Core Insights - Auburn National Bancorporation, Inc. reported a net income of $1.4 million, or $0.39 per share, for Q1 2024, a significant recovery from a net loss of $(4.0) million in Q4 2023 and a decrease from net earnings of $2.0 million in Q1 2023 [1][2][14] Financial Performance - Net interest income (tax-equivalent) for Q1 2024 was $6.7 million, an increase of 8% from Q4 2023, primarily driven by a rise in net interest margin to 3.04% from 2.65% [1][3][17] - Annualized loan growth was reported at 7%, with average loans increasing to $560.8 million, a 2% rise from the previous quarter [1][3] - Noninterest income improved to $0.9 million in Q1 2024, compared to a loss of $(5.4) million in Q4 2023, largely due to the prior quarter's balance sheet repositioning [4][14] Asset Quality - Nonperforming assets were $0.9 million, or 0.09% of total assets, showing improvement from $2.7 million, or 0.26%, a year earlier [3][6] - The provision for credit losses was $0.3 million in both Q1 2024 and Q4 2023, compared to $0.1 million in Q1 2023 [4][14] Capital and Equity - Total assets increased to $979.0 million at the end of Q1 2024, up from $975.3 million at the end of Q4 2023 [5][6] - Stockholders' equity decreased to $74.5 million, or $21.32 per share, from $76.5 million, or $21.90 per share, at the end of Q4 2023 [7][14] Deposits and Funding - Period-end deposits rose by $3.4 million to $899.7 million, although down from $939.2 million a year earlier, primarily due to the sale of reciprocal deposits [1][6] - The company had no FHLB advances or other wholesale borrowings outstanding as of March 31, 2024 [6][9]

Economic Conditions - The unemployment rate in Lee County was 2.4% at year-end 2023, indicating a strong local labor market[25]. - The local economy is positively influenced by the automotive industry, with potential risks from interest rate increases affecting sales[28]. - The economic conditions and cyclicality, including inflation and interest rates, may adversely affect the industry in 2024[169]. - Inflation is running at levels unseen in decades, well above the Federal Reserve's long-term inflation goal of 2.0% annually[170]. - The Federal Reserve has been raising target federal funds interest rates since March 2022 to combat inflation[170]. Commercial Real Estate (CRE) Loans - The Bank's commercial real estate (CRE) loans totaled $287.3 million, representing 52% of total loans as of December 31, 2023[28]. - The Bank's loans on owner-occupied property amounted to $66.8 million, included in the total CRE loans[28]. - The Bank's total CRE loans amounted to $293.0 million, which is approximately 264% of the Bank's total risk-based capital as of December 31, 2023[139]. - The company had 39.6% of its loan portfolio in commercial real estate (CRE) loans at year-end 2023, down from 40.4% in 2022 and 42.6% in 2021[193]. - The company is subject to regulatory scrutiny regarding its concentration of CRE loans, which could lead to higher allowances for possible losses[193]. Regulatory Environment - The company is subject to extensive regulation under federal and state laws, which may materially affect its business and financial condition[33]. - The Federal Reserve requires that distributions, including dividends, are only permissible if the Bank's capital conservation buffer exceeds 2.5%[83]. - The Company is subject to various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act, which includes annual reporting on internal controls[81]. - The Bank's compliance with anti-money laundering laws is critical for merger and acquisition proposals, with potential sanctions for violations reaching up to $1 million[72]. - The new CRA regulations, finalized on October 24, 2023, will become effective on January 1, 2026, with data reporting requirements starting on January 1, 2027[54]. Financial Performance - Total cash dividends paid by the Bank to the Company during 2023 amounted to approximately $3.8 million, with net profits for the year and retained profits totaling $8.2 million[85]. - Nonperforming loans were 0.16% of total loans as of December 31, 2023, with no other real estate owned due to foreclosures[174]. - The allowance for loan losses may prove inadequate due to unanticipated adverse changes in the economy, including inflation and higher interest rates[176]. - The company has not reported any material weaknesses in its financial reporting controls as of December 31, 2022[82]. - The Company recorded FDIC insurance premiums expenses of $0.5 million in 2023, an increase from $0.3 million in 2022, reflecting a uniform increase of 2 basis points in the initial base deposit insurance assessment rate schedules[135]. Employee and Management - As of December 31, 2023, the company had 149.5 full-time equivalent employees, including 38 officers, with an average term of service of approximately 10 years[29]. - The company emphasizes competitive compensation and benefits, including employer matches for 401(k) contributions and internal promotions[32]. - The company successfully transitioned management in 2022, with the former CEO becoming Chairman and the CFO succeeding him as President[31]. - The company is committed to maintaining employee health and safety, implementing remote work access during the COVID-19 pandemic[29]. - The company received a federal employee retention tax credit of approximately $1.6 million in 2022 due to little turnover during the COVID-19 pandemic[30]. Risk Management - The Bank's online banking services are subject to cybersecurity risks, highlighting the importance of data security measures[21]. - The Bank has established underwriting standards to manage risks associated with various types of lending, including commercial and consumer loans[27]. - The company has developed risk management and internal audit policies to mitigate material risks and losses, but acknowledges that these may not be comprehensive or timely in identifying all risks[204]. - The new CECL models used by the company are based on assumptions and projections that may not operate properly, potentially leading to inaccurate predictions of future exposures[204]. - The company may face increased costs and risks due to potential changes in mortgage servicing rights requirements[182]. Market Competition - The Bank holds a 20.1% share of the Auburn-Opelika MSA's deposits as of June 30, 2023, making it the largest provider in the area[22]. - The company competes in a highly competitive market with 19 banks in Lee County, including major national banks[195]. - The company’s future success is dependent on local economic conditions, which significantly affect its commercial, real estate, and construction loans[196]. - The company may face challenges in acquiring other businesses due to competition from larger financial institutions and regulatory approvals[198]. - The company must invest in technology to remain competitive, but it may have fewer resources than larger competitors to do so[201]. Community Engagement - The Bank received a "satisfactory" CRA rating in its latest public evaluation dated February 28, 2022, with satisfactory ratings on both lending and community development tests[50]. - The National Community Reinvestment Coalition reported executing over 21 community benefit plans with banking organizations, valued at approximately $580 billion for low- and moderate-income communities[52]. - The new performance evaluation framework for intermediate banks includes two tests: the Retail Lending Test and the Intermediate Bank Community Development Test[56]. - The new CRA rules allow for consideration of community development loans, investments, and services regardless of location, depending on the bank's responsiveness to community needs[59]. - The new regulations exempt small and intermediate banks from certain data requirements that apply to larger banks with assets over $2 billion[61].

AUBURN, Ala., Feb. 13, 2024 (GLOBE NEWSWIRE) -- On February 13, 2024, the Board of Directors of Auburn National Bancorporation, Inc. (the "Company") (NASDAQ:AUBN) declared a first quarter $0.27 per share cash dividend, payable March 25, 2024 to shareholders of record as of March 8, 2024. About Auburn National Bancorporation, Inc. Auburn National Bancorporation, Inc. (the "Company") is the parent company of AuburnBank (the "Bank"), with total assets of approximately $975 million. The Bank is an Alabama stat ...

Core Points - Auburn National Bancorporation reported a net loss of $4.0 million, or $1.14 per share, for Q4 2023, primarily due to the sale of $117.6 million in available-for-sale securities, resulting in an after-tax loss of $4.7 million [1][3] - The company's balance sheet repositioning strategy is expected to improve future earnings and interest rate risk profile, with an estimated earn-back period of approximately 2.3 years [1][2] Financial Performance - Net earnings for the full year 2023 were $1.4 million, or $0.40 per share, down from $10.3 million, or $2.95 per share, in 2022 [3] - Excluding the loss on securities sale, net earnings for 2023 would have been $6.1 million, or $1.75 per share, compared to $6.7 million, or $1.92 per share in 2022 [3] - Net interest income for Q4 2023 was $6.2 million, a decrease of 19% from $7.6 million in Q4 2022, attributed to a decline in net interest margin [4] Asset Quality - Nonperforming assets decreased to $0.9 million, or 0.09% of total assets, at December 31, 2023, down from $2.7 million, or 0.27% of total assets, at December 31, 2022 [5] - The allowance for credit losses was $6.9 million, or 1.23% of total loans, at December 31, 2023, compared to $5.8 million, or 1.14% at the same time last year [6] Noninterest Income and Expenses - Noninterest income recorded a loss of $5.4 million in Q4 2023, compared to a gain of $3.9 million in Q4 2022; excluding the pre-tax securities loss, noninterest income would have been $0.9 million [8] - Noninterest expense increased to $5.8 million in Q4 2023 from $4.4 million in Q4 2022, primarily due to increases in professional fees [9] Tax and Equity - The provision for income taxes was a credit of $1.5 million for Q4 2023, resulting in an effective tax rate of (27.53)%, compared to a tax expense of $1.5 million and an effective rate of 24.56% in Q4 2022 [10] - Total stockholders' equity increased to $76.5 million, or $21.90 per share, at December 31, 2023, up from $68.0 million, or $19.42 per share, at December 31, 2022 [12] Regulatory Capital - The total equity to total assets ratio improved to 7.84% at December 31, 2023, compared to 6.65% at December 31, 2022 [13] - The company maintained strong capital and liquidity positions, with no brokered deposits or wholesale borrowings outstanding at December 31, 2023 [11]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The financial statements present the company's financial position as of September 30, 2023, with **$1.03 billion** in total assets, a nine-month net earnings of **$5.4 million**, and a comprehensive loss, reflecting the **CECL adoption** and its **$1.0 million** impact on credit loss allowance [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheet Highlights (Unaudited) | Metric | Sep 30, 2023 ($ thousands) | Dec 31, 2022 ($ thousands) | Change | | :--- | :--- | :--- | :--- | | **Total Assets** | **1,030,724** | **1,023,888** | **+0.7%** | | Loans, net | 538,832 | 498,693 | +8.0% | | Securities available-for-sale | 373,286 | 405,304 | -7.9% | | **Total Deposits** | **964,601** | **950,337** | **+1.5%** | | **Total Stockholders' Equity** | **61,451** | **68,041** | **-9.7%** | - The decrease in stockholders' equity was primarily driven by an increase in accumulated other comprehensive loss from **$(40.9) million** to **$(49.0) million**, reflecting unrealized losses on the securities portfolio[7](index=7&type=chunk) [Consolidated Statements of Earnings](index=4&type=section&id=Consolidated%20Statements%20of%20Earnings) Earnings Performance (Unaudited) | Metric | Q3 2023 ($ thousands) | Q3 2022 ($ thousands) | Nine Months 2023 ($ thousands) | Nine Months 2022 ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | 6,272 | 7,243 | 20,269 | 19,695 | | Provision for Credit Losses | 105 | 250 | (191) | — | | **Net Earnings** | **1,488** | **1,998** | **5,380** | **5,880** | | **EPS (Basic and Diluted)** | **$0.43** | **$0.57** | **$1.54** | **$1.67** | - Net earnings decreased by **25.5%** for the third quarter and **8.5%** for the nine months ended September 30, 2023, compared to the same periods in 2022, primarily due to lower net interest income in Q3 and higher noninterest expense over the nine-month period[9](index=9&type=chunk) [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) - The company reported a comprehensive loss of **$8.5 million** for Q3 2023 and **$2.7 million** for the nine months ended September 30, 2023, primarily due to significant unrealized net losses on securities, which amounted to **$9.9 million** and **$8.1 million** for the respective periods, net of tax[12](index=12&type=chunk) [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) - Total stockholders' equity decreased from **$68.0 million** at the end of 2022 to **$61.5 million** at September 30, 2023, mainly caused by an **$8.1 million** other comprehensive loss and **$2.8 million** in cash dividends, partially offset by **$5.4 million** in net earnings[15](index=15&type=chunk) - The company paid cash dividends of **$0.81 per share** and repurchased **10,108 shares** during the first nine months of 2023[15](index=15&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) - For the nine months ended September 30, 2023, net cash provided by operating activities was **$10.7 million**, net cash used in investing activities was **$18.7 million** primarily due to a net increase in loans, and net cash provided by financing activities was **$10.4 million** driven by a net increase in deposits[16](index=16&type=chunk) - Cash and cash equivalents increased by **$2.4 million** during the first nine months of 2023, ending the period at **$29.6 million**[16](index=16&type=chunk) [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail significant accounting policies, including the **CECL adoption** on January 1, 2023, which increased the allowance for credit losses by **$1.0 million**, and provide breakdowns of the securities portfolio with **significant unrealized losses** and the **real estate-concentrated loan portfolio** - Effective **January 1, 2023**, the company adopted ASU 2016-13 (**CECL**), replacing the incurred loss methodology with an expected loss methodology, with a transition adjustment including a **$1.0 million** increase in the allowance for credit losses on loans and a net decrease to retained earnings of **$0.8 million**[26](index=26&type=chunk)[28](index=28&type=chunk) Securities Available-for-Sale (September 30, 2023) | Security Type | Fair Value ($ thousands) | Amortized Cost ($ thousands) | Gross Unrealized Losses ($ thousands) | | :--- | :--- | :--- | :--- | | Agency obligations | 122,750 | 139,902 | 17,152 | | Agency MBS | 192,457 | 232,038 | 39,581 | | State and political subdivisions | 58,079 | 66,796 | 8,717 | | **Total** | **373,286** | **438,736** | **65,450** | - The loan portfolio totaled **$545.6 million** as of September 30, 2023, with commercial real estate (**52%**) and residential real estate (**21%**) being the largest segments, and nonaccrual loans stood at **$1.2 million**[66](index=66&type=chunk)[141](index=141&type=chunk) Allowance for Credit Losses Roll-Forward (Nine Months Ended Sep 30, 2023) | Description | Amount ($ thousands) | | :--- | :--- | | Beginning Balance (Dec 31, 2022) | 5,765 | | Impact of adopting ASC 326 | 1,019 | | Net recoveries (charge-offs) | 127 | | Provision for credit losses | (133) | | **Ending Balance (Sep 30, 2023)** | **6,778** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses a decrease in nine-month net earnings to **$5.4 million**, driven by higher noninterest expenses and declining net interest margin, alongside **8% loan growth**, a shift in deposit composition, and a decline in stockholders' equity due to **unrealized securities losses**, while capital ratios remain strong [Summary of Results of Operations](index=30&type=section&id=Summary%20of%20Results%20of%20Operations) Financial Summary | Metric | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Net Earnings | $5.4 million | $5.9 million | | EPS (Basic and Diluted) | $1.54 | $1.67 | | Net Interest Income (tax-equivalent) | $20.6 million | $20.0 million | | Net Interest Margin (tax-equivalent) | 2.97% | 2.67% | - The increase in net interest income for the nine-month period was driven by a more favorable asset mix and higher yields on earning assets, partially offset by increased funding costs, though Q3 2023 net interest income decreased year-over-year due to a declining net interest margin[118](index=118&type=chunk)[124](index=124&type=chunk) - The allowance for credit losses increased to **$6.8 million** (**1.24%** of total loans) at September 30, 2023, up from **$5.8 million** (**1.14%** of total loans) at year-end 2022, largely due to the adoption of **CECL**[119](index=119&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) For the first nine months of 2023, net interest income (tax-equivalent) increased **3% to $20.6 million**, with net interest margin expanding **30 basis points to 2.97%**, while a **negative provision of $0.2 million** was recorded, and noninterest income decreased as noninterest expense rose - Net interest margin (tax-equivalent) for the first nine months of 2023 increased to **2.97%** from **2.67%** in the prior year period, as the yield on interest-earning assets rose by **81 basis points**, while the cost of interest-bearing liabilities increased by **70 basis points**[127](index=127&type=chunk)[128](index=128&type=chunk) - A negative provision for credit losses of **$0.2 million** was recorded in the first nine months of 2023, compared to zero in the same period of 2022, mainly due to the full collection of a **$1.3 million** collateral-dependent nonperforming loan[130](index=130&type=chunk) Noninterest Income (Nine Months Ended) | Category | 2023 ($ thousands) | 2022 ($ thousands) | | :--- | :--- | :--- | | Service charges on deposit accounts | 456 | 446 | | Mortgage lending income | 345 | 566 | | Bank-owned life insurance | 311 | 293 | | Other | 1,336 | 1,259 | | **Total** | **2,448** | **2,608** | Noninterest Expense (Nine Months Ended) | Category | 2023 ($ thousands) | 2022 ($ thousands) | | :--- | :--- | :--- | | Salaries and benefits | 8,809 | 8,901 | | Net occupancy and equipment | 2,341 | 1,955 | | Professional fees | 898 | 704 | | Other | 4,743 | 3,814 | | **Total** | **16,791** | **15,374** | [Balance Sheet Analysis](index=34&type=section&id=Balance%20Sheet%20Analysis) Total loans grew **8% to $545.6 million**, with increased allowance for credit losses to **1.24%** post-CECL, while nonperforming assets decreased to **$1.2 million**, and total deposits increased to **$964.6 million** with a shift to interest-bearing accounts and **35% uninsured deposits** - Total loans increased by **8%** to **$545.6 million** at September 30, 2023, from **$504.5 million** at December 31, 2022, with the portfolio primarily composed of commercial real estate (**52%**) and residential real estate (**21%**)[141](index=141&type=chunk) - Nonperforming assets decreased to **$1.2 million** (**0.12%** of total assets) at September 30, 2023, from **$2.7 million** (**0.27%** of total assets) at December 31, 2022, mainly due to the resolution of a large nonperforming loan[152](index=152&type=chunk)[153](index=153&type=chunk) Deposit Composition | Deposit Type | Sep 30, 2023 ($ thousands) | Dec 31, 2022 ($ thousands) | | :--- | :--- | :--- | | Noninterest bearing demand | 279,458 | 311,371 | | Interest-bearing deposits | 685,143 | 638,966 | | **Total Deposits** | **964,601** | **950,337** | - Estimated uninsured deposits totaled **$337.4 million**, or **35%** of total deposits, at September 30, 2023, including **$185.7 million** of public funds collateralized by securities[158](index=158&type=chunk) [Capital Adequacy](index=39&type=section&id=Capital%20Adequacy) - Consolidated stockholders' equity decreased to **$61.5 million** at September 30, 2023, from **$68.0 million** at year-end 2022, primarily due to an **$8.1 million** other comprehensive loss from unrealized losses on securities[162](index=162&type=chunk) Bank Regulatory Capital Ratios (September 30, 2023) | Ratio | Actual | "Well Capitalized" Minimum | | :--- | :--- | :--- | | Tier 1 Leverage | 10.26% | 5.0% | | CET1 Risk-Based Capital | 15.01% | 6.5% | | Total Risk-Based Capital | 15.98% | 10.0% | [Market and Liquidity Risk Management](index=40&type=section&id=Market%20and%20Liquidity%20Risk%20Management) - The company manages interest rate risk using earnings simulation and Economic Value of Equity (EVE) models, with modeling indicating the balance sheet is **liability-sensitive** over a **12-month** forecast period and compliance with internal policy limits for both earnings at risk and EVE as of September 30, 2023[170](index=170&type=chunk)[171](index=171&type=chunk)[173](index=173&type=chunk) - The Bank maintains multiple sources of liquidity, including customer deposits, FHLB advances, and federal funds lines, with **$307.7 million** available credit from the FHLB and **$61.0 million** in federal funds lines at September 30, 2023, and no outstanding borrowings from either source[178](index=178&type=chunk) - At September 30, 2023, the Bank had unfunded loan commitments of **$60.1 million** and standby letters of credit of **$0.8 million**[180](index=180&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section incorporates by reference the **Market and Liquidity Risk Management** details from Item 2, outlining the company's approach to managing **interest rate and liquidity risks** - The company's disclosures about market risk are detailed in the "MARKET AND LIQUIDITY RISK MANAGEMENT" section of the MD&A[203](index=203&type=chunk) [Item 4. Controls and Procedures](index=52&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that disclosure controls and procedures were **effective** as of September 30, 2023, with **no material changes** to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of September 30, 2023[204](index=204&type=chunk) - There were **no material changes** in the company's internal control over financial reporting during the third quarter of 2023[204](index=204&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=52&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal proceedings, with **no expected material adverse effect** on its financial condition or results of operations from pending or threatened cases - Management believes there are **no pending or threatened legal proceedings** that are expected to have a **material adverse effect** on the company[205](index=205&type=chunk) [Item 1A. Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) The company refers to its 2022 Form 10-K for risk factors, highlighting ongoing risks from **inflation** and **monetary tightening** impacting interest rates, mortgage income, securities values, deposit costs, and borrower financial health - The company directs investors to the risk factors in its 2022 Form 10-K and highlights ongoing risks from **inflation** and **rising interest rates**, which have adversely affected stockholders' equity through **unrealized losses** on the securities portfolio[206](index=206&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=53&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During Q3 2023, the company repurchased **5,883 shares** at an average of **$22.16 per share** under a program authorizing up to **$5 million** in repurchases through April 2024 Share Repurchases in Q3 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2023 | 948 | $21.89 | | August 2023 | 4,935 | $22.21 | | September 2023 | — | — | | **Total** | **5,883** | **$22.16** | - As of September 30, 2023, approximately **$4.4 million** remained available for future repurchases under the current plan, which expires in April 2024[208](index=208&type=chunk) [Item 6. Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed, including **CEO and CFO certifications** under Sarbanes-Oxley and **XBRL interactive data files** - The report includes **certifications** from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act, as well as **XBRL data files**[210](index=210&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended June 30, 2023 ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period __________ to __________ Commission File Number: 0-26486 Auburn National Bancorporation, Inc. (Exact Name of Registrant as Specified in Its Charter ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) ☒ Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended March 31, 2023 ☐ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the transition period __________ to __________ Commission File Number: 0-26486 Auburn National Bancorporation, Inc. (Exact Name of Registrant as Specified in Its Charte ...

Economic Growth and Demographics - The Auburn-Opelika Metropolitan Statistical Area's population increased approximately 29.7% from 2010 to 2022, with an estimated population of 181,881 in 2022[16] - The unemployment rate in Lee County was 2.0% at year-end 2022, indicating a strong local economy[16] - The Auburn-Opelika MSA is projected to grow by 6.6% from 2023 to 2028, with household income expected to increase by 14.25% to $69,213 during the same period[17] Company Operations and Employee Management - The Company received a federal employee retention tax credit of approximately $1.6 million in 2022 due to maintaining employee levels during the COVID-19 pandemic[21] - The Company has 150 full-time equivalent employees, with an average term of service of approximately 10 years[20] - The Bank is one of the largest providers of ATM services in East Alabama, operating machines in 13 locations[13] Regulatory Compliance and Governance - The Company is required to maintain a minimum capital ratio of 10.5% for risk-weighted assets, including a capital conservation buffer of 2.5%[86] - The minimum Common Equity Tier 1 (CET1) capital ratio is set at 4.5%, with a total CET1 requirement of 7.0%[97] - The Company must comply with various corporate governance and financial reporting requirements under the Sarbanes-Oxley Act, including annual reporting on internal controls[76] Capital and Financial Stability - The Bank has been a member of the Federal Home Loan Bank of Atlanta since 1991, enhancing its financial stability[10] - The Federal Reserve expects banks to operate with capital positions well above minimum ratios, considering the quality of capital and various risks[88] - The Company qualifies as a small banking holding company under the Small BHC Policy, with capital adequacy evaluated on a bank-only basis[35] Community Reinvestment Act (CRA) and Lending Practices - The Bank had a "satisfactory" CRA rating in its latest evaluation dated February 28, 2022, with satisfactory ratings on both lending and community development tests[47] - The Bank currently designates two CRA assessment areas: Auburn-Opelika MSA (Lee County) and Chambers-Macon-Tallapoosa assessment area, with two branches in the latter[53] - The proposed Retail Lending Test aims to make evaluations more transparent and predictable by specifying quantitative standards for lending[51] Economic Challenges and Market Conditions - The company is subject to market conditions and economic cyclicality, which may adversely affect its operations in 2023[160] - Inflation is currently running above the Federal Reserve's long-term goal of 2.0%, affecting consumer confidence and economic activity[161] - Higher interest rates and inflation have led to a slowdown in housing starts and sales, adversely affecting mortgage loan production and the value of residential mortgage collateral[168] Risk Management and Compliance - The AML Act of 2020 strengthens anti-money laundering programs and increases penalties for violations, enhancing compliance requirements for financial institutions[71] - The Company has no material weaknesses reported in its financial reporting controls as of December 31, 2022[77] - The company may need to implement more extensive risk management policies as regulations change, including potential climate risk stress tests proposed by the Federal Reserve[197] Financial Performance and Dividends - The Bank paid total cash dividends of approximately $3.7 million to the Company during 2022, with an additional potential of $13.9 million available without prior regulatory approval as of December 31, 2022[78] - The Federal Reserve's guidelines indicate that the board of directors should consult with the Federal Reserve and potentially reduce dividends if net income is insufficient to cover them[80] - The Basel III Capital Rules limit permissible dividends and stock repurchases unless the Company meets the capital conservation buffer requirement[81] Loan and Credit Risk - The allowance for loan losses may prove inadequate, and the company may face credit risk exposures[166] - The company periodically reviews its allowance for loan losses, which may be affected by economic conditions, collateral values, and credit quality indicators, with potential adverse impacts from inflation and higher interest rates[167] - The company’s nonperforming loans were 0.54% of total loans as of December 31, 2022, with $2.7 million in other real estate owned (OREO) due to foreclosures[165] Technology and Cybersecurity - Cybersecurity risks have increased due to the rise in electronic and mobile banking activities, particularly during the COVID-19 pandemic[191] - Operational risks, including those from technological changes and cyber threats, are inherent in the company's business model and may impact its financial stability[185] - The company has established disaster recovery and business continuity policies to mitigate risks from severe weather and natural disasters[196]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Auburn National Bancorporation, Inc. as of and for the periods ended June 30, 2022, and 2021, including Balance Sheets, Statements of Earnings, Comprehensive Income, Stockholders' Equity, and Cash Flows [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2022, total assets were **$1.08 billion**, a slight decrease from **$1.11 billion** at December 31, 2021, primarily due to reductions in cash and loans, net, while total liabilities increased slightly to **$1.01 billion**, and total stockholders' equity significantly decreased from **$103.7 million** to **$76.1 million** mainly due to a **$29.3 million** increase in accumulated other comprehensive loss from unrealized losses on securities Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$1,084,251** | **$1,105,150** | | Cash and cash equivalents | $133,114 | $156,259 | | Securities available-for-sale | $429,220 | $421,891 | | Loans, net | $436,156 | $453,425 | | **Total Liabilities** | **$1,008,144** | **$1,001,424** | | Total deposits | $1,002,698 | $994,243 | | **Total Stockholders' Equity** | **$76,107** | **$103,726** | [Consolidated Statements of Earnings](index=4&type=section&id=Consolidated%20Statements%20of%20Earnings) For the six months ended June 30, 2022, net earnings were **$3.9 million**, down from **$4.3 million** in the same period of 2021, primarily due to lower noninterest income from mortgage lending and higher noninterest expenses, which offset an increase in net interest income Consolidated Earnings Summary (Unaudited) | (In thousands, except per share data) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Quarter Ended June 30, 2022 | Quarter Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net interest income | $12,452 | $11,912 | $6,374 | $5,975 | | Provision for loan losses | ($250) | ($600) | $— | ($600) | | Noninterest income | $1,756 | $2,313 | $848 | $1,131 | | Noninterest expense | $9,959 | $9,606 | $5,058 | $4,916 | | **Net earnings** | **$3,882** | **$4,292** | **$1,801** | **$2,286** | | **Net earnings per share (basic and diluted)** | **$1.10** | **$1.21** | **$0.51** | **$0.65** | [Consolidated Statements of Comprehensive Income](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) The company reported a comprehensive loss of **$25.4 million** for the first six months of 2022, a stark contrast to the **$0.9 million** comprehensive income in the same period of 2021, driven by a significant unrealized net loss on securities of **$29.3 million** due to rising interest rates Comprehensive (Loss) Income (Unaudited) | (In thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net earnings | $3,882 | $4,292 | | Other comprehensive (loss) income, net of tax | ($29,310) | ($3,344) | | **Comprehensive (loss) income** | **($25,428)** | **$948** | [Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) Stockholders' equity decreased from **$103.7 million** at year-end 2021 to **$76.1 million** at June 30, 2022, primarily due to an other comprehensive loss of **$29.3 million**, cash dividends paid of **$1.9 million**, and stock repurchases of **$0.3 million**, partially offset by net earnings of **$3.9 million** - Key changes in stockholders' equity for the six months ended June 30, 2022 include: - Net earnings: **+$3.9 million** - Other comprehensive loss: **-$29.3 million** - Cash dividends paid: **-$1.9 million** - Stock repurchases: **-$0.3 million**[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2022, net cash provided by operating activities was **$4.2 million**, net cash used in investing activities was **$34.3 million** primarily for securities purchases, and net cash provided by financing activities was **$7.0 million** driven by increased deposits, resulting in a net decrease in cash and cash equivalents of **$23.1 million** Cash Flow Summary (Unaudited) | (In thousands) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $4,178 | $5,413 | | Net cash used in investing activities | ($34,284) | ($58,947) | | Net cash provided by financing activities | $6,961 | $82,212 | | **Net change in cash and cash equivalents** | **($23,145)** | **$28,678** | [Notes to Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on significant accounting policies and specific financial statement accounts, including securities classification, loan portfolio composition and credit quality, allowance for loan losses methodology, mortgage servicing rights, and fair value measurements - All securities were classified as available-for-sale, with a fair value of **$429.2 million** and gross unrealized losses of **$38.2 million** at June 30, 2022, primarily due to increases in market interest rates[33](index=33&type=chunk)[34](index=34&type=chunk)[37](index=37&type=chunk) - The loan portfolio totaled **$441.4 million** at June 30, 2022, with commercial real estate (**55%**) and residential real estate (**19%**) as the largest segments, and nonaccrual loans remaining low at **$0.4 million**[44](index=44&type=chunk)[54](index=54&type=chunk) - The allowance for loan losses was **$4.7 million**, or **1.07%** of total loans, at June 30, 2022, with the company recording a negative provision of **$0.3 million** for the first six months of 2022[64](index=64&type=chunk)[122](index=122&type=chunk) - Fair value measurements indicate that securities available-for-sale are primarily valued using Level 2 inputs (observable market data), while impaired loans and mortgage servicing rights are valued using Level 3 inputs (unobservable inputs like appraisals and discounted cash flow models)[92](index=92&type=chunk)[97](index=97&type=chunk)[99](index=99&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance for the second quarter and first half of 2022, highlighting a decline in net earnings due to lower mortgage income and higher expenses, the impact of rising interest rates on the securities portfolio and net interest margin, stable credit quality, strong capital ratios, and ongoing effects of the COVID-19 pandemic [Financial Summary and Results of Operations](index=29&type=section&id=Financial%20Summary%20and%20Results%20of%20Operations) Net earnings for the first six months of 2022 were **$3.9 million** (**$1.10** per share), down from **$4.3 million** (**$1.21** per share) in H1 2021, driven by a **$0.5 million** drop in mortgage lending income and a **$0.4 million** increase in noninterest expense, partially offset by a **4%** rise in tax-equivalent net interest income to **$12.7 million**, despite a decline in net interest margin to **2.51%** from **2.63%** YoY Financial Performance Summary - H1 2022 vs H1 2021 | Metric (In thousands, except per share) | H1 2022 | H1 2021 | Change | | :--- | :--- | :--- | :--- | | Net Earnings | $3,882 | $4,292 | -9.6% | | EPS (Diluted) | $1.10 | $1.21 | -9.1% | | Net Interest Income (Tax-equivalent) | $12,674 | $12,150 | +4.3% | | Noninterest Income | $1,756 | $2,313 | -24.1% | | Noninterest Expense | $9,959 | $9,606 | +3.7% | - The decline in noninterest income was primarily due to a **$0.5 million** decrease in mortgage lending income as refinancing activity slowed with rising interest rates[123](index=123&type=chunk) - The company recorded a negative provision for loan losses of **$0.3 million** in H1 2022, compared to a negative provision of **$0.6 million** in H1 2021, reflecting a decrease in total loans and improved asset quality[122](index=122&type=chunk) [Balance Sheet Analysis](index=38&type=section&id=Balance%20Sheet%20Analysis) As of June 30, 2022, total assets stood at **$1.08 billion**, with securities available-for-sale increasing to **$429.2 million** but their fair value decreasing by **$39.2 million** due to rising interest rates, while total loans decreased to **$440.9 million** from **$458.4 million** at year-end 2021, maintaining strong asset quality with nonperforming assets at a low **$0.4 million** (**0.03%** of total assets) and an allowance for loan losses of **1.07%** of total loans - Securities available-for-sale increased in amortized cost by **$46.5 million**, but their fair value decreased by **$39.2 million** due to rising market interest rates[173](index=173&type=chunk) - Total loans, net of unearned income, were **$440.9 million**, and excluding PPP loans, the portfolio decreased by **$10.0 million**, or **2%**, since year-end 2021[174](index=174&type=chunk) Nonperforming Assets Trend | (In thousands) | Q2 2022 | Q1 2022 | Q4 2021 | | :--- | :--- | :--- | :--- | | Nonaccrual loans | $359 | $371 | $444 | | Other real estate owned | $— | $374 | $374 | | **Total nonperforming assets** | **$359** | **$745** | **$818** | - The allowance for loan losses was **$4.7 million**, or **1.07%** of total loans, which management believes is adequate[181](index=181&type=chunk) [Capital Adequacy and Liquidity](index=44&type=section&id=Capital%20Adequacy%20and%20Liquidity) The company's capital position remains strong, with all regulatory capital ratios well exceeding 'well capitalized' thresholds, including a Tier 1 leverage ratio of **9.16%** and a total risk-based capital ratio of **17.38%** at June 30, 2022, despite a decrease in stockholders' equity to **$76.1 million** primarily due to a **$29.3 million** other comprehensive loss from unrealized securities losses, which does not affect regulatory capital, and liquidity is considered adequate with access to FHLB advances and other funding sources Bank Regulatory Capital Ratios (June 30, 2022) | Ratio | Actual | 'Well Capitalized' Minimum | | :--- | :--- | :--- | | Tier 1 Leverage Ratio | 9.16% | 5.00% | | CET1 Risk-Based Capital Ratio | 16.59% | 6.50% | | Total Risk-Based Capital Ratio | 17.38% | 10.00% | - The decrease in stockholders' equity was primarily driven by a **$29.3 million** other comprehensive loss from the change in unrealized gains/losses on securities available-for-sale, caused by rising interest rates[197](index=197&type=chunk) - The company paid cash dividends of **$0.53** per share in H1 2022 and repurchased **$0.3 million** of its common stock[197](index=197&type=chunk) - The Bank maintains significant liquidity sources, including an available line of credit with the FHLB of **$332.7 million** as of June 30, 2022[209](index=209&type=chunk) [COVID-19 Impact and Other Events](index=30&type=section&id=COVID-19%20Impact%20and%20Other%20Events) The company continues to manage the effects of the COVID-19 pandemic, having actively participated in the PPP loan program with only **$0.6 million** remaining outstanding as of June 30, 2022, and intends to file for a **$1.6 million** employee retention credit under the CARES Act, while also signing a contract in February 2022 to sell land for **$4.26 million**, expected to be accretive to earnings by approximately **$0.70** per share upon closing - The company entered into a contract to sell land for **$4.26 million**, which is expected to be accretive to earnings by approximately **$0.70** per share upon closing[127](index=127&type=chunk)[128](index=128&type=chunk) - The company plans to file for an estimated employee retention credit of **$1.6 million** (**$1.2 million** net of tax), or approximately **$0.33** per share, under the CARES Act[129](index=129&type=chunk)[141](index=141&type=chunk) - As of June 30, 2022, the outstanding balance of PPP loans was approximately **$0.6 million**, down from a total of **$20.3 million** extended in 2021 under the Economic Aid Act[138](index=138&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=56&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section refers to the 'Market and Liquidity Risk Management' discussion within Item 2 (MD&A), where the company manages market risk, primarily interest rate risk, using earnings simulation and Economic Value of Equity (EVE) models to stay within established policy guidelines, and was in compliance with its internal policies for interest rate risk as of June 30, 2022 - The company uses earnings simulation and Economic Value of Equity (EVE) models to measure and manage interest rate risk[202](index=202&type=chunk) - As of June 30, 2022, both the earnings simulation and EVE models indicated the company was in compliance with its policy guidelines for interest rate risk exposure[203](index=203&type=chunk)[204](index=204&type=chunk) [Item 4. Controls and Procedures](index=56&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2022, with no material changes to internal control over financial reporting occurring during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[234](index=234&type=chunk) - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, these controls[234](index=234&type=chunk) [PART II. OTHER INFORMATION](index=56&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=56&type=section&id=Item%201.%20Legal%20Proceedings) The company and its bank subsidiary are involved in legal proceedings from time to time in the normal course of business, but management believes no pending or threatened proceedings are expected to have a material adverse effect on the company's financial condition or results of operations - Management does not expect any pending or threatened legal proceedings to have a material adverse effect on the company's financial condition or operations[235](index=235&type=chunk) [Item 1A. Risk Factors](index=56&type=section&id=Item%201A.%20Risk%20Factors) This section refers to the risk factors detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2021, specifically highlighting that increases in inflation and the resulting tightening of Federal Reserve monetary policy are expected to continue affecting mortgage originations, income, and the market values of its securities portfolio - The report references the risk factors in the 2021 Form 10-K and highlights current risks from inflation and rising interest rates impacting mortgage income and securities values[236](index=236&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=57&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) During the second quarter of 2022, the company repurchased **7,081** shares of its common stock at an average price of **$29.97** per share under a new **$5 million** stock repurchase program adopted on April 12, 2022, which had approximately **$4.8 million** remaining at the end of the quarter Q2 2022 Stock Repurchases | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | — | — | | May 2022 | 7,081 | $29.97 | | June 2022 | — | — | | **Total** | **7,081** | **$29.97** | - A new **$5 million** stock repurchase program was adopted on April 12, 2022[239](index=239&type=chunk) [Item 6. Exhibits](index=58&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the quarterly report, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act of 2002 and XBRL data files - Exhibits filed include certifications by the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act, and XBRL interactive data files[241](index=241&type=chunk)