AUBURN NATIONAL BANCORPORATION, INC 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Auburn National Bancorporation, Inc. (the “Company”) is a bank holding company registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The Company was incorporated in Delaware in 1990, and in 1994 it succeeded its Alabama predecessor as the bank holding company controlling AuburnBank, an Alabama state member bank with its principal office in Auburn, Alabama (the “Bank”). The Company and its predecessor have controlled the Bank since 1984. As a bank holding company, the Company may diversify into a broader range of financial services and other business activities than currently are permitted to the Bank under applicable laws and regulations. The holding company structure also provides greater financial and operating flexibility than is presently permitted to the Bank. The Bank has operated continuously since 1907 and currently conducts its business primarily in East Alabama, including Lee County and surrounding areas. The Bank has been a member of the Federal Reserve System since April 1995. The Bank’s primary regulators are the Federal Reserve and the Alabama Superintendent of Banks (the “Alabama Superintendent”). The Bank has been a member of the FHLB of Atlanta since 1991. Certain of the statements made in this discussion and analysis and elsewhere, including information incorporated herein by reference to other documents, are “forward-looking statements” as more fully described under “Special Cautionary Notice Regarding Forward-Looking Statements” below. The following discussion and analysis is intended to provide a better understanding of various factors related to the results of operations and financial condition of the Company and the Bank. This discussion is intended to supplement and highlight information contained in the accompanying unaudited condensed consolidated financial statements and related notes for the quarters and quarters ended March 31, 2025 and 2024, as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2024. Special Cautionary Notice Regarding Forward-Looking Statements Various of the statements made herein under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Quantitative and Qualitative Disclosures about Market Risk”, “Risk Factors” “Description of Property” and elsewhere, are “forward-looking statements” within the meaning and protections of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance, achievements or financial condition of the Company to be materially different from future results, performance, achievements or financial condition expressed or implied by such forwar d-looking statements. You should not expect us to update any forward-looking statements. All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “designed”, “plan,” “point to,” “project,” “could,” “intend,” “target,” “seek” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation: ● the effects of future economic, business and market conditions and changes, foreign, domestic and locally, including inflation, seasonality, natural disasters or climate change, such as rising sea and water levels, hurricanes and tornadoes, epidemics or pandemics including supply chain disruptions, inventory volatility, and changes in consumer behaviors; ● the effects of war or other conflicts, acts of terrorism, trade restrictions, tariffs, sanctions, the value of the U.S. dollar against other currencies, or other events that may affect general economic conditions, including inflation, and consumer and business confidence; Table of Contents 26 ● governmental monetary and fiscal policies, including taxes, federal deficit spending and the debt required to fund such spending, changes in monetary policies in response to inflation and changes in prices and unemployment, including changes in the Federal Reserve’s target federal funds rate and changes in the Federal Reserve’s holdings of securities through quantitative tightening or easing; and the duration that the Federal Reserve will keep its targeted federal funds rates at or above current target ranges in furtherance of its long term inflation target of 2% and supporting maximum employment; ● legislative, executive branch and regulatory changes, including changes by executive orders, the possible reorganization and/or consolidation of the bank regulatory agencies, the SEC and/or the CFPB, changes in the leadership and personnel, including reductions in the number and experience of personnel, at the bank and securities regulators and the CFPB, oversight by the Office of Management and Budget of these agencies, freezes on changes in regulations and interpretations, numerous new Executive Orders, and the uncertain effects of all these, including the costs and benefits of such changes; ● the effects of the potential privatization of Fannie Mae and Freddie Mac and their release from conservatorship on the mortgage markets and us as an originator, seller and servicer of residential mortgage loans; ● recent Supreme Court rulings that may lead to more court challenges to regulations and regulatory actions, which may cause uncertainty, wasted implementation costs and time by the industry, and lengthy delays until ultimate resolution; ● changes in banking, securities and tax laws, regulations and rules and their application by the regulators, including capital and liquidity requirements, and changes in the scope and cost of FDIC insurance; ● changes in accounting pronouncements and interpretations; ● the failure of assumptions and estimates, including those used in the Company’s CECL models to establish our allowance for credit losses and estimate asset impairments, as well as differences in, and changes to, economic, market and credit conditions, including changes in borrowers’ credit risks and payment behaviors from those used in our CECL models and loan portfolio reviews; ● the risks of changes in market interest rates and the shape of the yield curve on customer behaviors; the levels, composition and costs of deposits, loan demand and mortgage loan originations; the values and liquidity of loan collateral, our securities portfolio and interest-sensitive assets and liabilities; and the risks and uncertainty of the amounts realizable on collateral; ● the risks of increases in market interest rates creating unrealized losses on our securities available for sale, which adversely affect our stockholders’ equity for financial reporting purposes and our tangible equity; ● changes in borrower liquidity and credit risks, and changes in savings, deposit and payment behaviors; ● changes in the availability and cost of credit and capital in the financial markets, and the types of instruments that may be included as capital for regulatory purposes; ● changes in the prices, values and sales volumes of residential and commercial real estate; ● the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services, including the disruptive effects of financial technology and other competitors who are not subject to the same regulation, including capital and liquidity requirements, internal controls, and supervision and examination, as the Company and the Bank, and competition from credit unions, which are not subject to federal income taxation; ● more permissive regulation and/or enforcement regarding digital assets, such as cyber currency and stable coins that creates additional competition to banks, and greater risks to the payment systems that the banking industry, including the Company, relies on, and greater risks of fraud and theft of digital assets and their effects on customers, other financial institutions, including our counterparties, financial stability and confidence in the financial system, generally; Table of Contents 27 ● the timing and amount of rental income from third parties from office space in our Auburn Center headquarters and in former office locations; ● the risks of mergers, acquisitions and divestitures, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions; ● changes in technology or products that may be more difficult, costly, or less effective than anticipated; ● cyber-attacks and data breaches that may compromise our systems, our vendors’ systems or customers’ information; ● the risks that our deferred tax assets (“DTAs”) included in “other assets” on our consolidated balance sheets, if any, could be reduced if estimates of future taxable income from our operations and tax planning strategies are less than currently estimated, and sales of our capital stock could trigger a reduction in the amount of net operating loss carry-forwards that we may be able to utilize for income tax purposes; ● the risks that our dividends, share repurchases and discretionary bonuses are limited by regulation to the maintenance of a capital conservation buffer of 2.5% and our future earnings and “eligible retained earnings” over rolling four calendar quarter periods; ● other factors and risks described under “Risk Factors” herein and in any of our subsequent reports that we make with the Securities and Exchange Commission (the “Commission” or “SEC”) under the Exchange Act. All written or oral forward-looking statements that we make or are attributable to us are expressly qualified in their entirety by this cautionary notice. We have no obligation and do not undertake to update, revise or correct any of the forward- looking statements after the date of this report, or after the respective dates on which such statements otherwise are made. Summary of Results of Operations Quarter ended March 31, (Dollars in thousands, except per share data) 2025 2024 Net interest income (a) $ 7,062 $ 6,677 Less: tax-equivalent adjustment 17 20 Net interest income (GAAP) 7,045 6,657 Noninterest income 747 887 Total revenue 7,792 7,544 Provision for credit losses (10) 334 Noninterest expense 5,880 5,675 Income tax expense 392 164 Net earnings $ 1,530 $ 1,371 Basic and diluted earnings per share $ 0.44 $ 0.39 (a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures." Financial Summary The Company’s net earnings were $1.5 million for the first quarter of 2025, compared to $1.4 million for the first quarter of 2024. Basic and diluted earnings per share were $0.44 per share for the first quarter of 2025, compared to $0.39 per share for the first quarter of 2024. Net interest income (tax-equivalent) was $7.1 million for the first quarter of 2025, a 6% increase compared to $6.7 million for the first quarter of 2024. This increase was primarily due to an increase in the Company’s net interest margin and an increase in average interest-earning assets. The Company’s net interest margin (tax-equivalent) was 3.20% for the first quarter of 2025 compared to 3.04% for the first quarter of 2024. This increase was primarily due to a more favorable asset mix and improvements in our yields on interest-earning assets, which outpaced increases in the cost of our interest-bearing deposits. Average loans for the first quarter of 2025 were $566.3 million, a 1% increase from the first quarter of 2024. See “Results of Operations – Average Balance Sheet and Interest Rates” and “Net Interest Income and Margin” below. Table of Contents 28 At March 31, 2025, the Company’s allowance for credit losses was $6.8 million, or 1.20% of total loans, compared to $6.9 million, or 1.22% of total loans, at December 31, 2024, and $7.2 million, or 1.27% of total loans, at March 31, 2024. The Company recorded a negative provision for credit losses during the first quarter of 2025 of $10 thousand, compared to a charge to provision for credit losses of $334 thousand during the first quarter of 2024. The provision for credit losses under CECL reflects the Company’s evaluation of its credit risk profile and its future economic outlook and forecasts. Our CECL model is largely influenced by economic factors including, the anticipated Alabama unemployment rate, which may be affected by government policies, including monetary, fiscal and other policies, including tariffs. Noninterest income was $0.8 million in the first quarter of 2025, compared to $0.9 million in the first quarter of 2024. The decrease was primarily related to a decrease in mortgage lending income and other noninterest income. Noninterest expense was $5.9 million in the first quarter of 2025, compared to $5.7 million for the first quarter of 2024. The increase was primarily related to routine increases in salaries and benefits expense. Income tax expense was $0.4 million for the first quarter of 2025 compared to $0.2 million for the first quarter of 2024. The Company's effective tax rate for the first quarter of 2025 was 20.40%, compared to 10.68% in the first quarter of 2024. The Company’s effective income tax rate is affected principally by tax-exempt earnings from the Company’s investments in municipal securities and loans, bank-owned life insurance (“BOLI”), and NMTCs. The Company paid cash dividends of $0.27 per share in the first quarter of 2025 and 2024. At March 31, 2025, the Bank’s regulatory capital ratios were well above the minimum amounts required to be “well capitalized” under current regulatory standards with a total risk-based capital ratio of 16.05%, a tier 1 leverage ratio of 10.52% and a common equity tier 1 (“CET1”) ratio of 15.04% at March 31, 2025. CRITICAL ACCOUNTING POLICIES The accounting principles we follow and our methods of applying these principles conform with U.S. GAAP and with general practices within the banking industry. There have been no significant changes to our Critical Accounting Estimates as described in our Form 10-K as of and for the year ended December 31, 2024. Table of Contents 29 RESULTS OF OPERATIONS Average Balance Sheet and Interest Rates Quarter ended March 31, 2025 2024 Average Yield/ Average Yield/ (Dollars in thousands) Balance Rate Balance Rate Interest-earning assets: Loans and loans held for sale $ 566,267 5.40% $ 560,942 5.01% Securities - taxable 231,325 2.25% 257,229 2.21% Securities - tax-exempt 9,263 3.72% 10,377 3.64% Total securities 240,588 2.30% 267,606 2.26% Federal funds sold 26,865 4.39% 17,980 5.57% Interest bearing bank deposits 61,235 4.49% 37,790 5.37% Total interest-earning assets 894,955 4.48% 884,318 4.21% Interest-bearing liabilities: Deposits: NOW 209,222 1.44% 196,648 1.31% Savings and money market 242,701 0.84% 241,792 0.57% Time Deposits 190,895 3.34% 199,562 3.20% Total interest-bearing deposits 642,818 1.78% 638,002 1.62% Short-term borrowings - 0.00% 1,592 0.51% Total interest-bearing liabilities 642,818 1.78% 639,594 1.62% Net interest income and margin (tax-equivalent) $ 7,062 3.20% $ 6,677 3.04% Net Interest Income and Margin Net interest income (tax-equivalent) was $7.1 million for the first quarter of 2025, a 6% increase compared to $6.7 million for the first quarter of 2024. This increase was primarily due to an increase in the Company’s net interest margin and average interest-earning assets. The Company’s net interest margin (tax-equivalent) was 3.20% in the first quarter of 2025 compared to 3.04% in the first quarter of 2024. This increase was primarily due to a more favorable asset mix and improvements in our yields on interest-earning assets, which was partially offset by higher market interest rates, which increased our cost of funds, generally. Since March 2022, the Federal Reserve increased the target federal funds rate by 525 basis points before announcing a 50-basis points rate reduction on September 18, 2024, its first decrease in rates since its March 2020 COVID rate reduction, followed by two 25 basis points reductions in October and December 2024. At March 31, 2025, the target federal funds rate ranged from 4.25% - 4.50%. The tax-equivalent yield on total interest-earning assets increased by 27 basis points to 4.48% in the first quarter of 2025 compared to 4.21% in the first quarter of 2024. This increase was primarily due to improved asset mix, and higher market interest rates on interest earning assets. The cost of interest-bearing liabilities increased to 178 basis points in the first quarter ended of 2025, compared to 162 basis points in the first quarter ended of 2024. Average interest-bearing deposits were $642.8 million during the first quarter of 2025, a 1% increase compared to $638.0 million during the first quarter of 2024. Average interest-bearing deposits were 71% of average total deposits for both March 31, 2025 and 2024. Our deposit costs may continue to increase as we compete for deposit funds against other banks, money market mutual funds, Treasury securities and other interest-bearing alternative investments. The Company continues to deploy various asset liability management strategies to manage its risks from interest rate fluctuations. Deposit and loan pricing remain competitive in our markets. We believe this challenging rate environment will continue throughout 2025. Our ability to compete and manage our deposit costs until our interest-earning assets reprice and we generate new loans with current market interest rates will be important to our net interest margin during the remainder of 2025. Table of Contents 30 Provision for Credit Losses The Company recorded a negative provision for credit losses during the first quarter of 2025 of $10 thousand, compared to a charge to provision for credit losses of $334 thousand during the first quarter of 2024. Provision expense is affected by organic loan growth in our loan portfolio, our internal assessment of the credit quality of the loan portfolio, our expectations about future economic conditions and net charge-offs. Our CECL model is largely influenced by economic factors including, the anticipated Alabama unemployment rate, which may be affected by government policies, including monetary, fiscal and other policies, including tariffs. Our allowance for credit losses reflects an amount we believe appropriate, based on our allowance assessment methodology, to adequately cover all expected credit losses as of the date the allowance is determined. At March 31, 2025, the Company’s allowance for credit losses was $6.8 million, or 1.20% of total loans, compared to $6.9 million, or 1.22% of total loans, at December 31, 2024, and $7.2 million, or 1.27% of total loans, at March 31, 2024. Noninterest Income Quarter ended March 31, (Dollars in thousands) 2025 2024 Service charges on deposit accounts $ 155 $ 156 Mortgage lending income 93 150 Bank-owned life insurance 105 102 Other 394 479 Total noninterest income $ 747 $ 887 The Company’s mortgage lending income includes income from the (1) origination and sale of mortgage loans and (2) servicing of mortgage loans. Origination income, net, is comprised of gains or losses from the sale of the mortgage loans originated, origination fees, underwriting fees, and other fees associated with the origination of loans, which are netted against the commission expense associated with these originations. The Company’s normal practice is to originate mortgage loans for sale in the secondary market and to either sell or retain the associated MSRs when the loan is sold. MSRs are recognized based on the fair value of the servicing right on the date the corresponding mortgage loan is sold. The Company has elected to measure its MSRs under the amortization method. Servicing fee income is reported net of any related amortization expense. The Company evaluates MSRs for impairment on a quarterly basis. Impairment is determined by grouping MSRs by common predominant characteristics, such as interest rate and loan type. If the aggregate carrying amount of a particular group of MSRs exceeds the group’s aggregate fair value, a valuation allowance for that group is established. The valuation allowance is adjusted as the fair value changes. An increase in mortgage interest rates typically results in an increase in the fair value of the MSRs while a decrease in mortgage interest rates typically results in a decrease in the fair value of MSRs. The following table presents a breakdown of the Company’s mortgage lending income. Quarter ended March 31, (Dollars in thousands) 2025 2024 Origination income, net $ 8 $ 57 Servicing fees, net 85 93 Total mortgage lending income $ 93 $ 150 The Company’s mortgage lending income typically fluctuates as mortgage interest rates, housing sales and refinancings change. Origination income decreased in the first quarter of 2025 compared to the first quarter of 2024 due to a decrease in mortgage lending demand in our primary market area. Other noninterest income was $0.4 million for the first quarter of 2025, compared to $0.5 million for the first quarter of 2024. The decrease in other noninterest income was primarily due to decreased fee income on reciprocal deposits sold through the Intrafi network. Table of Contents 31 Noninterest Expense Quarter ended March 31, (Dollars in thousands) 2025 2024 Salaries and benefits $ 3,310 $ 3,071 Net occupancy and equipment 714 763 Professional fees 287 326 Other 1,569 1,515 Total noninterest expense $ 5,880 $ 5,675 The increase in salaries and benefits was primarily due to routine annual increases in salaries and wages. Income Tax Expense Income tax expense was $0.4 million during the first quarter of 2025 compared to $0.2 million during the first quarter of 2024. The Company's effective tax rate for the first quarter of 2025 was 20.40%, compared to 10.68% in the first quarter of 2024. The Company’s effective income tax rate is affected principally by tax-exempt earnings from the Company’s investments in municipal securities and loans, BOLI, and NMTCs. BALANCE SHEET ANALYSIS Securities Securities available-for-sale were $242.5 million at March 31, 2025, compared to $243.0 million at December 31, 2024. This decrease reflects a $6.2 million decrease in the amortized cost basis of securities available-for-sale and an increase in the fair value of securities available-for-sale of $5.7 million. The average annualized tax-equivalent yields earned on total securities were 2.30% in the first quarter of 2025 and 2.26% in the first quarter of 2024. Loans 2025 2024 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter Commercial and industrial $ 59,061 63,274 61,510 77,627 78,920 Construction and land development 86,403 82,493 77,956 73,688 58,909 Commercial real estate 288,353 289,992 297,773 297,232 300,484 Residential real estate 117,500 118,627 118,582 119,427 118,240 Consumer installment 9,333 9,631 9,878 10,094 10,967 Total loans $ 560,650 564,017 565,699 578,068 567,520 Total loans were $560.7 million at March 31, 2025, a 1% decrease compared to $564.0 million at December 31, 2024. Four loan categories represented the majority of the loan portfolio at March 31, 2025: commercial real estate (51%), residential real estate (21%), construction and land development (15%) and commercial and industrial (11%). Approximately 21% of the Company’s commercial real estate loans were classified as owner-occupied at March 31, 2025. Within the residential real estate portfolio segment, the Company had junior lien mortgages of approximately $11.3 million, or 2% of total loans, and $11.2 million, or 2%, of total loans at March 31, 2025 and December 31, 2024, respectively. For residential real estate mortgage loans with a consumer purpose, the Company had no loans that required interest only payments at March 31, 2025 and December 31, 2024. The Company’s residential real estate mortgage portfolio does not include any option or hybrid ARM loans, subprime loans, or any material amount of other consumer mortgage products which are generally viewed as high risk. The average yield earned on loans and loans held for sale was 5.40% in the first quarter of 2025 and 5.01% in the first quarter of 2024. Table of Contents 32 The specific economic and credit risks associated with our loan portfolio include, but are not limited to, the effects of current economic conditions, including the levels of market interest rates, supply chain disruptions, commercial office occupancy levels, housing supply shortages, and effects of inflation on our borrowers’ cash flows, real estate market sales volumes and liquidity, valuations used in making loans and evaluating collateral, availability and cost of financing properties, real estate industry concentrations, competitive pressures from a wide range of other lenders, deterioration in certain credits, interest rate fluctuations, reduced collateral values or non-existent collateral, title defects, in accurate appraisals, financial deterioration of borrowers, fraud, and any violation of applicable laws and regulations. Various projects financed earlier that were based on lower interest rate assumptions than currently in effect may not be as profitable or successful at the higher interest rates currently in effect and which may exist in the future. The Company attempts to reduce these economic and credit risks through its loan-to-value guidelines for collateralized loans, investigating the creditworthiness of borrowers and monitoring borrowers’ financial position. Also, we have established and periodically review, lending policies and procedures. Banking regulations limit a bank’s credit exposure by prohibiting unsecured loan relationships that exceed 10% of its capital; or 20% of capital, if loans in excess of 10% of capital are fully secured. Under these regulations, we are prohibited from having secured loan relationships in excess of approximately $22.8 million. Furthermore, we have an internal limit for aggregate credit exposure (loans outstanding plus unfunded commitments) to a single borrower of $20.5 million. Our loan policy requires that the Loan Committee of the Board of Directors approve any loan relationships that exceed this internal limit. At March 31, 2025, the Bank had no loan relationships exceeding our internal limit. We periodically analyze our commercial and industrial and commercial real estate loan portfolios to determine if a concentration of credit risk exists in any one or more industries. We use classification systems broadly accepted by the financial services industry in order to categorize our commercial borrowers. Loans to borrowers in each of the following classes exceeded 25% of the Bank’s total risk-based capital at March 31, 2025 (and related balances at December 31, 2024). March 31, December 31, (Dollars in thousands) 2025 2024 Lessors of 1-4 family residential properties $ 57,841 $ 58,228 Multi-family residential properties 43,198 43,556 Shopping centers/strip malls 36,731 37,349 Hotel/motel 34,607 35,210 Office Buildings 28,314 29,780 Allowance for Credit Losses Our allowance for credit losses was approximately $6.8 million and $6.9 million at March 31, 2025 and December 31, 2024, respectively, which our management believed to be adequate at each of the respective dates. Our allowance for credit losses as a percentage of total loans was 1.20% at March 31, 2025, compared to 1.22% at December 31, 2024. Our CECL models rely largely on projections of macroeconomic conditions to estimate future credit losses. Macroeconomic factors used in the model include the Alabama unemployment rate, the Alabama home price index, the national commercial real estate price index and the Alabama gross state product. Projections of these macroeconomic factors, obtained from an independent third party, are utilized to predict quarterly rates of default. Under the CECL methodology the allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics, and for loans that do not share similar risk characteristics with the collectively evaluated pools, evaluations are performed on an individual basis. Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. At March 31, 2025, reasonable and supportable periods of four quarters were utilized followed by an eight quarters straight line reversion period to long term averages. Table of Contents 33 A summary of the changes in the allowance for credit losses and certain asset quality ratios for the first quarter of 2025 and the previous four quarters is presented below. 2025 2024 First Fourth Third Second First (Dollars in thousands) Quarter Quarter Quarter Quarter Quarter Balance at beginning of period $ 6,871 6,876 7,142 7,215 6,863 Charge-offs: Commercial and industrial (99) — — (9) — Residential real estate (1) (7) (54) — — Consumer installment — (31) (40) (19) (24) Total charge -offs (100) (38) (94) (28) (24) Recoveries 36 54 34 19 91 Net (charge-offs) recoveries (64) 16 (60) (9) 67 Provision for credit losses - Loans (57) (21) (206) (64) 285 Ending balance $ 6,750 6,871 6,876 7,142 7,215 as a % of loans 1.20 % 1.22 1.22 1.24 1.27 as a % of nonperforming loans 1,298 % 1,366 887 900 822 Net charge-offs (recoveries) as % of average loans (a) 0.05 % (0.01) 0.04 0.01 (0.05) (a) Net charge-offs (recoveries) are annualized. Table of Contents 34 The allowance for credit losses by loan category for the first quarter of 2025 and the previous four quarters is presented below. 2025 2024 First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter (Dollars in thousands) Amount %* Amount %* Amount %* Amount %* Amount %* Commercial and industrial $ 1,219 10.5 $ 1,244 11.2 $ 1,160 10.9 $ 1,366 13.4 $ 1,415 13.9 Construction and land development 1,401 15.4 1,059 14.6 985 13.8 942 12.7 840 10.4 Commercial real estate 3,153 51.4 3,842 51.5 3,989 52.6 4,091 51.5 4,202 53.0 Residential real estate 861 21.0 588 21.0 595 21.0 603 20.7 613 20.8 Consumer installment 116 1.7 138 1.7 147 1.7 140 1.7 145 1.9 Total allowance for credit losses $ 6,750 $ 6,871 $ 6,876 $ 7,142 $ 7,215 * Loan balance in each category expressed as a percentage of total loans. Nonperforming Assets At both March 31, 2025 and December 31, 2024, the Company had $0.5 million, respectively, in nonperforming assets. The table below provides information concerning total nonperforming assets and certain asset quality ratios for the first quarter of 2025 and the previous four quarters. 2025 2024 First Fourth Third Second First (Dollars in thousands) Quarter Quarter Quarter Quarter Quarter Nonperforming assets: Nonaccrual loans $ 520 503 775 794 878 Total nonperforming assets $ 520 503 775 794 878 as a % of loans and OREO 0.09 % 0.09 0.14 0.14 0.15 as a % of total assets 0.05 % 0.05 0.08 0.08 0.09 Nonperforming loans as a % of total loans 0.09 % 0.09 0.14 0.14 0.15 Accruing loans 90 days or more past due $ 77 — — — — The table below provides information concerning the composition of nonaccrual loans for the first quarter of 2025 and the previous four quarters. 2025 2024 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter Nonaccrual loans: Commercial and industrial $ 3 99 — — — Construction and land development 404 404 — — — Commercial real estate — — 735 753 765 Residential real estate 113 — 40 41 97 Consumer installment — — — — 16 Total nonaccrual loans $ 520 503 775 794 878 The Company discontinues the accrual of interest income when (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected or (2) the principal or interest is 90 days or more past due, unless the loan is both well-secured and in the process of collection. The Company had $77 thousand in loans 90 days or more past due and still accruing at March 31, 2025 compared to none at December 31, 2024. Table of Contents 35 The Company had no OREO at March 31, 2025 or December 31, 2024. Deposits (In thousands) 2025 2024 Noninterest bearing demand $ 271,749 260,874 NOW 211,093 199,883 Money market 152,160 153,916 Savings 86,116 89,904 Certificates of deposit under $250,000 100,954 103,594 Certificates of deposit and other time deposits of $250,000 or more 88,431 87,653 Total deposits $ 910,503 895,824 Total deposits were $910.5 million at March 31, 2025, compared to $895.8 million at December 31, 2024. Noninterest- bearing deposits were $271.7 million, or 30% of total deposits, at March 31, 2025, compared to $260.9 million, or 29% of total deposits at December 31, 2024. At March 31, 2025 the Company had $64.7 million reciprocal deposits sold, compared to $74.1 million at December 31, 2024. The Company had no brokered deposits at March 31, 2025 and December 31, 2024. The average rate paid on total interest-bearing deposits was 1.78% in the first quarter of 2025, compared to 1.62% in first quarter of 2024. At March 31, 2025, estimated uninsured deposits totaled $366.7 million, or 40% of total deposits, compared to $359.7 million, or 40% of total deposits at December 31, 2024. The Bank participates in the Certificates of Deposit Account Registry Service (the “CDARS”) and the Insured Cash Sweep product (“ICS”), which provide for reciprocal (“two-way”) transactions among banks facilitated by IntraFi for the purpose of improving the FDIC insurance coverage for our depositors. The Company had reciprocal deposits on balance sheet of $10.0 million at March 31, 2025, compared to $6.9 million at December 31, 2024. Uninsured amounts are estimated based on the portion of account balances in excess of FDIC insurance limits. The Bank’s estimated uninsured deposits at March 31, 2025 and December 31, 2024 include approximately $221.8 million and $223.1 million, respectively, of deposits of state, county and local governments that are collateralized by securities having an equal fair value to such deposits. Excluding estimated uninsured deposits of state, county and local governments, our estimated uninsured deposits would have been 16% and 15% of total deposits at March 31, 2025 and December 31, 2024, respectively. The estimated uninsured time deposits by maturity as of March 31, 2025 is presented below. (Dollars in thousands) March 31, 2025 Maturity of: 3 months or less $ 23,844 Over 3 months through 6 months 13,022 Over 6 months through 12 months 19,381 Over 12 months 2,434 Total estimated uninsured time deposits $ 58,681 Other Borrowings and Available Credit The Company had no long-term debt at March 31, 2025 and December 31, 2024. The Bank utilizes short and long-term non-deposit borrowings from time to time. Short-term borrowings generally consist of federal funds purchased and securities sold under agreements to repurchase with an original maturity of one year or less. The Bank had available federal funds lines totaling $65.2 million with no federal funds borrowings outstanding at March 31, 2025, and December 31, 2024, respectively. The Company had no securities sold under agreements to repurchase, which generally have been entered into on behalf of certain customers at both March 31, 2025 and December 31, 2024. The Bank is eligible to borrow from the FRB’s discount window, but had no such borrowings at March 31, 2025 and December 31, 2024. The Bank never borrowed from the Federal Reserve’s Bank Term Facility Program (“BTFP”), which ceased making new loans on March 11, 2024. Table of Contents 36 The Bank is a member of the FHLB of Atlanta and has borrowed, and may in the future borrow from time to time under the FHLB of Atlanta’s advance program. FHLB advances include both fixed and variable rates and are taken out with varying maturities, and are generally secured by eligible assets. The Bank had no borrowings under FHLB of Atlanta’s advance program at March 31, 2025 and December 31, 2024, respectively. At those dates, the Bank had $293.1 million and $296.9 million, respectively, of available lines of credit at the FHLB of Atlanta. The Bank had no short-term borrowings in the first quarter of 2025. The average rate paid on the Bank’s short -term borrowings was 0.51% in the first quarter of 2024. The Bank had average short term borrowings of $1.6 million during the first quarter of 2024. CAPITAL ADEQUACY The Company’s consolidated stockholders’ equity was $83.1 million and $78.3 million as of March 31, 2025 and December 31, 2024, respectively. The increase from December 31, 2024 was primarily driven by net earnings of $1.5 million and other comprehensive income due to the change in unrealized gains/losses on securities available-for-sale, net of tax of $4.2 million, partially offset by cash dividends of $0.9 million. Unrealized losses do not affect the Bank’s capital for regulatory capital purposes. The Company paid cash dividends of $0.27 per share for both the first quarter of 2025 and first quarter of 2024. Federal Reserve rules require a capital conservation buffer of CET1 capital of 2.5% that is added to the minimum requirements for capital adequacy purposes. A banking organization with a capital conservation buffer of 2.5% or less is subject to limitation on “distributions” from “eligible retained earnings”, including dividend payments, share repurchases and certain discretionary bonus payments. “eligible retained income” is the greater of (i) net income for the four preceding quarters, net of distributions and associated tax effects not reflected in net income; and (ii) the average of all net income over the preceding four quarters. The Federal Reserve has treated us as a “small bank holding company’ under the Federal Reserve’s Small Bank Holding Company Policy. Accordingly, our capital adequacy is evaluated at the Bank level, and not for the Company and its consolidated subsidiaries. The Bank’s tier 1 leverage ratio was 10.52 %, CET1 risk-based capital ratio was 15.04%, tier 1 risk-based capital ratio was 15.04%, and total risk-based capital ratio was 16.05% at March 31, 2025. These ratios exceed the minimum regulatory capital percentages of 5.0% for tier 1 leverage ratio, 6.5% for CET1 risk-based capital ratio, 8.0% for tier 1 risk-based capital ratio, and 10.0% for total risk-based capital ratio to be considered “well capitalized.” The Bank’s capital conservation buffer was 8.05% at March 31, 2025. MARKET AND LIQUIDITY RISK MANAGEMENT Management’s objective is to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing, and capital policies. The Bank’s Asset Liability Management Committee (“ALCO”) is charged with the responsibility of monitoring these policies, which are designed to ensure an acceptable asset/liability composition. Two critical areas of focus for ALCO are interest rate risk and liquidity risk management. Interest Rate Risk Management In the normal course of business, the Company is exposed to market risk arising from fluctuations in interest rates. ALCO measures and evaluates interest rate risk so that the Bank can meet customer demands for various types of loans and deposits. Measurements used to help manage interest rate sensitivity include an earnings simulation model and an economic value of equity (“EVE”) model. Table of Contents 37 Earnings simulation . Management believes that interest rate risk is best estimated by our earnings simulation modeling. Forecasted levels of earning assets, interest-bearing liabilities, and off-balance sheet financial instruments are combined with ALCO forecasts of market interest rates for the next 12 months and other factors in order to produce various earnings simulations and estimates. To help limit interest rate risk, we have guidelines for earnings at risk which seek to limit the variance of net interest income from gradual changes in interest rates. For changes up or down in rates from management’s flat interest rate forecast over the next 12 months, policy limits for net interest income variances are as follows: ● +/- 20% for a gradual change of 400 basis points ● +/- 15% for a gradual change of 300 basis points ● +/- 10% for a gradual change of 200 basis points ● +/- 5% for a gradual change of 100 basis points While a gradual change in interest rates was used in the above analysis to provide an estimate of exposure under these scenarios, our modeling under both a gradual and instantaneous change in interest rates indicates our balance sheet is liability sensitive over the forecast period of 12 months. At March 31, 2025, our earnings simulation model indicated that we were in compliance with the policy guidelines noted above. Economic Value of Equity . EVE measures the extent that the estimated economic values of our assets, liabilities, and off- balance sheet items will change as a result of interest rate changes. Economic values are estimated by discounting expected cash flows from assets, liabilities, and off-balance sheet items, which establishes a base case EVE. In contrast with our earnings simulation model, which evaluates interest rate risk over a 12-month timeframe, EVE uses a terminal horizon which allows for the re-pricing of all assets, liabilities, and off-balance sheet items. Further, EVE is measured using values as of a point in time and does not reflect any actions that ALCO might take in responding to or anticipating changes in interest rates, or market and competitive conditions. To help limit interest rate risk, we have stated policy guidelines for an instantaneous basis point change in interest rates, such that our EVE should not decrease from our base case by more than the following: ● 35% for an instantaneous change of +/- 400 basis points ● 30% for an instantaneous change of +/- 300 basis points ● 25% for an instantaneous change of +/- 200 basis points ● 15% for an instantaneous change of +/- 100 basis points At March 31, 2025, our EVE model indicated that we were in compliance with our policy guidelines. Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates, and other economic and market factors, including market perceptions. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types of assets and liabilities may lag behind changes in general market rates. In addition, certain assets, such as adjustable -rate mortgage loans, have features (generally referred to as “interest rate caps and floors”) which limit changes in interest rates. Prepayments and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates or economic stress, which may differ across industries and economic sectors. ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios in seeking satisfactory, consistent levels of profitability within the framework of the Company’s established liquidity, loan, investment, borrowing, and capital policies. The Company may also use derivative financial instruments to improve the balance between interest-sensitive assets and interest-sensitive liabilities, and as a tool to manage interest rate sensitivity while continuing to meet the credit and deposit needs of our customers. From time to time, the Company also may enter into back-to-back interest rate swaps to facilitate customer transactions and meet their financing needs. These interest rate swaps qualify as derivatives, but are not designated as hedging instruments. At March 31, 2025 and December 31, 2024, the Company had no derivative contracts designated as part of a hedging relationship to assist in managing its interest rate sensitivity. Table of Contents 38 Liquidity Risk Management Liquidity is the Company’s ability to convert assets into cash equivalents in order to meet daily cash flow requirements, primarily for deposit withdrawals, loan demand and maturing obligations. The Company seeks to manage its liquidity to manage or reduce its costs of funds by maintaining liquidity believed adequate to meet its anticipated funding needs, while balancing against excessive liquidity that likely would reduce earnings due to the cost of foregoing alternative higher- yielding assets. Liquidity is managed at two levels. The first is the liquidity of the Company. The second is the liquidity of the Bank. The management of liquidity at both levels is essential, because the Company and the Bank are separate and distinct legal entities with different funding needs and sources, and each are subject to regulatory guidelines and requirements. The Company depends upon dividends from the Bank for liquidity to pay its operating expenses, debt obligations and dividends, and Federal Reserve Regulation W restricts Company borrowings from, and other transactions with, the Bank. The Bank’s payment of dividends depends on its earnings, liquidity, capital and the absence of regulatory restrictions on such dividends. The primary source of funding and liquidity for the Company has been dividends received from the Bank. If needed, the Company could also borrow money, or issue common stock or other securities. Primary uses of funds by the Company include payment of Company expenses, dividends paid to stockholders and Company stock repurchases. Primary sources of funding for the Bank include customer deposits, other borrowings, interest payments on earning assets, repayment and maturity of securities and loans, sales of securities, and the sale of loans, particularly residential mortgage loans. The Bank has access to federal funds lines from various banks and borrowings from the Federal Reserve discount window. In addition to these sources, the Bank is eligible to participate in the FHLB of Atlanta’s advance program to obtain funding for growth and liquidity. Advances include both fixed and variable terms and may be taken out with varying maturities. At March 31, 2025, the Bank had no FHLB of Atlanta advances outstanding and available credit from the FHLB of $293.1 million. At March 31, 2025, the Bank also had $65.2 million of available federal funds lines with no borrowings outstanding. Primary uses of funds include repayment of maturing obligations and growing the loan portfolio. The Company also has access to the FRB discount window. Management believes that the Company and the Bank have adequate sources of liquidity to meet all their respective known contractual obligations and unfunded commitments, including loan commitments and reasonably expected borrower, depositor, and creditor requirements over the next twelve months. Off-Balance Sheet Arrangements, Commitments, Contingencies and Contractual Obligations At March 31, 2025, the Bank had outstanding standby letters of credit of $0.8 million and unfunded loan commitments outstanding of $70.6 million. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank could use its cash and cash equivalents, deposits with other banks, liquidate federal funds sold or a portion of our securities available-for-sale, or draw on its available credit facilities or raise deposits. Mortgage lending activities We generally sell residential mortgage loans in the secondary market to Fannie Mae while retaining the servicing of these loans. The sale agreements for these residential mortgage loans with Fannie Mae and other investors include various customary representations and warranties regarding the origination and characteristics of the residential mortgage loans. Although the representations and warranties vary among investors, they typically cover ownership of the loan, validity of the lien securing the loan, the absence of delinquent taxes or liens against the property securing the loan, compliance with loan criteria set forth in the applicable agreement and compliance with applicable federal, state, and local laws, among other matters. Table of Contents 39 As of March 31, 2025, the aggregate unpaid principal balance of residential mortgage loans, which we have originated and sold, but retained the servicing rights, was $200.1 million. Although these loans are generally sold on a non-recourse basis, we may be obligated to repurchase residential mortgage loans or reimburse investors for losses incurred (make whole requests) if a loan review reveals a potential breach of our seller representations and warranties. Upon receipt of a repurchase or make whole request, we work with investors to arrive at a mutually agreeable resolution. Repurchase and make whole requests are typically reviewed on an individual loan by loan basis to validate the claims made by the investor and to determine if a contractually required repurchase or make whole event has occurred. We seek to reduce and manage the risks of potential repurchases, make whole requests, or other claims by mortgage loan investors through our underwriting and quality assurance practices and by servicing mortgage loans to meet investor and secondary market standards. The Company was not required to repurchase any loans during the first quarter of 2025 as a result of representation and warranty provisions contained in the Company’s sale agreements with Fannie Mae, and had no pending repurchase or make-whole requests at March 31, 2025. We service all residential mortgage loans originated and sold by us to Fannie Mae. As servicer, our primary duties are to: (1) collect payments due from borrowers; (2) advance certain delinquent payments of principal and interest; (3) maintain and administer any hazard, title, or primary mortgage insurance policies relating to the mortgage loans; (4) maintain any required escrow accounts for payment of taxes and insurance and administer escrow payments; and (5) foreclose on defaulted mortgage loans or take other actions to mitigate the potential losses to investors consistent with the agreements governing our rights and duties as servicer. Our mortgage servicing agreements generally specify our standards of responsibility as servicer and provide protection against expenses and liabilities incurred by us when acting in compliance with these servicing agreements. However, if we commit a material breach of our obligations as servicer, we may be subject to termination if the breach is not cured within a specified period following notice. The standards governing servicing and the possible remedies for violations of such standards are determined by our agreements with Fannie Mae and Fannie Mae’s mortgage servicing guides. Remedies could include repurchase of an affected loan. Although repurchase and make whole requests related to representation and warranty provisions and servicing activities have been limited to date, it is possible that requests to repurchase mortgage loans or reimburse investors for losses incurred (make whole requests) may increase in frequency if investors more aggressively pursue all means of recovering losses on their purchased loans. As of March 31, 2025, we do not believe that this exposure is material due to the historical level of repurchase requests and loss trends, in addition to the fact that 99% of our residential mortgage loans serviced for Fannie Mae was current as of such date. We maintain ongoing communications with our mortgage purchasers and will continue to evaluate this exposure by monitoring the level and number of repurchase requests as well as the delinquency rates in our investor portfolios. The Bank sells mortgage loans to Fannie Mae and services these on an actual/actual basis. As a result, the Bank is not obligated to make any advances to Fannie Mae on principal and interest on such mortgage loans where the borrower is entitled to forbearance. Table of Contents 40 Effects of Inflation and Changing Prices The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with GAAP and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation. Inflation can increase our noninterest expenses. It also can affect our customers’ behaviors, the mix of deposits between interest and noninterest bearing, the levels of interest rates we have to pay on our deposits and other borrowings, and the interest rates we earn on our earning assets. The difference between our interest expense and interest income is also affected by the shape of the yield curve and the speeds and amounts at which our various assets and liabilities, respectively, reprice in response to interest rate changes. The yield curve was inverted during most of 2024, until September, when it began to normalize. An inverted yield curve means shorter term interest rates are higher than longer term interest rates. This results in a lower spread between our costs of funds and our interest income. In addition, net interest income could be affected by asymmetrical changes in the different interest rate indexes, given that not all of our assets or liabilities are priced with the same index. Higher market interest rates and reductions in the securities held by the Federal Reserve to reduce inflation generally reduce economic activity and may reduce loan demand and growth, and may adversely affect unemployment rates. Inflation and related changes in market interest rates, as the Federal Reserve maintains interest rates to meet its longer-term inflation goal of 2%, also can adversely affect the values and liquidity of our loans and securities, the value of collateral securing loans to our borrowers, and the success of our borrowers and such borrowers’ available cash to pay interest on and principal of our loans to them. Beginning in September 2024, in light of inflation moderating, the FOMC had three reductions in its target federal funds rate range totaling 100 basis points to 4.25% to 4.50%. While the FOMC reaffirmed its target inflation rate of 2% over the longer run, it indicated it was “recalibrating” its policy based on decreas ing inflation rates and the risks of increasing unemployment, but would act on incoming data, the evolving outlook and the balance of the risks of inflation and unemployment levels. In the future, the Federal Reserve could further decrease target interest rates, or could increase such target rates, depending on the data and its outlook. The FOMC stated on March 19, 2025 that its “assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.” CURRENT ACCOUNTING DEVELOPMENTS The following ASU has been issued by the FASB but is not yet effective. ● ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax disclosures ASU 2023-09 seeks to enhance the transparency and decision usefulness of income tax disclosures. For public business entities, the new standard is effective for annual periods beginning after December 15, 2024. The Company does not expect the new standard to have a material impact on the Company’s consolidated financial statements. Table of Contents 41 Table 1 – Explanation of Non-GAAP Financial Measures In addition to results presented in accordance with U.S. generally accepted accounting principles (GAAP), this quarterly report on Form 10-Q includes certain designated net interest income amounts presented on a tax-equivalent basis, a non- GAAP financial measure, including the presentation and calculation of the efficiency ratio. The Company believes the presentation of net interest income on a tax-equivalent basis provides comparability of net interest income from both taxable and tax-exempt sources and facilitates comparability within the industry. Although the Company believes these non-GAAP financial measures enhance investors’ understanding of its business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. The reconciliations of these non- GAAP financial measures to their most directly comparable GAAP financial measures are presented below. 2025 2024 First Fourth Third Second First (in thousands) Quarter Quarter Quarter Quarter Quarter Net interest income (GAAP) $ 7,045 6,969 6,790 6,709 6,657 Tax-equivalent adjustment 17 19 21 19 20 Net interest income (Tax -equivalent) $ 7,062 6,988 6,811 6,728 6,677 Table of Contents 42 Table 2 - Selected Quarterly Financial Data 2025 2024 First Fourth Third Second First (Dollars in thousands, except per share amounts) Quarter Quarter Quarter Quarter Quarter Results of Operations Net interest income (a) $ 7,062 6,988 6,811 6,728 6,677 Less: tax-equivalent adjustment 17 19 21 19 20 Net interest income (GAAP) 7,045 6,969 6,790 6,709 6,657 Noninterest income 747 845 846 896 887 Total revenue 7,792 7,814 7,636 7,605 7,544 Provision for credit losses (10) (48) (127) (123) 334 Noninterest expense 5,880 5,472 5,500 5,519 5,675 Income tax expense 392 830 531 475 164 Net earnings $ 1,530 1,560 1,732 1,734 1,371 Per share data: Basic and diluted net earnings $ 0.44 0.45 0.50 0.50 0.39 Cash dividends declared 0.27 0.27 0.27 0.27 0.27 Weighted average shares outstanding: Basic and diluted 3,493,699 3,493,699 3,493,699 3,493,699 3,493,663 Shares outstanding, at period end 3,493,699 3,493,699 3,493,699 3,493,699 3,493,699 Book value $ 23.79 22.41 24.14 21.53 21.32 Common stock price High $ 23.37 24.57 24.35 19.25 21.55 Low 20.36 20.06 17.50 16.63 18.82 Period end: 21.59 23.49 22.90 18.29 19.27 To earnings ratio (b) 11.42 12.77 91.60 101.61 83.78 To book value 91 % 105 95 85 90 Performance ratios: Annualized return on average equity 7.83 % 7.49 9.10 9.63 7.13 Annualized return on average assets 0.62 % 0.63 0.71 0.71 0.56 Dividend payout ratio 61.36 % 60.00 54.00 54.00 69.23 Asset Quality: Allowance for credit losses as a % of: Loans 1.20 % 1.22 1.22 1.24 1.27 Nonperforming loans 1,298 % 1,366 887 900 822 Nonperforming assets as a % of: Loans and OREO 0.09 % 0.09 0.14 0.14 0.15 Total assets 0.05 % 0.05 0.08 0.08 0.09 Nonperforming loans as a % of total loans 0.09 % 0.09 0.14 0.14 0.15 Annualized net charge-offs (recoveries) as % of average loans 0.05 % (0.01) 0.04 0.01 (0.05) Capital Adequacy: (c) CET 1 risk-based capital ratio 15.04 % 14.80 14.75 14.47 14.62 Tier 1 risk-based capital ratio 15.04 % 14.80 14.75 14.47 14.62 Total risk-based capital ratio 16.05 % 15.81 15.76 15.49 15.69 Tier 1 leverage ratio 10.52 % 10.49 10.43 10.39 10.34 Other financial data: Net interest margin (a) 3.20 % 3.09 3.05 3.06 3.04 Effective income tax rate 20.40 % 34.73 23.46 21.50 10.68 Efficiency ratio (d) 75.30 % 69.86 71.83 72.39 75.03 Selected average balances: Securities available-for-sale $ 240,588 255,168 251,723 258,228 267,606 Loans 566,082 567,634 571,651 573,443 560,757 Total assets 987,272 991,275 982,656 978,107 976,930 Total deposits 906,805 904,605 904,860 900,673 897,051 Total stockholders’ equity 78,158 83,325 76,113 72,059 76,948 Selected period end balances: Securities available-for-sale $ 242,468 243,012 258,285 254,359 260,770 Loans 560,650 564,017 565,699 578,068 567,520 Allowance for credit losses 6,750 6,871 6,876 7,142 7,215 Total assets 996,786 977,324 990,143 1,025,054 979,039 Total deposits 910,503 895,824 901,724 946,405 899,673 Total stockholders’ equity 83,115 78,292 84,336 75,209 74,489 (a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures." (b) Calculated by dividing period end share price by earnings per share for the previous four quarters. (c) Regulatory capital ratios presented are for the Company's wholly-owned subsidiary, AuburnBank. (d) Efficiency ratio is the result of noninterest expense divided by the sum of noninterest income and tax-equivalent net interest income. See Table 1 - Explanation of Non-GAAP Measures. Table of Contents 43 Table 3 - Average Balances and Net Interest Income Analysis Quarter ended March 31, 2025 2024 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate Balance Expense Rate Interest-earning assets: Loans and loans held for sale (1) $ 566,267 $ 7,543 5.40% $ 560,942 $ 6,990 5.01% Securities - taxable (2) 231,325 1,281 2.25% 257,229 1,411 2.21% Securities - tax-exempt (2)(3) 9,263 85 3.72% 10,377 94 3.64% Total securities 240,588 1,366 2.30% 267,606 1,505 2.26% Federal funds sold 26,865 291 4.39% 17,980 249 5.57% Interest bearing bank deposits 61,235 678 4.49% 37,790 505 5.37% Total interest-earning assets 894,955 $ 9,878 4.48% 884,318 $ 9,249 4.21% Cash and due from banks 18,077 17,772 Other assets 74,240 74,840 Total assets $ 987,272 $ 976,930 Interest-bearing liabilities: Deposits: NOW $ 209,222 $ 742 1.44% $ 196,648 $ 640 1.31% Savings and money market 242,701 502 0.84% 241,792 340 0.57% Time deposits 190,895 1,572 3.34% 199,562 1,590 3.20% Total interest-bearing deposits 642,818 2,816 1.78% 638,002 2,570 1.62% Short-term borrowings — — 0.00% 1,592 2 0.51% Total interest-bearing liabilities 642,818 $ 2,816 1.78% 639,594 $ 2,572 1.62% Noninterest-bearing deposits 263,987 259,050 Other liabilities 2,309 1,338 Stockholders' equity 78,158 76,948 Total liabilities and stockholders' equity $ 987,272 $ 976,930 Net interest income and margin (tax-equivalent) $ 7,062 3.20% $ 6,677 3.04% (1) Loans on nonaccrual status have been included in the computation of average balances. (2) Includes average net unrealized gains (losses) on investment securities available for sale (3) Yields on tax-exempt securities have been computed on a tax-equivalent basis using a federal income tax rate of 21%. Table of Contents 44 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by ITEM 3 is set forth in ITEM 2 under the caption “MARKET AND LIQUIDITY RISK MANAGEMENT” and is incorporated herein by reference.