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, 2024
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:
$
40,992,280
as of June 30, 2024.
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:
3,493,699
shares of common stock as
of March 10 2025.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual
Meeting of Shareholders, scheduled to
be held May 13, 2025, 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
36
ITEM 1B.
UNRESOLVEDSTAFF COMMENTS
53
ITEM 1C.
CYBERSECURITY
53
ITEM 2.
PROPERTIES
54
ITEM 3.
LEGAL PROCEEDINGS
56
ITEM 4.
MINE SAFETY DISCLOSURES
56
PARTII
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY,RELATEDSTOCKHOLDER
MATTERSAND ISSUER PURCHASES OF EQUITY SECURITIES
56
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSISOF FINANCIAL CONDITION
AND RESULTSOF OPERATIONS
58
ITEM 7A.
QUANTITATIVEAND QUALITATIVEDISCLOSURES ABOUT MARKET RISK
83
ITEM 8.
FINANCIAL STATEMENTSAND SUPPLEMENTARYDATA
83
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTSON
ACCOUNTING AND FINANCIAL DISCLOSURE
122
ITEM 9A.
CONTROLS AND PROCEDURES
122
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
125
ITEM 16.
FORM 10-K SUMMARY
126
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,” “seek” 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, 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, tariffs,
sanctions, the value of the U.S.
dollar against other currencies, or other events that may affect general
economic conditions, consumer and
business confidence;
●
governmental monetary and fiscal policies, including taxes, federal
deficit spending and the debt required to fund
such spending, changes in monetary policies in response to inflation and changes
in prices , including changes in
the Federal Reserve’s target
federal funds rate and changes in the Federal Reserve’s
holdings of securities through
quantitative tightening or easing; and the duration that the Federal Reserve
will keep its targeted federal funds
rates at or above current target ranges to meet its long term inflation
target of 2%;
●
legislative, executive branch and regulatory changes, including changes
by executive orders, the possible
reorganization and/or consolidation of the bank regulatory
agencies and/or the CFPB, changes in the leadership
and personnel, including reductions in the number and experience of personnel,
at the bank and securities
regulators and the CFPB, freezes on changes in regulations and interpretations,
the numerous new Executive
Orders, and the uncertain effects of all these, including the
costs and benefits of such changes;
●
the effects of the potential privatization of Fannie Mae and Freddie Mac
and its release from conservatorship on
the mortgage markets and us as seller and servicer of residential mortgage
loans;
●
recent Supreme Court rulings that may lead to more court challenges to regulations
and regulatory actions, which
may cause uncertainty,
wasted implementation costs and time by the industry,
and lengthy delays until ultimate
resolution;
●
changes in banking, securities and tax laws, regulations and rules and their
application by the regulators, including
capital and liquidity
requirements, and changes in the scope and cost of FDIC insurance;
Table of Contents
4
●
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;
●
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 changes in 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 liquidity
requirements, internal controls, and
supervision and examination, as the Company and the Bank, and competition
from credit unions, which are not
subject to federal income taxation;
●
more permissive regulation and/or enforcement regarding digital assets, such as cyber
currency and stable coins
that creates additional competition to banks, and greater risks to the
payment systems that the banking industry,
including the Company,
relies on, and greater risks of fraud and theft of digital assets and their effects
on
customers, other financial institutions, including our counterparties, and
confidence in the financial system,
generally;
●
the timing and amount of rental income from third parties from office
space in our Auburn Center headquarters
and in former office locations;
●
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;
Table of Contents
5
●
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.
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.
Table of Contents
6
Services
The Bank operates its main office and 7 branches in Auburn, Opelika,
Notasulga, and Valley,
Alabama and a loan
production office in Phenix City,
Alabama.
We
evaluate the utilization of our existing facilities and customer preferences
for online and mobile banking.
In addition to opening our new main office in 2022, we closed one
branch office in Auburn
at the end of 2024, whose customers could be served conveniently and more
efficiently by another existing Bank branch.
It 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 operates ATM
machines in 10 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 has not offered any services related to any Bitcoin or
other digital or crypto instruments, stablecoins or
businesses.
Competition
The Bank had the largest share of the Lee County,
Alabama’s deposits (21.3%) at June 30, 2024.
The banking business in
East Alabama, including Lee County,
is highly competitive with respect to loans, deposits, and other financial services.
Lee County is served by 19 banks, 10 of which are headquartered outside
of Alabama.
Other banks have 35 offices in Lee
County.
National and regional competitors that have offices in our market
include J.P.
Morgan Chase, Wells
Fargo, Truist,
PNC, Regions, Valley
National, SouthState and Cadence.
The national and regional banks 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.