AUBN filing — read by section

Item 8. Financial Statements and Supplementary Data

ITEM 8. 
FINANCIAL STATEMENTS 
AND SUPPLEMENTARY 
DATA 
 Index 
 

 Page 
 

 

 Report of Independent Registered Public Accounting Firm 
 
(PCAOB ID: 
 149 
 ) 
 

 
83 
 Consolidated Balance Sheets 
 
86 
 Consolidated Statements of Earnings 
 

 
87 
 Consolidated Statements of Comprehensive Income 
 

 
88 
 Consolidated Statements of Stockholders’ Equity 
 

 
89 
 Consolidated Statements of Cash Flows 
 

 
90 
 Notes to Consolidated Financial Statements 
 

 91 
 

 

 
 
 
 
 Table of Contents 
 83 
 Report of Independent Registered Public Accounting Firm 
 To the Stockholders and Board of Directors of 

 Auburn National Bancorporation, Inc. and Subsidiary 

 Opinion on the Financial Statements 
 We 
have audited 
the 
accompanying consolidated 
balance sheets 
of 
Auburn National 
Bancorporation, Inc. 
and 
 Subsidiary (the “Company”) as of December 31, 2023 and 2022, 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, 
 2023 and 
2022, 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. 
 Change in Accounting Principle 
 As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit 
 losses 
effective 
January 
1, 
2023, 
due 
to 
the 
adoption 
of 
Financial 
Accounting 
Standards 
Board 
Accounting 
 Standards Codification 
No. 326
 , Financial 
Instruments – 
Credit 
Losses (ASC 
326).
 
The Company 
adopted the 
 new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted 
 and 
continue 
to 
be 
reported 
in 
accordance 
with 
the 
previously 
applicable 
generally 
accepted 
accounting 
 principles. The adoption of the new credit loss 
standard and its subsequent applications is also communicated as 
 a critical audit matter below. 
 Basis for Opinion 
 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. 
 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. 
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. Accordingly, 
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. 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. 

 
 
 
 Table of Contents 
 84 
 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: (1) 
relate 
 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 to 
 which they relate. 
 Allowance for Credit Losses
 As 
described 
in 
Note 
5 
to 
the 
Company’s 
consolidated 
financial 
statements, 
the 
Company 
has 
a 
gross 
loan 
 portfolio of $557.3 
million and related 
allowance for credit 
losses of $6.9 
million as of 
December 31, 2023. As 
 described by the Company in Note 
1, the allowance for credit 
losses is estimated by management using relevant 
 available 
information, from 
both 
internal and 
external sources, 
relating 
to 
past 
events, 
current 
conditions, and 
 reasonable and 
supportable forecasts. The 
Company’s credit 
loss assumptions 
are estimated 
using a 
discounted 
 cash flow 
("DCF") model 
for each 
loan segment, 
except consumer 
loans. The 
weighted average 
remaining life 
 method is 
used to 
estimate credit loss 
assumptions for consumer 
loans. The 
DCF model 
calculates an 
expected 
 life-of-loan 
loss 
percentage 
by 
considering 
the 
forecasted 
probability that 
a 
borrower 
will 
default 
(the 
“PD”), 
 adjusted for 
relevant forecasted 
macroeconomic factors, 
and loss 
given default 
(“LGD”), which 
is the 
estimate 
 of 
the 
amount 
of 
net 
loss 
in 
the 
event 
of 
default. 
This 
model 
utilizes 
historical 
correlations 
between 
default 
 experience 
and 
certain 
macroeconomic 
factors 
as 
determined 
through 
a 
statistical 
regression 
analysis. 
 Projections of 
macroeconomic factors 
are obtained 
from an 
independent 
third party 
and 
are utilized 
to 
predict 
 quarterly rates 
of default 
based on 
the statistical 
PD models. The 
weighted average remaining 
life method 
uses 
 an annual 
charge-off 
rate over 
several vintages 
to estimate 
credit losses. 
Additionally, 
the allowance 
for credit 
 losses 
calculation 
includes 
subjective 
adjustments 
for 
qualitative 
risk 
factors 
that 
are 
believed 
likely 
to 
cause 
 estimated credit losses to differ from historical experience. 
 We 
identified the Company’s 
estimate of the 
allowance for credit losses 
(“ACL”) as a critical 
audit matter. 
The 
 principal considerations for our 
determination of the allowance for 
credit losses as a 
critical audit matter related 
 to 
the 
high degree 
of 
subjectivity in 
the 
Company’s 
judgments 
in 
determining the 
macroeconomic data 
in the 
 reasonable and 
supportable forecasts, 
as well 
as the 
qualitative factors. 
Auditing these 
complex judgments 
and 
 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 
obtained 
an 
understanding 
of 
the 
Company’s 
process 
for 
establishing 
the 
ACL, 
including 
the 
 selection 
and 
application 
of 
forecasts 
and 
the 
basis 
for 
development 
and 
related 
adjustments 
of 
the 
 qualitative factor components of the ACL. 
 ●
 We 
evaluated 
the 
design 
and 
tested 
the 
operating 
effectiveness 
of 
controls 
relating 
to 
management’s 
 determination of the ACL, including controls over: 
 o
 Management’s 
process 
for 
selection 
of 
forecasts 
and 
the 
basis 
for 
development 
of 
qualitative 
 factors of the ACL. 
 o
 Management’s 
review 
of 
reliability 
and 
accuracy 
of 
data 
used 
to 
calculate 
and 
estimate 
the 
 various 
components 
of 
the 
ACL, 
including 
accuracy 
of 
the 
calculation 
and 
validation 
 procedures. 
 o
 Management’s process 
to review the 
reasonableness of the forecasts 
and the qualitative 
factors, 
 including any adjustments. 

 
 Table of Contents 
 85 
 ●
 We 
evaluated the 
reasonableness of 
management’s 
application of 
qualitative factor 
adjustments to 
the 
 ACL, including 
the comparison 
of factors 
considered by 
management to 
third party 
or internal 
sources 
 as well as evaluated the appropriateness and level of the qualitative factor adjustments. 
 ●
 We 
assessed 
the 
overall 
trends 
in 
credit 
quality, 
including 
adjustments 
for 
the 
qualitative 
factors 
by 
 comparing the overall allowance for credit losses to those recorded by 
the Company’s peer institutions. 
 ●
 We 
evaluated 
subsequent 
events 
and 
transactions 
and 
considered 
whether 
they 
corroborated 
or 
 contradicted the Company’s conclusion.  
 /s/ 
 Elliott Davis, LLC 
 We have served as the Company's auditor since 2015. 
 Greenville, South Carolina 
 March 14, 2024

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 86 
 AUBURN NATIONAL 
BANCORPORATION, 
INC. AND SUBSIDIARIES 
 Consolidated Balance Sheets 
 December 31 
 (Dollars in thousands, except share data) 
 2023 
 2022 
 Assets: 
 Cash and due from banks 
 $ 
 27,127 
 $ 
 11,608 
 Federal funds sold 
 31,412 
 9,300 
 Interest bearing bank deposits 
 12,830 
 6,346 
 Cash and cash equivalents 
 71,369 
 27,254 
 Securities available-for-sale 

 270,910 
 405,304 
 Loans, net of unearned income 
 557,294 
 504,458 
 Allowance for credit losses 
 ( 6,863 )
 ( 5,765 )
 Loans, net 
 550,431 
 498,693 
 Premises and equipment, net 
 45,535 
 46,575 
 Bank-owned life insurance 
 17,110 
 19,952 
 Other assets 
 19,900 
 26,110 
 Total assets 
 $ 
 975,255 
 $ 
 1,023,888 
 Liabilities: 
 Deposits: 
 Noninterest-bearing 

 $ 
 270,723 
 $ 
 311,371 
 Interest-bearing 
 625,520 
 638,966 
 Total deposits 
 896,243 
 950,337 
 Federal funds purchased and securities sold under agreements to repurchase 
 1,486 
 2,551 
 Accrued expenses and other liabilities 
 1,019 
 2,959 
 Total liabilities 
 898,748 
 955,847 
 Stockholders' equity: 
 Preferred stock of $
 0.01 
 
par value; authorized 

 200,000 
 
shares; 
 issued shares - none 
 — 
 — 
 Common stock of $
 0.01 
 
par value; authorized 
 8,500,000 
 
shares; 
 issued 
 3,957,135 
 
shares 
 39 
 39 
 Additional paid-in capital 
 3,801 
 3,797 
 Retained earnings 
 113,398 
 116,600 
 Accumulated other comprehensive loss, net 
 ( 29,029 )
 ( 40,920 )
 Less treasury stock, at cost - 
 463,521 
 
shares and 
 453,683 
 
shares 
 at December 31, 2023 and 2022, respectively 
 ( 11,702 )
 ( 11,475 )
 Total stockholders’ equity 
 76,507 
 68,041 
 Total liabilities and stockholders’ 
equity 
 $ 
 975,255 
 $ 
 1,023,888 
 See accompanying notes to consolidated financial statements 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 87 
 AUBURN NATIONAL 
BANCORPORATION, 
INC. AND SUBSIDIARIES 
 Consolidated Statements of Earnings 
 Year ended December 31 
 (Dollars in thousands, except share and per share data) 
 2023 
 2022 
 Interest income: 
 Loans, including fees 
 $ 
 24,925 
 $ 
 20,241 
 Securities: 
 Taxable 
 7,208 
 6,576 
 Tax-exempt 
 1,568 
 1,716 
 Federal funds sold and interest bearing bank deposits 
 673 
 1,012 
 Total interest income 
 34,374 
 29,545 
 Interest expense: 
 Deposits 
 7,974 
 2,319 
 Short-term borrowings 
 72 
 60 
 Total interest expense 
 8,046 
 2,379 
 Net interest income 
 26,328 
 27,166 
 Provision for credit losses 
 135 
 1,000 
 Net interest income after provision for credit 
losses 
 26,193 
 26,166 
 Noninterest income: 
 Service charges on deposit accounts 
 603 
 598 
 Mortgage lending 
 430 
 650 
 Bank-owned life insurance 
 411 
 317 
 Gain on sale of premises and equipment 
 — 
 3,234 
 Other 
 1,870 
 1,695 
 Securities (losses) gains, net 
 ( 6,295 )
 12 
 Total noninterest income 
 ( 2,981 )
 6,506 
 Noninterest expense: 
 Salaries and benefits 
 12,101 
 12,307 
 Employee retention credit 
 — 
 ( 1,569 )
 Net occupancy and equipment 
 2,954 
 2,742 
 Professional fees 
 1,299 
 975 
 FDIC and other regulatory assessments 
 631 
 404 
 Other 
 5,609 
 4,964 
 Total noninterest expense 
 22,594 
 19,823 
 Earnings before income taxes 
 618 
 12,849 
 Income tax (benefit) expense 
 ( 777 )
 2,503 
 Net earnings 
 $ 
 1,395 
 $ 
 10,346 
 Net earnings per share: 
 Basic and diluted 
 $ 
 0.40 
 $ 
 2.95 
 Weighted average shares 
outstanding: 
 Basic and diluted 
 3,498,030 
 3,510,869 
 See accompanying notes to consolidated financial statements 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 88 
 AUBURN NATIONAL 
BANCORPORATION, 
INC. AND SUBSIDIARIES 
 Consolidated Statements of Comprehensive Income 
 Year ended December 31 
 (Dollars in thousands) 
 2023 
 2022 
 Net earnings 
 $ 
 1,395 
 $ 
 10,346 
 Other comprehensive gain (loss), net of tax: 
 Unrealized net holding gain (loss) on securities 
 7,177 
 ( 41,802 )
 Reclassification adjustment for net loss (gain) on securities 

 recognized in net earnings 
 4,714 
 ( 9 )
 Other comprehensive income (loss) 
 11,891 
 ( 41,811 )
 Comprehensive income (loss) 
 $ 
 13,286 
 $ 
 ( 31,465 )
 See accompanying notes to consolidated financial statements 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 89 
 AUBURN NATIONAL 
BANCORPORATION, 
INC. AND SUBSIDIARIES 
 Consolidated Statements of Stockholders’ Equity 
 Accumulated 
 Common 
 Additional 
 other 
 Shares 
 Common 
 paid-in 
 Retained 

 comprehensive 
 Treasury 
 

 (Dollars in thousands, except share data) 
 Outstanding 
 Stock 
 capital 
 earnings 
 (loss) income 
 stock 
 Total 
 Balance, December 31, 2021 
 3,520,485 
 $ 
 39 
 3,794 
 109,974 
 891 
 ( 10,972 )
 $ 
 103,726 
 Net earnings 
 — 
 — 
 — 
 10,346 
 — 
 — 
 10,346 
 Other comprehensive loss 
 — 
 — 
 — 
 — 
 ( 41,811 )
 — 
 ( 41,811 )
 Cash dividends paid ($
 1.06 
 
per share) 
 — 
 — 
 — 
 ( 3,720 )
 — 
 — 
 ( 3,720 )
 Stock repurchases 
 ( 17,183 )
 — 
 — 
 — 
 — 
 ( 504 )
 ( 504 )
 Sale of treasury stock 
 150 
 — 
 3 
 — 
 — 
 1 
 4 
 Balance, December 31, 2022 
 3,503,452 
 $ 
 39 
 $ 
 3,797 
 $ 
 116,600 
 $ 
 ( 40,920 )
 $ 
 ( 11,475 )
 $ 
 68,041 
 Cumulative effect of change in 

 accounting standard 
 — 
 — 
 — 
 ( 821 )
 — 
 — 
 ( 821 )
 Net earnings 
 — 
 — 
 — 
 1,395 
 — 
 — 
 1,395 
 Other comprehensive income 
 — 
 — 
 — 
 — 
 11,891 
 — 
 11,891 
 Cash dividends paid ($
 1.08 
 
per share) 
 — 
 — 
 — 
 ( 3,776 )
 — 
 — 
 ( 3,776 )
 Stock repurchases 
 ( 10,108 )
 — 
 — 
 — 
 — 
 ( 229 )
 ( 229 )
 Sale of treasury stock 
 270 
 — 
 4 
 — 
 — 
 2 
 6 
 Balance, December 31, 2023 
 3,493,614 
 $ 
 39 
 $ 
 3,801 
 $ 
 113,398 
 $ 
 ( 29,029 )
 $ 
 ( 11,702 )
 $ 
 76,507 
 See accompanying notes to consolidated financial statements 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Table of Contents 
 90 
 AUBURN NATIONAL 
BANCORPORATION, 
INC. AND SUBSIDIARIES 
 Consolidated Statements of Cash Flows 
 Year ended December 31 
 (In thousands) 
 2023 
 2022 
 Cash flows from operating activities: 
 Net earnings 
 $ 
 1,395 
 $ 
 10,346 
 Adjustments to reconcile net earnings to net cash provided by 
 operating activities: 
 Provision for credit losses 
 135 
 1,000 
 Depreciation and amortization 
 1,700 
 1,528 
 Premium amortization and discount accretion, net 
 2,380 
 3,091 
 Deferred tax (benefit) expense 
 ( 195 )
 686 
 Net loss (gain) on securities available for sale 
 6,295 
 ( 12 )
 Net gain on sale of loans held for sale 
 ( 71 )
 ( 309 )
 Net gain on other real estate owned 
 — 
 ( 162 )
 Loans originated for sale 
 ( 4,141 )
 ( 8,850 )
 Proceeds from sale of loans 
 4,174 
 10,424 
 Net loss (gain) on disposition of premises and equipment 
 — 
 (3,234) 
 Decrease (increase) in cash surrender value of bank owned life insurance 
 ( 359 )
 ( 317 )
 Income recognized from death benefit on bank-owned life insurance 
 ( 52 )
 — 
 Net decrease (increase) in other assets 
 2,652 
 ( 2,441 )
 Net decrease in accrued expenses and other liabilities 
 ( 2,011 )
 ( 770 )
 Net cash provided by operating activities 
 $ 
 11,902 
 $ 
 10,980 
 Cash flows from investing activities: 
 Proceeds from sales of securities available-for-sale 
 111,269 
 4,860 
 Proceeds from maturities, paydowns and calls of securities available-for-sale 
 30,329 
 45,921 
 Purchase of securities available-for-sale 
 — 
 ( 93,106 )
 Increase in loans, net 
 ( 52,892 )
 ( 46,268 )
 Net purchases of premises and equipment 
 ( 418 )
 ( 7,049 )
 Increase in FHLB stock 
 ( 164 )
 ( 74 )
 Proceeds from bank-owned life insurance death benefit 
 216 
 — 
 Proceeds from surrender of bank-owned like insurance death benefit 
 3,037 
 — 
 Proceeds from sale of premises and equipment 
 — 
 4,222 
 Proceeds from sale of other real estate owned 
 — 
 536 
 Net cash provided by (used in) investing activities 
 $ 
 91,377 
 $ 
 ( 90,958 )
 Cash flows from financing activities: 
 Net decrease in noninterest-bearing deposits 
 ( 40,648 )
 ( 4,761 )
 Net decrease in interest-bearing deposits 
 ( 13,446 )
 ( 39,145 )
 Net decrease in federal funds purchased and securities sold 

 under agreements to repurchase 
 ( 1,065 )
 ( 897 )
 Stock repurchases 
 ( 229 )
 ( 504 )
 Dividends paid 
 ( 3,776 )
 ( 3,720 )
 Net cash used in financing activities 
 $ 
 ( 59,164 )
 $ 
 ( 49,027 )
 Net change in cash and cash equivalents 
 $ 
 44,115 
 $ 
 ( 129,005 )
 Cash and cash equivalents at beginning of period 
 27,254 
 156,259 
 Cash and cash equivalents at end of period 
 $ 
 71,369 
 $ 
 27,254 
 Supplemental disclosures of cash flow information: 
 Cash paid during the period for: 
 Interest 
 $ 
 7,516 
 $ 
 2,341 
 Income taxes 
 1,230 
 1,351 
 See accompanying notes to consolidated financial statements 

 
 Table of Contents 
 91 
 AUBURN NATIONAL 
BANCORPORATION, 
INC. AND SUBSIDIARIES 
 Notes to Consolidated Financial Statements 
 NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING 
POLICIES

 Nature of Business 
 Auburn National Bancorporation, Inc. (the “Company”) is a bank holding company 
whose primary business is conducted 
 by its wholly-owned subsidiary, 
AuburnBank (the “Bank”). AuburnBank is a commercial bank located in Auburn, 
 Alabama. The Bank provides a full range of banking services in its primary market area, 
Lee County, which includes the 
 Auburn-Opelika Metropolitan Statistical Area.

 
 
 Basis of Presentation 
 The consolidated financial statements include the accounts of the Company and 
its wholly-owned subsidiaries, which are 
 managed as a single business segment. Significant intercompany transactions and 
accounts are eliminated in consolidation.

 
 
 Revenue Recognition 

 The Company’s sources of income that fall 
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 
 noninterest income. The following is a summary of the revenue streams that fall 
within the scope of ASC 606: 

 Service charges on deposits, investment services, ATM 
and interchange fees – Fees from these services are either 
 transaction-based, for which the performance obligations are satisfied 
when the individual transaction is processed, or set 
 periodic service charges, for which the performance obligations 
are satisfied over the period the service is provided. 
 Transaction-based fees are recognized at the time the transaction 
is processed, and periodic service charges are recognized 
 over the service period. 
 Gains on sales of other real estate
 
– 
 A gain on sale should be recognized when a contract for sale exists and control of the 
 asset has been transferred to the buyer. 
ASC 606 lists several criteria required to conclude that a contract for sale exists, 
 including a determination that the institution will collect substantially all of the consideration 
to which it is entitled. In 
 addition to the loan-to-value, the analysis is based on various other factors, including the credit 
quality of the borrower, the 
 structure of the loan, and any other factors that may affect collectability.

 
 
 Use of Estimates 
 The preparation of financial statements in conformity with U.S. generally accepted 
accounting principles requires 
 management to make estimates and assumptions that affect the reported 
amounts of assets and liabilities and the disclosure 
 of contingent assets and liabilities as of the balance sheet date and the reported 
amounts of income and expense during the 
 reporting period. Actual results could differ from those estimates. Material estimates 
that are particularly susceptible to 
 significant change in the near term include the determination of the allowance 
for credit losses, fair value measurements, 
 valuation of other real estate owned, and valuation of deferred tax assets.

 
 
 Reclassifications 

 Certain amounts reported in the prior period have been reclassified to conform to the current 
-period presentation. These 
 reclassifications had no impact on the Company’s 
previously reported net earnings or total stockholders’ equity.

 
 
 Subsequent Events 

 The Company has evaluated the effects of events or transactions through 
the date of this filing that have occurred 
 subsequent to December 31, 2023. The Company does not believe there are 
any material subsequent events that would 
 require further recognition or disclosure.

 
 

 

 
 Table of Contents 
 92 
 Accounting Standards Adopted in 2023 
 On January 1, 2023, the Company adopted ASU 2016-13 Financial Instruments – Credit 
Losses (Topic 326): 
 
Measurement of Credit Losses on Financial Instruments (ASC 326). This standard 
replaced the incurred loss methodology 
 with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) 
methodology. CECL 
 requires an estimate of credit losses for the remaining estimated life of the financial asset using 
historical experience, 
 current conditions, and reasonable and supportable forecasts and generally applies to 
financial assets measured at amortized 
 cost, including loan receivables and held-to-maturity debt securities, and some off 
-balance sheet credit exposures such as 
 unfunded commitments to extend credit. Financial assets measured at amortized 
cost will be presented at the net amount 
 expected to be collected by using an allowance for credit losses. 

 In addition, CECL made changes to the accounting for available for sale debt 
securities. One such change is to require 
 credit losses to be presented as an allowance rather than as a write-down on available for sale debt 
securities if management 
 does not intend to sell and does not believe that it is more likely than not, they will be required 
to sell. 

 The Company adopted ASC 326 and all related subsequent amendments thereto 
effective January 1, 2023 using the 
 modified retrospective approach for all financial assets measured at amortized 
cost and off-balance sheet credit 
 exposures.The transition adjustment upon the adoption of CECL on January 1, 2023 
included an increase in the allowance 
 for credit losses on loans of $
 1.0 
 
million, which is presented as a reduction to net loans outstanding, and an increase in the 
 allowance for credit losses on unfunded loan commitments of $
 0.1 
 
million, which is recorded within other liabilities. The 
 Company recorded a net decrease to retained earnings of $
 0.8 
 
million as of January 1, 2023 for the cumulative effect of 
 adopting CECL, which reflects the transition adjustments noted above, net of the applicable 
deferred tax assets recorded. 
 Results for reporting periods beginning after January 1, 2023 are presented under CECL 
while prior period amounts 
 continue to be reported in accordance with previously applicable accounting 
standards. 
 The Company adopted ASC 326 using the prospective transition approach for debt 
securities for which other-than-
 temporary impairment had been recognized prior to January 1, 2023. 
As of December 31, 2022, the Company did not have 
 any other-than-temporarily impaired investment securities. Therefore, 
upon adoption of ASC 326, the Company determined 
 that an allowance for credit losses on available for sale securities was not deemed 
material. 
 

 The Company elected not to measure an allowance for credit losses for accrued interest recei 
vable and instead elected to 
 reverse interest income on loans or securities that are placed on nonaccrual status, 
which is generally when the instrument is 
 90 days past due, or earlier if the Company believes the collection of interest is doubtful. The Company 
has concluded that 
 this policy results in the timely reversal of uncollectible interest. 
 The Company also adopted ASU 2022-02, “Financial Instruments - Credit Losses (Topic 
326): Troubled Debt 
 Restructurings and Vintage Disclosures” 
on January 1, 2023, the effective date of the guidance, on a prospective basis. 
 ASU 2022-02 eliminated the accounting guidance for TDRs, while enhancing disclosure 
requirements for certain loan 
 refinancings and restructurings by creditors when a borrower is experiencing 
financial difficulty. 
Specifically, rather than 
 applying the recognition and measurement guidance for TDRs, an entity 
must apply the loan refinancing and restructuring 
 guidance to determine whether a modification results in a new loan or a 
continuation of an existing loan. 
Additionally, 
 ASU 2022-02 requires an entity to disclose current-period gross write-offs 
by year of origination for financing receivables 
 within the scope of Subtopic 326-20, Financial Instruments—Credit Losses—Measured 
at Amortized Cost. ASU 2022-02 
 did not have a material impact on the Company’s 
consolidated financial statements. 
 Issued not yet effective accounting standards
 ASU 2023-02, 
 Investments – Equity Method and Joint Ventures 
(Topic 323): 
Accounting for Investments in Tax 
Credit 
 Structures Using the Proportional 
Amortization Method
 , The amendments in this Update permit reporting entities to elect 
 to account for their tax equity investments, regardless of the tax credit program from 
which the income tax credits are 
 received, using the proportional amortization method if certain conditions are 
met. The new standard is effective for fiscal 
 years, and interim periods within those fiscal years, beginning after December 
15, 2023. The Company does not expect the 
 new standard to have a material impact on the Company’s 
consolidated financial statements. 
 ASU 2023-09, 
 Income Taxes 
(Topic 740): 
Improvements to Income Tax 
Disclosures
 , The amendments in this Update 
 enhance the transparency and decision usefulness of income tax disclosures. 
For public business entities, the new standard 
 is effective for annual periods beginning after December 15, 2024. 
The Company does not expect the new standard to have 
 a material impact on the Company’s consolidated 
financial statements.

 
 

 

 
 Table of Contents 
 93 
 Cash Equivalents 
 Cash equivalents include cash on hand, cash items in process of collection, amounts due 
from banks, including interest 
 bearing deposits with other banks, and federal funds sold.

 
 
 Securities 
 Securities are classified based on management’s 
intention at the date of purchase. At December 31, 2023, all of the 
 Company’s securities were classified 
as available-for-sale. Securities available-for-sale are 
used as part of the Company’s 
 interest rate risk and liquidity management strategy, 
and they may be sold in response to changes in interest rates, changes 
 in prepayment risks or other factors. All securities classified as available-for-sale 
are recorded at fair value with any 
 unrealized gains and losses reported in accumulated other comprehensive income (loss), 
net of the deferred income tax 
 effects. Interest and dividends on securities, including the amortization 
of premiums and accretion of discounts are 
 recognized in interest income using the effective interest method. 
Premiums are amortized to the earliest call date while 
 discounts are accreted over the estimated life of the security. 
Realized gains and losses from the sale of securities are 
 determined using the specific identification method. 

 For any securities classified as available-for-sale that are in an unrealized 
loss position at the balance sheet date, the 
 Company assesses whether or not it intends to sell the security, 
or more likely than not will be required to sell the security, 
 before recovery of its amortized cost basis. If either of these criteria are met, the security's 
amortized cost basis is written 
 down to fair value through net income. If neither criterion is met, the Company evaluates 
whether any portion of the decline 
 in fair value is the result of credit deterioration. Such evaluations consider the extent to 
which the amortized cost of the 
 security exceeds its fair value, changes in credit ratings and any other known adverse conditions 
related to the specific 
 security. If the evaluation indicates 
that a credit loss exists, an allowance for credit losses is recorded 
for the amount by 
 which the amortized cost basis of the security exceeds the present value of cash flows expected 
to be collected, limited by 
 the amount by which the amortized cost exceeds fair value. Any impairment not recognized 
in the allowance for credit 
 losses is recognized in other comprehensive income.

 
 
 Loans held for sale 
 The Company originates 
residential mortgage loans for sale. 
Such loans are carried at the lower of cost or estimated fair 
 value in the aggregate. 
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 for a fee for the 
 life of the loan, if applicable. 
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. 

 The Bank makes various representations and warranties to the purchaser of the 
residential mortgage loans they originated 
 and sells, primarily to Fannie Mae. 
Every loan closed by the Bank’s mortgage center is run 
through Fannie Mea or other 
 purchasing government sponsored enterprise (“GSE”) automated underwriting 
system. 
Any exceptions noted during this 
 process are remedied prior to sale. 
These representations and warranties also apply to underwriting the real estate appraisal 
 opinion of value for the collateral securing these loans. 
Failure by the Company to comply with the underwriting and/or 
 appraisal standards could result in the Company being required to repurchase the 
mortgage loan or to reimburse the investor 
 for losses incurred (make whole requests) if the Company cannot cure such 
failure within the specified period following 
 discovery.

 
 
 Loans 
 Loans that management has the intent and ability to hold for the foreseeable 
future or until maturity or payoff are reported 
 at amortized cost. Amortized cost is the principal balance outstanding, net of purchase premiums 
and discounts and 
 deferred fees and costs. Accrued interest receivable related to loans is recorded 
in other assets on the consolidated balance 
 sheets. Interest income is accrued on the unpaid principal balance. 

 Loan origination fees, net of certain direct origination 
 costs, are deferred and recognized in interest income using methods that approximate 
a level yield without anticipating 
 prepayments.

 
 
 The accrual of interest is generally discontinued when a loan becomes 90 days past due and 
is not well collateralized and in 
 the process of collection, or when management believes, after considering economic and 
business conditions and collection 
 efforts, that the principal or interest will not be collectible in the normal 
course of business. Past due status is based on 
 contractual terms of the loan. A loan is considered to be past due when a scheduled payment has 
not been received 30 days 
 after the contractual due date. 

 

 

 

 
 Table of Contents 
 94 
 All accrued but unpaid interest is reversed against interest income when a loan is placed on nonaccrual 
status. Interest 
 received on such loans is accounted for using the cost-recovery method, 
until the loan qualifies for return to accrual. 
Loans 
 are returned to accrual status when all the principal and interest amounts contractually due 
are brought current, there is a 
 sustained period of repayment performance, and future payments are reasonably assured. 
Otherwise, under the cost 
 recovery method, interest income is not recognized until the loan balance is reduced 
to zero.

 

 
 
 Allowance for Credit Losses – Loans 
 The allowance for credit losses is a valuation account that is deducted from the loans' amortized 
cost basis to present the net 
 amount expected to be collected on the loans. 
Loans are charged off against the allowance when management 
confirms the 
 loan balance is uncollectible. 
Expected recoveries do not exceed the aggregate of amounts previously charged 
-off and 
 expected to be charged-off. 
Accrued interest receivable is excluded from the estimate of credit losses. 
 The allowance for credit losses represents management’s 
estimate of lifetime credit losses inherent in loans as of the 
 balance sheet date. The allowance for credit losses is estimated by management using relevant 
available information, from 
 both internal and external sources, relating to past events, current conditions, and reasonable and 
supportable forecasts. 

 The Company’s loan loss estimation process includes 
procedures to appropriately consider the unique characteristics of 
its 
 respective loan segments (commercial and industrial, construction and land development, 
commercial real estate, 
 residential real estate, and consumer loans). 
These segments are further disaggregated into loan classes, the level at which 
 credit quality is monitored. 
See Note 5, Loans and Allowance for Credit Losses, for additional information about our loan 
 portfolio. 
 Credit loss assumptions are estimated using a discounted cash flow ("DCF") model 
for each loan segment, except consumer 
 loans. 
The weighted average remaining life method is used to estimate credit loss assumptions 
for consumer loans. 

 The DCF model calculates an expected life-of-loan loss percentage by considering the 
forecasted probability that a 
 borrower will default (the “PD”), adjusted for relevant forecasted macroeconomic 
factors, and loss given default (“LGD”), 
 which is the estimate of the amount of net loss in the event of default. 
This model utilizes historical correlations between 
 default experience and certain macroeconomic factors as determined through 
a statistical regression analysis. 
The 
 forecasted Alabama unemployment rate is considered in the model for commercial 
and industrial, construction and land 
 development, commercial real estate, and residential real estate loans. 
In addition, forecasted changes in the Alabama 
 home price index is considered in the model for construction and land development and 
residential real estate loans. 

 Forecasted changes in the national commercial real estate (“CRE”) price index is considered 
in the model for commercial 
 real estate and multifamily loans; and forecasted changes in the Alabama 
gross state product is considered in the model for 
 multifamily loans. 
Projections of these macroeconomic factors, obtained from an independent 
third party, are utilized to 
 predict quarterly rates of default based on the statistical PD models. 

 Expected credit losses are estimated over the contractual term of the loan, adjusted for 
expected prepayments and principal 
 payments (“curtailments”) when appropriate. Management's determination of the 
contract term excludes expected 
 extensions, renewals, and modifications unless the extension or 
renewal option is included in the contract at the reporting 
 date and is not unconditionally cancellable by the Company. 
To the extent the lives of the 
loans in the portfolio extend 
 beyond the period for which a reasonable and supportable forecast can be 
made (which is 4 quarters for the Company), the 
 Company reverts, on a straight-line basis back to the historical rates over an 8 quarter reversion 
period. 
 The weighted average remaining life method was deemed most appropriate 
for the consumer loan segment because 
 consumer loans contain many different payment structures, 
payment streams and collateral. 
The weighted average 
 remaining life method uses an annual charge-off rate over several vintages 
to estimate credit losses. 
The average annual 
 charge-off rate is applied to the contractual term adjusted for 
prepayments. 
 Additionally, the allowance 
for credit losses calculation includes subjective adjustments for qualitative risk 
factors that are 
 believed likely to cause estimated credit losses to differ from historical experience. 
These qualitative adjustments may 
 increase reserve levels and include adjustments for lending management experience and 
risk tolerance, loan review and 
 audit results, asset quality and portfolio trends, loan portfolio growth, industry concentrations, 
trends in underlying 
 collateral, external factors and economic conditions not already captured. 

 

 

 
 Table of Contents 
 95 
 Loans secured by real estate with balances equal to or greater than $500 thousand and loans 
not secured by real estate with 
 balances equal to or greater than $250 thousand that do not share risk characteristics are 
evaluated on an individual basis. 
 When management determines that foreclosure is probable and the borrower 
is experiencing financial difficulty, 
the 
 expected credit losses are based on the estimated fair value of collateral held at the reporting date, 
adjusted for selling costs 
 as appropriate. 

 Allowance for Credit Losses – Unfunded Commitments 
 Financial instruments include off-balance sheet credit instruments, 
such as commitments to make loans and commercial 
 letters of credit issued to meet customer financing needs. The Company’s 
exposure to credit loss in the event of 
 nonperformance by the other party to the financial instrument for off-balance sheet 
loan commitments is represented by the 
 contractual amount of those instruments. Such financial instruments are 
recorded when they are funded. 
 The Company records an allowance for credit losses on off-balance sheet 
credit exposures, unless the commitments to 
 extend credit are unconditionally cancelable, through a charge to provision 
for credit losses in the Company’s consolidated 
 statements of earnings. The allowance for credit losses on off-balance sheet credit 
exposures is estimated by loan segment 
 at each balance sheet date under the current expected credit loss model using the same 
methodologies as portfolio loans, 
 taking into consideration the likelihood that funding will occur as well as any third-party 
guarantees. The allowance for 
 unfunded commitments is included in other liabilities on the Company’s 
consolidated balance sheets. 
 On January 1, 2023, the Company recorded an adjustment for unfunded commitments 
of $77 thousand upon the adoption of 
 ASC 326. 
At December 31, 2023, the liability for credit losses on off-balance-sheet credit 
exposures included in other 
 liabilities was $
 0.3 
 
million.

 

 
 Provision for Credit Losses 
 The composition of the provision for credit losses for the respective periods 
is presented below.

 

 
 
 
 
 
 
 
 
 
 
 Years ended December 31, 
 (Dollars in thousands) 
 2023 
 2022 
 Provision for credit losses: 
 Loans 
 $ 
 125 
 

 $ 
 1,000 
 

 Unfunded commitments (1) 
 10 
 

 35 
 

 Total provision for credit 
losses 
 $ 
 135 
 

 $ 
 1,035 
 

 (1) 
 Reserve requirements for unfunded commitments were reported 
as a component of other noninterest expense prior 
 to the adoption of ASC 326.

 

 

 
 Premises and Equipment 
 Land is carried at cost. Land improvements, buildings and improvements, and furniture, 
fixtures, and equipment are carried 
 at cost, less accumulated depreciation computed on a straight-line method over the estimated 
useful lives of the assets or the 
 expected terms of the leases, if shorter. 
Expected terms include lease option periods to the extent that the exercise of such 
 options is reasonably assured.

 
 

 

 
 Table of Contents 
 96 
 Nonmarketable equity investments 
 Nonmarketable equity investments include equity securities that are not publicly traded 
and securities acquired for various 
 purposes. The Bank is required to maintain certain minimum levels of equity investments 
in (i) Federal Reserve Bank of 
 Atlanta based on the Bank’s capital stock and surplus, 
and the (ii) Federal Home Bank of Atlanta (“FHLB – Atlanta”) 
 based on various factors including, the Bank’s 
total assets, its borrowings and outstanding letters of credit from the FHLB 
-
 Atlanta and its “acquired member asset” sales to FHLB - Atlanta. 
These nonmarketable 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. These securities can only 
be redeemed or sold at their par 
 value by the respective issuer bank or, in the case of FHLB 
– Atlanta stock upon FHLB – Atlanta approval sale to another 
 member of FHLB – Atlanta and law applicable to the member. 
The Company records these nonmarketable equity securities 
 as a component of other assets, which are periodically evaluated for impairment. Management 
considers these 
 nonmarketable 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.

 
 

 Transfers of Financial Assets 
 Transfers of an entire financial asset (i.e. loan sales), a group 
of entire financial assets, or a participating interest in an entire 
 financial asset (i.e. 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) 
the assets have been isolated from the Company, 
 (2) the transferee obtains the right (free of conditions that constrain it from taking that right) 
to pledge or exchange the 
 transferred assets, and (3) the Company does not maintain effective 
control over the transferred assets through an 
 agreement to repurchase them before their maturity.

 
 

 Mortgage Servicings Rights 
 The Company recognizes as assets the rights to service mortgage loans which it originates 
and sells to others, principally 
 Fannie Mae. 
These servicing rights are called “MSRs”. 
The Company determines the fair value of MSRs on sold loans at 
 the date the loan is transferred. 
An estimate of the Company’s MSRs is determined 
using assumptions that market 
 participants would use in estimating future net servicing income, including estimates 
of prepayment speeds, discount rate, 
 default rates, cost to service, escrow account earnings, contractual servicing 
fee income, ancillary income, and late fees. 
 Subsequent to the date of sale of the residential mortgage loans, the Company has elected 
to measure its MSRs on such sold 
 mortgage loans 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, 
a 
 valuation allowance is established through a charge to earnings. 
The valuation allowance is adjusted as the fair value 
 changes. 
MSRs are included in the other assets category in the accompanying consolidated 
balance sheets at the lower of 
 cost or fair value. 

 See Note 14 “Fair Value”

 

 
 
 Securities sold under agreements to repurchase 

 Securities sold under agreements to repurchase generally mature less than one 
year from the transaction date. Securities 
 sold under agreements to repurchase are reflected as a secured borrowing in the accompanying 
consolidated balance sheets 
 at the amount of cash received in connection with each transaction.

 
 

 Income Taxes 

 Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences 
between carrying 
 amounts and tax bases of assets and liabilities, computed using enacted tax rates. A 
valuation allowance, if needed, reduces 
 deferred tax assets to the amount expected to be realized. 
The net deferred tax asset is reflected as a component of other 
 assets in the accompanying consolidated balance sheets. 

 

 

 
 
 
 Table of Contents 
 97 
 Income tax expense or benefit for the year is allocated among continuing operations and other 
comprehensive income 
 (loss), as applicable. The amount allocated to continuing operations is the income tax effect 
of the pretax income or loss 
 from continuing operations that occurred during the year, 
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 
 income tax laws or rates, and (3) changes in income tax status, subject to certain exceptions. 
The amount allocated to other 
 comprehensive income (loss) is related solely to changes in the valuation allowance on items 
that are normally accounted 
 for in other comprehensive income (loss) such as unrealized gains or losses on available 
-for-sale securities. 

 In accordance with ASC 740, 
 Income Taxes
 , a tax position is recognized as a benefit only if it is “more likely than not” that 
 the tax position would be sustained in a tax examination, with a tax examination being presumed 
to occur. The amount 
 recognized is the largest amount of tax benefit that is greater than 50% likely of 
being realized on examination. For tax 
 positions not meeting the “more likely than not” test, no tax benefit is recorded. 
It is the Company’s policy to recognize 
 interest and penalties related to income tax matters in income tax expense. The Company and 
its wholly-owned subsidiaries 
 file consolidated Federal and State of Alabama income tax returns.

 

 
 
 Fair Value Measurements 

 ASC 820, 
 Fair Value 
Measurements, 
 which defines fair value, establishes a framework for measuring fair value in U.S. 
 generally accepted accounting principles and expands disclosures about fair value 
measurements. ASC 820 applies only to 
 fair-value measurements that are already required or 
permitted by other accounting standards. 
The definition of fair value 
 focuses on the exit price, i.e., the price that would be received to sell an asset or paid to transfer a liability 
in an orderly 
 transaction 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. The statement 
emphasizes that fair value is a 
 market-based measurement; not an entity-specific measurement. Therefore, 
the fair value measurement should be 
 determined based on the assumptions that market participants 
would use in pricing the asset or liability. 
For more 
 information related to fair value measurements, please refer to Note 14, Fair 
Value.

 

 
 NOTE 2: BASIC AND DILUTED NET EARNINGS PER SHARE
 Basic net earnings per share is computed by dividing net earnings by the weighted average 
common shares outstanding for 
 the year. 
Diluted net earnings per share reflect the potential dilution that could occur upon 
exercise of securities or other 
 rights for, or convertible into, shares of the Company’s 
common stock. 
As of December 31, 2023 and 2022, respectively, 
 the Company had no such securities or other rights issued or outstanding, and therefore, 
no dilutive effect to consider for 
 the diluted net earnings per share calculation. 

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

 
 

 
 
 
 
 
 
 
 Year ended December 31 
 (Dollars in thousands, except share and per share data) 
 2023 
 2022 
 Basic and diluted: 
 Net earnings 
 $ 
 1,395 
 $ 
 10,346 
 Weighted average common 
shares outstanding 
 3,498,030 
 3,510,869 
 Net earnings per share 
 $ 
 0.40 
 $ 
 2.95 

 

 
 
 NOTE 3: VARIABLE 
INTEREST ENTITIES 
 Generally, a variable interest entity (“VIE”) 
is a corporation, partnership, trust or other legal structure that does not have 
 equity investors with substantive or proportional voting rights or has equity investors 
that do not provide sufficient financial 
 resources for the entity to support its activities. 

 At December 31, 2023, the Company did not have any consolidated VIEs and 
had one nonconsolidated VIE, which is 
 discussed below. 
 New Markets Tax 
Credit Investment
 The New Markets Tax Credit 
(“NMTC”) program provides federal tax incentives to investors to make investments in 
 distressed communities and promotes economic improvement through the development 
of successful businesses in these 
 communities. 
The NMTC is available to investors over seven years and is subject to recapture if certain events occur 

 

 
 
 
 Table of Contents 
 98 
 
 during such period. 
The Company had one NMTC investment with a balance of 
$1.7 million and $
 2.1 
 
million at 
 December 31, 2023 and 2022, respectively, 
which is included in other assets in the Company’s 
consolidated balance sheets 
 as a VIE. While the Company’s investment 
exceeds 50% of the outstanding equity interests in this VIE, the Company does 
 not consolidate the VIE because the Company lacks the power to direct the activities of the 
VIE, and therefore is not a 
 primary beneficiary of the VIE.

 
 

 
 (Dollars in thousands) 
 Maximum 
 Loss Exposure 
 Asset Recognized 
 Classification 
 Type: 
 New Markets Tax Credit investment 
 $ 
 1,708 
 $ 
 1,708 
 Other assets

 

 
 

 NOTE 4: SECURITIES 
 At December 31, 2023 and 2022, respectively, 
all securities within the scope of ASC 320, 
 Investments – Debt and Equity 
 Securities 
 were classified as available-for-sale. 
The fair value and amortized cost for securities available-for-sale by 
 contractual maturity at December 31, 2023 and 2022, respectively, 
are presented below.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 1 year 
 1 to 5 
 5 to 10 
 After 10 
 Fair 
 Gross Unrealized 

 Amortized 
 (Dollars in thousands) 
 or less 
 years 
 years 
 years 
 Value 
 Gains 
 Losses 
 Cost 
 December 31, 2023 
 Agency obligations (a) 
 $ 
 331 
 10,339 
 43,209 
 — 
 53,879 
 — 
 8,195 
 $ 
 62,074 
 Agency MBS (a) 
 32 
 15,109 
 22,090 
 161,058 
 198,289 
 — 
 27,838 
 226,127 
 State and political subdivisions 
 — 
 — 
 9,691 
 9,051 
 18,742 
 1 
 2,731 
 21,472 
 Total available-for-sale 
 $ 
 363 
 25,448 
 74,990 
 170,109 
 270,910 
 1 
 38,764 
 $ 
 309,673 
 December 31, 2022 
 Agency obligations (a) 
 $ 
 4,935 
 50,746 
 69,936 
 — 
 125,617 
 — 
 15,826 
 $ 
 141,443 
 Agency MBS (a) 
 — 
 7,130 
 27,153 
 183,877 
 218,160 
 — 
 33,146 
 251,306 
 State and political subdivisions 
 300 
 642 
 15,130 
 45,455 
 61,527 
 11 
 5,681 
 67,197 
 Total available-for-sale 
 $ 
 5,235 
 58,518 
 112,219 
 229,332 
 405,304 
 11 
 54,653 
 $ 
 459,946 
 (a) Includes securities issued by U.S. government agencies or government sponsored 
entities. 
Expected lives of 
 these securities may differ from contractual maturities because (i) 
issuers may have the right to call or repay such securities 
 obligations with or without prepayment penalties and (ii) loans included in Agency MBS 
generally have the right to prepay 
 such loans in whole or in part at any time.

 

 
 Securities with aggregate fair values of $
 211.8 
 
million and $
 208.3 
 
million at December 31, 2023 and 2022, respectively, 
 were pledged to secure public deposits, securities sold under agreements to repurchase, 
FHLB advances, and for other 
 purposes required or permitted by law. 

 Included in other assets on the accompanying consolidated balance sheets are nonmarketable 
equity investments. 
The 
 carrying amounts of nonmarketable equity investments were $
 1.4 
 
million and $
 1.2 
 
million at December 31, 2023 and 2022, 
 respectively. 
Nonmarketable equity investments include FHLB-Atlanta 
stock, Federal Reserve Bank stock, and stock in a 
 privately held financial institution.

 

 
 
 
 
 
 
 
 
 
 Table of Contents 
 99 
 Fair Value 
and Gross Unrealized Losses 
 The fair values and gross unrealized losses on securities at December 31, 
2023 and 2022, respectively, segregated 
by those 
 securities that have been in an unrealized loss position for less than 12 months and 12 
months or more are presented below.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Less than 12 Months 
 12 Months or Longer 
 Total 
 Fair 
 Unrealized 
 Fair 
 Unrealized 
 Fair 
 Unrealized 
 (Dollars in thousands) 
 Value 
 Losses 
 Value 
 Losses 
 Value 
 Losses 
 December 31, 2023: 
 Agency obligations 

 $ 
 — 
 — 
 53,879 
 8,195 
 53,879 
 $ 
 8,195 
 Agency MBS 
 66 
 1 
 198,223 
 27,837 
 198,289 
 27,838 
 State and political subdivisions 
 793 
 2 
 14,408 
 2,729 
 15,201 
 2,731 
 Total 

 $ 
 859 
 3 
 266,510 
 38,761 
 267,369 
 $ 
 38,764 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 December 31, 2022: 
 Agency obligations 

 $ 
 55,931 
 4,161 
 69,687 
 11,665 
 125,618 
 $ 
 15,826 
 Agency MBS 
 70,293 
 5,842 
 147,867 
 27,304 
 218,160 
 33,146 
 State and political subdivisions 
 44,777 
 2,176 
 13,043 
 3,505 
 57,820 
 5,681 
 Total 

 $ 
 171,001 
 12,179 
 230,597 
 42,474 
 401,598 
 $ 
 54,653 

 

 
 For the securities in the 
previous table, the Company 
considers the severity of 
the unrealized loss 
as well as the Company’s 
 intent to 
hold the 
securities to 
maturity or 
the recovery 
of the 
cost basis. 
Unrealized losses 
have not 
been recognized 
into 
 income 
as the decline in 
fair value is largely 
due to changes in 
interest rates and other 
market conditions. 
For the securities 
 in the 
previous table, 
as of 
December 31, 
2023, management 
does not 
intend to 
sell and 
it is 
likely that 
management will 
 not be required to sell the securities prior to their anticipated recovery. 

 

 Agency Obligations 
 

 Investments 
in 
agency 
obligations 
are 
guaranteed 
of 
full 
and 
timely 
payments 
by 
the 
issuing 
agency. 
Based 
on 
 management's 
analysis 
and 
judgement, 
there 
were 
no 
credit 
losses attributable 
to 
the 
Company’s 
investments 
in 
 agency obligations at December 31, 2023. 

 Agency MBS
 Investments in 
agency MBS 
are issued 
by Ginnie 
Mae, Fannie 
Mae, and 
Freddie Mac. 
Each of 
these agencies 
provide 
a 
 guarantee of full and timely 
payments of principal and 
interest by the issuing agency. 
Based on management's analysis 
and 
 judgement, there were no credit losses attributable to the Company’s 
investments in agency MBS at December 31, 2023. 
 

 State and Political Subdivisions
 

 Investments 
in 
state 
and 
political 
subdivisions 
are 
securities 
issued 
by 
various municipalities 
in 
the 
United 
States. 
The 
 majority 
of 
the 
portfolio was 
rated 
AA 
or 
higher, 
with 
no 
securities 
rated 
below 
investment 
grade 
at 
December 
31, 
 2023. 
Based 
on 
management's 
analysis 
and 
judgement, 
there 
were 
no 
credit 
losses 
attributable 
to 
the 
Company’s 
 investments in state and political subdivisions at December 31, 2023. 
 Realized Gains and Losses 
 The following table presents the gross realized gains and losses on sales related to securities.

 
 
 
 
 
 
 
 
 
 (Dollars in thousands) 
 2023 
 2022 
 Gross realized gains 
 $ 
 1 
 48 
 Gross realized losses 
 ( 6,296 )
 ( 36 )
 Realized gains, net 
 $ 
 ( 6,295 )
 12 

 

 

 
 
 
 Table of Contents 
 100 
 NOTE 5: LOANS AND ALLOWANCE 
FOR CREDIT LOSSES

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 December 31 
 (In thousands) 
 2023 
 2022 
 Commercial and industrial 
 $ 
 73,374 
 $ 
 66,212 
 Construction and land development 
 68,329 
 66,479 
 Commercial real estate: 
 Owner occupied 
 66,783 
 61,125 
 Hotel/motel 
 39,131 
 33,378 
 Multifamily 
 45,841 
 41,084 
 Other 
 135,552 
 128,986 
 Total commercial real estate 
 287,307 
 264,573 
 Residential real estate: 
 Consumer mortgage 
 60,545 
 45,370 
 Investment property 
 56,912 
 52,278 
 Total residential real estate 
 117,457 
 97,648 
 Consumer installment 
 10,827 
 9,546 
 Total loans, net of unearned income 
 557,294 
 504,458 

 

 
 Loans secured by real estate were approximately 
 84.9 
 % of the total loan portfolio at December 31, 2023. 
At December 31, 
 2023, the Company’s geographic loan 
distribution was concentrated primarily in Lee County, 
Alabama and surrounding 
 areas. 
 The loan portfolio segment is defined as the level at which an entity develops and documents 
a systematic method for 
 determining its allowance for credit losses. As part of the Company’s 
quarterly assessment of the allowance, the loan 
 portfolio is disaggregated into the following portfolio segments: 
commercial and industrial, construction and land 
 development, commercial real estate, residential real estate and consumer installment. Where 
appropriate, the Company’s 
 loan portfolio segments are further disaggregated into classes. A class is generally determined 
based on the initial 
 measurement attribute, risk characteristics of the loan, and an entity’s 
method for monitoring and determining credit risk. 
 The following describe the risk characteristics relevant to each of the portfolio 
segments and classes. 
 Commercial and industrial (“C&I”) — 
 includes loans to finance business operations, equipment purchases, or 
other needs 
 for small and medium-sized commercial customers. Also included 
in this category are loans to finance agricultural 
 production. 
Generally, the primary source of repayment 
is the cash flow from business operations and activities of the 
 borrower. 
 Construction and land development (“C&D”) — 
 includes both loans and credit lines for the purpose of purchasing, 
 carrying and developing land into commercial developments or residential subdivisions. 
Also included are loans and lines 
 for construction of residential, multi-family and commercial buildings. Generally the primary 
source of repayment is 
 dependent upon the sale or refinance of the real estate collateral. 
 Commercial real estate 
(“CRE”) — 
 includes loans disaggregated in these classes: 
 
Owner occupied
 
– includes loans secured by business facilities to finance business operations, equipment and 
 
owner-occupied facilities primarily for small and medium-sized commercial customers. 
Generally the primary source 
 
of loan repayment are the cash flows from the business operations and activities of the 
borrower, who owns the 
 
property.
 

 
Hotel/motel 
 – includes loans for hotels and motels. 
Generally, the primary source 
of repayment is dependent upon 
 
income generated from the real estate collateral. 
The underwriting of these loans takes into consideration the 

 
occupancy and rental rates, as well as the financial health of the borrower. 
 
Multifamily
 
– primarily includes loans to finance income-producing multi-family properties. Loans in this class 
include 
 
loans for 5 or more unit residential property and apartments leased to residents. Generally, 
the primary source of 
 
repayment is dependent upon income generated from the real estate collateral. The 
underwriting of these loans takes 
 
into consideration the occupancy and rental rates, as well as the financial health of the borrower. 

 

 
 Table of Contents 
 101 
 
Other
 
– primarily includes loans to finance income-producing commercial properties. 
Loans in this class include loans 
 
for neighborhood retail centers, medical and professional offices, single retail 
stores, industrial buildings, and 
 
warehouses leased generally to local businesses and residents. Generally, 
the primary source of repayment is dependent 
 
upon income generated from the real estate collateral. The underwriting of these loans takes into consideration 
the 
 
occupancy and rental rates as well as the financial health of the borrower. 

 Residential real estate (“RRE”) — 
 includes loans disaggregated into two classes: 
 
Consumer mortgage
 
– primarily includes first or second lien mortgages and home equity lines to consumers 
that are 
 
secured by a primary residence or second home. These loans are underwritten in accordance 
with the Bank’s general 
 
loan policies and procedures which require, among other things, proper documentation of each borrower’s 
financial 
 
condition, satisfactory credit history and property value. 
 
Investment property
 
– primarily includes loans to finance income-producing 1-4 family residential properties. 
 
Generally, the primary source of repayment is dependent 
upon income generated from leasing the property securing the 
 
loan. The underwriting of these loans takes into consideration the rental rates as well as 
the financial health of the 
 
borrower. 
 Consumer installment — 
 includes loans to individuals both secured by personal property and unsecured. 
Loans include 
 personal lines of credit, automobile loans, and other retail loans. 
These loans are underwritten in accordance with the 
 Bank’s general loan policies and procedures 
which require, among other things, proper documentation of each borrower’s 
 financial condition, satisfactory credit history, 
and if applicable, property value. 

 

 
 
 
 
 
 
 
 Table of Contents 
 102 
 The following is a summary of current, accruing past due and nonaccrual loans by portfolio 
class as of December 31, 2023 
 and 2022.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Accruing 
 Accruing 
 Total 
 30-89 Days 
 Greater than 
 Accruing 
 Non- 
 Total 

 (In thousands) 
 Current 
 Past Due 
 90 days 
 Loans 
 Accrual 
 Loans 
 December 31, 2023: 
 Commercial and industrial 
 $ 
 73,108 
 266 
 — 
 73,374 
 — 
 $ 
 73,374 
 Construction and land development 
 68,329 
 — 
 — 
 68,329 
 — 
 68,329 
 Commercial real estate: 
 Owner occupied 
 66,000 
 — 
 — 
 66,000 
 783 
 66,783 
 Hotel/motel 
 39,131 
 — 
 — 
 39,131 
 — 
 39,131 
 Multifamily 
 45,841 
 — 
 — 
 45,841 
 — 
 45,841 
 Other 
 135,552 
 — 
 — 
 135,552 
 — 
 135,552 
 Total commercial real estate 
 286,524 
 — 
 — 
 286,524 
 783 
 287,307 
 Residential real estate: 
 Consumer mortgage 
 60,442 
 — 
 — 
 60,442 
 103 
 60,545 
 Investment property 
 56,597 
 290 
 — 
 56,887 
 25 
 56,912 
 Total residential real estate 
 117,039 
 290 
 — 
 117,329 
 128 
 117,457 
 Consumer installment 
 10,781 
 46 
 — 
 10,827 
 — 
 10,827 
 Total 
 $ 
 555,781 
 602 
 — 
 556,383 
 911 
 $ 
 557,294 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 December 31, 2022: 
 Commercial and industrial 
 $ 
 65,764 
 5 
 — 
 65,769 
 443 
 $ 
 66,212 
 Construction and land development 
 66,479 
 — 
 — 
 66,479 
 — 
 66,479 
 Commercial real estate: 
 Owner occupied 
 61,125 
 — 
 — 
 61,125 
 — 
 61,125 
 Hotel/motel 
 33,378 
 — 
 — 
 33,378 
 — 
 33,378 
 Multifamily 
 41,084 
 — 
 — 
 41,084 
 — 
 41,084 
 Other 
 126,870 
 — 
 — 
 126,870 
 2,116 
 128,986 
 Total commercial real estate 
 262,457 
 — 
 — 
 262,457 
 2,116 
 264,573 
 Residential real estate: 
 Consumer mortgage 
 45,160 
 38 
 — 
 45,198 
 172 
 45,370 
 Investment property 
 52,278 
 — 
 — 
 52,278 
 — 
 52,278 
 Total residential real estate 
 97,438 
 38 
 — 
 97,476 
 172 
 97,648 
 Consumer installment 
 9,506 
 40 
 — 
 9,546 
 — 
 9,546 
 Total 
 $ 
 501,644 
 83 
 — 
 501,727 
 2,731 
 $ 
 504,458 

 

 

 
 Table of Contents 
 103 
 Credit Quality Indicators 
 The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories 
similar to the 
 standard asset classification system used by the federal banking agencies. 
The following table presents credit quality 
 indicators for the loan portfolio segments and classes by year of origination as of December 
31, 2023. These categories are 
 utilized to develop the associated allowance for credit losses using historical losses adjusted 
for qualitative and 
 environmental factors and are defined as follows: 

 ●
 Pass – loans which are well protected by the current net worth and paying capacity of the 
obligor (or guarantors, if 
 any) or by the fair value, less cost to acquire and sell, of any underlying collateral. 

 ●
 Special Mention – loans with potential weakness that may, 
if not reversed or corrected, weaken the credit or 
 inadequately protect the Company’s position 
at some future date. These loans are not adversely classified and do 
 not expose an institution to sufficient risk to warrant an adverse classification. 
 ●
 Substandard Accruing – loans that exhibit a well-defined weakness which presently jeopardizes 
debt repayment, 
 even though they are currently performing. These loans are characterized by the distinct possibility 
that the 
 Company may incur a loss in the future if these weaknesses are not corrected. 
 ●
 Nonaccrual – includes loans where management has determined that full payment 
of principal and interest is not 
 expected.

 

 
 Table of Contents 
 104 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 (Dollars in thousands) 
 2023 
 2022 
 2021 
 2020 
 2019 
 Prior to 
 2019 
 Revolving 
 Loans 
 Total 

 Loans 
 December 31, 2023: 

 Commercial and industrial 
 Pass 
 $ 
 1,187 
 334 
 2,220 
 22,152 
 2,363 
 44,780 
 77 
 $ 
 73,113 
 Special mention 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Substandard 
 — 
 — 
 — 
 — 
 206 
 55 
 — 
 261 
 Nonaccrual 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Total commercial and industrial 
 1,187 
 334 
 2,220 
 22,152 
 2,569 
 44,835 
 77 
 73,374 
 Current period gross charge-offs 
 — 
 — 
 13 
 — 
 151 
 — 
 — 
 164 
 Construction and land development 
 Pass 
 6,771 
 13,326 
 11,461 
 11,070 
 4,329 
 20,758 
 614 
 $ 
 68,329 
 Special mention 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Substandard 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Nonaccrual 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Total construction and land development 
 6,771 
 13,326 
 11,461 
 11,070 
 4,329 
 20,758 
 614 
 68,329 
 Current period gross charge-offs 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Commercial real estate: 
 Owner occupied 
 Pass 
 39 
 4,705 
 9,514 
 14,684 
 3,405 
 33,343 
 — 
 $ 
 65,690 
 Special mention 
 — 
 — 
 — 
 — 
 — 
 260 
 — 
 260 
 Substandard 
 — 
 — 
 — 
 — 
 — 
 50 
 — 
 50 
 Nonaccrual 
 — 
 — 
 — 
 — 
 — 
 783 
 — 
 783 
 Total owner occupied 
 39 
 4,705 
 9,514 
 14,684 
 3,405 
 34,436 
 — 
 66,783 
 Current period gross charge-offs 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Hotel/motel 
 Pass 
 — 
 1,423 
 7,364 
 8,428 
 3,938 
 17,978 
 — 
 $ 
 39,131 
 Special mention 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Substandard 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Nonaccrual 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Total hotel/motel 
 — 
 1,423 
 7,364 
 8,428 
 3,938 
 17,978 
 — 
 39,131 
 Current period gross charge-offs 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 

 

 

 
 Table of Contents 
 105 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 (Dollars in thousands) 
 2023 
 2022 
 2021 
 2020 
 2019 
 Prior to 
 2019 
 Revolving 
 Loans 
 Total 

 Loans 
 December 31, 2023: 

 Multi-family 
 Pass 
 — 
 81 
 8,292 
 6,765 
 151 
 30,552 
 — 
 45,841 
 Special mention 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Substandard 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Nonaccrual 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Total multi-family 
 — 
 81 
 8,292 
 6,765 
 151 
 30,552 
 — 
 45,841 
 Current period gross charge-offs 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Other 
 Pass 
 3,225 
 5,234 
 20,796 
 27,979 
 5,771 
 72,393 
 — 
 135,398 
 Special mention 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Substandard 
 154 
 — 
 — 
 — 
 — 
 — 
 — 
 154 
 Nonaccrual 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Total other 
 3,379 
 5,234 
 20,796 
 27,979 
 5,771 
 72,393 
 — 
 135,552 
 Current period gross charge-offs 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Residential real estate: 
 Consumer mortgage 
 Pass 
 5,624 
 7,483 
 13,500 
 4,332 
 2,427 
 22,164 
 3,890 
 59,420 
 Special mention 
 249 
 — 
 — 
 56 
 — 
 190 
 — 
 495 
 Substandard 
 160 
 84 
 58 
 — 
 209 
 16 
 — 
 527 
 Nonaccrual 
 — 
 — 
 45 
 — 
 — 
 58 
 — 
 103 
 Total consumer mortgage 
 6,033 
 7,567 
 13,603 
 4,388 
 2,636 
 22,428 
 3,890 
 60,545 
 Current period gross charge-offs 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Investment property 
 Pass 
 9,358 
 11,630 
 10,299 
 5,252 
 910 
 16,352 
 2,521 
 56,322 
 Special mention 
 — 
 — 
 — 
 — 
 — 
 41 
 — 
 41 
 Substandard 
 — 
 233 
 43 
 — 
 — 
 — 
 248 
 524 
 Nonaccrual 
 — 
 — 
 — 
 — 
 — 
 25 
 — 
 25 
 Total investment property 
 9,358 
 11,863 
 10,342 
 5,252 
 910 
 16,418 
 2,769 
 56,912 
 Current period gross charge-offs 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Consumer installment 
 Pass 
 58 
 29 
 728 
 2,466 
 1,227 
 6,210 
 — 
 10,718 
 Special mention 
 — 
 — 
 — 
 27 
 — 
 18 
 — 
 45 
 Substandard 
 — 
 — 
 12 
 25 
 — 
 27 
 — 
 64 
 Nonaccrual 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 — 
 Total consumer installment 
 58 
 29 
 740 
 2,518 
 1,227 
 6,255 
 — 
 10,827 
 Current period gross charge-offs 
 34 
 57 
 13 
 1 
 — 
 — 
 — 
 105 
 Total loans 
 Pass 
 26,262 
 44,245 
 84,174 
 103,128 
 24,521 
 264,530 
 7,102 
 553,962 
 Special mention 
 249 
 — 
 — 
 83 
 — 
 509 
 — 
 841 
 Substandard 
 314 
 317 
 113 
 25 
 415 
 148 
 248 
 1,580 
 Nonaccrual 
 — 
 — 
 45 
 — 
 — 
 866 
 — 
 911 
 Total loans 
 $ 
 26,825 
 44,562 
 84,332 
 103,236 
 24,936 
 266,053 
 7,350 
 $ 
 557,294 
 Total current period gross charge-offs 
 $ 
 34 
 57 
 26 
 1 
 151 
 — 
 — 
 269 

 

 

 
 
 
 
 
 
 Table of Contents 
 106 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 (In thousands) 
 
Pass 
 
Special 
 Mention 
 Substandard 
 Accruing 
 Nonaccrual 
 Total loans 
 December 31, 2022 
 Commercial and industrial 
 $ 
 65,550 
 7 
 212 
 443 
 $ 
 66,212 
 Construction and land development 
 66,479 
 — 
 — 
 — 
 66,479 
 Commercial real estate: 
 Owner occupied 
 60,726 
 238 
 161 
 — 
 61,125 
 Hotel/motel 
 33,378 
 — 
 — 
 — 
 33,378 
 Multifamily 
 41,084 
 — 
 — 
 — 
 41,084 
 Other 
 126,700 
 170 
 — 
 2,116 
 128,986 
 Total commercial real estate 
 261,888 
 408 
 161 
 2,116 
 264,573 
 Residential real estate: 
 Consumer mortgage 
 44,172 
 439 
 587 
 172 
 45,370 
 Investment property 
 51,987 
 43 
 248 
 — 
 52,278 
 Total residential real estate 
 96,159 
 482 
 835 
 172 
 97,648 
 Consumer installment 
 9,498 
 1 
 47 
 — 
 9,546 
 Total 
 $ 
 499,574 
 898 
 1,255 
 2,731 
 $ 
 504,458 

 

 
 The following table is a summary of the Company’s 
nonaccrual loans by major categories as of December 31, 2023 and 
 2022.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 CECL 
 Incurred Loss 
 December 31, 2023 
 December 31, 2022 
 Nonaccrual 
 Nonaccrual 
 Total 
 Loans with 
 Loans with an 
 Nonaccrual 
 Nonaccrual 
 (Dollars in thousands) 
 No Allowance 
 Allowance 
 Loans 
 Loans 
 Commercial and industrial 
 $ 
 — 
 — 
 — 
 $ 
 443 
 Commercial real estate 
 783 
 — 
 783 
 2,116 
 Residential real estate 
 — 
 128 
 128 
 172 
 Total 

 $ 
 783 
 128 
 911 
 $ 
 2,731 

 

 
 The Company did not recognize any interest income on nonaccrual loans during 2023. 
 The Company designates individually evaluated loans on nonaccrual status as collateral 
-dependent loans, as well as other 
 loans that management of the Company designates as having higher risk. 
Collateral-dependent loans are loans for which 
 the repayment is expected to be provided substantially through the operation or 
sale of the collateral and the borrower is 
 experiencing financial difficulty. 
These loans do not share common risk characteristics and are not included within the 
 collectively evaluated loans for determining the allowance for credit losses. 
Under CECL, for collateral-dependent loans, 
 the Company has adopted the practical expedient to measure the allowance 
for credit losses based on the fair value of 
 collateral. 
The allowance for credit losses is calculated on an individual loan basis based 
on the shortfall between the fair 
 value of the loan’s collateral, which is adjusted for 
liquidation costs/discounts, and amortized costs. 
If the fair value of the 
 collateral exceeds the amortized cost, no allowance is required. 
 The following table presents the amortized cost basis of collateral dependent loans, which 
are individually evaluated to 
 determine expected credit losses:

 
 

 

 
 
 
 
 
 
 
 
 (Dollars in thousands) 
 Real Estate 
 Total Loans 
 December 31, 2023: 
 Commercial real estate 
 $ 
 783 
 $ 
 783 
 Total 

 $ 
 783 
 $ 
 783 

 

 
 The gross interest income which would have been recorded under the original terms of 
those nonaccrual loans had they 
 been accruing interest, amounted to approximately $
 47 
 
thousand and $
 26 
 
thousand for the years ended December 31, 2023 
 and 2022, respectively. 

 

 
 
 
 Table of Contents 
 107 
 Allowance for Credit Losses 
 The Company adopted ASC 326 on January 1, 2023, which introduced the CECL 
methodology for estimating all expected 
 losses over the life of a financial asset. 
Under the CECL methodology, 
the allowance for credit losses is measured on a 
 collective basis for pools of loans with similar risk characteristics, and for loans that do 
not share similar risk characteristics 
 with the collectively evaluated pools, evaluations are performed on an individual 
basis.

 
 

 The following table details the changes in the allowance for credit losses by portfolio 
segment for the years ended 
 December 31, 2023 and 2022.

 
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 (in thousands) 
 Commercial 
 and industrial 
 Construction 
 and land 
 Development 
 Commercial 
 Real Estate 
 Residential 
 Real Estate 
 Consumer 
 Installment 
 Total 
 Balance, December 31, 2021 
 $ 
 857 
 518 
 2,739 
 739 
 86 
 $ 
 4,939 
 Charge-offs 
 ( 222 )
 — 
 — 
 — 
 ( 70 )
 ( 292 )
 Recoveries 
 7 
 — 
 23 
 26 
 62 
 118 
 Net (charge-offs) recoveries 
 ( 215 )
 — 
 23 
 26 
 ( 8 )
 ( 174 )
 Provision 
 105 
 431 
 347 
 63 
 54 
 1,000 
 Balance, December 31, 2022 
 $ 
 747 
 949 
 3,109 
 828 
 132 
 $ 
 5,765 
 Impact of adopting ASC 326 
 532 
 ( 17 )
 873 
 ( 347 )
 ( 22 )
 1,019 
 Charge-offs 
 ( 164 )
 — 
 — 
 — 
 ( 105 )
 ( 269 )
 Recoveries 
 204 
 — 
 — 
 14 
 5 
 223 
 Net recoveries (charge-offs) 
 40 
 — 
 — 
 14 
 ( 100 )
 ( 46 )
 Provision 
 ( 31 )
 28 
 ( 61 )
 51 
 138 
 125 
 Balance, December 31, 2023 
 $ 
 1,288 
 960 
 3,921 
 546 
 148 
 $ 
 6,863 

 
 The following table presents an analysis of the allowance for loan losses and recorded 
investment in loans by portfolio 
 segment and impairment methodology as of December 31, 2022, as determined, prior 
to adoption of ASC 326.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Collectively evaluated (1) 
 Individually evaluated (2) 
 Total 
 Allowance 
 Recorded 
 Allowance 
 Recorded 
 Allowance 
 Recorded 
 for loan 
 investment 
 for loan 
 investment 
 for loan 
 investment 
 (In thousands) 
 losses 
 in loans 
 losses 
 in loans 
 losses 
 in loans 
 December 31, 2022: 
 Commercial and industrial 
 $ 
 688 
 65,769 
 59 
 443 
 747 
 $ 
 66,212 
 Construction and land 
 development 
 949 
 66,479 
 — 
 — 
 949 
 66,479 
 Commercial real estate 
 2,663 
 262,457 
 446 
 2,116 
 3,109 
 264,573 
 Residential real estate 
 828 
 97,648 
 — 
 — 
 828 
 97,648 
 Consumer installment 
 132 
 9,546 
 — 
 — 
 132 
 9,546 
 Total 
 $ 
 5,260 
 501,899 
 505 
 2,559 
 5,765 
 $ 
 504,458 
 (1) Represents loans collectively evaluated for impairment 
prior to the adoption of ASC 326, in accordance with 
ASC 450-20, 
 Loss
 Contingencies, 
 and pursuant to amendments by ASU 2010-20 regards allowance 
for non-impaired loans.
 (2) Represents loans individually evaluated for impairment, 
prior to adoption of ASC 326, 
in accordance with ASC 310-30, 
 Receivables
 , 
 pursuant to amendments by ASU 2010-20 regarding allowance 
for impaired loans.

 

 
 
 Table of Contents 
 108 
 Impaired loans
 The following tables present impaired loans at December 31, 2022 as determined under 
ASC 310 prior to the adoption of 
 ASC 326. 
Loans that have been fully charged-off are not included in the following 
table. The related allowance generally 
 represents the following components which correspond to impaired loans: 

 ●
 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). 
 ●
 Individually evaluated impaired loans equal to or greater than $250 thousand not secured 
by real estate 
 (nonaccrual commercial and industrial and consumer loans). 

 The following table sets forth certain information regarding the Company’s 
impaired loans that were individually evaluated 
 for impairment at December 31, 2022.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 December 31, 2022 
 (In thousands) 
 Unpaid 

 principal 

 balance (1) 
 Charge-offs 

 and payments 

 applied (2) 
 Recorded 
 investment (3) 
 Related 
 allowance 
 With no allowance recorded: 
 Commercial and industrial 
 $ 
 210 
 ( 1 )
 $ 
 209 
 $ 
 — 
 Commercial real estate: 
 Owner occupied 
 858 
 ( 3 )
 855 
 — 
 Total commercial real estate 
 858 
 ( 3 )
 855 
 — 
 Total 

 1,068 
 ( 4 )
 1,064 
 — 
 With allowance recorded: 
 Commercial and industrial 
 234 
 — 
 234 
 59 
 Commercial real estate: 
 Owner occupied 
 1,261 
 — 
 1,261 
 446 
 Total commercial real estate 
 1,261 
 — 
 1,261 
 446 
 Total 

 1,495 
 — 
 1,495 
 505 
 Total 
impaired loans 
 $ 
 2,563 
 ( 4 )
 $ 
 2,559 
 $ 
 505 
 (1) Unpaid principal balance represents the contractual obligation 
due from the customer. 
 (2) Charge-offs and payments applied represents cumulative charge-offs taken, as well 
as interest payments that have been 
 applied against the outstanding principal balance subsequent 
to the loans being placed on nonaccrual status. 
 (3) Recorded investment represents the unpaid principal balance 
less charge-offs and payments applied; it is shown before 
 
any related allowance for loan losses.

 

 
 Pursuant to the adoption of ASU 2022-02, effective January 1, 2023, 
the Company prospectively discontinued the 
 recognition and measurement guidance previously required for 
troubled debt restructurings (TDRs). 
As of December 31, 
 2023, the Company had no loans that would have previously required disclosure 
as TDRs. 

 

 
 
 
 
 
 Table of Contents 
 109 
 The following table provides the average recorded investment in impaired loans, if 
any, by portfolio 
segment, and the 
 amount of interest income recognized on impaired loans after impairment by portfolio 
segment and class for the year ended 
 December 31, 2022 as determined under ASC 310 prior to adoption of ASC 326.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Year ended December 31, 2022 
 Average recorded 
 Total interest 
 (In thousands) 
 investment 
 income recognized 
 Impaired loans: 
 Commercial and industrial 
 $ 
 34 
 $ 
 — 
 Commercial real estate: 
 Owner occupied 
 163 
 — 
 Other 
 153 
 — 
 Total commercial real estate 
 316 
 — 
 Residential real estate: 
 Investment property 
 5 
 — 
 Total residential real estate 
 5 
 — 
 Total 

 $ 
 355 
 $ 
 — 

 

 
 NOTE 6: PREMISES AND EQUIPMENT 
 Premises and equipment at December 31, 2023 and 2022 is presented below.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 December 31 
 (Dollars in thousands) 
 2023 
 2022 
 Land and improvements 
 $ 
 12,800 
 12,788 
 Buildings and improvements 
 35,442 
 35,241 
 Furniture, fixtures, and equipment 
 3,986 
 3,861 
 Construction in progress 
 39 
 39 
 Total premises and equipment 
 52,267 
 51,929 
 Less: 
accumulated depreciation 
 ( 6,732 )
 ( 5,354 )
 Premises and equipment, net 
 $ 
 45,535 
 46,575 

 

 
 Depreciation expense was approximately $
 1.4 
 
million and $
 1.2 
 
million for the years ended December 31, 2023 and 2022, 
 respectively, and is a component of 
net occupancy and equipment expense in the consolidated statements of earnings.

 
 NOTE 7: MORTGAGE SERVICING 
RIGHTS, NET 

 MSRs are recognized 
based on the 
fair value of 
the servicing rights 
on the date 
the corresponding mortgage 
loans are sold. 

 An 
estimate 
of 
the 
Company’s 
MSRs 
is 
determined 
using 
assumptions 
that 
market 
participants 
would 
use 
in 
estimating 
 future net 
servicing income, 
including estimates 
of prepayment 
speeds, discount 
rate, default 
rates, cost 
to service, 
escrow 
 account earnings, 
contractual servicing 
fee income, 
ancillary income, 
and late 
fees. 
Subsequent to 
the date 
of transfer, 
the 
 Company 
has 
elected 
to 
measure 
its 
MSRs 
under 
the 
amortization 
method. 
Under 
the 
amortization 
method, 
MSRs 
are 
 amortized in proportion 
to, and over 
the period of, 
estimated net servicing 
income. Servicing 
fee income is 
recorded net 
of 
 related amortization expense and recognized in earnings as part of mortgage lending 
income. 

 The Company has recorded MSRs related to loans sold without recourse 
to Fannie Mae. 
The Company generally sells 
 conforming, fixed-rate, closed-end, residential mortgages to Fannie Mae. 
MSRs are included in other assets on the 
 accompanying consolidated balance sheets. 

 

 
 Table of Contents 
 110 
 The Company evaluates MSRs for impairment on a quarterly basis. 
Impairment is determined by stratifying MSRs into 
 groupings based on predominant risk characteristics, such as interest rate and loan type. 
If, by individual stratum, the 
 carrying amount of the MSRs exceeds fair value, a valuation allowance is established. 
The valuation allowance is adjusted 
 as the fair value changes. 
Changes in the valuation allowance are recognized in earnings as a component 
of mortgage 
 lending income. 
 The following table details the changes in amortized MSRs and the related valuation allowance for 
the years ended 
 December 31, 2023 and 2022.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Year ended December 31 
 (Dollars in thousands) 
 2023 
 2022 
 Beginning balance 
 $ 
 1,151 
 1,309 
 Additions, net 
 38 
 111 
 Amortization expense 
 ( 197 )
 ( 269 )
 Ending balance 
 $ 
 992 
 1,151 
 Valuation 
allowance included in MSRs, net: 
 Beginning of period 
 $ 
 — 
 — 
 End of period 
 — 
 — 
 Fair value of amortized MSRs: 
 Beginning of period 
 $ 
 2,369 
 1,908 
 End of period 
 2,382 
 2,369

 

 
 Data and assumptions used in the fair value calculation related to MSRs at December 
31, 2023 and 2022, respectively, 
are 
 presented below.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 December 31 
 (Dollars in thousands) 
 2023 
 2022 
 Unpaid principal balance 
 $ 
 216,648 
 234,349 
 Weighted average prepayment 
speed (CPR) 
 6.0 
 % 
 7.6 
 Discount rate (annual percentage) 
 10.5 
 % 
 9.5 
 Weighted average coupon 
interest rate 
 3.5 
 % 
 3.4 
 Weighted average remaining 
maturity (months) 
 245 
 256 
 Weighted average servicing 
fee (basis points) 
 25.0 
 25.0 

 

 
 At December 31, 2023, the weighted average amortization period 
for MSRs was 
 7.5 
 
years. 
Estimated amortization expense 
 for each of the next five years is presented below.

 
 

 
 
 
 
 
 
 
 
 (Dollars in thousands) 
 December 31, 2023 
 2024 
 $ 
 126 
 2025 
 112 
 2026 
 100 
 2027 
 88 
 2028 
 78 

 

 

 
 
 
 Table of Contents 
 111 
 NOTE 8: 
DEPOSITS 
 At December 31, 2023, the scheduled maturities of certificates of deposit and other time 
deposits are presented below.

 
 

 
 
 
 
 
 
 
 
 
 
 
 (Dollars in thousands) 
 December 31, 2023 
 2024 
 $ 
 166,433 
 2025 
 13,456 
 2026 
 3,410 
 2027 
 12,695 
 2028 
 2,221 
 Thereafter 
 — 
 Total certificates of deposit and 
other time deposits 

 $ 
 198,215 

 

 
 Additionally, at December 31, 
2023 and 2022, approximately $
 97.6 
 
million and $
 57.4 
 
million, respectively, of certificates 
 of deposit and other time deposits were issued in denominations greater than $250 
thousand. 
 At December 31, 2023 and 2022, the amount of deposit accounts in overdraft status that were 
reclassified to loans on the 
 accompanying consolidated balance sheets was not material.

 
 NOTE 9: LEASE COMMITMENTS 
 We lease certain office 
facilities and equipment under operating leases. Rent expense for all 
operating leases totaled $
 0.2 
 million for both years ended December 31, 2023 and 2022. 
Aggregate lease right of use assets were $
 485 
 
thousand and 
 $
 588 
 
thousand at December 31, 2023 and 2022, respectively. 
Aggregate lease liabilities were $
 509 
 
thousand and $
 611 
 thousand at December 31, 2023 and 2022, respectively. 
Rent expense includes amounts related to items that are not 
 included in the determination of lease right of use assets including expenses related 
to short-term leases totaling $
 0.1 
 million for the year ended December 31, 2023. 
 Lease payments under operating leases that were applied to our operating lease liability totaled 
$
 123 
 
thousand during the 
 year ended December 31, 2023. The following table reconciles future undiscounted 
lease payments due under non-
 cancelable operating leases (those amounts subject to recognition) to the aggregate operating lease 
liability as of December 
 31, 2023.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 (Dollars in thousands) 
 Future lease 
 payments 
 2024 
 $ 
 123 
 2025 
 114 
 2026 
 96 
 2027 
 96 
 2028 
 81 
 Thereafter 
 41 
 Total undiscounted operating 
lease liabilities 
 $ 
 551 
 Imputed interest 
 42 
 Total operating lease liabilities 
included in the accompanying consolidated balance sheets 
 $ 
 509 
 Weighted-average lease terms 
in years 
 5.01 
 Weighted-average discount rate 
 3.20 
 %

 

 

 
 
 
 
 Table of Contents 
 112 
 NOTE 10: 
OTHER COMPREHENSIVE LOSS 
 Comprehensive income 
is defined 
as the 
change in 
equity from 
all transactions 
other than 
those with 
stockholders, 
and 
it 
 includes net earnings and other 
comprehensive loss. 
Other comprehensive loss 
for the years ended 
December 31, 2023 and 
 2022, is presented below.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Pre-tax 
 Tax benefit 
 Net of 

 (Dollars in thousands) 
 amount 
 (expense) 
 tax amount 
 2023: 
 Unrealized net holding gain on securities 
 $ 
 9,584 
 ( 2,407 )
 7,177 
 Reclassification adjustment for net loss on securities recognized in net earnings 
 6,295 
 ( 1,581 )
 4,714 
 Other comprehensive income 
 $ 
 15,879 
 ( 3,988 )
 11,891 
 2022: 
 Unrealized net holding loss on securities 
 $ 
 ( 55,819 )
 14,017 
 ( 41,802 )
 Reclassification adjustment for net gain on securities recognized in net earnings 
 ( 12 )
 3 
 ( 9 )
 Other comprehensive loss 
 $ 
 ( 55,831 )
 14,020 
 ( 41,811 )

 

 
 NOTE 11: 
INCOME TAXES 
 For the years ended December 31, 2023 and 2022 the components of income tax expense 
from continuing operations are 
 presented below.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Year ended December 31 
 (Dollars in thousands) 
 2023 
 2022 
 Current income tax (benefit) expense: 
 Federal 
 $ 
 ( 448 )
 1,461 
 State 
 ( 134 )
 356 
 Total current income tax (benefit) expense 
 ( 582 )
 1,817 
 Deferred income tax (benefit) expense: 
 Federal 
 ( 293 )
 556 
 State 
 98 
 130 
 Total deferred 
income tax (benefit) expense 
 ( 195 )
 686 
 Total income tax (benefit) expense 

 $ 
 ( 777 )
 2,503 

 

 

 
 
 
 
 Table of Contents 
 113 
 Total income tax expense differs 
from the amounts computed by applying the statutory federal income tax rate of 21% 
to 
 earnings before income taxes. 
A reconciliation of the differences for the years ended December 31, 
2023 and 2022, is 
 presented below.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 2023 
 2022 
 Percent of 
 Percent of 
 pre-tax 
 pre-tax 
 (Dollars in thousands) 
 Amount 
 earnings 
 Amount 
 earnings 
 Earnings before income taxes 
 $ 
 618 
 12,849 
 Income taxes at statutory rate 
 130 
 21.0 
 % 
 2,698 
 21.0 
 % 
 Tax-exempt interest 
 ( 493 )
 ( 79.8 )
 ( 523 )
 ( 4.1 )
 State income taxes, net of 

 federal tax effect 
 ( 43 )
 ( 7.0 )
 346 
 2.7 
 New Markets Tax Credit 
 ( 356 )
 ( 57.6 )
 ( 356 )
 ( 2.8 )
 Bank-owned life insurance 
 ( 88 )
 ( 14.2 )
 141 
 1.1 
 Other 
 73 
 11.9 
 197 
 1.6 
 Total income tax (benefit) expense 

 $ 
 ( 777 )
 ( 125.7 )
 % 
 2,503 
 19.5 
 %

 

 
 At December 31, 2023 and 2022, the Company had a net deferred tax asset of $10.3 
million and $13.8 million, respectively, 
 included in other assets 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, 2023 and 2022 are presented 
 below.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 December 31 
 (Dollars in thousands) 
 2023 
 2022 
 Deferred tax assets: 
 Allowance for credit losses 
 $ 
 1,724 
 1,448 
 Unrealized loss on securities 
 9,734 
 13,722 
 Net operating loss carry-forwards 
 253 
 — 
 Tax credit carry-forwards 
 356 
 — 
 Accrued bonus 

 185 
 228 
 Right of use liability 
 128 
 153 
 Other 
 71 
 70 
 Total deferred 
tax assets 
 12,451 
 15,621 
 Deferred tax liabilities: 
 Premises and equipment 
 1,315 
 767 
 Originated mortgage servicing rights 
 249 
 289 
 Right of use asset 
 122 
 148 
 New Markets Tax Credit investment 
 181 
 179 
 Other 
 332 
 469 
 Total deferred 
tax liabilities 
 2,199 
 1,852 
 Net deferred tax asset 
 $ 
 10,252 
 13,769 

 

 
 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 of 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 historical 
taxable income and 
 projection for future taxable income over the periods which the temporary differences 
resulting in the remaining deferred 
 tax assets are deductible, management believes it is more-likely-than 
-not that the Company will realize the benefits of these 
 deductible differences at December 31, 2023. 
The amount of the deferred tax assets considered realizable, however, 
could 
 be reduced in the near term if estimates of future taxable income are reduced. 

 

 
 
 
 Table of Contents 
 114 
 The change in the net deferred tax asset for the years ended December 31, 2023 
and 2022, is presented

 
 
below. 
 

 
 
 
 
 
 
 
 
 
 
 
 Year ended December 31 
 (Dollars in thousands) 
 2023 
 2022 
 Net deferred tax asset (liability): 
 Balance, beginning of year 
 $ 
 13,769 
 435 
 Cumulative effect of change in accounting standard 
 276 
 — 
 Deferred tax expense related to continuing operations 
 195 
 ( 686 )
 Stockholders' equity, for accumulated 
other comprehensive income 
 ( 3,988 )
 14,020 
 Balance, end of year 
 $ 
 10,252 
 13,769 

 

 
 ASC 740, 
 Income Taxes,
 
defines the threshold for recognizing the benefits of tax return positions in the financial statements 
 as “more-likely-than-not” to be sustained by the taxing authority. 
This section also provides guidance on the de-
 recognition, measurement, and classification of income tax uncertainties in interim 
periods. 
As of December 31, 2023, the 
 Company had no unrecognized tax benefits related to federal or state income tax matters. 
The Company does not anticipate 
 any material increase or decrease in unrecognized tax benefits during 2024 
relative to any tax positions taken prior to 
 December 31, 2023. 
As of December 31, 2023, the Company has accrued no interest and no penalties related to uncertain 
 tax positions. 
It is the Company’s policy to recognize interest 
and penalties related to income tax matters in income tax 
 expense. 

 The Company and its subsidiaries file consolidated U.S. federal and State of Alabama income 
tax returns. 
The Company is 
 currently open to audit under the statute of limitations by the Internal Revenue Service and the State of 
Alabama for the 
 years ended December 31, 2020 through 2023.

 
 

 NOTE 12: 
EMPLOYEE BENEFIT PLAN 
 The Company sponsors a qualified defined contribution retirement plan, the Auburn National 
Bancorporation, Inc. 401(k) 
 Plan (the "Plan"). 
Eligible employees may contribute up to 100% of eligible compensation, subject to statutory 
limits upon 
 completion of 2 months of service. 
Furthermore, the Company allows employer Safe Harbor contributions. Participants 
are 
 immediately vested in employer Safe Harbor contributions. The 
Company's matching contributions on behalf of 
 participants were equal to $1.00 for each $1.00 contributed by participants, up to 3% of 
each participant's 
eligible 
 compensation, and $0.50 for every $1.00 contributed by participants, above 3% up to 5% 
of each participant's 
eligible 
 compensation, for a maximum matching contribution of 4% of the participants' eligible 
compensation. Company matching 
 contributions to the Plan were approximately $
 0.3 
 
million for the years ended December 31, 2023 and 2022, respectively, 
 and are included in salaries and benefits expense.

 
 NOTE 13: 
COMMITMENTS AND CONTINGENT LIABILITIES 
 Credit-Related Financial Instruments 
 The Company is party to credit related financial instruments with off 
-balance sheet risk in the normal course of business to 
 meet the financing needs of its customers. 
These financial instruments include commitments to extend credit and standby 
 letters of credit. 
Such commitments involve, to varying degrees, elements of credit and interest rate 
risk in excess of the 
 amount recognized in the consolidated balance sheets.
 The Company’s exposure to credit 
loss is represented by the contractual amount of these commitments. 
The Company 
 follows the same credit policies in making commitments as it does for on-balance sheet 
instruments. 
 At December 31, 2023 and 2022, the following financial instruments were outstanding 
whose contract amount represents 
 credit risk.

 
 
 
 
 
 
 December 31 
 (Dollars in thousands) 
 2023 
 2022 
 Commitments to extend credit 
 $ 
 73,606 
 $ 
 87,657 
 Standby letters of credit 
 629 
 1,041 

 

 

 
 Table of Contents 
 115 
 Commitments to extend credit are agreements to lend to a customer provided there is no violation 
of any condition 
 established in the commitment agreement and provided the commitments are 
not otherwise cancelable by the Bank. 

 Commitments generally have fixed expiration dates or other termination clauses 
and may require payment of a fee. 
The 
 commitments for lines of credit may expire without being drawn upon. 
Therefore, total commitment amounts do not 
 necessarily represent future cash requirements. 
The amount of collateral obtained, if it is deemed necessary by the 
 Company, is based on management’s 
credit evaluation of the customer. 
The Company records an allowance for credit 
 losses on off-balance sheet exposures, unless the commitments to extend credit 
are unconditionally cancelable, through a 
 charge to provision for credit losses in the Company’s 
Consolidated Statement of Earnings, prior to the adoption of ASC 
 326, changes in the allowance were recorded as a component of other noninterest expense. 
The allowance for credit losses 
 related to unfunded commitments was $
 0.3 
 
million and $
 0.2 
 
million at December 31, 2023 and 2022, respectively, 
and is 
 included in other liabilities on the Company’s 
Consolidated Balance Sheet. 

 See “Note 1: Summary of Significant 
 Accounting Policies – Allowanace for credit losses – 
Unfunded commitments.”
 Standby letters of credit are conditional commitments issued by the Company to 
guarantee the performance of a customer 
 to a third party. 
The credit risk involved in issuing letters of credit is essentially the same 
as that involved in extending loan 
 facilities to customers. 
The Company holds various assets as collateral, including accounts receivable, 
inventory, 
 equipment, marketable securities, and property to support those commitments 
for which collateral is deemed necessary. 

 The Company has a recorded a liability for the estimated fair value of these standby letters 
of credit in the amount of $
 9 
 thousand and $
 16 
 
thousand at December 31, 2023 and 2022, respectively. 
 Contingent Liabilities 
 The Company and the Bank are involved in various legal proceedings, arising in connection 
with their business. 
In the 
 opinion of management, based upon consultation with legal counsel, the ultimate resolution 
of these proceedings will not 
 have a material adverse effect upon the consolidated financial 
condition or results of operations of the Company and the 
 Bank.

 
 NOTE 14: FAIR VALUE 

 Fair Value 
Hierarchy
 “Fair value” is defined by ASC 820, 
 Fair Value 
Measurements and Disclosures
 , as the price that would be received to sell 
 an asset or paid to transfer a liability in an orderly transaction occurring in the principal market 
(or most advantageous 
 market in the absence of a principal market) for an asset or liability at the measurement date. 
GAAP establishes a fair 
 value hierarchy for valuation inputs that gives the highest priority to quoted prices 
in active markets for identical assets or 
 liabilities and the lowest priority to unobservable inputs. 
The fair value hierarchy is as follows: 
 Level 1—inputs to the valuation methodology are quoted prices, unadjusted, for identical 
assets or liabilities in active 
 markets. 

 Level 2—inputs to the valuation methodology include quoted prices 
for similar assets and liabilities in active markets, 
 quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that 
are observable for the 
 asset or liability, either directly or 
indirectly. 

 Level 3—inputs to the valuation methodology are unobservable and reflect the 
Company’s own assumptions about the 
 inputs market participants would use in pricing the asset or liability. 

 Level changes in fair value measurements
 

 Transfers between levels of the fair value hierarchy are generally 
recognized at the end of the reporting period. 
The 
 Company monitors the valuation techniques utilized for each category of 
financial assets and liabilities to ascertain when 
 transfers between levels have been affected. 
The nature of the Company’s financial assets 
and liabilities generally is such 
 that transfers in and out of any level are expected to be infrequent. For the years ended December 
31, 2023 and 2022, there 
 were no transfers between levels and no changes in valuation techniques for the Company’s 
financial assets and liabilities. 

 

 
 
 
 
 Table of Contents 
 116 
 Assets and liabilities measured at fair value on a recurring 
basis 
 Securities available-for-sale 
 Fair values of securities available for sale were primarily measured using 
Level 2 inputs. 
For these securities, the Company 
 obtains pricing from third party pricing services. 
These third-party pricing services consider observable data 
that may 
 include broker/dealer quotes, market spreads, cash flows, market consensus prepayment 
speeds, benchmark yields, reported 
 trades for similar securities, credit information and the securities’ terms and conditions. 
On a quarterly basis, management 
 reviews the pricing 
received from the third-party pricing services for reasonableness given 
current market conditions. 
As 
 part of its review, management 
may obtain non-binding third party broker quotes to validate the fair value measurements. 

 In addition, management will periodically submit pricing provided by the third-party 
pricing services to another 
 independent valuation firm on a sample basis. 
This independent valuation firm will compare the price provided 
by the 
 third-party pricing service with its own price and will review the significant assumptions 
and valuation methodologies used 
 with management. 
 The following table presents the balances of the assets and liabilities measured at fair value 
on a recurring as of December 
 31, 2023 and 2022, respectively, 
by caption, on the accompanying consolidated balance sheets by ASC 820 valuation 
 hierarchy (as described above).

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Quoted Prices in 
 Significant 
 Active Markets 
 Other 
 Significant 
 for 
 Observable 
 Unobservable 
 Identical Assets 
 Inputs 
 Inputs 
 (Dollars in thousands) 
 Amount 
 (Level 1) 
 (Level 2) 
 (Level 3) 
 December 31, 2023: 
 Securities available-for-sale: 
 Agency obligations 

 $ 
 53,879 
 — 
 53,879 
 — 
 Agency MBS 
 198,289 
 — 
 198,289 
 — 
 State and political subdivisions 
 18,742 
 — 
 18,742 
 — 
 Total securities available-for-sale 
 270,910 
 — 
 270,910 
 — 
 Total 
assets at fair value 
 $ 
 270,910 
 — 
 270,910 
 — 
 December 31, 2022: 
 Securities available-for-sale: 
 Agency obligations 

 $ 
 125,617 
 — 
 125,617 
 — 
 Agency MBS 
 218,160 
 — 
 218,160 
 — 
 State and political subdivisions 
 61,527 
 — 
 61,527 
 — 
 Total securities available-for-sale 
 405,304 
 — 
 405,304 
 — 
 Total 
assets at fair value 
 $ 
 405,304 
 — 
 405,304 
 — 

 

 
 Assets and liabilities measured at fair value on a nonrecurring 
basis 
 Collateral Dependent Loans 
 Collateral dependent loans are measured at the fair value of the collateral securing loan less 
estimated selling costs. 
The 
 fair value of real estate collateral is determined based on real estate appraisals 
which are generally based on recent sales of 
 comparable properties which are then adjusted for property specific factors. 
Non-real estate collateral is valued based on 
 various sources, including third party asset valuations and internally determined 
values based on cost adjusted for 
 depreciation and other judgmentally determined discount factors. 
Collateral dependent loans are classified within Level 3 
 of the hierarchy due to the unobservable inputs used in determining their fair 
value such as collateral values and the 
 borrower’s underlying financial condition. 

 

 
 Table of Contents 
 117 
 Mortgage servicing rights, net 
 Mortgage servicing rights, net, included in other assets on the accompanying consolidated 
balance sheets, are carried at the 
 lower of cost or estimated fair value. 
MSRs do not trade in an active market with readily observable prices. 
To determine 
 the fair value of MSRs, the Company engages an independent third party. 
The independent third party’s 
valuation model 
 calculates the present value of estimated future net servicing income using assumptions 
that market participants would use 
 in estimating future net servicing income, including estimates of prepayment speeds, discount 
rate, default rates, cost to 
 service, escrow account earnings, contractual servicing fee income, ancillary 
income, and late fees. 
Periodically, the 
 Company will review broker surveys and other market research to validate significant 
assumptions used in the model. 
The 
 significant unobservable inputs include prepayment speeds or the constant prepayment 
rate (“CPR”) and the weighted 
 average discount rate. 
Because the valuation of MSRs requires the use of significant unobservable inputs, all of the 
 Company’s MSRs are classified 
within Level 3 of the valuation hierarchy. 

 

 
 Table of Contents 
 118 
 The following table presents the balances of the assets and liabilities measured at fair value 
on a nonrecurring basis as of 
 December 31, 2023 and 2022, respectively, 
by caption, on the accompanying consolidated balance sheets and by 
ASC 820 
 valuation hierarchy (as described above):

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Quoted Prices in 
 Active Markets 
 Other 
 Significant 
 for 
 Observable 
 Unobservable 
 Identical Assets 
 Inputs 
 Inputs 
 (Dollars in thousands) 
 Amount 
 (Level 1) 
 (Level 2) 
 (Level 3) 
 December 31, 2023: 
 Loans, net
 (1)
 $ 
 783 
 — 
 — 
 783 
 Other assets 
 (2)
 992 
 — 
 — 
 992 
 Total assets at fair value 
 $ 
 1,775 
 — 
 — 
 1,775 
 December 31, 2022: 
 Loans, net
 (3)
 $ 
 2,054 
 — 
 — 
 2,054 
 Other assets 
 (2)
 1,151 
 — 
 — 
 1,151 
 Total assets at fair value 
 $ 
 3,205 
 — 
 — 
 3,205 
 (1)
 Loans considered collateral dependent under ASC 326 
 (2)
 Represents MSRs, net carried at lower of cost or estimated fair value. 
 (3)
 Loans considered impaired under ASC 310-10-35 Receivables, prior to the adoption 
of ASC 326. This amount reflects 
 the recorded investment in impaired loans, net of any related allowance for loan losses.

 

 
 Quantitative Disclosures for Level 3 Fair Value 
Measurements 
 At December 31, 2023 and 2022, the Company had no Level 3 assets measured at fair value on a 
recurring basis. 
For Level 
 3 assets measured at fair value on a non-recurring basis as of December 31, 
2023 and 2022, the significant unobservable 
 inputs used in the fair value measurements are presented below.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Weighted 
 Carrying 
 Significant 
 Average 
 (Dollars in thousands) 
 Amount 
 Valuation Technique 
 
Unobservable Input 
 Range 
 of Input 
 December 31, 2023: 
 Collateral dependent loans 
 $ 
 783 
 Appraisal 
 Appraisal discounts 
 10.0 
 - 
 10.0 
 % 
 10.0 
 % 
 Mortgage servicing rights, net 
 992 
 Discounted cash flow 
 Prepayment speed or CPR 
 5.9 
 - 
 10.6 
 % 
 6.0 
 % 
 

 Discount rate 
 10.5 
 - 
 12.5 
 % 
 10.5 
 % 
 December 31, 2022: 
 Impaired loans 
 $ 
 2,054 
 Appraisal 
 Appraisal discounts 
 10.0 
 - 
 10.0 
 % 
 10.0 
 % 
 Mortgage servicing rights, net 
 1,151 
 Discounted cash flow 
 Prepayment speed or CPR 
 5.2 
 - 
 18.6 
 % 
 7.6 
 % 
 

 Discount rate 
 9.5 
 - 
 11.5 
 % 
 9.5 
 %

 

 
 Fair Value 
of Financial Instruments
 ASC 825, 
 Financial Instruments
 , requires disclosure of fair value information about financial instruments, 
whether or not 
 recognized on the face of the balance sheet, for which it is practicable to estimate that 
value. The assumptions used in the 
 estimation of the fair value of the Company’s 
financial instruments are explained below. 
Where quoted market prices are 
 not available, fair values are based on estimates using discounted cash flow analyses. Discounted 
cash flows can be 
 significantly affected by the assumptions used, including the discount rate 
and estimates of future cash flows. The 
 following fair value estimates cannot be substantiated by comparison to independent 
markets and should not be considered 
 representative of the liquidation value of the Company’s 
financial instruments, but rather are good faith estimates of the fair 
 value of financial instruments held by the Company. 
ASC 825 excludes certain financial instruments and all nonfinancial 
 instruments from its disclosure requirements. 

 

 

 
 
 Table of Contents 
 119 
 
 The following methods and assumptions were used by the Company in estimating the 
fair value of its financial instruments: 

 Loans, net 
 Fair values for loans were calculated using discounted cash flows. The discount rates reflected 
current rates at which similar 
 loans would be made for the same remaining maturities. Expected 
future cash flows were projected based on contractual 
 cash flows, adjusted for estimated prepayments. 
The fair value of loans was measured using an exit price notion. 
 Time Deposits 
 Fair values for time deposits were estimated using discounted cash flows. The discount 
rates were based on rates currently 
 offered for deposits with similar remaining maturities. 
 The carrying value, related estimated fair value, and placement in the fair value hierarchy 
of the Company’s financial 
 instruments at December 31, 2023 and 2022 are presented below. 
This table excludes financial instruments for which the 
 carrying amount approximates fair value. 
Financial assets for which fair value approximates carrying value included 
cash 
 and cash equivalents. 
Financial liabilities for which fair value approximates carrying value included 
noninterest-bearing 
 demand deposits, interest-bearing demand deposits, and savings deposits. 
Fair value approximates carrying value in these 
 financial liabilities due to these products having no stated maturity. 
Additionally, financial liabilities 
for which fair value 
 approximates carrying value included overnight borrowings 
such as federal funds purchased and securities sold under 
 agreements to repurchase. 
 The following table summarizes our fair value estimates:

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Fair Value Hierarchy 
 Carrying 

 Estimated 
 Level 1 
 Level 2 
 Level 3 
 (Dollars in thousands) 
 amount 
 fair value 
 inputs 
 inputs 
 Inputs 
 December 31, 2023: 
 Financial Assets: 
 Loans, net (1) 
 $ 
 550,431 
 $ 
 526,372 
 $ 
 — 
 $ 
 — 
 $ 
 526,372 
 Financial Liabilities: 
 Time Deposits 
 $ 
 198,215 
 $ 
 195,171 
 $ 
 — 
 $ 
 195,171 
 $ 
 — 
 December 31, 2022: 
 Financial Assets: 
 Loans, net (1) 
 $ 
 498,693 
 $ 
 484,007 
 $ 
 — 
 $ 
 — 
 $ 
 484,007 
 Financial Liabilities: 
 Time Deposits 
 $ 
 150,375 
 $ 
 150,146 
 $ 
 — 
 $ 
 150,146 
 $ 
 — 
 (1) Represents loans, net and the allowance for credit losses. 
The fair value of loans was measured using 
an exit price notion.

 

 
 NOTE 15: RELATED PARTY 
TRANSACTIONS 
 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, 
the Bank, and their immediate families and affiliates. 
These persons, corporations, and 
 firms have had transactions in the ordinary course of business with the Company and 
Bank, including borrowings, all of 
 which management believes were on substantially the same terms, including interest 
rates and collateral, as those prevailing 
 at the time of comparable tranactions with unaffiliated persons and did 
not involve more than the normal risk of 
 collectability or present other unfavorable features. 
A summary of such outstanding loans is presented below:

 
 

 
 
 
 
 
 
 
 (Dollars in thousands) 
 Amount 
 Loans outstanding at December 31, 2022 
 $ 
 1,646 
 New loans/advances 
 567 
 Repayments 
 ( 316 )
 Loans outstanding at December 31, 2023 
 $ 
 1,897 

 

 

 
 Table of Contents 
 120 
 During 2023 and 2022, certain executive officers, 
directors and principal shareholders’ of the Company and the Bank, 
 including companies and related parties with which they are affiliated, 
were deposit customers of the bank. 
Total deposits 
 for these persons at December 31, 2023 and 2022 amounted to $
 21.1 
 
million and $
 22.8 
 
million, respectively.

 
 NOTE 16: REGULATORY 
RESTRICTIONS AND CAPITAL 
RATIOS 
 As required by the Economic Growth, Regulatory Relief, and Consumer Protection 
Act of 2018, the Federal Reserve Board 
 issued rule that expanded applicability of the Board’s 
small bank holding company policy statement (the “Small BHC 
 Policy Statement”) and has been added as Appendix C to Federal Reserve Regulation Y. 
These increased 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 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. The 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 capital. 
 

 The Bank remains subject to regulatory capital requirements of the Alabama 
Banking Department and the Federal Reserve. 
 Failure to meet minimum capital requirements can initiate certain mandatory 
- and possibly additional discretionary - 
 actions by regulators that, if undertaken, could have a direct material effect 
on the Company’s financial 
statements. Under 
 capital adequacy 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 
-balance sheet items as calculated 
 under regulatory accounting practices. The capital amounts and classification are 
also subject to qualitative judgments by 
 the regulators about components, risk weightings, necessary capital to support 
risks and other factors. 
Notwithstanding the 
 minimum capital requirements, Federal Reserve Regulation Q states that a Federal Reserve 
-regulated institution must 
 maintain capital commensurate with the level and nature of all risks to which such institution 
is exposed. 
 Federal Reserve Regulation Q limits “distributions” and discretionary bonus 
payments from eligible retained income” by 
 sate member banks, such as the Bank, unless its capital conservation buffer 
of common equity Tier 1 capital (“CET1”) 
 exceeds 2.5%. “Distributions” include dividends declared or paid on common stock, and stock 
repurchases, redemptions or 
 repurchases of Tier 2 capital instruments (unless replaced 
by a capital instrument in the same quarter). “Eligible retained 
 income” for the Bank and other Federal Reserve regulated institutions is the greater 
of: 
 (A) The Board-regulated institution's net income, calculated in accordance 
with the instructions to the institution’s FR Y–
 9C or Call Report, for the four calendar quarters preceding the current calendar quarter, 
net of any distributions and 
 associated tax effects not already reflected in net income; and 

 (B) The average of the Board-regulated institution’s 
net income, calculated in accordance with the instructions to the 
 institutions’ FR Y–9C or Call Report, as applicable, for the four calendar quarters 
preceding the current calendar quarter. 

 The Bank’s Call Report is used for its calculation 
of “eligible retained income”. 
 As of December 31, 2023, the Bank is “well capitalized” under the regulatory framework 
for prompt corrective action. To 
 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 
following table. Management has not received any notification from the 
 Bank's regulators that changes the Bank’s regulatory 
capital status. 

 

 
 
 
 Table of Contents 
 121 
 The actual capital amounts and ratios for the Bank and the aforementioned minimums as 
of December 31, 2023 and 2022 
 are presented below.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Minimum for capital 
 Minimum to be 

 Actual 
 adequacy purposes 
 well capitalized 
 (Dollars in thousands) 
 Amount 
 Ratio 
 Amount 
 Ratio 
 Amount 
 Ratio 
 At December 31, 2023: 
 Tier 1 Leverage Capital 
 $ 
 103,886 
 9.72 
 % 
 $ 
 42,732 
 4.00 
 % 
 $ 
 53,415 
 5.00 
 % 
 Common Equity Tier 1 Capital 
 103,886 
 14.52 
 32,194 
 4.50 
 46,503 
 6.50 
 Tier 1 Risk-Based Capital 
 103,886 
 14.52 
 42,926 
 6.00 
 57,234 
 8.00 
 Total Risk-Based Capital 
 111,035 
 15.52 
 57,234 
 8.00 
 71,543 
 10.00 
 At December 31, 2022: 
 Tier 1 Leverage Capital 
 $ 
 106,886 
 10.01 
 % 
 $ 
 42,716 
 4.00 
 % 
 $ 
 53,394 
 5.00 
 % 
 Common Equity Tier 1 Capital 
 106,886 
 15.39 
 31,252 
 4.50 
 45,142 
 6.50 
 Tier 1 Risk-Based Capital 
 106,866 
 15.39 
 41,669 
 6.00 
 55,559 
 8.00 
 Total Risk-Based Capital 
 112,851 
 16.25 
 55,559 
 8.00 
 69,449 
 10.00 

 

 
 Dividends paid by the Bank are a principal source of funds available to the Company for 
payment of dividends to its 
 stockholders and for other needs which are restricted by Alabama and Federal law and regulations 
as described above. 
 Capital adequacy considerations could further limit the availability of dividends 
from the Bank. At December 31, 2023, the 
 Bank could have declared additional dividends of approximately $
 8.2 
 
million without prior approval of regulatory 
 authorities. 
As a result of this limitation, approximately $
 68.3 
 
million of the Company’s investment in the Bank 
was 
 restricted from transfer in the form of dividends.

 
 

 NOTE 17: AUBURN NATIONAL 
BANCORPORATION 
(PARENT COMPANY) 
 The Parent Company’s condensed balance sheets 
and related condensed statements of earnings and cash flows are as 
 follows.

 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 CONDENSED BALANCE SHEETS 
 December 31 
 (Dollars in thousands) 
 2023 
 2022 
 Assets: 
 Cash and due from banks 
 $ 
 1,277 
 1,700 
 Investment in bank subsidiary 
 74,857 
 65,967 
 Other assets 
 523 
 522 
 Total assets 
 $ 
 76,657 
 68,189 
 Liabilities: 
 Accrued expenses and other liabilities 
 $ 
 150 
 148 
 Total liabilities 
 150 
 148 
 Stockholders' equity 
 76,507 
 68,041 
 Total liabilities and stockholders' 
equity 
 $ 
 76,657 
 68,189 

 

 

 
 
 
 
 Table of Contents 
 122 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 CONDENSED STATEMENTS 
OF EARNINGS 
 Year ended December 31 
 (Dollars in thousands) 
 2023 
 2022 
 Income: 
 Dividends from bank subsidiary 
 $ 
 3,776 
 3,719 
 Noninterest income 
 8 
 78 
 Total income 
 3,784 
 3,797 
 Expense: 
 Noninterest expense 
 239 
 326 
 Total expense 
 239 
 326 
 Earnings before income tax expense and equity 
 in undistributed earnings of bank subsidiary 
 3,545 
 3,471 
 Income tax benefit 
 ( 30 )
 ( 48 )
 Earnings before equity in undistributed earnings 
 of bank subsidiary 
 3,575 
 3,519 
 Equity in (distributed) undistributed earnings of bank subsidiary 
 ( 2,180 )
 6,827 
 Net earnings 
 $ 
 1,395 
 10,346 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 CONDENSED STATEMENTS 
OF CASH FLOWS 
 Year ended December 31 
 (Dollars in thousands) 
 2023 
 2022 
 Cash flows from operating activities: 
 Net earnings 
 $ 
 1,395 
 10,346 
 Adjustments to reconcile net earnings to net cash 
 provided by operating activities: 
 Net (increase) decrease in other assets 
 ( 1 )
 108 
 Net increase (decrease) in other liabilities 
 8 
 ( 408 )
 Equity in (distributed) undistributed earnings of bank subsidiary 
 2,180 
 ( 6,827 )
 Net cash provided by operating activities 
 3,582 
 3,219 
 Cash flows from financing activities: 
 Dividends paid 
 ( 3,776 )
 ( 3,720 )
 Stock repurchases 
 ( 229 )
 ( 504 )
 Net cash used in financing activities 
 ( 4,005 )
 ( 4,224 )
 Net change in cash and cash equivalents 
 ( 423 )
 ( 1,005 )
 Cash and cash equivalents at beginning of period 
 1,700 
 2,705 
 Cash and cash equivalents at end of period 
 $ 
 1,277 
 1,700 

 

 

 
 Table of Contents 
 123 
 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 
ON ACCOUNTING AND 
 FINANCIAL DISCLOSURE 
 Not applicable.
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-K

Item 8. Financial Statements and Supplementary Data
