10-Q - AUBN - Equibles

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,

D.C.

20549

FORM

10-Q

(Mark One)

☒

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended

June 30, 2025

☐

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period __________ to __________

Commission File Number:

0-26486

Auburn National Bancorporation, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware

(State or other jurisdiction of

incorporation or organization)

63-0885779

(I.R.S. Employer

Identification No.)

100 N. Gay Street

Auburn

Alabama

36830

(

334

)

821-9200

(Address and telephone number of principal executive offices)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01

AUBN

NASDAQ

Global Market

Indicate

check

mark

whether

the

registrant

(1) has

filed

all

reports

required

filed

Section 13

15(d)

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

emerging

growth

company.

See

the

definitions

“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

☐

Non-accelerated filer

☒

Smaller reporting company

☒

Emerging growth company

☐

emerging

growth

company,

indicate

check

mark

the

registrant

has

elected

not

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 August 11, 2025

Common Stock, $0.01 par value per share

3,493,699

Table of Contents

AUBURN NATIONAL BANCORPORATION, INC. AND

SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION

PAGE

Item 1

Financial Statements

Consolidated Balance Sheets (Unaudited) as of June 30, 2025 and December 31, 2024

Consolidated Statements of Earnings (Unaudited) for the quarter and six months ended June 30, 2025

and 2024

Consolidated Statements of Comprehensive Income (Unaudited) for the quarter and six months ended

June 30, 2025 and 2024

Consolidated Statements of Stockholders’ Equity (Unaudited) for the quarter and six months ended

June 30, 2025 and 2024

Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2025 and 2024

Notes to Consolidated Financial Statements (Unaudited

)

Item 2

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Table 1 – Explanation of Non-GAAP Financial Measures

Table 2 – Selected Quarterly Financial Data

Table 3 – Selected Financial Data

Table 4 – Average Balances and Net Interest Income Analysis – for the quarter ended June 30, 2025

and 2024

Table 5 – Average Balances and Net Interest Income Analysis – for the six months ended June 30, 2025

and 2024

Table 6 – Volume and Rate Variance Analysis for the quarter and six months ended June 30, 2025

Item 3

Quantitative and Qualitative Disclosures About Market Risk

Item 4

Controls and Procedures

PART II. OTHER INFORMATION

Item 1

Legal Proceedings

Item 1A

Risk Factors

Item 2

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3

Defaults Upon Senior Securities

Item 4

Mine Safety Disclosures

Item 5

Other Information

Item 6

Exhibits

Table of Contents

PART

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AUBURN NATIONAL

BANCORPORATION,

INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

June 30,

December 31,

(Dollars in thousands, except share data)

2025

2024

Assets:

Cash and due from banks

18,857

15,142

Federal funds sold

23,599

37,200

Interest-bearing bank deposits

109,703

41,012

Cash and cash equivalents

152,159

93,354

Securities available-for-sale

239,681

243,012

Loans held for sale

186

—

Loans

562,714

564,017

Allowance for credit losses

(6,965)

(6,871)

Loans, net

555,749

557,146

Premises and equipment, net

45,446

45,931

Bank-owned life insurance

17,719

17,513

Other assets

18,284

20,368

Total assets

1,029,224

977,324

Liabilities:

Deposits:

Noninterest-bearing

268,468

260,874

Interest-bearing

671,383

634,950

Total deposits

939,851

895,824

Accrued expenses and other liabilities

3,302

3,208

Total liabilities

943,153

899,032

Stockholders' equity:

Preferred stock of $

.01

par value; authorized

200,000

shares;

no shares issued

—

Common stock of $

.01

par value; authorized

8,500,000

shares;

issued

3,957,135

Additional paid-in capital

3,802

Retained earnings

117,236

115,759

Accumulated other comprehensive loss, net

(23,305)

(29,607)

Less treasury stock, at cost -

463,436

shares at both June 30, 2025

and December 31, 2024, respectively

(11,701)

Total stockholders’

equity

86,071

78,292

Total liabilities and stockholders’

equity

1,029,224

977,324

See accompanying notes to consolidated financial statements

Table of Contents

AUBURN NATIONAL

BANCORPORATION,

INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(Unaudited)

Quarter ended June 30,

Six months ended June 30,

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

2025

2024

2025

2024

Interest income:

Loans, including fees

7,676

7,451

15,219

14,441

Securities:

Taxable

1,250

1,371

2,531

2,782

Tax-exempt

137

148

Federal funds sold and interest-bearing bank deposits

1,116

688

2,085

1,442

Total interest income

10,111

9,584

19,972

18,813

Interest expense:

Deposits

2,766

2,874

5,582

5,444

Short-term borrowings

Total interest expense

2,767

2,875

5,583

5,447

Net interest income

7,344

6,709

14,389

13,366

Provision for credit losses

113

(123)

103

211

Net interest income after provision for credit

losses

7,231

6,832

14,286

13,155

Noninterest income:

Service charges on deposit accounts

152

153

307

309

Mortgage lending

131

180

224

330

Bank-owned life insurance

101

206

201

Other

405

464

799

943

Total noninterest income

789

896

1,536

1,783

Noninterest expense:

Salaries and benefits

3,258

3,140

6,568

6,211

Net occupancy and equipment

604

603

1,318

1,366

Professional fees

385

314

672

640

Other

1,455

1,462

3,024

2,977

Total noninterest expense

5,702

5,519

11,582

11,194

Earnings before income taxes

2,318

2,209

4,240

3,744

Income tax expense

485

475

877

639

Net earnings

1,833

1,734

3,363

3,105

Net earnings per share:

Basic and diluted

0.52

0.50

0.96

0.89

Weighted average shares

outstanding:

Basic and diluted

3,493,699

3,493,681

See accompanying notes to consolidated financial statements

Table of Contents

AUBURN NATIONAL

BANCORPORATION,

INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2025

2024

2025

2024

Net earnings

1,833

1,734

3,363

3,105

Other comprehensive income (loss), net of tax:

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

2,066

(71)

6,302

(2,255)

Other comprehensive income (loss), net of tax

2,066

(71)

6,302

(2,255)

Comprehensive income

3,899

1,663

9,665

850

See accompanying notes to consolidated financial statements

Table of Contents

AUBURN NATIONAL

BANCORPORATION,

INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

(Unaudited)

Accumulated

Common

Additional

other

Common

paid-in

Retained

comprehensive

Treasury

(Dollars in thousands, except share data)

Outstanding

Stock

capital

earnings

income (loss)

stock

Total

Quarter ended June 30, 2025

Balance, March 31, 2025

3,493,699

3,802

116,346

(25,371)

(11,701)

83,115

Net earnings

—

1,833

—

1,833

Other comprehensive income

—

2,066

—

2,066

Cash dividends paid ($

.27

per share)

—

(943)

—

(943)

Balance, June 30, 2025

3,493,699

3,802

117,236

(23,305)

(11,701)

86,071

Quarter ended June 30, 2024

Balance, March 31, 2024

3,493,699

3,802

113,563

(31,213)

(11,702)

74,489

Net earnings

—

1,734

—

1,734

Other comprehensive loss

—

(71)

—

(71)

Cash dividends paid ($

.27

per share)

—

(944)

—

(944)

Sale of treasury stock

—

Balance, June 30, 2024

3,493,699

3,802

114,353

(31,284)

(11,701)

75,209

Six months ended June 30, 2025

Balance, December 31, 2024

3,493,699

3,802

115,759

(29,607)

(11,701)

78,292

Net earnings

—

3,363

—

3,363

Other comprehensive income

—

6,302

—

6,302

Cash dividends paid ($

.54

per share)

—

(1,886)

—

(1,886)

Balance, June 30, 2025

3,493,699

3,802

117,236

(23,305)

(11,701)

86,071

Six months ended June 30, 2024

Balance, December 31, 2023

3,493,614

3,801

113,398

(29,029)

(11,702)

76,507

Cumulative effect of change in accounting

standard ASU 2023-12

—

(263)

—

(263)

Net earnings

—

3,105

—

3,105

Other comprehensive loss

—

(2,255)

—

(2,255)

Cash dividends paid ($

.54

per share)

—

(1,887)

—

(1,887)

Sale of treasury stock

—

Balance, June 30, 2024

3,493,699

3,802

114,353

(31,284)

(11,701)

75,209

See accompanying notes to consolidated financial statements

Table of Contents

AUBURN NATIONAL

BANCORPORATION,

INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Six months ended June 30,

(Dollars in thousands)

2025

2024

Cash flows from operating activities:

Net earnings

3,363

3,105

Adjustments to reconcile net earnings to net cash provided by

operating activities:

Provision for credit losses

103

211

Depreciation and amortization

1,033

902

Premium amortization and discount accretion, net

703

770

Net gain on sale of loans held for sale

(57)

(142)

Loans originated for sale

(3,088)

(5,826)

Proceeds from sale of loans

2,942

5,911

Increase in cash surrender value of bank-owned life insurance

(206)

(201)

Net increase in other assets

(130)

(1,026)

Net increase in accrued expenses and other liabilities

101

2,432

Net cash provided by operating activities

4,764

6,136

Cash flows from investing activities:

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

11,043

12,769

Decrease (increase) in loans, net

1,287

(20,716)

Net purchases of premises and equipment

(430)

(1,880)

Decrease in FHLB stock

—

Net cash provided by (used in) investing activities

11,900

(9,795)

Cash flows from financing activities:

Net increase (decrease) in noninterest-bearing deposits

7,594

(7,618)

Net increase in interest-bearing deposits

36,433

57,780

Net decrease in federal funds purchased and securities sold

under agreements to repurchase

—

(1,486)

Dividends paid

(1,886)

(1,887)

Net cash provided by financing activities

42,141

46,789

Net change in cash and cash equivalents

58,805

43,130

Cash and cash equivalents at beginning of period

93,354

71,369

Cash and cash equivalents at end of period

152,159

114,499

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Interest

5,673

5,383

Income taxes

1,030

460

See accompanying notes to consolidated financial statements

Table of Contents

AUBURN NATIONAL

BANCORPORATION,

INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES

General

Auburn National Bancorporation, Inc. (the “Company”) provides a full range

of banking services to individuals

and

commercial customers in Lee County,

Alabama and surrounding areas through its wholly owned subsidiary,

AuburnBank

(the “Bank”). The Company does not have any segments other than banking

that are considered material.

Basis of Presentation and Use of Estimates

The unaudited consolidated financial statements in this report have

been prepared in accordance with U.S. generally

accepted accounting principles (“GAAP”) for interim financial information.

Accordingly, these financial statements

do not

include all of the information and footnotes required by U.S. GAAP for complete

financial statements.

The unaudited

consolidated financial statements include, in the opinion of management,

all adjustments necessary to present a fair

statement of the financial position and the results of operations for all periods presented.

All such adjustments are of a

normal recurring nature. The results of operations in the interim statements are not

necessarily indicative of the results of

operations that the Company and its subsidiaries may achieve for future interim

periods or the entire year. For

further

information, refer to the consolidated financial statements and footnotes included

in the Company's Annual Report on Form

10-K for the year ended December 31, 2024.

The unaudited consolidated financial statements include the accounts

of the Company and its wholly-owned subsidiaries.

Significant intercompany transactions and accounts are eliminated in

consolidation.

The preparation of financial statements in conformity with U.S. GAAP requires

management to make estimates and

assumptions that affect the reported amounts of assets and liabilities and disclosures

of contingent assets and liabilities as of

the balance sheet date and the reported amounts of revenues and expenses during

the reporting period.

Actual results could

differ from those estimates.

Material estimates that are particularly susceptible to significant change in

the near term

include the determination of allowance for credit losses on loans and

investment securities, the fair value of financial

instruments, and the valuation of deferred tax assets and other real estate owned

(“OREO”).

Subsequent Events

The Company has evaluated the effects of events and

transactions through the date of this filing that have occurred

subsequent to June 30, 2025.

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

this period

that would have required further recognition or disclosure in the

unaudited consolidated financial statements included in

this report.

Reclassifications

Certain amounts reported in prior periods have been reclassified to

conform to the current-period presentation.

These

reclassifications had no effect on the Company’s

previously reported net earnings or total stockholders’ equity.

Accounting Developments

In the first six months of 2025, the Company did not adopt any new accounting guidance.

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NOTE 2: SECURITIES

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

all securities within the scope of ASC 320,

Investments – Debt and

Equity Securities,

were classified as available-for-sale.

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

by contractual maturity at June 30, 2025 and December 31, 2024, respectively,

are presented below.

1 year

1 to 5

5 to 10

After 10

Fair

Gross Unrealized

Amortized

(Dollars in thousands)

or less

years

Value

Gains

Losses

Cost

June 30, 2025

Agency obligations (a)

—

27,145

26,401

—

53,546

—

5,628

59,174

Agency MBS (a)

—

20,128

18,364

130,627

169,119

—

22,737

191,856

State and political subdivisions

—

1,642

8,479

6,895

17,016

—

2,756

19,772

Total available-for-sale

—

48,915

53,244

137,522

239,681

—

31,121

270,802

December 31, 2024

Agency obligations (a)

—

26,655

25,756

—

52,411

—

7,734

60,145

Agency MBS (a)

19,863

14,904

138,899

173,676

—

28,901

202,577

State and political subdivisions

—

966

8,244

7,715

16,925

—

2,901

19,826

Total available-for-sale

47,484

48,904

146,614

243,012

—

39,536

282,548

(a) Includes securities issued by U.S. government agencies or government

-sponsored entities.

Expected lives of these

securities may differ from contractual maturities because (i) issuers may

have the right to call or repay such securities

obligations with or without prepayment penalties and (ii) borrowers of

the loans included in Agency MBS generally

have the right to prepay such loan in whole or in part at any time.

Securities with aggregate fair values of $

216.3

million and $

222.3

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

respectively, were

pledged to secure public deposits,

securities sold under agreements to repurchase, FHLB advances, and

for other purposes required or permitted by law.

Included in other assets on the accompanying consolidated balance sheets include

non-marketable equity investments.

The

carrying amounts of non-marketable equity investments were $

1.4

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

respectively.

Non-marketable equity investments include FHLB of Atlanta stock, Federal Reserve

Bank of Atlanta

(“FRB”) stock, and stock in a privately held financial institution.

Gross Unrealized Losses and Fair Value

The fair values and gross unrealized losses on securities at June 30,

2025 and December 31, 2024, respectively,

segregated

by those securities that have been in an unrealized loss position for less than 12

months and 12 months or longer, are

presented below.

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(Dollars in thousands)

Value

Losses

Value

Losses

Value

Losses

June 30, 2025:

Agency obligations

—

53,546

5,628

53,546

5,628

Agency MBS

103

169,016

22,736

169,119

22,737

State and political subdivisions

579

14,857

2,750

15,436

2,756

Total

682

237,419

31,114

238,101

31,121

December 31, 2024:

Agency obligations

—

52,411

7,734

52,411

7,734

Agency MBS

—

173,669

28,901

173,676

28,901

State and political subdivisions

1,798

14,776

2,884

16,574

2,901

Total

1,805

240,856

39,519

242,661

39,536

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For the securities in the previous table, the Company assesses whether or not

it intends to sell the security, or more

likely

than not will be required to sell the security,

before recovery of its amortized cost basis which would require a write-down

to fair value through net income.

Because the Company currently does not intend to sell those securities that have an

unrealized loss at June 30, 2025, and it is not more-likely-than-not

that the Company will be required to sell the securities

before recovery of their amortized cost bases, which may be maturity,

the Company has determined that no write-down is

necessary.

In addition, the Company evaluates whether any portion of the decline in fair value of

securities is the result of

credit deterioration, which would require the recognition of an allowance for credit

losses.

Such evaluations consider the

extent to which the amortized cost of the security exceeds its fair value, changes in credit

ratings and any other known

adverse conditions related to the specific security.

The unrealized losses associated with securities at June 30, 2025 are

driven by changes in interest rates and are not due to the credit quality of the securities,

and accordingly, no allowance

for

credit losses is considered necessary related to securities at June 30, 2025.

These securities will continue to be monitored

as a part of the Company’s ongoing

evaluation of credit quality.

Management evaluates the financial performance of the

issuers on a quarterly basis to determine if it is probable that the issuers can make

all contractual principal and interest

payments.

Realized Gains and Losses

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

and six months ended June 30, 2025

and 2024, respectively.

NOTE 3: LOANS AND ALLOWANCE

FOR CREDIT LOSSES

June 30,

December 31,

(Dollars in thousands)

2025

2024

Commercial and industrial

59,773

63,274

Construction and land development

93,820

82,493

Commercial real estate:

Owner occupied

61,839

55,346

Hotel/motel

34,064

35,210

Multi-family

42,807

43,556

Other

144,158

155,880

Total commercial

real estate

282,868

289,992

Residential real estate:

Consumer mortgage

59,212

60,399

Investment property

57,947

58,228

Total residential real

estate

117,159

118,627

Consumer installment

9,094

9,631

Total Loans

562,714

564,017

Loans secured by real estate were approximately 87.8% of the Company’s

total loan portfolio at June 30, 2025.

At June 30,

2025, the Company’s geographic

loan distribution was concentrated primarily in Lee County,

Alabama, and surrounding

areas.

The loan portfolio segment is defined as the level at which an entity develops

and documents a systematic method for

determining its allowance for credit losses. As part of the Company’s

quarterly assessment of the allowance, the loan

portfolio included the following portfolio segments: commercial and

industrial, construction and land development,

commercial real estate, residential real estate, and consumer installment. Where appropriate,

the Company’s loan portfolio

segments are further disaggregated into classes. A class is generally determined

based on the initial measurement attribute,

risk characteristics of the loan, and an entity’s

method for monitoring and determining credit risk.

The following describes

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

Commercial and industrial (“C&I”) —

includes loans to finance business operations, equipment purchases, or

other needs

for small and medium-sized commercial customers. Also

included in this category are loans to finance agricultural

production.

Generally, the primary source of repayment

is the cash flow from business operations and activities of the

borrower.

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

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

carrying,

and developing land into commercial developments or residential subdivisions.

Also included are loans and credit

lines for construction of residential, multi-family,

and commercial buildings. Generally,

the primary source of repayment is

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

Commercial real estate

(“CRE”) —

includes loans in these classes:

●

Owner occupied

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

and

owner-occupied facilities primarily for small and medium-sized

commercial customers.

Generally, the primary

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

of the borrower, who owns the

property.

●

Hotel/motel

– includes loans for hotels and motels.

Generally, the primary

source of repayment is dependent upon

income generated from the hotel/motel securing the loan.

The underwriting of these loans takes into consideration

the occupancy and rental rates, as well as the financial health of the borrower.

●

Multi-family

– primarily includes loans to finance income-producing

multi-family properties. These include loans

for 5 or more unit residential properties and apartments leased to residents.

Generally,

the primary source of

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

underwriting of these loans

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

health of the respective borrowers.

●

Other

– primarily includes loans to finance income-producing commercial

properties other than hotels/motels and

multi-family properties, and which

are not owner occupied.

Loans in this class include loans for neighborhood

retail centers,

medical and professional offices, single retail stores, industrial buildings,

and warehouses leased to

local and other businesses. Generally,

the primary source of repayment is dependent upon income generated from

the real estate collateral. The underwriting of these loans takes into consideration

the occupancy and rental rates,

as well as the financial health of the borrower.

Residential real estate (“RRE”) —

includes loans in these two classes:

●

Consumer mortgage

– primarily includes

first or second lien mortgages and home equity lines of credit to

consumers that are secured by a primary residence or second home. These loans are underwritten

in accordance

with the Bank’s general loan

policies and procedures which require, among other things, proper documentation

each borrower’s financial condition, satisfactory credit

history,

and property value.

●

Investment property

– primarily includes loans to finance income-producing 1-4 family residential

properties.

Generally,

the primary source of repayment is dependent upon income generated from

leasing the property

securing the loan. The underwriting of these loans takes into consideration

the rental rates and property values, as

well as the financial health of the borrowers.

Consumer installment —

includes loans to individuals,

which may be secured by personal property or are unsecured.

Loans

include personal lines of credit, automobile loans, and other retail loans.

These loans are underwritten in accordance with

the Bank’s general loan policies and

procedures which require, among other things, proper documentation

of each

borrower’s financial condition, satisfactory credit history,

and, if applicable, property values.

Table of Contents

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

loans by portfolio segment and class as of June

30, 2025 and December 31, 2024.

Accruing

Total

30-89 Days

Greater than

Accruing

Non-

Total

(Dollars in thousands)

Current

Past Due

90 days

Loans

Accrual

Loans

June 30, 2025:

Commercial and industrial

59,742

—

59,773

—

59,773

Construction and land development

93,820

—

93,820

—

93,820

Commercial real estate:

Owner occupied

61,332

507

—

61,839

—

61,839

Hotel/motel

34,064

—

34,064

—

34,064

Multi-family

42,807

—

42,807

—

42,807

Other

144,039

—

144,039

119

144,158

Total commercial

real estate

282,242

507

—

282,749

119

282,868

Residential real estate:

Consumer mortgage

59,144

—

59,144

59,212

Investment property

57,691

141

—

57,832

115

57,947

Total residential real

estate

116,835

141

—

116,976

183

117,159

Consumer installment

9,064

—

9,094

—

9,094

Total

561,703

709

—

562,412

302

562,714

December 31, 2024:

Commercial and industrial

63,163

—

63,175

63,274

Construction and land development

82,089

—

82,089

404

82,493

Commercial real estate:

Owner occupied

55,346

—

55,346

—

55,346

Hotel/motel

35,210

—

35,210

—

35,210

Multi-family

43,556

—

43,556

—

43,556

Other

155,880

—

155,880

—

155,880

Total commercial

real estate

289,992

—

289,992

—

289,992

Residential real estate:

Consumer mortgage

59,677

722

—

60,399

—

60,399

Investment property

58,179

—

58,228

—

58,228

Total residential real

estate

117,856

771

—

118,627

—

118,627

Consumer installment

9,579

—

9,631

—

9,631

Total

562,679

835

—

563,514

503

564,017

Table of Contents

Credit Quality Indicators

The credit quality of the loan portfolio is summarized no less frequently than

quarterly using categories similar to the

standard asset classification system used by the federal banking agencies.

These categories are utilized to develop the

associated allowance for credit losses using historical losses adjusted for

qualitative and environmental factors and are

defined as follows:

●

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

of the obligor (or guarantors, if

any) or by the fair value, less the estimated cost to acquire and sell any underlying

collateral.

●

Special Mention – loans with potential weakness that may,

if not reversed or corrected, weaken the credit or

inadequately protect the Company’s

position at some future date. These loans are not adversely classified and do

not expose an institution to sufficient risk to warrant an adverse classification.

●

Substandard Accruing – loans that exhibit a well-defined weakness which

presently jeopardizes debt repayment,

even though they are currently performing. These loans are characterized

by the distinct possibility that the

Company may incur a loss in the future if these weaknesses are not corrected.

●

Nonaccrual – includes loans where management has determined that full payment

of principal and interest is not

expected.

Substandard accrual and nonaccrual loans are often collectively referred

to as “classified.”

Table of Contents

The following tables presents credit quality indicators for the loan portfolio

segments and classes by year of origination as

of June 30, 2025 and December 31, 2024.

Year of Origination

2025

2024

2023

2022

2021

Prior to

2021

Revolving

Loans

Total

Loans

(Dollars in thousands)

June 30, 2025:

Commercial and industrial

Pass

6,684

5,588

6,228

8,078

11,712

17,451

3,689

59,430

Special mention

114

—

116

Substandard

—

157

—

227

Nonaccrual

—

Total commercial and industrial

6,848

5,588

6,246

8,235

11,716

17,451

3,689

59,773

Current period gross charge-offs

—

103

Construction and land development

Pass

12,638

42,484

19,949

16,723

810

918

298

93,820

Special mention

—

Substandard

—

Nonaccrual

—

Total construction and land development

12,638

42,484

19,949

16,723

810

918

298

93,820

Current period gross charge-offs

—

Commercial real estate:

Owner occupied

Pass

9,235

1,416

11,130

6,498

16,023

13,836

2,566

60,704

Special mention

628

—

628

Substandard

—

507

—

507

Nonaccrual

—

Total owner occupied

9,863

1,923

11,130

6,498

16,023

13,836

2,566

61,839

Current period gross charge-offs

—

Hotel/motel

Pass

—

447

6,313

9,208

3,014

14,827

255

34,064

Special mention

—

Substandard

—

Nonaccrual

—

Total hotel/motel

—

447

6,313

9,208

3,014

14,827

255

34,064

Current period gross charge-offs

—

Table of Contents

Year of Origination

2025

2024

2023

2022

2021

Prior to

2021

Revolving

Loans

Total

Loans

(Dollars in thousands)

June 30, 2025:

Multi-family

Pass

101

3,587

8,391

16,797

1,814

8,304

3,813

42,807

Special mention

—

Substandard

—

Nonaccrual

—

Total multi-family

101

3,587

8,391

16,797

1,814

8,304

3,813

42,807

Current period gross charge-offs

—

Other

Pass

3,065

35,012

17,638

23,751

22,435

30,208

11,930

144,039

Special mention

—

Substandard

—

Nonaccrual

—

119

—

119

Total other

3,065

35,012

17,638

23,751

22,435

30,327

11,930

144,158

Current period gross charge-offs

—

Residential real estate:

Consumer mortgage

Pass

2,154

5,238

16,673

17,786

2,595

12,068

1,365

57,879

Special mention

—

206

—

206

Substandard

245

—

814

—

1,059

Nonaccrual

—

Total consumer mortgage

2,399

5,238

16,741

17,786

2,595

13,088

1,365

59,212

Current period gross charge-offs

—

Investment property

Pass

3,738

8,693

10,004

10,314

7,458

14,677

2,471

57,355

Special mention

—

Substandard

379

—

477

Nonaccrual

—

115

Total investment property

4,117

8,693

10,042

10,406

7,464

14,754

2,471

57,947

Current period gross charge-offs

—

Consumer installment

Pass

3,112

2,794

1,368

1,133

180

328

9,006

Special mention

—

Substandard

—

Nonaccrual

—

Total consumer installment

3,120

2,840

1,393

1,142

180

328

9,094

Current period gross charge-offs

—

Total loans

Pass

40,727

105,259

97,694

110,288

66,041

112,380

26,715

559,104

Special mention

742

—

206

—

972

Substandard

682

543

258

814

—

2,336

Nonaccrual

—

106

—

196

—

302

Total loans

42,151

105,812

97,843

110,546

66,051

113,596

26,715

562,714

Total current period gross charge-offs

—

105

—

119

Table of Contents

Year of Origination

2024

2023

2022

2021

2020

Prior to

2020

Revolving

Loans

Total

Loans

(Dollars in thousands)

December 31, 2024:

Commercial and industrial

Pass

11,290

7,265

8,488

9,677

4,659

16,989

4,425

62,793

Special mention

—

123

Substandard

181

—

259

Nonaccrual

—

Total commercial and industrial

11,389

7,459

8,669

9,684

4,659

16,989

4,425

63,274

Current period gross charge-offs

—

Construction and land development

Pass

31,144

29,520

16,504

1,794

1,434

104

1,589

82,089

Special mention

—

Substandard

—

Nonaccrual

404

—

404

Total construction and land development

31,548

29,520

16,504

1,794

1,434

104

1,589

82,493

Current period gross charge-offs

—

Commercial real estate:

Owner occupied

Pass

1,921

11,206

6,776

17,114

3,396

12,030

1,552

53,995

Special mention

—

249

—

591

—

840

Substandard

511

—

511

Nonaccrual

—

Total owner occupied

2,432

11,455

6,776

17,114

3,987

12,030

1,552

55,346

Current period gross charge-offs

—

Hotel/motel

Pass

480

6,480

5,303

3,079

1,299

14,437

4,132

35,210

Special mention

—

Substandard

—

Nonaccrual

—

Total hotel/motel

480

6,480

5,303

3,079

1,299

14,437

4,132

35,210

Current period gross charge-offs

—

Table of Contents

Year of Origination

2024

2023

2022

2021

2020

Prior to

2020

Revolving

Loans

Total

Loans

(Dollars in thousands)

December 31, 2024:

Multi-family

Pass

3,739

6,041

17,037

1,863

3,493

6,400

4,983

43,556

Special mention

—

Substandard

—

Nonaccrual

—

Total multi-family

3,739

6,041

17,037

1,863

3,493

6,400

4,983

43,556

Current period gross charge-offs

—

Other

Pass

43,753

21,085

32,521

21,249

16,743

16,289

4,120

155,760

Special mention

—

Substandard

—

120

—

120

Nonaccrual

—

Total other

43,753

21,085

32,521

21,249

16,863

16,289

4,120

155,880

Current period gross charge-offs

—

Residential real estate:

Consumer mortgage

Pass

5,885

18,389

18,434

2,466

2,565

10,590

808

59,137

Special mention

243

—

486

—

731

Substandard

—

531

—

531

Nonaccrual

—

Total consumer mortgage

6,128

18,389

18,434

2,466

2,567

11,607

808

60,399

Current period gross charge-offs

—

Investment property

Pass

10,339

10,824

10,651

8,305

11,435

4,794

1,317

57,665

Special mention

—

Substandard

278

143

—

563

Nonaccrual

—

Total investment property

10,617

10,864

10,744

8,314

11,578

4,794

1,317

58,228

Current period gross charge-offs

—

Consumer installment

Pass

5,015

2,057

1,911

296

113

9,549

Special mention

—

Substandard

—

Nonaccrual

—

Total consumer installment

5,054

2,081

1,921

305

113

9,631

Current period gross charge-offs

—

114

Total loans

Pass

113,566

112,867

117,625

65,843

45,114

81,746

22,993

559,754

Special mention

292

332

—

593

486

—

1,712

Substandard

878

284

263

531

—

2,048

Nonaccrual

404

—

503

Total loans

115,140

113,374

117,909

65,868

45,970

82,763

22,993

564,017

Total current period gross charge-offs

—

184

Table of Contents

Allowance for Credit Losses

The allowance for credit losses is measured on a collective basis for pools of

loans with similar risk characteristics, and for

loans that do not share similar risk characteristics with the collectively evaluated

pools, evaluations are performed on an

individual basis.

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

is presented below.

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2025

2024

2025

2024

Provision for credit losses:

Loans

166

(64)

110

221

Reserve for unfunded commitments

(53)

(59)

(7)

(10)

Total provision for credit

losses

113

(123)

103

211

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

by portfolio segment, for the respective

periods.

(Dollars in thousands)

Commercial and

industrial

Construction

and land

development

Commercial

real estate

Residential

real estate

Consumer

installment

Total

Quarter ended June 30, 2025:

Beginning balance

1,219

1,401

3,153

861

116

6,750

Charge-offs

(3)

—

(6)

(9)

(18)

Recoveries

—

Net (charge-offs) recoveries

(2)

—

(4)

Provision for credit losses

(5)

212

(2)

(50)

166

Ending balance

1,212

1,613

3,151

866

123

6,965

Six months ended June 30, 2025:

Beginning balance

1,244

1,059

3,842

588

138

6,871

Charge-offs

(103)

—

(7)

(9)

(119)

Recoveries

—

103

Net (charge-offs) recoveries

(73)

—

(16)

Provision for credit losses

554

(691)

222

(16)

110

Ending balance

1,212

1,613

3,151

866

123

6,965

Quarter ended June 30, 2024:

Beginning balance

1,415

840

4,202

613

145

7,215

Charge-offs

(9)

—

(19)

(28)

Recoveries

—

Net (charge-offs)

recoveries

(1)

—

(10)

(9)

Provision for credit losses

(48)

102

(111)

(12)

(64)

Ending balance

1,366

942

4,091

603

140

7,142

Six months ended June 30, 2024:

Beginning balance

1,288

960

3,921

546

148

6,863

Charge-offs

(9)

—

(43)

(52)

Recoveries

—

110

Net recoveries (charge-offs)

—

(12)

Provision for credit losses

(18)

170

221

Ending balance

1,366

942

4,091

603

140

7,142

Table of Contents

The Company had no collateral dependent loans which were individually evaluated

at June 30, 2025.

The following table

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

individually evaluated to determine expected

credit losses at December 31, 2024.

Business

(Dollars in thousands)

Real Estate

Assets

Total Loans

December 31, 2024:

Commercial and industrial

—

Construction and land development

404

—

404

Total

404

503

The following table summarizes the Company’s

nonaccrual loans by major categories for the respective periods.

Nonaccrual Loans

Total

(Dollars in thousands)

With No Allowance

With An Allowance

Nonaccrual Loans

June 30, 2025

Commercial real estate

—

119

Residential real estate

—

183

Total

—

302

December 31, 2024

Commercial and industrial

—

Construction and land development

404

—

404

Total

404

503

Table of Contents

NOTE 4: MORTGAGE SERVICING

RIGHTS, NET

Mortgage servicing rights (“MSRs”) are recognized based on the fair

value of the servicing rights on the date the

corresponding mortgage loans are sold.

An estimate of the fair value of the Company’s

MSRs is determined using

assumptions that market participants would use in estimating future net

servicing income, including estimates of

prepayment speeds, discount rates, default rates, costs to service, escrow account

earnings, contractual servicing fee

income, ancillary income, and late fees.

Subsequent to the date of transfer, the Company

has elected to measure its MSRs

under the amortization method.

Under the amortization method, MSRs are amortized in proportion to, and over

the period

of, estimated net servicing income.

The Company generally sells, without recourse, conforming, fixed-rate, closed-end,

residential mortgages to Fannie Mae,

where the Company services the mortgages sold and records MSRs.

MSRs are included in other assets on the

accompanying consolidated balance sheets.

The Company evaluates MSRs for impairment on a quarterly basis.

Impairment is determined by stratifying MSRs into

groupings based on predominant risk characteristics, such as interest rate and loan

type.

If, by individual stratum, the

carrying amount of the MSRs exceeds fair value, a valuation allowance is established.

The valuation allowance is adjusted

as the fair value changes.

Changes in the valuation allowance are recognized in earnings as a component

of mortgage

lending income.

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

allowance for the respective periods.

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2025

2024

2025

2024

MSRs, net:

Beginning balance

857

965

892

992

Additions, net

Amortization expense

(41)

(38)

(82)

(77)

Ending balance

827

942

827

942

Valuation

allowance included in MSRs, net:

Beginning of period

—

End of period

—

Fair value of amortized MSRs:

Beginning of period

2,201

2,378

2,204

2,382

End of period

2,203

2,346

2,203

2,346

NOTE 5: FAIR VALUE

Fair Value

Hierarchy

“Fair value” is defined by ASC 820,

Fair Value

Measurements and Disclosures

, and focuses on the exit price, i.e., the price

that would be received to sell an asset or paid to transfer a liability in an orderly transaction

occurring in the principal

market (or most advantageous market in the absence of a principal market)

for an asset or liability at the measurement date.

GAAP establishes a fair value hierarchy for valuation inputs that gives the highest

priority to quoted prices in active

markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as

follows:

Level 1—inputs to the valuation methodology are quoted prices, unadjusted,

for identical assets or liabilities in active

markets.

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

assets and liabilities in active markets,

quoted prices for identical or similar assets or liabilities in markets that are not

active, or inputs that are observable for the

asset or liability, either directly

or indirectly.

Table of Contents

Level 3—inputs to the valuation methodology are unobservable and

reflect the Company’s own assumptions about

the

inputs market participants would use in pricing the asset or liability.

Level changes in fair value measurements

Transfers between levels of the fair value hierarchy

are generally recognized at the end of each reporting period.

The

Company monitors the valuation techniques utilized for each category

of financial assets and liabilities to ascertain when

transfers between levels have been affected.

The nature of the Company’s financial

assets and liabilities generally is such

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

months ended June 30, 2025, there were no

transfers between levels and no changes in valuation techniques for the

Company’s financial assets and liabilities.

Assets and liabilities measured at fair value on a recurring

basis

Securities available-for-sale

Fair values of securities available for sale were primarily measured

using Level 2 inputs.

For these securities, the Company

obtains pricing data from third-party pricing services.

These third-party pricing services consider observable data that may

include broker/dealer quotes, market spreads, cash flows, benchmark yields,

reported trades for similar securities, market

consensus prepayment speeds, credit information, and the securities’ terms

and conditions.

On a quarterly basis,

management reviews the pricing data received from the third-party pricing

services for reasonableness given current market

conditions.

As part of its review, management may

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

value measurements.

In addition, management will periodically submit pricing information

provided by the third-party

pricing services to another independent valuation firm on a sample basis.

This independent valuation firm will compare the

prices

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

and will review the significant assumptions and

valuation methodologies used with management.

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

value on a recurring basis as of June

30, 2025 and December 31, 2024, respectively,

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

valuation hierarchy (as described above).

Quoted Prices in

Significant

Active Markets

Other

Significant

for

Observable

Unobservable

Identical Assets

Inputs

(Dollars in thousands)

Amount

(Level 1)

(Level 2)

(Level 3)

June 30, 2025:

Securities available-for-sale:

Agency obligations

53,546

—

53,546

—

Agency MBS

169,119

—

169,119

—

State and political subdivisions

17,016

—

17,016

—

Total securities available

-for-sale

239,681

—

239,681

—

Total

assets at fair value

239,681

—

239,681

—

December 31, 2024:

Securities available-for-sale:

Agency obligations

52,411

—

52,411

—

Agency MBS

173,676

—

173,676

—

State and political subdivisions

16,925

—

16,925

—

Total securities available

-for-sale

243,012

—

243,012

—

Total

assets at fair value

243,012

—

243,012

—

Table of Contents

Assets and liabilities measured at fair value on a nonrecurring

basis

Loans held for sale

Loans held for sale are carried at the lower of cost or fair value. Fair values of loans

held for sale are determined using

quoted secondary market prices for similar loans.

Loans held for sale are classified within Level 2 of the fair value

hierarchy.

Collateral dependent loans

Collateral dependent loans are measured at the fair value of the collateral securing

the loan less estimated selling costs. The

fair value of real estate collateral is determined based on real estate appraisals which

are generally based on recent sales of

comparable properties which are then adjusted for property specific factors.

Non-real estate collateral is valued based on

various sources, including third party asset valuations and internally determined

values based on cost adjusted for

depreciation and other judgmentally determined discount factors. Collateral dependent

loans are classified within Level 3 of

the hierarchy due to the unobservable inputs used in determining their fair

value such as collateral values and the borrower's

underlying financial condition.

Mortgage servicing rights, net

MSRs, net, included in other assets on the accompanying consolidated balance

sheets, are carried at the lower of cost or

estimated fair value.

MSRs do not trade in an active market with readily observable prices.

To determine the fair

value of

MSRs, the Company engages an independent third party.

The independent third party’s valuation

model calculates the

present value of estimated future net servicing income using assumptions that

market participants would use in estimating

future net servicing income, including estimates of mortgage prepayment

speeds, discount rates, default rates, costs to

service, escrow account earnings, contractual servicing fee income,

ancillary income, and late fees.

Periodically, the

Company will review broker surveys and other market research

to validate significant assumptions used in the model.

The

significant unobservable inputs include mortgage prepayment speeds

or the constant prepayment rate (“CPR”) and the

weighted average discount rate.

Because the valuation of MSRs requires the use of significant unobservable inputs,

all of

the Company’s MSRs are classified within

Level 3 of the valuation hierarchy.

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

value on a nonrecurring basis as of

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

by caption, on the accompanying consolidated balance sheets and by

FASB ASC 820 valuation

hierarchy (as described above):

Quoted Prices in

Active Markets

Other

Significant

for

Observable

Unobservable

Carrying

Identical Assets

Inputs

(Dollars in thousands)

Amount

(Level 1)

(Level 2)

(Level 3)

June 30, 2025:

Loans held for sale

186

—

186

—

Other assets

(2)

827

—

827

Total assets at fair value

1,013

—

186

827

December 31, 2024:

Loans, net

(1)

503

—

503

Other assets

(2)

892

—

892

Total assets at fair value

1,395

—

1,395

(1)

Loans considered collateral dependent under ASC 326.

(2)

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

fair value.

Table of Contents

Quantitative Disclosures for Level 3 Fair Value

Measurements

At June 30, 2025 and December 31, 2024, the Company had no Level 3

assets measured at fair value on a recurring basis.

For Level 3 assets measured at fair value on a non-recurring basis at June 30, 2025

and December 31, 2024, the significant

unobservable inputs used in the fair value measurements and the range

of such inputs with respect to such assets are

presented below.

Range of

Weighted

Carrying

Significant

Unobservable

Average

(Dollars in thousands)

Amount

Valuation Technique

Unobservable Input

Inputs

of Input

June 30, 2025:

Mortgage servicing rights, net

827

Discounted cash flow

Prepayment speed or CPR

6.4

10.7

6.7

Discount rate

10.0

12.0

10.0

December 31, 2024:

Collateral dependent loans

503

Appraisal

Appraisal discounts

10.0

Mortgage servicing rights, net

892

Discounted cash flow

Prepayment speed or CPR

6.7

11.2

7.3

Discount rate

10.0

12.0

10.0

Fair Value

of Financial Instruments

ASC 825,

Financial Instruments

, requires disclosure of fair value information about financial instruments,

whether or not

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

estimate that value. The assumptions used in the

estimation of the fair value of the Company’s

financial instruments are explained below.

Where quoted market prices are

not available, fair values are based on estimates using discounted cash flow

analyses. Discounted cash flows can be

significantly affected by the assumptions used, including

the discount rate and estimates of future cash flows. The

following fair value estimates cannot be substantiated by comparison to

independent markets and should not be considered

representative of the liquidation value of the Company’s

financial instruments, but rather are good-faith estimates of the fair

value of financial instruments held by the Company.

ASC 825 excludes certain financial instruments and all nonfinancial

instruments from its disclosure requirements.

The following methods and assumptions were used by the Company in estimating

the fair value of its financial instruments:

Loans, net

Fair values for loans were calculated using discounted cash flows. The discount

rates reflected current rates at which similar

loans would be made for the same remaining maturities. Expected

future cash flows were projected based on contractual

cash flows, adjusted for estimated prepayments.

The fair value of loans was measured using an exit price notion.

Loans held for sale

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

market prices for similar loans.

Time Deposits

Fair values for time deposits were estimated using discounted cash

flows.

The discount rates were based on rates currently

offered for deposits with similar remaining maturities.

Table of Contents

The carrying value, related estimated fair value,

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

financial

instruments at June 30, 2025 and December 31, 2024 are presented below.

This table excludes financial instruments for

which the carrying amount approximates fair value.

Financial assets for which fair value approximates carrying value

included cash and cash equivalents.

Financial liabilities for which fair value approximates carrying value included

noninterest-bearing demand deposits, interest-bearing demand deposits, and

savings deposits.

Fair value approximates

carrying value in these financial liabilities due to these products having

no stated maturity.

Additionally, financial

liabilities for which fair value approximates carrying value included overnight

borrowings such as federal funds purchased

and securities sold under agreements to repurchase.

The following table summarizes our fair value estimates:

Fair Value Hierarchy

Carrying

Estimated

Level 1

Level 2

Level 3

(Dollars in thousands)

amount

fair value

inputs

Inputs

June 30, 2025:

Financial Assets:

Loans, net (1)

555,749

535,700

—

535,700

Loans held for sale

186

190

—

190

—

Financial Liabilities:

Time Deposits

181,718

180,389

—

180,389

—

December 31, 2024:

Financial Assets:

Loans, net (1)

557,146

532,344

—

532,344

Financial Liabilities:

Time Deposits

191,247

190,636

—

190,636

—

(1) Represents loans, net of allowance for credit losses.

The fair value of loans was measured using an

exit price notion.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS

OPERATIONS

General

Auburn National Bancorporation, Inc. (the “Company”) is a bank holding

company registered with the Board of Governors

of the Federal Reserve System (the “Federal Reserve”) under the Bank Holding

Company Act of 1956, as amended (the

“BHC Act”). The Company was incorporated in Delaware in 1990, and in

1994 it succeeded its Alabama predecessor as the

bank holding company controlling AuburnBank, an Alabama state member

bank with its principal office in Auburn,

Alabama (the “Bank”). The Company and its predecessor have controlled

the Bank since 1984.

As a bank holding

company, the Company

may diversify into a broader range of financial services and other business activities than

currently

are permitted to the Bank under applicable laws and regulations.

The holding company structure also provides greater

financial and operating flexibility than is presently permitted to the

Bank.

The Bank has operated continuously since 1907 and currently conducts its business

primarily in East Alabama, including

Lee County and surrounding areas.

The Bank has been a member of the Federal Reserve System since April 1995.

The

Bank’s primary regulators are the

Federal Reserve and the Alabama Superintendent of Banks (the “Alabama

Superintendent”).

The Bank has been a member of the FHLB of Atlanta since 1991. Certain of the statements

made in this

discussion and analysis and elsewhere, including information incorporated

herein by reference to other documents, are

“forward-looking statements” as more fully described under “Special Cautionary

Notice Regarding Forward-Looking

Statements” below.

The following discussion and analysis is intended to provide a better understanding

of various factors related to the results

of operations and financial condition of the Company and the Bank.

This discussion is intended to supplement and

highlight information contained in the accompanying unaudited condensed

consolidated financial statements and related

notes for the quarters and six months ended June 30, 2025 and 2024,

as well as the information contained in our Annual

Report on Form 10-K for the year ended December 31, 2024 and our Quarterly

Reports on Form 10-Q.

Special Cautionary Notice Regarding Forward-Looking Statements

Various

of the statements made herein under the captions “Management’s

Discussion and Analysis of Financial Condition

and Results of Operations”, “Quantitative and Qualitative Disclosures about

Market Risk”, “Risk Factors” “Description of

Property” and elsewhere, are “forward-looking statements” within the meaning

and protections of Section 27A of the

Securities Act of 1933 and Section 21E of the Securities Exchange

Act of 1934, as amended (the “Exchange Act”).

Forward-looking statements include statements with respect to our beliefs, plans,

objectives, goals, expectations,

anticipations, assumptions, estimates, intentions and future performance,

and involve known and unknown risks,

uncertainties and other factors, which may be beyond our control,

and which may cause the actual results, performance,

achievements or financial condition of the Company to be materially different

from future results, performance,

achievements or financial condition expressed or implied by such forward-looking

statements.

You

should not expect us to

update any forward-looking statements.

All statements other than statements of historical fact are statements that could

be forward-looking statements.

You

can

identify these forward-looking statements through our use of words such

as “may,” “will,” “anticipate,”

“assume,”

“should,” “indicate,” “would,” “believe,” “contemplate,” “expect,”

“estimate,” “continue,” “designed,” “plan,” “point to,”

“project,” “could,” “intend,” “target,” “seek” and other

similar words and expressions of the future.

These forward-looking

statements may not be realized due to a variety of factors, including,

without limitation:

●

the effects of future economic, business and market conditions and

changes, foreign, domestic and locally,

including inflation, seasonality,

natural disasters or climate change, such as rising sea and water levels, hurricanes

and tornadoes, epidemics or pandemics including supply chain disruptions,

inventory volatility, and changes in

consumer behaviors;

●

the effects of war or other conflicts, acts of terrorism, trade restrictions, tariffs,

sanctions, the value of the U.S.

dollar against other currencies, or other events that may affect general

economic conditions, including inflation,

and consumer and business confidence;

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●

governmental monetary and fiscal policies, including taxes, federal

deficit spending and the debt required to fund

such spending, changes in monetary policies in response to inflation

and changes in prices and unemployment,

including changes in the Federal Reserve’s

target federal funds rate and changes in the Federal Reserve’s

holdings

of securities through quantitative tightening or easing; and the duration that

the Federal Reserve will keep its

targeted federal funds rates at or above current target

ranges in furtherance of its long-term inflation target of 2%

while supporting maximum employment;

●

legislative, executive branch and regulatory changes, including changes

by executive orders, the possible

reorganization and/or consolidation of the bank regulatory

agencies, the SEC and/or the CFPB, changes in the

leadership and personnel, including reductions in the number and experience

of personnel, at the bank and

securities regulators and the CFPB, oversight by the Office of Management

and Budget of these agencies, freezes

on changes in regulations and interpretations, numerous new Executive

Orders, and the uncertain effects of all

these, including the costs and benefits of such changes;

●

the effects of the potential privatization of Fannie Mae and Freddie Mac

and their release from conservatorship on

the mortgage markets and us as an originator,

seller and servicer of residential mortgage loans;

●

recent Supreme Court rulings that may lead to more court challenges to regulations

and regulatory actions, which

may cause uncertainty,

wasted implementation costs and time by the industry,

and lengthy delays until ultimate

resolution;

●

changes in banking, securities and tax laws, regulations and rules and their

application and enforcement by the

regulators, including capital and liquidity requirements, and changes in

the scope and cost of FDIC insurance;

●

changes in accounting pronouncements and interpretations;

●

the failure of assumptions and estimates, including those used in the Company’s

CECL models to establish our

allowance for credit losses and estimate asset impairments, as well as differences

in, and changes to, economic,

market and credit conditions, including changes in borrowers’ credit

risks and payment behaviors from those used

in our CECL models and loan portfolio reviews;

●

the risks of changes in market interest rates and the shape of the yield curve on customer

behaviors; the levels,

composition and costs of deposits, loan demand and mortgage loan originations;

the values and liquidity of loan

collateral, our securities portfolio and interest-sensitive assets and

liabilities; and the risks and uncertainty of the

amounts realizable on collateral;

●

the risks of increases in market interest rates creating unrealized losses on our

securities available for sale, which

adversely affect our stockholders’ equity for financial

reporting purposes and our tangible equity;

●

changes in borrower liquidity and credit risks, and changes in savings, deposit and

payment behaviors;

●

changes in the availability and cost of credit and capital in the financial markets, and

the types of instruments that

may be included as capital for regulatory purposes;

●

changes in the prices, values and sales volumes of residential and commercial

real estate;

●

the effects of competition from a wide variety of local, regional,

national and other providers of financial,

investment and insurance services, including the disruptive effects

of financial technology and other competitors

who are not subject to the same regulation, including capital and liquidity

requirements, internal controls, and

supervision and examination, as the Company and the Bank, and competition

from credit unions, which are not

subject to federal income taxation;

Table of Contents

●

legislation such as the federal GENIUS Act on stablecoins signed into law on

July 18, 2025, and the proposed

CLARITY Act and the Anti-CBDC Surveillance Act bills being considered

by Congress, more permissive

regulation and/or enforcement regarding digital assets, such as cyber currency

and stable coins that creates

additional competition to banks, and greater risks to the payment systems that the

banking industry,

including the

Company, relies on,

and greater risks of fraud and theft of digital assets and their effects

on customers, other

financial institutions, including our counterparties, financial stability

and confidence in the financial system,

generally;

●

the timing and amount of rental income from third parties from office

space in our Auburn Center headquarters

and in former office locations;

●

the risks of mergers, acquisitions and divestitures, including, without

limitation, the related time and costs of

implementing such transactions, integrating operations as part of these

transactions and possible failures to achieve

expected gains, revenue growth and/or expense savings from such transactions;

●

changes in technology or products that may be more difficult, costly,

or less effective than anticipated;

●

cyber-attacks and data breaches that may compromise our systems, our

vendors’ systems or customers’

information;

●

the risks that our deferred tax assets (“DTAs”)

included in “other assets” on our consolidated balance sheets, if

any, could be reduced

if estimates of future taxable income from our operations and tax planning strategies

are less

than currently estimated, and sales of our capital stock could trigger a reduction

in the amount of net operating loss

carry-forwards that we may be able to utilize for income tax purposes;

●

the risks that our dividends, share repurchases and discretionary

bonuses are limited by regulation requiring the

maintenance of capital, including a capital conservation buffer

of 2.5% and to the amount of our future earnings

and “eligible retained earnings” over rolling four calendar quarter periods;

●

other factors and risks described under “Risk Factors” herein and in any of our

subsequent reports that we make

with the Securities and Exchange Commission (the “Commission” or

“SEC”) under the Exchange Act.

All written or oral forward-looking statements that we make or are

attributable to us are expressly qualified in their entirety

by this cautionary notice.

We have no obligation

and do not undertake to update, revise or correct any of the forward-

looking statements after the date of this report, or after the respective dates on

which such statements otherwise are made.

Summary of Results of Operations

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands, except per share amounts)

2025

2024

2025

2024

Net interest income (a)

7,363

6,728

14,425

13,405

Less: tax-equivalent adjustment

Net interest income (GAAP)

7,344

6,709

14,389

13,366

Noninterest income

789

896

1,536

1,783

Total revenue

8,133

7,605

15,925

15,149

Provision for credit losses

113

(123)

103

211

Noninterest expense

5,702

5,519

11,582

11,194

Income tax expense

485

475

877

639

Net earnings

1,833

1,734

3,363

3,105

Basic and diluted earnings per share

0.52

0.50

0.96

0.89

(a) Tax-equivalent.

See "Table 1 - Explanation of Non-GAAP Financial Measures."

Table of Contents

Financial Summary

The Company’s net earnings were $3.4

million for the first six months of 2025, compared to $3.1 million

for the first six

months of 2024.

Basic and diluted earnings per share were $0.96 per share for the first six months of 2025,

compared to

$0.89 per share for the first six months of 2024.

Net interest

income (tax-equivalent) was $14.4 million for the first six months

of 2025, an 8% increase compared to $13.4

million for the first six months of 2024.

This increase was primarily due to an increase in the Company’s

net interest

margin and an increase in average interest-earning assets.

The Company’s net interest margin

(tax-equivalent) was 3.24%

for the first six months of 2025 compared to 3.05% for the

first six months of 2024.

This increase was primarily due to

improvements in our yields on interest-earning assets, which outpaced increase

in the cost of our interest-bearing deposits.

See “Results of Operations – Average

Balance Sheet and Interest Rates” and “Net Interest Income and Margin”

below.

At June 30, 2025, the Company’s allowance

for credit losses was $7.0 million, or 1.24% of total loans, compared to $6.9

million, or 1.22% of total loans, at December 31, 2024, and $7.1

million, or 1.24% of total loans, at June 30, 2024.

The Company recorded a provision for credit losses during the first six months

of 2025 of $103 thousand, compared to

$211 thousand during the first six months of 2024.

The provision for credit losses under CECL reflects the Company’s

evaluation of its credit risk profile and its future economic outlook

and forecasts.

Our CECL model is largely influenced by

economic factors including, the anticipated Alabama unemployment

rate, which may be affected by government policies,

including monetary,

fiscal and other policies, including tariffs.

Noninterest income was $1.5 million in the first six months of 2025,

compared to $1.8 million in the first six months of

2024.

The decrease was primarily related to a decrease in mortgage lending income

and other noninterest income.

Noninterest expense was $11.6 million in the

first six months of 2025, compared to $11.2 million for

the first six months of

2024.

The increase was primarily related to increases in salaries and benefits expense.

Income tax expense was $0.9 million for the first six months of 2025

compared to $0.6 million for the first six months of

2024.

The Company's effective tax rate for the first six months of 2025

was 20.68%, compared to 17.07% in the first six

months of 2024.

The Company’s effective

income tax rate is affected principally by tax-exempt earnings from

the

Company’s investments

in municipal securities and loans, bank-owned life insurance (“BOLI”),

and New Markets Tax

Credits (“NMTCs”).

The Company paid cash dividends of $0.54 per share in the first six months of 2025

and 2024.

At June 30, 2025, the

Bank’s regulatory capital ratios were

well above the minimum amounts required to be “well capitalized” under

current

regulatory standards with a total risk-based capital ratio of 16.35%,

a tier 1 leverage ratio of 10.64% and a common equity

tier 1 (“CET1”) ratio of 15.32% at June 30, 2025.

See “Balance Sheet Analysis – Capital Adequacy”.

For the second quarter of 2025, net earnings were $1.8 million,

or $0.52 per share, compared to $1.7 million, or $0.50 per

share, for the second quarter of 2024.

Net interest income (tax-equivalent) was $7.4 million for the second quarter of 2025

compared to $6.7 million for the second quarter of 2024.

The 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 3.27% in the second

quarter of 2025 compared to 3.06% in the second quarter of 2024.

The increase was primarily due to improved yields on

interest-earning assets, and a decrease in our cost of interest-bearing

deposits.

The Company recorded a charge to provision

for credit losses of $113 thousand in

the second quarter of 2025, compared to a negative provision for credit losses of $123

thousand in the second quarter of 2024.

Noninterest

income was $0.8 million for the second quarter of 2025, compared to

$0.9

million for the second quarter of 2024.

This decrease was primarily due to a decrease in mortgage lending income and

other noninterest income.

Noninterest expense was $5.7 million in the second quarter of 2025, compared to $5.

million

for the second quarter of 2024.

The increase in noninterest expense was primarily due to routine increases

in salaries and

benefits expense and increases in professional fees expense.

Income tax expense was $0.5

million for the second quarter of

2025 and 2024, respectively.

The Company’s effective

tax rate for the second quarter of 2025 was 20.92%, compared to

21.50% in the second quarter of 2024.

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, 2024.

Table of Contents

RESULTS

OF OPERATIONS

Average Balance

Sheet and Interest Rates

Six months ended June 30,

2025

2024

Average

Yield/

Average

Yield/

(Dollars in thousands)

Balance

Rate

Balance

Rate

Loans and loans held for sale

563,086

5.45%

567,434

5.12%

Securities - taxable

231,201

2.21%

252,623

2.21%

Securities - tax-exempt

9,180

3.80%

10,294

3.65%

Total securities

240,381

2.27%

262,917

2.27%

Federal funds sold

26,282

4.38%

17,669

5.50%

Interest bearing bank deposits

68,777

4.44%

36,171

5.33%

Total interest-earning

assets

898,526

4.49%

884,191

4.29%

Deposits:

NOW

204,069

1.37%

193,755

1.37%

Savings and money market

248,233

0.93%

248,227

0.71%

Time deposits

187,763

3.27%

195,863

3.34%

Total interest-bearing

deposits

640,065

1.76%

637,845

1.72%

Short-term borrowings

5.27%

1,262

0.48%

Total interest-bearing

liabilities

640,120

1.76%

639,107

1.71%

Net interest income and margin (tax-equivalent)

14,425

3.24%

13,405

3.05%

See Tables 4 and 5 –

Average Balances and Net Interest

Income Analysis for the quarters and six months ended June 30,

2025 and 2024, and Table

6 – Volume

and Rate Variance

Analysis.

Net Interest Income and Margin

Net interest income (tax-equivalent) was $14.4 million for the first six months

of 2025, an 8% increase compared to $13.4

million for the first six months of 2024.

This increase was primarily due to an increase in the Company’s

net interest

margin and an increase in average interest-earning assets.

The Company’s net interest margin

(tax-equivalent) was 3.24%

in the first six months of 2025 compared to 3.05% in the first six months of 2024.

This increase was primarily due to

improvements in our yields on interest-earning assets, which outpaced increases in

the cost of our interest-bearing deposits.

Since March 2022, the Federal Reserve increased the target federal

funds rate by 525 basis points before announcing a 50-

basis points rate reduction on September 18, 2024, its first decrease in

rates since its March 2020 COVID rate reduction,

followed by two 25 basis points reductions in October and December

2024.

At June 30, 2025, the target federal funds rate

ranged from 4.25% - 4.50%, which was maintained at the July 31, 2025

meeting of the Federal Reserve’s Federal Open

Market Committee (“FOMC”) meeting.

The tax-equivalent yield on total interest-earning assets increased by

20 basis points to 4.49% in the first six months of

2025 compared to 4.29% in the first six months of 2024.

This increase was primarily due to changes in our asset mix, as

cash and cash equivalents increased and securities declined.

Average interest-earning

assets were $898.5 million during the

first six months of 2025, a 2% increase compared to $884.2 million during

the first six months of 2024.

The cost of interest-bearing liabilities increased 5 basis points in the first

first six months of 2025 to 176 basis points,

compared to 171 basis points in the first first six months of 2024.

Our deposit costs may continue to increase as we

compete for deposit funds against other banks, money market mutual funds, Treasury

securities and other interest-bearing

alternative investments.

The Company continues to deploy various asset liability management

strategies to manage its risks from interest rate

fluctuations. Deposit and loan pricing remain competitive in our

markets.

We believe this challenging

rate environment

will continue throughout the remainder of 2025.

Our ability to compete and manage our deposit costs until our interest-

earning assets reprice and we generate new loans with current market interest

rates will be important to our net interest

margin during the remainder of 2025.

Table of Contents

Provision for Credit Losses

The Company recorded a provision for credit losses during the first six months

of 2025 of $103 thousand, compared to

$211 thousand during the first six months

of 2024.

Provision expense is affected by organic loan growth in our loan

portfolio, our internal assessment of the credit quality of the loan portfolio, our

expectations about future economic

conditions and net charge-offs.

Our CECL model is largely influenced by economic factors including,

the anticipated

Alabama unemployment rate, which may be affected by

government policies, including monetary,

fiscal and other policies,

including tariffs.

Our allowance for credit losses reflects an amount we believe appropriate,

based on our allowance assessment

methodology, to adequately

cover all expected credit losses as of the date the allowance is determined.

At June 30, 2025,

the Company’s allowance for credit

losses was $7.0 million, or 1.24% of total loans, compared to $6.9 million, or 1.22% of

total loans, at December 31, 2024, and $7.1 million, or 1.24% of total loans, at June 30,

2024.

Noninterest Income

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2025

2024

2025

2024

Service charges on deposit accounts

152

153

307

309

Mortgage lending income

131

180

224

330

Bank-owned life insurance

101

206

201

Other

405

464

799

943

Total noninterest income

789

896

1,536

1,783

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 June 30,

Six months ended June 30,

(Dollars in thousands)

2025

2024

2025

2024

Origination income

142

Servicing fees, net

167

188

Total mortgage lending

income

131

180

224

330

The Company’s mortgage

lending income typically fluctuates as mortgage interest rates, housing

sales and refinancings

change.

Origination income decreased in the first six months of 2025 compared to the first six months

of 2024 due to a

decrease in mortgage lending demand in our primary market area.

Other noninterest income was $0.8 million for the first six months of 2025, compared

to $0.9 million for the first six

months of 2024.

The decrease in other noninterest income was primarily due to decreased fee income

on reciprocal

deposits sold through the Intrafi network.

Table of Contents

Noninterest Expense

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2025

2024

2025

2024

Salaries and benefits

3,258

3,140

6,568

6,211

Net occupancy and equipment

604

603

1,318

1,366

Professional fees

385

314

672

640

Other

1,455

1,462

3,024

2,977

Total noninterest expense

5,702

5,519

11,582

11,194

The increase in salaries and benefits expense was primarily due to routine

annual increases in salaries and wages.

Income Tax

Expense

Income tax expense was $0.9 million for the first six months of 2025

compared to $0.6 million for the first six months of

2024.

The Company's effective tax rate for the first six months of 2025

was 20.68%, compared to 17.07% in the first six

months of 2024.

The Company’s effective

income tax rate is affected principally by tax-exempt earnings from

the

Company’s investments

in municipal securities and loans, BOLI, and NMTCs.

BALANCE SHEET ANALYSIS

Securities

Securities available-for-sale were $239.7 million at June 30, 2025

compared to $243.0 million at December 31, 2024.

This

decrease reflects an $11.7 million decrease

in the amortized cost basis of securities available-for-sale and an increase in the

fair value of securities available-for-sale of $8.4 million.

The average annualized tax-equivalent yields earned on total

securities were 2.27%

in the first six months of 2025 and 2024, respectively.

Loans

2025

2024

Second

First

Fourth

Third

Second

(In thousands)

Quarter

Commercial and industrial

59,773

59,061

63,274

61,510

77,627

Construction and land development

93,820

86,403

82,493

77,956

73,688

Commercial real estate

282,868

288,353

289,992

297,773

297,232

Residential real estate

117,159

117,500

118,627

118,582

119,427

Consumer installment

9,094

9,333

9,631

9,878

10,094

Total loans

562,714

560,650

564,017

565,699

578,068

Total loans were $562.7

million at June 30, 2025, a slight decrease compared to $564.0 million at December

31, 2024.

Four loan categories represented the majority of the loan portfolio at June

30, 2025: commercial real estate (50%),

residential real estate (21%), construction and land development (17%)

and commercial and industrial (11%).

Approximately 22% of the Company’s

commercial real estate loans were classified as owner-occupied at June 30, 2025.

Within the residential real estate portfolio segment,

the Company had junior lien mortgages of approximately $11.7

million,

or 2% of total loans,

and $11.2 million, or 2%, of total loans at June 30, 2025 and

December 31, 2024, respectively.

For

residential real estate mortgage loans with a consumer purpose, the Company

had no loans that required interest only

payments at June 30, 2025 and December 31, 2024. The Company’s

residential real estate mortgage portfolio does not

include any option or hybrid ARM loans, subprime loans, or any material

amount of other consumer mortgage products

which are generally viewed as high risk.

The average yield earned on loans and loans held for sale was 5.45% in the first six months

of 2025 and 5.12% in the first

six months of 2024.

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The specific economic and credit risks associated with our loan portfolio include,

but are not limited to, the effects of

current economic conditions, including the levels of market interest rates, supply

chain disruptions, commercial office

occupancy levels, housing supply shortages, and effects of

inflation on our borrowers’ cash flows, real estate market sales

volumes and liquidity,

valuations used in making loans and evaluating collateral, availability and

cost of financing

properties, real estate industry concentrations, competitive pressures from

a wide range of other lenders, deterioration in

certain credits, interest rate fluctuations, reduced collateral values or

non-existent collateral, title defects, in accurate

appraisals, financial deterioration of borrowers, fraud, and any violation

of applicable laws and regulations. Various

projects financed earlier that were based on lower interest rate assumptions than

currently in effect may not be as profitable

or successful at the higher interest rates currently in effect and which

may exist in the future.

The Company attempts to reduce these economic and credit risks through its loan-to-value

guidelines for collateralized

loans, investigating the creditworthiness of borrowers and monitoring borrowers’

financial position. Also, we have

established and periodically review,

lending policies and procedures. Banking regulations limit a bank’s

credit exposure by

prohibiting unsecured loan relationships that exceed 10% of its capital; or

20% of capital, if loans in excess of 10% of

capital are fully secured. Under these regulations, we are prohibited from having

secured loan relationships in excess of

approximately $23.1 million.

Furthermore, we have an internal limit for aggregate credit exposure (loans

outstanding plus

unfunded commitments) to a single borrower of $20.8 million. Our

loan policy requires that the Loan Committee of the

Board of Directors approve any loan relationships that exceed this internal

limit.

At June 30, 2025, the Bank had no loan

relationships exceeding our internal limit.

We periodically

analyze our commercial and industrial and commercial real estate loan portfolios

to determine if a

concentration of credit risk exists in any one or more industries. We

use classification systems broadly accepted by the

financial services industry in order to categorize our commercial borrowers.

Loans to borrowers in each of the following

classes exceeded 25% of the Bank’s

total risk-based capital at June 30, 2025 (and related balances at December

31, 2024).

June 30,

December 31,

(Dollars in thousands)

2025

2024

Lessors of 1-4 family residential properties

57,947

58,228

Multi-family residential properties

42,807

43,556

Shopping centers/strip malls

35,960

37,349

Hotel/motel

34,064

35,210

Office Buildings

25,960

29,780

Allowance for Credit Losses

Our allowance for credit losses was approximately $7.0 million and $6.9

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

respectively, which our

management believed

to be adequate at each of the respective dates. Our allowance for credit losses

as a percentage of total loans was 1.24%

at June 30, 2025, compared to 1.22% at December 31, 2024.

Our CECL models rely largely on projections of macroeconomic

conditions to estimate future credit losses.

Macroeconomic factors used in the model include the Alabama unemployment

rate, the Alabama home price index, the

national commercial real estate price index and the Alabama gross state product.

Projections of these macroeconomic

factors, obtained from an independent third party,

are utilized to predict quarterly rates of default.

Under the CECL methodology the allowance for credit losses is measured on

a collective basis for pools of loans with

similar risk characteristics, and for loans that do not share similar risk characteristics

with the collectively evaluated pools,

evaluations are performed on an individual basis. Losses are predicted over

a period of time determined to be reasonable

and supportable, and at the end of the reasonable and supportable period

losses are reverted to long term historical averages.

At June 30, 2025, reasonable and supportable periods of four quarters

were utilized followed by an eight quarters straight

line reversion period to long term averages.

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A summary of the changes in the allowance for credit losses and certain

asset quality ratios for the second quarter of 2025

and the previous four quarters is presented below.

2025

2024

Second

First

Fourth

Third

Second

(Dollars in thousands)

Quarter

Balance at beginning of period

6,750

6,871

6,876

7,142

7,215

Charge-offs:

Commercial and industrial

(3)

(99)

—

(9)

Residential real estate

(6)

(1)

(7)

(54)

—

Consumer installment

(9)

—

(31)

(40)

(19)

Total charge

-offs

(18)

(100)

(38)

(94)

(28)

Recoveries

Net (charge-offs) recoveries

(64)

(60)

(9)

Provision for credit losses - Loans

166

(57)

(21)

(206)

(64)

Ending balance

6,965

6,750

6,871

6,876

7,142

as a % of loans

1.24

1.20

1.22

1.24

as a % of nonperforming loans

2,306

1,298

1,366

887

900

Net charge-offs (recoveries) as % of average

loans (a)

(0.03)

0.05

(0.01)

0.04

0.01

(a) Net charge-offs (recoveries) are annualized.

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The allowance for credit losses by loan category for the second quarter of 2025 and the previous

four quarters is presented

below.

2025

2024

Second Quarter

First Quarter

Fourth Quarter

Third Quarter

Second Quarter

(Dollars in thousands)

Amount

Commercial and industrial

1,212

10.6

1,219

10.5

1,244

11.2

1,160

10.9

1,366

13.4

Construction and land

development

1,613

16.7

1,401

15.4

1,059

14.6

985

13.8

942

12.7

Commercial real estate

3,151

50.3

3,153

51.4

3,842

51.5

3,989

52.6

4,091

51.5

Residential real estate

866

20.8

861

21.0

588

21.0

595

21.0

603

20.7

Consumer installment

123

1.6

116

1.7

138

1.7

147

1.7

140

1.7

Total allowance for

credit losses

6,965

6,750

6,871

6,876

7,142

* Loan balance in each category expressed as a percentage of total loans.

Nonperforming Assets

At June 30, 2025 and December 31, 2024, the Company had $0.3 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 second

quarter of 2025 and the previous four quarters.

2025

2024

Second

First

Fourth

Third

Second

(Dollars in thousands)

Quarter

Nonperforming assets:

Nonaccrual loans

302

520

503

775

794

Total nonperforming

assets

302

520

503

775

794

as a % of loans and OREO

0.05

0.09

0.14

as a % of total assets

0.03

0.05

0.08

Nonperforming loans as a % of total loans

0.05

0.09

0.14

Accruing loans 90 days or more past due

—

The table below provides information concerning the composition of

nonaccrual loans for the second quarter of 2025 and

the previous four quarters.

2025

2024

Second

First

Fourth

Third

Second

(In thousands)

Quarter

Nonaccrual loans:

Commercial and industrial

—

Construction and land development

—

404

—

Commercial real estate

119

—

735

753

Residential real estate

183

113

—

Total nonaccrual

loans

302

520

503

775

794

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 no loans 90 days or more past due and still accruing at June 30, 2025 or December

31, 2024.

The Company had no OREO at June 30, 2025 or December 31, 2024.

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Deposits

(In thousands)

2025

2024

Noninterest bearing demand

268,468

260,874

NOW

199,398

199,883

Money market

203,791

153,916

Savings

86,476

89,904

Certificates of deposit under $250,000

99,995

103,594

Certificates of deposit and other time deposits of $250,000 or more

81,723

87,653

Total deposits

939,851

895,824

Total deposits were $939.9

million at June 30, 2025, compared to $895.8 million at December 31, 2024.

The 5% increase

in deposits compared to December 31, 2024 was primarily related to a decrease

in reciprocal customer deposits sold

through the Intrafi network.

At June 30, 2025

the Company had no reciprocal deposits sold, compared to $74.1 million at

December 31, 2024.

The Company had no brokered deposits at June 30, 2025 and December 31, 2024.

Noninterest-

bearing deposits were $268.5 million, or 30% of total deposits, at June 30,

2025, compared to $260.9 million, or 29% of

total deposits at December 31, 2024.

The average rate paid on total interest-bearing deposits was 1.76% in the first

six months of 2025, compared to 1.72% in

first six months of 2024.

At June 30, 2025, estimated uninsured deposits totaled $362.2 million,

or 39% of total deposits, compared to $359.7

million, or 40% of total deposits at December 31, 2024.

The Bank participates in the Certificates of Deposit Account

Registry Service (the “CDARS”) and the Insured Cash Sweep product

(“ICS”), which provide for reciprocal (“two-way”)

transactions among banks facilitated by IntraFi for the purpose of

improving the FDIC insurance coverage for our

depositors.

The Company had reciprocal deposits on balance sheet of $55.2 million at June 30,

2025, compared to $6.9

million at December 31, 2024.

Uninsured amounts are estimated based on the portion of account balances in excess

FDIC insurance limits.

The Bank’s estimated uninsured

deposits at June 30, 2025 and December 31, 2024 include

approximately $202.6 million and $223.1 million, respectively,

of deposits of state, county and local governments that are

collateralized by securities having an equal fair value to such deposits.

Excluding estimated uninsured deposits of state,

county and local governments,

our estimated uninsured deposits would have been 15% of total deposits

at both June 30,

2025 and December 31, 2024, respectively.

The estimated uninsured time deposits by maturity as of June 30,

2025 is presented below.

(Dollars in thousands)

June 30, 2025

Maturity of:

3 months or less

13,116

Over 3 months through 6 months

37,317

Over 6 months through 12 months

2,398

Over 12 months

2,392

Total estimated uninsured

time deposits

55,223

Other Borrowings and Available

Credit

The Company had no long-term debt at June 30, 2025 and December 31, 2024.

The Bank utilizes short and long-term non-

deposit borrowings from time to time. Short-term borrowings generally

consist of federal funds purchased and securities

sold under agreements to repurchase with an original maturity of one year or less.

The Bank had available federal funds

lines totaling $65.2 million with no federal funds borrowings outstanding

at June 30, 2025, and December 31, 2024,

respectively. The

Company had no securities sold under agreements to repurchase,

which generally have been entered into

on behalf of certain customers at both June 30, 2025 and December 31, 2024.

The Bank is eligible to borrow from the

FRB’s discount window,

but had no such borrowings at June 30, 2025 and December 31, 2024.

The Bank never borrowed

from the Federal Reserve’s Bank

Term Facility Program

(“BTFP”), which ceased making new loans on March 11,

2024.

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The Bank is a member of the FHLB of Atlanta and has borrowed, and may in the future

borrow from time to time under the

FHLB of Atlanta’s advance progr

am.

FHLB advances include both fixed and variable rates and are taken out with varying

maturities, and are generally secured by eligible assets.

The Bank had no borrowings under FHLB of Atlanta’s

advance

program at June 30, 2025 and December 31, 2024, respectively.

At those dates, the Bank had $298.9 million and $296.9

million, respectively,

of available lines of credit at the FHLB of Atlanta.

CAPITAL ADEQUACY

The Company’s consolidated

stockholders’ equity was $86.1 million and $78.3 million as of June 30,

2025 and December

31, 2024, respectively.

The increase from December 31, 2024 was primarily driven by net earnings of $3.4

million and

other comprehensive income due to the change in unrealized gains/losses on

securities available-for-sale, net of tax of $6.3

million, partially offset by cash dividends of $1.9 million.

Unrealized losses do not affect the Bank’s

capital for regulatory

capital purposes.

The Company paid cash dividends of $0.54 per share for both the first

six months of 2025 and the first six months of 2024.

Federal Reserve rules require a capital conservation buffer

of CET1 capital of 2.5% that is added to the minimum

requirements for capital adequacy purposes.

A banking organization with a capital conservation buffer

of 2.5% or less is

subject to limitation on “distributions” from “eligible retained earnings”,

including dividend payments, share repurchases

and certain discretionary bonus payments.

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 10.64

%, CET1 risk-based capital ratio was 15.32%, tier 1

risk-based capital ratio was 15.32%, and total risk-based capital ratio was 16.35%

at June 30, 2025. These ratios exceed the

minimum regulatory capital percentages of 5.0% for tier 1 leverage

ratio, 6.5% for CET1 risk-based capital ratio, 8.0% for

tier 1 risk-based capital ratio, and 10.0% for total risk-based capital ratio

to be considered “well capitalized.”

The Bank’s

capital conservation buffer was 8.35%

at June 30, 2025.

MARKET AND LIQUIDITY RISK MANAGEMENT

Management’s objective is to manage

assets and liabilities to provide a satisfactory,

consistent level of profitability within

the framework of established liquidity,

loan, investment, borrowing, and capital policies. The Bank’s

Asset Liability

Management Committee (“ALCO”) is charged with the

responsibility of monitoring these policies, which are designed to

ensure an acceptable asset/liability composition. Two

critical areas of focus for ALCO are interest rate risk and liquidity

risk management.

Interest Rate Risk Management

In the normal course of business, the Company is exposed to market risk arising

from fluctuations in interest rates. ALCO

measures and evaluates interest rate risk so that the Bank can meet customer demands

for various types of loans and

deposits. Measurements used to help manage interest rate sensitivity include

an earnings simulation model and an economic

value of equity (“EVE”) model.

Earnings simulation

. Management believes that interest rate risk is best estimated by our earnings

simulation modeling.

Forecasted levels of earning assets, interest-bearing liabilities, and

off-balance sheet financial instruments are combined

with ALCO forecasts of market interest rates for the next 12 months and other factors

in order to produce various earnings

simulations and estimates. To

help limit interest rate risk, we have guidelines for earnings at risk which seek to

limit the

variance of net interest income from gradual changes in interest rates.

For changes up or down in rates from management’s

flat interest rate forecast over the next 12 months, policy limits for net interest income

variances are as follows:

●

+/- 20% for a gradual change of 400 basis points

●

+/- 15% for a gradual change of 300 basis points

●

+/- 10% for a gradual change of 200 basis points

●

+/- 5% for a gradual change of 100 basis points

While a gradual change in interest rates was used in the above analysis to provide an

estimate of exposure under these

scenarios, our modeling under both a gradual and instantaneous change in

interest rates indicates our balance sheet is

liability sensitive over the forecast period of 12 months.

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At June 30, 2025, our earnings simulation model indicated that we were

in compliance with the policy guidelines noted

above.

Economic Value

of Equity

. EVE measures the extent that the estimated economic values of our

assets, liabilities, and off-

balance sheet items will change as a result of interest rate changes. Economic values

are estimated by discounting expected

cash flows from assets, liabilities, and off-balance sheet

items, which establishes a base case EVE. In contrast with our

earnings simulation model, which evaluates interest rate risk over a 12-month

timeframe, EVE uses a terminal horizon

which allows for the re-pricing of all assets, liabilities, and off-balance

sheet items. Further, EVE is measured using values

as of a point in time and does not reflect any actions that ALCO might take in responding

to or anticipating changes in

interest rates, or market and competitive conditions.

To help limit interest rate risk, we have

stated policy guidelines for an

instantaneous basis point change in interest rates, such that our EVE should not decrease

from our base case by more than

the following:

●

35% for an instantaneous change of +/- 400 basis points

●

30% for an instantaneous change of +/- 300 basis points

●

25% for an instantaneous change of +/- 200 basis points

●

15% for an instantaneous change of +/- 100 basis points

At June 30, 2025, our EVE model indicated that we were in compliance

with our policy guidelines.

Each of the above analyses may not, on its own, be an accurate indicator of how our

net interest income will be affected by

changes in interest rates. Income associated with interest-earning

assets and costs associated with interest-bearing liabilities

may not be affected uniformly by changes in interest rates.

In addition, the magnitude and duration of changes in interest

rates may have a significant impact on net interest income. For example,

although certain assets and liabilities may have

similar maturities or periods of repricing, they may react in different

degrees to changes in market interest rates, and other

economic and market factors, including market perceptions. Interest

rates on certain types of assets and liabilities fluctuate

in advance of changes in general market rates, while interest rates on other types

of assets and liabilities may lag behind

changes in general market rates. In addition, certain assets, such as adjustable-rate

mortgage loans, have features (generally

referred to as “interest rate caps and floors”) which limit changes in interest rates.

Prepayments

and early withdrawal levels

also could deviate significantly from those assumed in calculating the maturity of

certain instruments. The ability of many

borrowers to service their debts also may decrease during periods of rising interest

rates or economic stress, which may

differ across industries and economic sectors. ALCO reviews each

of the above interest rate sensitivity analyses along with

several different interest rate scenarios in seeking satisfactory,

consistent levels of profitability within the framework of the

Company’s established liquidity,

loan, investment, borrowing, and capital policies.

The Company may also use derivative financial instruments to improve

the balance between interest-sensitive assets and

interest-sensitive liabilities, and as a tool to manage interest rate sensitivity while

continuing to meet the credit and deposit

needs of our customers. From time to time, the Company also may

enter into back-to-back interest rate swaps to facilitate

customer transactions and meet their financing needs. These interest rate swaps

qualify as derivatives, but are not

designated as hedging instruments. At June 30, 2025 and December 31, 2024,

the Company had no derivative contracts

designated as part of a hedging relationship to assist in managing its interest rate

sensitivity.

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.

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The primary source of funding and liquidity for the Company has been dividends

received from the Bank.

If needed, the

Company could also borrow money,

or issue common stock or other securities.

Primary uses of funds by the Company

include payment of Company expenses, dividends paid to stockholders

and Company stock repurchases.

Primary sources of funding for the Bank include customer deposits, other borrowings,

interest payments on earning assets,

repayment

and maturity of securities and loans,

sales of securities, and the sale of loans, particularly residential mortgage

loans.

The Bank has access to federal funds lines from various banks and borrowings

from the Federal Reserve discount

window. In addition to

these sources, the Bank is eligible to participate in the FHLB of Atlanta’s

advance program to obtain

funding for growth and liquidity.

Advances include both fixed and variable terms and may be taken out with varying

maturities. At June 30, 2025, the Bank had no FHLB of Atlanta advances

outstanding and available credit from the FHLB

of $298.9 million. At June 30, 2025, the Bank also had $65.2 million

of available federal funds lines with no borrowings

outstanding. Primary uses of funds include repayment of maturing obligations

and growing the loan portfolio.

The

Company also has access to the FRB discount window.

Management believes that the Company and the Bank have adequate

sources of liquidity to meet all their respective known

contractual obligations and unfunded commitments, including loan

commitments and reasonably

expected borrower,

depositor, and creditor requirements over

the next twelve months.

Off-Balance Sheet Arrangements, Commitments, Contingencies and Contractual

Obligations

At June 30, 2025, the Bank had outstanding standby letters of credit of $0.8 million

and unfunded loan commitments

outstanding of $64.5 million.

Because these commitments generally have fixed expiration dates and

many will expire

without being drawn upon, the total commitment level does

not necessarily represent future cash requirements. If needed to

fund these outstanding commitments, the Bank could use its cash and

cash equivalents,

deposits with other banks, liquidate

federal funds sold or a portion of our securities available-for-sale, or

draw on its available credit facilities or raise deposits.

Mortgage lending activities

We generally

sell residential mortgage loans in the secondary market to Fannie Mae while retaining

the servicing of these

loans. The sale agreements for these residential mortgage loans with Fannie Mae

and other investors include various

customary representations and warranties regarding the origination

and characteristics of the residential mortgage loans.

Although the representations and warranties vary among investors, they

typically cover ownership of the loan, validity of

the lien securing the loan, the absence of delinquent taxes or liens against the property

securing the loan, compliance with

loan criteria set forth in the applicable agreement and compliance with applicable

federal, state, and local laws, among other

matters.

As of June 30, 2025, the aggregate unpaid principal balance of residential

mortgage loans, which we have originated and

sold, but retained the servicing rights, was $196.3 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 six months

of 2025 as a result of representation and

warranty provisions contained in the Company’s

sale agreements with Fannie Mae, and had no pending repurchase or

make-whole requests at June 30, 2025.

We service all residential

mortgage loans originated and sold by us to Fannie Mae.

As servicer, our primary duties are to:

(1) collect payments due from borrowers;

(2) advance certain delinquent payments of principal and interest;

(3) maintain

and administer any hazard, title, or primary mortgage insurance policies relating

to the mortgage loans;

(4) maintain any

required escrow accounts for payment of taxes and insurance and

administer escrow payments;

and (5) foreclose on

defaulted mortgage loans or take other actions to mitigate the potential

losses to investors consistent with the agreements

governing our rights and duties as servicer.

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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 June 30, 2025, we do not believe that this exposure is material due to the historical level

repurchase requests and loss trends, in addition to the fact that 99% of our residential

mortgage loans serviced for Fannie

Mae was current as of such date.

We maintain ongoing

communications with our mortgage purchasers and will continue to

evaluate this exposure by monitoring the level and number of repurchase

requests as well as the delinquency rates in our

investor portfolios.

The Bank sells mortgage loans to Fannie Mae and services these on an actual/actual basis.

As a result, the Bank is not

obligated to make any advances to Fannie Mae on principal and interest

on such mortgage loans where the borrower is

entitled to forbearance.

Effects of Inflation and Changing Prices

The consolidated financial statements and related consolidated financial

data presented herein have been prepared in

accordance with GAAP and practices within the banking industry which

require the measurement of financial position and

operating results in terms of historical dollars without considering

the changes in the relative purchasing power of money

over time due to inflation. Unlike most industrial companies, virtually all the

assets and liabilities of a financial institution

are monetary in nature. As a result, interest rates have a more significant impact

on a financial institution’s performance

than the effects of general levels of inflation.

Inflation can increase our noninterest expenses. It also can affect

our customers’ behaviors, the mix of deposits between

interest and noninterest bearing, the levels of interest rates we have to pay on

our deposits and other borrowings, and the

interest rates we earn on our earning assets. The difference between

our interest expense and interest income is also affected

by the shape of the yield curve and the speeds and amounts at which our various assets and

liabilities, respectively, reprice

in response to interest rate changes. The yield curve was inverted during most of

2024, until September, when it began to

normalize. An inverted yield curve means shorter term interest rates are higher

than longer term interest rates. This results

in a lower spread between our costs of funds and our interest income. In addition,

net interest income could be affected by

asymmetrical changes in the different interest rate indexes,

given that not all of our assets or liabilities are priced with the

same index. Higher market interest rates and reductions in the securities held by

the Federal Reserve to reduce inflation

generally reduce economic activity and may reduce loan demand and growth,

and may adversely affect unemployment

rates. Inflation and related changes in market interest rates, as the Federal Reserve

maintains interest rates to meet its

longer-term inflation goal of 2%, also can adversely affect the values

and liquidity of our loans and securities, the value of

collateral securing loans to our borrowers, and the success of our borrowers and

such borrowers’ available cash to pay

interest on and principal of our loans to them.

Beginning in September 2024, in light of inflation moderating, the FOMC had

three reductions in its target federal funds

rate range totaling 100 basis points to 4.25% to 4.50%. While the FOMC reaffirmed

its target inflation rate of 2% over the

longer run, it indicated it was “recalibrating” its policy based on decreasing

inflation rates and the risks of increasing

unemployment, but would act on incoming data, the evolving outlook

and the balance of the risks of inflation and

unemployment levels. In the future, the Federal Reserve could further

decrease target interest rates, or could increase such

target rates, depending on the data and its outlook.

The FOMC stated on March 19, 2025 that its “assessments will take

into account a wide range of information, including readings on labor market

conditions, inflation pressures and inflation

expectations, and financial and international developments.”

On July 31, 2025, the FOMC, stated that the “Committee

seeks to achieve maximum employment and inflation at the rate of 2 percent over

the longer run.

Uncertainty about the

economic outlook remains elevated.

The Committee is attentive to the risks to both sides of its dual mandate. … The

[FOMC’s] assessments will take

into account a wide range of information, including readings on labor market

conditions,

inflation pressures and inflation expectations, and financial and international

developments.”

Table of Contents

CURRENT ACCOUNTING DEVELOPMENTS

The following ASU has been issued by the FASB

but is not yet effective.

●

ASU 2023-09,

Income Taxes

(Topic 740):

Improvements to Income Tax

disclosures

ASU 2023-09 seeks to enhance the transparency and decision usefulness of income

tax disclosures.

For public business

entities, the new standard is effective for annual periods beginning

after December 15, 2024.

The Company does not

expect the new standard to have a material impact on the Company’s

consolidated financial statements.

Table of Contents

Table 1

– Explanation of Non-GAAP Financial Measures

In addition to results presented in accordance with U.S. generally accepted

accounting principles (GAAP), this quarterly

report on Form 10-Q includes certain designated net interest income

amounts presented on a tax-equivalent basis, a non-

GAAP financial measure, including the presentation and calculation

of the efficiency ratio.

The Company believes the presentation of net interest income on a tax-equivalent

basis provides comparability of net

interest income from both taxable and tax-exempt sources and facilitates comparability

within the industry. Although

the

Company believes these non-GAAP financial measures enhance investors’

understanding of its business and performance,

these non-GAAP financial measures should not be considered an alternative

to GAAP.

The reconciliations

of these non-

GAAP financial measures to their most directly comparable GAAP financial measures

are presented below.

2025

2024

Second

First

Fourth

Third

Second

(In thousands)

Quarter

Net interest income (GAAP)

7,344

7,045

6,969

6,790

6,709

Tax-equivalent adjustment

Net interest income (Tax

-equivalent)

7,363

7,062

6,988

6,811

6,728

Six months ended June 30,

(In thousands)

2025

2024

Net interest income (GAAP)

14,389

13,366

Tax-equivalent adjustment

Net interest income (Tax

-equivalent)

14,425

13,405

Table of Contents

Table 2

Selected Quarterly Financial Data

2025

2024

Second

First

Fourth

Third

Second

(Dollars in thousands, except per share amounts)

Quarter

Results of Operations

Net interest income (a)

7,363

7,062

6,988

6,811

6,728

Less: tax-equivalent adjustment

Net interest income (GAAP)

7,344

7,045

6,969

6,790

6,709

Noninterest income

789

747

845

846

896

Total revenue

8,133

7,792

7,814

7,636

7,605

Provision for credit losses

113

(10)

(48)

(127)

(123)

Noninterest expense

5,702

5,880

5,472

5,500

5,519

Income tax expense

485

392

830

531

475

Net earnings

1,833

1,530

1,560

1,732

1,734

Per share data:

Basic and diluted net earnings

0.52

0.44

0.45

0.50

Cash dividends declared

0.27

Weighted average shares outstanding:

Basic and diluted

3,493,699

Shares outstanding, at period end

3,493,699

Book value

24.64

23.79

22.41

24.14

21.53

Common stock price

High

25.28

23.37

24.57

24.35

19.25

Low

19.48

20.36

20.06

17.50

16.63

Period end

25.00

21.59

23.49

22.90

18.29

To earnings ratio (b)

13.09

11.42

12.77

91.60

101.61

To book value

101

105

Performance ratios:

Return on average equity

9.00

7.83

7.49

9.10

9.63

Return on average assets

0.74

0.62

0.63

0.71

Dividend payout ratio

51.92

61.36

60.00

54.00

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.24

1.20

1.22

1.24

Nonperforming loans

2,306

1,298

1,366

887

900

Nonperforming assets as a % of:

Loans and other real estate owned

0.05

0.09

0.14

Total assets

0.03

0.05

0.08

Nonperforming loans as a % of total loans

0.05

0.09

0.14

Annualized net (recoveries) charge-offs as a % of average loans

(0.03)

0.05

(0.01)

0.04

0.01

Capital Adequacy: (c)

CET 1 risk-based capital ratio

15.32

15.04

14.80

14.75

14.47

Tier 1 risk-based capital ratio

15.32

15.04

14.80

14.75

14.47

Total risk-based capital ratio

16.35

16.05

15.81

15.76

15.49

Tier 1 leverage ratio

10.64

10.52

10.49

10.43

10.39

Other financial data:

Net interest margin (a)

3.27

3.20

3.09

3.05

3.06

Effective income tax rate

20.92

20.40

34.73

23.46

21.50

Efficiency ratio (d)

69.95

75.30

69.86

71.83

72.39

Selected average balances:

Securities

240,177

240,588

255,168

251,723

258,228

Loans, net of unearned income

559,770

566,082

567,634

571,651

573,443

Total assets

990,523

987,272

991,275

982,656

978,107

Total deposits

905,227

906,805

904,605

904,860

900,673

Total stockholders’ equity

81,447

78,158

83,325

76,113

72,059

Selected period end balances:

Securities

239,681

242,468

243,012

258,285

254,359

Loans, net of unearned income

562,714

560,650

564,017

565,699

578,068

Allowance for credit losses

6,965

6,750

6,871

6,876

7,142

Total assets

1,029,224

996,786

977,324

990,143

1,025,054

Total deposits

939,851

910,503

895,824

901,724

946,405

Total stockholders’ equity

86,071

83,115

78,292

84,336

75,209

(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.

wholly-owned subsidiary, AuburnBank.

(d) Efficiency ratio is the result of noninterest expense divided by

the sum of noninterest income and tax-equivalent net interest income.

See Table 1 - Explanation of Non-GAAP Measures.

Table of Contents

Table 3

Selected Financial Data

Six months ended June 30,

(Dollars in thousands, except per share amounts)

2025

2024

Results of Operations

Net interest income (a)

14,425

13,405

Less: tax-equivalent adjustment

Net interest income (GAAP)

14,389

13,366

Noninterest income

1,536

1,783

Total revenue

15,925

15,149

Provision for credit losses

103

211

Noninterest expense

11,582

11,194

Income tax expense

877

639

Net earnings

3,363

3,105

Per share data:

Basic and diluted net earnings

0.96

0.89

Cash dividends declared

0.54

Weighted average shares outstanding:

Basic and diluted

3,493,699

3,493,681

Shares outstanding, at period end

3,493,699

Book value

24.64

21.53

Common stock price:

High

25.28

21.55

Low

19.48

16.63

Period end

25.00

18.29

To earnings ratio (b)

13.09

101.61

To book value

101

Performance ratios:

Annualized return on average equity

8.26

8.34

Annualized return on average assets

0.68

0.64

Dividend payout ratio

56.25

60.67

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.24

Nonperforming loans

2,306

900

Nonperforming assets as a % of:

Loans and other real estate owned

0.05

0.14

Total assets

0.03

0.08

Nonperforming loans as a % of total loans

0.05

0.14

Annualized net recoveries as a % of average loans

0.01

(0.02)

Capital Adequacy: (c)

CET 1 risk-based capital ratio

15.32

14.47

Tier 1 risk-based capital ratio

15.32

14.47

Total risk-based capital ratio

16.35

15.49

Tier 1 leverage ratio

10.64

10.39

Other financial data:

Net interest margin (a)

3.24

3.05

Effective income tax rate

20.68

17.07

Efficiency ratio (d)

72.56

73.70

Selected average balances:

Securities

240,381

262,917

Loans, net of unearned income

562,909

567,100

Total assets

988,907

977,518

Total deposits

906,011

898,862

Total stockholders’ equity

81,447

74,503

Selected period end balances:

Securities

239,681

254,359

Loans, net of unearned income

562,714

578,068

Allowance for credit losses

6,965

7,142

Total assets

1,029,224

1,025,054

Total deposits

939,851

946,405

Total stockholders’ equity

86,071

75,209

(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.

wholly-owned subsidiary, AuburnBank.

(d) Efficiency ratio is the result of noninterest expense divided by

the sum of noninterest income and tax-equivalent net interest income.

See Table 1 - Explanation of Non-GAAP Measures.

Table of Contents

Table 4

Average

Balances and Net Interest Income Analysis

Quarter ended June 30,

2025

2024

Interest

Average

Income/

Yield/

Average

Income/

Yield/

(Dollars in thousands)

Balance

Expense

Rate

Balance

Expense

Rate

Interest-earning assets:

Loans and loans held for sale (1)

559,939

7,676

5.50%

573,926

7,451

5.22%

Securities - taxable (2)

231,078

1,250

2.17%

248,018

1,371

2.22%

Securities - tax-exempt (2)(3)

9,098

3.81%

10,210

3.66%

Total securities

240,176

1,337

2.23%

258,228

1,464

2.28%

Federal funds sold

25,705

280

4.37%

17,357

234

5.42%

Interest bearing bank deposits

76,237

836

4.40%

34,553

454

5.28%

Total interest-earning

assets

902,057

10,129

4.50%

884,064

9,603

4.37%

Cash and due from banks

15,936

18,072

Other assets

72,530

75,971

Total assets

990,523

978,107

Interest-bearing liabilities:

Deposits:

NOW

198,973

649

1.31%

190,861

676

1.42%

Savings and money market

253,704

646

1.02%

254,663

532

0.84%

Time deposits

184,666

1,471

3.19%

192,164

1,666

3.49%

Total interest-bearing

deposits

637,343

2,766

1.74%

637,688

2,874

1.81%

Short-term borrowings

110

5.27%

931

0.43%

Total interest-bearing

liabilities

637,453

2,767

1.74%

638,619

2,875

1.81%

Noninterest-bearing deposits

267,884

262,985

Other liabilities

3,739

4,444

Stockholders' equity

81,447

72,059

Total liabilities and stockholders'

equity

990,523

978,107

Net interest income and margin (tax-equivalent)

7,362

3.27%

6,728

3.06%

(1) Average loan

balances are shown net of unearned income and loans on nonaccrual status have

been included

in the computation of average balances.

(2) Includes average net unrealized gains (losses) on investment securities available

for sale

(3) Yields on tax-exempt securities have been

computed on a tax-equivalent basis using a federal income

tax rate of 21%.

Table of Contents

Table 5

Average

Balances and Net Interest Income Analysis

Six months ended June 30,

2025

2024

Interest

Average

Income/

Yield/

Average

Income/

Yield/

(Dollars in thousands)

Balance

Expense

Rate

Balance

Expense

Rate

Interest-earning assets:

Loans and loans held for sale (1)

563,086

15,219

5.45%

567,434

14,441

5.12%

Securities - taxable (2)

231,201

2,531

2.21%

252,623

2,782

2.21%

Securities - tax-exempt (2)(3)

9,180

173

3.80%

10,294

187

3.65%

Total securities

240,381

2,704

2.27%

262,917

2,969

2.27%

Federal funds sold

26,282

571

4.38%

17,669

483

5.50%

Interest bearing bank deposits

68,777

1,514

4.44%

36,171

959

5.33%

Total interest-earning

assets

898,526

20,008

4.49%

884,191

18,852

4.29%

Cash and due from banks

17,001

17,922

Other assets

73,380

75,405

Total assets

988,907

977,518

Interest-bearing liabilities:

Deposits:

NOW

204,069

1,391

1.37%

193,755

1,316

1.37%

Savings and money market

248,233

1,147

0.93%

248,227

872

0.71%

Time deposits

187,763

3,044

3.27%

195,863

3,256

3.34%

Total interest-bearing

deposits

640,065

5,582

1.76%

637,845

5,444

1.72%

Short-term borrowings

5.27%

1,262

0.48%

Total interest-bearing

liabilities

640,120

5,583

1.76%

639,107

5,447

1.71%

Noninterest-bearing deposits

265,946

261,017

Other liabilities

3,030

2,891

Stockholders' equity

79,811

74,503

Total liabilities and stockholders'

equity

988,907

977,518

Net interest income and margin (tax-equivalent)

14,425

3.24%

13,405

3.05%

(1) Average loan

balances are shown net of unearned income and loans on nonaccrual status have

been included

in the computation of average balances.

(2) Includes average net unrealized gains (losses) on investment securities available

for sale

(3) Yields on tax-exempt securities have been

computed on a tax-equivalent basis using a federal income

tax rate of 21%.

Table of Contents

Table 6

–Volume

and Rate Variance

Analysis

Quarter ended June 30, 2025 vs. 2024

Six months ended June 30, 2025 vs. 2024

Net

Due to change in

Net

Due to change in

(Dollars in thousands)

Change

Rate (2)

Volume (2)

Change

Rate (2)

Volume (2)

Interest income:

Loans and loans held for sale

226

396

(170)

778

933

(155)

Securities - taxable

(121)

(33)

(88)

(251)

(9)

(242)

Securities - tax-exempt (1)

(8)

(10)

(14)

(21)

Total securities

(129)

(31)

(98)

(265)

(2)

(263)

Federal funds sold

(45)

(98)

186

Interest bearing bank deposits

383

(76)

459

554

(161)

715

Total interest income

526

244

282

1,155

672

483

Interest expense:

Deposits:

NOW

(27)

(55)

Savings and money market

114

115

(1)

275

277

(2)

Certificates of deposit

(194)

(138)

(56)

(214)

(74)

(140)

Total interest-bearing

deposits

(107)

(78)

(29)

136

211

(75)

Short-term borrowings

—

(7)

(2)

(22)

Long-term debt

—

Total interest expense

(107)

(71)

(36)

134

231

(97)

Net interest income

633

315

318

1,021

441

580

(1) Yields on tax-exempt 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

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, 2024.

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, 2024,

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 reductions in the Federal Reserve’s

securities portfolio, have and are expected to 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 losses that have adversely affected our stockholders’

equity.

These have affected and are expected to

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.

Additional 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.

Table of Contents

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The Company did not sell any common stock or other equity securities during

the second quarter of 2025.

ITEM 3.

DEFAULTS

UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

Not applicable.

Table of Contents

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. **

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)

Incorporated by reference from Registrant’s

Form 10-Q dated June 30, 2002.

Incorporated by reference from Registrant’s

Form 10-K dated March 31, 2008.

***

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

be signed on its behalf by the undersigned thereunto duly

authorized.

AUBURN NATIONAL

BANCORPORATION,

INC.

(Registrant)

Date:

August 12, 2025

By:

/s/ David A. Hedges

David A. Hedges

President and CEO

Date:

August 12, 2025

By:

/s/

James Walker,

W. James Walker,

Senior Vice President and

Chief Financial Officer

EX-31.1

AUBURN NATIONAL

BANCORPORATION,

INC AND SUBSIDIARIES

EXHIBIT 31.1

CERTIFICATION

PURSUANT TO

RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, David A. Hedges, certify that:

I have reviewed this Quarterly Report on Form 10-Q of Auburn National

Bancorporation, Inc.;

Based on my knowledge, this report does not contain any untrue statement

of a material fact or omit to state a material

fact necessary to make the statements made, in light of the circumstances under

which such statements were made, not

misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial

information included in this report, fairly present in

all material respects the financial condition, results of operations and

cash flows of the registrant as of, and for, the periods

presented in this report;

The registrant’s other

certifying officer and I are responsible for establishing and maintaining disclosure

controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))

and internal control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure

controls and procedures to be

designed under our supervision, to ensure that material information relating

to the registrant, including its

consolidated subsidiaries, is made known to us by others within those entities, particularly

during the period in

which this report is being prepared;

Designed such internal control over financial reporting, or caused such

internal control over financial reporting to

be designed under our supervision, to provide reasonable assurance

regarding the reliability of financial reporting

and the preparation of financial statements for external purposes in accordance

with generally accepted

accounting principles;

Evaluated the effectiveness of the registrant’s

disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures,

as of the end of the period covered

by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s

internal control over financial reporting that occurred

during the registrant’s most recent fiscal quarter

(the registrant’s fourth fiscal quarter in the case of

an annual

report) that has materially affected, or is reasonably likely

to materially affect, the registrant’s internal

control

over financial reporting; and

The registrant’s other

certifying officer and I have disclosed, based on our most recent evaluation

of internal control over

financial reporting, to the registrant’s auditors

and the audit committee of the registrant’s

board of directors (or persons

performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of

internal control over financial

reporting which are reasonably likely to adversely affect the registrant’s

ability to record, process, summarize and

report financial information; and

Any fraud, whether or not material, that involves management or other

employees who have a significant role in

the registrant’s internal control over

financial reporting.

Date: August 12, 2025

/s/ David A. Hedges

President and Chief Executive Officer

EX-31.2

AUBURN NATIONAL

BANCORPORATION,

INC AND SUBSIDIARIES

EXHIBIT 31.2

CERTIFICATION

PURSUANT TO

RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, W.

James Walker,

IV,

certify that:

I have reviewed this Quarterly Report on Form 10-Q of Auburn National Bancorporation,

Inc.;

Based on my knowledge, this report does not contain any untrue statement

of a material fact or omit to state a material

fact necessary to make the statements made, in light of the circumstances under which

such statements were made, not

misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial

information included in this report, fairly present in

all material respects the financial condition, results of operations and

cash flows of the registrant as of, and for, the periods

presented in this report;

The registrant’s other

certifying officer and I are responsible for establishing and maintaining disclosure

controls and

procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))

and internal control over financial reporting (as

defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

Designed such disclosure controls and procedures, or caused such disclosure controls

and procedures to be

designed under our supervision, to ensure that material information relating

to the registrant, including its

consolidated subsidiaries, is made known to us by others within those entities, particularly

during the period in

which this report is being prepared;

Designed such internal control over financial reporting, or caused such

internal control over financial reporting to

be designed under our supervision, to provide reasonable assurance

regarding the reliability of financial reporting

and the preparation of financial statements for external purposes in accordance

with generally accepted

accounting principles;

Evaluated the effectiveness of the registrant’s

disclosure controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls and procedures,

as of the end of the period covered

by this report based on such evaluation; and

Disclosed in this report any change in the registrant’s

internal control over financial reporting that occurred

during the registrant’s most recent fiscal quarter

(the registrant’s fourth fiscal quarter in the case of

an annual

report) that has materially affected, or is reasonably likely

to materially affect, the registrant’s internal

control

over financial reporting; and

The registrant’s other

certifying officer and I have disclosed, based on our most recent evaluation

of internal control over

financial reporting, to the registrant’s auditors

and the audit committee of the registrant’s

board of directors (or persons

performing the equivalent functions):

All significant deficiencies and material weaknesses in the design or operation of

internal control over financial

reporting which are reasonably likely to adversely affect the registrant’s

ability to record, process, summarize and

report financial information; and

Any fraud, whether or not material, that involves management or other

employees who have a significant role in

the registrant’s internal control over

financial reporting.

Date: August 12, 2025

/s/ W. James

Walker,

Senior Vice President and

Chief Financial Officer

EX-32.1

AUBURN NATIONAL

BANCORPORATION,

INC AND SUBSIDIARIES

EXHIBIT 32.1

CERTIFICATION

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Auburn National Bancorporation,

Inc. (the “Company”) on Form 10-Q for the

period ending June 30, 2025, as filed with the Securities and Exchange

Commission as of the date hereof (the “Report”), I,

David A. Hedges,

President and Chief Executive Officer of the Company,

certify, pursuant to 18 U.S.C. § 1350,

as adopted

pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or

15(d) of the Securities Exchange Act

of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial

condition and

results of operations of the Company.

Date: August 12, 2025

/s/ David A. Hedges

David A. Hedges

President and Chief Executive Officer

EX-32.2

AUBURN NATIONAL

BANCORPORATION,

INC AND SUBSIDIARIES

EXHIBIT 32.2

CERTIFICATION

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Auburn National Bancorporation,

Inc. (the “Company”) on Form 10-Q for the

period ending June 30, 2025, as filed with the Securities and Exchange Commission

as of the date hereof (the “Report”), I,

W. James Walker,

IV,

Senior Vice President and

Chief Financial Officer of the Company,

certify, pursuant to 18

U.S.C. §

1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002,

that:

(1)

The Report fully complies with the requirements of Section 13(a) or

15(d) of the Securities Exchange Act

of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the

financial condition and

results of operations of the Company.

Date:

August 12, 2025

/s/ W. James

Walker,

W. James Walker,

Senior Vice President and

Chief Financial Officer