What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-17 compared with 2022-03-08 · 499 added, 447 removed, 1710 unchanged (36% of the section changed)

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board

of Directors of

To the Stockholders and Board of Directors of

Auburn National Bancorporation, Inc.

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Opinion on the Financial Statements

We have audited the accompanying

consolidated balance sheets of Auburn National Bancorporation, Inc.

(the “Company”) as of December 31, 2021 and 2020, the related consolidated

statements of earnings, comprehensive

income, stockholders’ equity and cash flows for the years then ended, and the related notes

to the consolidated financial

statements (collectively, the “financial

statements”).

In our opinion, the financial statements present fairly,

in all material

respects, the financial position of the Company as of December 31, 2021

and 2020, and the results of its operations and its

cash flows for the years then ended, in conformity with accounting principles

generally accepted in the United States of

We have audited the accompanying consolidated balance sheets of Auburn National Bancorporation, Inc.

Subsidiary (the “Company”) as of December 31, 2022 and 2021,

the related consolidated statements of earnings,

comprehensive income, stockholders’ equity and cash flows for the years

then ended, and the related notes to

the consolidated financial statements (collectively, the “financial statements”).

In our opinion, the financial

statements present fairly, in all material respects, the financial position of the Company as of December 31,

2022 and 2021, and the results of its operations and its cash flows for the

years then ended, in conformity with

accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s

Our responsibility is to express an opinion

on the Company’s financial statements

based on our audits.

are a public accounting firm registered with the Public

Company Accounting Oversight Board (United States) (PCAOB) and are

required to be independent with respect to the

Company in accordance with U.S.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express

an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm

registered with the Public Company Accounting Oversight

Board (United States) (PCAOB) and are required to

be independent with respect to the Company in accordance with U.S.

federal securities laws and the applicable

rules and regulations of the Securities and

Exchange Commission and the PCAOB.

our audits in accordance with the standards of the PCAOB.

Those standards require that

perform the audits to obtain reasonable assurance about whether the financial statements are

free of material misstatement,

whether due to error or fraud.

The Company is not required to have, nor were

we engaged to perform, an audit of its

internal control over financial reporting.

As part of our audits we are required to

obtain an understanding of internal control

over financial reporting but not for the purpose of expressing an opinion on the effectiveness

of the Company’s internal

control over financial reporting.

we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the

financial statements, whether

due to error or fraud, and performing procedures that respond to those risks.

Such procedures

included examining, on a test

basis, evidence regarding the amounts and disclosures in the financial statements.

audits also included evaluating the

accounting principles used and significant estimates made by management, as

well as evaluating the overall presentation of

the financial statements.

believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period

audit of the financial statements

that were communicated or required to be communicated to the audit committee and that:

relate to accounts or

disclosures that are material to the financial statements and (2) involved our especially challenging,

subjective or complex

The communication of critical audit matters does not alter in any way our opinion

on the financial statements,

taken as a whole, and we are not, by communicating the critical audit matter below,

providing separate opinions on the

critical audit matter or on the accounts or disclosures to which they relate.

rules and regulations of the Securities and Exchange Commission and

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan

and perform the audit to obtain reasonable assurance about whether the

financial statements are free of material

misstatement, whether due to error or fraud.

is not required to have, nor were we engaged to

perform, an audit of its internal control over financial reporting.

of our audits we are required to obtain

an understanding of internal control over financial reporting but not for

the purpose of expressing an opinion on

the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such

Our audits included performing procedures to assess the risks of material misstatement

of the financial

statements, whether due to error or fraud, and performing procedures

that respond to those risks.

procedures included examining, on a test basis, evidence regarding the amounts

and disclosures in the financial

Our audits also included evaluating the accounting principles

used and significant estimates made by

management, as well as evaluating the overall presentation of the financial statements.

We believe that our

audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising

from the current period audit of the financial

statements that were communicated or required to be communicated

to the audit committee and that:

to accounts or disclosures that are material to the financial statements

and (2) involved our especially

challenging, subjective or complex judgments.

The communication of critical

audit matters does not alter in any

way our opinion on the financial statements, taken as a whole, and we are

not, by communicating the critical

audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures

which they relate.

Allowance for Loan Losses

As described in Note 5 to the Company’s consolidated

financial statements, the Company has a gross loan portfolio of

$460.5 million and related allowance for loan losses of $4.9 million as of December

As described by the

Company in Note 1, the evaluation of the allowance for loan losses is inherently subjective

as it requires estimates that are

susceptible to significant revision as more information becomes available.

$504.5 million

allowance for

described by the Company in Note 1, the evaluation of the allowance for loan losses is inherently subjective as

collectability of

of historical

experience, the

portfolio, adverse

prevailing economic conditions.

identified the

the allowance

for loan losses is evaluated on a

regular basis and is based upon the Company’s

review of the collectability of the loans in light of historical experience, the

nature and volume of the loan portfolio, adverse situations that may affect the

borrower’s ability to repay,

estimated value

of any underlying collateral, and prevailing economic conditions.

We identified the Company’s

estimate of the allowance for loan losses as a critical audit matter.

audit matter.

The principal

considerations for our determination of the allowance for loan losses as a critical audit

matter related to the high degree of

subjectivity in the Company’s judgments in

determining the qualitative factors.

Auditing these complex judgments

assumptions by the Company involves especially challenging auditor judgment due to

the nature and extent of audit

evidence and effort required to address these matters, including the extent

of specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter included

the following:

We evaluated the relevance and

the reasonableness of assumptions related to evaluation of the loan portfolio,

current economic conditions, and other risk factors used in development of the qualitative

factors for collectively

evaluated loans.

We evaluated the reasonableness

of assumptions and data used by the Company in developing the qualitative

factors by comparing these data points to internally developed and third-party sources,

and other audit evidence

considerations for our determination of the allowance for loan

losses as a critical audit matter related to

complex judgments

and assumptions

Company involves

especially challenging

auditor judgment

specialized skill or knowledge needed.

The primary procedures we performed to address this critical audit matter

included the following:

reasonableness

factors for collectively evaluated loans.

reasonableness

qualitative factors

internally developed

and third-party

other audit evidence gathered.

Elliott Davis, LLC

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Retained earnings

Accumulated other comprehensive income, net

Accumulated other comprehensive (loss) income, net

Less treasury stock, at cost -

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Bank-owned life insurance

Gain on sale of premises and equipment

Securities gains, net

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Salaries and benefits

Employee retention credit

Net occupancy and equipment

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(Dollars in thousands)

Other comprehensive (loss) income, net of tax:

Unrealized net holding (loss) gain on securities

Other comprehensive loss, net of tax:

Unrealized net holding loss on securities

Reclassification adjustment for net gain on securities

recognized in net earnings

Other comprehensive (loss) income

Comprehensive income

Other comprehensive loss

Comprehensive (loss) income

See accompanying notes to consolidated financial statements

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Balance, December 31, 2020

Other comprehensive income

Other comprehensive loss

Cash dividends paid ($

Stock repurchases

Sale of treasury stock

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Premium amortization and discount accretion, net

Deferred tax expense (benefit)

Deferred tax expense

Net gain on securities available for sale

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Proceeds from sale of loans

Net gain on disposition of premises and equipment

Increase in cash surrender value of bank owned life insurance

Income recognized from death benefit on bank-owned life insurance

Net decrease (increase) in other assets

Net (decrease) increase in accrued expenses and other liabilities

Net (increase) decrease in other assets

Net decrease in accrued expenses and other liabilities

Net cash provided by operating activities

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Proceeds from sales of securities available-for-sale

Proceeds from maturities of securities available-for-sale

Proceeds from maturities, paydowns and calls of securities available-for-sale

Purchase of securities available-for-sale

Decrease (increase) in loans, net

(Increase) decrease in loans, net

Net purchases of premises and equipment

Decrease (increase) in FHLB stock

(Increase) decrease in FHLB stock

Purchase of New Markets Tax

Credit investment

Proceeds from bank-owned life insurance death benefit

Proceeds from sale of premises and equipment

Proceeds from sale of other real estate owned

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Cash flows from financing activities:

Net increase in noninterest-bearing deposits

Net increase in interest-bearing deposits

Net increase in federal funds purchased and securities sold

Net (decrease)increase in noninterest-bearing deposits

Net (decrease) increase in interest-bearing deposits

Net (decrease) increase in federal funds purchased and securities sold

under agreements to repurchase

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Dividends paid

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Net change in cash and cash equivalents

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intercompany transactions and accounts are eliminated in consolidation.

COVID-19 Uncertainty

COVID-19 has adversely affected, and may continue to adversely affect

economic activity globally,

nationally and locally.

Following the COVID-19 outbreak in December 2019 and January 2020,

market interest rates declined significantly.

federal banking agencies encouraged financial institutions to prudently

work with borrowers and passed legislation to

provide relief from reporting loan classifications due to modifications related to the COVID

-19 outbreak.

The spread of

COVID-19 has caused us to modify our business practices, including employee travel,

employee work locations, and

cancellation of physical participation in meetings, events and conferences.

development and fluidity of this

situation precludes any predication as to the ultimate impact of the COVID-19 outbreak.

Nevertheless, the outbreak

presents uncertainty and risk with respect to the Company,

its performance, and its financial results.

Revenue Recognition

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within the scope of ASC 606 include service charges on deposits, investment

services, interchange fees and gains and losses on sales of other real estate, all of which are

presented as components of

services, interchange fees and gains and losses on sales of other real estate, all of

which are presented as components of

noninterest income.

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Change in Accounting Estimate

During the fourth quarter of 2019, the Company reassessed its estimate of the useful lives

of certain fixed assets.

During the fourth quarter of 2019, the Company reassessed its estimate of the useful

lives of certain fixed assets.

Company revised its original useful life estimate for certain land improvements, buildings

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The effects of this change in

accounting estimate on the 2021 and 2020 consolidated financial statements, respectively,

was a decrease in net earnings of

thousand, or $

per share and $

accounting estimate for the year ended December 31, 2021 was a decrease in net earnings

thousand, or $

Reclassifications

Certain amounts reported in the prior period have been reclassified to conform to the

current-period presentation.

Certain amounts reported in the prior period have been reclassified to conform to the current

-period presentation.

reclassifications had no impact on the Company’s

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In 2022, the Company did not adopt any new accounting guidance.

Issued not yet effective accounting standards

The following ASUs have been issued by the FASB

but are not yet effective.

Financial Instruments – Credit Losses (Topic

Measurement of Credit Losses on Financial

Financial Instruments – Credit Losses (Topic

Troubled Debt

Restructurings and Vintage

Information about these pronouncements are described in more detail below.

Financial Instruments - Credit Losses (Topic

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.

assets held at amortized cost basis, the new standard eliminates the probable initial recognition

threshold incurrent 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

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.

business entities, the new guidance was

originally effective for annual and interim periods in fiscal years

beginning after December 15, 2019.

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.

This standard became effective

for the Company on January 1, 2023.

The Company adopted ASU 2016-13 in the first quarter of 2023 and will apply the standard’s

provisions as a cumulative-

effect adjustment to retained earnings as of the beginning of the first reporting

period in which the guidance is effective.

The Company is finalizing implementation efforts through its

implementation team.

The team has worked with an advisory

consultant and has finalized and documented the methodologies that will be utilized.

The team is currently finalizing

controls, processes, policies and disclosures and has completed full end-to-end

parallel runs.

Based on the Company’s

portfolio composition as of December 31, 2022, and current expectations of future economic

conditions, the reserve for

credit losses is expected to increase from

% as a percentage of total loans at December 31, 2022 to a range between

% of total loans upon adoption of this standard, primarily resulting from the impact of adjusting

incurred loss model to the expected loss model, which provides for expected

credit losses over the life of the loan portfolio.

The Company does not expect to record an allowance for available-for-sale

securities as the investment portfolio consists

primarily of debt securities explicitly or implicitly backed by the U.S.

for which credit risk is deemed minimal.

The impact of ASU 2016-13 is not expected to have a material impact on the allowance

for unfunded commitments.

Company continues to finalize its day-one adjustment and

will record the after-tax impact as a cumulative-effect adjustment

to retained earnings as of January 1, 2023.

This estimate is subject to change as key assumptions are refined.

going forward will depend on the composition, characteristics, and credit quality of the loan

and securities portfolios as

well as the economic conditions at future reporting periods.

Financial Instruments - Credit Losses (Topic

Debt Restructurings and Vintage

eliminates the accounting guidance for troubled debt restructurings (“TDRs”),

while enhancing disclosure requirements for

certain loan refinancings and restructurings by creditors when a borrower is experiencing

financial difficulty.

standard is effective for fiscal years, and interim periods within those

fiscal years, beginning after December 15, 2022.

new standard is not expected to have a material impact on the Company’s

consolidated financial statements.

Cash Equivalents

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intention at the date of purchase.

At December 31, 2021, all

At December 31, 2022, all of the

Company’s securities were classified

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income tax effects.

dividends on securities, including the amortization of premiums and accretion of discounts

are recognized in interest

dividends on securities, including the amortization of premiums and accretion

of discounts are recognized in interest

income using the effective interest method.

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whether there have been events or economic

circumstances to indicate that a security on which there is an unrealized loss is other-than-temporarily

circumstances to indicate that a security on which there is an unrealized loss is other-than-tempor

arily impaired.

For debt securities with an unrealized loss, an other-than-temporary

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(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

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

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,

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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

down is separated into the amount that is credit related (credit loss component) and the amount due to

all other factors.

credit loss component is recognized in earnings, as a realized loss in securities gains (losses),

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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.

related and is recognized in other comprehensive income, net of applicable

Loans held for sale

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cost or estimated fair value in the

Loan sales are recognized when the transaction closes, the proceeds

are collected, and ownership is transferred.

Loan sales are recognized when the transaction closes, the proceeds are

collected, and ownership is transferred.

Continuing involvement, through the sales agreement, consists of the right to service the loan

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loan, if applicable.

Gains on the sale of loans held for sale are recorded net of related costs, such as commissions,

reflected as a component of mortgage lending income in the consolidated statements

In the course of conducting the Bank’s

mortgage lending activities of originating mortgage loans and selling those loans in

Gains on the sale of loans held for sale are recorded net of related costs, such as commissions, and

reflected as a component of mortgage lending income in the consolidated

statements of earnings.

In the course of conducting the Bank’s mortgage lending

activities of originating mortgage loans and selling those loans in

the secondary market, the Bank makes various representations and

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These representations and warranties also apply to

underwriting the real estate appraisal opinion of value for the collateral securing these

underwriting the real estate appraisal opinion of value for the collateral securing these loans.

Failure by the Company to

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being required to repurchase the

mortgage loan or to reimburse the investor for losses incurred (make whole requests)

if such failure cannot be cured by the

mortgage loan or to reimburse the investor for losses incurred (make whole requests) if

such failure cannot be cured by the

Company within the specified period following discovery.

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generally deferred and amortized on a straight-line basis

over the commitment period, which results in a recorded amount that approximates fair

The accrual of interest on loans is discontinued when there is a significant deterioration

in the financial condition of the

borrower and full repayment of principal and interest is not expected or the principal or

interest is more than 90 days past

over the commitment period, which results in a recorded amount that approximates

The accrual of interest on loans is discontinued when there is a significant deterioration in

the financial condition of the

borrower and full repayment of principal and interest is not expected or the principal

or interest is more than 90 days past

due, unless the loan is both well-collateralized and in the process of collection.

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due according to the contractual terms of the loan agreement.

Individually identified impaired

loans are measured based on

Individually identified

impaired loans are measured based on

the present value of expected payments using the loan’s

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market price, or the fair value of the collateral if the loan is collateral dependent.

If the recorded

investment in the impaired

If the recorded investment in the impaired

loan exceeds the measure of fair value, a valuation allowance may be established as part of

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repayment performance by the borrower.

The Company began offering short-term loan modifications to assist borrowers

during the COVID-19 pandemic.

The Company offered short-term loan modifications to assist borrowers during

the COVID-19 pandemic.

modification meets certain conditions, the modification does not need to be

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Allowance for Loan Losses

The allowance for loan losses is maintained at a level that management believes

is adequate to absorb probable losses

The allowance for loan losses is maintained at a level that management believes is adequate

to absorb probable losses

inherent in the loan portfolio.

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are credited to the allowance.

determination of the adequacy of the allowance is based on an evaluation

determination of the adequacy of the allowance is based on an evaluation of

the portfolio, current economic conditions, growth, composition of the loan portfolio,

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other factors related to the portfolio.

evaluation is performed quarterly and is inherently subjective, as it requires various

material estimates that are susceptible

evaluation is performed quarterly and is inherently subjective, as it requires

various material estimates that are susceptible

to significant change, including the amounts and timing of future cash flows expected

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terms of the leases, if shorter.

terms include lease option periods to the extent that the exercise of such options is

Expected terms include

lease option periods to the extent that the exercise of such options is

reasonably assured.

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or redemption value.

These securities do not have a readily determinable fair value as their

ownership is restricted and there

These securities do not have a readily determinable fair value as

their ownership is restricted and there

is no market for these securities.

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at their par value and only to the respective

issuing government supported institution or to another member

The Company records these nonmarketable

issuing government supported institution or to another member institution.

Company records these nonmarketable

equity securities as a component of other assets, which are periodically evaluated for

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accompanying consolidated balance sheets.

Transfers of Financial

Transfers of Financial Assets

Transfers of an entire financial asset (i.e.

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financial asset (i.e.

loan participations sold) are accounted for as sales when control

over the assets have been surrendered.

loan participations sold) are accounted for as sales

when control over the assets have been surrendered.

Control over transferred assets is deemed to be surrendered when (1)

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Subsequent to the date of transfer, the Company

has elected to measure its MSRs under the amortization method.

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

the period of, estimated net servicing income.

amortization of MSRs is analyzed monthly and is adjusted to reflect changes in prepayment

speeds, as well as other factors.

MSRs are evaluated for impairment based on the fair value of those assets.

Impairment is determined by stratifying MSRs

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

If, by individual stratum, the

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

through a charge to earnings.

valuation allowance is adjusted as the fair value changes.

MSRs are included in the other assets category in the

accompanying consolidated balance sheets.

has elected to measure its retained rights to service the sold mortgage

loans, or MSRs, under the amortization method.

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

over the period of, estimated net servicing income.

The amortization of MSRs is analyzed monthly and is adjusted to

reflect changes in prepayment speeds, as well as other factors.

MSRs are evaluated for impairment based on the fair value

of those assets.

Impairment is determined by stratifying MSRs into groupings based on predominant

risk characteristics,

such as interest rate and loan type.

If, by individual stratum, the carrying amount of the MSRs exceeds fair value,

valuation allowance is established through a charge to earnings.

The valuation allowance is adjusted as the fair value

MSRs are included in the other assets category in the accompanying consolidated

balance sheets.

Securities sold under agreements to repurchase

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amounts and tax bases of assets and liabilities, computed using enacted tax rates.

valuation allowance, if needed, reduces

A valuation allowance, if needed, reduces

deferred tax assets to the amount expected to be realized.

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plus or minus income tax effects of (1) changes in certain

circumstances that cause a change in judgment about the realization of deferred tax assets in future

years, (2) changes in

circumstances that cause a change in judgment about

the realization of deferred tax assets in future years, (2) changes in

income tax laws or rates, and (3) changes in income tax status, subject to certain exceptions.

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that are normally accounted

for in other comprehensive income (loss) such as unrealized gains or losses on available

-for-sale securities.

for in other comprehensive income (loss) such as unrealized gains or losses on available-for

-sale securities.

In accordance with ASC 740,

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file a consolidated income tax return

Fair Value Measureme

Fair Value Measurements

Measurements,

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in an orderly

transaction between market participants at the measurement

date, not the entry price, i.e., the price that would be paid to

transaction between market participants at the measurement date,

not the entry price, i.e., the price that would be paid to

acquire the asset or received to assume the liability at the measurement date.

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the diluted net earnings per share calculation.

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

presented below.

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

years are presented below.

Year ended December 31

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The New Markets Tax Credit

(“NMTC”) program provides federal tax incentives to investors to make investments in

(“NMTC”) program provides federal tax incentives to investors to make investments

distressed communities and promotes economic improvement through the development

of successful businesses in these

The NMTC is available to investors over seven years and is subject to recapture if certain events occur

The NMTC is available to investors over seven years and is subject to recapture if certain

during such period.

At December 31, 2021, the Company had one such investment in the amount of $2.2 million,

was included in other assets in the consolidated balance sheets, compared

to none at December 31, 2020.

The Company’s

equity investment meets the definition of a VIE.

The Company had one investment with a balance of

$2.1 million and $2.2 million at December 31,

2022 and 2021, respectively, and

is included in other assets in the consolidated balance sheets.

The Company’s equity

investment meets the definition of a VIE.

While the Company’s

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government agencies or government sponsored

Expected maturities of

Expected lives of

these securities may differ from contractual maturities because issues

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

Federal Home Loan Bank

(“FHLB”) advances, and for other purposes required or permitted by law.

FHLB advances, and for other

purposes required or permitted by law.

Included in other assets on the accompanying consolidated balance sheets are nonmarketable

1 unchanged sentence

carrying amounts of nonmarketable equity investments were $

million and $

million at December 31, 2021 and 2020,

respectively.

Nonmarketable equity investments include FHLB of Atlanta stock,

Federal Reserve Bank (“FRB”) stock, and

stock in a privately held financial institution.

million at December 31, 2022 and 2021, respectively.

Nonmarketable equity investments include FHLB stock, Federal Reserve Bank

stock, and stock in a privately held financial

Gross Unrealized Losses and Fair Value

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in the financial

condition of the underlying loan obligors, including changes in technology or the discontinuance of

condition of the underlying loan obligors, including changes in technology or the discontinuance

of a segment of

the business that may affect the future earnings potential of the issuer or

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the historical and implied volatility of the fair value of the security;

the payment structure of the debt security and the likelihood of the issuer being able to make payments

the payment structure of the debt security and the likelihood of the issuer being able to

make payments that

increase in the future;

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Agency obligations

The unrealized losses associated with agency obligations were primarily driven by changes

in interest rates and not due to

the credit quality of the securities.

The unrealized losses associated with agency obligations were primarily driven by

changes in market interest rates and not

due to the credit quality of the securities.

These securities were issued by U.S.

agencies or government-sponsored

entities and did not have any credit losses given the explicit government guarantee

agencies or government-

sponsored entities and did not have any credit losses given the explicit government guarantee

or other government support.

1 unchanged sentence

The unrealized losses associated with agency MBS were primarily driven by changes

in interest rates and not due to the

credit quality of the securities.

in market interest rates and not due to

the credit quality of the securities.

These securities were issued by U.S.

government agencies

or government-sponsored entities

and did not have any credit losses given the explicit government guarantee or other government

or government-sponsored

entities and did not have any credit losses given the explicit government guarantee

or other government support.

Securities of U.S.

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were primarily driven by changes

in interest rates and were not due to the credit quality of the securities.

Some of these securities

are guaranteed by a bond

insurer, but management did not rely on the guarantee

in market interest rates and were not due to the credit quality of the securities.

Some of these

securities are guaranteed by a

bond insurer, but management did not rely on the guarantee

in making its investment decision.

These securities will continue

be monitored as part of the Company’s quarterly

impairment analysis, but are expected to perform even if the rating

agencies reduce the credit rating of the bond insurers.

These securities will

continue to be monitored as part of the Company’s

quarterly impairment analysis, but are expected to perform even if the

rating agencies reduce the credit rating of the bond insurers.

As a result, the Company expects to

recover the entire amortized cost

basis of these securities.

recover the entire

amortized cost basis of these securities.

The carrying values of the Company’s investment

55 unchanged sentences

A class is generally

determined based on the initial measurement attribute, risk characteristics of the loan,

and an entity’s method for

determined based on the initial measurement attribute, risk characteristics of the loan, and

an entity’s method for

monitoring and determining credit risk.

7 unchanged sentences

is the cash flow from business operations and activities of the

We are a participating lender

were a participating lender in the PPP.

PPP loans are forgivable in whole or in part, if the proceeds are used

1 unchanged sentence

As of December 31, 2022, the

PPP loans with an aggregate outstanding principal balance of $

PPP loan with an aggregate outstanding principal balance of $

million included in this category.

27 unchanged sentences

– primarily includes loans to finance income-producing multi-family properties.

Loans in this

class include

Loans in this class

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

1 unchanged sentence

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

The underwriting of these loans takes

into consideration the occupancy and rental rates, as well as the financial health of the

underwriting of these loans takes

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

– primarily includes loans to finance income-producing commercial properties.

Loans in this class include

for neighborhood retail centers, hotels, medical and professional offices, single

retail stores, industrial buildings, and

Loans in this class

include loans

for neighborhood retail centers, hotels, medical and professional offices, sing

le retail stores, industrial buildings, and

warehouses leased generally to local businesses and residents.

the primary source of repayment is dependent

primary source of repayment is dependent

upon income generated from the real estate collateral.

14 unchanged sentences

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

the primary source of repayment is dependent upon income generated from leasing the property

The underwriting of these loans takes into consideration the rental rates as

well as the financial health of the

Generally, the primary source of repayment is dependent

upon income generated from leasing the property securing the

The underwriting of these loans takes into consideration the rental rates as well as

the financial health of the

Consumer installment —

46 unchanged sentences

Recovery of previously charged-off loans

Net (charge-offs) recoveries

Net charge-offs

Provision for loan losses

84 unchanged sentences

changes, prevailing economic

conditions, changes in lending personnel experience, changes in lending policies or

procedures and other influencing

conditions, changes based on lending personnel experience, changes in lending policies

or procedures and other influencing

These qualitative and environmental factors are considered

6 unchanged sentences

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

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.

believes the extension of its look-back period is appropriate due to the risks

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

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.

year ended December 31, 2021, the Company increased its look-back period

to 51 quarters to continue to include losses

year ended December 31, 2022, the Company increased its look-back period to

55 quarters to continue to include losses

incurred by the Company beginning with the first quarter of 2009.

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

During 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 ongoing COVID-19

During 2021, the Company adjusted certain qualitative

and economic factors to reflect improvements in economic conditions in our primary

market area that had previously been

observed as a result of the COVID-19 pandemic.

No changes were made to qualitative and economic factors during 2022.

The following table details the changes in the allowance for loan losses by portfolio segment

4 unchanged sentences

Balance, December 31, 2020

Net (charge-offs) recoveries

Balance, December 31, 2020

Net recoveries (charge-offs)

Balance, December 31, 2021

Net (charge-offs) recoveries

Balance, December 31, 2022

The following table presents an analysis of the allowance for loan losses and recorded

34 unchanged sentences

and are defined as follows:

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

obligor (or guarantors, if

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

of the obligor (or guarantors, if

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

43 unchanged sentences

to impaired loans:

Individually evaluated impaired loans equal to or greater than $500 thousand secured

by real estate (nonaccrual

Individually evaluated impaired loans equal to or greater than $500 thousand secured by real

estate (nonaccrual

construction and land development, commercial real estate, and residential real estate).

9 unchanged sentences

With no allowance recorded:

Commercial and industrial

Commercial real estate:

Owner occupied

Total commercial real estate

Residential real estate:

Investment property

Total residential real estate

With allowance recorded:

Commercial and industrial

Commercial real estate:

Owner occupied

Total commercial real estate

impaired loans

12 unchanged sentences

With no allowance recorded:

Commercial real estate:

Total commercial real estate

Residential real estate:

Investment property

Total residential real estate

With allowance recorded:

impaired loans

17 unchanged sentences

Impaired loans:

Commercial and industrial

Commercial real estate:

Owner occupied

Total commercial real estate

9 unchanged sentences

340-10 TDR classifications for a limited period of time to account for the effects

In addition, the Interagency

Statement on COVID-19 Loan Modifications, encourages banks to

work prudently with borrowers and describes the

agencies’ interpretation of how accounting rules under ASC 310

-40, “Troubled Debt Restructurings by Creditors,” apply

certain COVID-19-related modifications.

The Interagency Statement on

COVID-19 Loan Modifications was supplemented

on June 23, 2020 by the Interagency Examiner Guidance for Assessing Safety and

Soundness Considering the Effect of the

COVID-19 Pandemic on Institutions.

If a loan modification is eligible, a bank may elect to account for the loan under

section 4013 of the CARES Act.

If a loan modification is not eligible under section 4013,

or if the bank elects not to

account for the loan modification under section 4013, the Revised Statement includes

criteria when a bank may presume a

loan modification is not a TDR in accordance with ASC 310-40.

The Company evaluates loan extensions or modifications not qualified under

Section 4013 of the CARES Act or under the

Section 4013 of the

CARES Act was extended to January 1, 2022 by Section 541 of the Consolidated

Appropriations Act of 2021.

The Interagency Statement on COVID-19 Loan Modifications, encourages banks

to work prudently with borrowers and

describes the agencies’ interpretation of how accounting rules under ASC 310-40, “Troubled

Debt Restructurings by

Creditors,” apply to certain COVID-19-related modifications.

The Interagency Statement on COVID-19 Loan

Modifications was supplemented on June 23, 2020 by the Interagency Examiner Guidance

for Assessing Safety and

Soundness Considering the Effect of the COVID-19 Pandemic on Institutions.

If a loan modification was eligible, a bank

may elect to account for the loan under Section 4013 of the CARES Act.

If a loan modification

is not eligible under section

4013, or if the bank elects not to account for the loan modification under section 4013,

the Revised Statement includes

criteria when a bank may presume a loan modification is not a TDR in accordance

with ASC 310-40.

The Company evaluates loan extensions or modifications not

qualified under Section 4013 of the CARES Act or under the

Interagency Statement on COVID-19 Loan Modifications in accordance

14 unchanged sentences

In making the determination of

whether a loan modification is a TDR, the Company considers the individual facts

and circumstances surrounding each

whether a loan modification is a TDR, the Company considers the individual facts and circumstances

surrounding each

modification.

5 unchanged sentences

the loan’s original effective

interest rate as the discount rate, or the fair value of the collateral, less selling costs if the

interest rate as the discount rate, or the fair value of the collateral, less selling costs if

collateral dependent.

6 unchanged sentences

for possible impairment.

The following is a summary of accruing and nonaccrual TDRs and the related loan losses, by portfolio

segment and class at

December 31, 2021 and 2020.

(In thousands)

December 31, 2021

Commercial real estate:

Total commercial real estate

Investment property

Total residential real estate

The Company had no TDRs at December 31, 2022.

The following is a summary of accruing and nonaccrual TDRs and the

related allowance for loan losses, by portfolio segment and class at December 31, 2021.

(In thousands)

2 unchanged sentences

Total commercial real estate

Residential real estate:

Investment property

3 unchanged sentences

loans had been restructured.

The following table summarizes loans modified in a TDR during the respective periods

before and after modification.

($ in thousands)

December 31, 2020

Commercial real estate:

Total commercial real estate

Investment property

Total residential real estate

There were no loans modified in a TDR in 2021.

Four loans were modified in a TDR during the year ended December 31,

2020 the only concession granted by the Company was related to a delay in the required

payment of principal and/or

There were no loans modified in a TDR in 2022 and 2021, respectively.

During the years ended December 31, 2022 and 2021, respectively,

13 unchanged sentences

Depreciation expense was approximately $

thousand and $

thousand for the years ended December 31, 2021 and

2020, respectively, and is a component

of net occupancy and equipment expense in the consolidated statements of earnings.

For more information related to depreciation expense, please refer to “Change in

Accounting Estimate” in Note 1,

Summary of Significant Accounting Policies.

million and $

million for the years ended December 31, 2022 and 2021,

respectively, and is a component of

net occupancy and equipment expense in the consolidated statements of earnings.

more information related to depreciation expense, please refer to “Change in Accounting

Estimate” in Note 1, Summary of

Significant Accounting Policies.

MORTGAGE SERVICING

18 unchanged sentences

related amortization expense and recognized in earnings as part of mortgage lending

The Company has recorded MSRs related to loans sold without recourse to

The Company has recorded MSRs related to loans sold without recourse to Fannie Mae.

The Company generally sells

9 unchanged sentences

as the fair value changes.

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

Changes in the valuation allowance are recognized in earnings

as a component of mortgage

lending income.

19 unchanged sentences

Unpaid principal balance

Weighted average prepayment

Weighted average

prepayment speed (CPR)

Discount rate (annual percentage)

21 unchanged sentences

of deposit and other time deposits were issued in denominations greater than $250

At December 31, 2021 and 2020, the amount of deposit accounts in overdraft status that

were reclassified to loans on the

At December 31, 2022 and 2021, the amount of deposit accounts in overdraft status that were

reclassified to loans on the

accompanying consolidated balance sheets was not material.

8 unchanged sentences

use assets (reported as

component of other assets) and related lease liabilities (reported as a component of accrued

expenses and other liabilities).

) and related lease liabilities (reported as a component of

accrued expenses and other liabilities

Aggregate lease right of use assets were $

13 unchanged sentences

lease payments due under non-

cancelable operating leases (those amounts subject to recognition) to the aggregate operating lease

liability as of December

cancelable operating leases (those amounts subject to recognition) to the aggregate operating

lease liability as of December

(Dollars in thousands)

6 unchanged sentences

Weighted-average discount rate

OTHER COMPREHENSIVE (LOSS) INCOME

OTHER COMPREHENSIVE LOSS

Comprehensive income

1 unchanged sentence

stockholders,

comprehensive

December 31, 2021 and 2020, is presented below.

includes net earnings and other

comprehensive loss.

Other comprehensive loss

for the years ended

December 31, 2022 and

2021, is presented below.

(Dollars in thousands)

4 unchanged sentences

Reclassification adjustment for net gain on securities recognized in net earnings

Other comprehensive income

Other comprehensive loss

For the years ended December 31, 2022 and 2021 the components of income tax expense

7 unchanged sentences

Total deferred

income tax expense (benefit)

income tax expense

Total income tax expense

Total income tax expense differs

from the amounts computed by applying the statutory federal income tax rate of 21%

from the amounts computed by applying the statutory federal income tax

rate of 21% to

earnings before income taxes.

11 unchanged sentences

Total income tax expense

At December 31, 2021, the Company had a net deferred tax asset of $0.4

million included in other assets on the

consolidated balance sheet and at December 31, 2020, a deferred tax liability of $1.5

million included in other liabilities on

the consolidated balance sheet.

The tax effects of temporary differences that give rise to significant

portions of the deferred

tax assets and deferred tax liabilities at December 31, 2021 and 2020 are presented

At December 31, 2022 and 2021, the Company had a net deferred tax asset of $13.8

million and $0.4 million, respectively,

included in other assets on the consolidated balance sheet.

The tax effects of temporary differences that

significant portions of the deferred tax assets and deferred tax liabilities at December 31,

2022 and 2021 are presented

(Dollars in thousands)

1 unchanged sentence

Allowance for loan losses

Unrealized loss on securities

Accrued bonus

9 unchanged sentences

tax liabilities

Net deferred tax asset (liability)

Net deferred tax asset

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available

23 unchanged sentences

Balance, beginning of year

Deferred tax (expense) benefit related to continuing operations

Deferred tax expense related to continuing operations

Stockholders' equity, for accumulated

other comprehensive loss (income)

other comprehensive income

Balance, end of year

24 unchanged sentences

Plan (the "Plan").

Eligible employees may contribute up to 100% of eligible compensation, subject to statutory limits

Eligible employees may contribute up to 100% of eligible compensation, subject to statutory

completion of 2 months of service.

2 unchanged sentences

Company's matching contributions on behalf of

participants were equal to $1.00 for each $1.00 contributed by participants, up to 3% of the

participants' eligible

participants were equal to $1.00 for each $1.00 contributed by participants, up to 3% of

each participant's

compensation, and $0.50 for every $1.00 contributed by participants, above 3% up to 5%

of the participants' eligible

of each participant's

compensation, for a maximum matching contribution of 4% of the participants' eligible

34 unchanged sentences

evaluation of the customer.

The Company maintained

a reserve for unfunded commitments of $

million at December 31, 2022 and 2021, respectively.

Standby letters of credit are conditional commitments issued by the Company to

11 unchanged sentences

thousand at December 31, 2022 and 2021, respectively.

Other Commitments

At December 31, 2021, the Company has contracts with construction companies

for an aggregate of $

construct a new headquarters in Auburn, Alabama.

As of December 31, 2021, the Company has paid $

million under

these contracts with a balance to finish, including retainage, of $

Contingent Liabilities

The Company and the Bank are involved in various legal proceedings, arising in connection

with their business.

The Company and the Bank are involved in various legal proceedings, arising in

connection with their business.

opinion of management, based upon consultation with legal counsel, the ultimate resolution

42 unchanged sentences

obtains pricing from third party pricing services.

These third party pricing services consider observable data that may

These third-party pricing services consider observable data

include broker/dealer quotes, market spreads, cash flows, market consensus prepayment

61 unchanged sentences

These appraisals may utilize a single valuation

approach or a combination of approaches including comparable sales and the income

approach or a combination of approaches including comparable sales and the income approach.

Appraised values are

6 unchanged sentences

for determining fair value.

Impaired loans are reviewed and evaluated on at least a quarterly basis

for additional

Impaired loans are reviewed and evaluated on at least a quarterly basis for additional

impairment and adjusted accordingly,

1 unchanged sentence

Other real estate owned

Other real estate owned, consisting of properties obtained through foreclosure or

otherwise in satisfaction of loans, are

initially recorded at the lower of the loan’s

carrying amount or the fair value less costs to sell when the loan is transferred

other real estate.

owned, consisting of properties obtained through foreclosure or in satisfaction

of loans, are initially

recorded at the lower of the loan’s carrying amount or

the fair value less costs to sell upon transfer of the loans to other real

Subsequently, other real

estate is carried at the lower of carrying value or fair value less costs to sell.

Fair values are

generally based on third party appraisals of the property and are classified within

Level 3 of the fair value hierarchy.

appraisals are sometimes further discounted based on management’s

historical knowledge, and/or changes in market

conditions from the date of the most recent appraisal, and/or management’s

expertise and knowledge of the customer and

the customer’s business.

Subsequently,

other real estate is carried at the lower of carrying value or fair value less costs to sell.

values are generally based on third party appraisals of the property and are classified

within Level 3 of the fair value

The appraisals are sometimes

further discounted based on management’s

historical knowledge, and/or changes in

market conditions from the date of the most recent appraisal, and/or management’s

expertise and knowledge of the

customer and the customer’s business.

Such discounts are typically significant

unobservable inputs for determining fair value.

where the carrying amount exceeds the fair value, less costs to sell, a loss is recognized

in noninterest expense.

unobservable inputs for determining fair

In cases where the carrying amount exceeds the fair value, less costs

to sell, a loss is recognized in noninterest

Mortgage servicing rights, net

13 unchanged sentences

Periodically, the

Company will review broker surveys and other market research to validate significant

assumptions used in the model.

Company will review broker surveys and other market research to validate

significant assumptions used in the model.

significant unobservable inputs include prepayment speeds or the constant prepayment rate

15 unchanged sentences

December 31, 2022:

Loans held for sale

Total assets at fair value

20 unchanged sentences

Appraisal discounts

Other real estate owned

Appraisal discounts

Mortgage servicing rights, net

5 unchanged sentences

Appraisal discounts

Other real estate owned

Appraisal discounts

Mortgage servicing rights, net

18 unchanged sentences

representative of the liquidation value of the Company’s

financial instruments, but rather are a good-faith estimate of the

fair value of financial instruments held by the Company.

ASC 825 excludes certain financial instruments and all

nonfinancial instruments from its disclosure requirements.

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

value of financial instruments held by the Company.

ASC 825 excludes certain financial instruments and all nonfinancial

instruments from its disclosure requirements.

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

6 unchanged sentences

cash flows, adjusted for estimated prepayments.

The fair value of loans was measured using an exit price

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

Loans held for sale

2 unchanged sentences

Time Deposits

Fair values for time deposits were estimated using discounted

The discount rates were based on rates currently

Fair values for time deposits were estimated using discounted cash flows.

rates were based on rates currently

offered for deposits with similar remaining maturities.

4 unchanged sentences

Loans, net (1)

Loans held for sale

Financial Liabilities:

11 unchanged sentences

RELATED PARTY

The Bank has made, and expects in the future to continue to make in the ordinary course

of business, loans to directors and

The Bank has made, and expects in the future to continue to make in the ordinary course of

business, loans to directors and

executive officers of the Company,

2 unchanged sentences

opinion, these loans were made in the

ordinary course of business at normal credit terms, including interest rate and collateral

requirements, and do not represent

ordinary course of business at normal credit terms, including interest rate and collateral requirements,

and do not represent

more than normal credit risk.

14 unchanged sentences

As required by the Economic Growth, Regulatory Relief, and Consumer Protection

Act in August 2018, the Federal

Reserve Board issued an interim final rule that expanded applicability of the Board’s

small bank holding company policy

The interim final rule raised the policy statement’s

asset threshold from $1 billion to $3 billion in total

consolidated assets for a bank holding company or savings and loan holding company that:

Act, the Federal Reserve Board issued

an interim final rule that expanded applicability of the Board’s

small bank holding company policy statement (the “Small

BHC Policy Statement”) and its Regulation Q capital and Regulation Y holding company

rules in August 2018.

final rule raised the Small BHC Policy Statement’s

asset limit from $1 billion to $3 billion in total consolidated assets for a

bank holding company or savings and loan holding company that:

(1) is not engaged in significant

nonbanking activities;

(2) does not conduct significant off-balance sheet

and (3) does not have a material amount

of debt or equity securities, other than trust-preferred securities, outstanding.

interim final rule provides that, if

warranted for supervisory purposes, the Federal Reserve may exclude a company from

the threshold increase.

believes the Company meets the conditions of the Federal Reserve’s

small bank holding company policy statement and is

therefore excluded from consolidated capital requirements at December 31,

(2) does not conduct significant off-balance sheet activities;

and (3) does not have a material amount of debt or equity

securities, other than trust-preferred securities, outstanding that are registered

with the SEC.

The interim final rule provides

that, if warranted for supervisory purposes, the Federal Reserve may exclude a company

from this asset level increase.

Federal Reserve has treated the Company as a small bank holding company for purposes of

the Small BHC Policy

Statement and therefore has considered only the Bank’s

capital and not the Company’s consolidated

The Bank remains subject to regulatory capital requirements administered by the

6 unchanged sentences

Under capital adequacy

guidelines and the regulatory framework for prompt corrective action, the Bank

must meet specific capital guidelines that

guidelines and the regulatory framework for prompt corrective action, the Bank must

meet specific capital guidelines that

involve quantitative measures of their assets, liabilities and certain off

1 unchanged sentence

accounting practices.

The capital amounts and classification are also subject

to qualitative judgments by the regulators

The capital amounts and classification are also subject to

qualitative judgments by the regulators

about components, risk weightings and other factors.

1 unchanged sentence

for prompt corrective action.

be categorized as “well capitalized,” the Bank must maintain minimum common equit

Tier 1, total risk-based, Tier

be categorized as “well capitalized,” the Bank must maintain minimum common equity Tier

1, total risk-based, Tier 1 risk-

based, and Tier 1 leverage ratios as set forth in the table.

67 unchanged sentences

in undistributed earnings of bank subsidiary

Income tax expense

Income tax (benefit) expense

Earnings before equity in undistributed earnings

8 unchanged sentences

provided by operating activities:

Net decrease (increase) in other assets

Net decrease in other assets

Net decrease in other liabilities

13 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data