and securities sold under agreements to repurchase — 27 Dividends paid ( 943 ) ( 943 ) Net cash provided by financing activities 13,736 2,514 Net change in cash and cash equivalents 25,302 1,212 Cash and cash equivalents at beginning of period 93,354 71,369 Cash and cash equivalents at end of period $ 118,656 $ 72,581 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 2,822 $ 2,442 Income taxes — — See accompanying notes to consolidated financial statements Table of Contents 8 AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General Auburn National Bancorporation, Inc. (the “Company”) provides a full range of banking services to individuals and commercial customers in Lee County, Alabama and surrounding areas through its wholly owned subsidiary, AuburnBank (the “Bank”). The Company does not have any segments other than banking that are considered material. Basis of Presentation and Use of Estimates The unaudited consolidated financial statements in this report have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited consolidated financial statements include, in the opinion of management, all adjustments necessary to present a fair statement of the financial position and the results of operations for all periods presented. All such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results of operations that the Company and its subsidiaries may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2024. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany transactions and accounts are eliminated in consolidation. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include the determination of allowance for credit losses on loans and investment securities, fair value of financial instruments, and the valuation of deferred tax assets and other real estate owned (“OREO”). Revenue Recognition The Company’s sources of income that fall within the scope of ASC 606 include service charges on deposits, ATM and interchange fees and gains and losses on sales of OREO, all of which are presented as components of noninterest income. The following is a summary of the revenue streams that fall within the scope of ASC 606: ● Service charges on deposits, investment services, ATM and interchange fees – Fees from these services are either (i) transaction-based, for which the performance obligations are satisfied when the individual transaction is processed, or (ii) set periodic service charges, for which the performance obligations are satisfied over the period the service is provided. Transaction-based fees are recognized at the time the transaction is processed, and periodic service charges are recognized over the service period. ● Gains on sales of OREO – A gain on sale should be recognized when a contract for sale exists and control of the asset has been transferred to the buyer. ASC 606 lists several criteria required to conclude that a contract for sale exists, including a determination that the institution will collect substantially all of the consideration to which it is entitled. In addition to the loan-to-value ratio, where the seller provides the purchaser with financing, the analysis is based on various other factors, including the credit quality of the purchaser, the structure of the loan, and any other factors that we believe may affect collectability. Subsequent Events The Company has evaluated the effects of events and transactions through the date of this filing that have occurred subsequent to March 31, 2025. The Company does not believe there were any material subsequent events during this period that would have required further recognition or disclosure in the unaudited consolidated financial statements included in this report. Table of Contents 9 Accounting Developments In the first quarter of 2025, the Company did not adopt any new accounting guidance. NOTE 2: BASIC AND DILUTED NET EARNINGS PER SHARE Basic net earnings per share is computed by dividing net earnings by the weighted average common shares outstanding for the quarters ended March 31, 2025 and 2024, respectively. Diluted net earnings per share reflect the potential dilution that could occur upon exercise of securities or other rights for, or convertible into, shares of the Company’s common stock. At March 31, 2025 and 2024, respectively, the Company had no such securities or rights issued or outstanding, and therefore, no dilutive effect to consider for the diluted net earnings per share calculation. The basic and diluted net earnings per share computations for the respective periods are presented below Quarter ended March 31, (Dollars in thousands, except share and per share data) 2025 2024 Basic and diluted: Net earnings $ 1,530 $ 1,371 Weighted average common shares outstanding 3,493,699 3,493,663 Net earnings per share $ 0.44 $ 0.39 NOTE 3: SECURITIES At March 31, 2025 and December 31, 2024, respectively, all securities within the scope of ASC 320, Investments – Debt and Equity Securities, were classified as available-for-sale. The fair value and amortized cost for securities available-for- sale by contractual maturity at March 31, 2025 and December 31, 2024, respectively, are presented below. 1 year 1 to 5 5 to 10 After 10 Fair Gross Unrealized Amortized (Dollars in thousands) or less years years years Value Gains Losses Cost March 31, 2025 Agency obligations (a) $ — 26,867 26,052 — 52,919 — 6,343 $ 59,262 Agency MBS (a) 1 19,998 16,181 136,407 172,587 — 24,700 197,287 State and political subdivisions — 1,625 7,763 7,574 16,962 — 2,836 19,798 Total available-for-sale $ 1 48,490 49,996 143,981 242,468 — 33,879 $ 276,347 December 31, 2024 Agency obligations (a) $ — 26,655 25,756 — 52,411 — 7,734 $ 60,145 Agency MBS (a) 10 19,863 14,904 138,899 173,676 — 28,901 202,577 State and political subdivisions — 966 8,244 7,715 16,925 — 2,901 19,826 Total available-for-sale $ 10 47,484 48,904 146,614 243,012 — 39,536 $ 282,548 (a) Includes securities issued by U.S. government agencies or government -sponsored entities. Expected lives of these securities may differ from contractual maturities because (i) issuers may have the right to call or repay such securities obligations with or without prepayment penalties and (ii) borrowers of the loans included in Agency MBS generally have the right to prepay such loan in whole or in part at any time. Securities with aggregate fair values of $ 229.5 million and $ 222.3 at March 31, 2025 and December 31, 2024, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, FHLB advances, and for other purposes required or permitted by law. Included in other assets on the accompanying consolidated balance sheets include non-marketable equity investments. The carrying amounts of non-marketable equity investments were $ 1.4 million at March 31, 2025 and December 31, 2024, respectively. Non-marketable equity investments include FHLB of Atlanta stock, Federal Reserve Bank of Atlanta (“FRB”) stock, and stock in a privately held financial institution. Table of Contents 10 Gross Unrealized Losses and Fair Value The fair values and gross unrealized losses on securities at March 31, 2025 and December 31, 2024, respectively, segregated by those securities that have been in an unrealized loss position for less than 12 months and 12 months or longer, are presented below. Less than 12 Months 12 Months or Longer Total Fair Unrealized Fair Unrealized Fair Unrealized (Dollars in thousands) Value Losses Value Losses Value Losses March 31, 2025: Agency obligations $ — — 52,919 6,343 $ 52,919 6,343 Agency MBS 2 — 172,585 24,700 172,587 24,700 State and political subdivisions 1,772 42 14,840 2,794 16,612 2,836 Total $ 1,774 42 240,344 33,837 $ 242,118 33,879 December 31, 2024: Agency obligations $ — — 52,411 7,734 $ 52,411 7,734 Agency MBS 7 — 173,669 28,901 173,676 28,901 State and political subdivisions 1,798 17 14,776 2,884 16,574 2,901 Total $ 1,805 17 240,856 39,519 $ 242,661 39,536 For the securities in the previous table, the Company assesses whether or not it intends to sell the security, or more likely than not will be required to sell the security, before recovery of its amortized cost basis which would require a write-down to fair value through net income. Because the Company currently does not intend to sell those securities that have an unrealized loss at March 31, 2025, and it is not more-likely-than-not that the Company will be required to sell the securities before recovery of their amortized cost bases, which may be maturity, the Company has determined that no write-down is necessary. In addition, the Company evaluates whether any portion of the decline in fair value of securities is the result of credit deterioration, which would require the recognition of an allowance for credit losses. Such evaluations consider the extent to which the amortized cost of the security exceeds its fair value, changes in credit ratings and any other known adverse conditions related to the specific security. The unrealized losses associated with securities at March 31, 2025 are driven by changes in interest rates and are not due to the credit quality of the securities, and accordingly, no allowance for credit losses is considered necessary related to securities at March 31, 2025. These securities will continue to be monitored as a part of the Company’s ongoing evaluation of credit quality. Management evaluates the financial performance of the issuers on a quarterly basis to determine if it is probable that the issuers can make all contractual principal and interest payments. Realized Gains and Losses The Company had no realized gains or losses on sale of securities during the quarter ended March 31, 2025 and 2024, respectively. Table of Contents 11 NOTE 4: LOANS AND ALLOWANCE FOR CREDIT LOSSES March 31, December 31, (Dollars in thousands) 2025 2024 Commercial and industrial $ 59,061 $ 63,274 Construction and land development 86,403 82,493 Commercial real estate: Owner occupied 61,079 55,346 Hotel/motel 34,607 35,210 Multi-family 43,198 43,556 Other 149,469 155,880 Total commercial real estate 288,353 289,992 Residential real estate: Consumer mortgage 59,659 60,399 Investment property 57,841 58,228 Total residential real estate 117,500 118,627 Consumer installment 9,333 9,631 Total Loans $ 560,650 $ 564,017 Loans secured by real estate were approximately 87.8% of the Company’s total loan portfolio at March 31, 2025. At March 31, 2025, the Company’s geographic loan distribution was concentrated primarily in Lee County, Alabama, and surrounding areas. The loan portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. As part of the Company’s quarterly assessment of the allowance, the loan portfolio included the following portfolio segments: commercial and industrial, construction and land development, commercial real estate, residential real estate, and consumer installment. Where appropriate, the Company’s loan portfolio segments are further disaggregated into classes. A class is generally determined based on the initial measurement attribute, risk characteristics of the loan, and an entity’s method for monitoring and determining credit risk. The following describes the risk characteristics relevant to each of the portfolio segments and classes. Commercial and industrial (“C&I”) — includes loans to finance business operations, equipment purchases, or other needs for small and medium-sized commercial customers. Also included in this category are loans to finance agricultural production. Generally, the primary source of repayment is the cash flow from business operations and activities of the borrower. Construction and land development (“C&D”) — includes both loans and credit lines for the purpose of purchasing, carrying, and developing land into commercial developments or residential subdivisions. Also included are loans and credit lines for construction of residential, multi-family, and commercial buildings. Generally, the primary source of repayment is dependent upon the sale or refinance of the real estate collateral. Commercial real estate (“CRE”) — includes loans in these classes: ● Owner occupied – includes loans secured by business facilities to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized commercial customers. Generally, the primary source of repayment is the cash flow from business operations and activities of the borrower, who owns the property. ● Hotel/motel – includes loans for hotels and motels. Generally, the primary source of repayment is dependent upon income generated from the hotel/motel securing the loan. The underwriting of these loans takes into consideration the occupancy and rental rates, as well as the financial health of the borrower. Table of Contents 12 ● Multi-family – primarily includes loans to finance income-producing multi-family properties. These include loans for 5 or more unit residential properties and apartments leased to residents. Generally, the primary source of repayment is dependent upon income generated from the real estate collateral. The underwriting of these loans takes into consideration the occupancy and rental rates, as well as the financial health of the respective borrowers. ● Other – primarily includes loans to finance income-producing commercial properties other than hotels/motels and multi-family properties, and which are not owner occupied. Loans in this class include loans for neighborhood retail centers, medical and professional offices, single retail stores, industrial buildings, and warehouses leased to local and other businesses. Generally, the primary source of repayment is dependent upon income generated from the real estate collateral. The underwriting of these loans takes into consideration the occupancy and rental rates, as well as the financial health of the borrower. Residential real estate (“RRE”) — includes loans in these two classes: ● Consumer mortgage – primarily includes first or second lien mortgages and home equity lines of credit to consumers that are secured by a primary residence or second home. These loans are underwritten in accordance with the Bank’s general loan policies and procedures which require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history, and property value. ● Investment property – primarily includes loans to finance income-producing 1-4 family residential properties. Generally, the primary source of repayment is dependent upon income generated from leasing the property securing the loan. The underwriting of these loans takes into consideration the rental rates and property values, as well as the financial health of the borrowers. Consumer installment — includes loans to individuals, which may be secured by personal property or are unsecured. Loans include personal lines of credit, automobile loans, and other retail loans. These loans are underwritten in accordance with the Bank’s general loan policies and procedures which require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history, and, if applicable, property values. Table of Contents 13 The following is a summary of current, accruing past due, and nonaccrual loans by portfolio segment and class as of March 31, 2025 and December 31, 2024. Accruing Accruing Total 30-89 Days Greater than Accruing Non- Total (Dollars in thousands) Current Past Due 90 days Loans Accrual Loans March 31, 2025: Commercial and industrial $ 58,994 64 — 59,058 3 $ 59,061 Construction and land development 85,894 105 — 85,999 404 86,403 Commercial real estate: Owner occupied 61,079 — — 61,079 — 61,079 Hotel/motel 34,607 — — 34,607 — 34,607 Multi-family 43,198 — — 43,198 — 43,198 Other 149,350 119 — 149,469 — 149,469 Total commercial real estate 288,234 119 — 288,353 — 288,353 Residential real estate: Consumer mortgage 59,183 403 — 59,586 73 59,659 Investment property 57,724 — 77 57,801 40 57,841 Total residential real estate 116,907 403 77 117,387 113 117,500 Consumer installment 9,262 71 — 9,333 — 9,333 Total $ 559,291 762 77 560,130 520 $ 560,650 December 31, 2024: Commercial and industrial $ 63,163 12 — 63,175 99 $ 63,274 Construction and land development 82,089 — — 82,089 404 82,493 Commercial real estate: Owner occupied 55,346 — — 55,346 — 55,346 Hotel/motel 35,210 — — 35,210 — 35,210 Multi-family 43,556 — — 43,556 — 43,556 Other 155,880 — — 155,880 — 155,880 Total commercial real estate 289,992 — — 289,992 — 289,992 Residential real estate: Consumer mortgage 59,677 722 — 60,399 — 60,399 Investment property 58,179 49 — 58,228 — 58,228 Total residential real estate 117,856 771 — 118,627 — 118,627 Consumer installment 9,579 52 — 9,631 — 9,631 Total $ 562,679 835 — 563,514 503 $ 564,017 Table of Contents 14 Credit Quality Indicators The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. These categories are utilized to develop the associated allowance for credit losses using historical losses adjusted for qualitative and environmental factors and are defined as follows: ● Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral. ● Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification. ● Substandard Accruing – loans that exhibit a well-defined weakness which presently jeopardizes debt repayment, even though they are currently performing. These loans are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected. ● Nonaccrual – includes loans where management has determined that full payment of principal and interest is not expected. Substandard accrual and nonaccrual loans are often collectively referred to as “classified.” Table of Contents 15 The following tables presents credit quality indicators for the loan portfolio segments and classes by year of origination as of March 31, 2025 and December 31, 2024. Year of Origination 2025 2024 2023 2022 2021 Prior to 2021 Revolving Loans Total Loans (Dollars in thousands) March 31, 2025: Commercial and industrial Pass $ 2,160 5,714 6,740 8,130 12,128 21,273 2,550 $ 58,695 Special mention — 49 74 — — — — 123 Substandard 51 — 19 164 6 — — 240 Nonaccrual — — — 3 — — — 3 Total commercial and industrial 2,211 5,763 6,833 8,297 12,134 21,273 2,550 59,061 Current period gross charge-offs — — 99 — — — — 99 Construction and land development Pass 4,983 35,676 23,353 16,671 951 737 3,628 85,999 Special mention — — — — — — — — Substandard — — — — — — — — Nonaccrual — 404 — — — — — 404 Total construction and land development 4,983 36,080 23,353 16,671 951 737 3,628 86,403 Current period gross charge-offs — — — — — — — — Commercial real estate: Owner occupied Pass 7,216 1,440 10,856 6,626 16,856 14,968 2,028 59,990 Special mention — — — — — 581 — 581 Substandard — 508 — — — — — 508 Nonaccrual — — — — — — — — Total owner occupied 7,216 1,948 10,856 6,626 16,856 15,549 2,028 61,079 Current period gross charge-offs — — — — — — — — Hotel/motel Pass — 461 6,397 9,322 3,047 15,380 — 34,607 Special mention — — — — — — — — Substandard — — — — — — — — Nonaccrual — — — — — — — — Total hotel/motel — 461 6,397 9,322 3,047 15,380 — 34,607 Current period gross charge-offs — — — — — — — — Table of Contents 16 Year of Origination 2025 2024 2023 2022 2021 Prior to 2021 Revolving Loans Total Loans (Dollars in thousands) March 31, 2025: Multi-family Pass 20 3,728 8,495 16,930 1,843 12,160 22 43,198 Special mention — — — — — — — — Substandard — — — — — — — — Nonaccrual — — — — — — — — Total multi-family 20 3,728 8,495 16,930 1,843 12,160 22 43,198 Current period gross charge-offs — — — — — — — — Other Pass 974 32,992 19,560 30,079 21,556 31,565 12,624 149,350 Special mention — — — — — — — — Substandard — — — — — 119 — 119 Nonaccrual — — — — — — — — Total other 974 32,992 19,560 30,079 21,556 31,684 12,624 149,469 Current period gross charge-offs — — — — — — — — Residential real estate: Consumer mortgage Pass 806 5,003 17,298 17,824 2,598 13,201 1,582 58,312 Special mention — 244 — — — 262 — 506 Substandard — — — — — 768 — 768 Nonaccrual — — 73 — — — — 73 Total consumer mortgage 806 5,247 17,371 17,824 2,598 14,231 1,582 59,659 Current period gross charge-offs — — — — — 1 — 1 Investment property Pass 1,409 10,306 10,404 10,661 8,157 15,573 762 57,272 Special mention — — — — — — — — Substandard — 287 — 93 7 142 — 529 Nonaccrual — — 40 — — — — 40 Total investment property 1,409 10,593 10,444 10,754 8,164 15,715 762 57,841 Current period gross charge-offs — — — — — — — — Consumer installment Pass 2,022 3,401 1,688 1,461 230 107 333 9,242 Special mention 1 — 11 — 9 — — 21 Substandard — 46 15 9 — — — 70 Nonaccrual — — — — — — — — Total consumer installment 2,023 3,447 1,714 1,470 239 107 333 9,333 Current period gross charge-offs — — — — — — — — Total loans Pass 19,590 98,721 104,791 117,704 67,366 124,964 23,529 556,665 Special mention 1 293 85 — 9 843 — 1,231 Substandard 51 841 34 266 13 1,029 — 2,234 Nonaccrual — 404 113 3 — — — 520 Total loans $ 19,642 100,259 105,023 117,973 67,388 126,836 23,529 $ 560,650 Total current period gross charge-offs $ — — 99 — — 1 — 100 Table of Contents 17 Year of Origination 2024 2023 2022 2021 2020 Prior to 2020 Revolving Loans Total Loans (Dollars in thousands) December 31, 2024: Commercial and industrial Pass $ 11,290 7,265 8,488 9,677 4,659 16,989 4,425 $ 62,793 Special mention 49 74 — — — — — 123 Substandard 50 21 181 7 — — — 259 Nonaccrual — 99 — — — — — 99 Total commercial and industrial 11,389 7,459 8,669 9,684 4,659 16,989 4,425 63,274 Current period gross charge-offs — — 9 — — — — 9 Construction and land development Pass 31,144 29,520 16,504 1,794 1,434 104 1,589 $ 82,089 Special mention — — — — — — — — Substandard — — — — — — — — Nonaccrual 404 — — — — — — 404 Total construction and land development 31,548 29,520 16,504 1,794 1,434 104 1,589 82,493 Current period gross charge-offs — — — — — — — — Commercial real estate: Owner occupied Pass 1,921 11,206 6,776 17,114 3,396 12,030 1,552 $ 53,995 Special mention — 249 — — 591 — — 840 Substandard 511 — — — — — — 511 Nonaccrual — — — — — — — — Total owner occupied 2,432 11,455 6,776 17,114 3,987 12,030 1,552 55,346 Current period gross charge-offs — — — — — — — — Hotel/motel Pass 480 6,480 5,303 3,079 1,299 14,437 4,132 35,210 Special mention — — — — — — — — Substandard — — — — — — — — Nonaccrual — — — — — — — — Total hotel/motel 480 6,480 5,303 3,079 1,299 14,437 4,132 35,210 Current period gross charge-offs — — — — — — — — Table of Contents 18 Year of Origination 2024 2023 2022 2021 2020 Prior to 2020 Revolving Loans Total Loans (Dollars in thousands) December 31, 2024: Multi-family Pass 3,739 6,041 17,037 1,863 3,493 6,400 4,983 43,556 Special mention — — — — — — — — Substandard — — — — — — — — Nonaccrual — — — — — — — — Total multi-family 3,739 6,041 17,037 1,863 3,493 6,400 4,983 43,556 Current period gross charge-offs — — — — — — — — Other Pass 43,753 21,085 32,521 21,249 16,743 16,289 4,120 155,760 Special mention — — — — — — — — Substandard — — — — 120 — — 120 Nonaccrual — — — — — — — — Total other 43,753 21,085 32,521 21,249 16,863 16,289 4,120 155,880 Current period gross charge-offs — — — — — — — — Residential real estate: Consumer mortgage Pass 5,885 18,389 18,434 2,466 2,565 10,590 808 59,137 Special mention 243 — — — 2 486 — 731 Substandard — — — — — 531 — 531 Nonaccrual — — — — — — — — Total consumer mortgage 6,128 18,389 18,434 2,466 2,567 11,607 808 60,399 Current period gross charge-offs — — — — — 61 — 61 Investment property Pass 10,339 10,824 10,651 8,305 11,435 4,794 1,317 57,665 Special mention — — — — — — — — Substandard 278 40 93 9 143 — — 563 Nonaccrual — — — — — — — — Total investment property 10,617 10,864 10,744 8,314 11,578 4,794 1,317 58,228 Current period gross charge-offs — — — — — — — — Consumer installment Pass 5,015 2,057 1,911 296 90 113 67 9,549 Special mention — 9 — 9 — — — 18 Substandard 39 15 10 — — — — 64 Nonaccrual — — — — — — — — Total consumer installment 5,054 2,081 1,921 305 90 113 67 9,631 Current period gross charge-offs 25 42 42 1 — 4 — 114 Total loans Pass 113,566 112,867 117,625 65,843 45,114 81,746 22,993 559,754 Special mention 292 332 — 9 593 486 — 1,712 Substandard 878 76 284 16 263 531 — 2,048 Nonaccrual 404 99 — — — — — 503 Total loans $ 115,140 113,374 117,909 65,868 45,970 82,763 22,993 $ 564,017 Total current period gross charge-offs $ 25 42 51 1 — 65 — 184 Table of Contents 19 Allowance for Credit Losses The allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics, and for loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. The composition of the provision for credit losses for the respective periods is presented below. Quarter ended March 31, (Dollars in thousands) 2025 2024 Provision for credit losses: Loans $ ( 57 ) $ 285 Reserve for unfunded commitments 47 49 Total provision for credit losses $ ( 10 ) $ 334 The following table details the changes in the allowance for credit losses for loans, by portfolio segment, for the respective periods. (Dollars in thousands) Commercial and industrial Construction and land development Commercial real estate Residential real estate Consumer installment Total Quarter ended March 31, 2025: Beginning balance $ 1,244 1,059 3,842 588 138 $ 6,871 Charge-offs ( 99 ) — — ( 1 ) — ( 100 ) Recoveries 28 — — 2 6 36 Net (charge-offs) recoveries ( 71 ) — — 1 6 ( 64 ) Provision for credit losses 46 342 ( 689 ) 272 ( 28 ) ( 57 ) Ending balance $ 1,219 1,401 3,153 861 116 $ 6,750 Quarter ended March 31, 2024: Beginning balance $ 1,288 960 3,921 546 148 $ 6,863 Charge-offs — — — — ( 24 ) ( 24 ) Recoveries 66 — — 3 22 91 Net recoveries (charge-offs) 66 — — 3 ( 2 ) 67 Provision for credit losses 61 ( 120 ) 281 64 ( 1 ) 285 Ending balance $ 1,415 840 4,202 613 145 $ 7,215 The following table presents the amortized cost basis of collateral dependent loans, which are individually evaluated to determine expected credit losses for the respective periods: Business (Dollars in thousands) Real Estate Assets Total Loans March 31, 2025: Construction and land development $ 404 — $ 404 Total $ 404 — $ 404 December 31, 2024: Commercial and industrial $ — 99 $ 99 Construction and land development $ 404 — $ 404 Total $ 404 99 $ 503 Table of Contents 20 The following table summarizes the Company’s nonaccrual loans by major categories for the respective periods. (Dollars in thousands) No Allowance With an Allowance Total March 31, 2025 Commercial and industrial $ — 3 3 Construction and land development — 404 404 Residential real estate — 113 113 Total $ — 520 520 December 31, 2024 Commercial and industrial $ — 99 99 Construction and land development 404 — 404 Total $ 404 99 503 NOTE 5: MORTGAGE SERVICING RIGHTS, NET Mortgage servicing rights (“MSRs”) are recognized based on the fair value of the servicing rights on the date the corresponding mortgage loans are sold. An estimate of the Company’s MSRs is determined using assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. The Company has elected to measure its MSRs under the amortization method. Under the amortization method, MSRs are amortized in proportion to, and over the period of, estimated net servicing income. Increases in market interest rates generally increase the fair value of MSRs by reducing prepayments and refinancings and therefore reducing the prepayment speed. The Company has recorded MSRs related to loans sold to Fannie Mae. The Company generally sells conforming, fixed- rate, closed-end, residential mortgages to Fannie Mae. MSRs are included in other assets on the accompanying consolidated balance sheets. The Company evaluates MSRs for impairment on a quarterly basis. Impairment is determined by stratifying MSRs into groupings based on predominant risk characteristics, such as interest rate and loan type. If, by individual stratum, the carrying amount of the MSRs exceeds fair value, a valuation allowance is established. The valuation allowance is adjusted as the fair value changes. Changes in the valuation allowance are recognized in earnings as a component of mortgage lending income. The change in amortized MSRs and the related valuation allowance for the quarters ended March 31, 2025 and 2024 are presented below. Quarter ended March 31, (Dollars in thousands) 2025 2024 MSRs, net: Beginning balance $ 892 $ 992 Additions, net 6 12 Amortization expense ( 41 ) ( 39 ) Ending balance $ 857 $ 965 Valuation allowance included in MSRs, net: Beginning of period $ — $ — End of period — — Fair value of amortized MSRs: Beginning of period $ 2,204 $ 2,382 End of period 2,201 2,378 Table of Contents 21 NOTE 6: FAIR VALUE Fair Value Hierarchy “Fair value” is defined by ASC 820, Fair Value Measurements and Disclosures , and focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for an asset or liability at the measurement date. GAAP establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: Level 1—inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active markets. Level 2—inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable for the asset or liability, either directly or indirectly. Level 3—inputs to the valuation methodology are unobservable and reflect the Company’s own assumptions about the inputs market participants would use in pricing the asset or liability. Level changes in fair value measurements Transfers between levels of the fair value hierarchy are generally recognized at the end of each reporting period. The Company monitors the valuation techniques utilized for each category of financial assets and liabilities to ascertain when transfers between levels have been affected. The nature of the Company’s financial assets and liabilities generally is such that transfers in and out of any level are expected to be infrequent. For the quarter ended March 31, 2025, there were no transfers between levels and no changes in valuation techniques for the Company’s financial assets and liabilities. Assets and liabilities measured at fair value on a recurring basis Securities available-for-sale Fair values of securities available for sale were primarily measured using Level 2 inputs. For these securities, the Company obtains pricing data from third-party pricing services. These third-party pricing services consider observable data that may include broker/dealer quotes, market spreads, cash flows, benchmark yields, reported trades for similar securities, market consensus prepayment speeds, credit information, and the securities’ terms and conditions. On a quarterly basis, management reviews the pricing data received from the third-party pricing services for reasonableness given current market conditions. As part of its review, management may obtain non-binding third-party broker/dealer quotes to validate the fair value measurements. In addition, management will periodically submit pricing information provided by the third-party pricing services to another independent valuation firm on a sample basis. This independent valuation firm will compare the prices provided by the third-party pricing service with its own prices and will review the significant assumptions and valuation methodologies used with management. Table of Contents 22 The following table presents the balances of the assets and liabilities measured at fair value on a recurring basis as of March 31, 2025 and December 31, 2024, respectively, by caption, on the accompanying consolidated balance sheets by ASC 820 valuation hierarchy (as described above). Quoted Prices in Significant Active Markets Other Significant for Observable Unobservable Identical Assets Inputs Inputs (Dollars in thousands) Amount (Level 1) (Level 2) (Level 3) March 31, 2025: Securities available-for-sale: Agency obligations $ 52,919 — 52,919 — Agency MBS 172,587 — 172,587 — State and political subdivisions 16,962 — 16,962 — Total securities available -for-sale 242,468 — 242,468 — Total assets at fair value $ 242,468 — 242,468 — December 31, 2024: Securities available-for-sale: Agency obligations $ 52,411 — 52,411 — Agency MBS 173,676 — 173,676 — State and political subdivisions 16,925 — 16,925 — Total securities available -for-sale 243,012 — 243,012 — Total assets at fair value $ 243,012 — 243,012 — Assets and liabilities measured at fair value on a nonrecurring basis Loans held for sale Loans held for sale are carried at the lower of cost or fair value. Fair values of loans held for sale are determined using quoted secondary market prices for similar loans. Loans held for sale are classified within Level 2 of the fair value hierarchy. Collateral dependent loans Collateral dependent loans are measured at the fair value of the collateral securing the loan less estimated selling costs. The fair value of real estate collateral is determined based on real estate appraisals which are generally based on recent sales of comparable properties which are then adjusted for property specific factors. Non-real estate collateral is valued based on various sources, including third party asset valuations and internally determined values based on cost adjusted for depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified within Level 3 of the hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrower's underlying financial condition. Mortgage servicing rights, net MSRs, net, included in other assets on the accompanying consolidated balance sheets, are carried at the lower of cost or estimated fair value. MSRs do not trade in an active market with readily observable prices. To determine the fair value of MSRs, the Company engages an independent third party. The independent third party’s valuation model calculates the present value of estimated future net servicing income using assumptions that market participants would use in estimating future net servicing income, including estimates of mortgage prepayment speeds, discount rates, default rates, costs to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. Periodically, the Company will review broker surveys and other market research to validate significant assumptions used in the model. The significant unobservable inputs include mortgage prepayment speeds or the constant prepayment rate (“CPR”) and the weighted average discount rate. Because the valuation of MSRs requires the use of significant unobservable inputs, all of the Company’s MSRs are classified within Level 3 of the valuation hierarchy. Table of Contents 23 The following table presents the balances of the assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2025 and December 31, 2024, respectively, by caption, on the accompanying consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above): Quoted Prices in Active Markets Other Significant for Observable Unobservable Carrying Identical Assets Inputs Inputs (Dollars in thousands) Amount (Level 1) (Level 2) (Level 3) March 31, 2025: Loans held for sale $ 290 — 290 — Loans, net (1) 404 — — 404 Other assets (2) 857 — — 857 Total assets at fair value $ 1,551 — 290 1,261 December 31, 2024: Loans, net (1) $ 503 — — 503 Other assets (2) 892 — — 892 Total assets at fair value $ 1,395 — — 1,395 (1) Loans considered collateral dependent under ASC 326. (2) Represents MSRs, net, carried at lower of cost or estimated fair value. Quantitative Disclosures for Level 3 Fair Value Measurements At March 31, 2025 and December 31, 2024, the Company had no Level 3 assets measured at fair value on a recurring basis. For Level 3 assets measured at fair value on a non-recurring basis at March 31, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements and the range of such inputs with respect to such assets are presented below. Range of Weighted Carrying Significant Unobservable Average (Dollars in thousands) Amount Valuation Technique Unobservable Input Inputs of Input March 31, 2025: Collateral dependent loans $ 404 Appraisal Appraisal discounts 10.0 - 10.0 % 10.0 % Mortgage servicing rights, net 857 Discounted cash flow Prepayment speed or CPR 6.5 - 11.1 7.2 Discount rate 10.0 - 12.0 10.0 December 31, 2024: Collateral dependent loans $ 503 Appraisal Appraisal discounts 10.0 - 10.0 % 10.0 % Mortgage servicing rights, net 892 Discounted cash flow Prepayment speed or CPR 6.7 - 11.2 7.3 Discount rate 10.0 - 12.0 10.0 Fair Value of Financial Instruments ASC 825, Financial Instruments , requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, where it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company’s financial instruments are explained below. Where quoted market prices are not available, fair values are based on estimates using discounted cash flow analyses. Discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered representative of the liquidation value of the Company’s financial instruments, but rather are good-faith estimates of the fair value of financial instruments held by the Company. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Table of Contents 24 The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments: Loans, net Fair values for loans were calculated using discounted cash flows. The discount rates reflected current rates at which similar loans would be made for the same remaining maturities. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments. The fair value of loans was measured using an exit price notion. Loans held for sale Fair values of loans held for sale are determined using quoted secondary market prices for similar loans. Time Deposits Fair values for time deposits were estimated using discounted cash flows. The discount rates were based on rates currently offered for deposits with similar remaining maturities. The carrying value, related estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments at March 31, 2025 and December 31, 2024 are presented below. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which fair value approximates carrying value included cash and cash equivalents. Financial liabilities for which fair value approximates carrying value included noninterest-bearing demand deposits, interest-bearing demand deposits, and savings deposits. Fair value approximates carrying value in these financial liabilities due to these products having no stated maturity. Additionally, financial liabilities for which fair value approximates carrying value included overnight borrowings such as federal funds purchased and securities sold under agreements to repurchase. The following table summarizes our fair value estimates: Fair Value Hierarchy Carrying Estimated Level 1 Level 2 Level 3 (Dollars in thousands) amount fair value inputs inputs Inputs March 31, 2025: Financial Assets: Loans, net (1) $ 553,900 $ 531,696 — — $ 531,696 Loans held for sale 290 296 — 296 — Financial Liabilities: Time Deposits $ 189,385 $ 188,438 — 188,438 $ — December 31, 2024: Financial Assets: Loans, net (1) $ 557,146 $ 532,344 — — $ 532,344 Financial Liabilities: Time Deposits $ 191,247 $ 190,636 — 190,636 $ — (1) Represents loans, net of allowance for credit losses. The fair value of loans was measured using an exit price notion. Table of Contents 25