AUBURN NATIONAL BANCORPORATION, INC 10-Q

ITEM 1. FINANCIAL STATEMENTS AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES Consolidated Balance Sheets (Unaudited) June 30, December 31, (Dollars in thousands, except share data) 2025 2024 Assets: Cash and due from banks $ 18,857 $ 15,142 Federal funds sold 23,599 37,200 Interest-bearing bank deposits 109,703 41,012 Cash and cash equivalents 152,159 93,354 Securities available-for-sale 239,681 243,012 Loans held for sale 186 — Loans 562,714 564,017 Allowance for credit losses ( 6,965 ) ( 6,871 ) Loans, net 555,749 557,146 Premises and equipment, net 45,446 45,931 Bank-owned life insurance 17,719 17,513 Other assets 18,284 20,368 Total assets $ 1,029,224 $ 977,324 Liabilities: Deposits: Noninterest-bearing $ 268,468 $ 260,874 Interest-bearing 671,383 634,950 Total deposits 939,851 895,824 Accrued expenses and other liabilities 3,302 3,208 Total liabilities 943,153 899,032 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 117,236 115,759 Accumulated other comprehensive loss, net ( 23,305 ) ( 29,607 ) Less treasury stock, at cost - 463,436 shares at both June 30, 2025 and December 31, 2024, respectively ( 11,701 ) ( 11,701 ) Total stockholders’ equity 86,071 78,292 Total liabilities and stockholders’ equity $ 1,029,224 $ 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 June 30, Six months ended June 30, (Dollars in thousands, except share and per share data) 2025 2024 2025 2024 Interest income: Loans, including fees $ 7,676 $ 7,451 $ 15,219 $ 14,441 Securities: Taxable 1,250 1,371 2,531 2,782 Tax-exempt 69 74 137 148 Federal funds sold and interest-bearing bank deposits 1,116 688 2,085 1,442 Total interest income 10,111 9,584 19,972 18,813 Interest expense: Deposits 2,766 2,874 5,582 5,444 Short-term borrowings 1 1 1 3 Total interest expense 2,767 2,875 5,583 5,447 Net interest income 7,344 6,709 14,389 13,366 Provision for credit losses 113 ( 123 ) 103 211 Net interest income after provision for credit losses 7,231 6,832 14,286 13,155 Noninterest income: Service charges on deposit accounts 152 153 307 309 Mortgage lending 131 180 224 330 Bank-owned life insurance 101 99 206 201 Other 405 464 799 943 Total noninterest income 789 896 1,536 1,783 Noninterest expense: Salaries and benefits 3,258 3,140 6,568 6,211 Net occupancy and equipment 604 603 1,318 1,366 Professional fees 385 314 672 640 Other 1,455 1,462 3,024 2,977 Total noninterest expense 5,702 5,519 11,582 11,194 Earnings before income taxes 2,318 2,209 4,240 3,744 Income tax expense 485 475 877 639 Net earnings $ 1,833 $ 1,734 $ 3,363 $ 3,105 Net earnings per share: Basic and diluted $ 0.52 $ 0.50 $ 0.96 $ 0.89 Weighted average shares outstanding: Basic and diluted 3,493,699 3,493,699 3,493,699 3,493,681 See accompanying notes to consolidated financial statements Table of Contents 5 AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (Unaudited) Quarter ended June 30, Six months ended June 30, (Dollars in thousands) 2025 2024 2025 2024 Net earnings $ 1,833 $ 1,734 $ 3,363 $ 3,105 Other comprehensive income (loss), net of tax: Change in fair value on available-for-sale securities, net of tax 2,066 ( 71 ) 6,302 ( 2,255 ) Other comprehensive income (loss), net of tax 2,066 ( 71 ) 6,302 ( 2,255 ) Comprehensive income $ 3,899 $ 1,663 $ 9,665 $ 850 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 income (loss) stock Total Quarter ended June 30, 2025 Balance, March 31, 2025 3,493,699 $ 39 $ 3,802 $ 116,346 $ ( 25,371 ) $ ( 11,701 ) $ 83,115 Net earnings — — — 1,833 — — 1,833 Other comprehensive income — — — — 2,066 — 2,066 Cash dividends paid ($ .27 per share) — — — ( 943 ) — — ( 943 ) Balance, June 30, 2025 3,493,699 $ 39 $ 3,802 $ 117,236 $ ( 23,305 ) $ ( 11,701 ) $ 86,071 Quarter ended June 30, 2024 Balance, March 31, 2024 3,493,699 $ 39 $ 3,802 $ 113,563 $ ( 31,213 ) $ ( 11,702 ) $ 74,489 Net earnings — — — 1,734 — — 1,734 Other comprehensive loss — — — — ( 71 ) — ( 71 ) Cash dividends paid ($ .27 per share) — — — ( 944 ) — — ( 944 ) Sale of treasury stock — — — — — 1 1 Balance, June 30, 2024 3,493,699 $ 39 $ 3,802 $ 114,353 $ ( 31,284 ) $ ( 11,701 ) $ 75,209 Six months ended June 30, 2025 Balance, December 31, 2024 3,493,699 $ 39 $ 3,802 $ 115,759 $ ( 29,607 ) $ ( 11,701 ) $ 78,292 Net earnings — — — 3,363 — — 3,363 Other comprehensive income — — — — 6,302 — 6,302 Cash dividends paid ($ .54 per share) — — — ( 1,886 ) — — ( 1,886 ) Balance, June 30, 2025 3,493,699 $ 39 $ 3,802 $ 117,236 $ ( 23,305 ) $ ( 11,701 ) $ 86,071 Six months ended June 30, 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 ASU 2023-12 — — — ( 263 ) — — ( 263 ) Net earnings — — — 3,105 — — 3,105 Other comprehensive loss — — — — ( 2,255 ) — (2,255) Cash dividends paid ($ .54 per share) — — — ( 1,887 ) — — ( 1,887 ) Sale of treasury stock 85 — 1 — — 1 2 Balance, June 30, 2024 3,493,699 $ 39 $ 3,802 $ 114,353 $ ( 31,284 ) $ ( 11,701 ) $ 75,209 See accompanying notes to consolidated financial statements Table of Contents 7 AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited) Six months ended June 30, (Dollars in thousands) 2025 2024 Cash flows from operating activities: Net earnings $ 3,363 $ 3,105 Adjustments to reconcile net earnings to net cash provided by operating activities: Provision for credit losses 103 211 Depreciation and amortization 1,033 902 Premium amortization and discount accretion, net 703 770 Net gain on sale of loans held for sale ( 57 ) ( 142 ) Loans originated for sale ( 3,088 ) ( 5,826 ) Proceeds from sale of loans 2,942 5,911 Increase in cash surrender value of bank-owned life insurance ( 206 ) ( 201 ) Net increase in other assets ( 130 ) ( 1,026 ) Net increase in accrued expenses and other liabilities 101 2,432 Net cash provided by operating activities 4,764 6,136 Cash flows from investing activities: Proceeds from prepayments and maturities of securities available-for-sale 11,043 12,769 Decrease (increase) in loans, net 1,287 ( 20,716 ) Net purchases of premises and equipment ( 430 ) ( 1,880 ) Decrease in FHLB stock — 32 Net cash provided by (used in) investing activities 11,900 ( 9,795 ) Cash flows from financing activities: Net increase (decrease) in noninterest-bearing deposits 7,594 ( 7,618 ) Net increase in interest-bearing deposits 36,433 57,780 Net decrease in federal funds purchased and securities sold under agreements to repurchase — ( 1,486 ) Dividends paid ( 1,886 ) ( 1,887 ) Net cash provided by financing activities 42,141 46,789 Net change in cash and cash equivalents 58,805 43,130 Cash and cash equivalents at beginning of period 93,354 71,369 Cash and cash equivalents at end of period $ 152,159 $ 114,499 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 5,673 $ 5,383 Income taxes 1,030 460 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, the fair value of financial instruments, and the valuation of deferred tax assets and other real estate owned (“OREO”). Subsequent Events The Company has evaluated the effects of events and transactions through the date of this filing that have occurred subsequent to June 30, 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. Reclassifications Certain amounts reported in prior periods have been reclassified to conform to the current-period presentation. These reclassifications had no effect on the Company’s previously reported net earnings or total stockholders’ equity. Accounting Developments In the first six months of 2025, the Company did not adopt any new accounting guidance. Table of Contents 9 NOTE 2: SECURITIES At June 30, 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 June 30, 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 June 30, 2025 Agency obligations (a) $ — 27,145 26,401 — 53,546 — 5,628 $ 59,174 Agency MBS (a) — 20,128 18,364 130,627 169,119 — 22,737 191,856 State and political subdivisions — 1,642 8,479 6,895 17,016 — 2,756 19,772 Total available-for-sale $ — 48,915 53,244 137,522 239,681 — 31,121 $ 270,802 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 $ 216.3 million and $ 222.3 million at June 30, 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 June 30, 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. Gross Unrealized Losses and Fair Value The fair values and gross unrealized losses on securities at June 30, 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 June 30, 2025: Agency obligations $ — — 53,546 5,628 $ 53,546 5,628 Agency MBS 103 1 169,016 22,736 169,119 22,737 State and political subdivisions 579 6 14,857 2,750 15,436 2,756 Total $ 682 7 237,419 31,114 $ 238,101 31,121 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 Table of Contents 10 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 June 30, 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 June 30, 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 June 30, 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 quarters and six months ended June 30, 2025 and 2024, respectively. NOTE 3: LOANS AND ALLOWANCE FOR CREDIT LOSSES June 30, December 31, (Dollars in thousands) 2025 2024 Commercial and industrial $ 59,773 $ 63,274 Construction and land development 93,820 82,493 Commercial real estate: Owner occupied 61,839 55,346 Hotel/motel 34,064 35,210 Multi-family 42,807 43,556 Other 144,158 155,880 Total commercial real estate 282,868 289,992 Residential real estate: Consumer mortgage 59,212 60,399 Investment property 57,947 58,228 Total residential real estate 117,159 118,627 Consumer installment 9,094 9,631 Total Loans $ 562,714 $ 564,017 Loans secured by real estate were approximately 87.8% of the Company’s total loan portfolio at June 30, 2025. At June 30, 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. Table of Contents 11 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. ● 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 12 The following is a summary of current, accruing past due, and nonaccrual loans by portfolio segment and class as of June 30, 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 June 30, 2025: Commercial and industrial $ 59,742 31 — 59,773 — $ 59,773 Construction and land development 93,820 — — 93,820 — 93,820 Commercial real estate: Owner occupied 61,332 507 — 61,839 — 61,839 Hotel/motel 34,064 — — 34,064 — 34,064 Multi-family 42,807 — — 42,807 — 42,807 Other 144,039 — — 144,039 119 144,158 Total commercial real estate 282,242 507 — 282,749 119 282,868 Residential real estate: Consumer mortgage 59,144 — — 59,144 68 59,212 Investment property 57,691 141 — 57,832 115 57,947 Total residential real estate 116,835 141 — 116,976 183 117,159 Consumer installment 9,064 30 — 9,094 — 9,094 Total $ 561,703 709 — 562,412 302 $ 562,714 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 13 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 the estimated cost to acquire and sell 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 14 The following tables presents credit quality indicators for the loan portfolio segments and classes by year of origination as of June 30, 2025 and December 31, 2024. Year of Origination 2025 2024 2023 2022 2021 Prior to 2021 Revolving Loans Total Loans (Dollars in thousands) June 30, 2025: Commercial and industrial Pass $ 6,684 5,588 6,228 8,078 11,712 17,451 3,689 $ 59,430 Special mention 114 — 2 — — — — 116 Substandard 50 — 16 157 4 — — 227 Nonaccrual — — — — — — — — Total commercial and industrial 6,848 5,588 6,246 8,235 11,716 17,451 3,689 59,773 Current period gross charge-offs — — 99 4 — — — 103 Construction and land development Pass 12,638 42,484 19,949 16,723 810 918 298 93,820 Special mention — — — — — — — — Substandard — — — — — — — — Nonaccrual — — — — — — — — Total construction and land development 12,638 42,484 19,949 16,723 810 918 298 93,820 Current period gross charge-offs — — — — — — — — Commercial real estate: Owner occupied Pass 9,235 1,416 11,130 6,498 16,023 13,836 2,566 60,704 Special mention 628 — — — — — — 628 Substandard — 507 — — — — — 507 Nonaccrual — — — — — — — — Total owner occupied 9,863 1,923 11,130 6,498 16,023 13,836 2,566 61,839 Current period gross charge-offs — — — — — — — — Hotel/motel Pass — 447 6,313 9,208 3,014 14,827 255 34,064 Special mention — — — — — — — — Substandard — — — — — — — — Nonaccrual — — — — — — — — Total hotel/motel — 447 6,313 9,208 3,014 14,827 255 34,064 Current period gross charge-offs — — — — — — — — Table of Contents 15 Year of Origination 2025 2024 2023 2022 2021 Prior to 2021 Revolving Loans Total Loans (Dollars in thousands) June 30, 2025: Multi-family Pass 101 3,587 8,391 16,797 1,814 8,304 3,813 42,807 Special mention — — — — — — — — Substandard — — — — — — — — Nonaccrual — — — — — — — — Total multi-family 101 3,587 8,391 16,797 1,814 8,304 3,813 42,807 Current period gross charge-offs — — — — — — — — Other Pass 3,065 35,012 17,638 23,751 22,435 30,208 11,930 144,039 Special mention — — — — — — — — Substandard — — — — — — — — Nonaccrual — — — — — 119 — 119 Total other 3,065 35,012 17,638 23,751 22,435 30,327 11,930 144,158 Current period gross charge-offs — — — — — — — — Residential real estate: Consumer mortgage Pass 2,154 5,238 16,673 17,786 2,595 12,068 1,365 57,879 Special mention — — — — — 206 — 206 Substandard 245 — — — — 814 — 1,059 Nonaccrual — — 68 — — — — 68 Total consumer mortgage 2,399 5,238 16,741 17,786 2,595 13,088 1,365 59,212 Current period gross charge-offs — — 4 — — 1 — 5 Investment property Pass 3,738 8,693 10,004 10,314 7,458 14,677 2,471 57,355 Special mention — — — — — — — — Substandard 379 — — 92 6 — — 477 Nonaccrual — — 38 — — 77 — 115 Total investment property 4,117 8,693 10,042 10,406 7,464 14,754 2,471 57,947 Current period gross charge-offs — — 2 — — — — 2 Consumer installment Pass 3,112 2,794 1,368 1,133 180 91 328 9,006 Special mention — 10 12 — — — — 22 Substandard 8 36 13 9 — — — 66 Nonaccrual — — — — — — — — Total consumer installment 3,120 2,840 1,393 1,142 180 91 328 9,094 Current period gross charge-offs — 9 — — — — — 9 Total loans Pass 40,727 105,259 97,694 110,288 66,041 112,380 26,715 559,104 Special mention 742 10 14 — — 206 — 972 Substandard 682 543 29 258 10 814 — 2,336 Nonaccrual — — 106 — — 196 — 302 Total loans $ 42,151 105,812 97,843 110,546 66,051 113,596 26,715 $ 562,714 Total current period gross charge-offs $ — 9 105 4 — 1 — 119 Table of Contents 16 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 17 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 18 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 June 30, Six months ended June 30, (Dollars in thousands) 2025 2024 2025 2024 Provision for credit losses: Loans $ 166 $ ( 64 ) $ 110 $ 221 Reserve for unfunded commitments ( 53 ) ( 59 ) ( 7 ) ( 10 ) Total provision for credit losses $ 113 $ ( 123 ) $ 103 $ 211 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 June 30, 2025: Beginning balance $ 1,219 1,401 3,153 861 116 $ 6,750 Charge-offs ( 3 ) — — ( 6 ) ( 9 ) ( 18 ) Recoveries 1 — — 61 5 67 Net (charge-offs) recoveries ( 2 ) — — 55 ( 4 ) 49 Provision for credit losses ( 5 ) 212 ( 2 ) ( 50 ) 11 166 Ending balance $ 1,212 1,613 3,151 866 123 $ 6,965 Six months ended June 30, 2025: Beginning balance $ 1,244 1,059 3,842 588 138 $ 6,871 Charge-offs ( 103 ) — — ( 7 ) ( 9 ) ( 119 ) Recoveries 30 — — 63 10 103 Net (charge-offs) recoveries ( 73 ) — — 56 1 ( 16 ) Provision for credit losses 41 554 ( 691 ) 222 ( 16 ) 110 Ending balance $ 1,212 1,613 3,151 866 123 $ 6,965 Quarter ended June 30, 2024: Beginning balance $ 1,415 840 4,202 613 145 $ 7,215 Charge-offs ( 9 ) — — — ( 19 ) ( 28 ) Recoveries 8 — — 2 9 19 Net (charge-offs) recoveries ( 1 ) — — 2 ( 10 ) ( 9 ) Provision for credit losses ( 48 ) 102 ( 111 ) ( 12 ) 5 ( 64 ) Ending balance $ 1,366 942 4,091 603 140 $ 7,142 Six months ended June 30, 2024: Beginning balance $ 1,288 960 3,921 546 148 $ 6,863 Charge-offs ( 9 ) — — — ( 43 ) ( 52 ) Recoveries 74 — — 5 31 110 Net recoveries (charge-offs) 65 — — 5 ( 12 ) 58 Provision for credit losses 13 ( 18 ) 170 52 4 221 Ending balance $ 1,366 942 4,091 603 140 $ 7,142 Table of Contents 19 The Company had no collateral dependent loans which were individually evaluated at June 30, 2025. The following table presents the amortized cost basis of collateral dependent loans, which were individually evaluated to determine expected credit losses at December 31, 2024. Business (Dollars in thousands) Real Estate Assets Total Loans December 31, 2024: Commercial and industrial $ — 99 $ 99 Construction and land development 404 — 404 Total $ 404 99 $ 503 The following table summarizes the Company’s nonaccrual loans by major categories for the respective periods. Nonaccrual Loans Nonaccrual Loans Total (Dollars in thousands) With No Allowance With An Allowance Nonaccrual Loans June 30, 2025 Commercial real estate $ — 119 $ 119 Residential real estate — 183 183 Total $ — 302 $ 302 December 31, 2024 Commercial and industrial $ — 99 $ 99 Construction and land development 404 — 404 Total $ 404 99 $ 503 Table of Contents 20 NOTE 4: 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 fair value 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 rates, default rates, costs to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. Subsequent to the date of transfer, 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. The Company generally sells, without recourse, conforming, fixed-rate, closed-end, residential mortgages to Fannie Mae, where the Company services the mortgages sold and records MSRs. 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 following table details the changes in amortized MSRs and the related valuation allowance for the respective periods. Quarter ended June 30, Six months ended June 30, (Dollars in thousands) 2025 2024 2025 2024 MSRs, net: Beginning balance $ 857 $ 965 $ 892 $ 992 Additions, net 11 15 17 27 Amortization expense ( 41 ) ( 38 ) ( 82 ) ( 77 ) Ending balance $ 827 $ 942 $ 827 $ 942 Valuation allowance included in MSRs, net: Beginning of period $ — $ — $ — $ — End of period — — — — Fair value of amortized MSRs: Beginning of period $ 2,201 $ 2,378 $ 2,204 $ 2,382 End of period 2,203 2,346 2,203 2,346 NOTE 5: 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. Table of Contents 21 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 six months ended June 30, 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. The following table presents the balances of the assets and liabilities measured at fair value on a recurring basis as of June 30, 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) June 30, 2025: Securities available-for-sale: Agency obligations $ 53,546 — 53,546 — Agency MBS 169,119 — 169,119 — State and political subdivisions 17,016 — 17,016 — Total securities available -for-sale 239,681 — 239,681 — Total assets at fair value $ 239,681 — 239,681 — 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 — Table of Contents 22 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. The following table presents the balances of the assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 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) June 30, 2025: Loans held for sale $ 186 — 186 — Other assets (2) 827 — — 827 Total assets at fair value $ 1,013 — 186 827 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. Table of Contents 23 Quantitative Disclosures for Level 3 Fair Value Measurements At June 30, 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 June 30, 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 June 30, 2025: Mortgage servicing rights, net $ 827 Discounted cash flow Prepayment speed or CPR 6.4 - 10.7 % 6.7 % 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. 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. Table of Contents 24 The carrying value, related estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments at June 30, 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 June 30, 2025: Financial Assets: Loans, net (1) $ 555,749 $ 535,700 — — $ 535,700 Loans held for sale 186 190 — 190 — Financial Liabilities: Time Deposits $ 181,718 $ 180,389 — 180,389 $ — 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