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 fiscal year ended
December 31, 2023
OR
☐
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from __________ 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.)
100 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.
☐
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.
☐
If securities are registered pursuant to Section
12(b) of the Act, indicate by check
mark whether the financial statements of
the registrant included in the filing reflect
the correction of an error to previously
issued financial statements.
☐
Indicate by check mark whether any
of those error corrections are restatements
that required a recovery analysis of
incentive-based compensation received by any
of
the registrant’s executive officers during the relevant recovery
period pursuant to §240.10D-1(b).
☐
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:
$
47,841,697
as of June 30, 2023.
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:
3,493,674
shares of common stock as
of March 13, 2024.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the
Annual Meeting of Shareholders, scheduled
to be held May 14, 2024, 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
32
ITEM 1B.
UNRESOLVEDSTAFF COMMENTS
48
ITEM 1C.
CYBERSECURITY
48
ITEM 2.
PROPERTIES
49
ITEM 3.
LEGAL PROCEEDINGS
51
ITEM 4.
MINE SAFETY DISCLOSURES
51
PARTII
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY,RELATEDSTOCKHOLDER
MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES
51
ITEM 6.
SELECTED FINANCIAL DATA
54
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS
54
ITEM 7A.
QUANTITATIVEAND QUALITATIVEDISCLOSURES ABOUT MARKET RISK
82
ITEM 8.
FINANCIAL STATEMENTSAND SUPPLEMENTARYDATA
82
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON
ACCOUNTING AND FINANCIAL DISCLOSURE
123
ITEM 9A.
CONTROLS AND PROCEDURES
123
ITEM 9B.
OTHER INFORMATION
123
ITEM 9C.
DISCLOSURE REGARDING FORGEIN JURISDICTIONS THATPREVENT
INSPECTION
123
PARTIII
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATEGOVERNANCE
124
ITEM 11.
EXECUTIVE COMPENSATION
124
ITEM 12.
SECURITY OWNERSHIP OF CERTAINBENEFICIAL OWNERS AND
MANAGEMENT AND RELATEDSTOCKHOLDER MATTERS
124
ITEM 13.
CERTAINRELATIONSHIPS,RELATEDTRANSACTIONS AND DIRECTOR
INDEPENDENCE
124
ITEM 14.
PRINCIPALACCOUNTING FEES AND SERVICES
124
PARTIV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENTSCHEDULES
124
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,” “designed”, “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 inflation, seasonality,
natural disasters or climate change, such as rising sea and water levels,
hurricanes
and tornados, COVID-19 or other health crises, epidemics or pandemics including supply
chain disruptions,
inventory volatility, and changes
in consumer behaviors;
●
the effects of war or other conflicts, acts of terrorism, trade restrictions, sanctions or
other events that may affect
general economic conditions;
●
governmental monetary and fiscal policies, including the continuing effects
of COVID-19 fiscal and monetary
stimuli, and subsequent changes in monetary policies in response to inflation, including
increases in the Federal
Reserve’s target federal
funds rate and reductions in the Federal Reserve’s
holdings of securities through
quantitative tightening; and the duration that the Federal Reserve will keep its targeted
federal funds rates at or
above current rates to meet its long term inflation target of 2%;
●
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;
●
changes in accounting pronouncements and interpretations, including the required
use, beginning January 1, 2023,
of Financial Accounting Standards Board’s
(“FASB”) Accounting
Standards Update (ASU) 2016-13, “Financial
Instruments – Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments,” as well as the
updates issued since June 2016 (collectively,
FASB ASC Topic
326) on Current Expected Credit Losses
(“CECL”), and ASU 2022-02, Troubled Debt Restructurings
and Vintage Disclosures,
which eliminates troubled
debt restructurings (“TDRs”) and related guidance;
●
the failure of assumptions and estimates, including those used in the Company’s
CECL models to establish our
allowance for credit losses and estimate asset impairments, 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 CECL models and loan portfolio reviews;
●
the risks of changes in market interest rates and the shape of the yield curve on customer
behaviors; the levels,
composition and costs of deposits, loan demand and mortgage loan originations; the
values and liquidity of loan
collateral, our securities portfolio and interest-sensitive assets and liabilities;
and the risks and uncertainty of the
amounts realizable on collateral;
Table of Contents
4
●
the risks of increases in market interest rates creating unrealized losses on our securities available
for sale, which
adversely affect our stockholders’ equity for financial reporting purposes
and our tangible equity;
●
changes in borrower liquidity and credit risks, and savings, deposit 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 disruptive effects
of financial technology and other competitors
who are not subject to the same regulation, including capital, and supervision and examination,
as the Company
and the Bank and credit unions, which are not subject to federal income taxation;
●
the timing and amount of rental income from third parties following the June 2022
opening of our new
headquarters;
●
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
vendors’ systems or customers’
information;
●
the risks that our deferred tax assets (“DTAs”)
included in “other assets” on our consolidated balance sheets, 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;
●
the risks that our dividends, share repurchases and discretionary bonuses are
limited by regulation to the
maintenance of a capital conservation buffer of 2.5% and our future earnings
and “eligible retained earnings” over
rolling four calendar quarter periods;
●
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 we make 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.
Table of Contents
5
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 Bank of Atlanta (the
“Federal
Reserve Bank”) 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-Atlanta”) 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 closely related to
banking permitted by the Federal Reserve.
The Company’s principal executive offices
are located at 100 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 machine (“ATM”)
services in East Alabama and operates ATM
machines in 12
locations in its primary service area.
The Bank offers Visa
®
Checkcards, which are debit cards with the Visa
logo that work
like checks and 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 banking
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.”
The Bank does not offer any services related to any Bitcoin or other digital or crypto instruments
or stablecoins or
businesses.
Competition
The Bank had the largest share of the Auburn-Opelika MSA’s
deposits (20.1%) at June 30, 2023.
The banking business in
East Alabama, including Lee County,
is highly competitive with respect to loans, deposits, and other financial
services.
The area is served by 19 banks, 11 of which are headquartered
outside of Alabama and have 26 offices in our market.
Larger national and regional competitors that have offices
in our market include J.P.
Morgan Chase, Wells
Fargo, Truist,
PNC, Regions, Valley
National and SouthState.
The regional and national banks and bank holding companies that we
compete with 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 these other banks typically have
substantially higher lending limits than the Bank.
Table of Contents
6
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, including CDs and
savings accounts.
Certain of these competitors are not subject to the same regulatory restrictions as the Bank.
Selected Economic Data
The Auburn-Opelika Metropolitan Statistical Area is Lee County,
Alabama, including Auburn, Opelika and part of Phenix
City, Alabama.
The U.S. Census Bureau estimates Lee County’s
population was 180,773 in 2022, and has increased
approximately 29% from 2010 to 2022.
The largest employers in the area are Auburn University,
East Alabama Medical
Center, Lee County School System, Auburn City Schools,
Wal-Mart Distribution
Center, Aptar CSP Technologies,
Pharmavite, LLC, HL Mando America Corporation (automobile brakes and steering),
Golden State Foods 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 near Montgomery,
Alabama.
Various
suppliers to the automotive industry have facilities in Lee
County.
The unemployment rate in Lee County was 2.4% at
year end 2023
according to the U.S. Bureau of Labor
Statistics.
Between 2010 and 2022, the Auburn-Opelika MSA was the second fastest
growing MSA in Alabama.
The Auburn-
Opelika MSA population is estimated to grow 6.6% from 2023 to 2028.
During the same time, household income is
estimated to increase 14.25%, to $69,213.
Loans and Loan Concentrations