What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2026-05-13 compared with 2025-11-12 · 504 added, 356 removed, 555 unchanged (61% of the section changed)

4 unchanged sentences

Consolidated Balance Sheets

September 30,

(Dollars in thousands, except share data)

5 unchanged sentences

Loans held for sale

Loans, net of unearned income

Allowance for credit losses

10 unchanged sentences

Common stock of $

shares at March 31, 2026 and

shares at December 31, 2025

Additional paid-in capital

2 unchanged sentences

Less treasury stock, at cost -

shares at both September 30, 2025

shares at both March 31, 2026

and December 31, 2025, respectively

6 unchanged sentences

Consolidated Statements of Earnings

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands, except share and per share data)

4 unchanged sentences

Interest expense:

Short-term borrowings

Total interest expense

22 unchanged sentences

Consolidated Statements of Comprehensive Income

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

Other comprehensive income, net of tax:

Change in fair value on available-for-sale securities, net of tax

Other comprehensive income, net of tax

Other comprehensive (loss) income, net of tax:

Unrealized net holding (loss) gain on securities, net of

tax benefit (expense) of $

), respectively

Other comprehensive (loss) income

Comprehensive income

6 unchanged sentences

(Dollars in thousands, except share data)

income (loss)

Quarter ended September 30, 2025

Balance, June 30, 2025

Other comprehensive income

Cash dividends paid ($

Stock-based compensation

Balance, September 30, 2025

Quarter ended September 30, 2024

Balance, June 30, 2024

Other comprehensive income

Cash dividends paid ($

Balance, September 30, 2024

Nine months ended September 30, 2025

Quarter ended March 31, 2026

Balance, December 31, 2025

Other comprehensive income

Other comprehensive loss

Cash dividends paid ($

Stock-based compensation

Balance, September 30, 2025

Nine months ended September 30, 2024

Stock-based compensation expense

Common stock issued under equity

compensation plans, net

Balance, March 31, 2026

Quarter ended March 31, 2025

Balance, December 31, 2024

Cumulative effect of change in accounting

standard ASU 2023-12

Other comprehensive income

Cash dividends paid ($

Sale of treasury stock

Balance, September 30, 2024

Balance, March 31, 2025

ee accompanying notes to consolidated financial statements

3 unchanged sentences

Consolidated Statements of Cash Flows

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

10 unchanged sentences

Stock-based compensation expense

Net decrease (increase) in other assets

Net increase in accrued expenses and other liabilities

Net decrease in other assets

Net decrease in accrued expenses and other liabilities

Net cash provided by operating activities

Cash flows from investing activities:

Proceeds from prepayments and maturities of securities available-for-sale

Decrease (increase) in loans, net

Proceeds from prepayments and maturities of securities available-for

(Increase) decrease in loans, net

Net purchases of premises and equipment

Decrease in FHLB stock

Net cash provided by investing activities

Increase in FHLB stock

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Net increase (decrease) in noninterest-bearing deposits

Net (decrease) increase in noninterest-bearing deposits

Net increase in interest-bearing deposits

Net decrease in federal funds purchased and securities sold

under agreements to repurchase

Dividends paid

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Auburn National Bancorporation, Inc.

(the “Company”) provides a full

range of banking services to individuals

commercial customers in Lee County,

Alabama and surrounding areas through its wholly owned subsidiary,

(the “Bank”).

The Company does not have any segments other than banking

that are considered material.

(the “Company”) is a bank holding

company whose primary business is conducted

by its wholly-owned subsidiary,

AuburnBank (the “Bank”).

AuburnBank is a commercial bank located in

Auburn, Alabama.

The Bank provides a full range of banking services

in its primary market area, Lee County,

includes the Auburn-Opelika Metropolitan Statistical Area.

Basis of Presentation and Use of Estimates

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transactions through the date of this filing that have occurred

subsequent to September 30, 2025.

subsequent to March 31, 2026.

The Company does not believe there were any material subsequent events during

period that would have required further recognition or disclosure in

the unaudited consolidated financial statements

period that would have required further recognition or disclosure in the

unaudited consolidated financial statements

included in this report.

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Accounting Developments

n the first nine months of 2025, the Company did not adopt any new accounting

At September 30, 2025 and December 31, 2024, respectively,

In the first quarter of 2026, the Company did not adopt any new accounting

BASIC AND DILUTED NET EARNINGS PER SHARE

Basic net earnings per share is computed by dividing net earnings by the weighted

average common shares outstanding for

the quarters ended March 31, 2026 and 2025, respectively.

Diluted net earnings per share reflect the potential dilution that

could occur upon exercise of securities or other rights for,

or convertible into, shares of the Company’s

common stock.

During 2025, the Company granted restricted stock units (“RSUs”), which

vested during the first quarter of 2026.

RSUs are included in the computation of diluted net earnings per share using

the treasury stock method during the first

quarter of 2026.

No such securities were outstanding during the first quarter of 2025.

The basic and diluted net earnings per share computations for the respective

periods are presented below.

Quarter ended March 31,

(Dollars in thousands, except share and per share data)

Weighted average

common shares outstanding

Net earnings per share

Weighted average

common shares outstanding, basic

Dilutive effect of restricted stock units

Weighted average

common shares outstanding, diluted

Net earnings per share

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

all securities within the scope of ASC 320,

Investments –

Debt and Equity Securities,

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 September 30, 2025

and December 31, 2024, respectively,

are presented below.

The fair value and amortized cost for securities available-for-

sale by contractual maturity at March 31, 2026 and December 31, 2025,

respectively, are presented

Gross Unrealized

(Dollars in thousands)

September 30, 2025

March 31, 2026

Agency obligations (a)

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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.

obligations with or without prepayment penalties and (ii) 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 $

million and $

million at September 30, 2025 and December 31, 2024,

million at March 31, 2026 and December 31, 2025,

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.

carrying amounts of non-marketable equity investments were $

million at September 30, 2025 and December 31, 2024,

pledged to secure public deposits, securities sold under agreements to repurchase,

Federal Home Loan

Bank of Atlanta (“FHLB – Atlanta”) advances, and for other purposes required

or permitted by law.

Included in other assets on the accompanying consolidated balance sheets are

nonmarketable equity investments.

carrying amounts of nonmarketable equity investments were $

million at both March 31, 2026 and December 31, 2025,

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.

Nonmarketable equity investments include FHLB - Atlanta stock, Federal

Reserve Bank (“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 September

The fair values and gross unrealized losses on securities at March 31, 2026

and December 31, 2025, respectively,

5 unchanged sentences

(Dollars in thousands)

September 30, 2025:

March 31, 2026:

Agency obligations

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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 September 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 September 30,

2025 are driven by changes in interest rates and are not due to the credit quality

of the securities, and accordingly,

allowance for credit losses is considered necessary related to securities at September

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.

before recovery of its amortized cost basis.

Unrealized losses have not been

recognized into income as the decline in fair value is largely

due to changes in interest rates and not credit quality.

For the securities in the previous table, as of March 31, 2026 the Company does not intend to sell and

it is likely that

management will not be required to sell the securities prior to their anticipated recovery.

Agency Obligations

Investments in agency obligations are guaranteed of full and timely

payments by the issuing agency.

management's analysis and judgement, there were no credit losses attributable

to the Company’s investments

obligations at March 31, 2026.

Investments in agency MBS are issued by Ginnie Mae, Fannie Mae, and

Each of these agencies provide a

guarantee of full and timely payments of principal and interest by the issuing

Based on management's analysis

judgement, there were no credit losses attributable to the Company’s

investments in agency MBS at March 31, 2026.

State and Political Subdivisions

Investments in state and political subdivisions are securities issued by various

municipalities in the United States.

majority of the portfolio was rated AA or higher,

with no securities rated below investment grade at March 31, 2026.

Based on management's analysis and judgement, there were no credit

losses attributable to the Company’s

investments in

state and political subdivisions at March 31, 2026.

Realized Gains and Losses

The Company had no realized gains or losses on sale of securities during the quarter

and nine months ended September 30,

2025 and 2024, respectively.

The Company had no realized gains or losses on sale of securities during

the quarters ended March 31, 2026 and 2025,

respectively.

LOANS AND ALLOWANCE

FOR CREDIT LOSSES

September 30,

(Dollars in thousands)

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Consumer installment

Total Loans, net of

unearned income before basis adjustment

Basis adjustment associated with fair value hedge (1)

Total Loans, net of

unearned income

(1) Represents the basis adjustment associated with application of hedge

accounting on certain loans.

The basis adjustment

will be allocated to the amortized cost of associated loans within the portfolio if

the hedge accounting is discontinued.

Refer to Note 6 - Derivative Instruments for additional information.

Loans secured by real estate were approximately 86.9% of the Company’s

total loan portfolio at September 30, 2025.

September 30, 2025, the Company’s

geographic loan distribution was concentrated primarily in Lee County,

total loan portfolio at March 31, 2026.

31, 2026, the Company’s geographic

loan distribution was concentrated primarily in Lee County,

surrounding areas.

4 unchanged sentences

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.

appropriate, the Company’s loan portfolio

portfolio is disaggregated into the following portfolio segments:

and industrial, municipal, construction and

land development, commercial real estate, residential real estate, and consumer

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.

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

During the first quarter of 2026, the Company refined its loan portfolio

segmentation to separately identify municipal loans,

which were previously included within commercial and industrial loans, due

to their recent growth and distinct risk

characteristics.

The allowance for credit losses related to municipal loans is determined using a discounted

methodology incorporating probability of default and loss given default assumptions

derived from external data sources.

As a result of this refinement,

the total allowance decreased due to the lower expected credit losses associated with

This refinement represents a change in accounting estimate and is accounted for

prospectively.

No adjustments

were made to prior periods.

The following describes

the risk characteristics relevant to each of the portfolio segments and classes.

Commercial and industrial (“C&I”) —

Commercial and industrial —

includes loans to finance business operations, equipment purchases, or

for small and medium-sized commercial customers.

included in this category are loans to finance agricultural

Generally, the primary source of repayment

is the cash flow from business operations and activities of the

Construction and land development (“C&D”) —

includes both loans and credit lines for the purpose of purchasing,

and developing land into commercial developments or residential subdivisions.

Also included are loans and credit

lines for construction of residential, multi-family,

other needs for small

and medium-sized commercial customers.

Also included in this category are loans

to finance agricultural production.

the primary source of repayment is the cash flow from business operations and activities of the

includes loans to state and local governmental entities and related public-sector organizations

capital projects, infrastructure improvements, and other governmental

or public service needs.

These loans are typically

supported by general tax revenues, utility revenues, special assessments, or

other dedicated revenue sources of the

municipality.

is primarily dependent on the financial capacity and revenue-generating

ability of the

governmental entity.

Construction and land development —

includes both loans and credit lines for the purpose of purchasing, carrying,

developing land into commercial developments or residential subdivisions.

Also included are loans and lines for

construction of residential, multi-family,

and commercial buildings.

the primary source of repayment is

dependent upon the sale or refinance of the real estate collateral.

dependent upon the sale or refinancing of the real estate collateral.

Commercial real estate

includes loans in these classes:

includes loans disaggregated in these classes:

Owner occupied

– includes loans secured by business facilities to finance business operations, equipment

owner-occupied facilities primarily for small and medium-sized

commercial customers.

owner-occupied facilities primarily for small and medium-sized commercial

Generally, the primary

source of repayment is the cash flow from business operations and activities of

source of loan repayment are the cash flows from business operations and activities of

the borrower, who owns the

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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.

– 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.

the primary source of

repayment is dependent upon income generated from the real estate collateral.

underwriting of these loans

takes into consideration the occupancy and rental rates, as well as the financial

health of the respective borrowers.

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.

– primarily includes loans to finance income-producing multifamily

Loans in this class

include loans for 5 or more unit residential property

and apartments leased to residents.

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

– 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.

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:

Loans in this class include loans for

neighborhood retail centers, medical and professional offices,

single retail stores, industrial buildings, and

warehouses leased generally to local businesses and residents.

the primary source of repayment is

dependent upon income generated from the real estate collateral.

underwriting of these loans takes into

onsideration the occupancy and rental rates, as well as the financial health

of the borrower.

Residential real estate —

includes loans disaggregated into 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.

first or second lien mortgages and home equity lines 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

each borrower’s financial condition, satisfactory credit

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.

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The underwriting of these loans takes into consideration

the rental rates and property values, as

well as the financial health of the borrowers.

the rental rates, 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.

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

borrower’s financial condition, satisfactory credit history,

and, if applicable, property values.

both secured by personal property and 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 value.

The following is a summary of current, accruing past due, and nonaccrual

loans by portfolio segment and class as of

September 30, 2025 and December 31, 2024.

loans by portfolio segment and class as of March

31, 2026 and December 31, 2025.

(Dollars in thousands)

September 30, 2025:

March 31, 2026:

Commercial and industrial

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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

Pass – loans which are well protected by the current net worth and paying

capacity of the obligor (or guarantors, if

any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

Special Mention – loans with potential weakness that may,

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of principal and interest is not

Substandard accrual and nonaccrual loans are often collectively referred

to as “classified.”

The following tables presents credit quality indicators for the loan portfolio

segments and classes by year of origination as

of September 30, 2025 and December 31, 2024.

The introduction of the municipal portfolio segment in 2026 impacts comparability

of credit quality disclosures to prior

The following tables present credit quality indicators for the loan portfolio segments and

classes by year of

origination as of March 31, 2026 and December 31, 2025.

Year of Origination

(Dollars in thousands)

September 30, 2025:

March 31, 2026:

Commercial and industrial

Special mention

Substandard accruing

Total commercial and industrial

Current period gross charge-offs

Special mention

Substandard accruing

Total municipal

Current period gross charge-offs

Construction and land development

Special mention

Substandard accruing

Total construction and land development

3 unchanged sentences

Special mention

Substandard accruing

Total owner occupied

1 unchanged sentence

Special mention

Substandard accruing

Total hotel/motel

2 unchanged sentences

(Dollars in thousands)

September 30, 2025:

March 31, 2026:

Special mention

Substandard accruing

Total multi-family

1 unchanged sentence

Special mention

Substandard accruing

Current period gross charge-offs

2 unchanged sentences

Special mention

Substandard accruing

Total consumer mortgage

2 unchanged sentences

Special mention

Substandard accruing

Total investment property

2 unchanged sentences

Special mention

Substandard accruing

Total consumer installment

1 unchanged sentence

Special mention

Substandard accruing

Total current period gross charge-offs

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Special mention

Substandard accruing

Total commercial and industrial

Current period gross charge-offs

Special mention

Substandard accruing

Total commercial and industrial

Current period gross charge-offs

Construction and land development

Special mention

Substandard accruing

Total construction and land development

3 unchanged sentences

Special mention

Substandard accruing

Total owner occupied

1 unchanged sentence

Special mention

Substandard accruing

Total hotel/motel

4 unchanged sentences

Special mention

Substandard accruing

Total multi-family

1 unchanged sentence

Special mention

Substandard accruing

Current period gross charge-offs

2 unchanged sentences

Special mention

Substandard accruing

Total consumer mortgage

2 unchanged sentences

Special mention

Substandard accruing

Total investment property

2 unchanged sentences

Special mention

Substandard accruing

Total consumer installment

1 unchanged sentence

Special mention

Substandard accruing

otal current period gross charge-offs

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 allowance for credit losses is estimated under the Current Expected

Credit Losses (“CECL”) methodology set forth in

FASB ASC 326,

Financial Instruments – Credit Losses

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.

The composition of the provision for credit losses for the respective periods

is presented below.

Quarter ended September 30,

Nine months ended September 30,

Quarter ended March 31,

(Dollars in thousands)

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Total provision for credit

The following table details the changes in the allowance for credit losses for loans,

by portfolio segment, for the respective

The provision for credit losses for the quarter reflects both changes in credit conditions

and the impact of the refinement in

portfolio segmentation, including the reclassification of loans previously

included in commercial and industrial loans.

following table details the changes in the allowance for credit losses for loans, by

portfolio segment, for the respective

(Dollars in thousands)

Commercial and

Quarter ended September 30, 2025:

Beginning balance

Net recoveries (charge-offs)

Provision for credit losses

Ending balance

Nine months ended September 30, 2025:

and industrial

Quarter ended March 31, 2026

Beginning balance

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Ending balance

Quarter ended September 30, 2024:

Beginning balance

Net recoveries (charge-offs)

Provision for credit losses

Ending balance

Nine months ended September 30, 2024:

Quarter ended March 31, 2025:

Beginning balance

Net recoveries (charge-offs)

Net (charge-offs) recoveries

Provision for credit losses

Ending balance

During the first quarter of 2026, the Company refined its loan portfolio

segmentation to separately identify municipal loans,

which were previously included within commercial and industrial loans, due

to their recent growth and distinct risk

characteristics.

The allowance for credit losses related to municipal loans is determined using a discounted

methodology incorporating probability of default and loss given default assumptions

derived from external data sources.

As a result of this refinement, the total allowance decreased due to the lower

expected credit losses associated with these

This refinement represents a change in accounting estimate and is accounted for prospectively.

No adjustments

were made to prior periods.

The Company designates certain individually evaluated loans on nonaccrual status as collateral

-dependent loans.

Collateral-dependent loans are loans for which the repayment is expected to be provided

substantially through the operation

or sale of the collateral and the borrower is experiencing financial difficulty.

These loans do not share common risk

characteristics and are not included within the collectively evaluated loans

for determining the allowance for credit losses.

Under CECL, for collateral-dependent loans, the Company has adopted

the practical expedient to measure the allowance

for credit losses based on the fair value of collateral.

The allowance for credit losses is calculated on an individual loan

basis based on the shortfall between the fair value of the loan’s

collateral, which is adjusted for liquidation costs/discounts,

and amortized costs.

If the fair value of the collateral exceeds the amortized cost, no allowance is required.

The Company had no collateral dependent loans which were individually evaluated

at September 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.

at March 31, 2026.

The following table

presents the amortized cost basis of collateral dependent loans, which were

individually evaluated to determine expected

credit losses at December 31, 2025.

(Dollars in thousands)

December 31, 2025:

Commercial and industrial

Construction and land development

Commercial real estate

At March 31, 2026 and December 31, 2025, the Company had one additional individually

evaluated commercial real estate

loan in the amount of $3.0 million that was not considered collateral dependent

and was accruing in accordance with its

contractual terms.

This loan had an allowance of $0.5 million at March 31, 2026 and December

31, 2025, respectively.

The allowance for this loan was measured using the present value of expected

future cash flows, discounted at the loan’s

effective interest rate.

Expected cash flows were developed using probability of default and loss given default

specific to the borrower.

The following table summarizes the Company’s

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Nonaccrual Loans

September 30, 2025

March 31, 2026

Residential real estate

December 31, 2025

Commercial and industrial

Construction and land development

MORTGAGE SERVICING

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

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

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

lending income.

The following table details the changes in amortized MSRs and the related valuation

allowance for the respective periods.

Quarter ended September 30,

Nine months ended September 30,

Commercial real estate

Residential real estate

The Company did not recognize any interest income on nonaccrual loans during

the quarters ended March 31, 2026 and

There were no modifications to borrowers experiencing financial difficulty

during the quarters ended March 31, 2026 and

STOCK-BASED COMPENSATION

Restricted stock units (“RSUs”) granted on July 24, 2025 vested during

the first quarter of 2026, resulting in no unvested

awards outstanding at March 31, 2026.

The Company recognized $

thousand of stock-based compensation expense in

the first quarter of 2026 related to these RSUs.

Such expense is included in salaries and benefits expense, with a

orresponding increase to additional paid-in capital.

The Company enters into interest rate swaps to manage exposure to changes in interest

rates on certain loans.

does not enter into derivative instruments for speculative or trading purposes.

As of March 31, 2026, the Company had two pay-fixed, receive-variable

interest rate swaps with an aggregate notional

amount of $22.0 million.

The swaps are designated as fair value hedges

of changes in the fair value of specified loans

attributable to changes in the benchmark interest rate (SOFR) and qualify

for the shortcut method under ASC 815,

Derivatives and Hedging

Under the terms of the swaps, the Company pays fixed rates and receives variable

rates based on SOFR.

hedges qualify for the shortcut method, the hedge relationships are assumed to

be perfectly effective, and therefore no

hedge ineffectiveness is recognized.

Accrued interest receivable related to the swaps is included in Other Assets or Other

Liabilities, as applicable.

The following table presents the fair value of derivative instruments designated

as hedging instruments as of March 31,

2026 and December 31, 2025:

Balance Sheet

(Dollars in thousands)

Beginning balance

Additions, net

Amortization expense

Ending balance

allowance included in MSRs, net:

Beginning of period

End of period

Fair value of amortized MSRs:

Beginning of period

End of period

March 31, 2026:

Interest rate swaps (fair value hedge)

Total interest rate swap

Balance Sheet

(Dollars in thousands)

December 31, 2025:

Interest rate swap (fair value hedge)

Other Liabilities

Total interest rate swap

The following table presents the effect of fair value hedge accounting

on the Consolidated Statements of Earnings for the

quarter ended March 31, 2026:

Amount of Gain

(Loss) Recognized

Location of Gain

(Loss) Recognized

in Income on Hedged

(Loss) Recognized

Item Attributable

(Dollars in thousands)

to Hedged Risk

Quarter ended March 31, 2026:

Interest rate swaps (fair value hedge)

Interest Income (Loans)

Total interest rate swap

The Company is exposed to credit risk in the event of nonperformance by

the counterparty to the interest rate swaps.

Company manages this risk by transacting with a counterparty that meets established

credit standards.

The Company does

not anticipate nonperformance by the counterparty.

These derivatives

are subject to a master netting arrangement;

the Company does not offset derivative assets and

liabilities on the Consolidated Balance Sheets.

“Fair value” is defined by ASC 820,

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

, as 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

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

Level 2—inputs to the valuation methodology include quoted prices for similar

assets and 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

14 unchanged sentences

that transfers in and out of any level are expected to be infrequent.

For the nine months ended September 30, 2025, there

were no transfers between levels and no changes in valuation techniques for

the Company’s financial assets and liabilities.

quarter ended March 31, 2026, 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

3 unchanged sentences

For these securities, the Company

obtains pricing data from third-party pricing services.

obtains pricing 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

As part of its review, management may

obtain non-binding third-party broker/dealer quotes to validate the fair

include broker quotes, market spreads, cash flows, market

consensus prepayment speeds, benchmark yields, reported trades

for similar securities, credit information, and the securities’ terms and

On a quarterly basis, management

reviews the pricing received from the third-party pricing services for

reasonableness given current market conditions.

part of its review, management

may obtain non-binding third-party broker 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

provided by the third-party pricing service with its own prices

and will review the significant assumptions and

valuation methodologies used with management.

In addition, management will periodically submit pricing provided by

the third-party pricing services to another

independent valuation firm on a sample basis.

This independent valuation firm will compare the price provided by

third-party pricing service with its own price and will review the significant assumptions

and valuation methodologies used

with management.

Interest Rate Swaps

The fair values of the Company’s interest

rate swaps are estimated using a discounted cash flow model.

considers the present value of expected future cash flows under the terms

of the swap and incorporates observable market

data such as:

relevant interest rate swap curves, benchmark yield curves

(e.g., SOFR-based or other market-based curves),

and forward interest rate expectations over the contractual term of the instruments.

Because the significant inputs used in

valuing the interest rate swaps are observable in active markets, the Company

classifies these instruments with Level 2 of

the fair value hierarchy.

The following table presents the balances of the assets and liabilities measured at fair

value on a recurring basis as of

September 30, 2025 and December 31, 2024, respectively,

by caption, on the accompanying consolidated balance sheets by

ASC 820 valuation hierarchy (as described above).

value on a recurring basis as of March

31, 2026 and December 31, 2025, respectively,

by caption, on the accompanying consolidated balance sheets by ASC 820

valuation hierarchy (as described above).

Quoted Prices in

2 unchanged sentences

(Dollars in thousands)

September 30, 2025:

March 31, 2026:

Securities available-for-sale:

2 unchanged sentences

Total securities available

Other assets - interest rate swaps

assets at fair value

5 unchanged sentences

assets at fair value

Other liabilities - interest rate swap

liabilities at fair value

Assets and liabilities measured at fair value on a nonrecurring

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

Collateral dependent loans

24 unchanged sentences

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.

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,

the Company’s MSRs are classified within

Level 3 of the valuation hierarchy.

future net servicing income, including estimates of prepayment speeds,

discount rate, default rates, cost to service, escrow

account earnings, contractual servicing fee income, ancillary income,

and late fees.

Periodically, the Company

broker surveys and other market research to validate significant assumptions

used in the model.

The significant

unobservable inputs include 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

September 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):

March 31, 2026 and December 31, 2025, respectively,

by caption, on the accompanying consolidated balance sheets and by

ASC 820 valuation hierarchy (as described above):

Quoted Prices in

2 unchanged sentences

(Dollars in thousands)

September 30, 2025:

Loans held for sale

March 31, 2026:

Total assets at fair value

2 unchanged sentences

Loans considered collateral dependent under ASC 326

Financial Instruments - Credit Losses

Represents MSRs, net, carried at lower of cost or estimated

Quantitative Disclosures for Level 3 Fair Value

At September 30, 2025 and December 31, 2024, the Company had no Level

3 assets measured at fair value on a recurring

For Level 3 assets measured at fair value on a non-recurring basis at September

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.

At March 31, 2026 and December 31, 2025, the Company had no Level 3 assets measured

at fair value on a recurring basis.

For Level 3 assets measured at fair value on a non-recurring basis at March 31,

2026 and December 31, 2025, the

significant unobservable inputs used in the fair value measurements are

presented below.

(Dollars in thousands)

1 unchanged sentence

Unobservable Input

September 30, 2025:

March 31, 2026:

Mortgage servicing rights, net

13 unchanged sentences

whether or not

recognized on the face of the balance sheet, where it is practicable to

recognized on the face of the balance sheet, for which it is practicable to

estimate that value.

19 unchanged sentences

loans would be made for the same remaining maturities.

future cash flows were projected based on contractual

Expected future

cash flows were projected based on contractual

cash flows, adjusted for estimated prepayments.

1 unchanged sentence

Loans held for sale

Fair values of loans held for sale are determined using quoted secondary

Loans held for sale are recorded at the lower of cost or fair value.

Fair values are determined using quoted secondary

market prices for similar loans.

Time Deposits

Fair values for time deposits were estimated using discounted cash

Fair values for time deposits were estimated using discounted cash flows

The discount rates were based on rates currently

2 unchanged sentences

and placement in the fair value hierarchy of the Company’s

instruments at September 30, 2025

and December 31, 2024 are presented

instruments at March 31, 2026 and December 31, 2025 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

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.

recorded at fair value on a recurring basis, and 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

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:

1 unchanged sentence

(Dollars in thousands)

September 30, 2025:

March 31, 2026:

Financial Assets:

Loans, net (1)

Loans held for sale

Financial Liabilities:

3 unchanged sentences

Loans, net (1)

Loans held for sale

Financial Liabilities:

4 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements