AUBN report 03 28 16

1
ANDREA CASATI STEVENS FIRST PRINCIPLES INVESTMENT ADVISORS
AUBURN NATIONAL BANCORP. INC. (AUBN), NasdaqGM
Sector: FINANCIAL Industry: Regional – Southeast Banks
ɪ. RECCOMMENDATION: HOLD
Auburn National Corp. presents an healthy profitability position and fair financial conditions indicators. The
overall risk of the loans portfolio slightly increased, but still within a conservative level. The company
appears to be well managed and properly positioned in the market in which it operates.
However, the margin of safety of 17.8% over our $32.41 target price is lower than our required investment
standards; Price-to-Book ratio is higher than our investment rationale and in line with the historical
average; the trading volume is low causing the market to be illiquid. Therefore we do not recommend to
buy this stock at this juncture.
Financial Analyst: Andrea Casati
Mail: andrea@sfpria.com
Auburn National Bancorp. Inc. is the holding company of
Auburn Bank, an Alabama state-chartered bank founded in
1907. Through its subsidiary, Auburn National Bancorp. offers
various banking products and services primarily in East
Alabama area. It has approximately 157 employees. Both the
entities are headquartered in the Auburn, Alabama.
CEO: E. L. Spencer Jr.
RECENT STATISTICS (03/25/2016)
Recent price 27.51
52-week range 24.06 - 33.00
Market cap 100.23M
LTD 131.2M
Beta 0.40
EPS 2.22
EPS (est) 2.25
P/E 12.39
E/P 8.07%
P/B 1.25
Dividend 0.88
Div yield 3.3%

2
ɪɪ. INDUSTRY ANALYSIS
A- OVERVIEW
US commercial bank industry revenues were equal to $687B in 2015, and expected to grow at an
annualized rate of 4.0% over the next five years, thanks to the expected increase in interest rates and
economic recovery. Alabama is the 13th
state in terms of commercial state bank assets ($252B).
According to Alabama Superintendent of Banks, Alabama commercial banking industry is dominated by
state-chartered banks in absolute number, total assets and total deposits: in 2015 state-chartered banks
amounted to 116 and managed $241.6B in commercial bank assets (up 6% YOY and representing 96% of
total industry assets); state-chartered banks’ total deposits and equity capital amounted to $190.84B (up
4.8%) and $32.0B (unchanged) respectively.
With a population of 154,255 inhabitants in 2014 (up 10% over 2010; 21.6% under 18 age) Lee County is
the 8th
most populous county in Alabama (67 counties; 4,849,377 inhabitants). Auburn (60,258 inhabitants,
up 12.9% over 2010) represents the most populous center in East Alabama.1
The largest employers in Lee County are Auburn University, East Alabama Medical Center, a Wal-Mart
Distribution Center, Mando America Corporation and Briggs&Stratton2
. Auto manufacturing is of increasing
importance: both Kia Motors and Hyundai Motors have a large automobile factory near Auburn3
.
B- ECONOMIC ENVIRONMENT
Banking is a business that depends on interest rate differentials. During its recent meeting on March 16th
2016, the Fed left its target rate unchanged at the actual 0.25%-0.5%, implying to be open to pursue two
increases in 2016. On the one hand, interest rates hikes would help boosting banks’ net interest margin, on
the other would negatively affect loans demand. Even if improbable, the Fed did not exclude the possibility
of adopting negative interest rates, following BoJ and BCE examples, if needed.
Banking industry is extensively regulated, and depending on the bank’s charter, business and other
factors, different regulatory authorities come into play. The industry is facing increasing regulation as a
result mainly of Dodd-Frank Act and Basel ɪɪɪ rules. Any change in, or introduction of new, regulation could
significantly affect the bank business, increasing costs and/or reducing profitability. The banks might pass
these rising costs to customers in form of fees.
Banking industry is extremely competitive. Furthermore, technological changes have intensified
competition from nonbank financial institutions (i.e . insurance companies, leasing companies, financing
departments of big corporations, pawn shops, tech startups etc.). The increasing shift to online banking
have reduced the importance of the physical branch offices for the banks (Alabama branch offices
decreased by 1.2% in 2015 YOY).
The industry is considered mature, characterized by steady growth, high competition and increasing
regulation. Banking industry has experienced significant consolidation through M&A activity following the
2007/08 financial crisis. The trend is expected to be persistent. In 2015, two M&A operations took place in
Alabama.
1
Source: United States Census Bureau.
2
Source: Opelika Economic Development.
3
Source: Company 2015 f. y. 10K.

3
The industry is affected by the general economic conditions. Auburn Bank is mainly active in Lee County,
Alabama:
• 2014 Alabama real GDP increased 1.5% YOY and the 2004-14 CAGR was 0.8% (US: 2.2% and 1.3%).
• 2014 Alabama per capita personal income increased 3.7% YOY and at a 2.7% CAGR over 2004 (US: 3.6%
and 3.0%)4
.
• Alabama all-transaction house price index in 2015 was up 3% YOY and 7% over 2013 (6% and 11% in
the US).
• Lee county 2015 unemployment rate was 4.9% (4.3% in 2014; 6.2% for Alabama; 5.0% for US)5
.
C- STRATEGY AND POSITION
89% of total assets and 88% of total deposits are held by the four largest state-chartered banks: Regions
Bank ($123.8B in assets and $98.4B in deposits), Compass Bank ($84.7B and $64.4B), ServisFirst Bank
($4.8B and $4.1B) and CB&S Bank ($1.2B and $1.2B). Auburn Bank occupies the 9th
and the 7th
position in
terms of assets managed ($818.8M) and deposits held ($726M) respectively.6
The bank is a key player in the community in which it operates and one of the largest providers of
automated teller services in East Alabama.
PORTER FIVE ANALYSIS
Threat of new entrants: HIGH. While for bank institutions barriers to entry are moderate (regulatory
authorities approval, capital and operational requirements based on leverage and risk) and competition is
high, technology and increasing importance of online banking have (and the trend is expected to reinforce
in the future) critically eased the entrance of nonbank financial institutions.
Threat of substitutes: HIGH. Nonbank financial institutions have increased the number of substitute
products available in the market. Switching costs tend to be null or low on the deposits’ side; high switching
costs on the loans’ one could be lowered, since they may be sustained by other financial institutions in
order to win the customers’ preferences.
4
Source: Bureau of Economic Analysis, U.S. Department of Commerce.
5
Source: Alabama Department of Labour.
6
Source: Alabama Superintendent of Banks, 2015 Annual report.

4
Bargain power of buyers: LOW. Bargain power of buyers tends to fluctuate accordingly to general business
conditions, reaching the lowest during recession periods. Switching costs tend to be high; customers tend
to be “lazy” in changing financial institution.
Bargain power of suppliers: LOW. Auburn Bank major source of funding is represented by deposits, 98% of
total liabilities. The bank usually sets the rate and the related fees, leaving the depositors null or low
bargain power. On the human resources side the risk is moderate, since talented people could be recruited
by larger financial institutions.
Industry rivalry: HIGH. Banking industry is extremely competitive. The industry is mature and subject to
extensive regulation. A major threat is represented by the increasing competition from nonbank financial
institutions that are subject to less regulation requirements and therefore able to gain banks’ market share.
PORTER GENERIC ANALYSIS
Commercial banks pursue a cost leadership strategy; Auburn Bancorp focuses on a particular segment of
the market both in terms of business and geographic area:
• Even if the company may engage in other banking-related activities permitted by the FED, Auburn
Bancorp is focused on the commercial bank business; moreover opting to be a state-chartered
rather than national bank, allows the company to be subject to lower supervisory and funding
costs.
• The bank’s primary area is comprised of the city of Auburn and Opelika, and the surrounding areas,
mainly in Lee County. The company is highly involved in the community in which it operates and
several members of its board of directors are key figures in Auburn community (i.e. Auburn major).

5
VALUENET
Customers: AuburnBank main customers comprise of the general public and small/medium sized
businesses, including commercial, agricultural, real estate and industrial. The company occasionally
engages in other business with other financial institutions.
Suppliers: Money is the raw material used by banks to produce income. AuburnBank main source of
funding is represented by deposits (98% of total liabilities); the company also recurs to borrowing federal
funds from other financial institutions. Other inputs are software and human resources. Salaries represent
57% of noninterest expenses.
Competitors: AuburnBank competes with other bank institutions serving its primary area (i.e. Wells Fargo,
Regions Bank). Increasing competition comes from nonbank financial institutions, subject to less strict
regulation requirements (i.e. insurance companies, leasing companies, financing departments of big
corporations, pawn shops, etc.).
Complementors: The industry is highly regulated; AuburnBank is subject to supervision and regulation by
the FED, the Alabama Superintendent of Banks and the FDIC. Other financial institutions not only represent
competitors, but also a possible risk factor, the so-called domino effect. The economic conditions of
businesses that operate in the area are crucial for the bank business, both as customers and employers.
Particularly important is real estate market (commercial and residential real estate represent 75% of the
bank’s loan portfolio). Changing in technology is increasing competition, especially from nonbank
institutions. The bank makes use of the loan secondary market (especially Fannie Mae’s and Freddie Mac’s).
SUMMARY: Commercial bank industry is considered mature. Main trends included: increasing regulation,
increasing competition from nonbank financial institutions, further consolidation through M&A. Interest
rates increase and overall economic recovery are expected to drive industry revenues up in the near
future.
AuburnBank appears to be well positioned in the primary areas it serves: the bank is a key player in the
community in which it operates and one of the largest providers of automated teller services in East
Alabama.

6
ɪɪɪ. COMPANY ANALYSIS
A- BUSINESS OVERVIEW
Auburn National Bancorporation Inc. is a bank holding company registered with the Federal Reserve,
incorporated in 1990 in Delaware. From 1994, it operates AuburnBank, an Alabama state member bank.
AuburnBank was founded in 1907 and has been a member of FHLB since 1991 and of Fed system since
1995. Both the entities are headquartered in Auburn, Alabama.
Auburn National Bancorp, through its subsidiary, is focused on the commercial bank business: it takes
deposits (main products include: checking, savings, transaction deposit accounts and certificates of deposit)
and makes loans (main: CRE, residential and C&I).
The company has 10 offices and 14 ATM locations and it is primarily active in East Alabama, including Lee
County.
The company strategy for the future comprises of keep increasing its loans base, while managing to
diminish the cost of its funds.
B- DISCUSSION OF OPERATIONS
On January 26th
Auburn Bank reported positive results for 2015 fiscal year: the company reported $31.69M
in revenues, up 3.1% compared to $30.75M in 2014.
The increase was mainly driven by noninterest income ($4.5M, +15.2% YOY). Interest income was equal to
$27.1M, up 1.3% YOY.
2015 Diluted adjusted EPS7
was $2.22, up 8.8% compared to $2.04 in 2014.
Historical revenues and EPS (adjusted for non-rec. items) are reported in the figure below:
7
$0.36M Debt-repayment penalty in 2015

7
BALANCE SHEET ANALYSIS
SECURITIES
2015 securities available-for-sale were $241.7M, down 9.7% YOY. Average yield was 3.05% (3.11% in
2014). The decreasing trend in tax-exempt securities was reverted (+8.8%, versus -7.3% in 2014), reducing
the effective tax rate (26.4%, down from 27.2% in 2014).
LOANS
In 2015 loans returned to growth: average total loans were $413.6M, up 6.5% YOY (-0.5% in 2014);
average yield on loans and loans held for sale was 4.95% (5.03% in 2014). 30% total loans are variable-rate.
The company categorizes its loan portfolio in: Commercial & Industrial, Construction & Land Development,
Commercial Real Estate, Residential Real Estate and Consumer Installment. CRE represents 48% of total
loans; the weights are in line with the historical levels. 2015 allowance for loan losses was $4.3M, down
11.3% YOY.
2015 non-performing loans were $2.7M, up 142% YOY; they represented 0.64% of total loans (0.28% in
2014).
DEPOSITS AND LONG-TERM DEBT
2015 total deposits were $723.6M, up 4.4% YOY; average rate paid on total interest-bearing deposits was
0.73% (0.89% in 2014). The management is lowering its deposit costs changing its funding mix. Noninterest-
bearing deposits represent 22% of the total.
2015 short term borrowing was $2.9M, down 38.3% YOY. The average rates paid on short-term
borrowings were 0.50% in both 2015 and 2014.
2015 long term debt was $7.2M, down 41% YOY; the company had no long-term FHLB advances compared
to $5.0M in 2014. $7.2M consists in junior subordinated debentures related to trust preferred securities.
The average rate paid on LTD was 3.40% (3.42% in 2014).
13% 9%
48%
27%
3%12% 10%
48%
27%
2%
0%
10%
20%
30%
40%
50%
60%
C&I C&D CRE RRE Cons Inst
Loan Portfolio composition and YOY %Δ
2014 2015
0
5
10
350
360
370
380
390
400
410
420
2010 2011 2012 2013 2014 2015
Historical Avg Loans and Allowance
for loan losses
Avg loans ($M) All. for loan losses ($M)
300
350
400
450
500
550
600
650
700
750
2010 2011 2012 2013 2014 2015
Historical Deposits ($M)
Total deposits ($M) Total loans ($M)
-3% 17%
6%
8%
-17%

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PROFITABILITY
AuburnBank improved its profitability position year-over-year.
ROA and ROE
2015 return on assets was equal to 0.98%, up from 0.97% in 2014 and higher than the five-year average
(0.96%). The ratio is higher than the one of similar-size banks.
2015 return on equity was equal to 9.98%, down from 10.62% in 2014, but still healthy; the decrease was
mainly due to the company’s reduction in financial leverage. The ratio is higher than the one of similar-size
banks.
GYEA, RATE PAID ON FUNDS AND NIM
2015 net interest margin widened to 3.0%, from 2.97% in 2014. The increase was mainly due to a strong
decrease in rate paid on funds, with respect a less pronounced decrease in GYEA.
2015 GYEA decreased to 3.58%, from 3.72% in 2014 (-3.68%). Interest income increased 1.3% YOY: loans
returned to growth (+6.5%, versus -0.5% in 2014), while rate earned on assets decreased to 3.76%
from3.89%.
2015 rate on paid funds decreased to 0.77%, from 0.94% in 2014 (-17.88%); interest expenses were down
17.3% YOY as a result of management strategy (SEE: Balance Sheet Analysis above).
The expected increase in interest rates in 2016 could not translate immediately in an increase in GYEA,
putting negative pressure on the NIM in the short-term period.

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PROVISION FOR LOAN LOSSES
2015 provision for loan losses was $0.2M, up from $0.05M in 2014 (+300%). The strong increase was
mainly due to a 55% increase in net charge-offs, but still lower than historical levels. (SEE: Financial
Condition below).
NON INTEREST INCOME AND EXPENSE
2015 noninterest income was $4.5M, up 15.2% YOY; the increase was mainly due to a 49.1% increase in
bank-owned life insurance and a strong reduction in security losses, partially offset by an 11.7% decrease in
mortgage lending.
2015 noninterest expense was $16.4M, up 15.2% YOY; the increase was mainly due to increases in salaries
(+3.9%), net occ.&eq. (+8.1%) and other (+3.6%), partially offset by a 17.8% decrease in professional fees.
Salaries represent 57% of noninterest expense. Noninterest expense weights 52% of total revenues.
2010 2011 2012 2013 2014 2015
Provision for loan losses ($M) 3580 2450 3815 400 50 200
Net charge-offs ($M) 2399 3207 4011 1855 482 747
0
1000
2000
3000
4000
5000
0
1000
2000
3000
4000
5000
Historical Net charge-offs and Provision for loan losses
Provision for loan losses ($M)
Net charge-offs ($M)
17% 14%
27%
21%
13% 14%
6,7
5,2
10,5
7,3
3,9
4,5
0%
20%
40%
0,0
10,0
20,0
2010 2011 2012 2013 2014 2015
Hist Nonint inc($M) and % over Tot Rev.
% over total revenue Noninterest income
22%
42%
13%
37%
-14%
18%
32%
17%
33%
0%
-20%
-10%
0%
10%
20%
30%
40%
50%
Noninterest income components
13%
46% 49%
53%
49% 52%
5.2
16.4
19.4 18.4
15.1 16.4
0%
20%
40%
60%
0,0
10,0
20,0
30,0
2010 2011 2012 2013 2014 2015
Hist. Nonint exp ($M) and % over Tot Rev.
% over total revenue Noninterest expense
-5.6%
-11.7%
49.1%
3.3%
Service
charge
s
Mortg.
Lend.
Insurance Other
Sec. gainss

10
FINANCIAL CONDITION
ALLOWANCE FOR LOAN LOSSES AND NET CHARGE OFFS
2015 allowance for loan losses was equal to $4.3M, down 10.42% YOY ($4.8M in 2014). Provision for loan
losses ratio was equal to 1.00%, down from 1.20% in 2014. Even if the ratio is still in the 0.8%-1.5% safe
range, its decreasing trend could cause concerns with respect the management calculation of the provision
for loan losses (income statement). The ratio is lower than other similar-size banks.
The management recently (from June 2014) changed its accounting policy with respect allowance for loan
losses calculation. The calculation is now based on loan losses and loss ratios experienced over the previous
20-quarter period (8-quarter period previously) for all the loans other than CRE, whose calculation is based
on the previous 6-quarter period.
2015 net charge-offs were equal to $0.7M, up 55% YOY, but lower than historical values. Net charge-offs as
a % of average loans was equal to 0.18%, up from 0.12% in 2014. Despite the YOY increase, the ratio is still
lower than the 0.25%-0.75% conservative range.
Net charge-offs as a % of average loans
2010 0.64%
2011 0.86%
2012 1.03%
2013 0.48%
2014 0.12%
2015 0.18%
Recently the company has experienced high level of recoveries: $0.36M versus $1.1M charge-offs in 2015
($0.33M versus $0.81M in 2014).
NONPERFORMING LOANS
In 2015 nonperforming loans were equal to $2.7M, representing 0.64% of total loans; they were $1.1M in
2014, representing 0.28%. This represents a 143% increase year-over-year. Apparently the company is
increasing its loan portfolio risk, but the values are still conservative and lower than the historical ones.
7.7 6.9 6.7
5.3 4.8 4.3
0
1
2
3
4
5
0
2
4
6
8
10
2010 2011 2012 2013 2014 2015
Historical allowance for loan losses
Allowance for loan losses ($M) Net charge offs Provision for loan losses
Provision for loan losses ratio
2010 0.96%
2011 0.66%
2012 1.69%
2013 1.38%
2014 1.20%
2015 1.00%

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FINANCIAL LEVERAGE
AuburnBank appears to be fairly leveraged. 2015 financial leverage ratio was equal to 62.1%, down from
64.5% in 2014. The company has reduced its long term debt over time, reinforcing its equity position.
LOANS ON TOTAL ASSETS
AuburnBank appears to have a good liquidity position. Total loans represented 52% of total assets in 2015
(51% in 2014) in line with the historical values.
11.8
10.4 10.5
4.3
1.1
2.7
0
5
10
15
2010 2011 2012 2013 2014 2015
Historcal nonperforming loans ($M)
Non performing loans ($M)
+143%-60%
-74%
+2%-12%
3.16%
2.80% 2.65%
1.11%
0.28%
0.64%
0%
1%
2%
3%
4%
2010 2011 2012 2013 2014 2015
Nonperf. loans as % of total loans
Non performing loans as % of total loans
248.5
208.8
173.2
143.8 138.0 131.2
56.4
65.4
70.1
64.5 75.8 79.9
81.5%
76.1%
71.2% 69.0%
64.5% 62.1%
0%
20%
40%
60%
80%
100%
0
50
100
150
200
250
300
350
2010 2011 2012 2013 2014 2015
Historical finacial leverage
LTD ($M) Equity ($M) Financial Leverage
374 370 398 384 404 427
763 776 760 751 789 819
49%
48%
52%
51% 51%
52%
45%
47%
49%
51%
53%
0
200
400
600
800
1000
2010 2011 2012 2013 2014 2015
Total Loans/Total Assets
Total loans Total assets Tot Loans/Tot assets

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RISK-BASED CAPITAL RATIOS
Even if decreasing year-over-year, in 2015 AuburnBank presents strong risk-based capital ratios.
2010 2011 2012 2013 2014 2015 Basel III Excess
CET 1 - - - - - 15.28% 6.5% 8.78%
Tier 1 14.57% 15.40% 16.20% 17.19% 17.45% 16.57% 8.0% 8.57%
Total Capital 15.82% 16.66% 17.46% 18.40% 18.54% 17.44% 10.0% 7.44%
Tier Leverage 8.47% 8.82% 9.58% 10.10% 10.32% 10.35% 5.0% 5.35%
SIMILAR-SIZE BANKS PERFORMANCE
FOFN ACFC PBIB FBMS PFBI EVBS USBI
Peer
group
Avg
AUBN
Market Cap ($M) 64.4 87.8 32.3 79.5 150.0 87.8 51.6 100.2
Assets ($M) 820.8 857.2 1018 1093.8 1244.7 1270.3 562.7 817.2
Price 1.92 5.71 1.2 15.6 15.65 6.8 7.94 27.51
P/E 3.11 11.42 - 10.34 10.36 17.89 19.36 10.62 12.39
P/B 1.01 1.11 - 1 0.85 0.7 0.63 0.89 1.25
ROA 2.50% 0.99% -0.33% 0.77% 1.02% 0.60% 0.46% 0.86% 0.98%
ROE 39.55% 10.11% -9.81% 8.69% 8.69% 5.60% 3.41% 9.46% 9.98%
GYEA 3.0% 4.16% 3.99% 4.16% 4.47% 4.31% 5.80% 4.27% 3.58%
Rate paid on funds 1% 1.35% 0.85% 0.37% 0.48% 0.71% 0.48% 0.71% 0.77%
NIM 2.3% 2.95% 3.22% 3.83% 4.12% 3.80% 5.4% 3.66% 3.00%
Provision for loan losses 2.3% 1.16% 1.94% 0.90% 1.13% 1.29% 0.8% 1.35% 1.00%
Net charge off % loans out - 0.04% 0.44% - 0.12% 0.20% 1.07% 0.37% 0.18%
Non perf loans % tot loan 0.70% 0.70% 2.8% 1.45% 1.67% 0.83% 1.77% 1.42% 0.64%
PAYOUT POLICY
In February 2016 Auburn Bancorp board announced a 2.3% increase in the Company’s quarterly dividend
rate to $0.225 per share from the prior year quarterly dividend of $0.22 per share. The company has
increased its dividends YOY in the last ten-year period, but at a decreasing incremental rate (2.38% 5-year
average dividend growth). The company has paid cash dividends since 19858
(its subsidiary since 1907).
2010 2011 2012 2013 2014 2015 Est 2016
Annual Dividend 0.78 0.8 0.82 0.84 0.86 0.88 0.9
% change 2.63% 2.56% 2.50% 2.44% 2.38% 2.33% 2.27%
Adj EPS 1.59 1.52 2.52 2.31 2.04 2.22 2.25
Payout ratio 49.1% 52.6% 32.5% 36.4% 42.2% 39.6% 40.0%
Dividend yield 4.0% 4.1% 3.7% 3.6% 3.6% 3.3% 3.3%
The amount of dividends payable by AuburnBank is limited by regulation: it should not exceed net profits
for the year and retained profits of the two previous ones, and should not mine at the company’s financial
position and minimum capital ratios requirements. Basel ɪɪɪ will set further limits.
8
Source: AUBN 2015 10k

13
MANAGEMENT9
All the current executive officers have worked and filled high management positions in the company or its
subsidiary at least since 2002. E. L. Spencer Jr. (84 years old) has served as Auburn Bancorp CEO since 1990;
he also serves as chairman of the board of directors. Robert W. Dumas has served as AuburnBank CEO since
2001.
Executive officer compensation is composed by a base salary and an annual cash bonus, based on personal
and company’s performance respectively; the company currently does not have any equity or long-term
incentive plans. Robert W. Dumas 2015 base salary was $283,250 (up 3% YOY, met his performance goals).
According to Yahoo Finance, 35% of the shares are held by insiders and 5%-owners. As reported on
February 2, 2016 CEO E. L. Spencer Jr. owns (directly and indirectly) 19% of the total outstanding shares; he
reduced his position by 3.5% through non-open market operations during the last year.
SUMMARY: Auburn National Bancorp improved its profitability position YOY performing better than the
other similar-size banks. Loan portfolio appears to be slightly riskier YOY, but still conservative.
Management appears to be capable. The only concerns is a decreasing trend in allowance for loan losses,
that could signal provision for loan losses manipulation.
9
Source: AUBN 2015 Proxy statement

14
ɪv. VALUATION
GRAHAM FORMULA
Intrinsic value = EPS * (8.5 * 2g)* (4.4 / y)10
Estimated 2016 EPS = $2.25
AAA bond rate = 5%
Est g 120% 100% 80%
1.0% 24.95 20.79 16.63
2.0% 29.70 24.75 19.80
3.0% 34.45 28.71 22.97
4.0% 39.20 32.67 26.14
5.0% 43.96 36.63 29.30
6.0% 48.71 40.59 32.47
7.0% 53.46 44.55 35.64
According to Graham formula, Auburn National Bancorp. intrinsic value is equal to $32.67.
DIVIDEND DISCOUNT MODEL
Price today = D1 / (r – g)
D1 = Estimated 2016 Dividend = $0.90
r = Cost of equity = 4.70%
g = estimated constant growth rate = 2.00%
According to dividend discount model, Auburn National Bancorp intrinsic value is equal to $33.33.
PRICE TO BOOK MULTIPLE
At the current price of $27.51, the stock is trading at 1.25x its book value, in line with the 5-year average.
According to Price-to-Book ratio Auburn National Corp is currently fairly priced. Applying the 5-year average
high ratio to the current book value per share, the stock could rise to $31.23.
2009 2010 2011 2012 2013 2014 2015 Q1 2016
High 1.91 1.43 1.32 1.48 1.41 1.46 1.46 1.36
Low 1.22 1.1 1.03 1.02 1.08 1.14 1.11 1.12
Average 1.47 1.27 1.26 1.22 1.19 1.37 1.24 1.24
RECCOMENDATIONS: HOLD
Current price: $27.51 Estimated price: $32.41 Margin of safety: 17.8%
The margin of safety over our target price is lower than our required investment standards; Price-to-Book
ratio is in line with the historical average; the trading volume is low causing the market to be illiquid.
10
Where g = est. earnings growth rate and y = AAA bond rate

15
Company:
AUBURN NATIONAL BANCORP,
INC Symbol AUBN Price 27.51
I - Profitability 2008 2009 2010 2011 2012 2013 2014 2015 2016(E)
Total Revenues ($M) 42.56 39.97 40.19 35.88 39.55 34.76 30.75 31.69 33
Earnings per share 1.62 0.73 1.59 1.52 2.52 2.31 2.04 2.22 2.25
2013-2015 Avg. EPS
24%
2013-2015 Avg. Rev. per s. 32.40
-20%
2005-2007 Avg. EPS 2005-2007 Avg. Rev. per s. 40.47
Return on Average Assets 0.93% 0.32% 0.68% 0.72% 0.90% 0.94% 0.97% 0.98%
Return on Average Equity 12.05% 4.24% 9.00% 9.10% 9.85% 10.33% 10.61% 9.98%
NIM 2.87% 2.56% 2.61% 2.71% 2.99% 2.95% 2.97% 3.00%
GYEA 5.7% 5.01% 4.63% 4.33% 4.14% 3.88% 3.72% 3.58%
Rate paid on funds 4.58% 2.78% 2.30% 1.87% 1.42% 1.15% 0.94% 0.77%
Book Value / share 15.66 15.42 15.47 17.96 19.26 17.70 20.80 21.94
II - Financial Condition 2008 2009 2010 2011 2012 2013 2014 2015 2016(E)
Non perf. loans as % tot. loans 1.20% 2.49% 3.16% 2.80% 2.65% 1.11% 0.28% 0.64%
Net charge-offs as a %avg loans 0.17% 0.84% 0.64% 0.86% 1.03% 0.48% 0.12% 0.18%
Provision for loan losses 1.19% 1.73% 0.96% 0.66% 1.69% 1.38% 1.20% 1.00%
Financial Leverage 81.1% 81.1% 81.5% 76.1% 71.2% 69.0% 64.5% 62.1%
III - Growth 2008 2009 2010 2011 2012 2013 2014 2015 2016(E)
Past Revenues Growth -2% -6% 1% -11% 10% -12% -12% 3.1% 4.0%
Past Earnings Growth -13% -55% 118% -4% 66% -8% -12% 8.8% 1.4%
5 years 10 years
Past Earnings Growth 10.0% -3.6%
Past Revenues Growth -4.2% 12.5%
Projected Growth 4.0%
IV - Dividends 2008 2009 2010 2011 2012 2013 2014 2015 2016(E)
Cash Dividend 0.74 0.76 0.78 0.8 0.82 0.84 0.86 0.88 0.9
Dividend Yield 45.7% 104.1% 49.1% 52.6% 32.5% 36.4% 42.2% 39.6% 40.0%
Payout Ratio 3.4% 3.1% 4.0% 4.1% 3.7% 3.6% 3.6% 3.3% 3.3%
V - Valuation
Earnings growth Est g 120% 100% 80% VI-MPT Statistics
1.0% 24.95 20.79 16.63 Y=5% Inflation 2.00%
2.0% 29.70 24.75 19.80 RM 8.00%
3.0% 34.45 28.71 22.97 RF 2.50%
4.0% 39.20 32.67 26.14 Beta 0.40
5.0% 43.96 36.63 29.30 CoE 4.70%
6.0% 48.71 40.59 32.47
7.0% 53.46 44.55 35.64
2008 2009 2010 2011 2012 2013 2014 2015
2016
YTD
E/P 7.4% 3.0% 8.2% 7.8% 11.2% 9.9% 8.5% 8.3% 8.3%
PE Ratio 13.59 33.62 12.22 12.79 8.90 10.08 11.74 12.06 12.04
Price to Book 1.41 1.47 1.27 1.26 1.22 1.19 1.37 1.24 1.24
VII - Pricing 2008 2009 2010 2011 2012 2013 2014 2015
2016
YTD
High 24.97 29.95 22.00 20.37 26.65 25.75 25.80 30.39 29.62
Low 19.06 19.14 16.86 18.52 18.23 20.80 22.10 23.15 24.56
Average 22.02 24.55 19.43 19.45 22.44 23.28 23.95 26.77 27.09

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