<PAGE>
===========================================================================
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, 1997
--------------------------
[ ] 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 Issuer as Specified in Its Charter)
DELAWARE 63-0885779
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or 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, 1997: 1,308,191 SHARES OF COMMON STOCK, $.01
---------------------------------------
PAR VALUE PER SHARE
- -------------------
Transitional Small Business Disclosure Format (check one):
YES_____ NO X
-----
<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
- --------------------------------------------------------------------------------
Item 1 Financial Information
Consolidated Balance Sheets as of
September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income for
the Three Months and Nine Months Ended
September 30, 1997 and 1996 4
Consolidated Statements of Changes in
Stockholders' Equity for the Nine Months Ended
September 30, 1997 and the Year Ended
December 31, 1996 5
Consolidated Statements of Cash Flows
for the Nine Months Ended September 30, 1997
and 1996 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
- -----------------------------------------------------------------
Item 6 Exhibits 16
2
<PAGE>
<TABLE>
<CAPTION>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
(UNAUDITED)
ASSETS 9/30/97 12/31/96
---------------------------- ---------------- ----------------
<S> <C>
Cash and due from banks $ 8,621,683 $ 15,427,715
Federal funds sold and securities purchased under agreements to resell 4,545,000 11,745,000
---------------- ----------------
Cash and cash equivalents 13,166,683 27,172,715
Interest bearing deposits with other banks 642,631 6,354
Investment securities held to maturity (fair value of $18,122,846 and
$19,091,036 at September 30, 1997 and December 31, 1996,
respectively):
Taxable 17,204,139 17,581,189
Tax-exempt 1,524,366 1,469,847
---------------- ----------------
Total Investment Securities Held to Maturity 18,728,505 19,051,036
Investment securities available for sale, net
Taxable 45,307,006 43,546,979
Tax-exempt 480,000 480,000
---------------- ----------------
Total Investment Securities Available for Sale 45,787,006 44,026,979
Loans:
Loans, less unearned income of $46,580 at September 30, 1997
and $91,167 at December 31, 1996 178,023,715 161,718,475
Less allowance for loan losses (2,178,630) (2,093,682)
---------------- ----------------
Loans, net 175,845,085 159,624,793
Premises and equipment, net 3,625,782 3,447,099
Rental property, net 1,830,999 1,899,354
Other assets 3,313,910 2,827,027
---------------- ----------------
Total assets $262,940,601 $258,055,357
================ ================
LIABILITIES & STOCKHOLDERS' EQUITY
--------------------------------------
Deposits:
Noninterest bearing $ 29,781,366 $ 28,406,946
Interest bearing 192,234,900 188,320,228
---------------- ----------------
Total Deposits 222,016,266 216,727,174
Securities sold under agreements to repurchase 2,145,276 4,652,834
Other short term borrowings --- 1,203,130
Other borrowed funds 11,164,129 10,908,338
Accrued expenses and other liabilities 2,268,656 1,367,149
Employee Stock Ownership Plan debt 113,940 113,940
---------------- ----------------
Total liabilities 237,708,267 234,972,565
Stockholders' equity:
Preferred stock of $.01 par value; authorized 200,000 shares;
issued shares-none --- ---
Common stock of $.01 par value; authorized 2,500,000 shares;
issued 1,319,045 at September 30, 1997 and December 31, 1996,
respectively 13,190 13,190
Surplus 3,719,905 3,691,099
Retained earnings 21,790,548 19,942,980
---------------- ----------------
25,523,643 23,647,269
Unrealized gain/(loss) on mutual funds and investment
securities available for sale, net of taxes 79,362 (146,528)
Treasury stock, 12,944 shares and 15,974 shares at
September 30, 1997 and December 31, 1996, respectively, at cost (256,731) (304,009)
Employee Stock Ownership Plan debt (113,940) (113,940)
---------------- ----------------
Net stockholders' equity 25,232,334 23,082,792
Total liabilities and stockholders' equity $ 262,940,601 $ 258,055,357
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
Consolidated Statements of Earnings
For The Three Months and Nine Months Ended September 30, 1997 and 1996
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
------------ ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $3,947,688 $3,391,918 $11,309,290 $9,636,596
Interest and dividends on investment
securities held to maturity:
Taxable 291,706 323,993 840,116 1,097,980
Tax-exempt 24,830 26,098 75,295 78,917
----------- ------------ ------------ ------------
Total interest and dividends on
investment securities-HTM 316,536 350,091 915,411 1,176,897
Interest and dividends on investment
securities available for sale:
Taxable 734,011 706,088 2,208,994 1,965,791
Tax-exempt 5,948 5,947 17,843 9,516
----------- ------------ ------------ ------------
Total interest and dividends on
investment securities-AFS 739,959 712,035 2,226,837 1,975,307
Interest on federal funds sold 86,870 56,306 281,989 179,244
Interest on interest-bearing deposits with
other banks 22,852 384 61,121 1,197
----------- ------------ ------------ ------------
Total interest income 5,113,905 4,510,734 14,794,648 12,969,241
Interest expense:
Interest on deposits 2,436,737 2,191,609 7,098,570 6,308,523
Interest on securities sold under agreements
to repurchase 18,991 112,344 121,606 352,680
Interest on other borrowings 163,458 167,042 495,927 388,005
----------- ------------ ------------ ------------
Total interest expense 2,619,186 2,470,995 7,716,103 7,049,208
----------- ------------ ------------ ------------
Net interest income 2,494,719 2,039,739 7,078,545 5,920,033
Provision for loan losses 78,837 44,674 192,776 39,977
----------- ------------ ------------ ------------
Net interest income after provision
for loan losses 2,415,882 1,995,065 6,885,769 5,880,056
Noninterest income:
Service charges on deposit accounts 218,557 203,172 639,730 592,262
Investment securities gains/(losses), net 0 0 (40,060) 9,639
Other 262,401 295,591 865,655 969,964
----------- ------------ ------------ ------------
Total noninterest income 480,958 498,763 1,465,325 1,571,865
Noninterest expense:
Salaries and benefits 721,888 726,725 2,292,181 2,165,514
Net occupancy expense 245,993 195,398 728,826 597,290
Other 550,209 548,976 1,680,334 1,665,002
----------- ------------ ------------ ------------
Total noninterest expense 1,518,090 1,471,099 4,701,341 4,427,806
Earnings before income tax expense 1,378,750 1,022,729 3,649,753 3,024,115
Income tax expense 516,815 385,403 1,332,605 1,033,394
----------- ------------ ------------ ------------
Net earnings $861,935 $637,326 $2,317,148 $1,990,721
=========== ============ ============ ============
Net earnings per share $0.66 $0.49 $1.78 $1.53
=========== ============ ============ ============
Weighted average shares outstanding 1,305,575 1,302,793 1,304,423 1,305,136
=========== ============ ============ ============
Dividends per share $0.12 $0.11 $0.36 $0.32
=========== ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1997
Unrealized
Gain/(Loss) on
Mutual Funds Employee
and Securities Stock
Common Retained Available for Ownership Treasury
Stock Surplus Earnings Sale Plan debt Stock Total
-------- ---------- ----------- -------------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $13,190 3,685,488 17,749,910 90,775 (170,946) (99,755) 21,268,662
Net earnings --- --- 2,753,354 --- --- --- 2,753,354
Cash dividends paid ($0.43 per share) --- --- (560,284) --- --- --- (560,284)
Change in net unrealized gain (loss)
on mutual funds and investment
securities available for sale
of bank subsidiary --- --- --- (237,303) --- --- (237,303)
Payment of Employee Stock Ownership
Plan Debt --- --- --- --- 57,006 --- 57,006
Sale of treasury stock (1,111 shares) 5,611 16,887 22,498
Purchase of treasury stock
(11,265 shares) --- --- --- --- --- (221,141) (221,141)
-------- --------- ----------- --------- --------- --------- -----------
Balance at December 31, 1996 $13,190 3,691,099 19,942,980 (146,528) (113,940) (304,009) 23,082,792
Through September 30, 1997 (Unaudited):
Net earnings --- --- 2,317,148 --- --- --- 2,317,148
Cash dividends paid ($0.36 per share) --- --- (469,580) --- --- --- (469,580)
Change in net unrealized gain (loss)
on mutual funds and investment
securities available for sale of
bank subsidiary --- --- --- 225,890 --- --- 225,890
Sale of treasury stock (3,398 shares) --- 28,806 --- --- --- 55,926 84,732
Purchase of treasury stock (368 shares) --- --- --- --- --- (8,648) (8,648)
-------- --------- ---------- --------- ----------- ---------- -----------
Balance at September 30, 1997 (Unaudited) $13,190 3,719,905 21,790,548 79,362 (113,940) (256,731) 25,232,334
======== ========== ========== ========= =========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
For The Nine Months Ended September 30, 1997 and 1996
1997 1996
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $2,317,148 $1,990,721
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and Amortization 475,253 626,560
Accretion of investment discounts & loan fees (95,158) (101,384)
Provision for loan losses 192,776 39,977
Loss on sale of premises & equipment 6,126 186
Loss on sale of other real estate 3,687 ---
Increase in interest receivable (617,917) (572,426)
(Increase)/decrease in other assets (31,439) 142,866
Increase/(decrease) in interest payable 11,006 (129,291)
Increase in other liabilities 890,501 219,711
------------ ------------
Net cash provided by operating activities 3,151,983 2,216,920
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls/paydowns of investment
securities held to maturity 3,680,272 5,492,133
Purchases of investment securities held to maturity (3,366,275) ---
Proceeds from maturities/calls/paydowns of investment
securities available for sale 5,843,600 2,535,075
Proceeds from sale of investment securities available
for sale 10,870,613 5,915,851
Purchases of investment securities available for sale (18,076,850) (21,387,565)
Net increase in loans (16,413,068) (21,472,325)
Purchases of premises and equipment (499,059) (181,100)
Purchases of rental property (1,670) (1,310)
Net increase in interest-bearing deposits with
other banks (636,277) (16,729)
------------ ------------
Net cash used in investing activities (18,598,714) (29,115,970)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in non-interest bearing deposits,
NOW accounts and savings accounts 9,120,120 17,355,524
Net (decrease)/increase in certificates of deposit (3,831,028) 5,804,238
Net (decrease)/increase in securities sold under agreements
to repurchase (2,507,558) 2,076,731
Increase in borrowings from FHLB 270,976 4,925,000
Net (decrease)/increase in other short-term borrowings (1,203,130) 800,513
Net decrease in other long-term debt (15,185) (15,477)
Proceeds from sale of Treasury Stock 84,732 16,887
Purchase of treasury stock (8,648) (221,141)
Dividends paid (469,580) (411,335)
------------ ------------
Net cash provided by financing activities 1,440,699 30,330,940
------------ ------------
Net (decrease)/increase in cash and cash equivalents (14,006,032) 3,431,890
Cash and cash equivalents at beginning of period 27,172,715 18,750,543
------------ ------------
Cash and cash equivalents at end of period $13,166,683 $22,182,433
============ ============
Supplemental information on cash payments:
Interest paid $7,705,097 $7,178,499
============ ============
Income taxes paid $822,846 $1,033,394
============ ============
Supplemental information on noncash transactions:
Change in unrealized gain (loss) on investment
securities available for sale, net of change
in deferred tax $225,890 ($459,628)
============ ============
</TABLE>
6
<PAGE>
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, 1996.
NOTE 2- ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(Statement 128). Statement 128 supersedes Accounting Principles Board Opinion
No. 15 "Earnings Per Share" and specifies the computation, presentation, and
disclosure requirements for earnings per share (EPS) for entities with publicly
held common stock or potential common stock. Statement 128 replaces the
presentation of primary EPS with a presentation of basic EPS and fully diluted
EPS with diluted EPS. It also requires dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator of the
basic EPS computation to the numerator and denominator of the diluted EPS
computation. Statement 128 is effective for financial statements for both
interim and annual periods ending after December 15, 1997. The impact on the
Company's financial statements of the provisions of Statement 128 is not
expected to be material.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, "Disclosures of Information about Capital Structure"
(Statement 129). Statement 129 is effective for financial statements for
periods ending after December 15, 1997. The Company does not expect that
Statement 129 will require significant revision of prior disclosures since the
statement lists required disclosures that have been included in a number of
previously existing separate statements or opinions.
NOTE 3 - DERIVATIVES DISCLOSURE
In January 1997, the Securities and Exchange Commission approved rule
amendments (the Release) regarding disclosures about derivative financial
instruments, other financial instruments and derivative commodity instruments.
The Release requires inclusion in the footnotes to the financial statements of
extensive detail about the accounting for derivative financial instruments and
derivative commodity instruments. The accounting policy requirements become
effective for all registrants for filings that include financial statements for
periods ending after June 15, 1997.
As part of its overall interest rate risk management activities, the
Company utilizes off-balance sheet derivatives to modify the repricing
characteristics of on-balance sheet assets and liabilities. The primary
instruments utilized by the Company are interest rate swaps and interest rate
floor and cap arrangements. The fair value of these off-balance sheet
derivative financial instruments are based on dealer quotes and third party
financial models.
7
<PAGE>
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 three and nine month periods ended September 30,
1997 and 1996.
SUMMARY
Net income of $862,000 for the quarter ended September 30, 1997 represented
an increase of $225,000 (35.3%) from the Company's net income of $637,000 for
the same period of 1996. Earnings per average Share of Common Stock
outstanding increased $0.17 (34.6%) to $0.66 during the third quarter of 1997
from $0.49 for the third quarter of 1996. Net income increased $326,000 (16.4%)
to $2,317,000 for the nine month period ended September 30, 1997 compared to
$1,991,000 for the same period of 1996. During the three month and nine month
periods ended September 30, 1997 compared to the same periods of 1996, the
Company experienced increases in net interest income and noninterest expense due
to continued growth of the Company, offset by slight decreases in noninterest
income. The net yield on total interest earning assets was 3.91% for the nine
months ended September 30, 1997 compared to 3.68% for the nine months ended
September 30, 1996. While the Prime interest rate was at a slightly higher
level during the first nine months of 1997, compared to the first nine months of
1996, this increase in the net yield on interest earning assets is due primarily
to the repricing of the one and two year special offering certificates of
deposit to current market rates. See the "Consolidated Average Balances,
Interest Income/Expense and Yields/Rates" table.
Total assets of $262,941,000 at September 30, 1997 reflected an increase of
$4,886,000 (1.9%) over total assets of $258,055,000, at December 31, 1996. This
increase resulted primarily from increases in total loans, net of unearned
income, offset by decreases in cash and due from banks and federal funds sold
and securities purchased under agreement to resell.
FINANCIAL CONDITION
INVESTMENT SECURITIES
Investment securities held to maturity were $18,729,000 and $19,051,000 at
September 30, 1997 and December 31, 1996, respectively. This decline of
$322,000 (1.7%) resulted almost entirely from scheduled paydowns and calls of
principal. The increase of $1,760,000 (4.0%) in investment securities available
for sale to $45,787,000 at September 30, 1997 from $44,027,000 at December 31,
1996, reflects the reinvestment of funds from maturities of investment
securities held to maturity. The shift into investment securities available for
sale is a deliberate move by management to maintain flexibility in its liquidity
planning.
Federal funds sold decreased $7,200,000 (61.3%) to $4,545,000 at September
30, 1997 from $11,745,000 at December 31, 1996. This decrease is a result of
the expected outflow of public funds. These fluctuations reflect normal activity
in the Bank's funds management efforts.
LOANS
Total loans, net of unearned income, of $178,024,000 at September 30,
1997 reflected an increase of $16,306,000 (10.1%) compared to the total loans of
$161,718,000, net of unearned income, at December 31, 1996. 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.
Commercial and consumer real estate mortgage loans represented approximately
25.6% and 36.0% of the Bank's total loan portfolio at September 30, 1997,
respectively. In addition, the Bank experienced some growth in its consumer
installment loans during the first nine months of 1997. The net yield on loans
was 8.86% for the nine months ended September 30, 1997 compared to 8.74% for the
nine months ended September 30, 1996. See the "Consolidated Average Balances,
Interest Income/Expense and Yields/Rates" table.
8
<PAGE>
ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS
The allowance for loan 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 losses. In assessing the
adequacy of the allowance, management reviews the size, quality and risk of
loans in the portfolio. Management also considers such factors as the Bank's
loan loss experience, the amount of past due and nonperforming loans, specific
known risk, the status and amount of nonperforming assets, underlying collateral
values securing loans, current and anticipated economic conditions and other
factors which affect the allowance for potential credit losses.
The allowance for loan losses was $2,179,000 at September 30, 1997.
Management believes that this level of reserves (1.22% 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 nine months of 1997, the Bank made $193,000 in provisions
to the allowance for loan losses based on management's assessment of the credit
quality of the loan portfolio, coupled with the relatively low level of net
charge-offs. For the nine months ended September 30, 1997, the Bank had charge-
offs of $162,000 and recoveries of $54,000.
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, 1997, 85 loans totaling $2,732,000, or 1.53% of total
loans outstanding, net of unearned income, were considered potential problem
loans compared to 69 loans totaling $2,269,000, or 1.4% of total loans
outstanding, net of unearned income, at December 31, 1996. At September 30,
1997, the amount of impaired loans was $585,000 compared to $620,000 at December
31, 1996.
Nonperforming assets, comprised of nonaccrual loans, renegotiated loans and
other real estate owned, were $76,000 at September 30, 1997 compared to $107,000
at December 31, 1996. This change resulted from a decrease of $31,000 in
nonaccrual loans.
DEPOSITS
Total deposits increased $5,289,000 (2.4%) to $222,016,000 at September 30,
1997, as compared to $216,727,000 at December 31, 1996. Noninterest-bearing
deposits increased $1,374,000 (4.8%) during the first nine months of 1997 while
total interest-bearing deposits increased $3,915,000 (2.1%) to $192,235,000 at
September 30, 1997 from $188,320,000 at December 31, 1996. The growth in
noninterest-bearing deposits is due primarily to an increase in regular demand
deposit accounts. The average rate paid on interest-bearing deposits was 5.05%
for the nine months ended September 30, 1997 compared to 5.22% for the same
period of 1996. During the first nine months of 1997, the Bank experienced an
increase of approximately $10,042,000 (23.5%) in its Money Market Deposit
accounts. This increase was offset by a decrease in certificates of deposits
under $100,000 of approximately $2,561,000 (3.3%) during the first nine months
of 1997 and a decrease in public deposits of approximately $3,615,000. The
Company considers the shifts in the deposit mix and the deposit runoff 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 $25,232,000 at
September 30, 1997, compared to $23,083,000 at December 31, 1996. This
represents an increase of $2,149,000 (9.3%) during the first nine months of
1997. Net earnings for the first nine months of 1997 continues to exceed net
earnings for the same period of 1996. In addition, the Company experienced a
change in the fair value of its investment securities available for sale to an
unrealized gain, net of taxes, at September 30, 1997 from an unrealized loss,
net of taxes, at December 31, 1996. Also, during the nine month period ended
September 30, 1997, the Company purchased 368 shares of Treasury Stock and
reissued 3,398 shares of Treasury Stock in conjunction with the Dividend
Reinvestment Plan. During the first nine months of 1997, cash dividends of
$470,000, or $0.36 per Share, were declared on Common Stock, compared to
$417,000, or $0.32 per Share for the first nine months of 1996.
9
<PAGE>
The Company's Leverage capital ratio was 8.59%, Tier I capital ratio
was 12.81% and Total Capital ratio was 14.04% at September 30, 1997. 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 source of liquidity during the first nine months of 1997
continues to be through maturities, calls and paydowns of investment
securities, investment securities sold under agreements to repurchase, coupled
with an additional advance 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 $10,896,000, leaving credit available, net of advances drawn down,
of approximately $14,104,000 at September 30, 1997.
Net cash provided by operating activities of $3,152,000 for the nine months
ended September 30, 1997, consisted primarily of net earnings. Net cash used in
investing activities of $18,599,000 funded investment securities available for
sale purchases and loan growth of $18,077,000 and $16,413,000, respectively,
offset by proceeds from investment sales, maturities, calls and paydowns of
$10,871,000. The $1,441,000 in net cash provided by financing activities
resulted from a net increase in deposits of $5,289,000 offset by decreases of
$2,508,000 in securities sold under agreements to repurchase and $1,203,000 in
decreases in other short-term borrowings.
INTEREST RATE SENSITIVITY MANAGEMENT
At September 30, 1997, interest sensitive assets that repriced or matured
within the next 12 months were $139,425,000, compared to interest sensitive
liabilities that reprice or mature within the same time frame totaling
$165,384,000. The cumulative GAP position (the difference between interest
sensitive assets and interest sensitive liabilities) of a negative $25,959,000,
resulted in a GAP ratio (calculated as interest sensitive assets divided by
interest sensitive liabilities) of 84.3%. This compares to a cumulative GAP
position at December 31, 1996, of a negative $19,636,000 and a GAP ratio of
87.3%. A negative GAP position indicates that the Company has more interest-
bearing liabilities than interest-earning assets that reprice within the GAP
period, and that net interest income may be adversely affected in a rising rate
environment as rates earned on interest-earning assets rise more slowly than
rates paid on interest-bearing liabilities. The Company entered into a
$10,000,000 notional value interest rate swap during the second quarter of 1997
to reduce the cost of funds on its 2 year 6.25% certificates of deposit and to
better match funding of variable rate assets. Based on ALCO's alternative
interest rate scenarios used by the Company in modeling for asset/liability
planning purposes and the GAP position at September 30, 1997, the Company's
asset/liability model indicated that the changes in the Company's net interest
income would be less than 5.0% over 12 months.
RESULTS OF OPERATIONS
NET INCOME
Net income increased $225,000 (35.3%) to $862,000 for the three month
period ending September 30, 1997 compared to $637,000 for the same period of
1996. Earnings per average Share of Common Stock outstanding was $0.66 and
$0.49 for the third quarter of 1997 and 1996, respectively, an increase of
34.7%. Net income increased $326,000 (16.4%) for the nine month period ended
September 30, 1997.. The increases for the three and nine month periods ending
September 30, 1997, compared to the same period of 1996, resulted primarily from
increases in net interest income and increases in service charges on deposit
accounts, offset by decreases in other income, losses on investment securities
and increases in salaries and benefits, net occupancy expense and income tax
expense.
NET INTEREST INCOME
Net interest income was $2,495,000 for the third quarter of 1997. The
increase of $455,000 (22.3%) over $2,040,000 for the same period of 1996,
resulted as interest income increased and interest expense increased only
moderately due to lower average rates paid on deposits. Net interest income
increased $1,159,000 (19.6%) to $7,079,000 for the nine months ended September
30, 1997, compared to $5,920,000 for the nine months ended
10
<PAGE>
September 30, 1996. The net taxable yield on the Company's interest earning
assets increased 11 basis points during the first nine months of 1997, compared
to the same period of 1996. Also, the net yield on earning assets increased nine
basis points from year-end 1996. The prime rate for the first nine months of
1997 was slightly higher than its level for the first nine months of 1996.
During the third quarter of 1997, the Company's GAP position became more
liability sensitive to changes in interest rates as compared to December 31,
1996. The Company continues to regularly review and manage its asset/liability
position in an effort to reduce the negative effects of changing rates. See
"Financial Condition - Interest Rate Sensitivity Management" and the
"Consolidated Average Balances, Interest Income/Expense and Yields/Rates" table.
INTEREST INCOME
Interest income is a function of the volume of interest earning assets and
their related yields. Interest income was $5,114,000 and $4,511,000 for the
three months ended September 30, 1997 and 1996, respectively. This represents an
increase of $603,000 (13.4%) for the third quarter of 1997. For the nine months
ended September 30, 1997, interest income was $14,795,000, an increase of
$1,826,000 (14.1%) compared to $12,969,000 for the same period of 1996. This
change for the first nine months of 1997 resulted as the average volume of
interest earning assets outstanding increased $27,129,000 (12.6%) over the same
period of 1996. See the "Consolidated Average Balances, Interest Income/Expense
and Yields/Rates" table.
Loans are the main component of the Bank's earning assets. Interest and
fees on loans were $3,948,000 and $3,392,000 for the third quarter of 1997 and
1996, respectively. This reflects an increase of $556,000 (16.4%) during the
three months ended September 30, 1997 over the same period of 1996. For the nine
month period ended September 30, 1997, interest and fees on loans increased
$1,672,000 (17.3%) to $11,309,000 from $9,637,000 for the same period of 1996.
The average volume of loans increased $23,343,000 (15.9%) as of September 30,
1997 compared to the same period of 1996, while the Company's yield on loans
increased 12 basis points comparing these same periods.
Interest income on investment securities held to maturity decreased $34,000
(9.6%) to $317,000 for the three month period ended September 30, 1997, compared
to $350,000 for the same period of 1996. Interest income on investment
securities held to maturity decreased $261,000 (22.2%) to $915,000 from
$1,177,000 for the nine months ended September 30, 1997 as compared to the same
period of 1996. These declines were attributed almost entirely to the 24.0%
decline in the average volume outstanding, as the net yield on these average
balances increased 16 basis points. For the three month period ended September
30, 1997, interest income on investment securities available for sale increased
$28,000 (3.9%) to $740,000 from $712,000 for the same period of 1996. Interest
income on investment securities available for sale increased $252,000 (12.7%) to
$2,227,000 from $1,975,000 for the nine months ended September 30, 1997 as
compared to the same period of 1996. The Company's average volume of investment
securities available for sale was $5,547,000 (13.8%) greater for the first nine
months of 1997, compared to the same period of 1996, while the net yield on
these average balances decreased 6 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 $148,000 (6.0%) to $2,619,000 for the
third quarter of 1997 compared to $2,471,000 for the same period of 1996. Total
interest expense increased $667,000 (9.5%) to $7,716,000 from $7,049,000 for the
nine months ended September 30, 1997 and 1996, respectively. These changes
resulted as the Company's average interest-bearing liabilities outstanding
increased 13.1% while the rates paid on these liabilities decreased 17 basis
points during the first nine months of 1997 compared to the same period of 1996.
See the "Consolidated Average Balances, Interest Income/Expense and
Yields/Rates" table.
Interest on deposits, the primary component of total interest expense,
increased $245,000 (11.2%) to $2,437,000 for the third quarter of 1997 compared
to $2,192,000 for the same period of 1996. Interest on deposits was $7,099,000
and $6,309,000 for the nine months ended September 30, 1997 and 1996,
respectively. This represents an increase of $790,000 or 12.5%. While the Bank
has allowed the one and two year, special rate certificates of deposit to adjust
downward to its current market interest rates, the Company is still experiencing
some of the effects of offering above market rates on its two year certificates
of deposit during the first quarter of 1995.
11
<PAGE>
This campaign, to develop a larger local core deposit base and market share, is
a factor on the Bank's overall increased cost of funds. Other factors include a
shift into higher yielding money market deposit accounts, as well as increases
in time deposits open accounts ("TDOA") accounts.
Interest expense on borrowed funds, including both short term borrowing and
other borrowed funds, was $182,000 and $279,000 for the third quarter of 1997
and 1996, respectively. This represents a decrease of $97,000 or 34.8%. For the
nine months ended September 30, 1997, interest expense on borrowed funds
decreased $123,000 (16.6%) to $618,000 from $741,000 for the same period of
1996. These decreases for both the three month and nine month periods ended
September 30, 1997 are due to decreases in both the average volume and rate paid
on investment securities sold under agreements to repurchase, offset by
increases in the level of other borrowings. The volume of investment securities
sold under agreements to repurchase has decreased due to certain public funds
being moved from such repurchase agreements into money market accounts during
1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on management's assessment of the
risk in the loan portfolio, the growth of the loan portfolio and the amount of
recent loan losses. The provision for loan losses was $193,000 for the nine
months ended September 30, 1997 compared to $40,000 for the nine months ended
September 30, 1996. The increase in the provision for loan losses during the
first nine months of 1997, is entirely due to the significant increases in the
loan portfolio. See "--Allowance for Loan LosseS AND RISK ELEMENTS."
NONINTEREST INCOME
Noninterest income decreased $18,000 (3.6%) to $481,000 for the third
quarter of 1997 from $499,000 for the same period of 1996. Noninterest income
was $1,465,000 and $1,572,000 for the nine months ended September 30, 1997 and
1996, respectively. This represents a decrease of $107,000 or 6.8%. These
changes are primarily the result of losses on investment securities of $40,000
and decreases in noninterest loan income and fees, offset by increases in
service charges on deposit accounts.
Service charges on deposits accounts increased $16,000 (7.9%) to $219,000
for the third quarter of 1997 from $203,000 for the third quarter of 1996.
Service charges on deposit accounts was $640,000 and $592,000 for the nine
months ended September 30, 1997 and 1996, respectively. This represents an
increase of $48,000 or 8.1%. These increases are due primarily to an increase in
income on nonsufficient funds and overdraft charges coupled with a slight
general increase in regular monthly services charges on deposit accounts.
Other noninterest income decreased $34,000 (11.5%) to $262,000 for the
third quarter of 1997 from $296,000 for the same period of 1996. Other
noninterest income was $866,000 and $970,000 for the nine months ended September
30, 1997 and 1996, respectively. This represents a decrease of $104,000 or
10.7%. These decreases for the both the three month and nine month periods ended
September 30, 1997 resulted from a slight decrease in rental income and the
receipt in the third quarter of 1996 of a one-time dividend paid in connection
with the sale of Alert stock held by the Company.
NONINTEREST EXPENSE
Total noninterest expense was $1,518,000 and $1,471,000 for the third
quarter of 1997 and 1996, respectively, representing an increase of $47,000 or
3.2%. For the nine months ended September 30, 1997, total noninterest expense
increased $273,000 (6.2%) to $4,701,000 from $4,428,000 for the same period of
1996. These increases were due primarily to increases in salaries and benefits
expense, FDIC deposit insurance premium expense and professional fees expense.
Salaries and benefits expense was $722,000 and $727,000 for the three
months ended September 30, 1997 and 1996, respectively. This represents a
decrease of $5,000 (0.7%) in the third quarter of 1997 compared to the third
quarter of 1996. During the nine month period ended September 30, 1997, salaries
and benefits expense increased $126,000 (5.8%) to $2,292,000 from $2,166,000 for
the same period of 1996. This increase is due to merit and cost-of-living raises
and the cost of benefits associated with such increases.
12
<PAGE>
Net occupancy expense was $246,000 for the third quarter of 1997, which
represented an increase of $51,000 (26.2%) over the level of $195,000 for the
same period of 1996. For the nine month period ended September 30, 1997, net
occupancy expense increased $132,000 (22.1%) to $729,000 form $597,000 for the
same period of 1996. These increases continue to result from increases in
depreciation expense associated with the renovation of the Bank's main office,
Kroger branch, and addition of the Winn-Dixie 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 1997 in general furniture and
equipment repair and maintenance expense.
For the third quarter of 1997, other noninterest expense increased $1,000
(0.2%) to $550,000 from $549,000 for the third quarter of 1996. Other
noninterest expense was $1,680,000 and $1,665,000 for the nine months ended
September 30, 1997 and 1996, respectively. This represents an increase of
$15,000 or 0.9%.
INCOME TAXES
Income tax expense was $517,000 and $385,000 for the third quarter of 1997
and 1996, respectively. This represents an increase of $132,000 or 34.3%. For
the nine months ended September 30, 1997, income tax expense increased $300,000
(29.0%) to $1,333,000 from $1,033,000 for the nine months ended September 30,
1996. These levels represent an effective tax rate on pre-tax earnings of 36.5%
for the nine months ended September 30, 1997 and 34.2% for the same period of
1996.
IMPACT OF INFLATION AND CHANGING PRICES
Virtually all of the assets and liabilities of the Company are monetary in
nature. As a result, interest rates have a more significant impact on the
Company's performance than the effects of general levels of inflation. Interest
rates do not necessarily move in the same direction or with the same magnitude
as the price of goods and services since such prices are effected by inflation.
In the current interest rate environment, liquidity and the maturity structure
of the Company's assets and liabilities are critical to the maintenance of
desired performance levels. However, relatively low levels of inflation in
recent years have resulted in a rather insignificant effect on the Company's
operations.
13
<PAGE>
<TABLE>
<CAPTION>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
Consolidated Average Balances, Interest Income/Expense and Yields/Rates
Nine Months Ended June 30,
------------------------------ ------------------------------
1997 1996
------------------------------ ------------------------------
Average Yield/ Average Yield/
ASSETS Balance Interest Rate Balance Interest Rate
-------------------------------- ------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Loans, net of unearned income (1) $ 170,580 11,309 8.86% 147,237 9,637 8.74%
Investment securities held to maturity:
Taxable 16,100 840 6.98% 21,666 1,098 6.77%
Tax-exempt 1,547 75 6.51% 1,555 79 6.79%
-------------------- --------------------
Total investment securities held to maturity 17,647 915 6.93% 23,221 1,177 6.77%
Investment securities available for sale:
Taxable 45,193 2,209 6.54% 39,884 1,966 6.58%
Tax-exempt 494 18 4.87% 256 10 5.22%
-------------------- --------------------
Total investment securities available for sale 45,687 2,227 6.52% 40,140 1,976 6.58%
Federal funds sold 6,672 282 5.65% 4,373 179 5.47%
Interest bearing deposits with other banks 1,536 61 5.31% 22 1 6.07%
-------------------- --------------------
Total interest earning assets 242,122 14,794 8.17% 214,993 12,970 8.06%
Allowance for loan losses (2,136) (2,045)
Cash and due from banks 7,601 7,027
Premises and equipment 3,596 3,552
Rental property, net 1,868 1,969
Other assets 3,699 2,811
---------- ----------
Total Assets $ 256,750 228,307
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
---------------------------------------
Interest bearing liabilites:
Deposits:
Demand $ 19,985 312 2.09% 20,135 311 2.06%
Savings and Money Market 57,826 1,934 4.47% 39,860 1,164 3.90%
Certificates of deposits less than $100,000 72,028 3,220 5.98% 75,365 3,757 6.66%
Certificates of deposit and other time deposits of
$100,000 or more 38,145 1,632 5.72% 25,976 1,077 5.54%
-------------------- --------------------
Total interest bearing deposits 187,984 7,098 5.05% 161,336 6,309 5.22%
Federal funds purchased and securities sold under agreements to
repurchase 3,119 122 5.23% 8,569 353 5.50%
Other short term borrowings 276 11 5.33% 549 22 5.35%
Other borrowed funds 11,010 480 5.83% 8,357 357 5.71%
Employee stock ownership plan debt 114 5 5.86% 171 9 7.03%
-------------------- --------------------
Total interest bearing liabilities 202,503 7,716 5.09% 178,982 7,050 5.26%
Noninterest bearing demand deposits 27,658 25,759
Accrued expenses and other liabilities 2,565 1,876
Stockholder's equity 24,024 21,690
---------- ----------
Total Liabilities and shareholder's equity $ 256,750 228,307
========= =========
Net Interest Income $7,078 5,920
========= =========
Net Yield on Total Interest Earning Assets 3.91% 3.68%
========= =========
</TABLE>
(1) Loans on nonaccrual status have been included in the computation of
average balances.
<PAGE>
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 11, 1997 By: /s/ E. L. Spencer, Jr.
--------------------- ---------------------------
E. L. Spencer, Jr.
President, CEO and Director
Date: November 11, 1997 By: /s/ Linda D. Fucci
---------------------- -----------------------
Linda D. Fucci
Chief Financial Officer and
Principal Accounting Officer
15
<PAGE>
PART II OTHER INFORMATION
AUBURN NATIONAL BANCORPORATION, INC.
Item 6(a)
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 17
27 Financial Data Schedule 18
- -------------------------
* Incorporated by reference from Registrant's Registration
Statement on Form SB-2.
(b) There were no reports filed on Form 8-K for the quarter ended
September 30, 1997.
<PAGE>
AUBURN NATIONAL BANCORPORATION INC. AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1997 1996
---- ----
<S> <C> <C>
PRIMARY:
Average shares outstanding 1,304,423 1,305,136
Dilutive Stock Options-based on the
treasury stock method using the
average market price for the period --- ---
---------- ----------
Total 1,304,423 1,305,136
========== ==========
Net Income $2,317,148 $1,990,721
========== ==========
Earning per share amounts:
Disclosed (1) $ 1.78 $ 1.53
Computed $ 1.78 $ 1.53
FULLY-DILUTED:
Average shares outstanding 1,304,423 1,305,136
Dilutive Stock Options-based on the
treasury stock method using the
average market price for the period --- ---
---------- ----------
Total 1,304,423 1,305,136
========== ==========
Net Income $2,317,148 $1,990,721
========== ==========
Earning per share amounts:
Disclosed (1) $ 1.78 $ 1.53
Computed $ 1.78 $ 1.53
</TABLE>
(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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the 10-QSB
for September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 8,621
<INT-BEARING-DEPOSITS> 643
<FED-FUNDS-SOLD> 4,545
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 45,787
<INVESTMENTS-CARRYING> 18,729
<INVESTMENTS-MARKET> 18,123
<LOANS> 178,024
<ALLOWANCE> 2,179
<TOTAL-ASSETS> 262,941
<DEPOSITS> 222,016
<SHORT-TERM> 2,145
<LIABILITIES-OTHER> 2,269
<LONG-TERM> 11,164
0
0
<COMMON> 13
<OTHER-SE> 25,219
<TOTAL-LIABILITIES-AND-EQUITY> 262,941
<INTEREST-LOAN> 11,309
<INTEREST-INVEST> 3,142
<INTEREST-OTHER> 343
<INTEREST-TOTAL> 14,795
<INTEREST-DEPOSIT> 7,099
<INTEREST-EXPENSE> 7,716
<INTEREST-INCOME-NET> 7,079
<LOAN-LOSSES> 193
<SECURITIES-GAINS> (40)
<EXPENSE-OTHER> 4,701
<INCOME-PRETAX> 3,650
<INCOME-PRE-EXTRAORDINARY> 3,650
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,317
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 3.91
<LOANS-NON> 76
<LOANS-PAST> 333
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,732
<ALLOWANCE-OPEN> 2,094
<CHARGE-OFFS> 162
<RECOVERIES> 54
<ALLOWANCE-CLOSE> 2,179
<ALLOWANCE-DOMESTIC> 2,179
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
