10-K
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM
10-K
☒
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the quarterly period ended
December 31, 2020
OR
☐
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period __________ to __________
Commission File Number:
0-26486
Auburn National Bancorporation, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
63-0885779
(State or other jurisdiction
of incorporation)
(I.R.S. Employer
Identification No.)
132 N. Gay Street
,
Auburn,
Alabama
36830
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (
334
)
821-9200
Securities registered pursuant to Section 12 (b) of the Act:
Title of Each Class
Trading Symbol
Name of Exchange on which Registered
Common Stock
, par value $0.01
AUBN
NASDAQ
Global Market
Securities registered to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. Yes
☐
No
☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13
or Section 15(d) of the Act. Yes
☐
No
☒
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of
1934 during the
preceding 12 months (or for such shorter period that
the registrant was required to file such reports),
and (2) has been subject to such filing requirements
for the past
90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has
submitted electronically every Interactive
Data File required to be submitted pursuant
to Rule 405 of Regulation S-
T (§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the
definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2
of the Exchange Act. (Check one):
Large Accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging Growth
Company
☐
If an emerging growth company, indicate by check mark if the registrant has
selected not to use the extended transition
period for complying with any new or revised
financial accounting standards provided pursuant to
Section 13(a) of the Exchange Act. Yes
☐
No
☒
Indicate by check mark whether the registrant has
filed a report on and attestation to its management’s assessment
of the effectiveness of its internal control over
financial reporting under Section 404(b) of
the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by
the registered public accounting firm that prepared
or issued its audit
report.
☐
Indicate by check mark if the registrant is a
shell company (as defined in Rule 12b-2
of the Act). Yes
☐
No
☒
State the aggregate market value of the voting
and non-voting common equity held by
non-affiliates computed by reference to the price at which
the common equity
was last sold, or the average bid and asked price
of such common equity as of the last business
day of the registrant’s most recently completed second fiscal
quarter:
$
132,361,395
as of June 30, 2020.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
Indicate the number of shares outstanding
of each of the registrant’s classes of common stock, as of the latest
practicable date:
3,566,326
shares of common stock as
of March 8, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting
of Shareholders, scheduled to be held
May 11, 2021, are incorporated by reference into Part
II, Item 5 and
Part III of this Form 10-K.
Table of Contents
.
TABLE OF CONTENTS
PARTI
PAGE
ITEM 1.
BUSINESS
4
ITEM 1A.
RISK FACTORS
26
ITEM 1B.
UNRESOLVEDSTAFF COMMENTS
40
ITEM 2.
PROPERTIES
40
ITEM 3.
LEGAL PROCEEDINGS
41
ITEM 4.
MINE SAFETY DISCLOSURES
41
PARTII
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY,RELATEDSTOCKHOLDER
MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES
42
ITEM 6.
SELECTED FINANCIAL DATA
44
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS
44
ITEM 7A.
QUANTITATIVEAND QUALITATIVEDISCLOSURES ABOUT MARKET RISK
75
ITEM 8.
FINANCIAL STATEMENTSAND SUPPLEMENTARYDATA
75
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON
ACCOUNTING AND FINANCIAL DISCLOSURE
114
ITEM 9A.
CONTROLS AND PROCEDURES
114
ITEM 9B.
OTHER INFORMATION
114
PARTIII
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE
115
ITEM 11.
EXECUTIVE COMPENSATION
115
ITEM 12.
SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND
MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS
115
ITEM 13.
CERTAINRELATIONSHIPS,RELATEDTRANSACTIONS AND DIRECTOR
INDEPENDENCE
115
ITEM 14.
PRINCIPALACCOUNTING FEES AND SERVICES
115
PARTIV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENTSCHEDULES
116
ITEM 16.
FORM 10-K SUMMARY
117
Table of Contents
3
PART
I
SPECIAL CAUTIONARY NOTE REGARDING
FORWARD
-LOOKING STATEMENTS
Various
of the statements made herein under the captions “Management’s
Discussion and Analysis of Financial Condition
and Results of Operations”, “Quantitative and Qualitative Disclosures
about Market Risk”, “Risk Factors” and elsewhere,
are “forward-looking statements” within the meaning and protections
of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”).
Forward-looking statements include statements with respect to
our beliefs, plans, objectives, goals, expectations,
anticipations, assumptions, estimates, intentions and future performance,
and involve known and unknown risks,
uncertainties and other factors, which may be beyond our
control, and which may cause the actual results, performance,
achievements or financial condition of the Company to be materially
different from future results, performance,
achievements or financial condition expressed or implied by
such forward-looking statements.
You
should not expect us to
update any forward-looking statements.
All statements other than statements of historical fact are statements
that could be forward-looking statements.
You
can
identify these forward-looking statements through our use of
words such as “may,”
“will,” “anticipate,” “assume,”
“should,” “indicate,” “would,” “believe,” “contemplate,” “expect,”
“estimate,” “continue,” “plan,” “point to,” “project,”
“could,” “intend,” “target” and other similar words and
expressions of the future.
These forward-looking statements may
not be realized due to a variety of factors, including, without
limitation:
●
the effects of future economic, business and market conditions
and changes, foreign, domestic and locally,
including seasonality, including
as a result of natural disasters or climate change, such as rising
sea and water
levels, hurricanes and tornados, coronavirus or other epidemics
or pandemics;
●
the effects of war or other conflicts, acts of terrorism, or
other events that may affect general economic conditions;
●
governmental monetary and fiscal policies;
●
legislative and regulatory changes, including changes in banking,
securities and tax laws, regulations and rules and
their application by our regulators, including capital and liquidity
requirements, and changes in the scope and cost
of FDIC insurance;
●
the failure of assumptions and estimates, as well as differences
in, and changes to, economic, market and credit
conditions, including changes in borrowers’ credit risks and
payment behaviors from those used in our loan
portfolio reviews;
●
the risks of changes in interest rates on the levels, composition
and costs of deposits, loan demand, and the values
and liquidity of loan collateral, securities, and interest-sensitive assets
and liabilities, and the risks and uncertainty
of the amounts realizable;
●
changes in borrower credit risks and payment behaviors;
●
changes in the availability and cost of credit and capital in the
financial markets, and the types of instruments that
may be included as capital for regulatory purposes;
●
changes in the prices, values and sales volumes of residential and
commercial real estate;
●
the effects of competition from a wide variety of local,
regional, national and other providers of financial,
investment and insurance services, including the disruption effects
of financial technology and other competitors
who are not subject to the same regulations as the Company and
the Bank;
●
the failure of assumptions and estimates underlying the establishment
of allowances for possible loan losses and
other asset impairments, losses valuations of assets and liabilities and
other estimates;
●
the costs of redeveloping our headquarters and the timing and
amount of rental income upon completion of the
project;
Table of Contents
4
●
the risks of mergers, acquisitions and divestitures, including,
without limitation, the related time and costs of
implementing such transactions, integrating operations as part
of these transactions and possible failures to achieve
expected gains, revenue growth and/or expense savings from
such transactions;
●
changes in technology or products that may be more difficult,
costly, or less effective
than anticipated;
●
cyber-attacks and data breaches that may compromise our
systems, our vendor systems
or customers’
information;
●
the risks that our deferred tax assets (“DTAs”),
if any, could be reduced
if estimates of future taxable income from
our operations and tax planning strategies are less than currently estimated,
and sales of our capital stock could
trigger a reduction in the amount of net operating loss carry-forwards that
we may be able to utilize for income tax
purposes; and
●
other factors and risks described under “Risk Factors” herein and in any of
our subsequent reports that we make
with the Securities and Exchange Commission (the “Commission”
or “SEC”) under the Exchange Act.
All written or oral forward-looking statements that are made by us or
are attributable to us are expressly qualified in their
entirety by this cautionary notice.
We have no obligation and
do not undertake to update, revise or correct any of the
forward-looking statements after the date of this report, or after
the respective dates on which such statements otherwise are
made.
ITEM 1.
BUSINESS
Auburn National Bancorporation, Inc. (the “Company”) is a bank holding
company registered with the Board of Governors
of the Federal Reserve System (the “Federal Reserve”) under
the Bank Holding Company Act of 1956, as amended (the
“BHC Act”).
The Company was incorporated in Delaware in 1990, and
in 1994 it succeeded its Alabama predecessor as
the bank holding company controlling AuburnBank, an Alabama state
member bank with its principal office in Auburn,
Alabama (the “Bank”).
The Company and its predecessor have controlled the Bank since
1984.
As a bank holding
company, the Company may diversify
into a broader range of financial services and other business activities
than currently
are permitted to the Bank under applicable laws and regulations.
The holding company structure also provides greater
financial and operating flexibility than is presently permitted
to the Bank.
The Bank has operated continuously since 1907 and currently conducts
its business primarily in East Alabama, including
Lee County and surrounding areas.
The Bank has been a member of the Federal Reserve System since April
1995.
The
Bank’s primary regulators are
the Federal Reserve and the Alabama Superintendent of Banks (the
“Alabama
Superintendent”).
The Bank has been a member of the Federal Home Loan Bank of
Atlanta (the “FHLB”) since 1991.
General
The Company’s business is conducted
primarily through the Bank and its subsidiaries.
Although it has no immediate plans
to conduct any other business, the Company may engage directly
or indirectly in a number of activities that the Federal
Reserve has determined to be so closely related to banking or
managing or controlling banks as to be a proper incident
thereto.
The Company’s principal executive
offices are located at 132 N. Gay Street, Auburn, Alabama
36830, and its telephone
number at such address is (334) 821-9200.
The Company maintains an Internet website at
www.auburnbank.com
.
The
Company’s website and the information
appearing on the website are not included or incorporated
in, and are not part of,
this report.
The Company files annual, quarterly
and current reports, proxy statements, and other information with
the
SEC.
You
may read and copy any document we file with the SEC at the SEC’s
public reference room at 100 F Street, N.E.,
Washington, DC 20549.
Please call the SEC at 1-800-SEC-0330 for more information on the operation
of the public
reference rooms.
The SEC maintains an Internet site at
www.sec.gov
that contains reports, proxy,
and other information,
where SEC filings are available to the public free of charge.
Table of Contents
5
Services
The Bank offers checking, savings, transaction deposit
accounts and certificates of deposit, and is an active residential
mortgage lender in its primary service area.
The Bank’s primary service area
includes the cities of Auburn and Opelika,
Alabama and nearby surrounding areas in East Alabama, primarily in
Lee County.
The Bank also offers commercial,
financial, agricultural, real estate construction and consumer
loan products and other financial services.
The Bank is one of
the largest providers of automated teller services in
East Alabama and operates ATM
machines in 13 locations in its
primary service area.
The Bank offers Visa
®
Checkcards, which are debit cards with the Visa
logo that work like checks
but can be used anywhere Visa
is accepted, including ATMs.
The Bank’s Visa
Checkcards can be used internationally
through the Plus
®
network.
The Bank offers online banking, bill payment
and other electronic services through its Internet
website,
www.auburnbank.com
.
Our online banking services, bill payment and electronic
services are subject to certain
cybersecurity risks.
See “Risk Factors – Our information systems may experience
interruptions and security breaches.”
Competition
The banking business in East Alabama, including Lee County,
is highly competitive with respect to loans, deposits, and
other financial services.
The area is dominated by a number of regional and national
banks and bank holding companies
that have substantially greater resources, and numerous offices
and affiliates operating over wide geographic areas.
The
Bank competes for deposits, loans and other business with these banks,
as well as with credit unions, mortgage companies,
insurance companies, and other local and nonlocal financial institutions,
including institutions offering services through
the
mail, by telephone and over the Internet.
As more and different kinds of businesses enter the market
for financial services,
competition from nonbank financial
institutions may be expected to intensify further.
Among the advantages that larger financial institutions have
over the Bank are their ability to finance extensive advertisin
g
campaigns, to diversify their funding sources, and to allocate
and diversify their assets among loans and securities of the
highest yield in locations with the greatest demand.
Many of the major commercial banks or their affiliates operating
in the
Bank’s service area offer
services which are not presently offered directly
by the Bank and they typically have substantially
higher lending limits than the Bank.
Banks also have experienced significant competition for deposits from
mutual funds, insurance companies and other
investment companies and from money center banks’ offerings
of high-yield investments and deposits.
Certain of these
competitors are not subject to the same regulatory restrictions
as the Bank.
Selected Economic Data
Lee County’s population was estimated
to be 164,542 in 2019, and has increased approximately 17.3
%
from 2010 to 2019.
The largest employers in the area are Auburn University,
East Alabama Medical Center, a Wal
-Mart Distribution Center,
Mando America Corporation, and Briggs & Stratton.
Auto manufacturing and related suppliers are increasingly important
along Interstate Highway 85 to the east and west of Auburn.
Kia Motors has a large automobile factory in nearby West
Point, Georgia, and Hyundai Motors has a large
automobile factory in Montgomery,
Alabama.
Between 2010 and 2019, the Auburn-Opelika MSA grew 1
7.3%, the second fastest growing MSA in Alabama.
The U.S.
Census Bureau estimates that the Auburn-Opelika MSA population will
grow 5.41% from 2020 to 2025.
During the same
time, the U.S. Census Bureau estimates that household income
will increase 13.70%, to $66,363, which is approximately
the same as the Birmingham-Hoover MSA.
Loans and Loan Concentrations
The Bank makes loans for commercial, financial and agricultural purposes,
as well as for real estate mortgages, real estate
acquisition, construction and development and consumer
purposes.
While there are certain risks unique to each type of
lending, management believes that there is more risk associated
with commercial, real estate acquisition, construction and
development, agricultural and consumer lending than with residentia
l
real estate mortgage loans.
To help manage these
risks, the Bank has established underwriting standards used in
evaluating each extension of credit on an individual basis,
which are substantially similar for each type of loan.
These standards include a review of the economic conditions
affecting the borrower, the borrower’s
financial strength and capacity to repay the debt, the underlying collateral
and the
borrower’s past credit performance.
We apply these standards
at the time a loan is made and monitor them periodically
throughout the life of the loan.
See “Lending Practices” for a discussion of regulatory guidance
on commercial real estate
lending.
Table of Contents
6
The Bank has loans outstanding to borrowers in all industries
within our primary service area.
Any adverse economic or
other conditions affecting these industries would also
likely have an adverse effect on the local workforce,
other local
businesses, and individuals in the community that have entered
into loans with the Bank.
For example, the auto
manufacturing business and its suppliers have positively affected
our local economy, but automobile
manufacturing is
cyclical and adversely affected by increases in interest
rates. Decreases in automobile sales, including adverse changes
due
to interest rate increases, and the economic effects of
the impact of COVID-19, including continuing supply chain
disruptions, could adversely affect nearby Kia and Hyundai
automotive plants and their suppliers' local spending and
employment, and could adversely affect economic conditions
in the markets we serve. However,
management believes that
due to the diversified mix of industries located within the Bank’s
primary service area, adverse changes in one industry may
not necessarily affect other area industries to the same degree
or within the same time frame.
The Bank’s primary service
area also is subject to both local and national economic conditions and
fluctuations.
While most loans are made within our
primary service area, some residential mortgage loans are originated
outside the primary service area, and the Bank from
time to time has purchased loan participations from outside its
primary service area.
Employees
At December 31, 2020,