Auburn National Q1 2026 earnings and margin rise
Auburn National Bancorporation reported stronger first-quarter 2026 results, with net earnings of $2.2 million, up from $1.5 million a year earlier.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Form Type
10-Q
Auburn National Bancorporation reported stronger first-quarter 2026 results, with net earnings of $2.2 million, up from $1.5 million a year earlier. Basic and diluted earnings per share rose to $0.63 from $0.44, reflecting improved profitability.
Net interest income on a tax-equivalent basis increased to $7.8 million from $7.1 million, as the net interest margin expanded to 3.28% from 3.09% on higher loan yields, lower deposit costs and a more favorable asset mix. Average loans grew to about $577.8 million from $566.3 million.
The allowance for credit losses was $6.8 million, or 1.16% of total loans, down from 1.27% at year-end 2025, primarily due to CECL refinements and creation of a separate municipal loan segment with lower expected losses. Nonperforming assets declined to $0.1 million, or 0.01% of total assets, indicating solid credit quality.
Capital remained strong, with the bank’s total risk-based capital ratio at 17.13% and common equity tier 1 ratio at 16.12%, well above “well capitalized” thresholds. Deposits were $931.1 million, including 28% in noninterest-bearing balances, and the company paid a quarterly dividend of $0.27 per share.
Insights
Q1 2026 shows solid earnings growth, margin improvement and strong capital for AUBN.
Auburn National delivered net earnings of $2.2 million, up from $1.5 million, with EPS at $0.63. Net interest income (tax-equivalent) rose to $7.8 million, helped by a higher net interest margin of 3.28% versus 3.09% as loan yields improved and deposit costs declined.
Credit metrics appear conservative. The allowance for credit losses was $6.8 million or 1.16% of loans, down from 1.27% at year-end after refining CECL segmentation to carve out municipal loans with lower expected losses. Nonperforming assets dropped to $0.1 million, just 0.01% of total assets, while annualized net charge-offs were modest at 0.28% of average loans.
Liquidity and capital provide a cushion against rate and credit cycles. Deposits totaled $931.1 million, with noninterest-bearing accounts at 28% of the mix and no brokered deposits. Regulatory capital ratios were robust, including a total risk-based capital ratio of 17.13% and a CET1 ratio of 16.12%, supporting ongoing dividends of $0.27 per share and flexibility for growth.
Key Figures
Net earnings: $2.2M
Earnings per share: $0.63
Net interest income (tax-equivalent): $7.8M
+5 more
8 metrics
Net earnings
$2.2M
Quarter ended March 31, 2026 vs $1.5M in 2025
Earnings per share
$0.63
Basic and diluted EPS, Q1 2026 vs $0.44 in 2025
Net interest income (tax-equivalent)
$7.8M
Q1 2026 vs $7.1M in Q1 2025
Net interest margin
3.28%
Tax-equivalent margin Q1 2026 vs 3.09% in 2025
Allowance for credit losses
$6.8M
1.16% of total loans at March 31, 2026
Nonperforming assets
$0.1M
0.01% of total assets at March 31, 2026
Total loans
$582.1M
Outstanding at March 31, 2026
Total risk-based capital ratio
17.13%
Bank regulatory capital at March 31, 2026
Key Terms
Current Expected Credit Losses (CECL), net interest margin, nonperforming assets, capital conservation buffer, +1 more
5 terms
Current Expected Credit Losses (CECL) financial
"The decrease was primarily due to refinements in the Company’s calculation of current expected credit losses (“CECL”)."
Current Expected Credit Losses (CECL) is an accounting standard that requires lenders and companies with loans or receivables to estimate and record the lifetime expected losses up front, rather than waiting until a loss is probable. Investors care because CECL changes reported profits and the amount of reserves a firm must hold — like a household setting aside a larger rainy‑day fund based on forecasted storms — which affects capital, dividend capacity and the perceived financial strength of a company.
net interest margin financial
"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."
Net interest margin measures how much a bank earns from lending and investing compared with what it pays for funding, expressed as a percentage of its interest-earning assets. Think of it like a grocery store’s markup: it shows the gap between buying cost and selling price per dollar of goods — here, the cost is interest paid and the sale is interest received. Investors watch it because a higher margin usually means a bank is more profitable and better at managing interest rate and credit conditions.
nonperforming assets financial
"At March 31, 2026 and December 31, 2025, the Company had $0.1 million and $0.5 million, respectively, in nonperforming assets."
Nonperforming assets are loans or investments that are not generating expected payments or returns because the borrower has fallen behind on payments or the investment has lost value. They matter to investors because a high level of nonperforming assets can indicate financial trouble for a bank or institution, potentially affecting its stability and profitability.
capital conservation buffer financial
"At March 31, 2026, the Bank had a capital conservation buffer of 9.14%."
A capital conservation buffer is an extra layer of a bank's own money held above minimum capital rules so the bank can absorb losses and keep lending during tough times. Think of it like an emergency savings account for a bank: it lowers the chance of sudden dividend cuts, forced stock sales, or government support, and therefore affects investor views of a bank’s safety, earnings stability and valuation.
municipal loans financial
"During the first quarter of 2026, the Company established a new loan segment within its CECL calculation for municipal loans."
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
How did Auburn National (AUBN) perform financially in Q1 2026?
Auburn National earned $2.2 million in Q1 2026, up from $1.5 million a year earlier. Basic and diluted EPS rose to $0.63 from $0.44, driven mainly by higher net interest income and an improved net interest margin.
What happened to Auburn National (AUBN)’s net interest margin in Q1 2026?
The net interest margin (tax-equivalent) improved to 3.28% in Q1 2026 from 3.09% in Q1 2025. This reflected higher yields on interest-earning assets, lower costs on interest-bearing deposits, and a more favorable mix of loans and securities.
What is Auburn National (AUBN)’s credit quality and allowance coverage?
Auburn National’s allowance for credit losses was $6.8 million, or 1.16% of total loans at March 31, 2026. Nonperforming assets were only $0.1 million, or 0.01% of total assets, indicating relatively strong overall credit quality and conservative loss coverage.
How strong are Auburn National (AUBN)’s capital ratios?
At March 31, 2026, Auburn National’s bank subsidiary reported a 17.13% total risk-based capital ratio and a 16.12% common equity tier 1 ratio. These levels are well above regulatory “well capitalized” thresholds and support ongoing operations and dividends.
What was Auburn National (AUBN)’s loan growth and mix in Q1 2026?
Total loans reached $582.1 million at March 31, 2026, up from $565.3 million at year-end 2025. The portfolio was concentrated in commercial real estate (57%), residential real estate (19%), and construction and land development (10%) loans.
Did Auburn National (AUBN) pay a dividend in Q1 2026?
Yes. Auburn National paid a cash dividend of $0.27 per share in the first quarter of 2026, matching the prior-year quarter. Dividends are supported by net earnings of $2.2 million and strong regulatory capital ratios at the bank level.
AI-generated analysis. How Rhea-AI works. Not financial advice.
See more from StockTitan in Google Search and AI answers.
Adds StockTitan as a preferred source · opens Google
Accepted by SEC EDGAR
Learn about SEC filing dates
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
☒
For the quarterly period ended
☐
For the transition period __________ to __________
Commission File Number:
(Exact Name of Registrant as Specified in Its Charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
,
)
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T
(§232.405 of this chapter)
during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files).
Yes
☒
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large Accelerated filer
☐
Accelerated filer
☐
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
☐
☒
Securities registered pursuant to Section 12(b) of the Act:
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class
Outstanding at May 12, 2026
Common Stock, $0.01 par value per share
Table of Contents
AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES
INDEX
P
ART I. FINANCIAL INFORMATION
PAGE
Item 1
Financial Statements
Consolidated Balance Sheets (Unaudited) as of March 31, 2026 and December 31, 2025
3
Consolidated Statements of Earnings (Unaudited) for the quarters ended March 31, 2026 and 2025
4
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the quarters ended March
31, 2026 and 2025
5
Consolidated Statements of Stockholders’ Equity (Unaudited) for the quarters ended March 31, 2026
and 2025
6
Consolidated Statements of Cash Flows (Unaudited) for the quarters ended March 31, 2026 and 2025
7
Notes to Consolidated Financial Statements (Unaudited
)
8
Item 2
Management’s Discussion and Analysis of Financial Condition and Results of Operations
27
Table 1 – Explanation of Non-GAAP Financial Measures
42
Table 2 – Selected Quarterly Financial Data
43
Table 3 – Average Balances and Net Interest Income Analysis for the quarters ended March 31, 2026
and 2025
44
Table 4 – Volume and Rate Variance Analysis
45
Table 5 – Loan Maturities
46
Table 6 – Loan Sensitivities to Changes in Interest Rates on Loans Maturing in More Than One Year
47
Item 3
Quantitative and Qualitative Disclosures About Market Risk
48
Item 4
Controls and Procedures
48
PART II. OTHER INFORMATION
Item 1
Legal Proceedings
48
Item 1A
Risk Factors
49
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds
50
Item 3
Defaults Upon Senior Securities
50
Item 4
Mine Safety Disclosures
50
Item 5
Other Information
50
Item 6
Exhibits
51
Table of Contents
3
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
March 31,
December 31,
(Dollars in thousands, except share data)
2026
2025
Assets:
Cash and due from banks
$
$
Federal funds sold
Interest-bearing bank deposits
Cash and cash equivalents
Securities available-for-sale
Loans held for sale
Loans, net of unearned income
Allowance for credit losses
(6,776 )
(7,176 )
Loans, net
Premises and equipment, net
Bank-owned life insurance
Other assets
Total assets
$
$
Liabilities:
Deposits:
Noninterest-bearing
$
$
Interest-bearing
Total deposits
Accrued expenses and other liabilities
Total liabilities
Stockholders' equity:
Preferred stock of $
no shares issued
—
—
Common stock of $
shares at March 31, 2026 and
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net
(19,639 )
(19,390 )
Less treasury stock, at cost -
and December 31, 2025, respectively
(11,701 )
(11,701 )
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
S
ee accompanying notes to consolidated financial statements
Table of Contents
4
AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(Unaudited)
Quarter ended March 31,
(Dollars in thousands, except share and per share data)
2026
2025
Interest income:
Loans, including fees
$
$
Securities
Federal funds sold and interest-bearing bank deposits
Total interest income
Interest expense:
Deposits
Total interest expense
Net interest income
Provision for credit losses
(76 )
(10 )
Net interest income after provision for credit losses
Noninterest income:
Service charges on deposit accounts
Mortgage lending
Bank-owned life insurance
Other
Total noninterest income
Noninterest expense:
Salaries and benefits
Net occupancy and equipment
Professional fees
Other
Total noninterest expense
Earnings before income taxes
Income tax expense
Net earnings
$
$
Net earnings per share:
Basic and diluted
$
$
Weighted average shares outstanding:
Basic
3,494,229
3,493,699
Diluted
S
ee accompanying notes to consolidated financial statements
Table of Contents
5
AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
(Unaudited)
Quarter ended March 31,
(Dollars in thousands)
2026
2025
Net earnings
$
$
Other comprehensive (loss) income, net of tax:
Unrealized net holding (loss) gain on securities, net of
tax benefit (expense) of $
), respectively
(249 )
Other comprehensive (loss) income
(249 )
Comprehensive income
$
$
S
ee accompanying notes to consolidated financial statements
Table of Contents
6
AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
(Unaudited)
Accumulated
Common
Additional
other
shares
Common
paid-in
Retained
comprehensive
Treasury
(Dollars in thousands, except share data)
outstanding
stock
capital
earnings
loss
stock
Total
Quarter ended March 31, 2026
Balance, December 31, 2025
$
(19,390 )
(11,701 )
$
Net earnings
—
2,198
Other comprehensive loss
—
(249 )
(249 )
Cash dividends paid ($
—
(943 )
(943 )
Stock-based compensation expense
—
Common stock issued under equity
compensation plans, net
(22 )
(22 )
Balance, March 31, 2026
$
(19,639 )
(11,701 )
$
Quarter ended March 31, 2025
Balance, December 31, 2024
$
(29,607 )
(11,701 )
$
Net earnings
—
1,530
Other comprehensive income
—
Cash dividends paid ($
—
(943 )
(943 )
Balance, March 31, 2025
$
(25,371 )
(11,701 )
$
S
ee accompanying notes to consolidated financial statements
Table of Contents
7
AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Quarter ended March 31,
(Dollars in thousands)
2026
2025
Cash flows from operating activities:
Net earnings
$
$
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Provision for credit losses
(76 )
(10 )
Depreciation and amortization
Premium amortization and discount accretion, net
Net gain on sale of loans held for sale
(95 )
(8 )
Loans originated for sale
(3,313 )
(1,470 )
Proceeds from sale of loans
Increase in cash surrender value of bank-owned life insurance
(108 )
(105 )
Stock-based compensation expense
Net decrease in other assets
Net decrease in accrued expenses and other liabilities
(986 )
(87 )
Net cash provided by operating activities
Cash flows from investing activities:
Proceeds from prepayments and maturities of securities available-for -sale
(Increase) decrease in loans, net
(17,088 )
Net purchases of premises and equipment
(120 )
(211 )
Increase in FHLB stock
(29 )
Net cash (used in) provided by investing activities
(11,434 )
Cash flows from financing activities:
Net (decrease) increase in noninterest-bearing deposits
(7,446 )
Net increase in interest-bearing deposits
Dividends paid
(943 )
(943 )
Net cash provided by financing activities
Net change in cash and cash equivalents
(1,659 )
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
$
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest
$
$
Income taxes
See accompanying notes to consolidated financial statements
Table of Contents
8
AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
General
Auburn National Bancorporation, Inc. (the “Company”) 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, which
includes the Auburn-Opelika Metropolitan Statistical Area.
Basis of Presentation and Use of Estimates
The unaudited consolidated financial statements in this report have been prepared in accordance with U.S. generally
accepted accounting principles (“GAAP”) for interim financial information. Accordingly, these financial statements do not
include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited
consolidated financial statements include, in the opinion of management, all adjustments necessary to present a fair
statement of the financial position and the results of operations for all periods presented. All such adjustments are of a
normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results of
operations that the Company and its subsidiaries may achieve for future interim periods or the entire year. For further
information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form
10-K for the year ended December 31, 2025.
The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.
Significant intercompany transactions and accounts are eliminated in consolidation.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of
the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could
differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term
include the determination of allowance for credit losses on loans and investment securities, the fair value of financial
instruments, and the valuation of deferred tax assets and other real estate owned (“OREO”).
Subsequent Events
The Company has evaluated the effects of events and transactions through the date of this filing that have occurred
subsequent to March 31, 2026. The Company does not believe there were any material subsequent events during this
period that would have required further recognition or disclosure in the unaudited consolidated financial statements
included in this report.
Reclassifications
Certain amounts reported in prior periods have been reclassified to conform to the current-period presentation. These
reclassifications had no effect on the Company’s previously reported net earnings or total stockholders’ equity.
Accounting Developments
In the first quarter of 2026, the Company did not adopt any new accounting guidance.
Table of Contents
9
NOTE 2: BASIC AND DILUTED NET EARNINGS PER SHARE
Basic net earnings per share is computed by dividing net earnings by the weighted average common shares outstanding for
the quarters ended March 31, 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. These
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)
2026
2025
Basic:
Net earnings
$
$
Weighted average common shares outstanding
Net earnings per share
$
$
Diluted:
Net earnings
$
2,198
$
1,530
Weighted average common shares outstanding, basic
3,494,229
3,493,699
Dilutive effect of restricted stock units
Weighted average common shares outstanding, diluted
3,496,518
3,493,699
Net earnings per share
$
$
Table of Contents
10
NOTE 3: SECURITIES
At March 31, 2026 and December 31, 2025, respectively, all securities within the scope of ASC 320,
Investments – Debt
and Equity Securities,
were classified as available-for-sale. The fair value and amortized cost for securities available-for-
sale by contractual maturity at March 31, 2026 and December 31, 2025, respectively, are presented below.
1 year
1 to 5
5 to 10
After 10
Fair
Gross Unrealized
Amortized
(Dollars in thousands)
or less
years
years
years
Value
Gains
Losses
Cost
March 31, 2026
Agency obligations (a)
$
$
Agency MBS (a)
State and political subdivisions
Total available-for-sale
$
$
December 31, 2025
Agency obligations (a)
$
$
Agency MBS (a)
State and political subdivisions
Total available-for-sale
$
$
(a) Includes securities issued by U.S. government agencies or government -sponsored entities. Expected lives of these
securities may differ from contractual maturities because (i) issuers may have the right to call or repay such securities
obligations with or without prepayment penalties and (ii) 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 $
respectively, were 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. The
carrying amounts of nonmarketable equity investments were $
respectively. 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 March 31, 2026 and December 31, 2025, respectively,
segregated by those securities that have been in an unrealized loss position for less than 12 months and 12 months or
longer, are presented below.
Less than 12 Months
12 Months or Longer
Total
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
(Dollars in thousands)
Value
Losses
Value
Losses
Value
Losses
March 31, 2026:
Agency obligations
$
$
Agency MBS
State and political subdivisions
Total
$
$
December 31, 2025:
Agency obligations
$
$
Agency MBS
State and political subdivisions
Total
$
$
Table of Contents
11
For the securities in the previous table, the Company assesses whether or not it intends to sell the security, or more likely
than not will be required to sell the security, before recovery of its amortized cost basis. 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. Based on
management's analysis and judgement, there were no credit losses attributable to the Company’s investments in agency
obligations at March 31, 2026.
Agency MBS
Investments in agency MBS are issued by Ginnie Mae, Fannie Mae, and Freddie Mac. Each of these agencies provide a
guarantee of full and timely payments of principal and interest by the issuing agency. Based on management's analysis and
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. The
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 quarters ended March 31, 2026 and 2025,
respectively.
NOTE 4: LOANS AND ALLOWANCE FOR CREDIT LOSSES
March 31,
December 31,
(Dollars in thousands)
2026
2025
Commercial and industrial
$
$
Municipal
35,703
Construction and land development
Commercial real estate:
Owner occupied
Hotel/motel
Multifamily
Other
Total commercial real estate
Residential real estate:
Consumer mortgage
Investment property
Total residential real estate
Consumer installment
Total Loans, net of unearned income before basis adjustment
Basis adjustment associated with fair value hedge (1)
(21 )
Total Loans, net of unearned income
$
582,040
$
565,354
(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.
Table of Contents
12
Loans secured by real estate were approximately 86.9% of the Company’s total loan portfolio at March 31, 2026. At March
31, 2026, the Company’s geographic loan distribution was concentrated primarily in Lee County, Alabama, and
surrounding areas.
The loan portfolio segment is defined as the level at which an entity develops and documents a systematic method for
determining its allowance for credit losses. As part of the Company’s quarterly assessment of the allowance, the loan
portfolio is disaggregated into the following portfolio segments: commercial and industrial, municipal, construction and
land development, commercial real estate, residential real estate, and consumer installment. Where appropriate, the
Company’s loan portfolio segments are further disaggregated into classes. A class is generally determined based on the
initial measurement attribute, risk characteristics of the loan, and an entity’s method for monitoring and determining credit
risk.
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.
The following describes the risk characteristics relevant to each of the portfolio segments and classes.
Commercial and industrial —
includes loans to finance business operations, equipment purchases, or other needs for small
and medium-sized commercial customers. Also included in this category are loans to finance agricultural production.
Generally, the primary source of repayment is the cash flow from business operations and activities of the borrower.
Municipal —
includes loans to state and local governmental entities and related public-sector organizations to finance
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. Repayment 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, and
developing land into commercial developments or residential subdivisions. Also included are loans and lines for
construction of residential, multi-family, and commercial buildings. Generally, the primary source of repayment is
dependent upon the sale or refinancing of the real estate collateral.
Commercial real estate —
includes loans disaggregated in these classes:
●
Owner occupied
owner-occupied facilities primarily for small and medium-sized commercial customers. Generally, the primary
source of loan repayment are the cash flows from business operations and activities of the borrower, who owns the
property.
●
Hotel/motel
– includes loans for hotels and motels. Generally, the primary source of repayment is dependent upon
income generated from the 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.
●
Multifamily
include loans for 5 or more unit residential property and apartments leased to residents. Generally, the primary
source of repayment is dependent upon income generated from the real estate collateral. The underwriting of these
loans takes into consideration the occupancy and rental rates, as well as the financial health of the respective
borrower.
●
Other
neighborhood retail centers, medical and professional offices, single retail stores, industrial buildings, and
warehouses leased generally to local businesses and residents. Generally , the primary source of repayment is
dependent upon income generated from the real estate collateral. The underwriting of these loans takes into
c
onsideration the occupancy and rental rates, as well as the financial health of the borrower.
Table of Contents
13
Residential real estate —
includes loans disaggregated into two classes:
●
Consumer mortgage
are secured by a primary residence or second home. These loans are underwritten in accordance with the Bank’s
general loan policies and procedures which require, among other things, proper documentation of each borrower’s
financial condition, satisfactory credit history, and property value.
●
Investment property
Generally, the primary source of repayment is dependent upon income generated from leasing the property
securing the loan. The underwriting of these loans takes into consideration the rental rates, as well as the financial
health of the borrowers.
Consumer installment —
includes loans to individuals, 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.
Table of Contents
14
The following is a summary of current, accruing past due, and nonaccrual loans by portfolio segment and class as of March
31, 2026 and December 31, 2025.
Accruing
Accruing
Total
30-89 Days
Greater than
Accruing
Non-
Total
(Dollars in thousands)
Current
Past Due
90 days
Loans
Accrual
Loans
March 31, 2026:
Commercial and industrial
$
—
$
31,841
Municipal
—
Construction and land development
—
Commercial real estate:
Owner occupied
—
58,848
Hotel/motel
—
55,005
Multifamily
—
53,798
Other
—
Total commercial real estate
—
Residential real estate:
Consumer mortgage
Investment property
Total residential real estate
Consumer installment
—
Total
$
$
582,061
December 31, 2025:
Commercial and industrial
$
—
$
Municipal
—
Construction and land development
—
Commercial real estate:
Owner occupied
Hotel/motel
—
Multifamily
—
Other
—
Total commercial real estate
378
Residential real estate:
Consumer mortgage
Investment property
Total residential real estate
Consumer installment
—
Total
$
482
$
Table of Contents
15
Credit Quality Indicators
The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the
standard asset classification system used by the federal banking agencies. These categories are utilized to develop the
associated allowance for credit losses using historical losses adjusted for qualitative and environmental factors and are
defined as follows:
●
Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if
any) or by the fair value, less cost to acquire and sell, of any underlying collateral.
●
Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or
inadequately protect the Company’s position at some future date. These loans are not adversely classified and do
not expose an institution to sufficient risk to warrant an adverse classification.
●
Substandard Accruing – loans that exhibit a well-defined weakness which presently jeopardizes debt repayment,
even though they are currently performing. These loans are characterized by the distinct possibility that the
Company may incur a loss in the future if these weaknesses are not corrected.
●
Nonaccrual – includes loans where management has determined that full payment of principal and interest is not
e
xpected.
Table of Contents
16
The introduction of the municipal portfolio segment in 2026 impacts comparability of credit quality disclosures to prior
periods. 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
2026
2025
2024
2023
2022
Prior to
2022
Revolving
Loans
Total
Loans
(Dollars in thousands)
March 31, 2026:
Commercial and industrial
Pass
$
Special mention
Substandard accruing
Nonaccrual
Total commercial and industrial
Current period gross charge-offs
—
—
—
—
—
—
Municipal
Pass
$
Special mention
Substandard accruing
Nonaccrual
Total municipal
Current period gross charge-offs
—
—
—
—
—
—
—
—
Construction and land development
Pass
Special mention
Substandard accruing
Nonaccrual
Total construction and land development
Current period gross charge-offs
—
—
—
—
—
—
—
—
Commercial real estate:
Owner occupied
Pass
Special mention
Substandard accruing
Nonaccrual
Total owner occupied
Current period gross charge-offs
—
—
—
—
—
—
Hotel/motel
Pass
Special mention
Substandard accruing
Nonaccrual
Total hotel/motel
Current period gross charge-offs
—
—
—
—
—
—
—
—
Table of Contents
17
Year of Origination
2026
2025
2024
2023
2022
Prior to
2022
Revolving
Loans
Total
Loans
(Dollars in thousands)
March 31, 2026:
Multifamily
Pass
Special mention
Substandard accruing
Nonaccrual
Total multi-family
Current period gross charge-offs
—
—
—
—
—
—
—
—
Other
Pass
Special mention
Substandard accruing
Nonaccrual
Total other
Current period gross charge-offs
—
—
—
—
—
—
—
—
Residential real estate:
Consumer mortgage
Pass
Special mention
Substandard accruing
Nonaccrual
Total consumer mortgage
Current period gross charge-offs
—
—
—
—
—
—
—
—
Investment property
Pass
Special mention
Substandard accruing
Nonaccrual
Total investment property
Current period gross charge-offs
—
—
—
—
—
—
—
—
Consumer installment
Pass
Special mention
Substandard accruing
Nonaccrual
Total consumer installment
Current period gross charge-offs
—
—
—
—
—
Total loans
Pass
Special mention
Substandard accruing
Nonaccrual
Total loans
$
$
Total current period gross charge-offs
$
—
$
Table of Contents
18
Year of Origination
2025
2024
2023
2022
2021
Prior to
2020
Revolving
Loans
Total
Loans
(Dollars in thousands)
December 31, 2025:
Commercial and industrial
Pass
$
$
Special mention
Substandard accruing
Nonaccrual
Total commercial and industrial
Current period gross charge-offs
—
—
—
—
Municipal
Pass
$
$
Special mention
Substandard accruing
Nonaccrual
Total commercial and industrial
Current period gross charge-offs
—
—
—
—
—
—
—
—
Construction and land development
Pass
Special mention
Substandard accruing
Nonaccrual
Total construction and land development
Current period gross charge-offs
—
—
—
—
—
—
—
—
Commercial real estate:
Owner occupied
Pass
Special mention
Substandard accruing
Nonaccrual
Total owner occupied
Current period gross charge-offs
—
—
—
—
—
—
Hotel/motel
Pass
Special mention
Substandard accruing
Nonaccrual
Total hotel/motel
Current period gross charge-offs
—
—
—
—
—
—
—
—
Table of Contents
19
Year of Origination
2025
2024
2023
2022
2021
Prior to
2020
Revolving
Loans
Total
Loans
(Dollars in thousands)
December 31, 2025:
Multifamily
Pass
Special mention
Substandard accruing
Nonaccrual
Total multi-family
Current period gross charge-offs
—
—
—
—
—
—
—
—
Other
Pass
Special mention
Substandard accruing
Nonaccrual
Total other
Current period gross charge-offs
—
—
—
—
—
—
—
—
Residential real estate:
Consumer mortgage
Pass
Special mention
Substandard accruing
Nonaccrual
Total consumer mortgage
Current period gross charge-offs
—
—
—
—
—
—
Investment property
Pass
Special mention
Substandard accruing
Nonaccrual
Total investment property
Current period gross charge-offs
—
—
—
—
—
—
Consumer installment
Pass
Special mention
Substandard accruing
Nonaccrual
Total consumer installment
Current period gross charge-offs
—
—
—
—
Total loans
Pass
Special mention
Substandard accruing
Nonaccrual
Total loans
$
$
T
otal current period gross charge-offs
$
—
$
Table of Contents
20
Allowance for Credit Losses
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 March 31,
(Dollars in thousands)
2026
2025
Provision for credit losses:
Loans
$
$
(57 )
Reserve for unfunded commitments
(78 )
Total provision for credit losses
$
(76 )
$
(10 )
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. The
following table details the changes in the allowance for credit losses for loans, by portfolio segment, for the respective
periods.
(Dollars in thousands)
Commercial
and industrial
Municipal
Construction
and land
development
Commercial
real estate
Residential
real estate
Consumer
installment
Total
Quarter ended March 31, 2026
Beginning balance
$
—
$
Charge-offs
(5 )
(378 )
(33 )
(416 )
Recoveries
Net (charge-offs) recoveries
(5 )
(378 )
(21 )
(402 )
Provision for credit losses
(438 )
(610 )
Ending balance
$
$
Quarter ended March 31, 2025:
Beginning balance
$
n/a
$
Charge-offs
(99 )
n/a
(1 )
(100 )
Recoveries
n/a
Net (charge-offs) recoveries
(71 )
n/a
(64 )
Provision for credit losses
n/a
(689 )
(28 )
(57 )
Ending balance
$
n/a
$
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.
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.
Table of Contents
21
The Company had no collateral dependent loans which were individually evaluated 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)
Real Estate
Total Loans
December 31, 2025:
Commercial real estate
$
$
Total
$
$
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 assumptions
specific to the borrower.
The following table summarizes the Company’s nonaccrual loans by major categories for the respective periods.
Nonaccrual Loans
Nonaccrual Loans
Total
(Dollars in thousands)
With No Allowance
With An Allowance
Nonaccrual Loans
March 31, 2026
Residential real estate
$
—
$
Total
$
—
$
December 31, 2025
Commercial real estate
$
—
$
Residential real estate
—
104
Total
$
104
$
The Company did not recognize any interest income on nonaccrual loans during the quarters ended March 31, 2026 and
2025.
There were no modifications to borrowers experiencing financial difficulty during the quarters ended March 31, 2026 and
2025.
NOTE 5: 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 $
the first quarter of 2026 related to these RSUs. Such expense is included in salaries and benefits expense, with a
c
orresponding increase to additional paid-in capital.
Table of Contents
22
NOTE 6: DERIVATIVE INSTRUMENTS
The Company enters into interest rate swaps to manage exposure to changes in interest rates on certain loans. The Company
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. Because the
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
Fair Value
Fair Value
(Dollars in thousands)
Location
Asset
Liability
March 31, 2026:
Interest rate swaps (fair value hedge)
Other Assets
$
$
Total interest rate swap agreements
$
$
Balance Sheet
Fair Value
Fair Value
(Dollars in thousands)
Location
Asset
Liability
December 31, 2025:
Interest rate swap (fair value hedge)
Other Liabilities
$
$
Total interest rate swap agreements
$
$
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
Amount of Gain
(Loss) Recognized
Location of Gain
(Loss) Recognized
in Income on Hedged
(Loss) Recognized
in Income on
Item Attributable
(Dollars in thousands)
in Income
Derivative
to Hedged Risk
Quarter ended March 31, 2026:
Interest rate swaps (fair value hedge)
Interest Income (Loans)
$
$
(43 )
Total interest rate swap agreements
$
$
(43 )
The Company is exposed to credit risk in the event of nonperformance by the counterparty to the interest rate swaps. The
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; however, the Company does not offset derivative assets and
liabilities on the Consolidated Balance Sheets.
Table of Contents
23
NOTE 7: FAIR VALUE
Fair Value Hierarchy
“Fair value” is defined by ASC 820,
Fair Value Measurements and Disclosures
, 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 date. GAAP establishes a fair value
hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or
liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
Level 1—inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities in active
markets.
Level 2—inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable for the
asset or liability, either directly or indirectly.
Level 3—inputs to the valuation methodology are unobservable and reflect the Company’s own assumptions about the
inputs market participants would use in pricing the asset or liability.
Level changes in fair value measurements
Transfers between levels of the fair value hierarchy are generally recognized at the end of each reporting period. The
Company monitors the valuation techniques utilized for each category of financial assets and liabilities to ascertain when
transfers between levels have been affected. The nature of the Company’s financial assets and liabilities generally is such
that transfers in and out of any level are expected to be infrequent. For the quarter ended March 31, 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 basis
Securities available-for-sale
Fair values of securities available for sale were primarily measured using Level 2 inputs. For these securities, the Company
obtains pricing from third-party pricing services. These third-party pricing services consider observable data that may
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 conditions. On a quarterly basis, management
reviews the pricing received from the third-party pricing services for reasonableness given current market conditions. As
part of its review, management may obtain non-binding third-party broker quotes to validate the fair value measurements.
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 the
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. The 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.
Table of Contents
24
The following table presents the balances of the assets and liabilities measured at fair 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
Significant
Active Markets
Other
Significant
for
Observable
Unobservable
Identical Assets
Inputs
Inputs
(Dollars in thousands)
Amount
(Level 1)
(Level 2)
(Level 3)
March 31, 2026:
Securities available-for-sale:
Agency obligations
$
Agency MBS
State and political subdivisions
Total securities available -for-sale
Other assets - interest rate swaps
Total assets at fair value
$
December 31, 2025:
Securities available-for-sale:
Agency obligations
$
Agency MBS
State and political subdivisions
Total securities available -for-sale
Total assets at fair value
$
Other liabilities - interest rate swap
Total liabilities at fair value
$
Assets and liabilities measured at fair value on a nonrecurring basis
Collateral dependent loans
Collateral dependent loans are measured at the fair value of the collateral securing the loan less estimated selling costs. The
fair value of real estate collateral is determined based on real estate appraisals which are generally based on recent sales of
comparable properties which are then adjusted for property specific factors. Non-real estate collateral is valued based on
various sources, including third party asset valuations and internally determined values based on cost adjusted for
depreciation and other judgmentally determined discount factors. Collateral dependent loans are classified within Level 3 of
the hierarchy due to the unobservable inputs used in determining their fair value such as collateral values and the borrower's
underlying financial condition.
Mortgage servicing rights, net
MSRs, net, included in other assets on the accompanying consolidated balance sheets, are carried at the lower of cost or
estimated fair value. MSRs do not trade in an active market with readily observable prices. To determine the fair value of
MSRs, the Company engages an independent third party. The independent third party’s valuation model calculates the
present value of estimated future net servicing income using assumptions that market participants would use in estimating
future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service, escrow
account earnings, contractual servicing fee income, ancillary income, and late fees. Periodically, the Company will review
broker surveys and other market research to validate significant assumptions used in the model. The significant
unobservable inputs include prepayment speeds or the constant prepayment rate (“CPR”) and the weighted average
discount rate. Because the valuation of MSRs requires the use of significant unobservable inputs, all of the Company’s
MSRs are classified within Level 3 of the valuation hierarchy.
Table of Contents
25
The following table presents the balances of the assets and liabilities measured at fair value on a nonrecurring basis as of
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
Active Markets
Other
Significant
for
Observable
Unobservable
Carrying
Identical Assets
Inputs
Inputs
(Dollars in thousands)
Amount
(Level 1)
(Level 2)
(Level 3)
March 31, 2026:
Other assets
(2)
$
Total assets at fair value
$
December 31, 2025:
Loans, net
(1)
$
Other assets
(2)
Total assets at fair value
$
(1)
Loans considered collateral dependent under ASC 326
Financial Instruments - Credit Losses
.
(2)
Represents MSRs, net, carried at lower of cost or estimated fair value.
Quantitative Disclosures for Level 3 Fair Value Measurements
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.
Range of
Weighted
Carrying
Significant
Unobservable
Average
(Dollars in thousands)
Amount
Valuation Technique
Unobservable Input
Inputs
of Input
March 31, 2026:
Mortgage servicing rights, net
$
Discounted cash flow
Prepayment speed or CPR
-
%
%
Discount rate
-
December 31, 2025:
Collateral dependent loans
$
Appraisal
Appraisal discounts
-
%
%
Mortgage servicing rights, net
Discounted cash flow
Prepayment speed or CPR
-
Discount rate
-
Fair Value of Financial Instruments
ASC 825,
Financial Instruments
, requires disclosure of fair value information about financial instruments, whether or not
recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the
estimation of the fair value of the Company’s financial instruments are explained below. Where quoted market prices are
not available, fair values are based on estimates using discounted cash flow analyses. Discounted cash flows can be
significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The
following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered
representative of the liquidation value of the Company’s financial instruments, but rather are good-faith estimates of the fair
value of financial instruments held by the Company. ASC 825 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements.
The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:
Loans, net
Fair values for loans were calculated using discounted cash flows. The discount rates reflected current rates at which similar
loans would be made for the same remaining maturities. Expected future cash flows were projected based on contractual
cash flows, adjusted for estimated prepayments. The fair value of loans was measured using an exit price notion.
Table of Contents
26
Loans held for sale
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 flows . The discount rates were based on rates currently
offered for deposits with similar remaining maturities.
The carrying value, related estimated fair value, and placement in the fair value hierarchy of the Company’s financial
instruments at March 31, 2026 and December 31, 2025 are presented below. This table excludes financial instruments
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 products
having no stated maturity. Additionally, financial liabilities for which fair value approximates carrying value included
overnight borrowings such as federal funds purchased and securities sold under agreements to repurchase.
The following table summarizes our fair value estimates:
Fair Value Hierarchy
Carrying
Estimated
Level 1
Level 2
Level 3
(Dollars in thousands)
amount
fair value
inputs
inputs
Inputs
March 31, 2026:
Financial Assets:
Loans, net (1)
$
$
$
Financial Liabilities:
Time Deposits
$
$
$
December 31, 2025:
Financial Assets:
Loans, net (1)
$
$
$
Loans held for sale
Financial Liabilities:
Time Deposits
$
$
$
(
1) Represents loans, net of allowance for credit losses. The fair value of loans was measured using an exit price notion.
Table of Contents
27
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,
Income Statement Reporting Comprehensive
Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses
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),
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
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.
ITEM 4. CONTROLS AND PROCEDURES
The Company, with the participation of its management, including its Chief Executive Officer and Chief Financial Officer,
carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the
period covered by this report. Based upon that evaluation and as of the end of the period covered by this report, the
Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and
procedures were effective to allow timely decisions regarding disclosure in its reports that the Company files or submits to
the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. There have been no
changes in the Company’s internal control over financial reporting that occurred during the period covered by this report
that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In the normal course of its business, the Company and the Bank are, from time to time, involved in legal proceedings. The
Company’s and Bank’s management believe there are no pending or threatened legal, governmental, or regulatory
proceedings that, upon resolution, are expected to have a material adverse effect upon the Company’s or the Bank’s
financial condition or results of operations. See also, Part I, Item 3 of the Company’s Annual Report on Form 10-K for the
year ended December 31, 2025.
Table of Contents
49
ITEM 1A. RISK FACTORS
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I,
Item 1A. “RISK FACTORS” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2025,
which could materially affect our business, financial condition or future results. The risks described in our annual report on
Form 10-K are not the only the risks facing our Company. The persistence of inflation above the Federal Reserve’s long
term targets, and the maintenance of or further increases in, tightened Federal Reserve monetary policy by increased target
interest rates and/or reductions in the Federal Reserve’s securities portfolio, have and may continue to affect the levels of
interest rates, mortgage originations and income, the market values of our securities portfolio and loans and have resulted in
unrealized securities losses that have adversely affected our stockholders’ equity. Although inflation has remained above
the Federal Reserve’s 2% target rate, since December 2025, the Federal Reserve has maintained its target federal funds
range from 3.50% to 3.75% and in October 29, 2025 announced that it would end the roll-off of maturing securities it held
beginning December 1, 2025 as the Federal Reserve sought to meet its dual mandate of maximum employment and 2%
inflation over the longer run. Beginning December 11, 2025, the Federal Reserve began increasing its holdings of
securities through purchases of Treasury bills and, if needed, other Treasury securities with remaining maturities of 3 years
or less to maintain an ample level of reserves, and reinvested all principal payments on Treasury securities and reinvested
all principal payment on agency securities into Treasury bills. This policy was continued at the Federal Reserve’s April 30,
2026 meeting. The reductions in the target federal funds rates and Federal Reserve purchases of additional securities may
be viewed as a more accommodative monetary policy, which has affected and may continue to affect our deposit costs and
mixes, and consumer savings and payment behaviors. These may also affect our borrowers’ operating costs, expected
returns and cash flows available to service our loans. The Federal Reserve may or may not continue this accommodative
policy, and has stated that future monetary policy action “will take into account a wide range of information, including
readings on labor market conditions, inflation pressures and inflation expectations, and financial and international
developments.” Such changes and other risks and uncertainties not currently known to us or that we currently deem to be
immaterial also may materially adversely affect our business, financial condition, and/or operating results in the future.
The United States and Israel attacked Iran on February 28, 2026 and hostilities continue subject to various cease fire
arrangements. As a result, shipments of oil through the Straits of Hormuz have been limited, reducing the total volumes of
oil in the international markets and causing oil prices to rise significantly. Supply chains where petroleum is an input have
been adversely affected, and transportation costs, prices and inflation in the United States and elsewhere have increased.
The duration of these hostilities and the long-term effects of the blockage of oil through the Straits of Hormuz and the other
c
osts and effects of these hostilities cannot be predicted.
Table of Contents
50
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The Company did not make any unregistered sales of common stock or other equity securities or any repurchases of its
common stock or other equity securities during the first quarter of 2026.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
N
ot applicable.
Table of Contents
51
ITEM 6. EXHIBITS
Exhibit
Number Description
3.1
Certificate of Incorporation of Auburn National Bancorporation, Inc. and all amendments thereto.*
3.2
Amended and Restated Bylaws of Auburn National Bancorporation, Inc., adopted as of November 13, 2007. **
10.1
Form of Notice of Discretionary Equity Award Agreement and related Terms and Conditions (together, the
“RSU Award Agreement”
).
***
31.1
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, by David A. Hedges, President and Chief Executive Officer.
31.2
Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, by W. James Walker, IV, Senior Vice President and Chief Financial
Officer.
32.1
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, by David A. Hedges, President and Chief Executive Officer.** **
32.2
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, by W. James Walker, IV, Senior Vice President and Chief Financial Officer.****
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
104
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*
**
***
****
The certifications attached as exhibits 32.1 and 32.2 to this quarterly report on Form 10-Q are “furnished” to the
Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be
deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly authorized.
AUBURN NATIONAL BANCORPORATION, INC.
Date: May 13, 2026
By: /s/ David A. Hedges
David A. Hedges
President and CEO
Date: May 13, 2026
By: /s/
W.
James Walker, IV
W. James Walker, IV
Senior Vice President and Chief Financial Officer