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, 2021
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:
$
81,577,219
as of June 30, 2021.
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:
3,516,971
shares of common stock as
of March 7, 2022.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the
Annual Meeting of Shareholders, scheduled
to be held May 10, 2022, 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
42
ITEM 4.
MINE SAFETY DISCLOSURES
42
PARTII
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY,RELATEDSTOCKHOLDER
MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES
42
ITEM 6.
SELECTED FINANCIAL
DATA
45
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS
45
ITEM 7A.
QUANTITATIVEAND QUALITATIVEDISCLOSURES ABOUT MARKET RISK
76
ITEM 8.
FINANCIAL STATEMENTSAND SUPPLEMENTARYDATA
76
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON
ACCOUNTING AND FINANCIAL DISCLOSURE
116
ITEM 9A.
CONTROLS AND PROCEDURES
116
ITEM 9B.
OTHER INFORMATION
116
ITEM 9C.
DISCLOSURE REGARDING FORGEIN JURISDICTIONS THATPREVENT
INSPECTION
116
PARTIII
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE
117
ITEM 11.
EXECUTIVE COMPENSATION
117
ITEM 12.
SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND
MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS
117
ITEM 13.
CERTAINRELATIONSHIPS,RELATEDTRANSACTIONS AND DIRECTOR
INDEPENDENCE
117
ITEM 14.
PRINCIPALACCOUNTING FEES AND SERVICES
117
PARTIV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENTSCHEDULES
118
ITEM 16.
FORM 10-K SUMMARY
119
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” “Description of
Property” 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, inflation and
supply chain disruptions, including those resulting from 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, invasions of other countries
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 occurring in business conditions and inflation;
●
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;
Table of Contents
4
●
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 campus and the timing and amount of rental income
upon completion
of the project, and the satisfaction of closing conditions and the amount and timing of expected
gain on the
pending sale of part of our campus for development as a hotel;
●
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.
Table of Contents
5
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.
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 ATM
s.
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 advertising
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
The U.S. Census Bureau estimates Lee County’s
population was 174,241 in 2020, and has increased approximately 24.2%
from 2010 to 2020.
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 2022, the Auburn-Opelika MSA grew an estimated 23.9%,
the second fastest growing MSA in
Alabama.
The Auburn-Opelika MSA population is estimated to grow 6.73% from 2022
to 2027.
During the same time,
household income is estimated to increase 13.34%, to $67,593.
Table of Contents
6
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 residential 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.
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.
Human Capital
At December 31, 2021, the Company and its subsidiaries had 152
full-time equivalent employees, including 39 officers. In
response to the COVID-19 pandemic, our business continuity plan worked to provide
essential banking services to our
communities and customers, while protecting our employees’ health.
As part of our efforts to exercise social distancing in
accordance with the guidelines of the Centers for Disease Control and the Governor
of the State of Alabama, starting March
23, 2020, we limited branch lobby service to appointment only while continuing to operate
our branch drive-thru facilities