<PAGE>
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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 MARCH 31, 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 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
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(Address of Principal Executive Offices)
(334) 821-9200
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(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 April 30, 1997: 1,304,363 SHARES OF COMMON STOCK, $.01 PAR
-------------------------------------------
VALUE PER SHARE
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Transitional Small Business Disclosure Format (check one):
YES_____ NO X
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<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
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<S> <C> <C>
Item 1 Financial Information
Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 3
Consolidated Statements of Income for
the Three Months Ended March 31, 1997 4
and 1996
Consolidated Statements of Changes in
Stockholders' Equity for March 31, 1997
and December 31, 1996 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1997
and 1996 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
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Item 6 Exhibits 15
</TABLE>
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<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
<TABLE>
<CAPTION>
ASSETS 03/31/97 12/31/96
========================= =============== ============
(UNAUDITED)
<S> <C> <C>
Cash and due from banks 9,459,620 15,427,715
Federal funds sold and securities
purchased under agreements to resell 8,450,000 11,745,000
--------------- ------------
Cash and cash equivalents 17,909,620 27,172,715
Interest bearing deposits with other
banks 349,597 6,354
Investment securities held to maturity
(fair value of $16,826,294 and
$19,091,036 at March 31, 1997 and
December 31, 1996, respectively):
Taxable 16,465,323 17,581,189
Tax-exempt 1,673,040 1,469,847
--------------- ------------
Total Investment Securities Held
to Maturity 18,138,363 19,051,036
Investment securities available for
sale, net (unrealized holding
losses of $370,732 and $215,031 at
March 31, 1997 and December 31, 1996,
respectively)
Taxable 44,799,752 43,546,979
Tax-exempt 480,000 480,000
--------------- ------------
Total Investment Securities
Available for Sale 45,279,752 44,026,979
Loans:
Loans, less unearned income of
$84,513 at March 31, 1997 and
$91,167 at December 31, 1996 167,140,284 161,718,475
Less allowance for loan losses
(including valuation reserve
for impaired loans) (2,119,757) (2,093,682)
--------------- ------------
Loans, net 165,020,527 159,624,793
Premises and equipment, net 3,462,967 3,447,099
Rental property, net 1,876,543 1,899,354
Other assets 3,284,923 2,827,027
--------------- ------------
TOTAL ASSETS $255,322,292 $258,055,357
=============== ============
LIABILITIES & STOCKHOLDERS' EQUITY
==========================================
Deposits:
Noninterest bearing 29,149,687 28,406,946
Interest bearing 186,795,819 188,320,228
--------------- ------------
Total Deposits 215,945,506 216,727,174
Securities sold under agreements to
repurchase 3,075,387 4,652,834
Other short term borrowings --- 1,203,130
Other borrowed funds 11,244,008 10,908,338
Accrued expenses and other liabilities 1,436,109 1,367,149
Employee Stock Ownership Plan debt 113,940 113,940
--------------- ------------
TOTAL LIABILITIES 231,814,950 234,972,565
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 March 31, 1997
and December 31, 1996, respectivley 13,190 13,190
Surplus 3,704,070 3,691,099
Retained earnings 20,436,412 19,942,980
--------------- ------------
24,153,672 23,647,269
Less: Unrealized loss on mutual funds
and investment securities
available for sale, net of taxes (248,019) (146,528)
Treasury stock, 14,682 shares and
15,974 shares at March 31, 1997
and December 31, 1996,
respectively, at cost (284,371) (304,009)
Employee Stock Ownership Plan debt (113,940) (113,940)
--------------- ------------
NET STOCKHOLDERS' EQUITY 23,507,342 23,082,792
Commitments --- ---
--------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $255,322,292 $258,055,357
=============== ============
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1997 1996
----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $3,583,344 $3,086,798
Interest and dividends on
investment securities held to
maturity:
Taxable 285,262 404,334
Tax-exempt 25,840 26,584
----------- ------------
Total interest and
dividends on investment
securities-HTM 311,102 430,918
Interest and dividends on
investment securities available
for sale:
Taxable 703,400 548,013
Tax-exempt 5,948 --
----------- ------------
Total interest and
dividends on investment
securities-AFS 709,348 548,013
Interest on federal funds sold 126,332 104,916
Interest on interest-bearing
deposits with other banks 8,788 464
----------- ------------
TOTAL INTEREST INCOME 4,738,914 4,171,109
INTEREST EXPENSE:
Interest on deposits 2,338,683 2,067,885
Interest on securities sold under
agreements to repurchase 38,198 111,429
Interest on other borrowings 166,753 97,586
----------- ------------
TOTAL INTEREST EXPENSE 2,543,634 2,276,900
----------- ------------
NET INTEREST INCOME 2,195,280 1,894,209
PROVISION FOR LOAN LOSSES 58,581 (3,397)
------------ ------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 2,136,699 1,897,606
NONINTEREST INCOME:
Service charges on deposit accounts
Investment securities 205,626 184,578
gains/(losses), net (40,060) 4,000
Other 258,235 301,926
----------- ------------
TOTAL NONINTEREST INCOME 423,801 490,504
NONINTEREST EXPENSE:
Salaries and benefits 793,180 735,005
Net occupancy expense 216,485 202,586
Other 525,713 510,396
----------- ------------
TOTAL NONINTEREST EXPENSE 1,535,378 1,447,987
Earnings before income tax expense 1,025,122 940,123
Income tax expense 375,322 299,451
----------- ------------
NET EARNINGS $ 649,800 $ 640,672
=========== ============
NET EARNINGS PER SHARE $0.50 $0.49
=========== ============
WEIGHTED AVERAGE SHARES OUTSTANDING 1,303,394 1,308,575
=========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
AUBURN NATIONAL BANCORPORATION & SUBSIDIARIES
CHANGES IN STOCKHOLDERS EQUITY
FOR THE PERIODS ENDED DECEMBER 31, 1996 AND MARCH 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
GAIN/(LOSS) ON
MUTUAL FUNDS
AND SECURITIES
RETAINED AVAILABLE FOR
COMMON STOCK SURPLUS EARNINGS SALE
------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 13,190 3,685,488 17,749,910 90,775
Net earnings -- -- 2,753,354 --
Cash dividends paid ($0.43 per share) -- -- (560,284) --
Changes in net unrealized gain (loss) on mutual funds and
investment securities available for sale of bank subsidiary -- -- (237,303)
Payment of Employee Stock Ownership Plan Debt -- -- -- 57,006
Sale of treasury stock (1,111 shares) 5,611 --
Purchase of treasury stock (11,265 shares) -- -- -- --
------------ ------------- -------------- -----------------
Balance at December 31, 1996 $ 13,190 3,691,099 19,942,980 (146,528)
THROUGH MARCH 31, 1997 (UNAUDITED):
Net earnings -- -- 649,800 --
Cash dividends paid ($0.12 per share) -- -- (156,368) --
Change in net unrealized gain (loss) on mutual funds and
investment securities available for sale of bank subsidiary -- -- -- (101,491)
Sale of treasury stock (1,292 shares) -- 12,971 -- --
------------ ------------- -------------- -----------------
$ 13,190 3,704,070 20,436,412 (248,019)
============ ============= =============== =================
<CAPTION>
TREASURY
STOCK TOTAL
------------- --------------
<S> <C> <C>
Balance at December 31, 1995 (99,755) 21,268,662
Net earnings -- 1,753,354
Cash dividends paid ($0.43 per share) -- (560,284)
Changes in net unrealized gain (loss) on mutual funds and
investment securities available for sale of bank subsidiary -- (237,303)
Payment of Employee Stock Ownership Plan Debt -- 57,006
Sale of treasury stock (1,111 shares) 16,887 22,498
Purchase of treasury stock (11,265 shares) (221,141) (221,141)
------------- --------------
Balance at December 31, 1996 (304,009) 23,082,792
THROUGH MARCH 31, 1997 (UNAUDITED): -- 649,800
Net earnings -- (156,368)
Cash dividends paid ($0.12 per share)
Change in net unrealized gain (loss) on mutual funds and
investment securities available for sale of bank subsidiary -- (101,491)
Sale of treasury stock (1,292 shares) 19,638 32,609
------------- --------------
Balance at March 31, 1997 (Unaudited) (284,371) 23,507,342
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 649,800 $ 640,672
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation and Amortization 179,787 226,535
Accretion of discount & loan
fees (27,851) (27,004)
Provision for loan losses and
adjustment for impaired loans 58,581 (3,397)
Loss on sale of premises &
equipment 6,126 ---
Loss on sale of other real
estate 3,687 ---
Increase in interest receivable (299,421) (323,844)
Decrease/(increase) in other
assets (133,874) 227,505
Increase/(decrease) in interest
payable (182,287) 21,998
Increase in other liabilities 257,885 225,618
------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 512,433 988,083
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls/paydowns
of investment securities held
to maturity 1,143,083 1,280,987
Purchases of investment securities
held to maturity (244,400) (15,300)
Proceeds from maturities/calls/paydowns
of investment securities available
for sale 3,831,217 3,251,189
Proceeds from sale of investment
securities available for sale 10,870,613 998,504
Purchases of investment securities
available for sale (16,089,964) (18,124,063)
Net increase in loans (5,458,002) (1,876,020)
Purchases of premises and equipment (127,862) (17,772)
Purchases of rental property --- (1,310)
Net (increase)/decrease in
interest-bearing deposits with
other banks (343,243) (3,198)
------------ ------------
NET CASH USED IN INVESTING
ACTIVITIES (6,418,558) (14,506,983)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in Interest bearing
deposits,
NOW accounts and savings
accounts 3,049,359 253,924
Net decrease in certificates of
deposit (3,831,028) (1,546,618)
Net increase/(decrease) in
securities sold under agreements
to repurchase (1,577,447) 5,056,791
Increase/(decrease) in borrowings
from FHLB 340,000 (25,000)
Net increase/(decrease) in other
short-term borrowings (1,209,765) 234,872
Net decrease in other long-term debt (4,330) (5,090)
Proceeds from sale of Treasury Stock 19,638 ---
Purchase of treasury stock --- (181,350)
Dividends paid (143,397) (130,392)
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES (3,356,970) 3,657,137
------------ ------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (9,263,095) (9,861,763)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 27,172,715 18,750,545
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $ 17,909,620 $ 8,888,782
============ ============
Supplemental information on cash
payments:
Interest paid $ 2,859,417 $ 2,254,902
============ ============
Income taxes paid $ 36,378 $ 21,410
============ ============
Supplemental information on noncash
transactions:
Change in unrealized gain
(loss) on investment securities
available for sale, net of
change in deferred tax ($101,491) ($272,867)
============ ============
</TABLE>
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<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.
-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 month periods ended March 31, 1997 and 1996.
SUMMARY
Net income of $650,000 for the quarter ended March 31, 1997 represented
an increase of $9,000 (1.4%) from the Company's net income of $641,000 for the
same period of 1996. Earnings per average Share of Common Stock outstanding
increased $0.01 (2.0%) to $0.50 during the first quarter of 1997 from $0.49 for
the first quarter of 1996 due primarily to the increase in net income. During
the three month period ended March 31, 1997 compared to the same periods of
1996, the Company experienced an increase in net interest income, while
noninterest income decreased and noninterest expense increased. The net yield on
total interest earning assets was 3.78% for the three months ended March 31,
1997 compared to 3.72% for the three months ended March 31, 1996. While the
Prime interest rate was at a slightly higher level during the first three months
of 1997, compared to the first three 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 $255,322,000 at March 31, 1997 reflected a decrease of
$2,733,000 (1.0%) over total assets of $258,055,000, at December 31, 1996. This
decrease resulted primarily from decreases in cash and due from banks and
federal funds sold and securities purchased under agreement to resell, offset by
increases in total loans, net of unearned income.
FINANCIAL CONDITION
INVESTMENT SECURITIES
Investment securities held to maturity were $18,138,000 and $19,051,000
at March 31, 1997 and December 31, 1996, respectively. This decline of $913,000
(4.8%) resulted almost entirely from scheduled paydowns and calls of principal.
The increase of $1,253,000 (2.9%) in investment securities available for sale to
$45,280,000 at March 31, 1997 from $44,027,000 at December 31, 1996, reflects
the reinvestment from 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 $3,295,000 (28.0%) to $8,450,000 at March
31, 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 $167,140,000 at March 31, 1997
reflected an increase of $5,422,000 (3.4%) 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
29.3% and 37.6% of the Bank's total loan portfolio at March 31, 1997,
respectively. In addition, the Bank experienced some growth in its commercial
installment loans during the first three months of 1997. The net yield on loans
was 8.84% for the three months ended March 31, 1997 compared to 8.80% for the
three months ended March 31, 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, including the valuation reserve for
impaired loans, was $2,120,000 at March 31, 1997. Management believes that this
level of reserves (1.27% 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 three months of 1997, the Bank made $59,000 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 three months ended March 31, 1997, the Bank had
charge-offs of $47,000 and recoveries of $14,000.
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 March 31, 1997, 9 loans totaling $1,454,000, or 0.87% 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 unerned income, at December 31, 1996.
Nonperforming assets, comprised of nonaccrual loans, renegotiated loans
and other real estate owned, were $62,000 at March 31, 1997 compared to $107,000
at December 31, 1996. This change resulted primarily from a decrease of $45,000
in nonaccrual loans.
DEPOSITS
Total deposits decreased $781,000 (0.4%) to $215,946,000 at March 31,
1997, as compared to $216,727,000 at December 31, 1996. Noninterest-bearing
deposits increased $743,000 (2.6%) during the first three months of 1997 while
total interest-bearing deposits decreased $1,524,000 (0.8%) to $186,796,000 at
March 31, 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 5.12%
for the three months ended March 31, 1997 compared to 5.27% for the same period
of 1996. During the first three months of 1997, the Bank experienced an increase
of approximately $955,000 (16.9%) in its Money Market Deposit accounts. In
addition, certificates of deposits under $100,000 decreased approximately
$3,831,000 (1.8%) during the first three months of 1997. 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 $23,507,000 at March
31, 1997, compared to $23,083,000 at December 31, 1996. This represents an
increase of $424,000 (1.8%) during the first three months of 1997. Net earnings
for the first three months of 1997 continues to exceed net earnings for the same
period of 1996. However, the Company experienced a change to an unrealized loss,
net of taxes, at March 31, 1997 from an unrealized loss, net of taxes, at
December 31, 1996 on its investment securities available for sale. In addition,
during the three month period ended March 31, 1997, the Company reissued 1,292
shares of Treasury Stock in conjunction with the Dividend Reinvestment Plan.
During the first three months of 1997, cash dividends of $156,000, or $0.12 per
Share, were declared on Common Stock.
The Company's Leverage capital ratio was 9.29%, Tier I capital ratio was
14.25% and Total Capital ratio was 15.50% at March 31, 1997. These ratios exceed
the minimum regulatory capital percentages of 3.0% to 5.0%
-9-
<PAGE>
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 three 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
$10,965,000, leaving credit available, net of advances drawn down, of
approximately $14,035,000 at March 31, 1997.
Net cash provided by operating activities of $512,000 for the three
months ended March 31, 1997, consisted primarily of net earnings. Net cash used
in investing activities of $6,419,000 funded investment securities available for
sale purchases and loan growth of $16,090,000 and $5,458,000, respectively,
offset by proceeds from investment sales, maturities, calls and paydowns of
$10,871,000. The $3,357,000 in net cash used by financing activities resulted
from decreases of $1,577,000 in securities sold under agreements to repurchase
and $1,210,000 in decreases in other short-term borrowings.
INTEREST RATE SENSITIVITY MANAGEMENT
At March 31, 1997, interest sensitive assets that repriced or matured
within the next 12 months were $139,893,000, compared to interest sensitive
liabilities that reprice or mature within the same time frame totaling
$133,079,000. The cumulative GAP position of a positive $6,814,000, resulted in
a GAP ratio of 105%. 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 positive GAP
position indicates that the Company has more interest-earning assets than
interest-bearing liabilites that reprice within the GAP period, and that net
interest income may be adversely affected in a falling rate environment as rates
earned on interest-earning assets fall more quickly than rates paid on interest-
bearing liabilities. The change in the GAP position is due primarily to the
lengthing of maturity of the certificates of deposit less than $100,000 as the
two year, special rate certificates of deposit, offered in February 1995,
matured during the first quarter of 1997 and were repriced for two years. Based
on ALCO's alternative interest rate scenarios used by the Company in modeling
for asset/liability planning purposes and the GAP position at March 31, 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 $9,000 (1.4%) to $650,000 for the three month
period ending March 31, 1997 compared to $641,000 for the same period of 1996.
Earnings per average Share of Common Stock outstanding was $0.50 and $0.49 for
the first quarter of 1997 and 1996, respectively, an increase of 2.0%. The
increases for the three month period ending March 31, 1997, compared to the same
period of 1996, resulted primarily from increases in net interest income and
increases in service charges on deposit acccounts, offset by losses on
investment securities and increases in salaries and benefits, net occupancy
expense and income tax expense.
NET INTEREST INCOME
Net interest income was $2,195,000 for the first quarter of 1997. The
increase of $301,000 (15.9%) over $1,894,000 for the same period of 1996,
resulted as interest income increased and interest expense increased only
moderately. The net taxable equivalent yield on the Company's interest earning
assets remained the same during the first three months of 1997, compared to the
same period of 1996. However, the net yield on earning assets increased six
basis points from year-end 1996. During the first quarter of 1997, the Prime
interest rate increased 25 basis points to 8.50%. This prime rate is slightly
higher than its level for the first three months of 1996. During the first
quarter of 1997, the Company's GAP position became more asset 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.
-10-
<PAGE>
INTEREST INCOME
Interest income is a function of the volume of interest earning assets
and their related yields. Interest income was $4,739,000 and $4,171,000 for the
three months ended March 31, 1997 and 1996, respectively. This represents an
increase of $568,000 (13.6%) for the first quarter of 1997. This change for the
first three months of 1997 resulted as the average volume of interest earning
assets outstanding increased $29,861,000 (14.4%) over the same period of 1996
while the fully taxable equivalent yields on these assets remained the same. 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 $3,583,000 and $3,087,000 for the first quarter of 1997 and
1996, respectively. This reflects an increase of $496,000 (16.1%) during the
three months ended March 31, 1997 over the same period of 1996. The average
volume of loans increased $23,063,000 (16.3%) during the first three months of
1997 compared to the same period of 1996, while the Company's yield on loans
increased four basis points comparing these same periods.
Interest income on investment securities held to maturity decreased
$120,000 (27.8%) to $311,000 for the first three months of 1997, compared to
$431,000 for the same period of 1996. These declines were attributed almost
entirely to the 20.7% decline in the average volume outstanding. The fully
taxable equivalent yield on these average balances declined 50 basis points. For
the three month period ended March 31, 1997, interest income on investment
securities available for sale increased $161,000 (29.4%) to $709,000 from
548,000 for the same period of 1996. The Company's average volume of investment
securities available for sale was $9,837,000 (29.5%) greater for the first three
months of 1997, compared to the same period of 1996, while the fully taxable
equivalent yield on these average balances increased nine 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 $267,000 (11.7%) to $2,544,000 for the
first quarter of 1997 compared to $2,277,000 for the same period of 1996. These
changes resulted as the Company's average interest-bearing liabilities
outstanding increased 15.6% and the rates paid on these liabilities decreased 13
basis points during the first three 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 $271,000 (13.1%) to $2,339,000 for the first quarter of 1997 compared
to $2,068,000 for the same period of 1996. 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. 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 $205,000 and $209,000 for the first quarter of
1997 and 1996, respectively. This decrease of $4,000 (1.9%) was due primarily to
a decrease in expense on investment securities sold under agreements to
repurchase, offset by an increase in interest on other borrowings.
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 $59,000 for the three
months ended March 31, 1997 compared to a credit of $3,000 for the three months
ended March 31, 1996. The increase in the provision for loan losses during the
first three months of 1997, is entirely due to the significant increase in the
loan portfolio. See "---Allowance for Loan LosseS AND RISK ELEMENTS."
-11-
<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES
TAXABLE EQUIVALENT BASIS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995
-------------------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
ASSETS BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- --------------------------- ------------ ----------- -------- --------- ---------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Loans, net of unearned
income (1) $ 164,470 3,583 8.84% 141,407 3,094 8.80% 141,690 2,951 8.45%
Investment securities
held to maturity:
Taxable 18,454 285 6.26% 23,654 404 6.87% 33,994 571 6.81%
Tax-exempt (2) 1,547 39 10.36% 1,565 40 10.28% 1,918 56 11.84%
-------------------------- ----------------------- ---------------------
Total investment
securities held to
maturity 20,001 324 6.58% 25,219 444 7.08% 35,912 627 7.08%
Investment securities
available for sale:
Taxable 42,656 704 6.69% 33,342 548 6.61% 11,957 207 7.02%
Tax-exempt (2) 523 9 7.05% -- -- -- --
-------------------------- ----------------------- ---------------------
Total investment
securities available
for sale 43,179 713 6.70% 33,342 548 6.61% 11,957 207 7.02%
Federal funds sold 9,218 126 5.54% 7,250 105 5.82% 5,759 91 6.41%
Interest bearing deposits
with other banks 249 9 14.66% 38 0 4.91% 44 1 9.22%
-------------------------- ----------------------- ---------------------
Total interest earning
assets 237,117 4,755 8.13% 207,256 4,191 8.13% 195,362 3,877 8.05%
Allowance for loan losses (2,104) (2,057) (2,129)
Cash and due from banks 7,841 6,707 6,929
Premises and equipment 3,464 3,603 2,283
Rental property, net 1,891 2,037 1,505
Other assets 2,944 2,601 4,213
------------ ----------- ----------
Total Assets $ 251,153 220,147 208,163
============ =========== ==========
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
Interest bearing
liabilities:
Deposits:
Demand $ 19,628 99 2.05% 21,518 116 2.17% 20,259 126 2.52%
Savings and Money Market 51,835 545 4.26% 34,770 313 3.62% 36,187 347 3.89%
Certificates of deposits
less than $100,000 73,315 1,160 6.42% 76,571 1,230 6.46% 68,429 934 5.54%
Certificates of deposit and
other time deposits of
$100,000 or more 40,329 535 5.38% 24,960 409 6.59% 20,793 275 5.36%
-------------------------- ----------------------- ---------------------
Total interest bearing
deposits 185,107 2,339 5.12% 157,819 2,068 5.27% 145,668 1,682 4.68%
Federal funds purchased
and securities sold
under agreements to
repurchase 2,973 38 5.18% 8,146 111 5.48% 2,637 38 5.84%
Other short term
borrowings 382 9 9.55% 505 8 6.37% 6,932 130 7.61%
Other borrowed funds 11,061 156 5.72% 6,014 87 5.82% 9,315 148 6.44%
Employee stock ownership
plan debt 114 2 7.12% 171 3 7.06% 228 4 7.12%
-------------------------- ----------------------- ---------------------
Total interest bearing
liabilities 199,637 2,544 5.17% 172,655 2,277 5.30% 164,780 2,002 4.93%
Noninterest bearing demand
deposits 26,403 24,144 23,559
Accrued expenses and other
liabilities 1,802 1,864 1,491
Shareholder's equity 23,311 21,484 18,333
------------ ----------- ----------
Total Liabilities and
shareholder's equity $ 251,153 220,147 208,163
============ =========== ==========
Net Interest Income $2,211 1,914 1,875
============== ============ ===========
Net Yield on Total
Interest Earning Assets 3.78% 3.72% 3.89%
========== ========= ========
</TABLE>
_______________
(1) Loans on nonaccrual status have been included in the computation of average
balances.
(2) Yields on tax-exempt securities have been computed on a tax-equivalent basis
using an income tax rate of 34%.
-12-
<PAGE>
NONINTEREST INCOME
Noninterest income decreased $67,000 (13.7%) to $424,000 for the first
quarter of 1997 from $491,000 for the same period of 1996. These decreases 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 and rental income.
Service charges on deposits accounts increased $21,000 (11.4%) to
$206,000 for the first quarter of 1997 from $185,000 for the first quarter of
1996. 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 $44,000 (14.6%) to $258,000 for the
first quarter of 1997 from $302,000 for the same period of 1996. These decreases
for the three months ended March 31, 1997 resulted primarily from reductions in
noninterest loan income and fees.
NONINTEREST EXPENSE
Total noninterest expense was $1,535,000 and $1,448,000 for the first
quarter of 1997 and 1996, respectively, representing an increase of $87,000 or
6.0%. These increases were due primarily to increases in salaries and benefits
expense, OREO expenses, FDIC deposit insurance premium expense and professional
fees expense.
Salaries and benefits expense was $793,000 and $735,000 for the three
months ended March 31, 1997 and 1996, respectively. This represents an increase
of $58,000 (7.9%) in the first quarter of 1997 compared to the first quarter of
1996. These increases are due to merit and cost-of-living raises and the cost of
benefits associated with such increases.
Net occupancy expense was $216,000 for the first quarter of 1997, which
represented an increase of $13,000 (6.4%) over the level of $203,000 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
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
three months of 1997 in general furniture and equipment repair and maintenance
expense.
For the first quarter of 1997, other noninterest expense increased
$16,000 (3.2%) to $526,000 from $510,000 for the first quarter of 1996. These
increases were due primarily to increases in the Bank's FDIC deposit insurance
premium expense of $6,000, OREO expense of $5,000, and professional fees expense
of $7,000. The increase in the FDIC deposit insurance premium expense was the
result of the FDIC Board's action to increase the Bank Insurance Fund ("BIF")
premiums and to assess annual FICO charges of 1.30 basis points on average
deposits.
INCOME TAXES
Income tax expense was $375,000 and $299,000 for the first quarter of
1997 and 1996, respectively. This represents an increase of $76,000 (25.4%) in
the first quarter of 1997 compared to the first quarter of 1996. These levels
represent an effective tax rate on pre-tax earnings of 36.6% for the three
months ended March 31, 1997 and 31.9% for the same period of 1996.
-13-
<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: May 7, 1997 By: /s/ E. L. Spencer, Jr.
----------------------------- ------------------------------
E. L. Spencer, Jr.
President, CEO and
Director
Date: May 7, 1997 By: /s/ Linda D. Fucci
------------------------------ ------------------------------
Linda D. Fucci
Chief Financial Officer and
Principal Accounting Officer
-14-
<PAGE>
AUBURN NATIONAL BANCORPORATION, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
<S> <C> <C>
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 16
27 Financial Data Schedule 17
</TABLE>
_________________________
* Incorporated by reference from Registrant's Registration
Statement on Form SB-2.
-15-
<PAGE>
AUBURN NATIONAL BANCORPORATION INC. AND SUBSIDIARIES
EXHIBIT 11 - STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1997 1996
--------- ---------
<S> <C> <C>
PRIMARY:
Average shares outstanding 1,303,394 1,308,575
Dilutive Stock Options-based on the
treasury stock method using the
average market price for the period --- ---
---------- ----------
Total 1,303,394 1,308,575
========== ==========
Net Income $ 649,800 $ 640,672
========== ==========
Earning per share amounts:
Disclosed (1) $ 0.50 $ 0.49
Computed $ 0.50 $ 0.49
FULLY-DILUTED:
Average shares outstanding 1,303,394 1,308,575
Dilutive Stock Options-based on the
treasury stock method using the
average market price for the period --- ---
---------- ----------
Total 1,303,394 1,308,575
========== ==========
Net Income $ 649,800 $ 640,672
========== ==========
Earning per share amounts:
Disclosed (1) $ 0.50 $ 0.49
Computed $ 0.50 $ 0.49
</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.
-16-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-QSB
FOR MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 9,460
<INT-BEARING-DEPOSITS> 350
<FED-FUNDS-SOLD> 8,450
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 45,280
<INVESTMENTS-CARRYING> 18,138
<INVESTMENTS-MARKET> 16,826
<LOANS> 165,021
<ALLOWANCE> 2,120
<TOTAL-ASSETS> 255,322
<DEPOSITS> 215,946
<SHORT-TERM> 3,069
<LIABILITIES-OTHER> 1,557
<LONG-TERM> 11,244
0
0
<COMMON> 13
<OTHER-SE> 23,494
<TOTAL-LIABILITIES-AND-EQUITY> 255,322
<INTEREST-LOAN> 3,583
<INTEREST-INVEST> 1,020
<INTEREST-OTHER> 135
<INTEREST-TOTAL> 4,739
<INTEREST-DEPOSIT> 2,339
<INTEREST-EXPENSE> 2,544
<INTEREST-INCOME-NET> 2,195
<LOAN-LOSSES> 59
<SECURITIES-GAINS> (40)
<EXPENSE-OTHER> 1,535
<INCOME-PRETAX> 1,025
<INCOME-PRE-EXTRAORDINARY> 1,025
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 650
<EPS-PRIMARY> 0.50
<EPS-DILUTED> 0.50
<YIELD-ACTUAL> 3.78
<LOANS-NON> 62
<LOANS-PAST> 117
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,454
<ALLOWANCE-OPEN> 2,094
<CHARGE-OFFS> 47
<RECOVERIES> 13
<ALLOWANCE-CLOSE> 2,120
<ALLOWANCE-DOMESTIC> 2,120
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
