AUBURN NATIONAL BANCORPORATION, INC

Notes to Consolidated Financial Statements

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING

POLICIES

General

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

of banking services to individuals

and

commercial customers in Lee County,

Alabama and surrounding areas through its wholly owned subsidiary,

AuburnBank

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

that are considered material.

Basis of Presentation and Use of Estimates

The unaudited consolidated financial statements in this report have

been prepared in accordance with U.S. generally

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

Accordingly, these financial statements

do not

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

financial statements.

The unaudited

consolidated financial statements include, in the opinion of management,

all adjustments necessary to present a fair

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

All such adjustments are of a

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

necessarily indicative of the results of

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

periods or the entire year. For

further

information, refer to the consolidated financial statements and footnotes included

in the Company's Annual Report on Form

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

The unaudited consolidated financial statements include the accounts

of the Company and its wholly-owned subsidiaries.

Significant intercompany transactions and accounts are eliminated in

consolidation.

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

management to make estimates and

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

of contingent assets and liabilities as of

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

the reporting period.

Actual results could

differ from those estimates.

Material estimates that are particularly susceptible to significant change in

the near term

include the determination of allowance for credit losses on loans and

investment securities, fair value of financial

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

(“OREO”).

Revenue Recognition

The Company’s sources of

income that fall within the scope of ASC 606 include service charges on

deposits, ATM

and

interchange fees and gains and losses on sales of OREO, all of which

are presented as components of noninterest income.

The following is a summary of the revenue streams that fall within the scope

of ASC 606:

●

Service charges on deposits, investment services, ATM

and interchange fees – Fees from these services are either

(i) transaction-based, for which the performance obligations are satisfied when the

individual transaction is

processed, or (ii) set periodic service charges, for which the performance

obligations are satisfied over the period

the service is provided. Transaction-based

fees are recognized at the time the transaction is processed, and periodic

service charges are recognized over the service period.

●

Gains on sales of OREO

–

A gain on sale should be recognized when a contract for sale exists and control of the

asset has been transferred to the buyer.

ASC 606 lists several criteria required to conclude that a contract for sale

exists, including a determination that the institution will collect substantially all of the

consideration to which it is

entitled.

In addition to the loan-to-value ratio, where the seller provides the purchaser

with financing, the analysis

is based on various other factors, including the credit quality of the

purchaser, the structure of the loan, and any

other factors that we believe may affect collectability.

Subsequent Events

The Company has evaluated the effects of events and

transactions through the date of this filing that have occurred

subsequent to March 31, 2025.

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

this

period that would have required further recognition or disclosure in

the unaudited consolidated financial statements

included in this report.

Accounting Developments

In the first quarter of 2025, 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 quarters ended March 31, 2025 and 2024, respectively.

Diluted net earnings per share reflect the potential dilution that

could occur upon exercise of securities or other rights for,

or convertible into, shares of the Company’s

common stock.

At

March 31, 2025 and 2024, respectively,

the Company had no such securities or rights issued or outstanding, and therefore,

no dilutive effect to consider for the diluted net earnings per share calculation.

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

periods are presented below

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

Basic and diluted:

$

1,530

$

1,371

Weighted average

common shares outstanding

Net earnings per share

$

0.44

$

0.39

NOTE 3: SECURITIES

At March 31, 2025 and December 31, 2024, respectively,

all securities within the scope of ASC 320,

Investments – Debt

and Equity Securities,

were classified as available-for-sale.

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

sale by contractual maturity at March 31, 2025 and December 31, 2024,

respectively, are presented

below.

1 year

1 to 5

5 to 10

After 10

Fair

Gross Unrealized

Amortized

or less

years

years

years

Value

Gains

Losses

Cost

Agency obligations (a)

$

—

26,867

26,052

—

52,919

—

6,343

$

59,262

Agency MBS (a)

19,998

16,181

136,407

172,587

—

24,700

197,287

—

1,625

7,763

7,574

16,962

—

2,836

19,798

Total available-for-sale

$

48,490

49,996

143,981

242,468

—

33,879

$

276,347

December 31, 2024

Agency obligations (a)

$

—

26,655

25,756

—

52,411

—

7,734

$

60,145

Agency MBS (a)

19,863

14,904

138,899

173,676

—

28,901

202,577

—

8,244

7,715

16,925

—

2,901

19,826

Total available-for-sale

$

47,484

48,904

146,614

243,012

—

39,536

$

282,548

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

-sponsored entities.

Expected lives of these

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

have the right to call or repay such securities

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

the loans included in Agency MBS generally

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

Securities with aggregate fair values of $

229.5

million and $

222.3

at March 31, 2025 and December 31, 2024, respectively,

were pledged to secure public deposits,

securities sold under agreements to repurchase, FHLB advances, and for

other

purposes required or permitted by law.

Included in other assets on the accompanying consolidated balance sheets include

non-marketable equity investments.

The

carrying amounts of non-marketable equity investments were $

1.4

million at March 31, 2025 and December 31, 2024,

respectively.

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

Bank of Atlanta

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

Gross Unrealized Losses and Fair Value

The fair values and gross unrealized losses on securities at March 31, 2025

and December 31, 2024, respectively,

segregated by those securities that have been in an unrealized loss position

for less than 12 months and 12 months or

longer, are presented below.

Less than 12 Months

12 Months or Longer

Total

Fair

Fair

Fair

Value

Losses

Value

Losses

Value

Losses

$

—

—

52,919

6,343

$

52,919

6,343

—

172,585

24,700

172,587

24,700

1,772

14,840

2,794

16,612

2,836

Total

$

1,774

240,344

33,837

$

242,118

33,879

$

—

—

52,411

7,734

$

52,411

7,734

—

173,669

28,901

173,676

28,901

1,798

14,776

2,884

16,574

2,901

Total

$

1,805

240,856

39,519

$

242,661

39,536

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

it intends to sell the security, or more

likely

than not will be required to sell the security,

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

to fair value through net income.

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

unrealized loss at March 31, 2025, and it is not more-likely-than-not that the

Company will be required to sell the securities

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

the Company has determined that no write-down is

necessary.

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

securities is the result of

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

losses.

Such evaluations consider the

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

ratings and any other known

adverse conditions related to the specific security.

The unrealized losses associated with securities at March 31, 2025 are

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

and accordingly, no allowance

for

credit losses is considered necessary related to securities at March 31, 2025.

These securities will continue to be monitored

as a part of the Company’s ongoing

evaluation of credit quality.

Management evaluates the financial performance of the

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

all contractual principal and interest

payments.

Realized Gains and Losses

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

ended March 31, 2025 and 2024,

respectively.

NOTE 4: LOANS AND ALLOWANCE

FOR CREDIT LOSSES

$

59,061

$

63,274

86,403

82,493

61,079

55,346

34,607

35,210

43,198

43,556

Other

149,469

155,880

288,353

289,992

59,659

60,399

57,841

58,228

estate

117,500

118,627

9,333

9,631

Total Loans

$

560,650

$

564,017

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

total loan portfolio at March 31, 2025.

At March

31, 2025, the Company’s geographic

loan distribution was concentrated primarily in Lee County,

Alabama, and

surrounding areas.

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

documents a systematic method for

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

quarterly assessment of the allowance, the loan

portfolio included the following portfolio segments: commercial and

industrial, construction and land development,

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

the Company’s loan portfolio

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

based on the initial measurement attribute,

risk characteristics of the loan, and an entity’s

method for monitoring and determining credit risk.

The following describes

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

Commercial and industrial (“C&I”) —

includes loans to finance business operations, equipment purchases, or

other needs

for small and medium-sized commercial customers. Also

included in this category are loans to finance agricultural

production.

Generally, the primary source of repayment

is the cash flow from business operations and activities of the

borrower.

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

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

carrying,

and developing land into commercial developments or residential subdivisions.

Also included are loans and credit

lines for construction of residential, multi-family,

and commercial buildings. Generally,

the primary source of repayment is

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

(“CRE”) —

includes loans in these classes:

●

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

and

owner-occupied facilities primarily for small and medium-sized

commercial customers.

Generally, the primary

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

the borrower, who owns the

property.

●

– includes loans for hotels and motels.

Generally, the primary

source of repayment is dependent upon

income generated from the hotel/motel securing the loan.

The underwriting of these loans takes into consideration

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

●

– primarily includes loans to finance income-producing

multi-family properties. These include loans

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

Generally,

the primary source of

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

The underwriting of these loans

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

health of the respective borrowers.

●

Other

– primarily includes loans to finance income-producing commercial

properties other than hotels/motels and

multi-family properties, and which

are not owner occupied.

Loans in this class include loans for neighborhood

retail centers,

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

and warehouses leased to

local and other businesses. Generally,

the primary source of repayment is dependent upon income generated from

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

the occupancy and rental rates,

as well as the financial health of the borrower.

Residential real estate (“RRE”) —

includes loans in these two classes:

●

– primarily includes

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

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

in accordance

with the Bank’s general loan

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

of

each borrower’s financial condition, satisfactory credit

history,

and property value.

●

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

properties.

Generally,

the primary source of repayment is dependent upon income generated from

leasing the property

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

the rental rates and property values, as

well as the financial health of the borrowers.

Consumer installment —

includes loans to individuals,

which may be secured by personal property or are unsecured.

Loans

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

These loans are underwritten in accordance with

the Bank’s general loan policies and

procedures which require, among other things, proper documentation of each

borrower’s financial condition, satisfactory credit history,

and, if applicable, property values.

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

loans by portfolio segment and class as of March

31, 2025 and December 31, 2024.

Total

30-89 Days

Greater than

Non-

Total

Current

Past Due

90 days

Loans

Accrual

Loans

$

58,994

—

59,058

$

59,061

85,894

—

85,999

86,403

61,079

—

—

61,079

—

61,079

34,607

—

—

34,607

—

34,607

43,198

—

—

43,198

—

43,198

Other

149,350

—

149,469

—

149,469

288,234

—

288,353

—

288,353

59,183

—

59,586

59,659

57,724

—

57,801

57,841

estate

116,907

117,387

117,500

9,262

—

9,333

—

9,333

Total

$

559,291

560,130

$

560,650

$

63,163

—

63,175

$

63,274

82,089

—

—

82,089

82,493

55,346

—

—

55,346

—

55,346

35,210

—

—

35,210

—

35,210

43,556

—

—

43,556

—

43,556

Other

155,880

—

—

155,880

—

155,880

289,992

—

—

289,992

—

289,992

59,677

—

60,399

—

60,399

58,179

—

58,228

—

58,228

estate

117,856

—

118,627

—

118,627

9,579

—

9,631

—

9,631

Total

$

562,679

—

563,514

$

564,017

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

expected.

Substandard accrual and nonaccrual loans are often collectively referred

to as “classified.”

The following tables presents credit quality indicators for the loan portfolio

segments and classes by year of origination as

of March 31, 2025 and December 31, 2024.

Loans

Total

Loans

Pass

$

2,160

5,714

6,740

8,130

12,128

21,273

2,550

$

58,695

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total commercial and industrial

2,211

5,763

6,833

8,297

12,134

21,273

2,550

59,061

—

—

—

—

—

—

Pass

4,983

35,676

23,353

16,671

3,628

85,999

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total construction and land development

4,983

36,080

23,353

16,671

3,628

86,403

—

—

—

—

—

—

—

—

Pass

7,216

1,440

10,856

6,626

16,856

14,968

2,028

59,990

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total owner occupied

7,216

1,948

10,856

6,626

16,856

15,549

2,028

61,079

—

—

—

—

—

—

—

—

Pass

—

6,397

9,322

3,047

15,380

—

34,607

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total hotel/motel

—

6,397

9,322

3,047

15,380

—

34,607

—

—

—

—

—

—

—

—

Loans

Total

Loans

Pass

3,728

8,495

16,930

1,843

12,160

43,198

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total multi-family

3,728

8,495

16,930

1,843

12,160

43,198

—

—

—

—

—

—

—

—

Other

Pass

32,992

19,560

30,079

21,556

31,565

12,624

149,350

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total other

32,992

19,560

30,079

21,556

31,684

12,624

149,469

—

—

—

—

—

—

—

—

Pass

5,003

17,298

17,824

2,598

13,201

1,582

58,312

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total consumer mortgage

5,247

17,371

17,824

2,598

14,231

1,582

59,659

—

—

—

—

—

—

Pass

1,409

10,306

10,404

10,661

8,157

15,573

57,272

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total investment property

1,409

10,593

10,444

10,754

8,164

15,715

57,841

—

—

—

—

—

—

—

—

Pass

2,022

3,401

1,688

1,461

9,242

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total consumer installment

2,023

3,447

1,714

1,470

9,333

—

—

—

—

—

—

—

—

Pass

19,590

98,721

104,791

117,704

67,366

124,964

23,529

556,665

—

—

1,231

1,029

—

2,234

—

—

—

—

$

19,642

100,259

105,023

117,973

67,388

126,836

23,529

$

560,650

Total current period gross charge-offs

$

—

—

—

—

—

Loans

Total

Loans

Pass

$

11,290

7,265

8,488

9,677

4,659

16,989

4,425

$

62,793

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total commercial and industrial

11,389

7,459

8,669

9,684

4,659

16,989

4,425

63,274

—

—

—

—

—

—

Pass

31,144

29,520

16,504

1,794

1,434

1,589

$

82,089

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total construction and land development

31,548

29,520

16,504

1,794

1,434

1,589

82,493

—

—

—

—

—

—

—

—

Pass

1,921

11,206

6,776

17,114

3,396

12,030

1,552

$

53,995

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total owner occupied

2,432

11,455

6,776

17,114

3,987

12,030

1,552

55,346

—

—

—

—

—

—

—

—

Pass

6,480

5,303

3,079

1,299

14,437

4,132

35,210

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total hotel/motel

6,480

5,303

3,079

1,299

14,437

4,132

35,210

—

—

—

—

—

—

—

—

Loans

Total

Loans

Pass

3,739

6,041

17,037

1,863

3,493

6,400

4,983

43,556

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total multi-family

3,739

6,041

17,037

1,863

3,493

6,400

4,983

43,556

—

—

—

—

—

—

—

—

Other

Pass

43,753

21,085

32,521

21,249

16,743

16,289

4,120

155,760

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total other

43,753

21,085

32,521

21,249

16,863

16,289

4,120

155,880

—

—

—

—

—

—

—

—

Pass

5,885

18,389

18,434

2,466

2,565

10,590

59,137

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total consumer mortgage

6,128

18,389

18,434

2,466

2,567

11,607

60,399

—

—

—

—

—

—

Pass

10,339

10,824

10,651

8,305

11,435

4,794

1,317

57,665

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total investment property

10,617

10,864

10,744

8,314

11,578

4,794

1,317

58,228

—

—

—

—

—

—

—

—

Pass

5,015

2,057

1,911

9,549

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

Total consumer installment

5,054

2,081

1,921

9,631

—

—

Pass

113,566

112,867

117,625

65,843

45,114

81,746

22,993

559,754

—

—

1,712

—

2,048

—

—

—

—

—

$

115,140

113,374

117,909

65,868

45,970

82,763

22,993

$

564,017

Total current period gross charge-offs

$

—

—

Allowance for Credit Losses

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

loans with similar risk characteristics, and for

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

pools, evaluations are performed on an

individual basis.

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

is presented below.

Provision for credit losses:

Loans

$

(57)

$

Reserve for unfunded commitments

Total provision for credit

losses

$

(10)

$

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

by portfolio segment, for the respective

periods.

Commercial and

industrial

Construction

and land

development

Commercial

Residential

Consumer

installment

Total

Quarter ended March 31, 2025:

$

1,244

1,059

3,842

$

6,871

Charge-offs

(99)

—

—

(1)

—

(100)

—

—

Net (charge-offs) recoveries

(71)

—

—

(64)

(689)

(28)

(57)

$

1,219

1,401

3,153

$

6,750

Quarter ended March 31, 2024:

$

1,288

3,921

$

6,863

Charge-offs

—

—

—

—

(24)

(24)

—

—

Net recoveries (charge-offs)

—

—

(2)

(120)

(1)

$

1,415

4,202

$

7,215

The following table presents the amortized cost basis of collateral dependent loans,

which are individually evaluated to

determine expected credit losses for the respective periods:

Business

Real Estate

Assets

Total Loans

$

—

$

Total

$

—

$

$

—

$

$

—

$

Total

$

$

The following table summarizes the Company’s

nonaccrual loans by major categories for the respective periods.

No Allowance

With an Allowance

Total

$

—

—

—

Total

$

—

December 31, 2024

$

—

—

Total

$

NOTE 5: MORTGAGE SERVICING

RIGHTS, NET

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

value of the servicing rights on the date the

corresponding mortgage loans are sold.

An estimate of the Company’s MSRs is determined

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.

The Company has elected to measure its MSRs under the amortization

method.

Under the amortization method, MSRs are

amortized in proportion to, and over the period of, estimated net servicing

income.

Increases in market interest rates

generally increase the fair value of MSRs by reducing prepayments and

refinancings and therefore reducing the prepayment

speed.

The Company has recorded MSRs related to loans sold to Fannie Mae.

The Company generally sells conforming, fixed-

rate, closed-end, residential mortgages to Fannie Mae.

MSRs are included in other assets on the accompanying

consolidated balance sheets.

The Company evaluates MSRs for impairment on a quarterly basis.

Impairment is determined by stratifying MSRs into

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

type.

If, by individual stratum, the

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

The valuation allowance is adjusted

as the fair value changes.

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

lending income.

The change in amortized MSRs and the related valuation allowance

for the quarters ended March 31, 2025 and 2024 are

presented below.

MSRs, net:

$

$

Additions, net

Amortization expense

(41)

(39)

$

$

Valuation

allowance included in MSRs, net:

Beginning of period

$

—

$

—

End of period

—

—

Fair value of amortized MSRs:

Beginning of period

$

2,204

$

2,382

End of period

2,201

2,378

NOTE 6: FAIR VALUE

Hierarchy

“Fair value” is defined by ASC 820,

Measurements and Disclosures

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

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

occurring in the principal

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

for an asset or liability at the measurement date.

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

highest priority to quoted prices in active

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

The fair value hierarchy is as

follows:

Level

1—inputs to the valuation methodology are quoted prices, unadjusted, for identical assets or liabilities

in active

markets.

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

assets and liabilities in active markets,

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

active, or inputs that are observable for the

asset or liability, either directly

or indirectly.

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

the Company’s own assumptions about

the

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

Level changes in fair value measurements

Transfers between levels of the fair value hierarchy

are generally recognized at the end of each reporting period.

The

Company monitors the valuation techniques utilized for each category

of financial assets and liabilities to ascertain when

transfers between levels have been affected.

The nature of the Company’s financial

assets and liabilities generally is such

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

For the quarter ended March 31, 2025, there were no

transfers between levels and no changes in valuation techniques for the

Company’s financial assets and liabilities.

Assets and liabilities measured at fair value on a recurring

basis

Fair values of securities available for sale were primarily measured

using Level 2 inputs.

For these securities, the Company

obtains pricing data from third-party pricing services.

These third-party pricing services consider observable data that may

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

reported trades for similar securities, market

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

and conditions.

On a quarterly basis,

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

services for reasonableness given current market

conditions.

As part of its review, management may

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

value measurements.

In addition, management will periodically submit pricing information

provided by the third-party

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

This independent valuation firm will compare the

prices

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

and will review the significant assumptions and

valuation methodologies used with management.

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

value on a recurring basis as of March

31, 2025 and December 31, 2024, respectively,

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

valuation hierarchy (as described above).

Quoted Prices in

Active Markets

Other

for

Observable

Identical Assets

Inputs

Inputs

Amount

(Level 1)

(Level 2)

(Level 3)

Securities available-for-sale:

$

52,919

—

52,919

—

172,587

—

172,587

—

16,962

—

16,962

—

Total securities available

-for-sale

242,468

—

242,468

—

Total

assets at fair value

$

242,468

—

242,468

—

Securities available-for-sale:

$

52,411

—

52,411

—

173,676

—

173,676

—

16,925

—

16,925

—

Total securities available

-for-sale

243,012

—

243,012

—

Total

assets at fair value

$

243,012

—

243,012

—

Assets and liabilities measured at fair value on a nonrecurring

basis

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

held for sale are determined using

quoted secondary market prices for similar loans.

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

hierarchy.

Collateral dependent loans 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.

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

sheets, are carried at the lower of cost or

estimated fair value.

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

To determine the fair

value of

MSRs, the Company engages an independent third party.

The independent third party’s valuation

model calculates the

present value of estimated future net servicing income using assumptions that

market participants would use in estimating

future net servicing income, including estimates of mortgage prepayment

speeds, discount rates, default rates, costs to

service, escrow account earnings, contractual servicing fee income,

ancillary income, and late fees.

Periodically, the

Company will review broker surveys and other market research

to validate significant assumptions used in the model.

The

significant unobservable inputs include mortgage prepayment speeds

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

weighted average discount rate.

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

all of

the Company’s MSRs are classified within

Level 3 of the valuation hierarchy.

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

value on a nonrecurring basis as of

March 31, 2025 and December 31, 2024, respectively,

by caption, on the accompanying consolidated balance sheets and by

FASB ASC 820 valuation

hierarchy (as described above):

Quoted Prices in

Active Markets

Other

for

Observable

Identical Assets

Inputs

Inputs

Amount

(Level 1)

(Level 2)

(Level 3)

$

—

—

(1)

—

—

(2)

—

—

Total assets at fair value

$

1,551

—

1,261

(1)

$

—

—

(2)

—

—

Total assets at fair value

$

1,395

—

—

1,395

(1)

Loans considered collateral dependent under ASC 326.

(2)

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

fair value.

Quantitative Disclosures for Level 3 Fair Value

Measurements

At March 31, 2025 and December 31, 2024, the Company had no Level 3 assets measured

at fair value on a recurring basis.

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

2025 and December 31, 2024, the

significant unobservable inputs used in the fair value measurements and

the range of such inputs with respect to such assets

are presented below.

Range of

Weighted

Average

Amount

Valuation Technique

Unobservable Input

Inputs

of Input

$

Appraisal

Appraisal discounts

10.0

10.0

%

10.0

%

Discounted cash flow

Prepayment speed or CPR

6.5

11.1

7.2

Discount rate

10.0

12.0

10.0

$

Appraisal

Appraisal discounts

10.0

10.0

%

10.0

%

Discounted cash flow

Prepayment speed or CPR

6.7

11.2

7.3

Discount rate

10.0

12.0

10.0

of Financial Instruments

ASC 825,

Financial Instruments

, requires disclosure of fair value information about financial instruments,

whether or not

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

estimate that value. The assumptions used in the

estimation of the fair value of the Company’s

financial instruments are explained below.

Where quoted market prices are

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

analyses. Discounted cash flows can be

significantly affected by the assumptions used, including

the discount rate and estimates of future cash flows. The

following fair value estimates cannot be substantiated by comparison to

independent markets and should not be considered

representative of the liquidation value of the Company’s

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

value of financial instruments held by the Company.

ASC 825 excludes certain financial instruments and all nonfinancial

instruments from its disclosure requirements.

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

the fair value of its financial instruments:

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.

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

market prices for similar loans.

Fair values for time deposits were estimated using discounted cash

flows.

The discount rates were based on rates currently

offered for deposits with similar remaining maturities.

The carrying value, related estimated fair value,

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

financial

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

This table excludes financial instruments for

which the carrying amount approximates fair value.

Financial assets for which fair value approximates carrying value

included cash and cash equivalents.

Financial liabilities for which fair value approximates carrying value included

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

savings deposits.

Fair value approximates

carrying value in these financial liabilities due to these products having

no stated maturity.

Additionally, financial

liabilities for which fair value approximates carrying value included overnight

borrowings such as federal funds purchased

and securities sold under agreements to repurchase.

The following table summarizes our fair value estimates:

Fair Value Hierarchy

Estimated

Level 1

Level 2

Level 3

amount

fair value

inputs

inputs

Inputs

Financial Assets:

Loans, net (1)

$

553,900

$

531,696

—

—

$

531,696

—

—

Financial Liabilities:

$

189,385

$

188,438

—

188,438

$

—

Financial Assets:

Loans, net (1)

$

557,146

$

532,344

—

—

$

532,344

Financial Liabilities:

$

191,247

$

190,636

—

190,636

$

—

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

The fair value of loans was measured using an

exit price notion.

OF FINANCIAL CONDITION AND RESULTS

OF