Auburn National Bancorporation AUBN Form 10-Q filing Q2 FY2026

Item 1

Financial Statements

Consolidated Balance Sheets (Unaudited) as of June 30, 2026 and December 31, 2025

3

Consolidated Statements of Earnings (Unaudited) for the quarter and six months ended June 30, 2026

and 2025

4

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

June 30, 2026 and 2025

5

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

June 30, 2026 and 2025

6

Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2026 and 2025

7

Notes to Consolidated Financial Statements (Unaudited

)

8

Item 2

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

28

Table 1 – Explanation of Non-GAAP Financial Measures

44

Table 2 – Selected Quarterly Financial Data

45

Table 3 – Selected Financial Data

46

Table 4 – Average Balances and Net Interest Income Analysis – for the quarter ended June 30, 2026

and 2025

47

Table 5 – Average Balances and Net Interest Income Analysis – for the six months ended June 30, 2026

and 2025

48

Table 6 – Volume and Rate Variance Analysis for the quarter and six months ended June 30, 2026

48

49

Table 7 – Loan Maturities

50

Table 8 – Loan Sensitivities to Changes in Interest Rates on Loans Maturing in More Than One Year

51

Item 3

Quantitative and Qualitative Disclosures About Market Risk

52

Item 4

Controls and Procedures

52

PART II. OTHER INFORMATION

Item 1

Legal Proceedings

52

ITEM 1. FINANCIAL STATEMENTS

AUBURN NATIONAL

BANCORPORATION,

INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

June 30,

December 31,

(Dollars in thousands, except share data)

2026

2025

Assets:

Cash and due from banks

$

20,009

$

22,335

Federal funds sold

37,953

21,322

Interest-bearing bank deposits

153,687

104,175

Cash and cash equivalents

211,649

147,832

Securities available-for-sale

220,744

233,259

Loans held for sale

716

172

Loans, net of unearned income

579,589

565,354

Allowance for credit losses

(6,586)

(7,176)

Loans, net

573,003

558,178

Premises and equipment, net

44,856

45,600

Bank-owned life insurance

17,955

17,927

Other assets

16,880

15,829

Total assets

$

1,085,803

$

1,018,797

Liabilities:

Deposits:

Noninterest-bearing

$

258,351

$

268,026

Interest-bearing

729,967

654,900

Total deposits

988,318

922,926

Accrued expenses and other liabilities

3,611

3,818

Total liabilities

991,929

926,744

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

3,959,302

shares at June 30, 2026 and

3,957,135

shares at December 31, 2025, respectively

39

39

Additional paid-in capital

3,871

3,864

Retained earnings

121,852

119,241

Accumulated other comprehensive loss, net

(19,993)

(19,390)

Less treasury stock, at cost -

471,472

shares and

463,436

shares at June 30, 2026

and December 31, 2025, respectively

(11,895)

(11,701)

Total stockholders’

equity

93,874

92,053

Total liabilities and stockholders’

equity

$

1,085,803

$

1,018,797

S

ee accompanying notes to consolidated financial statements

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)

2026

2025

2026

2025

Interest income:

Loans, including fees

$

8,184

$

7,676

$

16,117

$

15,219

Securities

1,202

1,319

2,425

2,668

Federal funds sold and interest-bearing bank deposits

1,194

1,116

2,399

2,085

Total interest income

10,580

10,111

20,941

19,972

Interest expense:

Deposits

2,692

2,766

5,320

5,582

Short-term borrowings

—

1

—

1

Total interest expense

2,692

2,767

5,320

5,583

Net interest income

7,888

7,344

15,621

14,389

Provision for credit losses

(248)

113

(324)

103

Net interest income after provision for credit

losses

8,136

7,231

15,945

14,286

Noninterest income:

Service charges on deposit accounts

153

152

306

307

Mortgage lending

132

131

304

224

Bank-owned life insurance

171

101

279

206

Other

422

405

882

799

Total noninterest income

878

789

1,771

1,536

Noninterest expense:

Salaries and benefits

3,267

3,258

6,637

6,568

Net occupancy and equipment

552

604

1,127

1,318

Professional fees

327

385

776

672

Other

1,959

1,455

3,466

3,024

Total noninterest expense

6,105

5,702

12,006

11,582

Earnings before income taxes

2,909

2,318

5,710

4,240

Income tax expense

611

485

1,214

877

Net earnings

$

2,298

$

1,833

$

4,496

$

3,363

Net earnings per share:

Basic and diluted

$

0.66

$

0.52

$

1.29

$

0.96

Weighted average shares

outstanding:

Basic

3,492,107

3,493,699

3,493,162

3,493,699

Diluted

3,492,107

3,493,699

3,494,292

3,493,699

S

ee accompanying notes to consolidated financial statements

AUBURN NATIONAL

BANCORPORATION,

INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2026

2025

2026

2025

Net earnings

$

2,298

$

1,833

$

4,496

$

3,363

Other comprehensive (loss) income, net of tax:

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

(expense) of $

118

, $

(693)

, $

202

and $

(2,114)

, respectively

(354)

2,066

(603)

6,302

Other comprehensive (loss) income, net of tax

(354)

2,066

(603)

6,302

Comprehensive income

$

1,944

$

3,899

$

3,893

$

9,665

S

ee accompanying notes to consolidated financial statements

AUBURN NATIONAL

BANCORPORATION,

INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

(Unaudited)

Accumulated

Common

Additional

other

shares

Common

paid-in

Retained

comprehensive

Treasury

(Dollars in thousands, except share data)

outstanding

stock

capital

earnings

income (loss)

stock

Total

Quarter ended June 30, 2026

Balance, March 31, 2026

3,495,866

$

39

$

3,866

$

120,496

$

(19,639)

$

(11,701)

$

93,061

Net earnings

—

—

—

2,298

—

—

2,298

Other comprehensive loss

—

—

—

—

(354)

—

(354)

Cash dividends paid ($

.27

per share)

—

—

—

(942)

—

—

(942)

Stock repurchases

(8,036)

—

—

—

—

(194)

(194)

Stock-based compensation expense

—

—

5

—

—

—

5

Balance, June 30, 2026

3,487,830

$

39

$

3,871

$

121,852

$

(19,993)

$

(11,895)

$

93,874

Quarter ended June 30, 2025

Balance, March 31, 2025

3,493,699

$

39

$

3,802

$

116,346

$

(25,371)

$

(11,701)

$

83,115

Net earnings

—

—

—

1,833

—

—

1,833

Other comprehensive income

—

—

—

—

2,066

—

2,066

Cash dividends paid ($

.27

per share)

—

—

—

(943)

—

—

(943)

Balance, June 30, 2025

3,493,699

$

39

$

3,802

$

117,236

$

(23,305)

$

(11,701)

$

86,071

Six months ended June 30, 2026

Balance, December 31, 2025

3,493,699

$

39

$

3,864

$

119,241

$

(19,390)

$

(11,701)

$

92,053

Net earnings

—

—

—

4,496

—

—

4,496

Other comprehensive loss

—

—

—

—

(603)

—

(603)

Cash dividends paid ($

.54

per share)

—

—

—

(1,885)

—

—

(1,885)

Stock repurchases

(8,036)

—

—

—

—

(194)

(194)

Stock-based compensation expense

—

—

29

—

—

—

29

Common stock issued under equity

compensation plans, net

2,167

—

(22)

—

—

—

(22)

Balance, June 30, 2026

3,487,830

$

39

$

3,871

$

121,852

$

(19,993)

$

(11,895)

$

93,874

Six months ended June 30, 2025

Balance, December 31, 2024

3,493,699

$

39

$

3,802

$

115,759

$

(29,607)

$

(11,701)

$

78,292

Net earnings

—

—

—

3,363

—

—

3,363

Other comprehensive income

—

—

—

—

6,302

—

6,302

Cash dividends paid ($

.54

per share)

—

—

—

(1,886)

—

—

(1,886)

Balance, June 30, 2025

3,493,699

$

39

$

3,802

$

117,236

$

(23,305)

$

(11,701)

$

86,071

S

ee accompanying notes to consolidated financial statements

AUBURN NATIONAL

BANCORPORATION,

INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

Six months ended June 30,

(Dollars in thousands)

2026

2025

Cash flows from operating activities:

Net earnings

$

4,496

$

3,363

Adjustments to reconcile net earnings to net cash provided by

operating activities:

Provision for credit losses

(324)

103

Depreciation and amortization

1,110

1,033

Premium amortization and discount accretion, net

662

703

Net gain on sale of loans held for sale

(157)

(57)

Loans originated for sale

(5,345)

(3,088)

Proceeds from sale of loans

4,904

2,942

Increase in cash surrender value of bank-owned life insurance

(211)

(206)

Income recognized from death benefit on bank-owned life insurance

(68)

—

Stock-based compensation expense

29

—

Net increase in other assets

(935)

(130)

Net (decrease) increase in accrued expenses and other liabilities

(115)

101

Net cash provided by operating activities

4,046

4,764

Cash flows from investing activities:

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

11,048

11,043

(Increase) decrease in loans, net

(14,615)

1,287

Net purchases of premises and equipment

(197)

(430)

Proceeds from bank-owned life insurance death benefit

251

—

Increase in FHLB stock

(29)

—

Net cash (used in) provided by investing activities

(3,542)

11,900

Cash flows from financing activities:

Net (decrease) increase in noninterest-bearing deposits

(9,675)

7,594

Net increase in interest-bearing deposits

75,067

36,433

Stock repurchases

(194)

—

Dividends paid

(1,885)

(1,886)

Net cash provided by financing activities

63,313

42,141

Net change in cash and cash equivalents

63,817

58,805

Cash and cash equivalents at beginning of period

147,832

93,354

Cash and cash equivalents at end of period

$

211,649

$

152,159

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Interest

$

5,324

$

5,673

Income taxes

1,102

1,030

See accompanying notes to consolidated financial statements

AUBURN NATIONAL

BANCORPORATION,

INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

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

company whose primary business is conducted

by its wholly-owned subsidiary,

AuburnBank (the “Bank”).

AuburnBank is a commercial bank located in

Auburn, Alabama. The Bank provides a full range of banking services

in its primary market area, Lee County,

which

includes the Auburn-Opelika Metropolitan Statistical Area.

Basis of Presentation and Use of Estimates

The unaudited consolidated financial statements in this report have been

prepared in accordance with U.S. generally

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

Accordingly, these financial statements

do not

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

financial statements.

The unaudited

consolidated financial statements include, in the opinion of management,

all adjustments necessary to present a fair

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

All such adjustments are of a

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

necessarily indicative of the results of

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

periods or the entire year. For further

information, refer to the consolidated financial statements and footnotes included

in the Company's Annual Report on Form

10-K for the year ended December 31, 2025.

The unaudited consolidated financial statements include the accounts

of the Company and its wholly-owned subsidiaries.

Significant intercompany transactions and accounts are eliminated in

consolidation.

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

management to make estimates and

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

of contingent assets and liabilities as of

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

the reporting period.

Actual results could

differ from those estimates.

Material estimates that are particularly susceptible to significant change in

the near term

include the determination of allowance for credit losses on loans and

investment securities, the fair value of financial

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

(“OREO”).

Subsequent Events

The Company has evaluated the effects of events and

transactions through the date of this filing that have occurred

subsequent to June 30, 2026.

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

this period

that would have required further recognition or disclosure in the unaudited

consolidated financial statements included in

this report.

Reclassifications

Certain amounts reported in prior periods have been reclassified to

conform to the current-period presentation.

These

reclassifications had no effect on the Company’s

previously reported net earnings or total stockholders’ equity.

Accounting Developments

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

guidance.

NOTE 2: BASIC AND DILUTED NET EARNINGS PER SHARE

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

the weighted average common shares outstanding for

the respective period.

Diluted net earnings per share reflects

the potential dilution that could occur upon exercise of

securities or other rights for, or convertible into,

shares of the Company’s common stock.

During 2026, the Company

granted 8,172 restricted stock units (“RSUs”), which represent potential

common shares.

During 2025, the Company

granted 3,029 RSUs, which vested during the first quarter of 2026.

RSUs are included in the computation of diluted net

earnings per share using the treasury stock method.

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

periods are presented below:

Quarter ended June 30,

Six months ended June 30,

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

2026

2025

2026

2025

Basic:

Net earnings

$

2,298

$

1,833

$

4,496

$

3,363

Weighted average

common shares outstanding

3,492,107

3,493,699

3,493,162

3,493,699

Net earnings per share

$

0.66

$

0.52

$

1.29

$

0.96

Diluted:

Net earnings

$

2,298

$

1,833

$

4,496

$

3,363

Weighted average

common shares outstanding, basic

3,492,107

3,493,699

3,493,162

3,493,699

Dilutive effect of restricted stock units

—

—

1,130

—

Weighted average

common shares outstanding, diluted

3,492,107

3,493,699

3,494,292

3,493,699

Net earnings per share

0.66

0.52

1.29

0.96

NOTE 3: SECURITIES

At June 30, 2026 and December 31, 2025, respectively,

all securities within the scope of ASC 320,

Investments – Debt and

Equity Securities,

were classified as available-for-sale.

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

by contractual maturity at June 30, 2026 and December 31, 2025, respectively,

are presented below.

1 year

1 to 5

5 to 10

After 10

Fair

Gross Unrealized

Amortized

(Dollars in thousands)

or less

years

years

years

Value

Gains

Losses

Cost

June 30, 2026

Agency obligations (a)

$

553

39,763

12,120

—

52,436

—

4,978

$

57,414

Agency MBS (a)

—

20,572

22,036

108,488

151,096

—

19,643

170,739

State and political subdivisions

—

3,952

6,947

6,313

17,212

1

2,077

19,288

Total available-for-sale

$

553

64,287

41,103

114,801

220,744

1

26,698

$

247,441

December 31, 2025

Agency obligations (a)

$

—

35,580

18,204

—

53,784

—

4,727

$

58,511

Agency MBS (a)

—

20,112

16,171

125,644

161,927

—

19,063

180,990

State and political subdivisions

—

1,590

9,160

6,798

17,548

1

2,103

19,650

Total available-for-sale

$

—

57,282

43,535

132,442

233,259

1

25,893

$

259,151

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

-sponsored entities.

Expected lives of these

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

have the right to call or repay such securities

obligations with or without prepayment penalties and (ii) loans included in Agency

MBS generally have the right to

prepay such loan in whole or in part at any time.

Securities with aggregate fair values of $

199.4

million and $

209.4

million at June 30, 2026 and December 31, 2025,

respectively, were

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

Federal Home Loan

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

or permitted by law.

Included in other assets on the accompanying consolidated balance sheets are

nonmarketable equity investments.

The

carrying amounts of nonmarketable equity investments were $

1.4

million at both June 30, 2026 and December 31, 2025,

respectively.

Nonmarketable equity investments include FHLB - Atlanta stock, Federal

Reserve Bank (“FRB”) stock, and

stock in a privately held financial institution.

Gross Unrealized Losses and Fair Value

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

2026 and December 31, 2025, respectively,

segregated

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

months and 12 months or longer, are

presented below.

Less than 12 Months

12 Months or Longer

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(Dollars in thousands)

Value

Losses

Value

Losses

Value

Losses

June 30, 2026:

Agency obligations

$

—

—

52,436

4,978

$

52,436

4,978

Agency MBS

2,562

82

148,534

19,561

151,096

19,643

State and political subdivisions

1,004

5

13,798

2,072

14,802

2,077

Total

$

3,566

87

214,768

26,611

$

218,334

26,698

December 31, 2025:

Agency obligations

$

—

—

53,784

4,727

$

53,784

4,727

Agency MBS

—

—

161,840

19,063

161,840

19,063

State and political subdivisions

—

—

14,827

2,103

14,827

2,103

Total

$

—

—

230,451

25,893

$

230,451

25,893

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

it intends to sell the security, or more

likely

than not will be required to sell the security,

before recovery of its amortized cost basis. Unrealized losses have not been

recognized into income as the decline in fair value is largely

due to changes in interest rates and not credit quality.

For the securities in the previous table, as of June 30, 2026 the Company does not intend

to sell and it is likely that

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

Agency Obligations

Investments in agency obligations are guaranteed of full and timely

payments by the issuing agency.

Based on

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

the Company’s investments in

agency

obligations at June 30, 2026.

Agency MBS

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

Freddie Mac. Each of these agencies provides

a

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

agency. Based on management's analysis

and

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

investments in agency MBS at June 30, 2026.

State and Political Subdivisions

Investments in state and political subdivisions are securities issued by various

municipalities in the United States. The

majority of the portfolio was rated AA or higher,

with no securities rated below investment grade at June 30, 2026.

Based

on management's analysis and judgment, there were no credit losses attributable to the

Company’s investments in

state and

political subdivisions at June 30, 2026.

Realized Gains and Losses

The Company had no sales of securities during the quarters and six months

ended June 30, 2026 and 2025, respectively.

NOTE 4: LOANS AND ALLOWANCE FOR CREDIT LOSSES

June 30,

December 31,

(Dollars in thousands)

2026

2025

Commercial and industrial

$

27,754

$

33,887

Municipal

35,020

24,513

Construction and land development

58,855

56,436

Commercial real estate:

Owner occupied

56,118

59,568

Hotel/motel

54,455

47,870

Multifamily

61,606

51,516

Other

161,346

166,567

Total commercial

real estate

333,525

325,521

Residential real estate:

Consumer mortgage

61,348

59,781

Investment property

53,460

56,773

Total residential real

estate

114,808

116,554

Consumer installment

9,919

8,421

Total loans, net of unearned

income before basis adjustment

579,881

565,332

Basis adjustment associated with fair value hedge (1)

(292)

22

Total loans, net of unearned

income

$

579,589

$

565,354

(1) Represents the basis adjustment associated with application of

hedge accounting on certain loans.

The basis adjustment

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

the hedge accounting is discontinued.

Refer to Note 7 - Derivative Instruments for additional information.

Loans secured by real estate were approximately 87.5% of the Company’s

total loan portfolio at June 30, 2026.

At June 30,

2026, the Company’s geographic

loan distribution was concentrated primarily in Lee County,

Alabama, and surrounding

areas.

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

documents a systematic method for

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

quarterly assessment of the allowance, the loan

portfolio is disaggregated into the following portfolio segments: commercial

and industrial, municipal, construction and

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

installment. Where appropriate, the

Company’s loan portfolio

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

initial measurement attribute, risk characteristics of the loan, and

an entity’s method for monitoring and determining

credit

risk.

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

segmentation to separately identify municipal loans,

which were previously included within commercial and industrial loans, due

to their recent growth and distinct risk

characteristics.

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

cash flow

methodology incorporating probability of default and loss given default assumptions

derived from external data sources.

As a result of this refinement,

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

these

loans.

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

prospectively.

Accordingly, the

allowance for credit losses and the provision for credit losses for prior periods have

not been revised.

Loan balances in

prior period tables have been reclassified to conform to the current period

presentation.

The following describes

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

Commercial and industrial —

includes loans to finance business operations, equipment purchases, or

other needs for small

and medium-sized commercial customers. Also included in this category are loans

to finance agricultural production.

Generally,

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

borrower.

Municipal —

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

to finance

capital projects, infrastructure improvements, and other governmental

or public service needs. These loans are typically

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

other dedicated revenue sources of the

municipality. Repayment

is primarily dependent on the financial capacity and revenue-generating

ability of the

governmental entity.

Construction and land development —

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

and

developing land into commercial developments or residential subdivisions.

Also included are loans and lines for

construction of residential, multifamily,

and commercial buildings. Generally,

the primary source of repayment is

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

Commercial real estate

—

includes loans disaggregated in these classes:

• Owner occupied

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

the borrower, who owns the

property.

• Hotel/motel

– includes loans for hotels and motels.

Generally, the primary source

of repayment is dependent upon

income generated from the real estate collateral.

The underwriting of these loans takes into consideration the

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

• Multifamily

– primarily includes loans to finance income-producing multifamily

properties.

Loans in this class

include loans for 5 or more unit residential property

and apartments leased to residents. Generally,

the primary

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

The underwriting of these

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

health of the respective

borrower.

• Other

– primarily includes loans to finance income-producing commercial

real estate. Loans in this class include

loans for neighborhood retail centers, medical and professional offices,

single retail stores, industrial buildings,

and warehouses leased generally to local businesses and residents. 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 —

includes loans disaggregated into two classes:

• Consumer mortgage

– primarily includes

first or second lien mortgages and home equity lines to consumers that

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

in accordance with the Bank’s

general loan policies and procedures which require, among other things,

proper documentation of each borrower’s

financial condition, satisfactory credit history,

and property value.

• Investment property

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

properties.

Generally,

the primary source of repayment is dependent upon income generated from

leasing the property

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

the rental rates, as well as the financial

health of the borrowers.

Consumer installment —

includes loans to individuals,

both secured by personal property and unsecured.

Loans include

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

These loans are underwritten in accordance with the

Bank’s general loan policies and procedures

which require, among other things, proper documentation of each borrower’s

financial condition, satisfactory credit history,

and, if applicable, property value.

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

loans by portfolio segment and class as of June

30, 2026 and December 31, 2025.

Accruing

Accruing

Total

30-89 Days

Greater than

Accruing

Non-

Total

(Dollars in thousands)

Current

Past Due

90 days

Loans

Accrual

Loans

June 30, 2026:

Commercial and industrial

$

27,678

76

—

27,754

—

$

27,754

Municipal

35,020

—

—

35,020

—

35,020

Construction and land development

58,757

98

—

58,855

—

58,855

Commercial real estate:

Owner occupied

56,118

—

—

56,118

—

56,118

Hotel/motel

54,455

—

—

54,455

—

54,455

Multifamily

61,606

—

—

61,606

—

61,606

Other

161,346

—

—

161,346

—

161,346

Total commercial

real estate

333,525

—

—

333,525

—

333,525

Residential real estate:

Consumer mortgage

61,232

52

—

61,284

64

61,348

Investment property

53,225

235

—

53,460

—

53,460

Total residential real

estate

114,457

287

—

114,744

64

114,808

Consumer installment

9,881

38

—

9,919

—

9,919

Total

$

579,318

499

—

579,817

64

$

579,881

December 31, 2025:

Commercial and industrial

$

33,881

6

—

33,887

—

$

33,887

Municipal

24,513

—

—

24,513

—

24,513

Construction and land development

56,395

41

—

56,436

—

56,436

Commercial real estate:

Owner occupied

59,085

105

—

59,190

378

59,568

Hotel/motel

47,870

—

—

47,870

—

47,870

Multifamily

51,516

—

—

51,516

—

51,516

Other

166,567

—

—

166,567

—

166,567

Total commercial

real estate

325,038

105

—

325,143

378

325,521

Residential real estate:

Consumer mortgage

58,993

720

—

59,713

68

59,781

Investment property

56,737

—

—

56,737

36

56,773

Total residential real

estate

115,730

720

—

116,450

104

116,554

Consumer installment

8,348

73

—

8,421

—

8,421

Total

$

563,905

945

—

564,850

482

$

565,332

Credit Quality Indicators

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

quarterly using categories similar to the

standard asset classification system used by the federal banking agencies.

These categories are utilized to develop the

associated allowance for credit losses using historical losses adjusted for

qualitative and environmental factors and are

defined as follows:

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

capacity of the obligor (or guarantors, if

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

• Special Mention – loans with potential weakness that may,

if not reversed or corrected, weaken the credit or

inadequately protect the Company’s

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

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

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

presently jeopardizes debt repayment,

even though they are currently performing. These loans are characterized

by the distinct possibility that the

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

• Nonaccrual – includes loans where management has determined that full payment

of principal and interest is not

e

xpected.

During 2026, the Company established municipal loans as a separate portfolio

segment.

Certain prior period amounts have

been reclassified to conform to the current period presentation.

The following tables present credit quality indicators for the

loan portfolio segments and classes by year of origination as of June 30, 2026

and December 31, 2025.

Year of Origination

2026

2025

2024

2023

2022

Prior to

2022

Revolving

Loans

Total

Loans

(Dollars in thousands)

June 30, 2026:

Commercial and industrial

Pass

$

1,843

6,218

3,830

3,355

1,191

10,304

813

27,554

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

74

—

—

1

125

—

—

200

Nonaccrual

—

—

—

—

—

—

—

—

Total commercial and industrial

1,917

6,218

3,830

3,356

1,316

10,304

813

27,754

Current period gross charge-offs

—

—

—

5

—

—

—

5

Municipal

Pass

$

11,853

—

—

1,157

3,975

16,546

1,489

35,020

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total municipal

11,853

—

—

1,157

3,975

16,546

1,489

35,020

Current period gross charge-offs

—

—

—

—

—

—

—

—

Construction and land development

Pass

18,048

31,551

4,064

1,761

1,974

—

1,418

58,816

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

—

—

—

—

39

—

—

39

Nonaccrual

—

—

—

—

—

—

—

—

Total construction and land development

18,048

31,551

4,064

1,761

2,013

—

1,418

58,855

Current period gross charge-offs

—

—

—

—

—

—

—

—

Commercial real estate:

Owner occupied

Pass

1,058

10,375

1,417

9,141

5,961

26,713

354

55,019

Special mention

—

—

—

—

—

—

608

608

Substandard accruing

—

—

491

—

—

—

—

491

Nonaccrual

—

—

—

—

—

—

—

—

Total owner occupied

1,058

10,375

1,908

9,141

5,961

26,713

962

56,118

Current period gross charge-offs

—

—

—

—

—

378

—

378

Hotel/motel

Pass

11,429

4,896

14,144

5,890

8,739

9,357

—

54,455

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total hotel/motel

11,429

4,896

14,144

5,890

8,739

9,357

—

54,455

Current period gross charge-offs

—

—

—

—

—

—

—

—

Year of Origination

2026

2025

2024

2023

2022

Prior to

2022

Revolving

Loans

Total

Loans

(Dollars in thousands)

June 30, 2026:

Multifamily

Pass

3,646

1,146

3,564

20,157

20,224

9,804

116

58,657

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

—

—

—

—

—

2,949

—

2,949

Nonaccrual

—

—

—

—

—

—

—

—

Total multifamily

3,646

1,146

3,564

20,157

20,224

12,753

116

61,606

Current period gross charge-offs

—

—

—

—

—

—

—

—

Other

Pass

25,989

25,461

32,442

16,546

26,592

33,386

930

161,346

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total other

25,989

25,461

32,442

16,546

26,592

33,386

930

161,346

Current period gross charge-offs

—

—

—

—

—

—

—

—

Residential real estate:

Consumer mortgage

Pass

5,102

5,827

3,545

15,502

16,088

12,268

1,972

60,304

Special mention

—

—

—

—

—

226

—

226

Substandard accruing

—

—

—

—

—

754

—

754

Nonaccrual

—

—

—

—

—

—

64

64

Total consumer mortgage

5,102

5,827

3,545

15,502

16,088

13,248

2,036

61,348

Current period gross charge-offs

—

—

—

—

—

—

—

—

Investment property

Pass

4,348

6,868

7,962

8,244

9,170

14,841

1,664

53,097

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

—

234

—

37

90

2

—

363

Nonaccrual

—

—

—

—

—

—

—

—

Total investment property

4,348

7,102

7,962

8,281

9,260

14,843

1,664

53,460

Current period gross charge-offs

—

—

—

—

—

—

—

—

Consumer installment

Pass

3,601

2,983

1,406

607

632

195

481

9,905

Special mention

—

—

5

—

—

—

—

5

Substandard accruing

—

—

5

—

—

—

4

9

Nonaccrual

—

—

—

—

—

—

—

—

Total consumer installment

3,601

2,983

1,416

607

632

195

485

9,919

Current period gross charge-offs

—

22

—

14

—

—

—

36

Total loans

Pass

86,917

95,325

72,374

82,360

94,546

133,414

9,237

574,173

Special mention

—

—

5

—

—

226

608

839

Substandard accruing

74

234

496

38

254

3,705

4

4,805

Nonaccrual

—

—

—

—

—

—

64

64

Total loans

$

86,991

95,559

72,875

82,398

94,800

137,345

9,913

$

579,881

Total current period gross charge-offs

$

—

22

—

19

—

378

—

$

419

Year of Origination

2025

2024

2023

2022

2021

Prior to

2021

Revolving

Loans

Total

Loans

(Dollars in thousands)

December 31, 2025:

Commercial and industrial

Pass

$

8,566

5,035

3,970

2,865

4,366

8,074

778

$

33,654

Special mention

74

4

7

—

—

—

—

85

Substandard accruing

—

—

7

139

2

—

—

148

Nonaccrual

—

—

—

—

—

—

—

—

Total commercial and industrial

8,640

5,039

3,984

3,004

4,368

8,074

778

33,887

Current period gross charge-offs

40

—

99

3

—

—

—

142

Municipal

Pass

$

837

—

1,156

4,190

6,013

9,145

3,172

$

24,513

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total municipal

837

—

1,156

4,190

6,013

9,145

3,172

24,513

Current period gross charge-offs

—

—

—

—

—

—

—

—

Construction and land development

Pass

31,315

14,175

7,321

2,080

69

711

765

56,436

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total construction and land development

31,315

14,175

7,321

2,080

69

711

765

56,436

Current period gross charge-offs

—

—

—

—

—

—

—

—

Commercial real estate:

Owner occupied

Pass

9,755

1,312

11,889

6,235

13,830

11,618

2,682

57,321

Special mention

620

—

—

—

—

—

750

1,370

Substandard accruing

—

499

—

—

—

—

—

499

Nonaccrual

—

—

—

—

—

378

—

378

Total owner occupied

10,375

1,811

11,889

6,235

13,830

11,996

3,432

59,568

Current period gross charge-offs

—

—

—

—

—

296

—

296

Hotel/motel

Pass

5,012

14,161

6,143

8,976

2,948

10,630

—

47,870

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total hotel/motel

5,012

14,161

6,143

8,976

2,948

10,630

—

47,870

Current period gross charge-offs

—

—

—

—

—

—

—

—

Year of Origination

2025

2024

2023

2022

2021

Prior to

2021

Revolving

Loans

Total

Loans

(Dollars in thousands)

December 31, 2025:

Multifamily

Pass

1,254

3,615

12,550

20,560

1,726

8,652

142

48,499

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

—

—

—

—

—

3,017

—

3,017

Nonaccrual

—

—

—

—

—

—

—

—

Total multifamily

1,254

3,615

12,550

20,560

1,726

11,669

142

51,516

Current period gross charge-offs

—

—

—

—

—

—

—

—

Other

Pass

25,027

41,004

12,501

28,033

17,244

24,310

17,589

165,708

Special mention

—

364

—

—

495

—

—

859

Substandard accruing

—

—

—

—

—

—

—

—

Nonaccrual

—

—

—

—

—

—

—

—

Total other

25,027

41,368

12,501

28,033

17,739

24,310

17,589

166,567

Current period gross charge-offs

—

—

—

—

—

—

—

—

Residential real estate:

Consumer mortgage

Pass

6,413

4,344

16,249

16,527

2,263

10,977

1,692

58,465

Special mention

—

—

—

—

—

184

65

249

Substandard accruing

—

—

—

—

—

754

245

999

Nonaccrual

—

—

68

—

—

—

—

68

Total consumer mortgage

6,413

4,344

16,317

16,527

2,263

11,915

2,002

59,781

Current period gross charge-offs

—

—

4

—

—

1

—

5

Investment property

Pass

9,332

8,045

10,016

9,849

6,790

10,375

1,999

56,406

Special mention

—

—

—

—

—

—

—

—

Substandard accruing

236

—

—

91

4

—

—

331

Nonaccrual

—

—

36

—

—

—

—

36

Total investment property

9,568

8,045

10,052

9,940

6,794

10,375

1,999

56,773

Current period gross charge-offs

—

—

2

—

—

—

—

2

Consumer installment

Pass

4,121

1,981

972

780

137

81

304

8,376

Special mention

—

7

2

—

—

—

—

9

Substandard accruing

8

7

21

—

—

—

—

36

Nonaccrual

—

—

—

—

—

—

—

—

Total consumer installment

4,129

1,995

995

780

137

81

304

8,421

Current period gross charge-offs

42

45

9

—

—

—

—

96

Total loans

Pass

101,632

93,672

82,767

100,095

55,386

94,573

29,123

557,248

Special mention

694

375

9

—

495

184

815

2,572

Substandard accruing

244

506

28

230

6

3,771

245

5,030

Nonaccrual

—

—

104

—

—

378

—

482

Total loans

$

102,570

94,553

82,908

100,325

55,887

98,906

30,183

$

565,332

T

otal current period gross charge-offs

$

82

45

114

3

—

297

—

$

541

Allowance for Credit Losses

The allowance for credit losses is estimated under the Current Expected

Credit Losses (“CECL”) methodology set forth in

FASB ASC 326,

Financial Instruments – Credit Losses

.

Under the CECL methodology,

the allowance for credit losses is

measured on a collective basis for pools of loans with similar risk characteristics,

and for loans that do not share similar risk

characteristics with the collectively evaluated pools, evaluations are

performed on an individual basis.

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

is presented below.

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2026

2025

2026

2025

Provision for credit losses:

Loans

$

(212)

$

166

$

(210)

$

110

Reserve for unfunded commitments

(36)

(53)

(114)

(7)

Total provision for credit

losses

$

(248)

$

113

$

(324)

$

103

The provision for credit losses for the quarter and six months reflects both changes

in credit conditions and the impact of

the refinement in portfolio segmentation during the first quarter of 2026, including

the reclassification of municipal loans

previously included in commercial and industrial loans.

The following table details the changes in the allowance for credit

losses for loans, by portfolio segment, for the respective periods.

(Dollars in thousands)

Commercial

and industrial

Municipal

Construction

and land

development

Commercial

real estate

Residential

real estate

Consumer

installment

Total

Quarter ended June 30, 2026:

Beginning balance

$

686

154

694

4,056

1,029

157

$

6,776

Charge-offs

—

—

—

—

—

(3)

(3)

Recoveries

4

—

—

—

7

14

25

Net (charge-offs) recoveries

4

—

—

—

7

11

22

Provision for credit losses

(148)

(4)

(19)

(97)

58

(2)

(212)

Ending balance

$

542

150

675

3,959

1,094

166

$

6,586

Six months ended June 30, 2026:

Beginning balance

$

1,129

—

1,304

3,777

837

129

$

7,176

Charge-offs

(5)

—

—

(378)

—

(36)

(419)

Recoveries

4

—

—

—

9

26

39

Net (charge-offs) recoveries

(1)

—

—

(378)

9

(10)

(380)

Provision for credit losses

(586)

150

(629)

560

248

47

(210)

Ending balance

$

542

150

675

3,959

1,094

166

$

6,586

Quarter ended June 30, 2025:

Beginning balance

$

1,219

n/a

1,401

3,153

861

116

$

6,750

Charge-offs

(3)

n/a

—

—

(6)

(9)

(18)

Recoveries

1

n/a

—

—

61

5

67

Net (charge-offs) recoveries

(2)

n/a

—

—

55

(4)

49

Provision for credit losses

(5)

n/a

212

(2)

(50)

11

166

Ending balance

$

1,212

n/a

1,613

3,151

866

123

$

6,965

Six months ended June 30, 2025:

Beginning balance

$

1,244

n/a

1,059

3,842

588

138

$

6,871

Charge-offs

(103)

n/a

—

—

(7)

(9)

(119)

Recoveries

30

n/a

—

—

63

10

103

Net (charge-offs) recoveries

(73)

n/a

—

—

56

1

(16)

Provision for credit losses

41

n/a

554

(691)

222

(16)

110

Ending balance

$

1,212

n/a

1,613

3,151

866

123

$

6,965

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

segmentation to separately identify municipal loans,

which were previously included within commercial and industrial loans, due

to their recent growth and distinct risk

characteristics.

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

cash flow

methodology incorporating probability of default and loss given default assumptions

derived from external data sources.

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

expected credit losses associated with these

loans.

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

Accordingly, the

allowance for credit losses and the provision for credit losses for prior periods have

not been revised.

Loan balances in

prior period tables have been reclassified to present municipal loans as a separate

segment to conform to the current period

presentation.

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

-dependent loans.

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

substantially through the operation

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

These loans do not share common risk

characteristics and are not included within the collectively evaluated loans

for determining the allowance for credit losses.

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

the practical expedient to measure the allowance

for credit losses based on the fair value of collateral.

The allowance for credit losses is calculated on an individual loan

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

collateral, which is adjusted for liquidation costs/discounts,

and amortized costs.

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

The Company had no collateral dependent loans which were individually evaluated

at June 30, 2026.

The following table

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

individually evaluated to determine expected

credit losses at December 31, 2025.

(Dollars in thousands)

Real Estate

Total Loans

December 31, 2025:

Commercial real estate

$

378

$

378

Total

$

378

$

378

At June 30, 2026 and December 31, 2025, the Company had one additional

individually evaluated commercial real estate

loan in the amount of $

3.0

million that was not considered collateral dependent and was accruing

in accordance with its

contractual terms.

This loan had an allowance of $

0.5

million at June 30, 2026 and December 31, 2025, respectively.

The

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

flows, discounted at the loan’s

effective interest rate.

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

assumptions

specific to the borrower.

The following table summarizes the Company’s

nonaccrual loans by major categories for the respective periods.

Nonaccrual Loans

Nonaccrual Loans

Total

(Dollars in thousands)

With No Allowance

With An Allowance

Nonaccrual Loans

June 30, 2026

Residential real estate

$

—

64

$

64

Total

$

—

64

$

64

December 31, 2025

Commercial real estate

$

378

—

$

378

Residential real estate

—

104

104

Total

$

378

104

$

482

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

the quarter or six months ended June 30,

2026 and 2025.

There were no modifications to borrowers experiencing financial difficulty

during

the quarter or six months ended June 30,

2026 and 2025.

NOTE 5: STOCK-BASED COMPENSATION

The Company maintains the 2024 Equity and Incentive Compensation

Plan (the “Plan”), which permits the grant of equity-

based awards, including restricted stock units (“RSUs”), to employees of the

Company and its subsidiaries.

On June 5, 2026, the Compensation Committee (the “Committee”) of

the Board of Directors adopted and approved grants

of

8,172

RSUs pursuant to the Plan and a Notice of Discretionary Equity Award

Agreement and related Terms

and

Conditions (together, the “RSU Award

Agreement”).

The RSUs vest in installments of 33% in 2027, 33% in 2028, and

34% in 2029, subject to the recipient’s

continued service through each vesting date.

The grant-date fair value of the RSUs

was $

25.09

per unit, based on the closing price of the Company’s

common stock on the date of grant, resulting in an

aggregate grant-date fair value of approximately $

205

thousand.

The RSUs accrue dividend equivalents on unvested units

equal to cash dividends declared on the Company’s

common stock, which are subject to the same vesting conditions as the

underlying RSUs.

Upon vesting, the Company will withhold a portion of the shares otherwise issuable to

satisfy the

recipients’ tax withholding obligations.

The Company recognized approximately $

5

thousand of stock-based compensation expense related to this grant during

the

quarter and six months ended June 30, 2026.

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

corresponding increase to additional paid-in capital.

At June 30, 2026, unrecognized compensation expense related to

unvested RSUs was approximately $200 thousand, which is expected to be

recognized over the remaining vesting period of

approximately three years.

The unvested RSUs had no dilutive effect on weighted average shares outstanding

for the

quarter ended June 30, 2026, as determined under the treasury stock method.

RSUs granted on July 24, 2025 vested during the first quarter of 2026, and

no unvested awards remained outstanding at

June 30, 2026 related to that grant.

The Company recognized $

24

thousand of stock-based compensation expense during

the first six months of 2026 related to those RSUs.

NOTE 6: COMMITMENTS AND CONTINGENT LIABILITIES

Contingent Liabilities

During the second quarter of 2026, the Company identified a loss contingency

in connection with the release of a mortgage

lien. Based on the facts known to management, the Company determined

that a loss was probable and reasonably estimable

and recorded a pre-tax accrual of $

390

thousand within other noninterest expense for the quarter and six months ended June

30, 2026, in accordance with applicable accounting guidance for

loss contingencies.

The Company has submitted a claim to its insurer for recovery.

As of June 30, 2026, the Company has not recorded a

receivable for any potential insurance recovery,

as the recognition criteria for a gain contingency under generally accepted

accounting principles have not yet been satisfied. Any recovery received from

the insurer will be recognized in the period

in which it is realized or realizable.

NOTE 7: DERIVATIVE INSTRUMENTS

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

rates on certain loans. The Company

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

The Company had two swaps designated as fair value hedges of changes

in the fair value of specified loans attributable to

changes in the benchmark interest rate (the SOFR overnight index

swap rate) that qualified for the shortcut method under

ASC 815,

Derivatives and Hedging

at June 30, 2026, compared to one such swap at December 31, 2025.

Accrued interest

receivable related to the swaps is included in Other Assets or Other Liabilities, as applicable.

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

rates based on SOFR (daily SOFR

compounded in arrears). Because the hedges qualify for the shortcut method,

the hedge relationships are assumed to be

perfectly effective, and therefore no hedge ineffectiveness

is recognized.

The following table presents the fair value of derivative instruments designated

as hedging instruments as of June 30, 2026

and December 31, 2025:

Balance Sheet

Notional

Fair Value

Fair Value

(Dollars in thousands)

Location

Amount

Asset

Liability

June 30, 2026:

Interest rate swaps (fair value hedge)

Other Assets

$

21,840

292

$

—

Total interest rate swap

agreements

$

21,840

292

$

—

Balance Sheet

Notional

Fair Value

Fair Value

(Dollars in thousands)

Location

Amount

Asset

Liability

December 31, 2025:

Interest rate swap (fair value hedge)

Other Liabilities

$

9,988

—

$

22

Total interest rate swap

agreements

$

9,988

—

$

22

The following table presents the carrying amount of hedged loans and

the cumulative amount of fair value hedging

adjustments included in the carrying amount of the hedged loans:

Cumulative Fair

Value Hedging

Carrying Amount

Adjustment Included

(Dollars in thousands)

of Hedged Loans

in Carrying Amount

June 30, 2026:

Loans, net of unearned income

$

21,548

$

(292)

December 31, 2025:

Loans, net of unearned income

$

10,010

$

22

The following table presents the effect of fair value hedge accounting

on the Consolidated Statements of Earnings for the

quarters and six months ended June 30, 2026 and 2025.

Gains and losses on both the interest rate swaps and the hedged

items attributable to the hedged risk are recognized in interest income (loans):

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2026

2025

2026

2025

Amount of gain (loss) recognized in income

on derivative

$

271

$

—

$

314

$

—

Amount of gain (loss) recognized in income

on hedged item attributable to hedged risk

(271)

—

(314)

—

Net impact on interest income (loans)

$

—

$

—

$

—

$

—

The Company had no derivatives designated as hedging instruments during

the quarter and six months ended June 30,

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

the counterparty to the interest rate swaps. The

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

credit standards. The Company does

not anticipate nonperformance by the counterparty.

These derivatives

are subject to a master netting arrangement; however,

the Company does not offset derivative assets and

liabilities on the Consolidated Balance Sheets.

NOTE 8: FAIR VALUE

Fair Value

Hierarchy

“Fair value” is defined by ASC 820,

Fair Value

Measurements and Disclosures

, as the price that would be received to sell

an asset or paid to transfer a liability in an orderly transaction occurring in the principal

market (or most advantageous

market in the absence of a principal market) for an asset or liability at the measurement

date.

GAAP establishes a fair value

hierarchy for valuation inputs that gives the highest priority to quoted prices

in active markets for identical assets or

liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

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

for identical assets or liabilities in active

markets.

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

liabilities in active markets,

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

active, or inputs that are observable for the

asset or liability, either directly

or indirectly.

Level 3—inputs to the valuation methodology are unobservable and reflect

the Company’s own assumptions about

the

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

Level changes in fair value measurements

Transfers between levels of the fair value hierarchy

are generally recognized at the end of each reporting period.

The

Company monitors the valuation techniques utilized for each category

of financial assets and liabilities to ascertain when

transfers between levels have been affected.

The nature of the Company’s financial

assets and liabilities generally is such

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

six months ended June 30, 2026, there were no

transfers between levels and no changes in valuation techniques for the

Company’s financial assets and liabilities.

Assets and liabilities measured at fair value on a recurring

basis

Securities available-for-sale

Fair values of securities available for sale were primarily measured

using Level 2 inputs.

For these securities, the Company

obtains pricing from third-party pricing services.

These third-party pricing services consider observable data that may

include broker quotes, market spreads, cash flows, market

consensus prepayment speeds, benchmark yields, reported trades

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

conditions.

On a quarterly basis, management

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

reasonableness given current market conditions.

As

part of its review, management

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

value measurements.

In addition, management will periodically submit pricing provided by

the third-party pricing services to another

independent valuation firm on a sample basis.

This independent valuation firm will compare the price provided by

the

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

and valuation methodologies used

with management.

Interest Rate Swaps

The fair values of the Company’s interest

rate swaps are estimated using a discounted cash flow model.

The model

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

of the swap and incorporates observable market

data such as: relevant interest rate swap curves, benchmark yield curves

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

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

Because the significant inputs used in

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

classifies these instruments within Level 2 of

the fair value hierarchy.

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

value on a recurring basis as of June

30, 2026 and December 31, 2025, respectively,

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

valuation hierarchy (as described above).

Quoted Prices in

Significant

Active Markets

Other

Significant

for

Observable

Unobservable

Identical Assets

Inputs

Inputs

(Dollars in thousands)

Amount

(Level 1)

(Level 2)

(Level 3)

June 30, 2026:

Securities available-for-sale:

Agency obligations

$

52,436

—

52,436

—

Agency MBS

151,096

—

151,096

—

State and political subdivisions

17,212

—

17,212

—

Total securities available

-for-sale

220,744

—

220,744

—

Other assets - interest rate swaps

292

—

292

—

Total

assets at fair value

$

221,036

—

221,036

—

December 31, 2025:

Securities available-for-sale:

Agency obligations

$

53,784

—

53,784

—

Agency MBS

161,927

—

161,927

—

State and political subdivisions

17,548

—

17,548

—

Total securities available

-for-sale

233,259

—

233,259

—

Total

assets at fair value

$

233,259

—

233,259

—

Other liabilities - interest rate swap

22

—

22

—

Total

liabilities at fair value

$

22

—

22

—

Assets and liabilities measured at fair value on a nonrecurring

basis

Collateral dependent loans

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

the loan less estimated selling costs. The

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

are generally based on recent sales of

comparable properties which are then adjusted for property specific factors.

Non-real estate collateral is valued based on

various sources, including third party asset valuations and internally determined

values based on cost adjusted for

depreciation and other judgmentally determined discount factors. Collateral dependent

loans are classified within Level 3 of

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

value such as collateral values and the borrower's

underlying financial condition.

Mortgage servicing rights, net

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

sheets, are carried at the lower of cost or

estimated fair value.

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

To determine the fair

value of

MSRs, the Company engages an independent third party.

The independent third party’s valuation

model calculates the

present value of estimated future net servicing income using assumptions that

market participants would use in estimating

future net servicing income, including estimates of prepayment speeds,

discount rate, default rates, cost to service, escrow

account earnings, contractual servicing fee income, ancillary income,

and late fees.

Periodically, the Company

will review

broker surveys and other market research to validate significant assumptions

used in the model.

The significant

unobservable inputs include prepayment speeds or the constant prepayment

rate (“CPR”) and the weighted average

discount rate.

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

the Company’s

MSRs are classified within Level 3 of the valuation hierarchy.

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

value on a nonrecurring basis as of

June 30, 2026 and December 31, 2025, respectively,

by caption, on the accompanying consolidated balance sheets and by

ASC 820 valuation hierarchy (as described above):

Quoted Prices in

Active Markets

Other

Significant

for

Observable

Unobservable

Carrying

Identical Assets

Inputs

Inputs

(Dollars in thousands)

Amount

(Level 1)

(Level 2)

(Level 3)

June 30, 2026:

Other assets

(2)

$

741

—

—

741

Total assets at fair value

$

741

—

—

741

December 31, 2025:

Loans, net

(1)

$

378

—

—

378

Other assets

(2)

771

—

—

771

Total assets at fair value

$

1,149

—

—

1,149

(1)

Loans considered collateral dependent under ASC 326

Financial Instruments - Credit Losses

.

(2)

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

fair value.

Quantitative Disclosures for Level 3 Fair Value

Measurements

At June 30, 2026 and December 31, 2025, the Company had no Level 3

assets measured at fair value on a recurring basis.

For Level 3 assets measured at fair value on a non-recurring basis at June 30, 2026

and December 31, 2025, the significant

unobservable inputs used in the fair value measurements are presented

below.

Range of

Weighted

Carrying

Significant

Unobservable

Average

(Dollars in thousands)

Amount

Valuation Technique

Unobservable Input

Inputs

of Input

June 30, 2026:

Mortgage servicing rights, net

$

741

Discounted cash flow

Prepayment speed or CPR

6.0

7.1

%

6.1

%

Discount rate

9.5

11.5

9.5

December 31, 2025:

Collateral dependent loans

$

378

Appraisal

Appraisal discounts

10.0

10.0

%

10.0

%

Mortgage servicing rights, net

771

Discounted cash flow

Prepayment speed or CPR

6.8

8.4

8.2

Discount rate

9.5

11.5

9.5

Fair Value

of Financial Instruments

ASC 825,

Financial Instruments

, requires disclosure of fair value information about financial instruments,

whether or not

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

estimate that value. The assumptions used in the

estimation of the fair value of the Company’s

financial instruments are explained below.

Where quoted market prices are

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

analyses. Discounted cash flows can be

significantly affected by the assumptions used, including

the discount rate and estimates of future cash flows. The

following fair value estimates cannot be substantiated by comparison to

independent markets and should not be considered

representative of the liquidation value of the Company’s

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

value of financial instruments held by the Company.

ASC 825 excludes certain financial instruments and all nonfinancial

instruments from its disclosure requirements.

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

the fair value of its financial instruments:

Loans, net

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

rates reflected current rates at which similar

loans would be made for the same remaining maturities. Expected future

cash flows were projected based on contractual

cash flows, adjusted for estimated prepayments.

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

Loans held for sale

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

Fair values are determined using quoted secondary

market prices for similar loans.

Time Deposits

Fair values for time deposits were estimated using discounted cash flows

.

The discount rates were based on rates currently

offered for deposits with similar remaining maturities.

The carrying value, related estimated fair value,

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

financial

instruments at June 30, 2026 and December 31, 2025 are presented below.

This table excludes financial instruments

recorded at fair value on a recurring basis, and financial instruments for

which the carrying amount approximates fair value.

Financial assets for which fair value approximates carrying value included cash

and cash equivalents.

Financial liabilities

for which fair value approximates carrying value included noninterest

-bearing demand deposits, interest-bearing demand

deposits, and savings deposits.

Fair value approximates carrying value in these financial liabilities due to these

products

having no stated maturity.

Additionally, financial liabilities for

which fair value approximates carrying value included

overnight borrowings such as federal funds purchased and securities sold under

agreements to repurchase.

The following table summarizes our fair value estimates:

Fair Value Hierarchy

Carrying

Estimated

Level 1

Level 2

Level 3

(Dollars in thousands)

amount

fair value

inputs

inputs

Inputs

June 30, 2026:

Financial Assets:

Loans, net (1)

$

573,003

$

559,934

—

—

$

559,934

Loans held for sale

716

730

—

730

—

Financial Liabilities:

Time Deposits

$

184,287

$

183,536

—

183,536

$

—

December 31, 2025:

Financial Assets:

Loans, net (1)

$

558,178

$

542,382

—

—

$

542,382

Loans held for sale

172

179

—

179

—

Financial Liabilities:

Time Deposits

$

176,801

$

176,137

—

176,137

$

—

(

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

The fair value of loans was measured using an

exit price notion.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully

consider the factors discussed in Part I,

Item 1A. “RISK FACTORS”

in the Company’s Annual

Report on Form 10-K for the year ended December 31, 2025,

which could materially affect our business, financial condition

or future results. The risks described in our annual report on

Form 10-K are not the only risks facing our Company.

The persistence of inflation above the Federal Reserve’s

long term

targets, and the maintenance of or further increases in, tightened

Federal Reserve monetary policy by increased target

interest rates and/or reductions in the Federal Reserve’s

securities portfolio, have affected and may continue to affect

the

levels of interest rates, mortgage originations and income, the market values of

our securities portfolio and loans and have

resulted in unrealized securities losses that have adversely affected

our stockholders’ equity.

Although inflation has

remained above the Federal Reserve’s

2% target rate, since December 2025, the Federal Reserve has

maintained its target

federal funds range from 3.50% to 3.75% and on October 29, 2025 announced

that it would end the roll-off of maturing

securities it held beginning December 1, 2025 as the Federal Reserve sought

to meet its dual mandate of maximum

employment and 2% inflation over the longer run.

Beginning December 11, 2025, the Federal Reserve began

increasing its

holdings of securities through purchases of Treasury

bills and, if needed, other Treasury securities with remaining

maturities of 3 years or less to maintain an ample level of reserves, and reinvested all principal

payments on Treasury

securities and reinvested all principal payment on agency securities into Treasury

bills.

This policy was continued at the

Federal Reserve’s April 30,

2026 meeting.

The reductions in the target federal funds rates and Federal Reserve purchases

of additional securities may be viewed as a more accommodative monetary policy,

which has affected and may continue to

affect our deposit costs and mixes, and consumer savings and payment

behaviors.

These may also affect our borrowers’

operating costs, expected returns and cash flows available to service our loans.

On July 29, 2026, the Federal Reserve

reaffirmed its commitment to price stability and its 2% inflation

target, and left the target range for the federal funds rate

unchanged at 3.50% to 3.75%.

Following this meeting, yields on longer-term U.S.

Treasury securities increased, including

the highest 30-year Treasury yields in 19 years and

higher 30-year residential mortgage rates, among increases in other

interest rates.

The timing and direction of future monetary policy actions, and the nature and

extent of the Federal

Reserve’s public communications

regarding such actions, are uncertain.

These changes and other risks and uncertainties

not currently known to us or that we currently deem to be immaterial also may

materially adversely affect our business,

financial condition, and/or operating results in the future.

Military hostilities involving the United States, Israel and Iran commenced on February

28, 2026 and continue subject to

various temporary cease fire arrangements and pauses. As a result, shipments of

petroleum products through the Strait of

Hormuz have been limited, reducing the total volumes of oil in the international

markets and causing oil prices to rise

significantly.

More recently, attacks have

been made on petroleum shipments through the Red Sea by forces aligned with

Iran. Supply chains where petroleum is an input have been adversely

affected, and transportation costs, prices and inflation

in the United States and elsewhere have increased. These pressures may increase

our and our borrowers’ operating costs

and contribute to higher or more volatile interest rates, which could adversely

affect our net interest margin, the value of

our securities portfolio, and the ability of our borrowers to repay their

loans.

The duration of these hostilities and the long-

t

erm effects of the blockage of petroleum shipments and the other

costs and effects of these hostilities cannot be predicted.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS

OF

OPERATIONS

General

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

company registered with the Board of Governors

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

Company Act of 1956, as amended (the

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

1994 it succeeded its Alabama predecessor as the

bank holding company controlling AuburnBank, an Alabama state member

bank with its principal office in Auburn,

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

the Bank since 1984.

As a bank holding

company, the Company

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

currently

are permitted to the Bank under applicable laws and regulations.

The holding company structure also provides greater

financial and operating flexibility than is presently permitted to the Bank.

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

primarily in East Alabama, including

Lee County and surrounding areas.

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

The

Bank’s primary regulators are the

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

Superintendent”).

The Bank has been a member of the FHLB 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

Reports on Form 10-Q.

about Market Risk”, and elsewhere, are “forward-looking statements” within

the meaning and protections of Section 27A

of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,

as amended (the “Exchange Act”).

2026

2025

2026

2025

$

$

$

$

107

67

206

134

878

789

113

103

611

485

877

$

$

$

$

$

$

$

$

CRITICAL ACCOUNTING POLICIES

The accounting principles we follow and our methods of applying

these principles conform with U.S. GAAP and with

general practices within the banking industry.

There have been no significant changes to our Critical Accounting

Policies as

described in our Form 10-K as of and for the year ended December 31, 2025.

RESULTS

OF OPERATIONS

Average Balance

Sheet and Interest Rates

Six months ended June 30,

2026

2025

Average

Yield/

Average

Yield/

(Dollars in thousands)

Balance

Rate

Balance

Rate

Loans and loans held for sale

$

580,231

5.66%

$

563,086

5.49%

Securities

253,550

1.96%

277,026

1.97%

Federal funds sold

26,925

3.56%

26,282

4.38%

Interest-bearing bank deposits

104,452

3.71%

68,777

4.44%

Total interest-earning

assets

965,158

4.42%

935,171

4.34%

Deposits:

NOW

224,944

1.26%

204,069

1.37%

Savings and money market

265,739

0.87%

248,233

0.93%

Time deposits

180,523

3.08%

187,763

3.27%

Total interest-bearing

deposits

671,206

1.60%

640,065

1.76%

Short-term borrowings

—

—

55

3.67%

Total interest-bearing

liabilities

671,206

1.60%

640,120

1.76%

Net interest income and margin (tax-equivalent)

$

15,827

3.31%

$

14,523

3.13%

Net Interest Income and Margin

Net interest income (tax-equivalent) was $15.8 million for the first six months

of 2026, a 9% increase compared to $14.5

million for the first six months of 2025.

This increase was due to growth in average interest-earning assets and

improvements in our net interest margin.

Average interest-earning

assets were $965.2 million during the first six months of

2026, a 3% increase compared to $935.2 million during the first six months of 2025.

The Company’s net interest margin

(tax-equivalent) was 3.31% for the first six months of 2026 compared to 3.13%

for the first six months of 2025.

This

increase was primarily due to higher yields on interest-earning assets, a more

favorable asset mix, and a decrease in our cost

of interest-bearing deposits.

The Federal Reserve announced a 25-basis point reduction in the target

range for the federal

funds rate in each of September, October

and December 2025.

At June 30, 2026, the Federal Reserve’s target

federal funds

rate range remained at 3.50% to 3.75%, which the Federal Reserve reaffirmed

at its July 29, 2026 meeting.

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

8 basis points to 4.42% in the first six months of 2026

compared to 4.34% in the first six months of 2025.

This increase was primarily due to higher yields on loans and a more

favorable asset mix.

The cost of interest-bearing liabilities decreased 16 basis points in the first six months

of 2026 to 1.60%, compared to

1.76% in the first six months of 2025, following decreases to the federal

funds rate.

The Company continues to deploy various asset liability management

strategies to manage its risks from interest rate

fluctuations.

Deposit and loan pricing remain competitive in our markets.

We believe that interest rates,

inflation and

monetary policy may continue to fluctuate in 2026 and may be challenging

as a result.

Our ability to compete and manage

our deposit costs until our interest-earning assets reprice and we generate

new loans with current market interest rates will

be important to our net interest margin during the remainder of

Provision for Credit Losses

The Company recorded a negative provision for credit losses of $(324) thousand

in the first six months of 2026, compared

to a charge to provision for credit losses of $103 thousand in the first six

months of 2025.

For the second quarter of 2026,

the Company recorded a negative provision for credit losses of $(248) thousand,

compared to a charge to provision for

credit losses of $113 thousand in the second quarter

of 2025.

The provision for credit losses is affected by changes in

overall balance and composition of our loan portfolio and unfunded commitments,

our internal assessment of the credit

quality of the loan portfolio, our expectations about future economic

conditions, and net charge-offs.

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

on our allowance assessment

methodology, to adequately

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

At June 30, 2026,

the Company’s allowance for credit

losses was $6.6 million, or 1.14% of total loans, compared to $7.2 million, or 1.27% of

total loans, at December 31, 2025.

The decrease from December 31, 2025 was primarily due to refinements

in the

Company’s calculation of

current expected credit losses (“CECL”).

During the first quarter of 2026, the Company

established a new loan segment within its CECL calculation for municipal loans, which

reduced the allowance for credit

losses due to lower expected credit losses associated with these loans.

Prior to this change, municipal loans were included

in the commercial and industrial loan segment for CECL.

Noninterest Income

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2026

2025

2026

2025

Service charges on deposit accounts

$

153

$

152

$

306

$

307

Mortgage lending income

132

131

304

224

Bank-owned life insurance

171

101

279

206

Other

422

405

882

799

Total noninterest income

$

878

$

789

$

1,771

$

1,536

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)

2026

2025

2026

2025

Origination income

$

62

$

49

$

157

$

57

Servicing fees, net

70

82

147

167

Total mortgage lending

income

$

132

$

131

$

304

$

224

The Company’s mortgage

lending income typically fluctuates as mortgage interest rates change.

Origination income

increased due to increased mortgage lending demand in our primary market

area, which was partially offset by a decrease

in servicing fees, net of related amortization expense.

Income from bank-owned life insurance increased due to non-taxable

death benefits received during the second quarter of

Noninterest Expense

Quarter ended June 30,

Six months ended June 30,

(Dollars in thousands)

2026

2025

2026

2025

Salaries and benefits

$

3,267

$

3,258

$

6,637

$

6,568

Net occupancy and equipment

552

604

1,127

1,318

Professional fees

327

385

776

672

Other

1,959

1,455

3,466

3,024

Total noninterest expense

$

6,105

$

5,702

$

12,006

$

11,582

The increase in other noninterest expense was primarily due to a $0.4 million

loss contingency accrual recorded during the

second quarter of 2026 related to the release of a mortgage lien in connection

with a commercial lending relationship.

The

Company has submitted a claim to its insurer for recovery,

but no insurance recovery has been recognized in the second

quarter 2026 results.

See “Note 6 – Commitments and Contingent Liabilities” to the accompanying consolidated

financial

statements.

The decrease in net occupancy and equipment expense was primarily due

to increased leasing income associated with the

Company’s headquarters.

The increase in professional fees for the first six months of 2026 was primarily due

to an increase in legal expenses.

Income Tax

Expense

Income tax expense was $1.2 million for the first six months of 2026, compared

to $0.9 million for the first six months of

The increase was primarily due to the level of pre-tax earnings.

The Company’s effective tax

rate was 21.26% for

the first six months of 2026, compared to 20.68% for the first six months of 2025.

The Company’s effective

income tax

rate is affected principally by tax-exempt earnings from the Company’s

investments in municipal securities and loans,

BOLI, and NMTCs.

BALANCE SHEET ANALYSIS

Securities

Securities available-for-sale were $220.7 million at June 30, 2026

,

compared to $233.3 million at December 31, 2025.

This

decrease reflects a decrease in the amortized cost basis of securities available-for

-sale, primarily due to normal paydowns

and maturities, of $11.8 million and a decrease

in the fair value of securities available-for-sale of $0.8 million.

The average

annualized tax-equivalent yields earned on total securities were 1.96%

in the first six months of 2026 compared to 1.97% in

the first six months of 2025.

Loans

2026

2025

Second

First

Fourth

Third

Second

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Commercial and industrial

$

27,754

31,841

33,887

29,647

32,027

Municipal

35,020

35,703

24,513

25,455

27,746

Construction and land development

58,855

60,248

56,436

79,045

93,820

Commercial real estate

333,525

334,602

325,521

298,681

282,868

Residential real estate

114,808

111,143

116,554

116,279

117,160

Consumer installment

9,919

8,524

8,421

8,805

9,093

Total loans

$

579,881

582,061

565,332

557,912

562,714

Total loans were $579.9

million at June 30, 2026, compared to $565.3 million at December 31,

Three loan categories

represented the majority of the loan portfolio at June 30, 2026: commercial

real estate (58%), residential real estate (20%),

and construction and land development (10%).

Approximately 17% of the Company’s commercial

real estate loans were

classified as owner-occupied at June 30, 2026.

During the first quarter of 2026, the Company established a separate municipal

loan segment following growth in these

balances.

Prior to this change in presentation, municipal loans were included in the

commercial and industrial loan

segment.

Prior period amounts have been revised to conform with the current period presentation.

Within the residential real estate portfolio segment,

the Company had junior lien mortgages of approximately $11.7

million,

or 2% of total loans,

and $12.3 million, or 2%, of total loans at June 30, 2026 and December 31, 2025, respectively.

For

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

had no loans that required interest only

payments at June 30, 2026 and December 31, 2025. The Company’s

residential real estate mortgage portfolio does not

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

amount of other consumer mortgage products

which are generally viewed as high risk.

The average yield earned on loans and loans held for sale was 5.66% in the first six months

of 2026 and 5.49% in the first

six months of 2025.

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

but are not limited to, the effects of

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

chain disruptions, commercial office

occupancy levels, housing supply shortages, and effects of

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

volumes and liquidity,

valuations used in making loans and evaluating collateral, availability and

cost of financing

properties, real estate industry concentrations, competitive pressures from

a wide range of other lenders, deterioration in

certain credits, interest rate fluctuations, reduced collateral values or

non-existent collateral, title defects, inaccurate

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

of applicable laws and regulations. Various

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

currently in effect may not be as profitable

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

may exist in the future.

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

guidelines for collateralized

loans, investigating the creditworthiness of borrowers and monitoring borrowers’

financial position. Also, we have

established and periodically review lending policies and procedures.

Banking regulations limit a bank’s

credit exposure by

prohibiting unsecured loan relationships that exceed 10% of its capital; or 20%

of capital, if loans in excess of 10% of

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

secured loan relationships in excess of

approximately $23.5 million.

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

outstanding plus

unfunded commitments) to a single borrower of $21.2 million. Our loan policy

requires that the Loan Committee of the

Board of Directors approve any loan relationships that exceed this internal

limit.

At June 30, 2026, the Bank had no loan

relationships exceeding our internal limit.

We periodically

analyze our commercial and industrial and commercial real estate loan portfolios

to determine if a

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

use classification systems broadly accepted by the

financial services industry in order to categorize our commercial borrowers.

Loans to borrowers in each of the following

classes exceeded 25% of the Bank’s

total risk-based capital at June 30, 2026 (and related balances at December

31, 2025).

June 30,

December 31,

(Dollars in thousands)

2026

2025

Multifamily residential properties

$

61,606

$

51,516

Hotel/motel

54,455

47,870

Lessors of 1-4 family residential properties

53,460

56,773

Shopping centers/strip malls

42,363

42,444

Allowance for Credit Losses

Our allowance for credit losses was approximately $6.6 million and $7.2

million at June 30, 2026 and December 31, 2025,

respectively, which our

management believed to be adequate at each of the respective dates.

Our allowance for credit

losses as a percentage of total loans was 1.14% at June 30, 2026, compared

to 1.27% at December 31, 2025.

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

segmentation to separately identify municipal loans,

which were previously included within commercial and industrial loans, due

to their recent growth and distinct risk

characteristics.

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

cash flow

methodology incorporating probability of default and loss given default assumptions

derived from external data sources.

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

expected credit losses associated with these

loans.

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

No adjustments

were made to prior periods.

Our CECL models rely largely on projections of macroeconomic

conditions to estimate future credit losses.

Macroeconomic factors used in the model include the Alabama unemployment

rate, the national commercial real estate

price index and the Alabama gross state product. Projections of these

macroeconomic factors, obtained from an

independent third party,

are utilized to predict quarterly rates of default.

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

a collective basis for pools of loans with

similar risk characteristics, and on an individual basis for loans that do not share

similar risk characteristics with the

collectively evaluated pools.

Losses are predicted over a period of time determined to be reasonable and

supportable, and

at the end of the reasonable and supportable period losses are reverted

to long term historical averages. At June 30, 2026,

reasonable and supportable periods of 4 quarters were utilized

followed by an 8-quarter straight line reversion period to

long term averages.

The allowance for credit losses by loan category for the second quarter of 2026 and the previous

four quarters is presented

below.

2026

2025

Second Quarter

First Quarter

Fourth Quarter

Third Quarter

Second Quarter

(Dollars in thousands)

Amount

%*

Amount

%*

Amount

%*

Amount

%*

Amount

%*

Commercial and industrial

$

542

6.0

$

686

5.5

$

1,129

10.3

$

1,126

9.9

$

1,212

10.6

Municipal

150

4.8

154

6.1

n/a

n/a

n/a

n/a

n/a

n/a

Construction and land

development

675

10.1

694

10.4

1,304

10.0

1,445

14.2

1,613

16.7

Commercial real estate

3,959

57.6

4,056

57.4

3,777

57.6

3,145

53.5

3,151

50.3

Residential real estate

1,094

19.8

1,029

19.1

837

20.6

836

20.8

866

20.8

Consumer installment

166

1.7

157

1.5

129

1.5

139

1.6

123

1.6

Total allowance for

credit losses

$

6,586

$

6,776

$

7,176

$

6,691

$

6,965

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

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

asset quality ratios for the second quarter of 2026

and the previous four quarters is presented below.

2026

2025

Second

First

Fourth

Third

Second

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Balance at beginning of period

$

6,776

7,176

6,691

6,965

6,750

Charge-offs:

Commercial and industrial

—

(5)

(39)

—

(3)

Commercial real estate

—

(378)

(296)

—

—

Residential real estate

—

—

—

—

(6)

Consumer installment

(3)

(33)

—

(87)

(9)

Total charge

-offs

(3)

(416)

(335)

(87)

(18)

Recoveries

25

14

30

9

67

Net (charge-offs) recoveries

22

(402)

(305)

(78)

49

Provision for credit losses - Loans

(212)

2

790

(196)

166

Ending balance

$

6,586

6,776

7,176

6,691

6,965

as a % of loans

1.14

%

1.16

1.27

1.20

1.24

as a % of nonperforming loans

10,291

%

6,643

1,489

6,434

2,306

Net charge-offs (recoveries) as % of average

loans (a)

(0.02)

%

0.28

0.22

0.06

(0.03)

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

Net charge-offs were $380 thousand for the

first six months of 2026, compared to net charge-offs

of $16 thousand for the

first six months of 2025. Net charge-offs in

the first six months of 2026 were primarily related to one nonperforming

collateral-dependent loan.

Nonperforming Assets

At June 30, 2026 and December 31, 2025, the Company had $0.1 million

and $0.5 million, respectively,

in nonperforming

assets.

The table below provides information concerning total nonperforming

assets and certain asset quality ratios for the second

quarter of 2026 and the previous four quarters.

2026

2025

Second

First

Fourth

Third

Second

(Dollars in thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonperforming assets:

Nonaccrual loans

$

64

102

482

104

302

Total nonperforming

assets

$

64

102

482

104

302

as a % of loans and other real estate owned

0.01

%

0.02

0.09

0.02

0.05

as a % of total assets

0.01

%

0.01

0.05

0.01

0.03

Nonperforming loans as a % of total loans

0.01

%

0.02

0.09

0.02

0.05

Accruing loans 90 days or more past due

$

—

208

—

77

—

The table below provides information concerning the composition of

nonaccrual loans for the second quarter of 2026 and

the previous four quarters.

2026

2025

Second

First

Fourth

Third

Second

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Nonaccrual loans:

Commercial real estate

—

—

378

—

119

Residential real estate

64

102

104

104

183

Total nonaccrual

loans

$

64

102

482

104

302

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, 2026 or December

31, 2025.

The Company had no other real estate owned at June 30, 2026 or December 31, 2025.

Deposits

(In thousands)

2026

2025

Noninterest-bearing demand

$

258,351

268,026

NOW

219,623

214,827

Money market

234,874

170,352

Savings

91,183

92,920

Certificates of deposit under $250,000

101,932

97,458

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

82,355

79,343

Total deposits

$

988,318

922,926

Total deposits were $988.3

million at June 30, 2026, compared to $922.9 million at December 31, 2025.

The increase was

primarily due to fluctuations in reciprocal customer deposits retained on balance

sheet and growth in money market account

balances, partially offset by lower noninterest-bearing

demand deposits.

Noninterest-bearing deposits were 26% of total

deposits at June 30, 2026, compared to 29% of total deposits at December 31,

The Company had no brokered

deposits at June 30, 2026 and December 31, 2025.

The average rate paid on total interest-bearing deposits was 1.60% in the first six months

of 2026, compared to 1.76% in

the first six months of 2025.

The Bank participates in the Certificates of Deposit Account Registry Service (the

“CDARS”) and the Insured Cash Sweep

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

among banks facilitated by IntraFi for the purpose

of improving the FDIC insurance coverage for our depositors.

The Company had reciprocal deposits on its balance sheet of

$82.3 million at June 30, 2026, compared to $9.8 million at December 31,

At June 30, 2026, the Company had no

reciprocal deposits sold, compared to $79.7 million at December 31, 2025.

At June 30, 2026, estimated uninsured deposits totaled $380.4 million, or

38% of total deposits, compared to $392.9

million, or 43% of total deposits at December 31, 2025.

Uninsured amounts are estimated based on the portion of account

balances that exceed FDIC insurance limits.

The Bank’s uninsured deposits at June

30, 2026 and December 31, 2025

include approximately $217.1 million and $228.7 million, respectively,

of deposits of state, county and local governments

that are collateralized by securities.

Deposits of state, county and local governments were 57% and 58%

of our estimated

uninsured deposits at June 30, 2026 and December 31, 2025, respectively.

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

2026 are presented below.

(Dollars in thousands)

June 30, 2026

Maturity of:

3 months or less

$

23,194

Over 3 months through 6 months

44,789

Over 6 months through 12 months

11,319

Over 12 months

3,053

Total estimated uninsured

time deposits

$

82,355

Other Borrowings and Available

Credit

The Company had no long-term debt at June 30, 2026 and December 31, 2025.

The Bank utilizes short and long-term non-

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

consist of federal funds purchased and securities

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

The Bank had available federal funds

lines totaling $73.2 million and $65.2 million, with no federal fund borrowings

outstanding at June 30, 2026, and December

31, 2025, respectively.

The Bank is eligible to borrow from the FRB’s discount

window, but had no

such borrowings at

June 30, 2026 and December 31, 2025.

The Bank is a member of the FHLB-Atlanta and has borrowed from the

FHLB-Atlanta, and in the future may borrow from

time to time under the FHLB-Atlanta’s

advance program.

FHLB-Atlanta advances include both fixed and variable terms

and provide various maturities, and generally are secured by eligible

assets.

The Bank had no borrowings under FHLB-

Atlanta’s advance program

at June 30, 2026 and December 31, 2025.

At those dates, the Bank had $307.9 million and

$304.9 million, respectively,

of available lines of credit at the FHLB-Atlanta.

CAPITAL ADEQUACY

At June 30, 2026, the Company’s consolidated

stockholders’ equity (book value) was $93.9 million, or $26.91 per share,

compared to $92.1 million, or $26.35 per share, at December 31, 2025.

The increase from December 31, 2025 was

primarily driven by net earnings of $4.5 million, which was partially offset

by cash dividends paid of $1.9 million, an other

comprehensive loss of $0.6 million due to an increase in unrealized losses on securities

available-for-sale, net of tax, and

stock repurchases of $0.2 million.

Unrealized losses do not affect the Bank’s

capital for regulatory capital purposes.

The

Company’s equity-to-assets ratio

was 8.65% at June 30, 2026, compared to 9.04% at December 31, 2025.

The decrease in

the equity-to-assets ratio was due primarily to balance sheet growth

from retaining all reciprocal deposits on balance sheet

at June 30, 2026.

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

of 2026 and the first six months of 2025.

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 10.65%,

CET1 risk-based capital ratio was 16.26%, tier 1

risk-based capital ratio was 16.26%, and total risk-based capital ratio was 17.24%

at June 30, 2026.

These ratios exceed the

minimum regulatory capital percentages of 5.0% for tier 1 leverage

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

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

to be considered “well capitalized.”

The Basel III regulatory capital framework applicable to us includes a “capital

conservation buffer” of CET1 capital.

A

banking organization with a capital conservation buffer

of 2.5% or less is subject to limitations on “distributions” from

“eligible retained earnings”, including dividend payments, share repurchases

and certain discretionary bonus payments.

At

June 30, 2026, the Bank had a capital conservation buffer

of 9.24%.

MARKET AND LIQUIDITY RISK MANAGEMENT

Management’s objective is to manage

assets and liabilities to provide a satisfactory,

consistent level of profitability within

the framework of established liquidity,

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

Asset Liability

Management Committee (“ALCO”) is charged with the

responsibility of monitoring these policies, which are designed to

ensure an acceptable asset/liability composition. Two

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

risk management.

Interest Rate Risk Management

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

fluctuations in interest rates. ALCO

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

for various types of loans and

deposits. Measurements used to help manage interest rate sensitivity include

an earnings simulation model and an economic

value of equity (“EVE”) model.

Earnings simulation

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

simulation modeling.

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

off-balance sheet financial instruments are combined

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

in order to produce various earnings

simulations and estimates. To

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

limit the

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

For changes up or down in rates from management’s

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

variances are as follows:

• +/- 20% for a gradual change of 400 basis points
• +/- 15% for a gradual change of 300 basis points
• +/- 10% for a gradual change of 200 basis points
• +/- 5% for a gradual change of 100 basis points

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

estimate of exposure under these

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

rates indicates our balance sheet is asset

sensitive over the forecast period of 12 months.

At June 30, 2026, 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, 2026, our EVE model indicated that we were in compliance

with our policy guidelines.

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

net interest income will be affected by

changes in interest rates. Income associated with interest-earning

assets and costs associated with interest-bearing liabilities

may not be affected uniformly by changes in interest rates.

In addition, the magnitude and duration of changes in interest

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

although certain assets and liabilities may have

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

degrees to changes in market interest rates, and other

economic and market factors, including market perceptions. Interest

rates on certain types of assets and liabilities fluctuate

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

of assets and liabilities may lag behind

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

mortgage loans, have features (generally

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

Prepayments

and early withdrawal levels

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

certain instruments. The ability of many

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

rates or economic stress, which may

differ across industries and economic sectors. ALCO reviews each

of the above interest rate sensitivity analyses along with

several different interest rate scenarios in seeking satisfactory,

consistent levels of profitability within the framework of the

Company’s established liquidity,

loan, investment, borrowing, and capital policies.

The Company may also use derivative financial instruments to improve

the balance between interest-sensitive assets and

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

to meet the credit and deposit

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

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

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

as derivatives, and may be

designated as hedging instruments. At June 30, 2026, the Company had

two derivative contracts designated as part of a

hedging relationship to assist in managing its interest rate sensitivity compared

to one such derivative contract at December

31, 2025.

Liquidity Risk Management

Liquidity is the Company’s ability to

convert assets into cash equivalents in order to meet daily cash flow requirements,

primarily for deposit withdrawals, loan demand and maturing obligations.

The Company seeks to manage its liquidity to

manage or reduce its costs of funds by maintaining liquidity believed

adequate to meet its anticipated funding needs, while

balancing against excessive liquidity that likely would reduce earnings

due to the cost of foregoing alternative higher-

yielding assets.

Liquidity is managed at two levels. The first is the liquidity of the Company.

The second is the liquidity of the Bank. The

management of liquidity at both levels is essential, because the Company and

the Bank are separate and distinct legal

entities with different funding needs and sources, and each are subject

to regulatory guidelines and requirements.

The

Company depends upon dividends from the Bank for liquidity to pay its operating

expenses, debt obligations and

dividends,

and Federal Reserve Regulation W restricts Company borrowings from, and other

transactions with, the Bank.

The Bank’s payment of dividends

depends on its earnings, liquidity,

capital and the absence of regulatory restrictions on

such dividends.

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

received from the Bank.

If needed, the

Company could also borrow money,

or issue common stock or other securities.

Primary uses of funds by the Company

i

nclude payment of Company expenses, dividends paid to stockholders

and Company stock repurchases.

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

interest payments on earning assets,

repayments

and maturities of securities and loans,

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

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

from the Federal Reserve discount

window. In addition to

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

advance program to obtain

funding for growth and liquidity.

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

maturities. At June 30, 2026, the Bank had no FHLB - Atlanta advances outstanding

and available credit from the FHLB of

$307.9 million. At June 30, 2026, the Bank also had $73.2 million of

available uncommitted 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, 2026, the Bank had outstanding standby letters of credit of $2.

8

million and unfunded loan commitments

outstanding of $47.6 million.

Because these commitments generally have fixed expiration dates and

many will expire

without being drawn upon, the total commitment level does not necessarily

represent future cash requirements. If needed to

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

cash equivalents,

deposits with other banks, liquidate

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

draw on its available credit facilities or raise deposits.

Mortgage lending activities

We generally

sell conforming residential mortgage loans in the secondary market to Fannie Mae

while retaining the

servicing of these loans. The sale agreements for these residential mortgage

loans with Fannie Mae and other investors

include various customary representations and warranties regarding

the origination and characteristics of the residential

mortgage loans.

Although the representations and warranties vary among investors, they typically cover

ownership of the

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

the property securing the loan,

compliance with loan criteria set forth in the applicable agreement and

compliance with applicable federal, state, and local

laws, among other matters.

As of June 30, 2026, the aggregate unpaid principal balance of residential

mortgage loans, which we have originated and

sold, but retained the servicing rights, was $183.9 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 2026 as a result of representation and

warranty provisions contained in the Company’s

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

make-whole requests at June 30, 2026.

We service all residential

mortgage loans originated and sold by us to Fannie Mae.

As servicer, our primary duties are to:

(1) collect payments due from borrowers;

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

(3) maintain

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

to the mortgage loans;

(4) maintain any

required escrow accounts for payment of taxes and insurance and

administer escrow payments;

and (5) foreclose on

defaulted mortgage loans or take other actions to mitigate the potential losses to

investors consistent with the agreements

governing our rights and duties as servicer.

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, 2026, we do not believe that this exposure is material due to the historical level

of

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

mortgage loans serviced for Fannie

Mae were current as of such date.

We maintain ongoing

communications with our mortgage purchasers and will continue

to evaluate this exposure by monitoring the level and number of repurchase requests

as well as the delinquency rates in our

investor portfolios.

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

As a result, the Bank is not

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

on such mortgage loans where the borrower is

entitled to forbearance.

Effects of Inflation and Changing Prices

The consolidated financial statements and related consolidated financial

data presented herein have been prepared in

accordance with GAAP and practices within the banking industry which

require the measurement of financial position and

operating results in terms of historical dollars without considering

the changes in the relative purchasing power of money

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

assets and liabilities of a financial institution

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

on a financial institution’s performance

than the effects of general levels of inflation.

Inflation can increase our noninterest expenses. It also can affect

our customers’ behaviors, the mix of deposits between

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

on our deposits and other borrowings, and the

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

our interest expense and interest income is also affected

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

reprice

in response to interest rate changes.

In addition, net interest income could be affected by asymmetrical changes

in the

different interest rate indexes, given that not all of our assets

or liabilities are priced with the same index. Changes in

market interest rates and in the size of the Federal Reserve’s

securities holdings in response to inflation can affect

economic

activity, loan demand

and growth, and unemployment rates. Although the Federal Reserve reduced its target

federal funds

rate range in late 2025 and has resumed purchases of Treasury

securities, inflation remains above the Federal Reserve’s

longer-term 2% goal, and future monetary policy actions are uncertain. Inflation

and related changes in market interest rates

also can adversely affect the values and liquidity of our

loans and securities, the value of collateral securing loans to our

borrowers, and the success of our borrowers and such borrowers’ available cash

to pay interest on and principal of our loans

to them.

See “Item 1A Risk Factors.”

CURRENT ACCOUNTING DEVELOPMENTS

The following ASUs have been issued by the FASB,

but are not yet effective.

ASU 2025-01,

Income Statement Reporting Comprehensive Income

• Expense Disaggregation Disclosures

(Subtopic 220-

40): Clarifying the Effective Date,

clarifies the effective date of ASU 2024-03,

Income Statement Reporting Comprehensive

Income - Expense Disaggregation Disclosures

(Subtopic 220-40): Disaggregation of

Income Statement Expenses

to

stipulate that ASU 2024-03 is effective for public business entities for

annual reporting periods beginning after December

15, 2026 and interim reporting periods beginning after December 15,

2027, with early adoption permitted. ASU 2025-01

will be effective for the Company beginning January 1, 2027

for the Company’s annual consolidated

financial statements

on Form 10-K and January 1, 2028 for the Company’s

quarterly consolidated financial statements on Form 10-Q

and is not

expected to have a significant impact on the Company’s

consolidated financial statements.

ASU 2025-06,

Intangibles - Goodwill and Other - Internal-Use Software

(Subtopic 350-40),

removes all references to

prescriptive and sequential software development stages and clarifies that the

threshold for when an entity is required to

start capitalizing software costs is when (1) management has authorized

and committed to funding the software project and

(2) it is probable that the project will be completed and the software will be used to perform

the function intended. ASU

2025-06 will be effective for the Company beginning

January 1, 2028, with early adoption permitted, and is not expected to

have a significant impact on the Company’s

consolidated financial statements.

ASU 2025-08,

Financial Instruments – Credit Losses (Topic

326): Purchased Loans

, expands the population of acquired

loans accounted for under the “gross-up” approach, previously limited

to purchased financial assets with credit

deterioration, to include acquired non-PCD loans that qualify as purchased

seasoned loans. ASU 2025-08 will be effective

for the Company beginning January 1, 2027, on a prospective basis, with early

adoption permitted. Because the Company

has not historically acquired or purchased loans, ASU 2025-08 is not expected

to have a significant impact on the

Company’s consolidated

financial statements.

ASU 2025-09,

Derivatives and Hedging (Topic

815): Hedge Accounting Improvements

, amends Topic 815 to

align hedge

accounting more closely with an entity’s

risk management activities, including amendments related to similar risk

assessments for cash flow hedges, hedges of forecasted interest payments on variable

-rate debt, and certain other hedging

strategies. ASU 2025-09 will be effective for the Company beginning

January 1, 2027, with early adoption permitted, and

is not expected to have a significant impact on the Company’s

consolidated financial statements.

ASU 2025-11,

Interim Reporting (Topic

270): Narrow-Scope Improvements,

is intended to provide clarity about the current

interim reporting requirements, provides a list of the interim disclosures required

by all other Codification topics and

establishes a disclosure principle that requires entities to disclose events since the

end of the last annual reporting period

that have a material impact on the entity.

ASU 2025-11 will be effective

for the Company beginning January 1, 2028, with

early adoption permitted, and is not expected to have a significant impact on the Company’s

consolidated financial

statements.

Table 1

– Explanation of Non-GAAP Financial Measures

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

accounting principles (GAAP), this quarterly

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

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

GAAP financial measure, including the presentation and calculation

of our net interest margin and efficiency ratio.

In the

first quarter of 2026, we changed the presentation of net interest income on a tax-equivalent

basis to account for tax-exempt

interest income on municipal loans.

Prior period amounts have been revised herein to conform with the current period

presentation. These changes had no effect on the presentation

of GAAP net interest income in current or prior periods.

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

basis provides comparability of net

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

within the industry. Although

the

Company believes these non-GAAP financial measures enhance investors’

understanding of its business and performance,

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

to GAAP.

The reconciliations

of these non-

GAAP financial measures to their most directly comparable GAAP financial measures

are presented below.

2026

2025

Second

First

Fourth

Third

Second

(In thousands)

Quarter

Quarter

Quarter

Quarter

Quarter

Net interest income (GAAP)

$

7,888

7,733

7,713

7,572

7,344

Tax-equivalent adjustment

107

99

67

69

67

Net interest income (Tax

-equivalent)

$

7,995

7,832

7,780

7,641

7,411

Six months ended June 30,

(In thousands)

2026

2025

Net interest income (GAAP)

$

15,621

14,389

Tax-equivalent adjustment

206

134

N

et interest income (Tax-equivalent)

$

15,827

14,523

Table 2

– Selected Quarterly Financial Data

2026

2025

Second

First

Fourth

Third

Second

(Dollars in thousands, except per share amounts)

Quarter

Quarter

Quarter

Quarter

Quarter

Results of Operations

Net interest income (a)

$

7,995

7,832

7,780

7,641

7,411

Less: tax-equivalent adjustment

107

99

67

69

67

Net interest income (GAAP)

7,888

7,733

7,713

7,572

7,344

Noninterest income

878

893

754

829

789

Total revenue

8,766

8,626

8,467

8,401

8,133

Provision for credit losses

(248)

(76)

783

(255)

113

Noninterest expense

6,105

5,901

5,563

5,806

5,702

Income tax expense

611

603

456

623

485

Net earnings

$

2,298

2,198

1,665

2,227

1,833

Per share data:

Basic and diluted net earnings

$

0.66

0.63

0.48

0.64

0.52

Cash dividends declared

0.27

0.27

0.27

0.27

0.27

Weighted average shares outstanding:

Basic

3,492,107

3,494,229

3,493,699

3,493,699

3,493,699

Diluted

3,492,107

3,496,518

3,496,729

3,495,972

3,493,699

Shares outstanding, at period end

3,487,830

3,495,866

3,493,699

3,493,699

3,493,699

Book value

$

26.91

26.62

26.35

25.65

24.64

Common stock price

High

$

28.88

26.50

27.98

28.47

25.28

Low

23.03

21.01

24.00

23.13

19.48

Period end

27.04

23.87

26.95

28.44

25.00

To earnings ratio (b)

11.22

x

10.52

12.96

13.87

13.09

To book value

100.48

%

89.67

102.28

110.88

101.46

Performance ratios:

Return on average equity

9.74

%

9.65

7.40

10.65

9.00

Return on average assets

0.90

%

0.86

0.66

0.89

0.74

Dividend payout ratio

40.91

%

42.86

56.25

42.19

51.92

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.14

%

1.16

1.27

1.20

1.24

Nonperforming loans

10,291

%

6,643

1,489

6,434

2,306

Nonperforming assets as a % of:

Loans and other real estate owned

0.01

%

0.02

0.09

0.02

0.05

Total assets

0.01

%

0.01

0.05

0.01

0.03

Nonperforming loans as a % of total loans

0.01

%

0.02

0.09

0.02

0.05

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

(0.02)

%

0.28

0.22

0.06

(0.03)

Capital Adequacy: (c)

CET 1 risk-based capital ratio

16.26

%

16.12

16.06

15.51

15.32

Tier 1 risk-based capital ratio

16.26

%

16.12

16.06

15.51

15.32

Total risk-based capital ratio

17.24

%

17.13

17.14

16.49

16.35

Tier 1 leverage ratio

10.65

%

10.60

10.71

10.72

10.64

Other financial data:

Net interest margin (a)

3.33

%

3.28

3.24

3.21

3.18

Effective income tax rate

21.00

%

21.53

21.50

21.86

20.92

Efficiency ratio (d)

68.80

%

67.63

65.19

68.55

69.54

Selected average balances:

Loans, net of unearned income

$

582,335

577,489

559,009

556,233

559,770

Total assets

1,021,742

1,026,163

1,009,953

997,892

990,523

Total deposits

925,608

930,474

917,178

909,293

905,227

Total stockholders’ equity

94,340

91,088

90,000

83,642

81,447

Selected period end balances:

Loans, net of unearned income

$

579,589

582,040

565,354

557,912

562,714

Allowance for credit losses

6,586

6,776

7,176

6,691

6,965

Total assets

1,085,803

1,026,946

1,018,797

1,011,184

1,029,224

Total deposits

988,318

931,109

922,926

917,266

939,851

Total stockholders’ equity

93,874

93,061

92,053

89,613

86,071

(a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures."

(b) Calculated by dividing period end share price by

earnings per share for the previous four quarters.

(c) Regulatory capital ratios presented are for the Company's

wholly-owned subsidiary, AuburnBank.

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

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

See Table 1 - Explanation of Non-GAAP Measures.

Table 3

• Selected Financial Data

Six months ended June 30,

(Dollars in thousands, except per share amounts)

2026

2025

Results of Operations

Net interest income (a)

$

15,827

14,523

Less: tax-equivalent adjustment

206

134

Net interest income (GAAP)

15,621

14,389

Noninterest income

1,771

1,536

Total revenue

17,392

15,925

Provision for credit losses

(324)

103

Noninterest expense

12,006

11,582

Income tax expense

1,214

877

Net earnings

$

4,496

3,363

Per share data:

Basic and diluted net earnings

$

1.29

0.96

Cash dividends declared

0.54

0.54

Weighted average shares outstanding:

Basic

3,493,162

3,493,699

Diluted

3,494,292

3,493,699

Shares outstanding, at period end

3,487,830

3,493,699

Book value

$

26.91

24.64

Common stock price:

High

$

28.88

25.28

Low

21.01

19.48

Period end

27.04

25.00

To earnings ratio (b)

11.22

x

13.09

To book value

100

%

101

Performance ratios:

Annualized return on average equity

9.70

%

8.43

Annualized return on average assets

0.88

%

0.68

Dividend payout ratio

41.86

%

56.25

Asset Quality:

Allowance for credit losses as a % of:

Loans

1.14

%

1.24

Nonperforming loans

10,291

%

2,306

Nonperforming assets as a % of:

Loans and other real estate owned

0.01

%

0.05

Total assets

0.01

%

0.03

Nonperforming loans as a % of total loans

0.01

%

0.05

Annualized net charge-offs as a % of average loans

0.13

%

0.01

Capital Adequacy: (c)

CET 1 risk-based capital ratio

16.26

%

15.32

Tier 1 risk-based capital ratio

16.26

%

15.32

Total risk-based capital ratio

17.24

%

16.35

Tier 1 leverage ratio

10.65

%

10.64

Other financial data:

Net interest margin (a)

3.31

%

3.13

Effective income tax rate

21.26

%

20.68

Efficiency ratio (d)

68.22

%

72.12

Selected average balances:

Loans, net of unearned income

$

579,925

562,909

Total assets

1,023,940

988,907

Total deposits

928,028

906,011

Total stockholders’ equity

92,723

79,811

Selected period end balances:

Loans, net of unearned income

$

579,589

562,714

Allowance for credit losses

6,586

6,965

Total assets

1,085,803

1,029,224

Total deposits

988,318

939,851

Total stockholders’ equity

93,874

86,071

(a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures."

(b) Calculated by dividing period end share price by

earnings per share for the previous four quarters.

(c) Regulatory capital ratios presented are for the Company's

wholly-owned subsidiary, AuburnBank.

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

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

See Table 1 - Explanation of Non-GAAP Measures.

Table 4

• Average

Balances and Net Interest Income Analysis (1)

Quarter ended June 30,

2026

2025

Interest

Interest

Average

Income/

Yield/

Average

Income/

Yield/

(Dollars in thousands)

Balance

Expense

Rate

Balance

Expense

Rate

Interest-earning assets:

Loans and loans held for sale (2) (3)

$

582,590

$

8,274

5.70%

$

559,939

$

7,726

5.53%

Securities (3) (4)

250,569

1,219

1.95%

274,026

1,336

1.96%

Federal funds sold

29,471

260

3.54%

25,705

280

4.37%

Interest-bearing bank deposits

100,439

934

3.73%

76,237

836

4.40%

Total interest-earning

assets

963,069

$

10,687

4.45%

935,907

$

10,178

4.36%

Cash and due from banks

13,515

15,936

Other assets (5)

45,158

38,680

Total assets

$

1,021,742

$

990,523

Interest-bearing liabilities:

Deposits:

NOW

$

213,794

$

627

1.18%

$

198,973

$

649

1.31%

Savings and money market

274,169

680

0.99%

253,704

646

1.02%

Time deposits

181,093

1,385

3.07%

184,666

1,471

3.20%

Total interest-bearing

deposits

669,056

2,692

1.61%

637,343

2,766

1.74%

Short-term borrowings

—

—

—

110

1

3.65%

Total interest-bearing

liabilities

669,056

$

2,692

1.61%

637,453

$

2,767

1.74%

Noninterest-bearing deposits

256,552

267,884

Other liabilities

1,794

3,739

Stockholders' equity

94,340

81,447

Total liabilities and stockholders'

equity

$

1,021,742

$

990,523

Net interest income and margin (tax-equivalent)

$

7,995

3.33%

$

7,411

3.18%

(1) In the first quarter of 2026, we changed the presentation of net interest income on a tax-equivalent basis to account for tax-exempt

interest income on municipal loans.

Also, we reclassified average net unrealized gains (losses) on available-for-sale securities to

average other assets so that average total securities are presented on an amortized cost basis in our calculation of net interest margin.

Prior period amounts, including the presentation and calculation of our net interest margin, have been revised to conform with the

current period presentation.

(2) Loans on nonaccrual status have been included in the computation of average balances.

(3) Reflects tax-equivalent adjustments, using the statutory federal income tax rate of 21%, in adjusting interest on tax-exempt

municipal loans and securities to a tax-equivalent basis.

(4) Securities are included on an amortized cost basis with yield and net interest margin calculated accordingly.

(5) Includes average net unrealized gains (losses) on securities available-for-sale of $(26.2) and $(33.8) million for the quarters ended

June 30, 2026 and June 30, 2025, respectively.

Table 5

• Average

Balances and Net Interest Income Analysis (1)

Six months ended June 30,

2026

2025

Interest

Interest

Average

Income/

Yield/

Average

Income/

Yield/

(Dollars in thousands)

Balance

Expense

Rate

Balance

Expense

Rate

Interest-earning assets:

Loans and loans held for sale (2) (3)

$

580,231

$

16,288

5.66%

$

563,086

$

15,318

5.49%

Securities (3) (4)

253,550

2,460

1.96%

277,026

2,703

1.97%

Federal funds sold

26,925

475

3.56%

26,282

571

4.38%

Interest-bearing bank deposits

104,452

1,924

3.71%

68,777

1,514

4.44%

Total interest-earning

assets

965,158

$

21,147

4.42%

935,171

$

20,106

4.34%

Cash and due from banks

13,832

17,001

Other assets (5)

44,950

36,735

Total assets

$

1,023,940

$

988,907

Interest-bearing liabilities:

Deposits:

NOW

$

224,944

$

1,407

1.26%

$

204,069

$

1,391

1.37%

Savings and money market

265,739

1,152

0.87%

248,233

1,147

0.93%

Time deposits

180,523

2,761

3.08%

187,763

3,044

3.27%

Total interest-bearing

deposits

671,206

5,320

1.60%

640,065

5,582

1.76%

Short-term borrowings

—

—

0.00%

55

1

3.67%

Total interest-bearing

liabilities

671,206

$

5,320

1.60%

640,120

$

5,583

1.76%

Noninterest-bearing deposits

256,822

265,946

Other liabilities

3,189

3,030

Stockholders' equity

92,723

79,811

Total liabilities and stockholders'

equity

$

1,023,940

$

988,907

Net interest income and margin (tax-equivalent)

$

15,827

3.31%

$

14,523

3.13%

(1) In the first quarter of 2026, we changed the presentation of net interest income on a tax-equivalent basis to account for tax-exempt

interest income on municipal loans.

Also, we reclassified average net unrealized gains (losses) on available-for-sale securities to

average other assets so that average total securities are presented on an amortized cost basis in our calculation of net interest margin.

Prior period amounts, including the presentation and calculation of our net interest margin, have been revised to conform with the

current period presentation.

(2) Loans on nonaccrual status have been included in the computation of average balances.

(3) Reflects tax-equivalent adjustments, using the statutory federal income tax rate of 21%, in adjusting interest on tax-exempt

municipal loans and securities to a tax-equivalent basis.

(4) Securities are included on an amortized cost basis with yield and net interest margin calculated accordingly.

(5) Includes average net unrealized gains (losses) on securities available-for-sale of $(26.1) and $(36.6) million for the first six months

ended June 30, 2026 and June 30, 2025, respectively.

Table 6

– Volume

and Rate Variance

Analysis

Quarter ended

Six months ended

June 30, 2026 vs. 2025

June 30, 2026 vs. 2025

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 (1)

$

548

226

322

$

970

489

481

Securities (1)

(117)

(5)

(112)

(243)

(21)

(222)

Federal funds sold

(20)

(53)

33

(96)

(107)

11

Interest bearing bank deposits

98

(127)

225

410

(247)

657

Total interest income

$

509

41

468

$

1,041

114

927

Interest expense:

Deposits:

NOW

$

(22)

(65)

43

$

16

(115)

131

Savings and money market

34

(17)

51

5

(71)

76

Certificates of deposit

(86)

(59)

(27)

(283)

(172)

(111)

Total interest-bearing

deposits

(74)

(141)

67

(262)

(358)

96

Short-term borrowings

(1)

(1)

—

(1)

(1)

Long-term debt

—

—

—

—

—

—

Total interest expense

(75)

(142)

67

(263)

(359)

96

Net interest income

$

584

183

401

$

1,304

473

831

(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 7

– Loan Maturities

June 30, 2026

1 year

1 to 5

5 to 15

After 15

(Dollars in thousands)

or less

years

years

years

Total

Commercial and industrial

$

13,844

13,317

593

—

27,754

Municipal

446

1,200

21,521

11,853

35,020

Construction and land development

38,781

18,676

1,398

—

58,855

Commercial real estate

55,967

181,836

91,315

4,407

333,525

Residential real estate

7,604

34,219

21,196

51,789

114,808

Consumer installment

3,979

5,177

763

—

9,919

Total loans

$

120,621

254,425

136,786

68,049

579,881

Table

8 –

Sensitivities to Changes in Interest Rates on Loans Maturing in More

Than One Year

June 30, 2026

Variable

Fixed

(Dollars in thousands)

Rate

Rate

Total

Commercial and industrial

$

420

13,490

13,910

Municipal

60

34,514

34,574

Construction and land development

14,227

5,847

20,074

Commercial real estate

12,637

264,921

277,558

Residential real estate

52,663

54,541

107,204

Consumer installment

203

5,737

5,940

Total loans

$

80,210

379,050

459,260

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 5.

OTHER INFORMATION

N

ot applicable.

ITEM 6.

EXHIBITS

Exhibit

Number

Description

3.1

Certificate of Incorporation of Auburn National Bancorporation, Inc. and all amendments thereto.*

3.2

Amended and Restated Bylaws of Auburn National Bancorporation, Inc., adopted as of November 13, 2007. **

10.1

Form of Notice of Discretionary Equity Award Agreement and related Terms and Conditions (together, the

“RSU Award Agreement”

).

***

31.1

Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section

302 of the Sarbanes-Oxley Act of 2002, by David A. Hedges, President and Chief Executive Officer.

31.2

Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant to Section

302 of the Sarbanes-Oxley Act of 2002, by W. James Walker, IV, Senior Vice President and Chief Financial

Officer.

32.1

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002, by David A. Hedges, President and Chief Executive Officer.** **

32.2

Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley

Act of 2002, by W. James Walker, IV, Senior Vice President and Chief Financial Officer.****

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy

Extension Schema Document

101.CAL

XBRL Taxonomy

Extension Calculation Linkbase Document

101.LAB

XBRL Taxonomy

Extension Label Linkbase Document

101.PRE

XBRL Taxonomy

Extension Presentation Linkbase Document

101.DEF

XBRL Taxonomy

Extension Definition Linkbase Document

104

Cover Page Interactive Data File (formatted as inline XBRL and contained

in Exhibit 101)

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.

Incorporated by reference from Registrant’s

Form 8-K dated July 30, 2025.

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.

IV

W. James Walker,

IV

Senior Vice President and

Chief Financial Officer