AUBURN NATIONAL BANCORPORATION
 
,
 
INC.
and
AUBURNBANK
Erroneously Awarded Executive Incentive-Based Compensation Recovery Policy
Introduction
Section
 
10D
 
was
 
added
 
to
 
the
 
Securities
 
Exchange
 
Act
 
of
 
1934
 
(the
 
“Exchange
 
Act”)
 
by
Section 954 of the
 
Dodd-Frank Wall Street Reform
 
and Consumer Protection
 
Act of 2010.
 
The
Securities
 
and
 
Exchange
 
Commission
 
(“Commission”)
 
adopted,
 
effective
 
January
 
27,
 
2023,
Commission
 
Rule
 
10D-1
 
under
 
the
 
Exchange
 
Act,
 
which
 
requires
 
each
 
national
 
securities
exchange
 
to
 
adopt
 
listing
 
standards
 
for
 
the
 
recovery
 
of
 
erroneously
 
awarded
 
executive
compensation.
 
The Commission approved Nasdaq listing Rule 5608 (“Rule 5608”) on June 9,
2023.
This Policy is adopted
 
by the Boards
 
of Directors (the “Board”)
 
of the Company and
 
the Bank
(individually and
 
collectively for
 
purposes of
 
this Policy,
 
the “Company”)
 
pursuant
 
to Nasdaq
Rule 5608.
Effective Dates
This Policy
 
will become
 
effective upon
 
its adoption
 
by the
 
Company Board
 
prior to
 
December
1,
 
2023.
 
In
 
accordance
 
with
 
Rule
 
5608,
 
this
 
Policy
 
shall
 
only
 
apply
 
to
 
“Incentive-Based
Compensation”
 
that
 
is
 
“Erroneously
 
Awarded
 
Compensation”
 
“Received”
 
by
 
“Executive
Officers” on or after October 2, 2023 (as these terms are defined below).
Certain Defined Terms
The following terms apply solely to this Policy solely for purposes of Rule 5608:
“Erroneously
 
Awarded
 
Compensation”
 
is
 
the
 
amount
 
of
 
Incentive-Based
 
Compensation
Received
 
by
 
each
 
Executive
 
Officer
 
that
 
exceeds
 
the
 
amount
 
of
 
Incentive-Based
Compensation that otherwise would have
 
been Received had it been
 
determined based on
the restated amounts in the Restatement, computed without regard to any taxes paid.
In the
 
case of
 
Incentive-Based Compensation
 
determined or
 
based on
 
stock price
 
or total
shareholder return, where the amount of Erroneously
 
Awarded Compensation is not subject
to mathematical recalculation directly
 
from the information
 
in a Restatement, the
 
amount of
Erroneously Award Compensation
 
shall be based
 
on a reasonable estimate
 
of the effect
 
of
the
 
Restatement
 
on
 
the
 
stock
 
price
 
or
 
total
 
shareholder
 
return
 
upon
 
which
 
the
 
Incentive-
Based
 
Compensation
 
was
 
Received.
 
The
 
Company
 
shall
 
maintain
 
documentation
 
of
 
its
determination of that reasonable estimate and provide such documentation to Nasdaq.
 
 
 
 
 
 
 
 
“Executive Officer”
 
means the Company’s and the Bank’s president, principal financial officer,
principal accounting
 
officer
 
(or if
 
there is
 
no such
 
accounting officer,
 
the controller),
 
and any
vice-president of the Company in charge of a
 
principal business unit, division, or function
 
and
is designated
 
as an
 
Executive Officer
 
by the
 
Board for
 
purposes of this
 
Policy and
 
any other
officer who performs a
 
policy-making function similar
 
policy-making functions for
 
the Company
and is
 
designated as
 
an Executive
 
Officer by
 
the Board
 
for purposes
 
of this
 
Policy.
 
The officers
identified
 
in
 
the
 
Company’s
 
proxy
 
statement
 
as
 
executive
 
officers
 
pursuant
 
to
 
Commission
Regulation
 
S-K
 
Item
 
401(b)
 
shall
 
be
 
“Executive
 
Officers”
 
for
 
all
 
purposes
 
of
 
this
 
Policy,
although
 
others
 
may
 
also
 
be
 
designated
 
in
 
the
 
Board’s
 
judgment
 
to
 
be
 
“Executive
 
Officers”
hereunder.
 
The Company shall maintain a list from of person designated or deemed
 
to be its
Executive Officers
 
hereunder in
 
the minutes
 
of the
 
Board’s
 
proceedings.
 
Persons who
 
may
be
 
“executive
 
officers”
 
for
 
purposes
 
of
 
Board
 
of
 
Governors
 
of
 
the
 
Federal
 
Reserve
 
System
(“Federal
 
Reserve”)
 
Regulation
 
O
 
shall
 
not
 
be
 
Executive
 
Officers
 
hereunder,
 
except
 
as
expressly (i) deemed
 
in this paragraph
 
to be “Executive
 
Officers” or
 
(ii) expressly designated
as “Executive Officers” by the Board for purposes of this Policy.
“Financial
 
Reporting
 
Measures”
 
means
 
measures
 
that
 
are
 
determined
 
and
 
presented
 
in
accordance
 
with
 
the
 
accounting
 
principles
 
used
 
in
 
preparing
 
the
 
Company’s
 
financial
statements, and any
 
measures that
 
are derived wholly
 
or in part
 
from such measures.
 
Stock
price and
 
total shareholder
 
return are
 
also financial
 
reporting measures.
 
A financial
 
reporting
measure need
 
not be
 
presented
 
within the
 
financial statements
 
or included
 
in a
 
filing with
the Commission.
“Incentive-Based
 
Compensation”
 
means
 
any
 
compensation
 
that
 
is
 
granted,
 
earned,
 
or
vested
 
based wholly
 
or in
 
part upon
 
the attainment
 
of
 
one or
 
more Financial
 
Reporting
Measure.
“Received” means compensation
 
(1)deemed received on
 
or after October
 
2, 2023 and
 
(2)
in the Company’s fiscal period during which the Financial
 
Reporting Measure specified in
the Incentive-Based Compensation award is attained, even if the payment or grant of
 
the
Incentive-Based Compensation occurs after the end of that period.
Recoveries Upon Restatements of Financial Statements
T
he
 
Company
 
will
 
recover
 
reasonably
 
promptly
 
the
 
amount
 
of
 
Erroneously
 
Awarded
Compensation
 
from
 
Company
 
Executive
 
Officers
 
in
 
the
 
event
 
the
 
Company
 
is
 
required
 
to
prepare a
 
restatement of
 
its financial
 
statements due
 
to the
 
Company’s material
 
noncompliance
with any financial reporting requirement applicable under
 
federal securities laws, including any
restatement:
1.
 
to correct an error in previously
 
issued financial statements that is material
 
to the
previously issued financial statements;
 
or
2.
 
that
 
would
 
result
 
in
 
a
 
material
 
misstatement
 
if
 
the
 
error
 
were
 
corrected
 
in
 
the
current period or left uncorrected in the current period.
Therefore,
 
this Policy
 
will apply
 
to any
 
“Restatement”
 
of its
 
financial statements
 
described in
paragraph
 
1
 
or
 
2
 
immediately above,
 
(any
 
of
 
which
 
is
 
a
 
“Restatement”)
 
for
 
purposes
 
of
 
this
 
 
 
Policy.
 
The
 
Company’s
 
shall
 
recover
 
Erroneously
 
Awarded
 
Compensation,
 
regardless
 
of
whether a Restatement is filed.
Date of a Restatement
The date
 
of a
 
Restatement (the
 
“Restatement Date”)
 
for purposes
 
of this
 
Policy is
 
the earlier
of:
1.
 
The
 
date
 
the
 
Company’s
 
board
 
of
 
directors
 
(the
 
“Board”),
 
or
 
the
 
Board’s
 
Audit
Committee,
 
which
 
is
 
authorized
 
to
 
take
 
such
 
action,
 
concludes
 
or
 
reasonably
should have concluded, that the Company is required to
 
prepare a Restatement;
or
2.
 
The
 
date
 
a
 
court,
 
regulator,
 
or
 
other
 
legally
 
authorized
 
governmental
 
authority
having
 
jurisdiction
 
over
 
the
 
Company
 
directs
 
the
 
Company
 
to
 
prepare
 
a
Restatement.
Recovery Period for Erroneously Awarded Compensation
The amount
 
of Erroneously
 
Awarded Compensation subject
 
to recovery
 
under this Policy
 
is the
Erroneously Awarded Compensation Received by each Company Executive
 
Officer beginning
on the date
 
the person’s service
 
commenced as a
 
Company Executive
 
officer and the
 
following
periods:
1.
 
When
 
such
 
person
 
served
 
as
 
an
 
Executive
 
Officer
 
at
 
any
 
time
 
during
 
the
performance period for that Erroneously Awarded Compensation;
2.
 
When the
 
Company had
 
a class
 
of securities
 
listed on
 
Nasdaq or
 
another national
securities exchange or a national securities association; and
3.
 
The three completed fiscal years immediately preceding the Restatement
 
Date.
Exceptions to Recovery of Erroneously Awarded Compensation
 
The
 
Company
 
shall
 
recover
 
Erroneously
 
Awarded
 
Compensation
 
Received
 
pursuant
 
to
this Policy,
 
except where the
 
Company’s Compensation
 
Committee, or in
 
the absence of
a Compensation
 
Committee, a
 
majority of
 
the Company’s
 
independent directors,
 
has made
a determination that recovery would be impracticable because:
1.
 
The direct expense reasonably expected
 
to be paid to a
 
third party to assist in
enforcing
 
this
 
Policy
 
and
 
recover
 
Erroneously
 
Awarded
 
Compensation
previously Received
 
would exceed
 
the amount
 
to be
 
recovered;
provided
 
the
Company
 
must first
 
make
 
a
 
reasonable attempt
 
to
 
recover such
 
Erroneously
Awarded Compensation, document
 
such reasonable
 
attempt(s) to
 
recover, and
provide that documentation to Nasdaq;
2.
 
Recovery would likely
 
cause an
 
otherwise tax-qualified
 
retirement plan, under
which
 
benefits
 
are
 
broadly available
 
to
 
employees
 
of
 
the
 
registrant,
 
to
 
fail
 
to
 
meet
 
the
 
requirements
 
of
 
26
 
U.S.C.
 
401(a)(13)
 
or
 
26
 
U.S.C.
 
411(a)
 
and
 
the
regulations thereunder; or
3.
 
Another exception provided
 
by Nasdaq or
 
Commission rule or
 
interpretations is
determined to be available.
No Indemnification
The
 
Company
 
shall
 
not
 
insure
 
or
 
indemnify
 
any
 
Executive
 
Officer
 
against
 
any
 
loss
 
of
Erroneously Awarded Compensation.
Disclosure of Policy
The Company shall make
 
all disclosures of
 
this Policy required by
 
SEC Rule 10D-1 and
 
Rule
5608,
 
on
 
and
 
after
 
December
 
1,
 
2023,
 
including
 
on
 
the
 
cover
 
page
 
of
 
its
 
Annual
 
Report
 
on
Commission Form 10-K, and shall file this Policy as an exhibit to each such Annual Report.