-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WdjxdGP4w/KTeY1OswCElrkbdC5zYtz3hrhiy4YHW362djGil5sX/83IMEzuSDXT IZlA3fiirmjHXYprBA6hLQ== 0000931763-96-000880.txt : 19961113 0000931763-96-000880.hdr.sgml : 19961113 ACCESSION NUMBER: 0000931763-96-000880 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AUBURN NATIONAL BANCORPORATION INC CENTRAL INDEX KEY: 0000750574 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 630885779 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-26486 FILM NUMBER: 96658225 BUSINESS ADDRESS: STREET 1: 165 E MAGNOLIA AVE STREET 2: STE 203 CITY: AUBURN STATE: AL ZIP: 36830 BUSINESS PHONE: 2058219200 MAIL ADDRESS: STREET 1: 165 EAST MAGNOLIA AVE STREET 2: SUITE 203 CITY: AUBURN STATE: AL ZIP: 36830 10QSB 1 FORM 10QSB ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [X] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended SEPTEMBER 30, 1996 ---------------------- [ ] Transition report under Section 13 or 15(d) of the Exchange Act For the transition period to ---------- ---------- Commission file number 0-26486 --------------------------- AUBURN NATIONAL BANCORPORATION, INC. (Exact Name of Small Business Issuers as Specified in Its Charter) DELAWARE 63-0885779 (State of Other Jurisdiction of (I.R.S.Employer Incorporation of Organization) Identification No.) 165 EAST MAGNOLIA AVENUE, SUITE 203, AUBURN, ALABAMA 36830 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (334) 821-9200 - -------------------------------------------------------------------------------- (Issuer's Telephone Number, Including Area Code) - -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or 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 X NO ----- ----- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after distribution of securities under a plan confirmed by a court. YES NO ----- ----- APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of October 31, 1996: 1,303,071 SHARES OF COMMON STOCK, $.01 --------------------------------------- PAR VALUE PER SHARE - ------------------- Transitional Small Business Disclosure Format (check one): YES NO X ____ ----- ================================================================================ AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION PAGE - -------------------------------------------------------------------------------- Item 1 Financial Information Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 3 Consolidated Statements of Income for the Three Months and Nine Months Ended September 30, 1996 and 1995 4 Consolidated Statements of Changes in Stockholders' Equity for September 30, 1996 and December 31, 1995 5 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1995 6 Notes to Consolidated Financial Statements 7 Item 2 Managements Discussion and Analysis of Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION - ---------------------------------------------------------------- Item 6 Exhibits 18
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AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES Consolidated Balance Sheets September 30, 1996 and December 31, 1995 ASSETS 9/30/96 12/31/95 ----------------------------------------------- ------------- ------------- (UNAUDITED) Cash and due from banks 9,007,433 8,175,545 Federal funds sold securities purchased under agreements to resell 13,175,000 10,575,000 ------------- ------------- Cash and cash equivalents 22,182,433 18,750,545 Interest bearing deposits with other banks 23,839 7,110 Investment securities held to maturity (fair value of $18,867,455 and $26,084,159 at September 30, 1996 and December 31, 1995, respectively): Taxable 18,670,280 24,195,972 Tax-exempt 1,544,665 1,564,609 ------------- ------------- Total Investment Securities Held to Maturity 20,214,945 25,760,581 Investment securities available for sale, net (unrealized holding losses of $558,580 and unrealized holding gains of $154,130 at September 30, 1996 and December 31, 1995, respectively) Taxable 42,530,699 30,773,639 Tax-exempt 480,000 -- ------------- ------------- Total Investment Securities Available for Sale 43,010,699 30,773,639 Loans & Lease Receivables: Loans & Lease Receivables, less unearned income of $106,528 at September 30, 1996 and $156,935 at December 31, 1995 161,980,453 140,470,965 Less allowance for loan & lease losses (including valuation reserve for impaired loans) (2,089,273) (2,012,133) ------------- ------------- Loans & Lease Receivables, net 159,891,180 138,458,832 Premises and equipment, net 3,519,248 3,626,943 Rental property, net 1,908,984 1,978,192 Other assets 3,398,596 2,841,630 ------------- ------------- Total assets $254,149,924 $222,197,472 ============ ============ LIABILITIES & STOCKHOLDERS' EQUITY ----------------------------------------------- Deposits: Non-interest bearing 28,672,910 25,491,056 Interest bearing 180,289,380 160,311,472 ------------- ------------- Total Deposits 208,962,290 185,802,528 Federal funds purchased and repurchase agreements 9,086,829 7,010,098 Other short term borrowings 1,272,708 472,195 Other borrowed funds 10,938,660 6,029,138 Accrued expenses and other liabilities 1,534,325 1,443,905 Employee Stock Ownership Plan debt 170,946 170,946 ------------- ------------- Total liabilities 231,965,758 200,928,810 Stockholders' equity: Preferred stock of $.01 par value; authorized 200,000 shares; issued shares-none -- -- Common stock of $.01 par value; authorized 1,750,000 shares; issued 1,319,045 at September 30, 1996 and December 31, 1995, respectivley 13,190 13,190 Surplus 3,691,099 3,685,488 Retained earnings 19,323,685 17,749,910 ------------- ------------- 23,027,974 21,448,588 Less: Unrealized loss on mutual funds and investment securities available for sale, net of taxes (368,853) 90,775 Treasury stock, 15,974 shares and 5,820 shares at September 30, 1996 and December 31, 1995, respectively, at cost (304,009) (99,755) Employee Stock Ownership Plan debt (170,946) (170,946) ------------- ------------- Net stockholders' equity 22,184,166 21,268,662 Commitments --- --- ------------- ------------- Total liabilities and stockholders' equity $254,149,924 $222,197,472 ============ ============
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AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES Consolidated Statements of Earnings For The Three Months and Nine Months Ended September 30, 1996 and 1995 Three Months Ended September 30, Nine Months Ended September 30, -------------------------------- ---------------------------------- 1996 1995 1996 1995 -------------- -------------- -------------- ---------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) Interest income: Interest and fees on loans $3,391,918 $3,078,369 $9,636,596 $9,136,670 Interest and dividends on investment securities held to maturity: Taxable 323,993 546,596 1,097,980 1,688,854 Tax-exempt 26,098 31,373 78,917 109,627 -------------- -------------- -------------- ---------------- Total interest and dividends on investment securities-HTM 350,091 577,969 1,176,897 1,798,481 Interest and dividends on investment securities available for sale: Taxable 706,088 449,757 1,965,791 1,022,374 Tax-exempt 5,947 -- 9,516 -- -------------- -------------- -------------- ---------------- Total interest and dividends on investment securities-AFS 712,035 449,757 1,975,307 1,022,374 Interest on federal funds sold 56,306 50,999 179,244 269,564 Interest on interest-bearing deposits with other banks 384 642 1,197 2,893 -------------- -------------- -------------- ---------------- Total interest income 4,510,734 4,157,736 12,969,241 12,229,982 Interest expense: Interest on deposits 2,191,609 2,163,034 6,308,523 5,986,278 Interest on federal funds purchased 11,819 4,537 63,679 12,887 Interest on securities sold under agreements to repurchase 100,525 14,900 289,001 66,454 Interest on other borrowings 167,042 127,781 388,005 549,418 -------------- -------------- -------------- ---------------- Total interest expense 2,470,995 2,310,252 7,049,208 6,615,037 -------------- -------------- -------------- ---------------- Net interest income 2,039,739 1,847,484 5,920,033 5,614,945 Provision for loan losses 44,674 0 39,977 214,080 -------------- -------------- -------------- ---------------- Net interest income after provision for loan losses 1,995,065 1,847,484 5,880,056 5,400,865 Noninterest income: Service charges on deposit accounts 203,172 178,995 592,262 548,193 Investment securities gains/(losses), net 0 (4) 9,639 27,199 Other 341,705 294,945 1,016,078 1,032,693 -------------- -------------- -------------- ---------------- Total noninterest income 544,877 473,936 1,617,979 1,608,085 Noninterest expense: Salaries and benefits 726,725 709,728 2,165,514 2,259,494 Net occupancy expense 195,398 158,188 597,290 514,752 Other 595,090 577,754 1,711,116 2,047,662 -------------- -------------- -------------- ---------------- Total noninterest expense 1,517,213 1,445,670 4,473,920 4,821,908 Earnings before income tax expense 1,022,729 875,750 3,024,115 2,187,042 Income tax expense 385,403 286,041 1,033,394 758,611 -------------- -------------- -------------- ---------------- Net earnings $637,326 $589,709 $1,990,721 $1,428,431 ============== ============== ============== =============== Net earnings per share $0.49 $0.45 $1.53 $1.11 ============== ============== ============== =============== Weighted average shares outstanding 1,302,793 1,313,225 1,305,136 1,291,657 ============== ============== ============== ===============
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AUBURN NATIONAL BANCORPORATION & SUBSIDIARIES CHANGES IN STOKCHOLDERS EQUITY FOR THE PERIODS ENDED DECEMBER 31, 1995 AND SEPTEMBER 30, 1996 Unrealized Gain/(Loss) on Mutual Funds and Securities Retained Available for Common Stock Surplus Earnings Sale ------------- ----------- ----------- ------------ Balance at December 31, 1994 $ 12,500 2,452,449 16,128,345 (348,663) Issuance of Common Stock (69,045 shares) 690 1,233,039 --- --- Net earnings --- --- 2,091,234 --- Cash dividends paid ($0.36 per share) --- --- (469,669) --- Change in net unrealized gain (loss) on mutual funds and investment securities available for sale of bank subsidiary --- --- --- 439,438 Payment of Employee Stock Ownership Plan Debt --- --- --- --- Purchase of treasury stock (1,202 shares) --- --- --- --- ------------- ----------- ----------- ------------ Balance at December 31, 1995 $ 13,190 3,685,488 17,749,910 90,775 Through September 30, 1996 (Unaudited): Net earnings --- --- 1,990,721 --- Cash dividends paid ($0.32 per share) --- --- (416,946) --- Change in net unrealized gain (loss) on mutual funds and investment securities available for sale of bank subsidiary --- --- --- (459,628) Purchase of treasury stock (10,154 shares) --- 5,611 --- --- ------------- ----------- ----------- ------------ Balance at September 30, 1996 (Unaudited) $ 13,190 3,691,099 19,323,685 (368,853) ============ ========== ========== ===========
Employee Stock Ownership Treasury Plan debt Stock Total - ------------ ----------- ----------- (227,953) (74,994) 17,941,684 --- --- 1,233,729 --- --- 2,091,234 --- --- (469,669) --- --- 439,438 57,007 --- 57,007 --- (24,761) (24,761) - ------------ ----------- ----------- (170,946) (99,755) 21,268,662 --- --- 1,990,721 --- --- (416,946) --- --- (459,628) --- (204,254) (198,643) - ------------ ----------- ----------- (170,946) (304,009) 22,184,166 =========== ========== ==========
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES Consolidated Statements of Cash Flow For The Nine Months Ended September 30, 1996 and 1995 1996 1995 ------------ ------------ (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $1,990,721 $1,428,431 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and Amortization 626,560 611,015 Accretion of discount & loan fees (101,384) (44,645) Provision for loan losses and adjustment for impaired loans 39,977 214,080 Loss on sale of premises & equipment 186 3,746 Increase in interest receivable (572,426) (486,213) Decrease in other assets 142,866 325,369 Decrease in interest payable (129,291) (136,866) Increase in other liabilities 219,711 569,903 ------------ ------------ Net cash provided by operating activities 2,216,920 2,484,820 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities/calls/paydowns of investment securities held to maturity 5,492,133 3,947,120 Proceeds from maturities/calls/paydowns of investment securities available for sale 2,535,075 2,298,874 Proceeds from sale of investment securities available for sale 5,915,851 --- Purchases of investment securities available for sale (21,387,565) (16,848,141) Net increase in loans (21,472,325) 2,900,257 Purchases of premises and equipment (181,100) (1,303,989) Purchases of rental property (1,310) (14,986) Proceeds from lease of other real estate --- 3,807 Net (increase)/decrease in interest-bearing deposits with other banks (16,729) 3,530 ------------ ------------ Net cash used in investing activities (29,115,970) (9,013,528) CASH FLOWS FROM FINANCING ACTIVITIES: Net increase/(decrease) in Interest bearing deposits, NOW accounts and savings accounts 17,355,524 (10,492,893) Net increase in certificates of deposit 5,804,238 27,149,574 Net increase/(decrease) in securities sold under agreements to repurchase 2,076,731 (2,995,546) Increase/(decrease) in borrowings from FHLB 4,925,000 (8,075,000) Net increase in other short-term borrowings 800,513 777,833 Net decrease in other long-term debt (15,477) (3,514,187) Proceeds from sale of Treasury Stock 16,887 --- Proceeds from issuance of Common Stock --- 1,233,729 Purchase of treasury stock (221,141) (24,761) Dividends paid (411,335) (351,479) ------------ ------------ Net cash provided by financing activities 30,330,940 3,707,270 ------------ ------------ Net increase/(decrease) in cash and cash equivalents 3,431,890 (2,821,438) Cash and cash equivalents at beginning of year 18,750,543 13,115,402 ------------ ------------ Cash and cash equivalents at end of period $22,182,433 $10,293,964 ============ ============ Supplemental information on cash payments: Interest paid $7,454,367 $6,478,171 ============ ============ Income taxes paid $1,033,394 $738,059 ============ ============ Supplemental information on noncash transactions: Loans transferred to other real estate $90,585 $23,000 ============ ============ Change in unrealized gain (loss) on investment securities available for sale, net of change in deferred tax ($459,628) $340,403 ============ ============ Non-cash Dividend from Bank Subsidiary to Parent Company, net --- $341,092 ============ ============
-6- AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS NOTE 1- GENERAL The consolidated financial statements in this report have not been audited. In the opinion of management, all adjustments necessary to present fairly the financial position and the results of operations for the interim periods have been made. All such adjustments are of a normal recurring nature. The results of operations are not necessarily indicative of the results of operations which the Company may achieve for the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-KSB for the year ended December 31, 1995. NOTE 2- ACCOUNTING PRONOUNCEMENTS In May 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 122, Accounting for Mortgage Servicing Rights an amendment of FASB Statement No. 65 (SFAS No. 122). SFAS No. 122 amends SFAS 65 and required that a mortgage banking enterprise recognize as separate assets, rights to service mortgage loans for others, however those servicing rights are acquired. SFAS No. 122 also requires that a mortgage banking enterprise assess its capitalized mortgage servicing rights for impairment based on the fair value of those rights. SFAS No. 122 is effective for financial statements issued for fiscal years beginning after December 15, 1995. The Company adopted SFAS No. 122 effective January 1, 1996 with no material effect on its financial condition or results of operation. In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). SFAS 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. Those plans include all arrangements by which employees receive shares of stock or other equity instruments of the employer or the employer incurs liabilities to employees in amounts based on the price of the employer's stock. Such instruments include stock purchase plans, stock options, restricted stock, and stock appreciation rights. SFAS No. 123 also applies to transactions in which an entity issues its equity instruments to acquire goods or services from nonemployees. Those transactions are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. SFAS No. 123 provides a choice for accounting for employee stock compensation plans. A company can elect to use the new fair-value-based method of accounting for employee stock compensation plans, under which compensation cost is measured and recognized in results of operations; or, continue to account for these plans under the current account standards. Entities electing to remain with the present accounting standards must make disclosures of what net income and earning per share would have been if the fair-value-based method of accounting had been applied. The Company has not issued any stock-based compensation, although it does have a "1994 Long-Term Incentive Plan" pursuant to which such compensation may be granted. Upon the granting of any stock options, the Company plans to account for employee stock options using the present accounting standards and include the required disclosures in the financial statements. SFAS No. 123 is effective for financial statements issued for fiscal years beginning after December 15, 1995. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis is designed to provide a better understanding of various factors related to the Company's results of operations and financial condition. This discussion is intended to supplement and highlight information contained in the accompanying unaudited consolidated financial statements for the nine month periods ended September 30, 1996 and 1995. SUMMARY Net income of $637,000 for the quarter ended September 30,1996 represented an increase of $47,000 (8.0%) from the Company's net income of $590,000 for the same period of 1995. Earnings per average Share of Common Stock outstanding increased $0.04 (8.9%) to $0.49 during the third quarter of 1996 from $0.45 for the third quarter of 1995 due primarily to the increase in net income. Net income increased $563,000 (39.4%) to $1,991,000 for the nine month period ended September 30, 1996 compared to $1,428,000 for the same period of 1995. Earnings per average Share of Common Stock outstanding increased $0.42 (37.8%) to $1.53 during the first nine months of 1996 from $1.11 for the first nine months of 1995. During the three month and nine month periods ended September 30, 1996 compared to the same periods of 1995, the Company experienced an increase in net interest income, as well as an increase in noninterest income. Noninterest expense increased for the three month period but decreased for the nine month period ended September 30, 1996. The net yield on total interest earning assets was 3.68% for the nine months ended September 30, 1996 compared to 3.72% for the nine months ended September 30, 1995. While the Prime interest rate was at a slightly lower level during the first nine months of 1996, compared to the first nine months of 1995, this decline in the net yield on interest earning assets is due primarily to the concentration of interest earning asset growth in investment securities available for sale, which provided lower yields than other interest earning assets and an increase in the average rate paid on certificates of deposits. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table. Total assets of $254,150,000 at September 30, 1996 reflected an increase of $31,953,000 (14.4%) over total assets of $222,197,000, at December 31, 1995. This growth resulted primarily from growth in deposits and an increase in borrowings which were used to purchase investment securities available for sale and to fund new loan growth. FINANCIAL CONDITION INVESTMENT SECURITIES Investment securities held to maturity were $20,215,000 and $25,761,000 at September 30, 1996 and December 31, 1995, respectively. This decline of $5,546,000 (21.5%) resulted entirely from scheduled paydowns and calls of principal. The significant increase of $12,237,000 (39.8%) in investment securities available for sale to $43,011,000 at September 30, 1996 from $30,774,000 at December 31, 1995, reflects the runoff from investment securities held to maturity, the investment of the deposit growth and the investment of funds borrowed through repurchase agreements. The shift into investment securities available for sale is a deliberate move by management to maintain flexibility in its liquidity planning. Management also made the decision to take advantage of current market yields as it replaced, in advance, a portion of its maturities, paydowns and calls that are scheduled or anticipated during 1996. These investments were made to provide and maintain acceptable yields on the investment portfolio while providing an appropriate level of liquidity. Federal funds sold increased $2,600,000 (24.6%) to $13,175,000 at September 30, 1996 from $10,575,000 at December 31, 1995. However, the average balance for the nine months ended September 30, 8 1996 declined somewhat from the average for the corresponding period in 1995. These fluctuations reflect normal activity in the Bank's funds management efforts. LOANS Total loans, net of unearned income, of $161,981,000 at September 30, 1996 reflected an increase of $21,510,000 (15.3%) compared to the total loans of $140,471,000, net of unearned income, at December 31, 1995. This growth continues to occur primarily in the commercial and consumer real estate mortgage portfolios due to strong customer demand and a stable local real estate market. In addition, the Bank experienced some growth in its consumer installment loans during the first nine months of 1996 after experiencing declines during 1995 as a result of the Bank's decision to sell its entire credit card and student loan portfolios. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table. ALLOWANCE FOR LOAN AND LEASE LOSSES The allowance for loan and lease losses represents management's assessment of the risk associated with extending credit and its evaluation of the quality of the loan portfolio. Management analyzes the loan portfolio to determine the adequacy of the allowance and the appropriate provision required to maintain a level considered adequate to absorb anticipated loan and lease losses. In assessing the adequacy of the allowance, management reviews the size, quality and risk of loans and leases in the portfolio. Management also considers such factors as the Bank's loan and lease loss experience, the amount of past due and nonperforming loans and leases, specific known risk, the status and amount of nonperforming assets, underlying collateral values securing loans and leases, current and anticipated economic conditions and other factors which affect the allowance for potential credit losses. The allowance for loan and lease losses, including the valuation reserve for impaired loans, was $2,089,000 at September 30, 1996. Management believes that this level of reserves (1.29% of total outstanding loans, net of unearned income) is adequate to absorb known risks in the portfolio. No assurance can be given, however, that adverse economic circumstances will not result in increased losses in the Bank's loan portfolio. During the first six months of 1996, the Bank made no monthly provisions to the allowance for loan and lease losses based on management's assessment of the credit quality of the loan portfolio, coupled with the relatively low level of net charge-offs. However, as loan demand began to increase and the loan portfolio grew during the third quarter of 1996, a provision of $45,000 was made to the allowance for loan and lease losses. For the nine months ended September 30, 1996, the Bank had charge-off loans of $94,000 and recoveries of $131,000. Potential problem loans consist of those loans where management has serious doubts as to the borrower's ability to comply with the present loan repayment terms. At September 30, 1996, 57 loans totaling approximately $1.9 million, or 1.2% of total loans outstanding, net of unearned income, were considered potential problem loans compared to 52 loans totaling $1.4 million, or 1.0% of total loans outstanding, net of unearned income, at December 31, 1995. Nonperforming assets, comprised of nonaccrual loans, renegotiated loans and other real estate owned, were $735,000 at September 30, 1996 compared to $270,000 at December 31, 1995. This change resulted primarily from an increase of $416,000 in accruing loans 90 days or more past due because of a large commercial credit that has subsequently been brought current by the debtor. DEPOSITS Total deposits increased $23,159,000 (12.5%) to $208,962,000 at September 30, 1996, as compared to $185,803,000 at December 31, 1995. Noninterest-bearing deposits increased $3,182,000 (12.5%) during the first 9 nine months of 1996 while total interest-bearing deposits increased $19,977,000 (12.5%) to $180,289,000 at September 30, 1996 from $160,312,000 at December 31, 1995. The growth in noninterest-bearing deposits is due primarily to an increase in commercial demand deposits. The average rate paid on interest- bearing deposits was 5.22% for the nine months ended September 30, 1996 compared to 5.15% for the same period of 1995. During the first nine months of 1996, the Bank experienced an increase of approximately $17,757,000 (69.25%) in its Money Market Deposit accounts. This increase in Money Market Deposit accounts resulted from new deposit growth and a shift of approximately $3,500,000 (15.1%) from NOW accounts into the Bank's Money Market Index accounts. In addition, certificates of deposits increased approximately $5,845,000 (5.8%) during the first nine months of 1996. The Company considers the shifts in the deposit mix and the deposit increase to be within the normal course of business and in line with the management of the Bank's overall cost of funds. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table. CAPITAL RESOURCES AND LIQUIDITY The Company's consolidated stockholders' equity was $22,184,000 at September 30, 1996, compared to $21,269,000 at December 31, 1995. This represents an increase of $915,000 (4.3%) during the first nine months of 1996. Net earnings for the first nine months of 1996 continues to exceed net earnings for the same period of 1995. However, the Company experienced a change to an unrealized loss, net of taxes, at September 30, 1996 from an unrealized gain, net of taxes, at December 31, 1995 on its investment securities available for sale. In addition, during the nine month period ended September 30, 1996, the Company purchased 11,265 shares of Treasury Stock from the Employee Stock Ownership Plan ("ESOP") as a result of terminating ESOP participants and reissued 1,111 shares of Treasury Stock in conjunction with the Dividend Reinvestment Plan. During the first nine months of 1996, cash dividends of 416,946, or $0.32 per Share, were declared on Common Stock. The Company's Leverage capital ratio was 8.91%, Tier I capital ratio was 13.82% and Total Capital ratio was 15.07% at September 30, 1996. These ratios exceed the minimum regulatory capital percentages of 3.0% to 5.0% leverage capital, 4.0% Tier I capital and 8.0% Total Capital. Based on current regulatory standards, the Company believes it is a "well capitalized" bank. The primary sources of liquidity during the first nine months of 1996 continues to be through deposit growth, sales, maturities, calls and paydowns of investment securities, investment securities sold under agreements to repurchase, coupled with advances from the Federal Home Loan Bank of Atlanta ("FHLB-Atlanta"). The Company used these funds primarily to purchase investment securities available for sale and to fund new loan growth. Under the advance program with FHLB-Atlanta, the Bank had outstanding advances totaling approximately $10,700,000, leaving credit available, net of advances drawn down, of approximately $14,300,000 at September 30, 1996. Net cash provided by operating activities of $2,217,000 for the nine months ended September 30, 1996, consisted primarily of net earnings. Net cash used in investing activities of $29,116,000 funded investment securities available for sale purchases and loan growth of $21,388,000 and 21,472,000, respectively, offset by proceeds from investment sales, maturities, calls and paydowns of $13,943,000. The $30,331,000 in net cash provided by financing activities resulted from net increases of $23,160,000 in total deposits and $4,925,000 in advances from the FHLB-Atlanta. INTEREST RATE SENSITIVITY MANAGEMENT At September 30, 1996, interest sensitive assets that repriced or matured within the next 12 months were $123,623,000, compared to interest sensitive liabilities that reprice or mature within the same time frame totaling $190,532,000. This cumulative GAP position of a negative $66,909,000, resulted in a GAP ratio of 65.0%. This compares to a cumulative GAP position at December 31, 1995 of a negative $6,802,000 and a GAP ratio of 94.3%. A negative GAP position means that the Company has more interest-bearing liabilities than interest earning assets maturing during the GAP period. The increase in the negative GAP position is due primarily to 10 growth in the Bank's Money Market Deposit accounts and a shortening in the maturity structure of the certificates of deposit less than $100,000 as the two year, special rate certificates of deposit, offered in February 1995, are scheduled to mature during the first quarter of 1997. A negative GAP position provides benefits during a falling interest rate environment. Based on the Bank's Asset/Liability Management Committee's alternative interest rate scenarios used by the Company in modeling for asset/liability planning purposes and the GAP position at September 30, 1996, the Company's asset/liability model indicated that the changes in the Company's net interest income would be less than 5.0% over the next 12 months. RESULTS OF OPERATIONS NET INCOME Net income increased $47,000 (8.0%) to $637,000 for the three month period ending September 30, 1996 compared to $590,000 for the same period of 1995. Earnings per average Share of Common Stock outstanding was $0.49 and $0.45 for the third quarter of 1996 and 1995, respectively, an increase of 8.9%. Net Income was $1,991,000 and $1,428,000 for the nine month period ending September 30, 1996 and 1995, respectively. This represents an increase of $563,000 (39.4%). The increases for the three month and nine month periods ending September 30, 1996, compared to the same periods of 1995, resulted primarily from an increase in net interest income, reduction in the provision for loan and lease losses and reduction in noninterest expenses due to declines in salary and benefits expense, insurance assessments by the Federal Deposit Insurance Corporation ("FDIC"), loan related expenses and marketing expenses, offset by an increase in net occupancy expense. For the three month period ended September 30, 1996, noninterest income increased somewhat but was relatively unchanged for the nine months ended September 30, 1996. NET INTEREST INCOME Net interest income was $2,040,000 for the third quarter of 1996. The increase of $193,000 (10.5%) over $1,847,000 for the same period of 1995 resulted as interest income increased and interest expense remained flat. Net interest income increased $305,000 (5.4%) to $5,920,000 for the nine months ended September 30, 1996, compared to $5,615,000 for the same period of 1995 as the increase in average interest earning assets over average interest bearing liabilities offset the slight decline in net yield on interest earning assets of .04% from 3.72% to 3.68%, due primarily to the concentration of interest earning asset growth in investment securities available for sale, which provided lower yields than other interest earning assets, and an increase in the average rate paid on certificates of deposits. INTEREST INCOME Interest income is a function of the volume of interest earning assets and their related yields. Interest income was $4,511,000 and $4,158,000 for the three months ended September 30, 1996 and 1995, respectively. This represents an increase of $353,000 (8.5%) for the third quarter of 1996. For the nine months ended September 30, 1996, interest income was $12,969,000, an increase of $739,000 (6.0%) compared to $12,230,000 for the same period of 1995. This change for the first nine months of 1996 resulted as the average volume of interest earning assets outstanding increased $13,335,000 (6.6%) over the same period of 1995 while the fully taxable equivalent yields on these assets declined five basis points. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table. Loans and lease receivables are the main component of the Bank's earning assets. Interest and fees on loans and lease receivables were $3,392,000 and $3,078,000 for the third quarter of 1996 and 1995, respectively. This reflects an increase of $314,000 (10.2%) during the three months ended September 30, 1996 over the same period of 1995. For the nine month period ending September 30, 1996, interest and fees on loans and lease receivables increased $500,000 (5.5%) to $9,637,000 from $9,137,000 for the first nine months of 1995. The average volume of loans and lease receivables increased somewhat during the first nine months of 1996 11 compared to the same period of 1995, while the Company's yield on loans and lease receivables increased eleven basis points comparing these same periods. Interest income on investment securities held to maturity decreased $621,000 (34.5%) to $1,177,000 for the first nine months of 1996 compared to $1,798,000 for the same period of 1995. These declines were attributed almost entirely to the 33.2% decline in the average volume outstanding. The fully taxable equivalent yield on these average balances declined 20 basis points. For the nine month period ended September 30, 1996, interest income on investment securities available for sale increased $953,000 (93.3%) to $1,975,000 from $1,022,000 for the same period of 1995. The Company's average volume of investment securities available for sale was $20,416,000 (103.5%) greater for the first nine months of 1996, compared to the same period of 1995, while the fully taxable equivalent yield on these average balances declined 35 basis points. Management continues to reinvest runoff from the investment securities held to maturity portfolio and to invest new funds into investment securities available for sale to maintain flexibility in its liquidity planning. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table. INTEREST EXPENSE Total interest expense increased $161,000 (7.0%) to $2,471,000 for the third quarter of 1996 compared to $2,310,000 for the same period of 1995. Total interest expense increased $434,000 (6.6%) to $7,049,000 from $6,615,000 for the nine months ended September 30, 1996 and 1995, respectively. These changes resulted as the Company's average interest-bearing liabilities outstanding increased 6.1% and the rates paid on these liabilities increased ten basis points during the first nine months of 1996 compared to the same period of 1995. See the "Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table. Interest on deposits, the primary component of total interest expense, remained relatively flat for the third quarter of 1996 compared to the same period of 1995. Interest on deposits was $6,309,000 and $5,986,000 for the nine months ended September 30, 1996 and 1995, respectively. This increase of $323,000 (5.4%) is due to an increase in the average rates paid on deposits of seven basis points coupled with an increase in the average volume of deposits outstanding of $6,400,000. While the Bank has allowed the one year, special rate certificates of deposit to adjust downward to its current market interest rates, the Company is still experiencing the effects of offering above market rates on its two year certificates of deposits during the first quarter of 1995. This campaign, to develop a larger local core deposit base and market share, is the primary factor in the Bank's overall increased cost of funds. Interest expense on borrowed funds, including both short term borrowing and other borrowed funds, was $279,000 and $147,000 for the third quarter of 1996 and 1995, respectively. This increase of $132,000 (89.8%) was due primarily to an increase in expense on investment securities sold under agreements to repurchase. For the nine months ended September 30, 1996, interest expense on borrowed funds, including both short term borrowing and other borrowings increased $112,000 (17.81%) to $741,000 from $629,000 for the same period of 1995. This increase is due to a significant increase in average balances outstanding offset somewhat by a decrease in the averages cost of these funds. PROVISION FOR LOAN AND LEASE LOSSES The provision for loan and lease losses is based on management's assessment of the risk in the loan and lease portfolios, the growth of the loan and lease portfolios and the amount of recent loan and lease losses. The provision for loan and lease losses was $44,700 for the three months ended September 30, 1996 compared to zero for the three months ended September 30, 1995. For the nine months ended September 30, 1996, the provision for loan and lease losses was $40,000 compared to $214,000 for the same period of 1995. The significant decline in the provision for loan and lease losses during the first nine months of 1996 is based on the credit quality of the loan portfolio and the low level of net chargeoffs. See "---Allowance for Loan and Lease Losses." 12
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES Consolidated Average Balances, Interest Income/Expense and Yields/Rates Taxable Equivalent Basis Nine Months Ended September 30, ------------------------------------------------------------------ 1996 1995 ------------------------------ ------------------------------- Average Yield/ Average Yield/ ASSETS Balance Interest Rate Balance Interest Rate ------------------------------------- ------- -------- ------ ------- -------- ------ Interest Earning Assets: Loans & lease receivables, net of unearned income $ 147,237 9,637 8.74% 141,636 9,137 8.63% Investment securities held to maturity: Taxable 21,666 1,098 6.77% 32,678 1,689 6.91% Tax-exempt 1,555 79 6.79% 1,810 110 8.13% -------------------- -------------------- Total investment securities held to maturity 23,221 1,177 6.77% 34,488 1,799 6.97% Investment securities available for sale: Taxable 39,884 1,966 6.58% 19,724 1,022 6.93% Tax-exempt 256 10 5.22% -- -- -- -------------------- -------------------- Total investment securities available for sale 40,140 1,976 6.58% 19,724 1,022 6.93% Federal funds sold 4,373 179 5.47% 5,775 269 6.23% Interest bearing deposits with other banks 22 1 6.07% 35 3 11.46% -------------------- -------------------- Total interest earning assets 214,993 12,970 8.06% 201,658 12,230 8.11% Allowance for loan & lease losses (2,045) (2,216) Cash and due from banks 7,027 6,347 Premises and equipment 3,552 2,663 Rental property, net 1,969 1,890 Other assets 2,811 3,721 ---------- ---------- Total Assets $ 228,307 214,063 =========== ========== LIABILITIES & SHAREHOLDERS' EQUITY ------------------------------------- Interest bearing liabilites: Deposits: Demand $ 20,135 311 2.06% 19,374 355 2.45% Savings 39,860 1,164 3.90% 35,397 1,027 3.88% Certificates of deposits less than $100,000 75,365 3,757 6.66% 75,934 3,489 6.14% Certificates of deposit and other time deposits of $100,000 or more 25,976 1,077 5.54% 24,257 1,115 6.15% -------------------- -------------------- Total interest bearing deposits 161,336 6,309 5.22% 154,962 5,986 5.16% Federal funds purchased and securities sold under agreements to repurchase 8,569 353 5.50% 1,824 79 5.79% Other short term borrowings 549 22 5.35% 2,809 160 7.62% Other borrowed funds 8,357 357 5.71% 8,899 377 5.66% Employee stock ownership plan debt 171 9 7.03% 228 13 7.62% -------------------- -------------------- Total interest bearing liabilities 178,982 7,050 5.26% 168,722 6,615 5.24% Noninterest bearing demand deposits 25,759 24,015 Accrued expenses and other liabilities 1,876 1,759 Shareholder's equity 21,690 19,567 ---------- ---------- Total Liabilities and shareholder's equity $ 228,307 214,063 ========== ========== Net Interest Income $5,920 $5,615 ======= ====== Net Yield on Total Interest Earning Assets 3.68% 3.72% ======= =====
* Loans on nonaccrual status have been included in the computation of average balances -13- NONINTEREST INCOME Noninterest income increased $71,000 (15.0%) to $545,000 for the third quarter of 1996 from $474,000 for the same period of 1995. Noninterest income increased to $1,618,000 for the nine months ended September 30, 1996 form $1,608,000 for the nine months ended September 30, 1995. These increases are primarily the result of increases in loan origination fee income, transaction fees associated with the Bank's automated teller machines during 1996, and increases in service charge income on deposits accounts, due primarily to the increase in the average balance of such accounts in 1996. These increases were offset by a reduction in VISA and MasterCard income, due to the sale of the credit card portfolio in the third quarter of 1995, and a reduction in rental revenue. For the nine months ended September 30, 1996 compared to the corresponding period in 1995, loan origination fees increased $98,000, ATM fees increased $61,000 and service charges on deposit accounts increased $44,000 while credit card income declined $129,000 and rental revenue declined $68,000. NONINTEREST EXPENSE Total noninterest expense was $1,517,000 and $1,446,000 for the third quarter of 1996 and 1995, respectively, representing a decrease of $71,000 or 4.9%. For the nine months ended September 30, 1996, total noninterest expense decreased $348,000 (7.2%) to $4,474,000 from $4,822,000 for the same period of 1995. These declines were due primarily to decreases in salaries and benefits expense, FDIC deposit insurance premium expense, loan related expenses and marketing expenses, offset by an increase in net occupancy expense. Salaries and benefits expense was $727,000 and $710,000 for the three months ended September 30, 1996 and 1995, respectively. This represents an increase of $17,000 (2.4%) in the third quarter of 1996 compared to the third quarter of 1995. During the nine months ended September 30, 1996, salaries and benefits expense decreased $93,000 (4.1%) to $2,166,000 from $2,259,000 for the nine months ended September 30, 1995. This decrease is due to declines in the Company's incentive compensation plan and restrictions in life insurance benefits. The decrease in the FDIC deposit insurance premium expense was the result of the FDIC Board's action, in November 1995, to reduce Bank Insurance Fund ("BIF") premiums. For the nine months ended September 30, 1996, BIF premium expense declined $172,000 (99%). Loan related expenses declined $41,000 due to lower repossession expenses and loan review costs. Marketing costs decreased $39,000 due to the Company not planning any major marketing campaigns for 1996. Net occupancy expense was $195,000 for the third quarter of 1996, which represented an increase of $37,000 (23.5%) over the level of $158,000 for the same period of 1995. Net occupancy expense increased $82,000 (16.0%) to $597,000 for the nine months ended September 30, 1996 compared to $515,000 for the nine months ended September 30, 1995. These increases continue to result from increases in depreciation expense associated with the renovation of the Bank's main office and Kroger branch and service contracts on furniture and equipment due to the purchase of computer equipment, coupled with a slight decrease during the first nine months of 1996 in general furniture and equipment repair and maintenance expense. INCOME TAXES Income tax expense was $385,000 and $286,000 for the third quarter of 1996 and 1995, respectively. For the nine months ended September 30, 1996, income tax expense increased $274,000 (36.1%) to $1,033,000 from $759,000 for the nine months ended September 30, 1995. These levels represent an effective tax rate on pre-tax earnings of 34.2% for the nine months ended September 30, 1996 and 34.7% for the same period of 1995. 14 Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits Page 4.A Certificate of Incorporation of Auburn National Bancorporation, Inc.* --- 4.B Bylaws of Auburn National Bancorporation, Inc.* --- 10.A Auburn National Bancorporation, Inc. 1994 long Long-term Incentive Plan.* --- 10.B Lease and Equipment Purchase Agreement, Dated September 15, 1987.* --- 11 Statement Regarding Computation of Per Share Earnings 18 27 Financial Data Schedule --- (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarterly period ending September 30, 1996.
- ------------------------- * Incorporated by reference from Registrant's Registration Statement on Form SB-2. 15 SIGNATURES In accordance with the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AUBURN NATIONAL BANCORPORATION, INC. (Registrant) Date: November 7, 1996 By: /s/ E. L. Spencer, Jr. -------------------------- ------------------------------------ E. L. Spencer, Jr. President and Chief Executive officer Date: November 7, 1996 By: /s/ Linda D. Fucci -------------------------- ------------------------------------- Linda D. Fucci Chief Financial Officer 16 AUBURN NATIONAL BANCORPORATION, INC. EXHIBIT INDEX
Exhibit Sequentially Number Description Numbered Page - ------ ----------- ------------- 4.A Certificate of Incorporation of Auburn National Bancorporation, Inc.* --- 4.B Bylaws of Auburn National Bancorporation, Inc.* --- 10.A Auburn National Bancorporation, Inc. 1994 long Long-term Incentive Plan.* --- 10.B Lease and Equipment Purchase Agreement, Dated September 15, 1987.* --- 11 Statement Regarding Computation of Per Share Earnings 18 27 Financial Data Schedule ---
- -------------------- * Incorporated by reference from Registrant's Registration Statement on Form SB-2. 17 EX-11 2 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNI AUBURN NATIONAL BANCORPORATION INC. AND SUBSIDIARIES EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
Nine Months Ended September 30, ------------------------------- 1996 1995 ------------------------------- PRIMARY: Average shares outstanding 1,305,136 1,291,657 Dilutive Stock Options-based on the treasury stock method using the average market price for the period -- -- ---------- ---------- Total 1,305,136 1,291,657 ========== ========== Net Income $1,990,721 $1,428,431 ========== ========== Earning per share amounts: Disclosed (1) $ 1.53 $ 1.11 Computed $ 1.53 $ 1.11 FULLY-DILUTED: Average shares outstanding 1,305,136 1,291,657 Dilutive Stock Options-based on the treasury stock method using the average market price for the period -- -- ---------- ---------- Total 1,305,136 1,291,657 ========== ========== Net Income $1,990,721 $1,428,431 ========== ========== Earning per share amounts: Disclosed (1) $ 1.53 $ 1.11 Computed $ 1.53 $ 1.11
(1) The Company reserved 75,000 shares of Common Stock in May of 1994 for issuance under stock option plans. The exercise price of such options is to be determined at the time an option is granted. Since no options have been granted as of the date of this filing and, therefore, no exercise price established, no incremental shares have been included in the computation of earnings per share in the statement of earnings under the provisions of Accounting Principles Board Opinion Number 15. That opinion provides that any reduction of less than 3% need not be considered as dilutive. EX-27 3 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the 10-QSB for September 30, 1996 and is qualified in its entirety by reference to such financial statements. 9-MOS JAN-01-1997 JAN-01-1997 JAN-01-1997 $9,007 24 13,175 0 43,011 20,215 18,867 159,891 2,089 254,150 208,962 10,360 1,534 10,939 0 0 13 22,171 254,150 9,637 3,152 180 12,969 6,309 7,049 5,920 40 10 4,474 3,024 3,024 0 0 1,991 1.53 1.53 3.68 146 549 0 1,952 2,012 94 131 2,089 2,089 0 0
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