AUBN filing — read by section

Item 2. Management’s Discussion and Analysis

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 
OF FINANCIAL CONDITION AND RESULTS 
OF 
 OPERATIONS 
 General 
 The following discussion and analysis is designed to provide a better understanding 
of various factors related to the results 
 of operations and financial condition of the Company and the Bank. 
This discussion is intended to supplement and 
 highlight information contained in the accompanying unaudited condensed consolidated 
financial statements and related 
 notes for the quarters and nine months ended September 30, 2021 and 2020, 
as well as the information contained in our 
 annual report on Form 10-K for the year ended December 31, 2020 and our 
interim reports on Form 10-Q for the quarters 
 ended March 31, 2021 and June 30, 2021. 

 Special Notice Regarding Forward-Looking Statements 
 Various 
of the statements made herein under the captions “Management’s 
Discussion and Analysis of Financial Condition 
 and Results of Operations”, “Quantitative and Qualitative Disclosures about 
Market Risk”, “Risk Factors” and elsewhere, 
 are “forward-looking statements” within the meaning and protections of Section 
27A of the Securities Act of 1933, as 
 amended (the “Securities Act”) and Section 21E of the Securities Exchange 
Act of 1934, as amended (the “Exchange Act”). 
 Forward-looking statements include statements with respect to our 
beliefs, plans, objectives, goals, expectations, 
 anticipations, assumptions, estimates, intentions and future performance, and 
involve known and unknown risks, 
 uncertainties and other factors, which may be beyond our control, and 
which may cause the actual results, performance, 
 achievements or financial condition of the Company to be materially different 
from future results, performance, 
 achievements or financial condition expressed or implied by such forward-looking 
statements. 
You 
should not expect us to 
 update any forward-looking statements. 
 All statements other than statements of historical fact are statements that could 
be forward-looking statements. 
You 
can 
 identify these forward-looking statements through our use of words such as 
“may,” “will,” “anticipate,” 
“assume,” 
 “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” 
“estimate,” “continue,” “plan,” “point to,” “project,” 
 “could,” “intend,” “target” and other similar words and expressions 
of the future. 
These forward-looking statements may 
 not be realized due to a variety of factors, including, without limitation: 
 ●
 the effects of future economic, business and market conditions and 
changes, foreign, domestic and locally, 
 including seasonality, natural 
disasters or climate change, such as rising sea and water levels, hurricanes and 
 tornados, coronavirus or other epidemics or pandemics; 
 ●
 the effects of war or other conflicts, acts of terrorism, or other events that 
may affect general economic conditions; 
 ●
 governmental monetary and fiscal policies; 
 ●
 legislative and regulatory changes, including changes in banking, securities and 
tax laws, regulations and rules and 
 their application by our regulators, including capital and liquidity requirements, 
and changes in the scope and cost 
 of FDIC insurance; 
 ●
 the failure of assumptions and estimates, as well as differences in, and changes to, 
economic, market and credit 
 conditions, including changes in borrowers’ credit risks and payment behaviors 
from those used in our loan 
 portfolio reviews; 
 ●
 the risks of changes in interest rates on the levels, composition and costs of deposits, loan 
demand, and the values 
 and liquidity of loan collateral, securities, and interest-sensitive assets and liabilities, and 
the risks and uncertainty 
 of the amounts realizable; 
 ●
 changes in borrower credit risks and payment behaviors; 
 ●
 changes in the availability and cost of credit and capital in the financial markets, and the types 
of instruments that 
 may be included as capital for regulatory purposes; 
 ●
 changes in the prices, values and sales volumes of residential and commercial real estate; 

 
 Table of Contents 
 29 
 ●
 the effects of competition from a wide variety of local, regional, national 
and other providers of financial, 
 investment and insurance services, including the disruption effects of 
financial technology and other competitors 
 who are not subject to the same regulations as the Company and the Bank; 
 ●
 the failure of assumptions and estimates underlying the establishment of allowances 
for possible loan losses and 
 other asset impairments, losses valuations of assets and liabilities and other estimates; 
 ●
 the costs of redeveloping our headquarters and the timing and amount of rental income 
upon completion of the 
 project; 

 ●
 the risks of mergers, acquisitions and divestitures, including, 
without limitation, the related time and costs of 
 implementing such transactions, integrating operations as part of these transactions 
and possible failures to achieve 
 expected gains, revenue growth and/or expense savings from such transactions; 
 ●
 changes in technology or products that may be more difficult, 
costly, or less effective than 
anticipated; 
 ●
 cyber-attacks and data breaches that may compromise our systems, 
our vendor systems 
or customers’ 
 information; 
 ●
 the risks that our deferred tax assets (“DTAs”), 
if any, could be reduced 
if estimates of future taxable income from 
 our operations and tax planning strategies are less than currently estimated, and sales 
of our capital stock could 
 trigger a reduction in the amount of net operating loss carry-forwards that we 
may be able to utilize for income tax 
 purposes; and 
 ●
 other factors and information in this report and other filings that we make with the SEC 
under the Exchange Act, 
 including our Annual Report on Form 10-K for the year ended December 31, 
2020 and subsequent quarterly and 
 current reports. See Part II, Item 1A. “RISK FACTORS”. 
 All written or oral forward-looking statements that are made by us or are attributable 
to us are expressly qualified in their 
 entirety by this cautionary notice. 
We have no obligation and 
do not undertake to update, revise or correct any of the 
 forward-looking statements after the date of this report, or after the respective dates on which 
such statements otherwise are 
 made. 
 ITEM 1. 
BUSINESS 
 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 currentl 
y 
 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 Federal Home Loan Bank of Atlanta (the “FHLB”) 
since 1991. 
 Certain of the statements made in this discussion and analysis and elsewhere, including information 
incorporated herein by 
 reference to other documents, are “forward-looking statements” within the 
meaning of, and subject to, the protections of 
 Section 27A of the Securities 
Act. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 30 
 Summary of Results of Operations 
 Quarter ended September 30, 
 Nine months ended September 30, 

 (Dollars in thousands, except per share amounts) 
 2021 
 2020 
 2021 
 2020 
 Net interest income (a) 
 $
 6,158 
 $
 5,990 
 $
 18,308 
 $
 18,519 
 Less: tax-equivalent adjustment 
 117 
 122 
 355 
 369 
 Net interest income (GAAP) 
 6,041 
 5,868 
 17,953 
 18,150 
 Noninterest income 

 929 
 1,374 
 3,221 
 3,972 
 Total revenue 

 6,970 
 7,242 
 21,174 
 22,122 
 Provision for loan losses 
 — 

 250 
 (600)
 1,100 
 Noninterest expense 
 4,709 
 4,653 
 14,294 
 14,468 
 Income tax expense 

 386 
 403 
 1,313 
 1,156 
 Net earnings 
 $
 1,875 
 $
 1,936 
 $
 6,167 
 $
 5,398 
 Basic and diluted earnings per share 
 $
 0.53 
 $
 0.54 
 $
 1.74 
 $
 1.51 
 (a) Tax-equivalent. 
See "Table 1 - Explanation of Non-GAAP 
Financial Measures." 
 Financial Summary 
 The Company’s net earnings were $6.2 
million for the first nine months of 2021, compared to $5.4 million for the first nine 
 months of 2020. 
Basic and diluted earnings per share were $1.74 per share for the first nine 
months of 2021, compared to 
 $1.51 per share for the first nine months of 2020. 

 Net interest income (tax-equivalent) was $18.3 million for the first nine 
months of 2021, a 1% decrease compared to $18.5 
 million for the first nine months of 2020. 
This decrease was primarily due to net interest margin compression 
resulting 
 from the Federal Reserve’s interest 
rate reductions and bond purchases in response to the COVID-19 pandemic. 
Our 
 securities holdings, which generally yield less than loans, increased as a percentage 
of our total assets reflecting deployment 
 of increased deposits. Net interest margin (tax-equivalent) de 
creased to 2.59% in the first nine months of 2021, compared to 
 2.96% 
for the first nine months of 2020, 
primarily due to the continued lower interest rate environment and changes in our 
 asset mix resulting from the significant increase in deposits from government 
stimulus and relief programs and customers’ 
 increased savings. 
Net interest income (tax-equivalent) included $0.8 
million in PPP loan fees, net of related costs for the 
 nine months ended of 2021, compared to $0.5 million for the the nine months ended 
of 2020. 

 At September 30, 2021, the Company’s 
allowance for loan losses was $5.1 million, or 1.13% of total loans, compared 
to 
 $5.6 million, or 1.22% 
of total loans, at December 31, 2020, and $5.6 million, or 1.18% of total loans, at September 30, 
 2020. 
Excluding PPP loans, which are guaranteed by the SBA, the Company’s 
allowance for loan losses was 1.16% of 
 total loans at September 30, 2021. 
The Company recorded a negative provision for loan losses of $0.6 million during the 
 first nine months of 2021, 
compared to a provision for loan losses of $1.1 million during the first nine months of 2020. 
The 
 negative provision for loan losses was primarily related to improvements in economic conditions 
in our primary market 
 area, and related improvements in our asset quality. 
The provision for loan losses is based upon various estimates and 
 judgements, including the absolute level of loans, loan growth, credit quality and the amount of 
net charge-offs. 
 Noninterest income was $3.2 million for the first nine months of 2021 compared 
to $4.0 million for the first nine months of 
 2020. 
The decrease was primarily due to a $0.3 million non-taxable death benefit from bank-owned 
life insurance received 
 in 2020 
and a $0.4 million decrease in mortgage lending income in 2021 as refinance activity declined 
in our primary 
 market area. 
 

 Noninterest expense was $14.3 million for the first nine months of 2021 
compared to $14.5 million for the first nine months 
 of 2020. 
The decrease was primarily due to a reduction of $0.7 
million in various expenses related to the redevelopment of 
 the Company’s headquarters in downtown 
Auburn. 
This decrease was mostly offset by increases in salaries and benefits 
 expense of $0.3 million and other noninterest expense of $0.2 million during the 
first nine months of 2021. 
 Income tax expense was $1.3 million for the first nine months of 2021 
compared to $1.2 million during the first nine 
 months of 2020, 
reflecting an increase in earnings before taxes and an effective tax rate of 17. 
55% and 17.64%, 
 respectively. 

 
 Table of Contents 
 31 
 The Company paid cash dividends of $0.78 per share in the first nine months of 2021, 
an increase of 2% from the same 
 period of 2020. 
The Company’s share repurchases of $1.3 
million since December 31, 2020 resulted in 37,093 fewer 
 outstanding common shares at September 30, 2021. 
At September 30, 2021, the Bank’s regulatory 
capital ratios were well 
 above the minimum amounts required to be “well capitalized” under current regulatory 
standards with a total risk-based 
 capital ratio of 17.72%, a tier 1 leverage ratio of 9.57% 
and a common equity 
tier 1 (“CET1”) ratio of 16.82% at September 
 30, 2021. 
 For the third quarter of 2021, net earnings were $1.9 million, or $0.53 per 
share, compared to $1.9 million, or $0.54 per 
 share, for the third quarter of 2020. 
Net interest income (tax-equivalent) was $6.2 million for the third quarter of 2021, 
a 
 3% increase compared to $6.0 
million for the third quarter of 2020. 
This increase was primarily due to balance sheet 
 growth, partially offset by a decrease in net interest margin. 
The Company’s net interest margin 
(tax-equivalent) decreased 
 to 2.51% 
in the third quarter of 2021, 
compared to 2.72% for the third quarter of 2020 primarily due to the lower interest 
 rate environment and changes in our asset mix resulting from the significant increase 
in deposits from government stimulus 
 and relief programs and customers’ increased savings. Net interest income (tax-equivalent) 
included $0.3 million in PPP 
 loan fees, net of related costs for both the third quarter of 2021 and 2020. 
The Company had no provision for loan losses 
 during the third quarter of 2021 compared to $0.3 million in provision for loan losses during 
the third quarter 2020. 

 Noninterest income was $1.0 million in the third quarter of 2021, compared to 
$1.4 million in the third quarter of 2020. 

 The decrease in noninterest income was primarily due to a decrease in mortgage lending 
income of $0.4 million as 
 refinance activity slowed in our primary market area. 
Noninterest expense was $4.7 million in the third quarter of 2021, 
 largely unchanged, compared to the third quarter of 2020. 
Income tax expense was $0.4 
million for the third quarter of 
 2021 and 2020, respectively. 
The Company's effective tax rate for the third quarter of 2021 
was 17.07%, compared to 
 17.23% 
in the third quarter of 2020. 
 COVID-19 Impact Assessment 
 In December 2019, COVID-19 was first reported in China and has since spread 
globally. In March 2020, 
the World Health 
 Organization declared COVID-19 a global pandemic and the 
United States declared a National Public Health Emergency. 
 The COVID-19 pandemic has, at times, especially in 2020, severely restricted 
the level of economic activity in our markets. 
 In response to the COVID-19 pandemic, the State of Alabama, and 
most other states, have taken preventative or protective 
 actions to prevent the spread of the virus, including imposing restrictions on travel 
and business operations and a statewide 
 mask mandate, advising or requiring individuals to limit or forego their time outside 
of their homes, limitations on 
 gathering of people and social distancing, and causing temporary closures of businesses 
that have been deemed to be non-
 essential. 
Though certain of these measures have been relaxed or 
eliminated, increases in reported cases could cause these 
 measures to be reestablished. 
Auburn University, a major 
source of economic activity in Lee County, 
went to remote 
 instruction on March 16, 2020. 
Auburn University has guidelines for the remainder of the 2021 school year, 
which 
 involves resumption of full on-site operations as well as other measures. 
 COVID-19 has significantly affected local state, national and 
global health and economic activity and its future effects are 
 uncertain and will depend on various factors, including, among others, the duration 
and scope of the pandemic, the 
 development and distribution of COVID-19 testing and contact tracing, effective 
drug treatments and vaccines, together 
 with governmental, regulatory and private sector responses. 
COVID-19 has had continuing significant effects on the 
 economy, financial 
markets and our employees, customers and vendors. Our business, financial condition 
and results of 
 operations generally rely upon the ability of our borrowers to make deposits and 
repay their loans, the value of collateral 
 underlying our secured loans, market value, stability and liquidity and demand 
for loans and other products and services we 
 offer, all of which are affected 
by the pandemic. 
See “Balance Sheet Analysis – Loans” for supplemental COVID-19 
 disclosures. 
 We have implemented 
a number of procedures in response to the pandemic to support the safety and 
well-being of our 
 employees, customers and shareholders. 
 • 
We believe our business continuity 
plan has worked to provide essential banking services to our 
communities and 
 customers, while protecting our employees’ health. 
As part of our efforts to exercise social distancing in accordance with 
 the guidelines of the Centers for Disease Control, starting March 23, 
2020, we limited branch lobby service to appointment 
 only while continuing to operate our branch drive-thru facilities and 
ATMs. 
As permitted by state public health guidelines, 
 on June 1, 2020, we re-opened some of our branch lobbies. 
In 2021, we opened our remaining branch lobbies. We 
continue 
 to provide services through our online and other electronic channels. 
In addition, we established remote work access to 
 help employees stay at home where job duties permit. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 32 
 • 
We are focused on servicing 
the financial needs of our commercial and consumer clients with extensions 
and 
 deferrals to loan customers effected by COVID-19, provided 
such customers were not more than 30 days past due at the 
 time of the request; 
and 
 • 
We 
were a participating lender in the PPP. 
PPP loans are forgivable, in whole or in part, if the proceeds are used 
 for payroll and other permitted purposes in accordance with the requirements 
of the PPP. 
These loans carry a fixed rate of 
 1.00% and a term of two years (loans made before June 5, 2020) 
or five years (loans made on or after June 5, 2020), if not 
 forgiven, in whole or in part. 
Payments are deferred until either the date on which the Small Business 
Administration 
 (“SBA”) remits the amount of forgiveness proceeds to the lender or 
the date that is 10 months after the last day of the 
 covered period if the borrower does not apply for forgiveness 
within that 10-month period. 
We believe these loans 
and our 
 participation in the program is good for our customers and the communities we 
serve. 

 A summary of PPP loans extended during 2020 follows: 
 

 (Dollars in thousands) 
 # of SBA 
 Approved 
 Mix 
 $ of SBA 
 Approved 
 Mix 
 SBA Tier: 
 $2 million to $10 million 
 — 
 — 
 % 
 $ 
 — 
 — 
 % 
 $350,000 to less than $2 million 
 23 
 5 
 14,691 
 40 
 Up to $350,000 
 400 
 95 
 21,784 
 60 
 Total 
 423 
 100 
 % 
 $ 
 36,475 
 100 
 % 
 We collected 
approximately $1.5 million in fees related to our PPP loans during 2020. Through September 30, 
2021, we 
 have recognized substantially all of these fees, net of related costs. 
As of September 30, 2021, we have received payments 
 and forgiveness on all but one loan with a remaining balance of approximately 
$20 thousand. 
 On December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Nonprofits, 
and Venues 
Act (the “Economic Aid 
 Act”) was signed into law. 
The Economic Aid Act provides a second $900 billion stimulus 
package, including $325 billion 
 in additional PPP loans. 
The Economic Aid Act also permits the collection of a higher amount of PPP 
loan fees by 
 participating banks. 
 A summary of PPP loans extended during the nine months ended September 30, 
2021 under the Economic Aid Act follows: 
 

 (Dollars in thousands) 
 # of SBA 
 Approved 
 Mix 
 $ of SBA 
 Approved 
 Mix 
 SBA Tier: 
 $2 million to $10 million 
 — 
 — 
 % 
 $ 
 — 
 — 
 % 
 $350,000 to less than $2 million 
 12 
 5 
 6,494 
 32 
 Up to $350,000 
 242 
 95 
 13,757 
 68 
 Total 
 254 
 100 
 % 
 $ 
 20,251 
 100 
 % 
 We collected 
approximately $1.0 million in fees related to PPP loans under the Economic Aid Act. 
Through September 30, 
 2021, we have recognized $0.5 million of these fees, net of related costs. 
As of September 30, 2021, we have received 
 payments and forgiveness on 77 PPP loans under the Economic 
Aid Act, totaling $7.0 million. 
The outstanding balance for 
 the remaining 177 PPP loans under the Economic Aid Act was approximately 
$13.3 million at September 30, 2021. 
 

 We continue to closely 
monitor this pandemic, and are working to continue our services during the pandemic 
and to address 
 developments as those occur. 
Our results of operations for the nine months ended September 30, 2021, 
and our financial 
 condition at that date reflect only the ongoing effects of the pandemic, and 
may not be indicative of future results or 
 financial conditions, including possible changes in monetary or fiscal stimulus, and the 
possible effects of the expiration or 
 extension of temporary accounting and bank regulatory relief measures in response 
to the COVID-19 pandemic. 

 As of September 30, 2021, all of our capital ratios were in excess of all regulatory requirements to be 
well capitalized. 
The 
 effects of the COVID-19 pandemic on our borrowers could result in adverse changes 
to credit quality and our regulatory 
 capital ratios. 
We continue to 
closely monitor this pandemic, and are working to continue our services during the pandemic 
 and to address developments as those occur. 

 
 Table of Contents 
 33 
 CRITICAL ACCOUNTING POLICIES 
 The accounting and financial reporting policies of the Company conform with U.S. 
GAAP and with general practices 
 within the banking industry. In connection 
with the application of those principles, we have made judgments and estimates 
 which, in the case of the determination of our allowance for loan losses, our assessment of other-than-temporary 
 impairment, recurring and non-recurring fair value measurements and the valuation 
of OREO and deferred tax assets, were 
 critical to the determination of our financial position and results of operations. 
Other policies also require subjective 
 judgment and assumptions and may accordingly impact our financial position and results 
of operations. 

 Allowance for Loan Losses 
 The Company assesses the adequacy of its allowance for loan losses prior 
to the end of each calendar quarter. Determining 
 the amount of the allowance for loan losses is considered a critical accounting estimate 
because the level of the allowance is 
 based upon management’s evaluation of 
the loan portfolio, past loan loss experience, current asset quality trends, 
known 
 and inherent risks in the portfolio, adverse situations that may affect 
a borrower’s ability to repay (including the timing of 
 future payment), the estimated value of any underlying collateral, composition of the 
loan portfolio, economic conditions, 
 industry and peer bank loan loss rates, and other pertinent factors, including regulatory 
recommendations. This evaluation 
 is inherently subjective as it requires material estimates including the amounts and 
timing of future cash flows expected to 
 be received on impaired loans that may be susceptible to significant change. 
Loans are charged off, in whole or in part, 
 when management believes that the full collectability of the loan is unlikely. 
A loan may be partially charged-off after a 
 “confirming event” has occurred, which serves to validate that full repayment pursuant 
to the terms of the loan is unlikely. 
 The Company deems loans impaired when, based on current information and events, it is 
probable that the Company will 
 be unable to collect all amounts due according to the contractual terms of the loan agreement. 
Collection of all amounts due 
 according to the contractual terms means that both the interest and principal payments of a 
loan will be collected as 
 scheduled in the loan agreement. 

 An impairment allowance is recognized if the fair value of the loan is less than the recorded 
investment in the loan. The 
 impairment is recognized through the allowance. Loans that are impaired 
are recorded at the present value of expected 
 future cash flows discounted at the loan’s effective 
interest rate, or if the loan is collateral dependent, the impairment 
 measurement is based on the fair value of the collateral, less estimated disposal costs. 

 The level of allowance maintained is believed by management to be adequate 
to absorb probable losses inherent in the 
 portfolio at the balance sheet date. The allowance is increased by provisions charged 
to expense and decreased by charge-
 offs, net of recoveries of amounts previously charged-off. 

 In assessing the adequacy of the allowance, the Company also considers the results of its 
ongoing internal and independent 
 loan review processes. The Company’s loan 
review process assists in determining whether there are loans in the portfolio 
 whose credit quality has weakened over time and evaluating the risk characteristics of the 
entire loan portfolio. The 
 Company’s loan review process includes the judgment 
of management, the input from our independent loan reviewers, and 
 reviews that may have been conducted by bank regulatory agencies as part of their examination 
process. The Company 
 incorporates loan review results in the determination of whether or not it is probable 
that it will be able to collect all 
 amounts due according to the contractual terms of a loan. 

 As part of the Company’s quarterly assessment 
of the allowance, management divides the loan portfolio into five segments: 
 commercial and industrial, construction and land development, commercial real estate, residential 
real estate, and consumer 
 installment. The Company analyzes each segment and estimates an allowance allocation 
for each loan segment. 

 The allocation of the allowance for loan losses begins with a process of estimating the 
probable losses inherent for each 
 loan segment. The estimates for these loans are established by category and based 
on the Company’s internal system of 
 credit risk ratings and historical loss data. 
The estimated loan loss allocation rate for the Company’s 
internal system of 
 credit risk grades is based on its experience with similarly graded loans. For 
loan segments where the Company believes it 
 does not have sufficient historical loss data, the Company may 
make adjustments based, in part, on loss rates of peer bank 
 groups. 
At September 30, 2021 and December 31, 2020, and for the periods then ended, the Company adjusted 
its 
 historical loss rates for the commercial real estate portfolio segment based, in part, on loss 
rates of peer bank groups. 

 
 Table of Contents 
 34 
 The estimated loan loss allocation for all five loan portfolio segments is then adjusted for management’s 
estimate of 
 probable losses for several “qualitative and environmental” factors. The allocation 
for qualitative and environmental factors 
 is particularly subjective and does not lend itself to exact mathematical calculation. This amount 
represents estimated 
 probable inherent credit losses which exist, but have not yet been identified, 
as of the balance sheet date, and are based 
 upon quarterly trend assessments in delinquent and nonaccrual loans, credit concentration 
changes, prevailing economic 
 conditions, changes in lending personnel experience, changes in lending policies or 
procedures, and other influencing 
 factors. These qualitative and environmental factors are considered 
for each of the five loan segments and the allowance 
 allocation, as determined by the processes noted above, is increased or decreased 
based on the incremental assessment of 
 these factors. 

 The Company regularly re-evaluates its practices in determining the allowance 
for loan losses. Since the fourth quarter of 
 2016, the Company has increased 
its look-back period each quarter to incorporate the effects of at least one 
economic 
 downturn in its loss history. The Company believes 
the extension of its look-back period is appropriate due to the risks 
 inherent in the loan portfolio. Absent this extension, the early cycle periods in 
which the Company experienced significant 
 losses would be excluded from the determination of the allowance for loan losses and its 
balance would decrease. 
For the 
 quarter ended September 30, 2021, the Company increased its look-back 
period to 50 quarters to continue to include losses 
 incurred by the Company beginning with the first quarter 
of 2009. 
The Company will likely continue to increase its look-
 back period to incorporate the effects of at least one economic downturn in 
its loss history. 
During 2020, the Company 
 adjusted certain qualitative and economic factors related to changes in economic conditions 
driven by the impact of the 
 COVID-19 pandemic and resulting adverse economic conditions, including 
higher unemployment in our primary market 
 area. 
During the second quarter of 2021, 
the Company adjusted certain qualitative and economic factors to reflect 
 improvements in economic conditions in our primary market area. 
Further adjustments may be made in the future as a 
 result of the continuing COVID-19 pandemic. 
 

 Assessment for Other-Than-Temporary 
Impairment of Securities
 On a quarterly basis, management makes an assessment to determine 
whether there have been events or economic 
 circumstances to indicate that a security on which there is an unrealized loss is other-than-temporarily 
impaired. 

 For debt securities with an unrealized loss, an other-than-temporary 
impairment write-down is triggered when (1) the 
 Company has the intent to sell a debt security, 
(2) it is more likely than not that the Company will be required to sell the 
 debt security before recovery of its amortized cost basis, or (3) the Company does not expect 
to recover the entire amortized 
 cost basis of the debt security. 
If the Company has the intent to sell a debt security or if it is more likely than not that it 
will 
 be required to sell the debt security before recovery, 
the other-than-temporary write-down is equal to the entire difference 
 between the debt security’s amortized cost 
and its fair value. 
If the Company does not intend to sell the security or it is not 
 more likely than not that it will be required to sell the security before recovery, 
the other-than-temporary impairment write-
 down is separated into the amount that is credit related (credit loss component) and the amount due to all other 
factors. 
The 
 credit loss component is recognized in earnings and is the difference between 
the security’s amortized 
cost basis and the 
 present value of its expected future cash flows. 
The remaining difference between the security’s 
fair value and the present 
 value of future expected cash flows is due to factors that are not credit related and is recognized in other 
comprehensive 
 income, net of applicable taxes. 

 The Company is required to own certain stock as a condition of membership, such as 
Federal Home Loan Bank (“FHLB”) 
 and Federal Reserve Bank (“FRB”). 
These non-marketable equity securities are accounted for at cost 
which equals par or 
 redemption value. 
These securities do not have a readily determinable fair value as their ownership is restricted 
and there is 
 no market for these securities. 
The Company records these non-marketable equity securities as a component 
of other 
 assets, which are periodically evaluated for impairment. Management considers 
these non-marketable equity securities to 
 be long-term investments. Accordingly, 
when evaluating these securities for impairment, management considers 
the 
 ultimate recoverability of the par value rather than by recognizing temporary declines in 
value. 
 Fair Value 
Determination 
 U.S. GAAP requires management to value and disclose certain of the Company’s 
assets and liabilities at fair value, 
 including investments classified as available-for-sale and derivatives. 
ASC 820, 
 Fair Value 
Measurements and Disclosures
 , 
 which defines fair value, establishes a framework for measuring fair value in accordance 
with U.S. GAAP and expands 
 disclosures about fair value measurements. 
For more information regarding fair value measurements and disclosures, 
 please refer to Note 6, Fair Value, 
of the consolidated financial statements that accompany this report. 

 
 Table of Contents 
 35 
 Fair values are based on active market prices of identical assets or liabilities when available. 
Comparable assets or 
 liabilities or a composite of comparable assets in active markets are used when identical assets 
or liabilities do not have 
 readily available active market pricing. 
However, some of the Company’s 
assets or liabilities lack an available or 
 comparable trading market characterized by frequent transactions between 
willing buyers and sellers. In these cases, fair 
 value is estimated using pricing models that use discounted cash flows and 
other pricing techniques. Pricing models and 
 their underlying assumptions are based upon management’s 
best estimates for appropriate discount rates, default rates, 
 prepayments, market volatility, 
and other factors, taking into account current observable market data and experience. 

 These assumptions may have a significant effect on the reported 
fair values of assets and liabilities and the related income 
 and expense. As such, the use of different models and assumptions, 
as well as changes in market conditions, could result in 
 materially different net earnings and retained earnings results. 

 Other Real Estate Owned 
 OREO consists of properties obtained through foreclosure or in satisfaction of loans and is reported 
at the lower of cost or 
 fair value of collateral, less estimated costs to sell at the date acquired, 
with any loss recognized as a charge-off through the 
 allowance for loan losses. Additional OREO losses for subsequent valuation adjustments 
are determined on a specific 
 property basis and are included as a component of other noninterest expense along 
with holding costs. Any gains or losses 
 on disposal of OREO are also reflected in noninterest expense. Significant judgments 
and complex estimates are required in 
 estimating the fair value of OREO, and the period of time within which such estimates can 
be considered current is 
 significantly shortened during periods of market volatility. 
As a result, the net proceeds realized from sales transactions 
 could differ significantly from appraisals, comparable sales, and 
other estimates used to determine the fair value of other 
 OREO. 
At September 30, 2021 and December 31, 2020 the Company had no OREO properties. 
 Deferred Tax 
Asset Valuation 
 A valuation allowance is recognized for a deferred tax asset if, based on the weight of available 
evidence, it is more-likely-
 than-not that some portion or the entire deferred tax asset will not be realized. The ultimate 
realization of deferred tax assets 
 is dependent upon the generation of future taxable income during the periods 
in which those temporary differences become 
 deductible. Management considers the scheduled reversal of deferred 
tax liabilities, projected future taxable income, and 
 tax planning strategies in making this assessment. Based upon the level of taxable 
income over the last three years and 
 projections for future taxable income over the periods in which the deferred tax assets are 
deductible, management believes 
 it is more likely than not that we will realize the benefits of these deductible differences 
at September 30, 2021. The amount 
 of the deferred tax assets considered realizable, however, 
could be reduced if estimates of future taxable income are 
 reduced. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 36 
 RESULTS 
OF OPERATIONS 
 Average Balance 
Sheet and Interest Rates 
 Nine months ended September 30, 

 

 2021 
 2020 
 Average 
 Yield/ 
 Average 
 Yield/ 
 (Dollars in thousands) 
 Balance 
 Rate 
 Balance 
 Rate 
 Loans and loans held for sale 

 $
 460,732 
 4.47%
 $
 463,581 
 4.71%
 Securities - taxable 
 310,288 
 1.30%
 225,234 
 1.83%
 Securities - tax-exempt 

 62,915 
 3.60%
 62,930 
 3.73%
 Total securities 

 373,203 
 1.68%
 288,164 
 2.24%
 Federal funds sold 
 36,821 
 0.14%
 30,739 
 0.51%
 Interest bearing bank deposits 
 75,170 
 0.12%
 53,834 
 0.53%
 Total interest-earning assets 
 945,926 
 2.86%
 836,318 
 3.44%
 Deposits: 
 

 

 NOW 
 176,242 
 0.12%
 153,767 
 0.37%
 Savings and money market 
 289,758 
 0.23%
 234,533 
 0.46%
 Time Deposits 
 159,412 
 1.05%
 166,115 
 1.43%
 Total interest-bearing deposits 
 625,412 
 0.41%
 554,415 
 0.72%
 Short-term borrowings 
 3,329 
 0.50%
 1,721 
 0.50%
 Total interest-bearing liabilities 
 628,741 
 0.41%
 556,136 
 0.72%
 Net interest income and margin (tax-equivalent) 
 $
 18,308 
 2.59%
 $
 18,519 
 2.96%
 Net Interest Income and Margin 
 Net interest income (tax-equivalent) was $18.3 million for the first nine 
months of 2021 compared to $18.5 million for the 
 first nine months of 2020. 
This decrease was due to a decline in the Company’s 
net interest margin (tax-equivalent), 
 partially offset by balance sheet growth. 
 The tax-equivalent yield on total interest-earning assets decreased by 58 basis points 
to 2.86% in the first nine months of 
 2021 compared to 3.44% in the first nine months of 2020. 
This decrease was primarily due to the lower interest rate 
 environment and changes in our asset mix resulting from the significant increase 
in deposits from government stimulus and 
 relief programs and customers’ increased savings. 
 The cost of total interest-bearing liabilities decreased by 31 basis points to 0.41% 
in the first nine months of 2021 compared 
 to 0.72% in the first nine months of 2020. 
The net decrease in our funding costs was primarily due to lower prevailing 
 market interest rates. 
Our funding costs declined less than the rates earned on our interest earning assets. 
 The Company continues to deploy various asset liability management strategies 
to manage its risk to interest rate 
 fluctuations. The Company’s 
net interest margin could continue to experience pressure due to 
reduced earning asset yields 
 and increased competition for quality loan opportunities. 
 Provision for Loan Losses 
 The provision for loan losses represents a charge to earnings necessary to provide 
an allowance for loan losses that 
 management believes, based on its processes and estimates, should be adequate 
to provide for the probable losses on 
 outstanding loans. 
The Company recorded a negative provision for loan losses of $0.6 million for the 
first nine months of 
 2021, compared to $1.1 million in provision for loan losses for the first nine months 
of 2020. 
The negative provision for 
 loan losses was primarily related to improvements in economic conditions in our primary 
market area. 
The provision for 
 loan losses is based upon various factors, including the absolute level of loans, loan growth, the credit 
quality, and the 
 amount of net charge-offs or recoveries. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 37 
 Based upon its assessment of the loan portfolio, management adjusts the allowance for loan 
losses to an amount it believes 
 should be appropriate to adequately cover its estimate of probable losses in the loan portfolio. 
The Company’s allowance 
 for loan losses as a percentage of total loans was 1.13% at September 30, 
2021, compared to 1.22% at December 31, 2020. 

 At September 30, 2021, the Company’s 
allowance for loan losses was 1.16% of total loans, excluding PPP 
loans, which are 
 guaranteed by the SBA. 
While the policies and procedures used to estimate the allowance for loan losses, as 
well as the 
 resulting provision for loan losses charged to operations, are considered 
adequate by management and are reviewed from 
 time to time by our regulators, they are based on estimates and judgments and are therefore 
approximate and imprecise. 
 Factors beyond our control (such as conditions in the local and national economy, 
local real estate markets, or industries) 
 may have a material adverse effect on our asset quality and the adequacy of our 
allowance for loan losses resulting in 
 significant increases in the provision for loan losses. 
 Noninterest Income 
 Quarter ended September 30, 
 Nine months ended September 30, 

 (Dollars in thousands) 
 2021 
 2020 
 2021 
 2020 
 Service charges on deposit accounts 
 $
 149 
 $
 139 
 $
 419 
 $
 437 
 Mortgage lending income 
 268 
 702 
 1,241 
 1,615 
 Bank-owned life insurance 
 100 
 109 
 302 
 615 
 Securities gains, net 
 15 
 16 
 15 
 103 
 Other 
 397 
 408 
 1,244 
 1,202 
 Total noninterest income 
 $
 929 
 $
 1,374 
 $
 3,221 
 $
 3,972 
 The Company’s income from mortgage lending 
was primarily attributable to the (1) origination and sale of new 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. 

 Subsequent to the date of transfer, 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 September 30, 
 Nine months ended September 30, 

 (Dollars in thousands) 
 2021 
 2020 
 2021 
 2020 
 Origination income 
 $
 233 
 $
 722 
 $
 1,168 
 $
 1,569 
 Servicing fees, net 
 35 
 (20)
 73 
 46 
 Total mortgage lending income 
 $
 268 
 $
 702 
 $
 1,241 
 $
 1,615 
 The Company’s income from mortgage lending 
typically fluctuates as mortgage interest rates change and is primarily 
 attributable to the origination and sale of new mortgage loans. Origination income decreased 
in 2021 compared to 2020 due 
 to a decrease in refinance activity in our primary market area. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 38 
 Income from bank-owned life insurance decreased primarily due to $0.3 
million in non-taxable death benefits received in 
 2020. The assets that support these policies are administered by the life insurance carriers 
and the income we receive (i.e., 
 increases or decreases in the cash surrender value of the policies and death benefits received) 
on these policies is dependent 
 upon the returns the insurance carriers are able to earn on the underlying investments that 
support these policies. Earnings 
 on these policies are generally not taxable. 
 

 Noninterest Expense 
 Quarter ended September 30, 
 Nine months ended September 30, 

 (Dollars in thousands) 
 2021 
 2020 
 2021 
 2020 
 Salaries and benefits 
 $
 2,893 
 $
 2,802 
 $
 8,641 
 $
 8,230 
 Net occupancy and equipment 
 436 
 457 
 1,292 
 1,974 
 Professional fees 
 232 
 230 
 814 
 877 
 Other 
 1,148 
 1,164 
 3,547 
 3,387 
 Total noninterest expense 
 $
 4,709 
 $
 4,653 
 $
 14,294 
 $
 14,468 
 The increase in salaries and benefits was primarily due to a decrease in deferred costs related 
to the PPP loan program, 
 routine annual wage and benefit increases, and management increasing the 
minimum hourly wage for banking positions to 
 $15. 
 The decrease in net occupancy and equipment expense was primarily due to 
a reduction of various expenses related to the 
 redevelopment of the Company’s headquarters 
in downtown Auburn. 
This amount includes revised depreciation estimates 
 and other temporary relocation costs. 

 Income Tax 
Expense 
 Income tax expense was $1.3 million for the first nine months of 2021 
compared to $1.2 million for the first nine months of 
 2020, 
reflecting an increase in earnings before taxes and an effective tax rate of 17.55% 
and 17.64%, respectively. 

 BALANCE SHEET ANALYSIS 
 Securities 

 Securities available-for-sale were $407.5 
million at September 30, 2021 compared to $335.2 million at December 31, 2020. 

 This increase reflects an increase in the amortized cost basis of securities available-for-sale 
of $78.8 million, and a decrease 
 of $6.5 million in the fair value of securities available-for-sale. 
The increase in the amortized cost basis of securities 
 available-for-sale was primarily attributable to management 
allocating more funding to the investment portfolio following 
 the significant increase in customer deposits. 
The decrease in the fair value of securities was primarily due to an increase 
in 
 long-term interest rates. 
The average annualized tax-equivalent yields earned on total securities 
were 1.68% 
in the first 
 nine months of 2021 and 2.24% in the first nine months of 2020. 
 Loans 
 2021 
 2020 
 Third 
 Second 
 First 
 Fourth 
 Third 
 (In thousands) 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Commercial and industrial 
 $
 79,202 
 87,933 
 88,687 
 82,585 
 98,244 
 Construction and land development 
 34,890 
 37,477 
 30,332 
 33,514 
 31,651 
 Commercial real estate 
 252,798 
 242,845 
 254,731 
 255,136 
 250,992 
 Residential real estate 
 80,205 
 82,164 
 82,848 
 84,154 
 85,054 
 Consumer installment 
 7,060 
 7,762 
 6,524 
 7,099 
 7,731 
 Total loans 
 454,155 
 458,181 
 463,122 
 462,488 
 473,672 
 Less: 
unearned income 
 (923)
 (1,197)
 (1,243)
 (788)
 (1,219)
 Loans, net of unearned income 
 $ 
 453,232 
 456,984 
 461,879 
 461,700 
 472,453 

 
 
 
 
 
 
 
 
 
 Table of Contents 
 39 
 Total loans, net of unearned income, 
were $453.2 million at September 30, 2021, a decrease of $8.5 million from $461.7 
 million at December 31, 2020. 
Excluding PPP loans, total loans net of unearned income, were $440.4 
million, a decrease 
 of $1.9 million from $442.3 million at December 31, 2020. 
Four loan categories represented approximately 98% of the 
 loan portfolio at September 30, 2021: commercial real estate (56%), 
residential real estate (18%), commercial and industrial 
 (17%) and construction and land development (8%). 
Approximately 23% of the Company’s commercial 
real estate loans 
 were classified as owner-occupied at September 30, 2021. 
 Within the residential real estate portfolio segment, the Company 
had junior lien mortgages of approximately $8.1 million, 
 or 2% of total loans, at September 30, 2021, compared to $8.7 million, or 2% of total loans, at December 
31, 2020. 
For 
 residential real estate mortgage loans with a consumer purpose, the Company 
had no loans that required interest-only 
 payments at September 30, 2021 and December 31, 2020. The Company’s 
residential real estate mortgage portfolio does 
 not include any option ARM loans, subprime loans, or any material amount of other high-risk 
consumer mortgage products. 

 The average yield earned on loans and loans held for sale was 4.47% 
in the first nine months of 2021 and 4.71% in the first 
 nine months of 2020. 

 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 COVID-19 pandemic’s 
effects, on our borrowers’ cash flows, real estate market 
 sales volumes, valuations, 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. 

 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 $20.9 million. 
Furthermore, we have an internal limit for aggregate credit exposure (loans outstanding 
plus 
 unfunded commitments) to a single borrower of $18.8 million. Our loan policy requires 
that the Loan Committee of the 
 Board of Directors approve any loan relationships that exceed this internal limit. 
At September 30, 2021, the Bank had no 
 relationships exceeding these limits. 
 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. 
Loan concentrations to borrowers in the 
 following classes exceeded 25% of the Bank’s total risk 
-based capital at September 30, 2021 and December 31, 2020. 
 

 September 30, 
 December 31, 
 (Dollars in thousands) 
 2021 
 2020 
 Lessors of 1-4 family residential properties 
 $ 
 47,647 
 $ 
 49,127 
 Hotel/motel 
 44,412 
 42,900 
 Multi-family residential properties 
 41,291 
 40,203 
 Shopping centers 
 29,411 
 30,000 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 40 
 COVID-19 Modifications 
 In light of disruptions in economic conditions caused by COVID-19, the financial regulators 
have issued guidance 
 encouraging banks to work constructively with borrowers affected 
by the virus in our community. 
This guidance, including 
 the Interagency Statement on COVID-19 Loan Modifications and the Interagency Examiner 
Guidance for Assessing Safety 
 and Soundness Considering the Effect of the COVID-19 
Pandemic on Institutions, provides that the agencies will not 
 criticize financial institutions that mitigate credit risk through prudent actions consistent 
with safe and sound practices. 

 Specifically, examiners 
will not criticize institutions for working with borrowers as part of a risk 
mitigation strategy 
 intended to improve existing loans, even if the restructured loans have or develop 
weaknesses that ultimately result in 
 adverse credit classification. 
Upon demonstrating the need for payment relief, the bank will work with qualified borrowers 
 that were otherwise current before the pandemic to determine the most appropriate 
deferral option. 
For residential 
 mortgage and consumer loans the borrower may elect to defer payments for up to three 
months. 
Interest continues to 
 accrue and the amount due at maturity increases. 
Commercial real estate, commercial, and small business borrowers may 
 elect to defer payments for up to three months or pay scheduled interest payments for 
a six-month period. 
The bank 
 recognizes that a combination of the payment relief options may be prudent dependent 
on a borrower’s business type. 
As 
 of September 30, 2021, we had no COVID-19 loan deferrals outstanding, compared 
to $32.3 million, or 7% of total loans at 
 December 31, 2020. 
 The tables below provide information concerning the composition of these COVID-19 
modifications as of December 31, 
 2020. 
 

 Modification Types 
 (Dollars in thousands) 
 # of Loans 
 Modified 
 Balance 
 % of Portfolio 
 Modified 
 Interest Only 
 Payment 
 P&I 
Payments 
 Deferred 
 December 31, 2020: 
 Commercial and industrial 
 2
 $
 741 
 
— 

 %
 100 
 % 
 — 
 %
 Commercial real estate 
 12
 31,399 
 
7 

 100 
 — 
 Residential real estate 
 2
 133 
 
— 

 — 
 100 
 Total 
 16
 $
 32,273 
 
7 

 %
 99 
 % 
 1 
 %
 COVID-19 Modifications within Commercial Real Estate 
Segment 
 (Dollars in thousands) 
 # of Loans 
 Modified 
 Balance of 
 Loans Modified 
 % of Total 

 Loan Class 
 December 31, 2020: 
 Hotel/motel 
 10
 $ 
 26,427 
 49 
 % 
 Multifamily 
 1
 3,530 
 9 
 Restaurants 
 1
 1,442 
 10 
 Section 4013 of the CARES Act provides that a qualified loan modification is exempt by law 
from classification as a TDR 
 pursuant to GAAP. 
In addition, the Interagency Statement on COVID-19 Loan Modifications provides 
circumstances in 
 which a loan modification is not subject to classification as a TDR if such loan is not eligible 
for modification under 
 Section 4013. 

 Allowance for Loan Losses 

 The Company maintains the allowance for loan losses at a level that management believes 
appropriate to adequately cover 
 the Company’s estimate of probable 
losses inherent in the loan portfolio. The allowance for loan losses was $5.1 
million at 
 September 30, 2021 compared to $5.6 million at December 31, 2020, 
which management believed to be adequate at each of 
 the respective dates. The judgments and estimates associated 
with the determination of the allowance for loan losses are 
 described under “Critical Accounting Policies.” 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 41 
 A summary of the changes in the allowance for loan losses and certain asset quality ratios 
for the third quarter of 2021 and 
 the previous four quarters is presented below. 
 

 2021 
 2020 
 Third 
 Second 
 First 
 Fourth 
 Third 
 (Dollars in thousands) 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Balance at beginning of period 
 $
 5,107 
 5,682 
 5,618 
 5,575 
 5,308 
 Charge-offs: 
 Commercial and industrial 
 — 
 — 
 — 
 (4)
 — 
 Residential real estate 
 — 
 (1)
 — 
 — 
 — 
 Consumer installment 
 — 
 — 
 (5)
 (1)
 (4)
 Total charge 
-offs 
 — 
 (1)
 (5)
 (5)
 (4)
 Recoveries 
 12 
 26 
 69 
 48 
 21 
 Net recoveries 
 12 
 25 
 64 
 43 
 17 
 Provision for loan losses 
 — 
 (600)
 — 
 — 
 250 
 Ending balance 
 $
 5,119 
 5,107 
 5,682 
 5,618 
 5,575 
 as a % of loans 
 1.13 
 % 
 1.12 
 1.23 
 1.22 
 1.18 
 as a % of nonperforming loans 
 1,053 
 % 
 813 
 726 
 1,052 
 1,015 
 Net (recoveries) charge-offs as % of average loans (a) 
 (0.01)
 % 
 (0.02)
 (0.06)
 (0.04)
 (0.01)
 (a) Net (recoveries) charge-offs are annualized. 
 As described under “Critical Accounting Policies,” management assesses the adequacy 
of the allowance prior to the end of 
 each calendar quarter. The level of the allowance 
is based upon management’s evaluation 
of the loan portfolios, past loan 
 loss experience, known and inherent risks in the portfolio, adverse situations that 
may affect the borrower’s ability to repay 
 (including the timing of future payment), the estimated value of any underlying collateral, 
composition of the loan 
 portfolio, economic conditions, industry and peer bank loan loss rates, and other 
pertinent factors. This evaluation is 
 inherently subjective as it requires various material estimates and judgments, including 
the amounts and timing of future 
 cash flows expected to be received on impaired loans that may be susceptible to 
significant change. The ratio of our 
 allowance for loan losses to total loans outstanding was 1.13% 
at September 30, 2021, compared to 1.22% at December 31, 
 2020. 
At September 30, 2021, the Company’s allowance 
for loan losses was 1.16% of total loans, excluding PPP loans. In 
 the future, the allowance to total loans outstanding ratio will increase or decrease 
to the extent the factors that influence our 
 quarterly allowance assessment, including the duration and magnitude 
of COVID-19 effects, in their entirety either improve 
 or weaken. 
In addition, our regulators, as an integral part of their examination process, will periodically 
review the 
 Company’s allowance for loan losses, 
and may require the Company to make additional provisions to the allowance 
for 
 loan losses based on their judgment about information 
available to them at the time of their examinations. 

 Nonperforming Assets 
 The Company had $0.5 
million in nonperforming assets at September 30, 2021 and December 31, 
2020, respectively. 

 The table below provides information concerning total nonperforming assets 
and certain asset quality ratios for the third 
 quarter of 2021 and the previous four quarters. 
 

 2021 
 2020 
 Third 
 Second 
 First 
 Fourth 
 Third 
 (Dollars in thousands) 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Nonperforming assets: 
 Nonaccrual loans 
 $
 486 
 628 
 783 
 534 
 549 
 Total nonperforming assets 
 $
 486 
 628 
 783 
 534 
 549 
 as a % of loans and other real estate owned 
 0.11 
 % 
 0.14 
 0.17 
 0.12 
 0.12 
 as a % of total assets 
 0.05 
 % 
 0.06 
 0.08 
 0.06 
 0.06 
 Nonperforming loans as a % of total loans 
 0.11 
 % 
 0.14 
 0.17 
 0.12 
 0.12 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 42 
 The table below provides information concerning the composition of nonaccrual 
loans for the third quarter of 2021 and the 
 previous four quarters. 
 

 2021 
 2020 
 Third 
 Second 
 First 
 Fourth 
 Third 
 (In thousands) 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Nonaccrual loans: 
 Commercial real estate 
 $ 
 193 
 199 
 206 
 212 
 216 
 Residential real estate 
 293 
 429 
 577 
 322 
 332 
 Consumer installment 
 — 
 — 
 — 
 — 
 1 
 Total nonaccrual loans 
 $ 
 486 
 628 
 783 
 534 
 549 
 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 $0.5 
 million in loans on nonaccrual status at September 30, 2021 and December 31, 
2020, respectively. 

 The Company had $0.1 million of loans 90 days or more past due and still accruing at September 
30, 2021 and December 
 31, 2020, respectively. 
 The Company had no OREO at September 30, 2021 or December 31, 2020. 

 Potential Problem Loans 
 Potential problem loans represent those loans with a well-defined weakness and 
where information about possible credit 
 problems of a borrower has caused management to have serious doubts about the borrower’s 
ability to comply with present 
 repayment terms. 
This definition is believed to be substantially consistent with the standards 
established by the Federal 
 Reserve, the Company’s primary regulator, 
for loans classified as substandard, excluding nonaccrual loans. 
Potential 
 problem loans, which are not included in nonperforming assets, amounted to $2.5 
million, or 0.6% of total loans at 
 September 30, 2021, and $2.9 million, or 0.6% of total loans at December 31, 2020. 

 The table below provides information concerning the composition of potential problem 
loans for the third quarter of 2021 
 and the previous four quarters. 
 

 2021 
 2020 
 Third 
 Second 
 First 
 Fourth 
 Third 
 (In thousands) 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Potential problem loans: 
 Commercial and industrial 
 $
 274 
 291 
 299 
 218 
 230 
 Construction and land development 
 231 
 239 
 247 
 254 
 563 
 Commercial real estate 
 172 
 178 
 173 
 188 
 188 
 Residential real estate 
 1,848 
 2,096 
 2,092 
 2,229 
 2,486 
 Consumer installment 
 19 
 7 
 9 
 23 
 42 
 Total potential problem loans 
 $
 2,544 
 2,811 
 2,820 
 2,912 
 3,509 
 At September 30, 2021 the Company had $0.1 million in potential problem loans that 
were past due at least 30 days, but 
 less than 90 days. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 43 
 The following table is a summary of the Company’s 
performing loans that were past due at least 30 days, 
but less than 
 90 days, 
for the third quarter of 2021 and the previous four quarters. 
 

 2021 
 2020 
 Third 
 Second 
 First 
 Fourth 
 Third 
 (In thousands) 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Performing loans past due 30 to 89 days: 
 Commercial and industrial 
 $
 68 
 1 
 42 
 230 
 48 
 Construction and land development 
 — 
 204 
 10 
 61 
 — 
 Commercial real estate 
 — 
 205 
 180 
 29 
 — 
 Residential real estate 
 409 
 68 
 399 
 1,509 
 106 
 Consumer installment 
 25 
 7 
 36 
 29 
 6 
 Total 

 $
 502 
 485 
 667 
 1,858 
 160 
 Deposits 
 Total deposits increased 
$115.2 million, or 14% to $955.0 million at September 30, 
2021, compared to $839.8 million at 
 December 31, 2020. 
Noninterest-bearing deposits were $299.1 million, or 31% of total deposits, at September 
30, 2021, 
 compared to $245.4 million, or 29% of total deposits at December 31, 2020. 
These increases reflect deposits from 
 customers who received PPP loans, the impact of government stimulus checks, 
delayed tax payments and less customer 
 spending and greater savings during the COVID-19 pandemic. 

 The average rate paid on total interest-bearing deposits was 0.41% in the first nine 
months of 2021 compared to 0.72% in 
 the first nine months of 2020. 
The decline in average rates paid on total interest-bearing deposits was largely 
driven by 
 generally lower market interest rates. 

 Other Borrowings 
 Other borrowings consist of short-term borrowings and long-term debt. 
Short-term borrowings generally consist of federal 
 funds purchased and agreements with certain customers to sell certain securities under 
agreements to repurchase with an 
 original maturity less than one year. 
The Bank had available federal funds lines totaling $41.0 million with none 
 outstanding at September 30, 2021, and at December 31, 2020, respectively. 
Securities sold under agreements to repurchase 
 totaled $3.3 million at September 30, 2021, compared to $2.4 million at December 
31, 2020. 

 The average rate paid on short-term borrowings was 0.50% in the first nine months of 2021 
and 2020, respectively. 
 The Company had no long-term debt at September 30, 2021 and December 31, 2020. 
 CAPITAL ADEQUACY 

 The Company’s consolidated 
stockholders’ equity was $104.9 million and $107.7 
million as of September 30, 2021 and 
 December 31, 2020, respectively. 
The decrease from December 31, 2020 was primarily driven by an other comprehensive 
 loss due to the change in unrealized gains (losses) on securities available-for-sale, 
net of tax of $4.8 million, cash dividends 
 paid of $2.8 million, and repurchases of the Company’s 
stock of $1.3 million. 
During the first nine months of 2021, the 
 Company repurchased 37,093 shares under the Company’s 
current stock repurchase program. 
These shares were 
 repurchased at an average cost per share of $34.36 and a total cost of $1.3 million. 
These decreases in the Company’s 
 consolidated stockholders’ equity were partially offset 
by net earnings of $6.2 million. 
 On January 1, 2015, the Company and Bank became subject to the rules of the Basel III regulatory 
capital framework and 
 related Dodd-Frank Wall 
Street Reform and Consumer Protection Act changes. 
The rules included the implementation of a 
 capital conservation buffer that is added to the minimum requirements 
for capital adequacy purposes. 
The capital 
 conservation buffer was subject to a three year phase-in period 
that began on January 1, 2016 and was fully phased-in on 
 January 1, 2019 at 2.5%. 
A banking organization with a conservation buffer of less than the 
required amount will be 
 subject to limitations on capital distributions, including dividend payments and certain discretionary 
bonus payments to 
 executive officers. 
At September 30, 2021, the Bank’s ratio 
was sufficient to meet the fully phased-in conservation buffer. 

 
 Table of Contents 
 44 
 Effective March 20, 2020, the Federal Reserve and the other 
federal banking regulators adopted an interim final rule that 
 amended the capital conservation buffer. 
The interim final rule was adopted as a final rule on August 26, 2020. 
The new 
 rule revises the definition of “eligible retained income” for purposes of the 
maximum payout ratio to allow banking 
 organizations to more freely use their capital buffers to 
promote lending and other financial intermediation activities, by 
 making the limitations on capital distributions more gradual. 
The eligible retained income is now the greater of (i) net 
 income for the four preceding quarters, net of distributions and associated 
tax effects not reflected in net income; and (ii) 
 the average of all net income over the preceding four quarters. 
The interim final rule only affects the capital buffers, and 
 banking organizations were encouraged to 
make prudent capital distribution decisions. 
 The Federal Reserve has treated us as a “small bank holding company’ under the Federal 
Reserve’s 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 9.57%, CET1 risk-based capital ratio was 16.82%, tier 1 risk-based 
capital ratio was 16.82%, and 
 total risk-based capital ratio was 17.72% at September 30, 2021. These 
ratios exceed the minimum regulatory capital 
 percentages of 5.0% for tier 1 leverage ratio, 6.5% for CET1 risk-based capital ratio, 
8.0% for tier 1 risk-based capital ratio, 
 and 10.0% for total risk-based capital ratio to be considered “well capitalized.” 
The Bank’s capital conservation buffer 
was 
 9.72% 
at September 30, 2021. 
 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 
 At September 30, 2021, our earnings simulation model indicated 
that we were in compliance with the policy guidelines 
 noted above. 

 
 Table of Contents 
 45 
 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: 
 ●
 45% for an instantaneous change of +/- 400 basis points 
 ●
 35% 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 September 30, 2021, 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. 
Prepayment 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 may enter into interest rate 
swaps to facilitate customer 
 transactions and meet their financing needs. These interest rate swaps qualify as derivatives, 
but are not designated as 
 hedging instruments. At September 30, 2021 and December 31, 2020, the Company 
had no derivative contracts designated 
 as part of a hedging relationship to assist in managing its interest rate sensitivity. 

 Liquidity Risk Management 

 Liquidity is the Company’s ability to convert 
assets into cash equivalents in order to meet daily cash flow requirements, 
 primarily for deposit withdrawals, loan demand and maturing obligations. Without 
proper management of its liquidity, 
the 
 Company could experience higher costs of obtaining funds due to insufficient liquidity, 
while excessive liquidity can lead 
 to a decline in earnings due to the cost of foregoing alternative higher-yielding 
investment opportunities. 

 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. 
The Bank’s payment of dividends depends 
on its earnings, liquidity, capital 
and the absence of any regulatory 
 restrictions. 

 The primary source of funding and liquidity for the Company has been dividends received 
from the Bank. 
If needed, the 
 Company could also issue common stock or other securities. 
Primary uses of funds by the Company include dividends paid 
 to stockholders, Company stock repurchases, and Company expenses. 

 
 Table of Contents 
 46 
 Primary sources of funding for the Bank include customer deposits, other borrowings, 
repayment and maturity of securities, 
 sales of securities, and the sale and repayment of 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 may participate in the 
 FHLB’s advance program to obtain funding for 
its growth. Advances include both fixed and variable terms and may be 
 taken out with varying maturities. At September 30, 2021, the Bank had a remaining 
available line of credit with the FHLB 
 of $310.7 million. At September 30, 2021, the Bank also had $41.0 
million of available federal funds lines with no 
 borrowings outstanding. Primary uses of funds include repayment of maturing obligations 
and growing the loan portfolio. 

 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 reasonable borrower, depositor, 
and 
 creditor requirements over the next twelve months. 

 Off-Balance Sheet Arrangements, Commitments, Contingencies and Contractual 
Obligations 
 At September 30, 2021, the Bank had outstanding standby letters of credit of $1. 
3 
million and unfunded loan commitments 
 outstanding of $70.5 million. 
Because these commitments generally have fixed expiration dates and 
many will expire 
 without being drawn upon, the total commitment level does not necessarily represent future 
cash requirements. If needed to 
 fund these outstanding commitments, the Bank could liquidate federal funds 
sold or a portion of our securities available-
 for-sale, or draw on its available credit facilities. 

 Mortgage lending activities 
 We primarily sell residential 
mortgage loans in the secondary market to Fannie Mae while retaining the servicing of these 
 loans. The sale agreements for these residential mortgage loans with Fannie Mae 
and other investors include various 
 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, compliance with applicable federal, 
state, and local laws, among other 
 matters. 
 As of September 30, 2021, the unpaid principal balance of residential mortgage loans, 
which we have originated and sold, 
 but retained the servicing rights, was $256.4 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 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 nine months 
of 2021 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 September 30, 2021. 
 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. 
 The agreement under which we act as servicer generally specifies standard 
s 
of responsibility for actions taken by us in such 
 capacity and provides protection against expenses and liabilities incurred by us when acting 
in compliance with the 
 respective 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 
servicing guides issued by Fannie 
 Mae as well as the contract provisions established between Fannie Mae and the Bank. 
Remedies could include repurchase 
 of an affected loan. 

 
 Table of Contents 
 47 
 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 September 30, 2021, 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 investors 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. 
 Section 4021 of the CARES Act allows borrowers under 1-4 family residential 
mortgage loans sold to Fannie Mae to 
 request forbearance to the servicer after affirming that such borrower 
is experiencing financial hardships during the 
 COVID-19 emergency. 
Such forbearance will be up to 180 days, subject to up to a 180 day extension. 
During forbearance, 
 no fees, penalties or interest shall be charged beyond those applicable 
if all contractual payments were fully and timely 
 paid. 
Except for vacant or abandoned properties, Fannie Mae servicers may not initiate foreclosures 
on similar procedures 
 or related evictions or sales until December 31, 2020. 
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 U.S. 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. As a result of government 
monetary policies and fiscal stimulus, 
 as well as demand for goods ad services and COVID-19 pandemic related supply chain 
disruptions, inflation has increased 
 during 2021. 
This may result in increased noninterest operating expenses and building costs. 
 CURRENT ACCOUNTING DEVELOPMENTS 
 The following ASUs have been issued by the FASB 
but are not yet effective. 

 ●
 ASU 2016-13, 
 Financial Instruments – Credit Losses (Topic 
326): 
Measurement of Credit Losses on Financial 
 Instruments; 
 Information about these pronouncements is described in more detail below. 
 ASU 2016-13, 
 Financial Instruments - Credit Losses (Topic 
326): - Measurement of Credit 
Losses on Financial 
 Instruments
 , amends guidance on reporting credit losses for assets held at amortized cost basis and 
available for sale debt 
 securities. 
For assets held at amortized cost basis, the new standard eliminates the probable initial recognition 
threshold in 
 current GAAP and, instead, requires an entity to reflect its current estimate of all expected 
credit losses using a broader 
 range of information regarding past events, current conditions and forecasts assessing the 
collectability of cash flows. The 
 allowance for credit losses is a valuation account that is deducted from the amortized 
cost basis of the financial assets to 
 present the net amount expected to be collected. 
For available for sale debt securities, credit losses should be measured in a 
 manner similar to current GAAP, 
however the new standard will require that credit losses be presented as an allowance 
 rather than as a write-down. 
The new guidance affects entities holding financial assets and 
net investment in leases that are 
 not accounted for at fair value through net income. The amendments affect 
loans, debt securities, trade receivables, net 
 investments in leases, off-balance sheet credit exposures, reinsurance receivables, 
and any other financial assets not 
 excluded from the scope that have the contractual right to receive cash. 
For public business entities, the new guidance was 
 originally effective for annual and interim periods in fiscal years beginning after 
December 15, 2019. 
The Company has 
 developed an implementation team that is following a general timeline. 
The team has been working with an advisory 
 consultant, with whom a third-party software license has been purchased. 
The Company’s preliminary evaluation indicates 
 the provisions of ASU No. 2016-13 are expected to impact the Company’s 
consolidated financial statements, in particular 
 the level of the reserve for credit losses. 
The Company is continuing to evaluate the extent of the potential impact and 
 expects that portfolio composition and economic conditions at the time of adoption 
will be a factor. 
On October 16, 2019, 
 the FASB approved 
a previously issued proposal granting smaller reporting companies a postponement of the required 
 implementation date for ASU 2016-13. 
The Company will now be required to implement the new standard in January 
 2023, with early adoption permitted in any period prior to that date. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 48 
 Table 1 
– Explanation of Non-GAAP Financial Measures 
 In addition to results presented in accordance with U.S. generally accepted accounting principles 
(GAAP), this quarterly 
 report on Form 10-Q includes certain designated net interest income amounts 
presented on a tax-equivalent basis, a non-
 GAAP financial measure, including the presentation and calculation of the efficiency 
ratio. 

 The Company believes the presentation of net interest income on a tax-equivalent 
basis provides comparability of net 
 interest income from both taxable and tax-exempt sources and facilitates comparability 
within the industry. Although the 
 Company believes these non-GAAP financial measures enhance investors’ 
understanding of its business and performance, 
 these non-GAAP financial measures should not be considered 
an alternative to GAAP. 
The reconciliations 
of these non-
 GAAP financial measures to their most directly comparable GAAP financial 
measures are presented below. 
 

 2021 
 2020 
 Third 
 Second 
 First 
 Fourth 
 Third 
 (in thousands) 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Net interest income (GAAP) 
 $ 
 6,041
 5,975
 5,937
 6,188
 5,868
 Tax-equivalent adjustment 
 117
 118
 120
 123
 122
 Net interest income (Tax 
-equivalent) 
 $ 
 6,158
 6,093
 6,057
 6,311
 5,990
 Nine months ended September 30, 

 (In thousands) 
 2021 
 2020 
 Net interest income (GAAP) 
 $
 17,953
 18,150
 Tax-equivalent adjustment 
 355
 369
 Net interest income (Tax 
-equivalent) 
 $
 18,308
 18,519

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 49 
 Table 2 
- Selected Quarterly Financial Data 
 

 2021 
 2020 
 Third 
 Second 
 First 
 Fourth 
 Third 
 (Dollars in thousands, except per share amounts) 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Results of Operations 
 Net interest income (a) 
 $
 6,158
 6,093
 6,057
 6,311
 5,990
 Less: tax-equivalent adjustment 
 117
 118
 120
 123
 122
 Net interest income (GAAP) 
 6,041
 5,975
 5,937
 6,188
 5,868
 Noninterest income 
 929
 1,110
 1,182
 1,403
 1,374
 Total revenue 
 6,970
 7,085
 7,119
 7,591
 7,242
 Provision for loan losses 
 — 
 (600)
 — 
 — 
 250
 Noninterest expense 
 4,709
 4,895
 4,690
 5,086
 4,653
 Income tax expense 

 386
 504
 423
 449
 403
 Net earnings 
 $
 1,875
 2,286
 2,006
 2,056
 1,936
 Per share data: 
 Basic and diluted net earnings 

 $
 0.53
 0.65
 0.56
 0.58
 0.54
 Cash dividends declared 
 0.26
 0.26
 0.26
 0.255
 0.255
 Weighted average shares outstanding: 
 Basic and diluted 
 3,536,320
 3,554,871
 3,566,299
 3,566,276
 3,566,239
 Shares outstanding, at period end 
 3,529,338
 3,545,855
 3,566,326
 3,566,276
 3,566,276
 Book value 
 $
 29.73
 29.91
 29.06
 30.20
 29.81
 Common stock price: 
 High 
 $
 35.36
 38.90
 48.00
 43.00
 56.80
 Low 

 33.25
 34.50
 37.55
 36.75
 26.26
 Period end: 
 33.80
 35.46
 38.37
 42.29
 36.26
 To earnings ratio 
 14.57
 x 
 15.22
 17.85
 20.23
 15.97
 To book value 
 114
 %
 119
 132
 140
 122
 Performance ratios: 
 Return on average equity 

 7.01
 %
 8.74
 7.37
 7.63
 7.26
 Return on average assets 

 0.72
 %
 0.91
 0.82
 0.87
 0.84
 Dividend payout ratio 
 49.06
 %
 40.00
 46.43
 43.97
 47.22
 Asset Quality: 
 Allowance for loan losses as a % of: 
 Loans 
 1.13
 %
 1.12
 1.23
 1.22
 1.18
 Nonperforming loans 
 1,053
 %
 813
 726
 1,052
 1,015
 Nonperforming assets as a % of: 
 Loans and foreclosed properties 
 0.11
 %
 0.14
 0.17
 0.12
 0.12
 Total assets 

 0.05
 %
 0.06
 0.08
 0.06
 0.06
 Nonperforming loans as a % of total loans 
 0.11
 %
 0.14
 0.17
 0.12
 0.12
 Annualized net recoveries as % of average loans 
 (0.01)
 %
 (0.02)
 (0.06)
 (0.04)
 (0.01)
 Capital Adequacy: (c) 
 CET 1 risk-based capital ratio 
 16.82
 %
 17.03
 17.21
 17.27
 17.70
 Tier 1 risk-based capital ratio 
 16.82
 %
 17.03
 17.21
 17.27
 17.70
 Total risk-based capital ratio 
 17.72
 %
 17.94
 18.25
 18.31
 18.77
 Tier 1 leverage ratio 
 9.57
 %
 9.81
 9.99
 10.32
 10.38
 Other financial data: 
 Net interest margin (a) 
 2.51
 %
 2.60
 2.66
 2.81
 2.72
 Effective income tax rate 
 17.07
 %
 18.06
 17.41
 17.92
 17.23
 Efficiency ratio (b) 
 66.45
 %
 67.96
 64.79
 65.93
 63.19
 Selected average balances: 
 Securities 
 $
 395,529
 370,582
 353,031
 325,102
 315,542
 Loans, net of unearned income 
 452,668
 460,672
 463,424
 466,704
 465,285
 Total assets 
 1,040,985
 1,005,041
 980,884
 944,439
 924,949
 Total deposits 
 927,368
 894,757
 863,194
 828,801
 810,747
 Total stockholders’ equity 
 106,936
 104,591
 108,890
 107,791
 106,709
 Selected period end balances: 

 Securities 
 $
 407,474
 384,865
 359,630
 335,177
 320,922
 Loans, net of unearned income 
 453,232
 456,984
 461,879
 461,700
 472,453
 Allowance for loan losses 
 5,119
 5,107
 5,682
 5,618
 5,575
 Total assets 
 1,065,871
 1,036,232
 993,263
 956,597
 937,890
 Total deposits 
 954,971
 923,462
 880,590
 839,792
 823,980
 Total stockholders’ equity 
 104,929
 106,043
 103,639
 107,689
 106,314
 (a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures." 
 (b) 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 Financial Measures." 
 (c) Regulatory capital ratios presented are for the Company's 
wholly-owned subsidiary, AuburnBank. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 50 
 Table 3 
- Selected Financial Data 
 Nine months ended September 30, 
 (Dollars in thousands, except per share amounts) 
 2021 
 2020 
 Results of Operations 
 Net interest income (a) 
 $
 18,308 
 18,519 
 Less: tax-equivalent adjustment 
 355 
 369 
 Net interest income (GAAP) 
 17,953 
 18,150 
 Noninterest income 
 3,221 
 3,972 
 Total revenue 
 21,174 
 22,122 
 Provision for loan losses 
 (600)
 1,100 

 Noninterest expense 
 14,294 
 14,468 
 Income tax expense 
 1,313 
 1,156 
 Net earnings 
 $
 6,167 
 5,398 
 Per share data: 
 Basic and diluted net earnings 

 $
 1.74 
 1.51 
 Cash dividends declared 
 0.78 
 0.765 
 Weighted average shares outstanding: 
 Basic and diluted 
 3,552,387 
 3,566,184 
 Shares outstanding, at period end 
 3,529,338 
 3,566,276 
 Book value 
 $
 29.73 
 29.81 
 Common stock price: 
 High 
 $
 48.00 
 63.40 
 Low 

 33.25 
 24.11 
 Period end 
 33.80 
 36.26 
 To earnings ratio 
 14.57 
 x 
 15.97 
 To book value 
 114 
 % 
 122 
 Performance ratios: 
 Return on average equity 

 7.70 
 % 
 6.94 
 Return on average assets 

 0.81 
 % 
 0.81 
 Dividend payout ratio 
 44.83 
 % 
 50.66 
 Asset Quality: 
 Allowance for loan losses as a % of: 
 Loans 
 1.13 
 % 
 1.18 
 Nonperforming loans 
 1,053 
 % 
 1,015 
 Nonperforming assets as a % of: 
 Loans and other real estate owned 
 0.11 
 % 
 0.12 
 Total assets 

 0.05 
 % 
 0.06 
 Nonperforming loans as a % of total loans 
 0.11 
 % 
 0.12 
 Annualized net recoveries as a % of average loans 
 (0.03)
 % 
 (0.03) 
 Capital Adequacy: (c) 
 CET 1 risk-based capital ratio 
 16.82 
 % 
 17.70 
 Tier 1 risk-based capital ratio 
 16.82 
 % 
 17.70 
 Total risk-based capital ratio 
 17.72 
 % 
 18.77 
 Tier 1 leverage ratio 
 9.57 
 % 
 10.38 
 Other financial data: 
 Net interest margin (a) 
 2.59 
 % 
 2.96 
 Effective income tax rate 
 17.55 
 % 
 17.64 
 Efficiency ratio (b) 
 66.39 
 % 
 64.33 
 Selected average balances: 
 Securities 
 $
 373,203 
 288,164 
 Loans, net of unearned income 
 458,882 
 461,170 
 Total assets 
 1,009,131 
 885,941 
 Total deposits 
 895,342 
 775,853 
 Total stockholders’ equity 
 106,798 
 103,707 
 Selected period end balances: 

 Securities 
 $
 407,474 
 320,922 
 Loans, net of unearned income 
 453,232 
 472,453 
 Allowance for loan losses 
 5,119 
 5,575 
 Total assets 
 1,065,871 
 937,890 
 Total deposits 
 954,971 
 823,980 
 Total stockholders’ equity 
 104,929 
 106,314 
 (a) Tax-equivalent. See "Table 1 - Explanation of Non-GAAP Financial Measures." 
 (b) 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 Financial Measures." 
 (c) Regulatory capital ratios presented are for the Company's 
wholly-owned subsidiary, AuburnBank. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 51 
 Table 4 
- Average Balances 
and Net Interest Income Analysis 
 Quarter ended September 30, 
 2021 
 2020 
 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 (1) 
 $
 453,649 
 $
 5,127 
 4.48%
 $
 468,203 
 $
 5,453 
 4.63%
 Securities - taxable 
 332,474 
 1,048 
 1.25%
 252,398 
 913 
 1.44%
 Securities - tax-exempt (2) 
 63,055 
 558 
 3.51%
 63,144 
 583 
 3.67%
 Total securities 

 395,529 
 1,606 
 1.61%
 315,542 
 1,496 
 1.89%
 Federal funds sold 
 40,995 
 16 
 0.15%
 30,784 
 9 
 0.12%
 Interest bearing bank deposits 
 82,878 
 33 
 0.16%
 60,698 
 17 
 0.11%
 Total interest-earning assets 
 973,051 
 $
 6,782 
 2.77%
 875,227 
 $
 6,975 
 3.17%
 Cash and due from banks 
 14,326 
 13,196 
 Other assets 
 53,608 
 36,526 
 Total assets 
 $
 1,040,985 
 $
 924,949 
 Interest-bearing liabilities: 
 Deposits: 
 

 

 NOW 
 $
 182,417 
 $
 51 
 0.11%
 $
 157,689 
 $
 100 
 0.25%
 Savings and money market 
 300,746 
 167 
 0.22%
 250,938 
 285 
 0.45%
 Time deposits 
 159,423 
 402 
 1.00%
 164,988 
 598 
 1.44%
 Total interest-bearing deposits 
 642,586 
 620 
 0.38%
 573,615 
 983 
 0.68%
 Short-term borrowings 
 3,454 
 4 
 0.50%
 2,368 
 2 
 0.50%
 Total interest-bearing liabilities 
 646,040 
 $ 
 624 
 0.38%
 575,983 
 $ 
 985 
 0.68%
 Noninterest-bearing deposits 
 284,781 
 

 237,132 
 

 Other liabilities 
 3,228 
 5,125 
 Stockholders' equity 
 106,936 
 

 106,709 
 

 Total liabilities and stockholders' 
equity 
 $
 1,040,985 
 $
 924,949 
 Net interest income and margin (tax-equivalent) 
 $
 6,158 
 2.51%
 $
 5,990 
 2.72%
 

 (1) Average loan balances are 
shown net of unearned income and loans on nonaccrual status have been included 

 
in the computation of average balances. 
 (2) Yields on tax-exempt securities have been 
computed on a tax-equivalent basis using a federal income 
 tax rate of 21%. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 52 
 Table 5 
- Average Balances 
and Net Interest Income Analysis 
 Nine months ended September 30, 

 

 2021 
 2020 
 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 (1) 
 $
 460,732 
 $
 15,417 
 4.47%
 $
 463,581 
 $
 16,359 
 4.71%
 Securities - taxable 
 310,288 
 3,006 
 1.30%
 225,234 
 3,080 
 1.83%
 Securities - tax-exempt (2) 
 62,915 
 1,692 
 3.60%
 62,930 
 1,759 
 3.73%
 Total securities 

 373,203 
 4,698 
 1.68%
 288,164 
 4,839 
 2.24%
 Federal funds sold 
 36,821 
 39 
 0.14%
 30,739 
 118 
 0.51%
 Interest bearing bank deposits 
 75,170 
 66 
 0.12%
 53,834 
 214 
 0.53%
 Total interest-earning assets 
 945,926 
 $ 
 20,220 
 2.86%
 836,318 
 $ 
 21,530 
 3.44%
 Cash and due from banks 
 14,345 
 13,579 
 Other assets 
 48,860 
 36,044 
 Total assets 
 $
 1,009,131 
 $
 885,941 
 Interest-bearing liabilities: 
 Deposits: 
 

 

 NOW 
 $
 176,242 
 $
 161 
 0.12%
 $
 153,767 
 $
 426 
 0.37%
 Savings and money market 
 289,758 
 488 
 0.23%
 234,533 
 801 
 0.46%
 Time deposits 
 159,412 
 1,251 
 1.05%
 166,115 
 1,778 
 1.43%
 Total interest-bearing deposits 
 625,412 
 1,900 
 0.41%
 554,415 
 3,005 
 0.72%
 Short-term borrowings 
 3,329 
 12 
 0.50%
 1,721 
 6 
 0.50%
 Total interest-bearing liabilities 
 628,741 
 $ 
 1,912 
 0.41%
 556,136 
 $ 
 3,011 
 0.72%
 Noninterest-bearing deposits 
 269,930 
 

 221,438 
 

 Other liabilities 
 3,662 
 4,659 
 Stockholders' equity 
 106,798 
 

 103,708 
 

 Total liabilities and stockholders' 
equity 
 $
 1,009,131 
 $
 885,941 
 Net interest income and margin (tax-equivalent) 
 $
 18,308 
 2.59%
 $
 18,519 
 2.96%
 

 

 

 (1) Average loan balances are 
shown net of unearned income and loans on nonaccrual status have been included 

 
in the computation of average balances. 
 (2) Yields on tax-exempt securities have been 
computed on a tax-equivalent basis using a federal income 
 tax rate of 21%. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 53 
 Table 6 
- Loan Portfolio Composition 
 2021 
 2020 
 Third 
 Second 
 First 
 Fourth 
 Third 
 (In thousands) 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Commercial and industrial 
 $ 
 79,202 
 87,933 
 88,687 
 82,585 
 98,244 
 Construction and land development 
 34,890 
 37,477 
 30,332 
 33,514 
 31,651 
 Commercial real estate 
 252,798 
 242,845 
 254,731 
 255,136 
 250,992 
 Residential real estate 
 80,205 
 82,164 
 82,848 
 84,154 
 85,054 
 Consumer installment 
 7,060 
 7,762 
 6,524 
 7,099 
 7,731 
 Total loans 
 454,155 
 458,181 
 463,122 
 462,488 
 473,672 
 Less: 
unearned income 
 (923)
 (1,197)
 (1,243)
 (788)
 (1,219)
 Loans, net of unearned income 
 453,232 
 456,984 
 461,879 
 461,700 
 472,453 
 Less: allowance for loan losses 
 (5,119)
 (5,107)
 (5,682)
 (5,618)
 (5,575)
 Loans, net 
 $ 
 448,113 
 451,877 
 456,197 
 456,082 
 466,878 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 54 
 Table 7 
- Allowance for Loan Losses and Nonperforming Assets 
 2021 
 2020 
 Third 
 Second 
 First 
 Fourth 
 Third 
 (Dollars in thousands) 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Quarter 
 Allowance for loan losses: 
 Balance at beginning of period 
 $
 5,107 
 5,682 
 5,618 
 5,575 
 5,308 
 Charge-offs: 
 Commercial and industrial 
 — 

 — 

 — 

 (4)
 — 

 Construction and land development 
 — 

 — 

 — 

 — 

 — 

 Commercial real estate 
 — 

 — 

 — 

 — 

 — 

 Residential real estate 
 — 

 (1)
 — 

 — 

 — 

 Consumer installment 
 — 

 — 

 (5)
 (1)
 (4)
 Total charge 
-offs 
 — 

 (1)
 (5)
 (5)
 (4)
 Recoveries 
 12 
 26 
 69 
 48 
 21 
 Net recoveries 
 12 
 25 
 64 
 43 
 17 
 Provision for loan losses 
 — 

 (600)
 — 

 — 

 250 
 Ending balance 
 $
 5,119 
 5,107 
 5,682 
 5,618 
 5,575 
 as a % of loans 
 1.13 
 %
 1.12 
 1.23 
 1.22 
 1.18 
 as a % of loans (excluding PPP loans) 
 1.16 
 %
 1.17 
 1.31 
 1.27 
 1.28 
 as a % of nonperforming loans 
 1,053 
 %
 813 
 726 
 1,052 
 1,015 
 Net recoveries as % of avg. loans (a) 
 (0.01)
 %
 (0.02)
 (0.06)
 (0.04)
 (0.01)
 Nonperforming assets: 
 Nonaccrual loans 
 $
 486 
 628 
 783 
 534 
 549 
 Total nonperforming assets 
 $
 486 
 628 
 783 
 534 
 549 
 as a % of loans and foreclosed properties 
 0.11 
 %
 0.14 
 0.17 
 0.12 
 0.12 
 as a % of total assets 
 0.05 
 %
 0.06 
 0.08 
 0.06 
 0.06 
 Nonperforming loans as a % of total loans 
 0.11 
 %
 0.14 
 0.17 
 0.12 
 0.12 
 Accruing loans 90 days or more past due 
 $
 69 
 — 

 — 

 21 
 71 
 (a) Net recoveries are annualized. 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 55 
 Table 8 
- Allocation of Allowance for Loan Losses 
 2021 
 2020 
 Third Quarter 
 Second Quarter 
 First Quarter 
 Fourth Quarter 
 Third Quarter 
 (Dollars in thousands) 
 Amount 
 %* 
 Amount 
 %* 
 Amount 
 %* 
 Amount 
 %* 
 Amount 
 %* 
 Commercial and industrial 
 $
 816 
 17.4 
 $
 829 
 19.2 
 $
 828 
 19.1 
 $
 807 
 17.9 
 $
 798 
 20.7 
 Construction and land 

 development 
 590 
 7.7 
 639 
 8.2 
 551 
 6.5 
 594 
 7.2 
 582 
 6.7 
 Commercial real estate 
 2,823 
 55.6 
 2,704 
 53.0 
 3,259 
 55.1 
 3,169 
 55.2 
 3,120 
 53.0 
 Residential real estate 
 799 
 17.7 
 838 
 17.9 
 951 
 17.9 
 944 
 18.2 
 954 
 18.0 
 Consumer installment 
 91 
 1.6 
 97 
 1.7 
 93 
 1.4 
 104 
 1.5 
 121 
 1.6 
 Total allowance for 

 loan losses 
 $
 5,119 
 $
 5,107 
 $
 5,682 
 $
 5,618 
 $
 5,575 
 * Loan balance in each category expressed as a percentage of total loans. 

 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 56 
 Table 9 
- CDs and Other Time Deposits of $100,000 or More 
 (Dollars in thousands) 
 September 30, 2021
 Maturity of: 
 3 months or less 
 $ 
 22,908 
 Over 3 months through 6 months 
 9,425 
 Over 6 months through 12 months 
 44,371 
 Over 12 months 
 30,377 
 Total CDs and other time deposits of $100,000 
or more 
 $ 
 107,081 

 
 Table of Contents 
 57 
 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.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.
AUBURN NATIONAL BANCORPORATION, INC 10-Q

Item 2. Management’s Discussion and Analysis
