AUBURN NATIONAL BANCORPORATION, INC 10-Q

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General Auburn National Bancorporation, Inc. (the “Company”) is a bank holding company registered with the Board of Governors of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding Company Act of 1956, as amended (the “BHC Act”). The Company was incorporated in Delaware in 1990, and in 1994 it succeeded its Alabama predecessor as the bank holding company controlling AuburnBank, an Alabama state member bank with its principal office in Auburn, Alabama (the “Bank”). The Company and its predecessor have controlled the Bank since 1984. As a bank holding company, the Company may diversify into a broader range of financial services and other business activities than currently are permitted to the Bank under applicable laws and regulations. The holding company structure also provides greater financial and operating flexibility than is presently permitted to the Bank. The Bank has operated continuously since 1907 and currently conducts its business primarily in East Alabama, including Lee County and surrounding areas. The Bank has been a member of the Federal Reserve System since April 1995. The Bank’s primary regulators are the Federal Reserve and the Alabama Superintendent of Banks (the “Alabama Superintendent”). The Bank has been a member of the FHLB - Atlanta since 1991. Certain of the statements made in this discussion and analysis and elsewhere, including information incorporated herein by reference to other documents, are “forward-looking statements” as more fully described under “Special Cautionary Notice Regarding Forward-Looking Statements” below. The following discussion and analysis is intended to provide a better understanding of our results of operations and financial condition of the Company and the Bank. This discussion is intended to supplement and highlight information contained in the accompanying unaudited condensed consolidated financial statements and related notes for the quarters ended March 31, 2026 and 2025, as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2025. Special Cautionary Notice Regarding Forward-Looking Statements Various of the statements made herein under the captions “Business”, “Properties”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Quantitative and Qualitative Disclosures about Market Risk”, and elsewhere, are “forward-looking statements” within the meaning and protections of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance, achievements or financial condition of the Company to be materially different from future results, performance, achievements or financial condition expressed or implied by such forward-looking statements. You should not expect us to update any forward-looking statements. All statements, other than statements of historical fact, could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may”, “will”, “anticipate”, “assume”, “should”, “indicate”, “would”, “believe”, “contemplate”, “expect”, “estimate”, “continue”, “designed”, “plan”, “point to”, “project”, “could”, “intend”, “target”, “seek”, and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation: ● the effects of future economic, business and market conditions and changes, foreign, domestic and locally, including inflation, seasonality, natural disasters such as hurricanes, tornados, floods and droughts, epidemics or pandemics, supply chain disruptions and changes in consumer behaviors; ● the effects of war, other conflicts or attacks, acts of terrorism, trade restrictions, tariffs, sanctions, the value of the U.S. dollar against other currencies, disruptions of supply chains including energy supplies, or other events that may affect general economic conditions, and consumer and business confidence; Table of Contents 28 ● governmental fiscal and monetary policies and changes, including taxes, the amount of federal deficit spending and the debt to fund such spending, changes in monetary policies, including changes in the Federal Reserve’s target federal funds rate and in the Federal Reserve’s holdings of securities through quantitative tightening or easing; and the duration that the Federal Reserve will keep its targeted federal funds rates at or above current target ranges to meet its long term inflation target of 2%; ● changes in market interest rates and the shape of the yield curve on changes in savings, deposit and payment behaviors, the levels, composition and costs of deposits, loan demand and mortgage loan originations, and the values and liquidity of and interest-sensitive assets and liabilities; ● increases in market interest rates that may result in unrealized losses on our securities portfolio, which adversely affect our stockholders’ equity for financial reporting purposes and our tangible equity; ● the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services, including the disruptive effects of financial technology and products, including stablecoin and other digital assets businesses, which are not subject to the same regulation, including capital and liquidity requirements, internal controls, and supervision and examination, as the Company and the Bank, and competition from credit unions, which are not subject to federal income taxation; ● more permissive regulation and/or enforcement of digital assets, such as cyber currency and stablecoins (including rewards or other forms of payments functionally similar to interest), that increases competition to banks, increases risks to the payment systems, increases risks of fraud and theft of digital assets and their effects on customers other financial institutions, including our counterparties, and confidence in the financial system, generally; ● changes in banking, securities and tax laws, regulations and rules and their application by the regulators, including capital and liquidity requirements, and in the coverage and cost of FDIC deposit insurance; ● legislative, executive branch and regulatory changes, including changes in policy, leadership and personnel, including reductions in the number and experience of personnel, at the bank and securities regulators and the CFPB, and the uncertain effects of all these, including the costs and benefits of such changes; ● the effects of the potential privatization and changes to Fannie Mae and Freddie Mac and its purchases of mortgage-backed securities on the mortgage markets and to us as an originator, seller and servicer of residential mortgage loans; ● the assumptions, judgments and estimates made by the Company, including those used in the Company’s CECL models to establish our allowance for credit losses and asset impairments, as well as differences in, and changes to, economic, market and credit conditions, including changes in employment levels and payment behaviors from those used in our CECL models and loan portfolio reviews; ● changes in accounting pronouncements and interpretations; ● changes in borrower credit risks; ● changes in the availability and cost of credit and capital in the financial markets, and the types of instruments that may be included as capital for regulatory purposes; ● changes in our technology or products that may be more difficult, costly and risky, or less effective than anticipated; ● threats of potential cyber-attacks and data breaches, in constantly changing forms and increasing sophistication, including through the use of artificial intelligence and state sponsorship of the attacks; ● the estimates that our future taxable income could be inaccurate, and if lower taxable income is realized from our operations, the amount of our deferred tax assets that we anticipate will be reduced; ● our future earnings and “eligible retained earnings” over rolling four calendar quarter periods may limit our d ividends, share repurchases and discretionary bonuses; and Table of Contents 29 ● other factors and risks described under “Risk Factors” herein and in any of our subsequent reports that we make with the Securities and Exchange Commission (the “Commission” or “SEC”) under the Exchange Act. All written or oral forward-looking statements that we make or are attributable to us are expressly qualified in their entirety by this cautionary notice. We have no obligation and do not undertake to update, revise or correct any of the forward- looking statements after the date of this report, or after the respective dates on which such statements otherwise are made. Summary of Results of Operations Quarter ended March 31, (Dollars in thousands, except per share data) 2026 2025 Net interest income (a) $ 7,832 $ 7,112 Less: tax-equivalent adjustment 99 67 Net interest income (GAAP) 7,733 7,045 Noninterest income 893 747 Total revenue 8,626 7,792 Provision for credit losses (76) (10) Noninterest expense 5,901 5,880 Income tax expense 603 392 Net earnings $ 2,198 $ 1,530 Basic and diluted earnings per share $ 0.63 $ 0.44 (a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures." Financial Summary The Company’s net earnings were $2.2 million for the first quarter of 2026, a 44% increase compared to $1.5 million for the first quarter of 2025. Basic and diluted earnings per share were $0.63 per share for the first quarter of 2026, compared to $0.44 per share for the first quarter of 2025. Net interest income (tax-equivalent) was $7.8 million for the first quarter of 2026, a 10% increase compared to $7.1 million for the first quarter of 2025. This increase was due to growth in average interest-earning assets and improvements in our net interest margin. The Company’s net interest margin (tax-equivalent) was 3.28% for the first quarter of 2026 compared to 3.09% for the first quarter of 2025. This increase was primarily due to higher yields on interest-earnings assets, a decrease in our cost of interest-bearing deposits, and a more favorable asset mix. Average loans were approximately $577.5 million in the first quarter of 2026, compared to $566.1 million in the first quarter of 2025. The Company recorded a negative provision for credit losses of $(76) thousand in the first quarter of 2026, compared to a negative provision of $(10) thousand in the first quarter of 2025. The provision for credit losses is affected by changes in overall balance and composition of our loan portfolio and unfunded commitments, our internal assessment of the credit quality of the loan portfolio, our expectations about future economic conditions, and net charge-offs. Noninterest income was $0.9 million in the first quarter of 2026, compared to $0.7 million in the first quarter of 2025. The increase was primarily due to mortgage lending income. Noninterest expense was $5.9 million in the first quarter of 2026 and first quarter of 2025, respectively. Noninterest expense was largely unchanged as a decrease in net occupancy and equipment expense was largely offset by an increase in professional fees expense. The provision for income tax expense was $0.6 million for the first quarter of 2026 compared to $0.4 million for the first quarter of 2025. The Company's effective tax rate for the first quarter of 2026 was 21.53%, compared to 20.40% in the first quarter of 2025. The Company’s effective income tax rate is principally affected by tax-exempt earnings from the Company’s investments in municipal securities and loans, bank-owned life insurance (“BOLI”), and New Markets Tax Credits (“NMTCs”). The Company paid cash dividends of $0.27 per share in the first quarter of 2026 and 2025. At March 31, 2026, the Bank’s regulatory capital ratios were well above the minimum amounts required to be “well capitalized” under current regulatory standards with a total risk-based capital ratio of 17.13%, a tier 1 leverage ratio of 10.60% and a common equity tier 1 ( “CET1”) ratio of 16.12% at March 31, 2026. See “Balance Sheet Analysis – Capital Adequacy.” Table of Contents 30 CRITICAL ACCOUNTING POLICIES The accounting principles we follow and our methods of applying these principles conform with U.S. GAAP and with general practices within the banking industry. There have been no significant changes to our Critical Accounting Policies as described in our Form 10-K as of and for the year ended December 31, 2025. RESULTS OF OPERATIONS Average Balance Sheet and Interest Rates Quarter ended March 31, 2026 2025 Average Yield/ Average Yield/ (Dollars in thousands) Balance Rate Balance Rate Interest-earning assets: Loans and loans held for sale $ 577,847 5.62% $ 566,267 5.44% Securities 256,565 1.96% 280,061 1.98% Federal funds sold 24,352 3.60% 26,865 4.39% Interest bearing bank deposits 108,509 3.70% 61,235 4.49% Total interest-earning assets 967,273 4.39% 934,428 4.31% Interest-bearing liabilities: Deposits: NOW 236,218 1.34% 209,222 1.44% Savings and money market 257,214 0.75% 242,701 0.84% Time Deposits 179,947 3.10% 190,895 3.34% Total interest-bearing deposits 673,379 1.58% 642,818 1.78% Total interest-bearing liabilities 673,379 1.58% 642,818 1.78% Net interest income and margin (tax-equivalent) (a) $ 7,832 3.28% $ 7,112 3.09% (a) See "Table 1 - Explanation of Non-GAAP Financial Measures." Net Interest Income and Margin Net interest income (tax-equivalent) was $7.8 million for the first quarter of 2026, a 10% increase compared to $7.1 million for the first quarter of 2025. This increase was due to growth in average interest-earning assets and improvements in our net interest margin. Average interest-earning assets were $967.3 million during the first quarter of 2026, a 4% increase compared to $934.4 million during the first quarter of 2025. The Company’s net interest margin (tax-equivalent) was 3.28% for the first quarter of 2026 compared to 3.09% for the first quarter of 2025. This increase was primarily due to higher yields on interest-earnings assets, a decrease in our cost of interest-bearing deposits, and a more favorable asset mix. The Federal Reserve announced a 25-basis points reduction in the target range for the federal funds rate in each of September, October and December 2025. At March 31, 2026, the Federal Reserve’s target federal funds rate range remained at 3.50% to 3.75%, which the Federal Reserve reaffirmed at its April 29, 2026 meeting. The tax-equivalent yield on total interest-earning assets increased by 8 basis points to 4.39% in the first quarter of 2026 compared to 4.31% in the first quarter of 2025. This increase was primarily due to a more favorable asset mix. The cost of interest-bearing liabilities decreased 20 basis points in the first quarter of 2026 to 1.58%, compared to 1.78% in the first quarter of 2025 following decreases to the federal funds rate. The Company continues to deploy various asset liability management strategies to manage its risks from interest rate fluctuations. Deposit and loan pricing remain competitive in our markets. We believe that interest rates, inflation and monetary policy may continue to fluctuate in 2026 and may be challenging as a result. Our ability to compete and manage our deposit costs until our interest-earning assets reprice and we generate new loans with current market interest rates will be important to our net interest margin during the remainder of 2026. Table of Contents 31 Provision for Credit Losses The Company recorded a negative provision for credit losses of $(76) thousand in the first quarter of 2026, compared to a negative provision of $(10) thousand in the first quarter of 2025. The provision for credit losses is affected by changes in overall balance and composition of our loan portfolio and unfunded commitments, our internal assessment of the credit quality of the loan portfolio, our expectations about future economic conditions, and net charge-offs. Our allowance for credit losses reflects an amount we believe appropriate, based on our allowance assessment methodology, to adequately cover all expected credit losses as of the date the allowance is determined. At March 31, 2026, the Company’s allowance for credit losses was $6.8 million or 1.16% of total loans, compared to $7.2 million, or 1.27% of total loans at December 31, 2025, and $6.8 million, or 1.20% of total loans at March 31, 2025. The decrease was primarily due to refinements in the Company’s calculation of current expected credit losses (“CECL”). The decrease was primarily due to refinements in the Company’s calculation of current expected credit losses (“CECL”). During the first quarter of 2026, the Company established a new loan segment within its CECL calculation for municipal loans, which reduced the allowance for credit losses due to lower expected credit costs associated with these loans. Prior to this change, municipal loans were included in the commercial and industrial loan segment for CECL. Noninterest Income Quarter ended March 31, (Dollars in thousands) 2026 2025 Service charges on deposit accounts $ 153 $ 155 Mortgage lending income 172 93 Bank-owned life insurance 108 105 Other 460 394 Total noninterest income $ 893 $ 747 The Company’s mortgage lending income includes income from the (1) origination and sale of mortgage loans and (2) servicing of mortgage loans. Origination income, net, is comprised of gains or losses from the sale of the mortgage loans originated, origination fees, underwriting fees, and other fees associated with the origination of loans, which are netted against the commission expense associated with these originations. The Company’s normal practice is to originate mortgage loans for sale in the secondary market and to either sell or retain the associated MSRs when the loan is sold. MSRs are recognized based on the fair value of the servicing right on the date the corresponding mortgage loan is sold. The Company has elected to measure its MSRs under the amortization method. Servicing fee income is reported net of any related amortization expense. The Company evaluates MSRs for impairment on a quarterly basis. Impairment is determined by grouping MSRs by common predominant characteristics, such as interest rate and loan type. If the aggregate carrying amount of a particular group of MSRs exceeds the group’s aggregate fair value, a valuation allowance for that group is established. The valuation allowance is adjusted as the fair value changes. An increase in mortgage interest rates typically results in an increase in the fair value of the MSRs while a decrease in mortgage interest rates typically results in a decrease in the fair value of MSRs. The following table presents a breakdown of the Company’s mortgage lending income. Quarter ended March 31, (Dollars in thousands) 2026 2025 Origination income, net $ 95 $ 8 Servicing fees, net 77 85 Total mortgage lending income $ 172 $ 93 The Company’s mortgage lending income typically fluctuates as mortgage interest rates change. Origination income increased due to increased mortgage lending demand in our primary market area. Table of Contents 32 Noninterest Expense Quarter ended March 31, (Dollars in thousands) 2026 2025 Salaries and benefits $ 3,370 $ 3,310 Net occupancy and equipment 575 714 Professional fees 449 287 Other 1,507 1,569 Total noninterest expense $ 5,901 $ 5,880 The decrease in net occupancy and equipment expense was primarily due to increased leasing income associated with the Company’s headquarters. The increase in professional fees was primarily due to an increase in legal expenses. Income Tax Expense Income tax expense was $0.6 million for the first quarter of 2026 compared to $0.4 million for the first quarter of 2025. The Company's effective tax rate for the first quarter of 2026 was 21.53%, compared to 20.40% in the first quarter of 2025. The Company’s effective income tax rate is affected principally by tax-exempt earnings from the Company’s investments in municipal securities and loans, BOLI, and NMTCs. BALANCE SHEET ANALYSIS Securities Securities available-for-sale were $226.8 million at March 31, 2026, compared to $233.3 million at December 31, 2025. This decrease reflects a decrease in the amortized cost basis of securities available -for-sale, due to normal paydowns and maturities, of $6.1 million and a decrease in the fair value of securities available -for-sale of $0.4 million. The average annualized tax-equivalent yields earned on total securities were 1.96% in the first quarter of 2026 compared to 1.98% in the first quarter of 2025. Loans 2026 2025 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter Commercial and industrial $ 31,841 33,887 29,647 32,027 31,667 Municipal 35,703 24,513 25,455 27,746 27,394 Construction and land development 60,248 56,436 79,045 93,820 86,403 Commercial real estate 334,602 325,521 298,681 282,868 288,353 Residential real estate 111,143 116,554 116,279 117,160 117,500 Consumer installment 8,524 8,421 8,805 9,093 9,333 Total loans $ 582,061 565,332 557,912 562,714 560,650 Total loans were $582.1 million at March 31, 2026, compared to $565.3 million at December 31, 2025. Three loan categories represented the majority of the loan portfolio at March 31, 2026: commercial real estate (57%), residential real estate (19%), and construction and land development (10%). Approximately 18% of the Company’s commercial real estate loans were classified as owner-occupied at March 31, 2026. During the first quarter of 2026, the Company established a separate municipal loan segment following growth in these balances. Prior to this change in presentation, municipal loans were included in the commercial and industrial loan segment. Prior period amounts have been revised to conform with the current period presentation. Table of Contents 33 Within the residential real estate portfolio segment, the Company had junior lien mortgages of approximately $11.6 million, or 2% of total loans, and $12.3 million, or 2%, of total loans at March 31, 2026 and December 31, 2025, respectively. For residential real estate mortgage loans with a consumer purpose, the Company had no loans that required interest only payments at March 31, 2026 and December 31, 2025. The Company’s residential real estate mortgage portfolio does not include any option or hybrid ARM loans, subprime loans, or any material amount of other consumer mortgage products which are generally viewed as high risk. The average yield earned on loans and loans held for sale was 5.62% in the first quarter of 2026 and 5.44% in the first quarter of 2025. The specific economic and credit risks associated with our loan portfolio include, but are not limited to, the effects of current economic conditions, including the levels of market interest rates, supply chain disruptions, commercial office occupancy levels, housing supply shortages, and effects of inflation on our borrowers’ cash flows, real estate market sales volumes and liquidity, valuations used in making loans and evaluating collateral, availability and cost of financing properties, real estate industry concentrations, competitive pressures from a wide range of other lenders, deterioration in certain credits, interest rate fluctuations, reduced collateral values or non-existent collateral, title defects, inaccurate appraisals, financial deterioration of borrowers, fraud, and any violation of applicable laws and regulations. Various projects financed earlier that were based on lower interest rate assumptions than currently in effect may not be as profitable or successful at the higher interest rates currently in effect and which may exist in the future. The Company attempts to reduce these economic and credit risks through its loan-to-value guidelines for collateralized loans, investigating the creditworthiness of borrowers and monitoring borrowers’ financial position. Also, we have established and periodically review, lending policies and procedures. Banking regulations limit a bank’s credit exposure by prohibiting unsecured loan relationships that exceed 10% of its capital; or 20% of capital, if loans in excess of 10% of capital are fully secured. Under these regulations, we are prohibited from having secured loan relationships in excess of approximately $23.6 million. Furthermore, we have an internal limit for aggregate credit exposure (loans outstanding plus unfunded commitments) to a single borrower of $21.2 million. Our loan policy requires that the Loan Committee of the Board of Directors approve any loan relationships that exceed this internal limit. At March 31, 2026, the Bank had no loan relationships exceeding our internal limit. We periodically analyze our commercial and industrial and commercial real estate loan portfolios to determine if a concentration of credit risk exists in any one or more industries. We use classification systems broadly accepted by the financial services industry in order to categorize our commercial borrowers. Loans to borrowers in each of the following classes exceeded 25% of the Bank’s total risk-based capital at March 31, 2026 (and related balances at December 31, 2025). March 31, December 31, (Dollars in thousands) 2026 2025 Hotel/motel $ 55,005 $ 47,870 Multi-family residential properties 53,798 51,516 Lessors of 1-4 family residential properties 53,506 56,773 Shopping centers/strip malls 42,263 42,444 Allowance for Credit Losses Our allowance for credit losses was approximately $6.8 million and $7.2 million at March 31, 2026 and December 31, 2025, respectively, which our management believed to be adequate at each of the respective dates. Our allowance for credit losses as a percentage of total loans was 1.16% at March 31, 2026, compared to 1.27% at December 31, 2025. During the first quarter of 2026, the Company refined its loan portfolio segmentation to separately identify municipal loans, which were previously included within commercial and industrial loans, due to their recent growth and distinct risk characteristics. The allowance for credit losses related to municipal loans is determined using a discounted cash flow methodology incorporating probability of default and loss given default assumptions derived from external data sources. As a result of this refinement, the total allowance decreased due to the lower expected credit losses associated with these loans. This refinement represents a change in accounting estimate and is accounted for prospectively. No adjustments were made to prior periods. Table of Contents 34 Our CECL models rely largely on projections of macroeconomic conditions to estimate future credit losses. Macroeconomic factors used in the model include the Alabama unemployment rate, the national commercial real estate price index and the Alabama gross state product. Projections of these macroeconomic factors, obtained from an independent third party, are utilized to predict quarterly rates of default. Under the CECL methodology the allowance for credit losses is measured on a collective basis for pools of loans with similar risk characteristics, and on an individual basis for loans that do not share similar risk characteristics with the collectively evaluated pools. Losses are predicted over a period of time determined to be reasonable and supportable, and at the end of the reasonable and supportable period losses are reverted to long term historical averages. At March 31, 2026, reasonable and supportable periods of 4 quarters were utilized followed by an 8-quarter straight line reversion period to long term averages. The allowance for credit losses by loan category for the first quarter of 2026 and the previous four quarters is presented below. 2026 2025 First Quarter Fourth Quarter Third Quarter Second Quarter First Quarter (Dollars in thousands) Amount %* Amount %* Amount %* Amount %* Amount %* Commercial and industrial $ 686 5.5 $ 1,129 10.3 $ 1,126 9.9 $ 1,212 10.6 $ 1,219 10.5 Municipal 154 6.1 n/a n/a n/a n/a n/a n/a n/a n/a Construction and land development 694 10.4 1,304 10.0 1,445 14.2 1,613 16.7 1,401 15.4 Commercial real estate 4,056 57.4 3,777 57.6 3,145 53.5 3,151 50.3 3,153 51.4 Residential real estate 1,029 19.1 837 20.6 836 20.8 866 20.8 861 21.0 Consumer installment 157 1.5 129 1.5 139 1.6 123 1.6 116 1.7 Total allowance for credit losses $ 6,776 $ 7,176 $ 6,691 $ 6,965 $ 6,750 * Loan balance in each category expressed as a percentage of total loans. A summary of the changes in the allowance for credit losses and certain asset quality ratios for the first quarter of 2026 and the previous four quarters is presented below. 2026 2025 First Fourth Third Second First (Dollars in thousands) Quarter Quarter Quarter Quarter Quarter Balance at beginning of period $ 7,176 6,691 6,965 6,750 6,871 Charge-offs: Commercial and industrial (5) (39) — (3) (100) Commercial real estate (378) (296) — — — Residential real estate — — — (6) (1) Consumer installment (33) — (87) (9) — Total charge -offs (416) (335) (87) (18) (101) Recoveries 14 30 9 67 37 Net (charge-offs) recoveries (402) (305) (78) 49 (64) Provision for credit losses - Loans 2 790 (196) 166 (57) Ending balance $ 6,776 7,176 6,691 6,965 6,750 as a % of loans 1.16 % 1.27 1.20 1.24 1.20 as a % of nonperforming loans 6,643 % 1,489 6,434 2,306 1,298 Net charge-offs (recoveries) as % of average loans (a) 0.28 % 0.22 0.06 (0.03) 0.05 (a) Net charge-offs (recoveries) are annualized. Net charge-offs were $402 thousand for the first quarter of 2026, compared to net charge-offs of $64 thousand for the first quarter of 2025. Net charge-offs in the first quarter of 2026 were primarily related to one nonperforming collateral- dependent loan. Table of Contents 35 Nonperforming Assets At March 31, 2026 and December 31, 2025, the Company had $0.1 million and $0.5 million, respectively, in nonperforming assets. The table below provides information concerning total nonperforming assets and certain asset quality ratios for the first quarter of 2026 and the previous four quarters. 2026 2025 First Fourth Third Second First (Dollars in thousands) Quarter Quarter Quarter Quarter Quarter Nonperforming assets: Nonaccrual loans $ 102 482 104 302 520 Total nonperforming assets $ 102 482 104 302 520 as a % of loans and other real estate owned 0.02 % 0.09 0.02 0.05 0.09 as a % of total assets 0.01 % 0.05 0.01 0.03 0.05 Nonperforming loans as a % of total loans 0.02 % 0.09 0.02 0.05 0.09 Accruing loans 90 days or more past due $ 208 — 77 — 77 The table below provides information concerning the composition of nonaccrual loans for the first quarter of 2026 and the previous four quarters. 2026 2025 First Fourth Third Second First (In thousands) Quarter Quarter Quarter Quarter Quarter Nonaccrual loans: Commercial and industrial $ — — — — 3 Construction and land development — — — — 404 Commercial real estate — 378 — 119 — Residential real estate 102 104 104 183 113 Total nonaccrual loans $ 102 482 104 302 520 The Company discontinues the accrual of interest income when (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected or (2) the principal or interest is 90 days or more past due, unless the loan is both well-secured and in the process of collection. The Company had $208 thousand in loans 90 days or more past due and still accruing at March 31, 2026 compared to none at December 31, 2025. The Company had no other real estate owned at March 31, 2026 or December 31, 2025. Deposits (In thousands) 2026 2025 Noninterest bearing demand $ 260,580 268,026 NOW 240,471 214,827 Money market 157,920 170,352 Savings 91,647 92,920 Certificates of deposit under $250,000 100,049 97,458 Certificates of deposit and other time deposits of $250,000 or more 80,442 79,343 Total deposits $ 931,109 922,926 Table of Contents 36 Total deposits were $931.1 million at March 31, 2026, compared to $922.9 million at December 31, 2025. Noninterest- bearing deposits were 28% of total deposits at March 31, 2026, compared to 29% of total deposits at December 31, 2025. The Company had no brokered deposits at March 31, 2026 and December 31, 2025. The average rate paid on total interest-bearing deposits was 1.58% in the first quarter of 2026, compared to 1.78% in first quarter of 2025. The Bank participates in the Certificates of Deposit Account Registry Service (the “CDARS”) and the Insured Cash Sweep product (“ICS”), which provide for reciprocal (“two-way”) transactions among banks facilitated by IntraFi for the purpose of improving the FDIC insurance for our depositors. The Company had reciprocal deposits on its balance sheet of $19.9 million at March 31, 2026, compared to $9.8 million at December 31, 2025. At March 31, 2026, the Company had $96.1 million reciprocal deposits sold, compared to $79.7 million at December 31, 2025. At March 31, 2026, estimated uninsured deposits totaled $383.2 million, or 41% of total deposits, compared to $392.9 million, or 43% of total deposits at December 31, 2025. Uninsured amounts are estimated based on the portion of account balances that exceed FDIC insurance limits. The Bank’s uninsured deposits at March 31, 2026 and December 31, 2025 include approximately $235.3 million and $228.7 million, respectively, of deposits of state, county and local governments that are collateralized by securities. Deposits of state, county and local governments were 61% and 58% of our estimated uninsured deposits at March 31, 2026 and December 31, 2025, respectively. The estimated uninsured time deposits by maturity as of March 31, 2026 are presented below. (Dollars in thousands) March 31, 2026 Maturity of: 3 months or less $ 30,525 Over 3 months through 6 months 22,563 Over 6 months through 12 months 23,089 Over 12 months 4,265 Total estimated uninsured time deposits $ 80,442 Other Borrowings and Available Credit The Company had no long-term debt at March 31, 2026 and December 31, 2025. The Bank utilizes short and long-term non-deposit borrowings from time to time. Short-term borrowings generally consist of federal funds purchased and securities sold under agreements to repurchase with an original maturity of one year or less. The Bank had available federal funds lines totaling $65.2 million with no federal fund borrowings outstanding at March 31, 2026, and December 31, 2025, respectively. The Company had no securities sold under agreements to repurchase, which generally have been entered into on behalf of certain customers, at March 31, 2026 and December 31, 2025. The Bank is eligible to borrow from the FRB’s discount window, but had no such borrowings at March 31, 2026 and December 31, 2025. The Bank is a member of the FHLB-Atlanta and has borrowed from the FHLB-Atlanta, and in the future may borrow from time to time under the FHLB-Atlanta’s advance program. FHLB-Atlanta advances include both fixed and variable terms and provide various maturities, and generally are secured by eligible assets. The Bank had no borrowings under FHLB- Atlanta’s advance program at March 31, 2026 and December 31, 2025. At those dates, the Bank had $305.5 million and $304.9 million, respectively, of available lines of credit at the FHLB-Atlanta. CAPITAL ADEQUACY At March 31, 2026, the Company’s consolidated stockholders’ equity (book value) was $93.1 million, or $26.62 per share, compared to $92.1 million, or $26.35 per share, at December 31, 2025. The increase from December 31, 2025 was primarily driven by net earnings of $2.2 million, which was partially offset by an other comprehensive loss of $0.3 million due to an increase in unrealized losses on securities available-for-sale, net of tax, and cash dividends paid of $0.9 million. Unrealized losses do not affect the Bank’s capital for regulatory capital purposes. The Company paid cash dividends of $0.27 per share for both the first quarter of 2026 and the first quarter of 2025. Table of Contents 37 The Federal Reserve has treated us as a “small bank holding company” under the Federal Reserve’s Small Bank Holding Company Policy. Accordingly, our capital adequacy is evaluated at the Bank level, and not for the Company and its consolidated subsidiaries. The Bank’s tier 1 leverage ratio was 10.60%, CET1 risk-based capital ratio was 16.12%, tier 1 risk-based capital ratio was 16.12%, and total risk-based capital ratio was 17.13 % at March 31, 2026. These ratios exceed the minimum regulatory capital percentages of 5.0% for tier 1 leverage ratio, 6.5% for CET1 risk-based capital ratio, 8.0% for tier 1 risk-based capital ratio, and 10.0% for total risk-based capital ratio to be considered “well capitalized.” The Basel III regulatory capital framework applicable to us includes a “capital conservation buffer” of CET1 capital. A banking organization with a capital conservation buffer of 2.5% or less is subject to limitations on “distributions” from “eligible retained earnings”, including dividend payments, share repurchases and certain discretionary bonus payments. At March 31, 2026, the Bank had a capital conservation buffer of 9.14%. MARKET AND LIQUIDITY RISK MANAGEMENT Management’s objective is to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing, and capital policies. The Bank’s Asset Liability Management Committee (“ALCO”) is charged with the responsibility of monitoring these policies, which are designed to ensure an acceptable asset/liability composition. Two critical areas of focus for ALCO are interest rate risk and liquidity risk management. Interest Rate Risk Management In the normal course of business, the Company is exposed to market risk arising from fluctuations in interest rates. ALCO measures and evaluates interest rate risk so that the Bank can meet customer demands for various types of loans and deposits. Measurements used to help manage interest rate sensitivity include an earnings simulation model and an economic value of equity (“EVE”) model. Earnings simulation . Management believes that interest rate risk is best estimated by our earnings simulation modeling. Forecasted levels of earning assets, interest-bearing liabilities, and off-balance sheet financial instruments are combined with ALCO forecasts of market interest rates for the next 12 months and other factors in order to produce various earnings simulations and estimates. To help limit interest rate risk, we have guidelines for earnings at risk which seek to limit the variance of net interest income from gradual changes in interest rates. For changes up or down in rates from management’s flat interest rate forecast over the next 12 months, policy limits for net interest income variances are as follows: ● +/- 20% for a gradual change of 400 basis points ● +/- 15% for a gradual change of 300 basis points ● +/- 10% for a gradual change of 200 basis points ● +/- 5% for a gradual change of 100 basis points While a gradual change in interest rates was used in the above analysis to provide an estimate of exposure under these scenarios, our modeling under both a gradual and instantaneous change in interest rates indicates our balance sheet is asset sensitive over the forecast period of 12 months. At March 31, 2026, our earnings simulation model indicated that we were in compliance with the policy guidelines noted above. Table of Contents 38 Economic Value of Equity . EVE measures the extent that the estimated economic values of our assets, liabilities, and off- balance sheet items will change as a result of interest rate changes. Economic values are estimated by discounting expected cash flows from assets, liabilities, and off-balance sheet items, which establishes a base case EVE. In contrast with our earnings simulation model, which evaluates interest rate risk over a 12-month timeframe, EVE uses a terminal horizon which allows for the re-pricing of all assets, liabilities, and off-balance sheet items. Further, EVE is measured using values as of a point in time and does not reflect any actions that ALCO might take in responding to or anticipating changes in interest rates, or market and competitive conditions. To help limit interest rate risk, we have stated policy guidelines for an instantaneous basis point change in interest rates, such that our EVE should not decrease from our base case by more than the following: ● 35% for an instantaneous change of +/- 400 basis points ● 30% for an instantaneous change of +/- 300 basis points ● 25% for an instantaneous change of +/- 200 basis points ● 15% for an instantaneous change of +/- 100 basis points At March 31, 2026, our EVE model indicated that we were in compliance with our policy guidelines. Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates, and other economic and market factors, including market perceptions. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types of assets and liabilities may lag behind changes in general market rates. In addition, certain assets, such as adjustable-rate mortgage loans, have features (generally referred to as “interest rate caps and floors”) which limit changes in interest rates. Prepayments and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates or economic stress, which may differ across industries and economic sectors. ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios in seeking satisfactory, consistent levels of profitability within the framework of the Company’s established liquidity, loan, investment, borrowing, and capital policies. The Company may also use derivative financial instruments to improve the balance between interest-sensitive assets and interest-sensitive liabilities, and as a tool to manage interest rate sensitivity while continuing to meet the credit and deposit needs of our customers. From time to time, the Company also may enter into back-to-back interest rate swaps to facilitate customer transactions and meet their financing needs. These interest rate swaps qualify as derivatives, and may be designated as hedging instruments. At March 31, 2026, the Company had two derivative contracts designated as part of a hedging relationship to assist in managing its interest rate sensitivity compared to one such derivative contract at December 31, 2025. Liquidity Risk Management Liquidity is the Company’s ability to convert assets into cash equivalents in order to meet daily cash flow requirements, primarily for deposit withdrawals, loan demand and maturing obligations. The Company seeks to manage its liquidity to manage or reduce its costs of funds by maintaining liquidity believed adequate to meet its anticipated funding needs, while balancing against excessive liquidity that likely would reduce earnings due to the cost of foregoing alternative higher- yielding assets. Liquidity is managed at two levels. The first is the liquidity of the Company. The second is the liquidity of the Bank. The management of liquidity at both levels is essential, because the Company and the Bank are separate and distinct legal entities with different funding needs and sources, and each are subject to regulatory guidelines and requirements. The Company depends upon dividends from the Bank for liquidity to pay its operating expenses, debt obligations and dividends, and Federal Reserve Regulation W restricts Company borrowings from, and other transactions with, the Bank. The Bank’s payment of dividends depends on its earnings, liquidity, capital and the absence of regulatory restrictions on such dividends. The primary source of funding and liquidity for the Company has been dividends received from the Bank. If needed, the Company could also borrow money, or issue common stock or other securities. Primary uses of funds by the Company i nclude payment of Company expenses, dividends paid to stockholders and Company stock repurchases. Table of Contents 39 Primary sources of funding for the Bank include customer deposits, other borrowings, interest payments on earning assets, repayment and maturity of securities and loans, sales of securities, and the sale of loans, particularly residential mortgage loans. The Bank has access to federal funds lines from various banks and borrowings from the Federal Reserve discount window. In addition to these sources, the Bank is eligible to participate in the FHLB - Atlanta’s advance program to obtain funding for growth and liquidity. Advances include both fixed and variable terms and may be taken out with varying maturities. At March 31, 2026, the Bank had no FHLB - Atlanta advances outstanding and available credit from the FHLB of $308.6 million. At March 31, 2026, the Bank also had $65.2 million of available federal funds lines with no borrowings outstanding. Primary uses of funds include repayment of maturing obligations and growing the loan portfolio. The Company also has access to the FRB discount window. Management believes that the Company and the Bank have adequate sources of liquidity to meet all their respective known contractual obligations and unfunded commitments, including loan commitments and reasonably expected borrower, depositor, and creditor requirements over the next twelve months. Off-Balance Sheet Arrangements, Commitments, Contingencies and Contractual Obligations At March 31, 2026, the Bank had outstanding standby letters of credit of $2.9 million and unfunded loan commitments outstanding of $55.4 million. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank could use its cash and cash equivalents, deposits with other banks, liquidate federal funds sold or a portion of our securities available-for-sale, or draw on its available credit facilities or raise deposits. Mortgage lending activities We generally sell conforming residential mortgage loans in the secondary market to Fannie Mae while retaining the servicing of these loans. The sale agreements for these residential mortgage loans with Fannie Mae and other investors include various customary representations and warranties regarding the origination and characteristics of the residential mortgage loans. Although the representations and warranties vary among investors, they typically cover ownership of the loan, validity of the lien securing the loan, the absence of delinquent taxes or liens against the property securing the loan, compliance with loan criteria set forth in the applicable agreement and compliance with applicable federal, state, and local laws, among other matters. As of March 31, 2026, the aggregate unpaid principal balance of residential mortgage loans, which we have originated and sold, but retained the servicing rights, was $188.0 million. Although these loans are generally sold on a non-recourse basis, we may be obligated to repurchase residential mortgage loans or reimburse investors for losses incurred (make whole requests) if a loan review reveals a potential breach of our seller representations and warranties. Upon receipt of a repurchase or make whole request, we work with investors to arrive at a mutually agreeable resolution. Repurchase and make whole requests are typically reviewed on an individual loan by loan basis to validate the claims made by the investor and to determine if a contractually required repurchase or make whole event has occurred. We seek to reduce and manage the risks of potential repurchases, make whole requests, or other claims by mortgage loan investors through our underwriting and quality assurance practices and by servicing mortgage loans to meet investor and secondary market standards. The Company was not required to repurchase any loans during the first quarter of 2026 as a result of representation and warranty provisions contained in the Company’s sale agreements with Fannie Mae, and had no pending repurchase or make-whole requests at March 31, 2026. We service all residential mortgage loans originated and sold by us to Fannie Mae. As servicer, our primary duties are to: (1) collect payments due from borrowers; (2) advance certain delinquent payments of principal and interest; (3) maintain and administer any hazard, title, or primary mortgage insurance policies relating to the mortgage loans; (4) maintain any required escrow accounts for payment of taxes and insurance and administer escrow payments; and (5) foreclose on defaulted mortgage loans or take other actions to mitigate the potential losses to investors consistent with the agreements governing our rights and duties as servicer. Table of Contents 40 Our mortgage servicing agreements generally specify our standards of responsibility as servicer and provide protection against expenses and liabilities incurred by us when acting in compliance with these servicing agreements. However, if we commit a material breach of our obligations as servicer, we may be subject to termination if the breach is not cured within a specified period following notice. The standards governing servicing and the possible remedies for violations of such standards are determined by our agreements with Fannie Mae and Fannie Mae’s mortgage servicing guides. Remedies could include repurchase of an affected loan. Although repurchase and make whole requests related to representation and warranty provisions and servicing activities have been limited to date, it is possible that requests to repurchase mortgage loans or reimburse investors for losses incurred (make whole requests) may increase in frequency if investors more aggressively pursue all means of recovering losses on their purchased loans. As of March 31, 2026, we do not believe that this exposure is material due to the historical level of repurchase requests and loss trends, in addition to the fact that 99% of our residential mortgage loans serviced for Fannie Mae were current as of such date. We maintain ongoing communications with our mortgage purchasers and will continue to evaluate this exposure by monitoring the level and number of repurchase requests as well as the delinquency rates in our investor portfolios. The Bank sells mortgage loans to Fannie Mae and services these on an actual/actual basis. As a result, the Bank is not obligated to make any advances to Fannie Mae on principal and interest on such mortgage loans where the borrower is entitled to forbearance. Effects of Inflation and Changing Prices The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with GAAP and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation. Inflation can increase our noninterest expenses. It also can affect our customers’ behaviors, the mix of deposits between interest and noninterest bearing, the levels of interest rates we have to pay on our deposits and other borrowings, and the interest rates we earn on our earning assets. The difference between our interest expense and interest income is also affected by the shape of the yield curve and the speeds and amounts at which our various assets and liabilities, respectively, reprice in response to interest rate changes. In addition, net interest income could be affected by asymmetrical changes in the different interest rate indexes, given that not all of our assets or liabilities are priced with the same index. Higher market interest rates and reductions in the securities held by the Federal Reserve to reduce inflation generally reduce economic activity, and may reduce loan demand and growth, and may adversely affect unemployment rates. Inflation and related changes in market interest rates, as the Federal Reserve maintains interest rates to meet its longer-term inflation goal of 2%, also can adversely affect the values and liquidity of our loans and securities, the value of collateral securing loans to our borrowers, and the success of our borrowers and such borrowers’ available cash to pay interest on and principal of our loans to them. See “Item 1A Risk Factors.” Table of Contents 41 CURRENT ACCOUNTING DEVELOPMENTS The following ASUs have been issued by the FASB, but are not yet effective. ASU 2025-01, Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220- 40): Clarifying the Effective Date, clarifies the effective date of ASU 2024-03, Income Statement Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses to stipulate that ASU 2024-03 is effective for public business entities for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027, with early adoption permitted. ASU 2025-01 will be effective for the Company beginning January 1, 2027 for the Company’s annual consolidated financial statements on Form 10-K and January 1, 2028 for the Company’s quarterly consolidated financial statements on Form 10-Q and is not expected to have a significant impact on the Company’s consolidated financial statements. ASU 2025-06, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), removes all references to prescriptive and sequential software development stages and clarifies that the threshold for when an entity is required to start capitalizing software costs is when (1) management has authorized and committed to funding the software project and (2) it is probable that the project will be completed and the software will be used to perform the function intended. ASU 2025-06 will be effective for the Company beginning January 1, 2028, with early adoption permitted, and is not expected to have a significant impact on the Company’s consolidated financial statements. ASC 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements, is intended to provide clarity about the current interim reporting requirements, provides a list of the interim disclosures required by all other Codification topics and establishes a disclosure principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. ASC 2025-11 will be effective for the Company beginning January 1, 2028, with early adoption permitted, and is not expected to have a significant impact on the Company’s consolidated financial statements. Table of Contents 42 Table 1 – Explanation of Non-GAAP Financial Measures In addition to results presented in accordance with U.S. generally accepted accounting principles (GAAP), this quarterly report on Form 10-Q includes certain designated net interest income amounts presented on a tax-equivalent basis, a non- GAAP financial measure, including the presentation and calculation of our net interest margin and efficiency ratio. In the first quarter of 2026, we changed the presentation of net interest income on a tax-equivalent basis to account for tax-exempt interest income on municipal loans. Prior period amounts have been revised herein to conform with the current period presentation. These changes had no effect on the presentation of GAAP net interest income in current or prior periods. The Company believes the presentation of net interest income on a tax-equivalent basis provides comparability of net interest income from both taxable and tax-exempt sources and facilitates comparability within the industry. Although the Company believes these non-GAAP financial measures enhance investors’ understanding of its business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. The reconciliations of these non- GAAP financial measures to their most directly comparable GAAP financial measures are presented below. 2026 2025 First Fourth Third Second First (in thousands) Quarter Quarter Quarter Quarter Quarter Net interest income (GAAP) $ 7,733 7,713 7,572 7,344 7,045 Tax-equivalent adjustment 99 67 69 67 67 N et interest income (Tax-equivalent) $ 7,832 7,780 7,641 7,411 7,112 Table of Contents 43 Table 2 – Selected Quarterly Financial Data 2026 2025 First Fourth Third Second First (Dollars in thousands, except per share amounts) Quarter Quarter Quarter Quarter Quarter Results of Operations Net interest income (a) $ 7,832 7,780 7,641 7,411 7,112 Less: tax-equivalent adjustment 99 67 69 67 67 Net interest income (GAAP) 7,733 7,713 7,572 7,344 7,045 Noninterest income 893 754 829 789 747 Total revenue 8,626 8,467 8,401 8,133 7,792 Provision for credit losses (76) 783 (255) 113 (10) Noninterest expense 5,901 5,563 5,806 5,702 5,880 Income tax expense 603 456 623 485 392 Net earnings $ 2,198 1,665 2,227 1,833 1,530 Per share data: Basic and diluted net earnings $ 0.63 0.48 0.64 0.52 0.44 Cash dividends declared 0.27 0.27 0.27 0.27 0.27 Weighted average shares outstanding - basic 3,494,229 3,493,699 3,493,699 3,493,699 3,493,699 Weighted average shares outstanding - diluted 3,496,518 3,496,729 3,495,972 3,493,699 3,493,699 Shares outstanding, at period end 3,495,866 3,493,699 3,493,699 3,493,699 3,493,699 Book value $ 26.62 26.35 28.44 24.64 23.79 Common stock price High $ 26.50 27.98 28.47 25.28 23.37 Low 21.01 24.00 23.13 19.48 20.36 Period end: 23.87 26.95 28.44 25.00 21.59 To earnings ratio (b) 10.52 12.96 13.87 13.09 11.42 To book value 89.67 % 102.28 110.88 101.46 90.75 Performance ratios: Annualized return on average equity 9.65 % 7.40 10.65 9.00 7.83 Annualized return on average assets 0.86 % 0.66 0.89 0.74 0.62 Dividend payout ratio 42.86 % 56.25 42.19 51.92 61.36 Asset Quality: Allowance for credit losses as a % of: Loans 1.16 % 1.27 1.20 1.24 1.20 Nonperforming loans 6,643 % 1,489 6,434 2,306 1,298 Nonperforming assets as a % of: Loans and OREO 0.02 % 0.09 0.02 0.05 0.09 Total assets 0.01 % 0.05 0.01 0.03 0.05 Nonperforming loans as a % of total loans 0.02 % 0.09 0.02 0.05 0.09 Annualized net charge-offs (recoveries) as % of average loans 0.28 % 0.22 0.06 (0.03) 0.05 Capital Adequacy: (c) CET 1 risk-based capital ratio 16.12 % 16.06 15.51 15.32 15.04 Tier 1 risk-based capital ratio 16.12 % 16.06 15.51 15.32 15.04 Total risk-based capital ratio 17.13 % 17.14 16.49 16.35 16.05 Tier 1 leverage ratio 10.60 % 10.71 10.72 10.64 10.52 Other financial data: Net interest margin (a) 3.28 % 3.24 3.21 3.18 3.09 Effective income tax rate 21.53 % 21.50 21.86 20.92 20.40 Efficiency ratio (d) 67.63 % 65.19 68.55 69.54 74.82 Selected average balances: Loans $ 577,489 559,009 556,233 559,770 566,082 Total assets 1,026,163 1,009,953 997,892 990,523 987,272 Total deposits 930,474 917,178 909,293 905,227 906,805 Total stockholders’ equity 91,088 90,000 83,642 81,447 78,158 Selected period end balances: Loans $ 582,040 565,354 557,912 562,714 560,650 Allowance for credit losses 6,776 7,176 6,691 6,965 6,750 Total assets 1,026,946 1,018,797 1,011,184 1,029,224 996,786 Total deposits 931,109 922,926 917,266 939,851 910,503 Total stockholders’ equity 93,061 92,053 89,613 86,071 83,115 (a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures." (b) Calculated by dividing period end share price by earnings per share for the previous four quarters. (c) Regulatory capital ratios presented are for the Company's wholly-owned subsidiary, AuburnBank. ( d) Efficiency ratio is the result of noninterest expense divided by the sum of noninterest income and tax-equivalent net interest income. Table of Contents 44 Table 3 – Average Balances and Net Interest Income Analysis (1) Quarter ended March 31, 2026 2025 Interest Interest Average Income/ Yield/ Average Income/ Yield/ (Dollars in thousands) Balance Expense Rate Balance Expense Rate Interest-earning assets: Loans and loans held for sale (2) (3) $ 577,847 $ 8,014 5.62% $ 566,267 $ 7,592 5.44% Securities (3) (4) 256,565 1,241 1.96% 280,061 1,367 1.98% Federal funds sold 24,352 216 3.60% 26,865 291 4.39% Interest bearing bank deposits 108,509 989 3.70% 61,235 678 4.49% Total interest-earning assets 967,273 $ 10,460 4.39% 934,428 $ 9,928 4.31% Cash and due from banks 14,153 18,077 Other assets (5) 44,737 34,767 Total assets $ 1,026,163 $ 987,272 Interest-bearing liabilities: Deposits: NOW $ 236,218 $ 779 1.34% $ 209,222 $ 743 1.44% Savings and money market 257,214 473 0.75% 242,701 502 0.84% Time deposits 179,947 1,376 3.10% 190,895 1,571 3.34% Total interest-bearing deposits 673,379 2,628 1.58% 642,818 2,816 1.78% Total interest-bearing liabilities 673,379 $ 2,628 1.58% 642,818 $ 2,816 1.78% Noninterest-bearing deposits 257,095 263,987 Other liabilities 4,601 2,309 Stockholders' equity 91,088 78,158 Total liabilities and stockholders' equity $ 1,026,163 $ 987,272 Net interest income and margin (tax-equivalent) $ 7,832 3.28% $ 7,112 3.09% (1) In the first quarter of 2026, we changed the presentation of net interest income on a tax-equivalent basis to account for tax-exempt interest income on municipal loans. Also, we reclassified average net unrealized gains (losses) on available-for-sale securities to average other assets so that average total securities are presented on an amortized cost basis in our calculation of net interest margin. Prior period amounts, including the presentation and calculation of our net interest margin, have been revised to conform with the current period presentation. (2) Loans on nonaccrual status have been included in the computation of average balances. (3) Reflects tax-equivalent adjustments, using the statutory federal income tax rate of 21%, in adjusting interest on tax-exempt municipal loans and securities to a tax-equivalent basis. (4) Securities are included on an amortized cost basis with yield and net interest margin calculated accordingly. (5) Includes average net unrealized gains (losses) on securities available-for-sale of $(26.2) and $(33.9) million for the quarters ended March 31, 2026 and March 31, 2025, respectively. Table of Contents 45 Table 4 – Volume and Rate Variance Analysis Quarter ended March 31, 2026 vs. 2025 Net Due to change in (Dollars in thousands) Change Rate (2) Volume (2) Interest income: Loans and loans held for sale (1) $ 422 261 161 Securities (1) (126) (15) (111) Federal funds sold (75) (53) (22) Interest bearing bank deposits 311 (120) 431 Total interest income $ 532 73 459 Interest expense: Deposits: NOW $ 36 (53) 89 Savings and money market (29) (56) 27 Certificates of deposit (195) (111) (84) Total interest-bearing deposits (188) (220) 32 Total interest expense (188) (220) 32 Net interest income (tax-equivalent) $ 720 293 427 (1) Yields on tax-exempt municipal loans and securities have been computed on a tax-equivalent basis using an income tax rate of 21%. See "Table 1 - Explanation of Non-GAAP Financial Measures." ( 2) Changes that are not solely a result of volume or rate have been allocated to volume. Table of Contents 46 Table 5 – Loan Maturities March 31, 2026 1 year 1 to 5 5 to 15 After 15 (Dollars in thousands) or less years years years Total Commercial and industrial $ 14,682 16,680 479 — 31,841 Municipal 481 1,197 22,086 11,939 35,703 Construction and land development 38,479 20,322 1,447 — 60,248 Commercial real estate 64,481 190,384 75,324 4,413 334,602 Residential real estate 7,488 38,220 17,334 48,101 111,143 Consumer installment 2,497 5,629 398 — 8,524 Total loans $ 128,108 272,432 117,068 64,453 582,061 Table of Contents 47 Table 6 – Sensitivities to Changes in Interest Rates on Loans Maturing in More Than One Year March 31, 2026 Variable Fixed (Dollars in thousands) Rate Rate Total Commercial and industrial $ 717 16,442 17,159 Municipal 60 35,162 35,222 Construction and land development 15,592 6,177 21,769 Commercial real estate 18,199 251,922 270,121 Residential real estate 48,789 54,866 103,655 Consumer installment 182 5,845 6,027 Total loans $ 83,539 370,414 453,953 Table of Contents 48 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information called for by ITEM 3 is set forth in ITEM 2 under the caption “MARKET AND LIQUIDITY RISK MANAGEMENT” and is incorporated herein by reference.