<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2000
-------------------
[ ] 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 Registrant 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
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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, 2000: 3,924,573 shares of common stock, $.01
---------------------------------------
par value per share
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<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
- --------------------------------------------------------------------------------
Item 1 Financial Information
Consolidated Balance Sheets as of
March 31, 2000 and December 31, 1999 3
Consolidated Statements of Earnings for
the Three Months Ended March 31, 2000
and 1999 4
Consolidated Statements of Changes in Stockholders'
Equity for the Three Months Ended March 31, 2000 and
the Years Ended December 31, 1999 and 1998 5
Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 2000
and 1999 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3 Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
- --------------------------------
Item 5 Other Events 13
Item 6 Exhibits 15
2
<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS 3/31/00 12/31/99
---------------------------------------------- ------------------ -----------------
<S> <C> <C>
Cash and due from banks $ 14,070,663 $ 11,662,397
Federal funds sold 21,040,000 15,710,000
------------------ -----------------
Cash and cash equivalents 35,110,663 27,372,397
Interest-earning deposits with other banks 2,223,307 1,269,771
Investment securities held to maturity (fair value of $24,421,541 and
$9,689,067 at March 31, 2000 and December 31, 1999,
respectively): 24,821,061 10,068,454
Investment securities available for sale 63,697,199 67,799,218
Loans:
Loans, less unearned income of $3,657 at March 31, 2000
and $7,105 at December 31, 1999, respectively 264,664,176 260,606,260
Less allowance for loan losses (4,049,944) (3,774,523)
------------------ -----------------
Loans, net 260,614,232 256,831,737
Premises and equipment, net 3,298,567 3,348,217
Rental property, net 1,657,192 1,667,604
Other assets 9,936,879 9,160,924
------------------ -----------------
Total assets $401,359,100 $377,518,322
================== =================
LIABILITIES & STOCKHOLDERS' EQUITY
----------------------------------------------
Deposits:
Noninterest-bearing $ 40,027,997 $ 38,867,703
Interest-bearing 279,778,464 255,854,051
------------------ -----------------
Total deposits 319,806,461 294,721,754
Securities sold under agreements to repurchase 6,746,285 5,866,385
Other borrowed funds 43,825,996 46,861,045
Accrued expenses and other liabilities 2,063,023 1,627,541
------------------ -----------------
Total liabilities 372,441,765 349,076,725
Stockholders' equity:
Preferred stock of $.01 par value; authorized 200,000 shares;
issued shares-none --- ---
Common stock of $.01 par value; authorized 8,500,000 shares;
issued 3,957,135 shares 39,571 39,571
Additional paid-in capital 3,707,472 3,707,472
Retained earnings 27,274,891 26,743,281
Accumulated other comprehensive income (loss) (1,890,000) (1,834,128)
Less:
Treasury stock, 32,562 shares at March 31, 2000 and
December 31, 1999, at cost (214,599) (214,599)
------------------ -----------------
Total stockholders' equity 28,917,335 28,441,597
------------------ -----------------
Total liabilities and stockholders' equity $401,359,100 $377,518,322
================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
Consolidated Statements of Earnings
For The Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
-----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Interest income:
Interest and fees on loans $5,613,263 $4,615,498
Interest and dividends on investment securities:
Taxable 1,436,406 1,137,139
Tax-exempt 14,092 20,906
------------- -------------
Total interest and dividends on investment securities 1,450,498 1,158,045
Interest on federal funds sold 166,330 55,872
Interest on interest-bearing deposits with other banks 53,104 29,656
------------- -------------
Total interest income 7,283,195 5,859,071
Interest expense:
Interest on deposits 3,420,185 2,419,964
Interest on federal funds purchased and securities sold
under agreements to repurchase 81,220 166,099
Interest on other borrowings 613,470 438,666
------------- -------------
Total interest expense 4,114,875 3,024,729
------------- -------------
Net interest income 3,168,320 2,834,342
Provision for loan losses 315,000 150,000
------------- -------------
Net interest income after provision for loan losses 2,853,320 2,684,342
Noninterest income:
Service charges on deposit accounts 310,565 260,374
Investment securities gains/(losses), net 20,909 (1,944)
Other 527,652 414,011
------------- -------------
Total noninterest income 859,126 672,441
Noninterest expense:
Salaries and benefits 1,091,928 928,301
Net occupancy expense 301,039 262,042
Other 914,197 667,601
------------- -------------
Total noninterest expense 2,307,164 1,857,944
Earnings before income tax expense 1,405,282 1,498,839
Income tax expense 481,213 547,577
------------- -------------
Net earnings $924,069 $951,262
============= =============
Basic and diluted earnings per share $0.24 $0.24
============= =============
Weighted average shares outstanding 3,924,573 3,924,573
============= =============
Dividends per share $ 0.10 $ 0.06
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998 AND
THE THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other
Paid-In Retained Comprehensive
Common Stock Capital Earnings Income/(Loss)
-------------- ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Balance at December 31, 1997 $ 39,571 3,707,472 22,396,461 175,436
Net earnings --- --- 3,439,417 ---
Cash dividends paid ($0.19 per share) --- --- (758,752) ---
Other comprehensive income due to unrealized
gain (loss) on investment securities available
for sale, net --- --- --- 158,490
Payment of Employee Stock Ownership Plan Debt --- --- --- ---
-------------- ------------ ------------ -----------------
Balance at December 31, 1998 $ 39,571 3,707,472 25,077,126 333,926
Net earnings --- --- 2,922,018 ---
Cash dividends paid ($0.32 per share) --- --- (1,255,863) ---
Other comprehensive loss due to unrealized
gain (loss) on investment securities available
for sale, net --- --- --- (2,168,054)
-------------- ------------ ------------ -----------------
Balance at December 31, 1999 $ 39,571 3,707,472 26,743,281 (1,834,128)
============== ============ ============ =================
Net earnings --- --- 924,069 ---
Cash dividends paid ($0.10 per share) --- --- (392,459) ---
Other comprehensive loss due to unrealized
gain (loss) on investment securities available
for sale, net --- --- --- (55,872)
-------------- ------------ ------------ -----------------
Balance at March 31, 2000 $ 39,571 3,707,472 27,274,891 (1,890,000)
============== ============ ============ =================
<CAPTION>
Employee Stock
Ownership Treasury
Plan debt Stock Total
---------------- ------------ -------------
<S> <C> <C> <C>
Balance at December 31, 1997 (56,934) (214,599) 26,047,407
Net earnings --- --- 3,439,417
Cash dividends paid ($0.19 per share) --- --- (758,752)
Other comprehensive income due to unrealized
gain (loss) on investment securities available
for sale, net --- --- 158,490
Payment of Employee Stock Ownership Plan Debt 56,934 --- 56,934
---------------- ------------ -------------
Balance at December 31, 1998 0 (214,599) 28,943,496
Net earnings --- --- 2,922,018
Cash dividends paid ($0.32 per share) --- --- (1,255,863)
Other comprehensive loss due to unrealized
gain (loss) on investment securities available
for sale, net --- --- (2,168,054)
---------------- ------------ -------------
Balance at December 31, 1999 0 (214,599) 28,441,597
================ ============ =============
Net earnings --- --- 924,069
Cash dividends paid ($0.10 per share) --- --- (392,459)
Other comprehensive loss due to unrealized
gain (loss) on investment securities available
for sale, net --- --- (55,872)
---------------- ------------ -------------
Balance at March 31, 2000 0 (214,599) 28,917,335
================ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. & SUBSIDIARIES
Consolidated Statements of Cash Flows
For The Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $924,069 $951,262
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and Amortization 162,844 142,262
(Accretion)/amortization of investment discounts & loan fees (140,188) 11,053
Provision for loan losses 315,000 150,000
Loss on sale of premises & equipment 424 7,600
Increase in interest receivable (341,479) (153,194)
Increase in other assets (428,690) (335,674)
Increase/(decrease) in interest payable 101,851 (44,971)
Increase in other liabilities 333,631 726,261
-------------- --------------
Net cash provided by operating activities 927,462 1,454,599
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities/calls/paydowns of investment
securities held to maturity 3,271,766 990,390
Purchases of investment securities held to maturity (17,897,751) ---
Proceeds from maturities/calls/paydowns of investment
securities available for sale 4,012,688 6,707,902
Proceeds from sale of investment securities available for sale 2,979,308 ---
Purchases of investment securities available for sale (2,969,531) (7,973,975)
Net increase in loans (4,097,495) (11,963,641)
Purchases of premises and equipment (58,019) (207,340)
Proceeds from sale of premises and equipment --- 4,866
Purchases of rental property (13,725) ---
Net increase in interest-earning deposits with
other banks (953,536) (566,988)
-------------- --------------
Net cash used in investing activities (15,726,295) (13,008,786)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in non-interest bearing deposits,
NOW accounts and savings accounts 16,468,099 21,027,756
Net increase/(decrease) in certificates of deposit 8,616,608 (3,167,849)
Net increase/(decrease) in securities sold under agreements
to repurchase 879,900 (8,155,319)
Net (decrease)/increase in borrowings from FHLB (3,029,563) 4,970,438
Net decrease in other long-term debt (5,486) (4,886)
Dividends paid (392,459) (235,474)
-------------- --------------
Net cash provided by financing activities 22,537,099 14,434,666
-------------- --------------
Net increase in cash and cash equivalents 7,738,266 2,880,479
Cash and cash equivalents at beginning of period 27,372,397 9,480,225
-------------- --------------
Cash and cash equivalents at end of period $35,110,663 $12,360,704
============== ==============
Supplemental information on cash payments:
Interest paid $4,013,024 $3,069,700
============== ==============
Income taxes paid $0 $167,064
============== ==============
</TABLE>
<PAGE>
AUBURN NATIONAL BANCORPORATION, INC. AND SUBISIDIARIES
Notes to the Consolidated Financial Statements
March 31, 2000
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 future interim periods or the
entire year. For further information, refer to the consolidated financial
statements and footnotes included in the Company's annual report on Form 10-K
for the year ended December 31, 1999.
Note 2 - Comprehensive Income
In September 1997, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (Statement 130). Statement 130 establishes standards for
reporting and displaying comprehensive income and its components in a full set
of general purpose statements. The Company adopted Statement 130 effective
January 1, 1998. The primary component of the differences between net income and
comprehensive income for the Company is unrealized gains/losses on available for
sale securities. Total comprehensive income for the three months ended March 31,
2000 was $868,000 compared to $466,000 for the three months ended March 31,
1999.
Note 3 - Derivatives Disclosure
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.
Note 4 - Accounting Pronouncements
In June 1999, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement No. 133" (Statement 137).
Statement 133 is effective for financial statements for the first fiscal
quarters of the fiscal years beginning after June 15, 2000. The Company can not
predict whether the provisions of Statement 133 as amended by Statement 137 will
have a significant impact on its financial statements upon adoption.
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 months ended March 31, 2000 and 1999.
Certain of the statements discussed are forward-looking statements for
purposes of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21A of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from future results,
performance or achievements expressed or implied by such forward-looking
statements. Such forward-looking statements include statements using the words
such as "may," "will," "anticipate," "should," "would," "believe," "assessment,"
"contemplate," "expect," "estimate," "continue," "intend" or similar words and
expressions of the future. Our actual results may differ significantly from the
results we discuss in these forward-looking statements.
These forward-looking statements involve risks and uncertainties and
may not be realized due to a variety of factors, including, without limitation:
the effects of future economic conditions; governmental monetary and fiscal
policies, as well as legislative and regulatory changes; the risks of changes in
interest rates on the level and composition of deposits, loan demand, and the
values of loan collateral, securities, and other interest-sensitive assets and
liabilities; interest rate risks; the effects of competition from other
commercial banks, thrifts, mortgage banking firms, consumer finance companies,
credit unions, securities brokerage firms, insurance companies, money market and
other mutual funds and other financial institutions operating in the Company's
market area and elsewhere, including institutions operating, regionally,
nationally, and internationally, together with such competitors offering banking
products and services by mail, telephone, computer and Internet; and the failure
of assumptions underlying the establishment of reserves for loan losses. All
written or oral forward-looking statements attributable to the Company are
expressly qualified in their entirety by these cautionary statements.
Summary
Net income of $924,000 for the quarter ended March 31, 2000 represented
a decrease of $27,000 (2.8%) from the Company's net income of $951,000 for the
same period of 1999. Basic earnings per share was comparable at $0.24 during the
first quarter of 2000 to the first quarter of 1999. During the three month
period ended March 31, 2000 compared to the same period of 1999, the Company
experienced increases in net interest income, provision for loan losses,
noninterest income and noninterest expense due to the continued growth of the
Company. The net yield on total interest-earning assets declined to 3.49% for
the three months ended March 31, 2000 from 3.80% for the three months ended
March 31, 1999. The decrease in the net yield on interest-earning assets is due
to an overall increase in the yield on interest-earning assets offset by a
higher increase in the cost of interest-bearing liabilities. See the
"CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES" table.
Total assets of $401,359,000 at March 31, 2000 represents an increase
of $23,841,000 (6.3%) over total assets of $377,518,000, at December 31, 1999.
This increase resulted primarily from increases in investment securities held to
maturity and cash and cash equivalents.
Financial Condition
Investment Securities and Federal Funds Sold
Investment securities held to maturity were $24,821,000 and $10,068,000
at March 31, 2000 and December 31, 1999, respectively. This increase of
$14,753,000 (146.53%) was primarily the result of purchases of $12,584,000 in
U.S. agency securities and $5,314,000 in CMOs, offset by $3,271,000 of scheduled
paydowns, maturities and calls of principal amounts.
Investment securities available for sale decreased $4,102,000 (6.1%) to
$63,697,000 at March 31, 2000 from $67,799,000 at December 31, 1999. This
decrease is a result of $4,032,000 of scheduled paydowns, maturities and calls
of principal amounts. In addition, $1,982,000 of U.S. agency securities and
$997,000 of CMOs were sold in the first quarter of 2000. This decrease is offset
by $2,969,000 of purchases in U.S. agency securities.
8
<PAGE>
Federal funds sold increased to $21,040,000 at March 31, 2000 from
$15,710,000 at December 31, 1999. This increase is primarily due to
approximately $7 million of deposits received in the first quarter of 2000. In
addition, this reflects normal activity in the Bank's funds management efforts.
Loans
Total loans, net of unearned income, of $264,664,000 at March 31, 2000
reflected an increase of $4,058,000 (1.6%) compared to the total loans of
$260,606,000, net of unearned income, at December 31, 1999. The Bank primarily
experienced growth in the commercial real estate categories of loans during the
first three months of 2000. Commercial, financial and agricultural, residential
real estate and commercial real estate loans represented the majority of the
loan portfolio with approximately 29.18%, 25.41% and 30.66% of the Bank's total
loans, net of unearned income at March 31, 2000, respectively. The net yield on
loans was 8.51% for the three months ended March 31, 2000 compared to 8.40% for
the three months ended March 31, 1999. See the "CONSOLIDATED AVERAGE BALANCES,
INTEREST INCOME/EXPENSE AND YIELDS/RATES" table.
Allowance for Loan Losses and Risk Elements
The allowance for loan losses reflects management's assessment of the
risks 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 the
allowance at a level considered adequate in relation to estimated loan losses.
In assessing 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 risks, 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 credit losses.
The allowance for loan losses was $4,050,000 at March 31, 2000.
Management believes that this level of allowance (1.53% 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 or other events will not result in increased losses in the Bank's
loan portfolio.
During the first three months of 2000, the Bank made $315,000 in
provisions to the allowance for loan losses based on management's assessment of
the credit quality of the loan portfolio. The increase in the provision is due
to loan growth and as a result of a deterioration in certain loans determined by
recent analyses and loan reviews performed during a normal independent loan
review and a recent regulatory examination. For the three months ended March 31,
2000, the Bank had charge-offs of $75,000 and recoveries of $35,000.
Nonperforming assets, comprised of nonaccrual loans, renegotiated loans
and other real estate owned, and accruing loans 90 days or more past due were
$8,757,000 at March 31, 2000 compared to $6,853,000 at December 31, 1999. If
nonaccrual loans had performed in accordance with their original contractual
terms, interest income would have increased approximately $147,000 for the three
months ended March 31, 2000.
Other 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, 2000, 98 loans totaling $7,375,000, or 2.79% of
total loans outstanding, net of unearned income, were considered potential
problem loans compared to 92 loans totaling $10,798,000, or 4.41% of total loans
outstanding, net of unearned income, at December 31, 1999. The decrease in the
amount of potential problem loans is mainly due to an improvement of one large
loan. At March 31, 2000 the amount of impaired loans were $6,271,000, which
included 15 loans to 6 borrowers with a total valuation allowance of
approximately $744,000. In comparison, at December 31, 1999, the Company had
approximately $5,177,000 of impaired loans, which included seven loans to two
borrowers with a total valuation allowance of approximately $345,000.
Deposits
Total deposits increased $25,084,000 (8.5%) to $319,806,000 at March
31, 2000, as compared to $294,722,000 at December 31, 1999. Noninterest-bearing
deposits increased $1,160,000 (3.0%) during the first three months of 2000,
while total interest-bearing deposits increased $23,924,000 (9.4%) to
$279,778,000 at March 31, 2000 from $255,854,000 at December 31, 1999. The
growth in noninterest-bearing deposits is due primarily to an increase in
regular demand deposit accounts. During the first three months of 2000, the Bank
also experienced
9
<PAGE>
significant increases in money market accounts of $11,355,000 (19.2%),
certificates of deposits greater than $100,000 of $4,365,000 (5.6%), NOW
accounts of $3,853,000 (11.3%), and certificates of deposits less than $100,000
of $4,126,000 (5.7%). The significant increase in money market accounts is due
to a $12 million increase in public funds. The Company considers the other
shifts in the deposit mix to be within the normal course of business and in line
with the management of the Bank's overall cost of funds. The average rate paid
on interest-bearing deposits was 5.10% for the three months ended March 31, 2000
compared to 4.65% for the same period of 1999. See the "CONSOLIDATED AVERAGE
BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES" table.
Capital Resources and Liquidity
The Company's consolidated stockholders' equity was $28,917,000 at
March 31, 2000, compared to $28,442,000 at December 31, 1999. This represents an
increase of $475,000 (1.7%) during the first three months of 2000. Net earnings
for the first three months of 2000 were $924,000 compared to $951,000 for the
same period of 1999. In addition, the Company experienced an increase in
accumulated other comprehensive loss to $1,890,000 at March 31, 2000 from
$1,834,000 at December 31, 1999 due to increased decline in market value. During
the first three months of 2000, cash dividends of $392,000, or $0.10 per share,
were declared on Common Stock, compared to $235,000, or $0.06 per share for the
first three months of 1999.
The Company's Tier 1 leverage ratio was 7.68%, Tier I risk-based
capital ratio was 11.24% and Total risk-based capital ratio was 12.49% at March
31, 2000. These ratios exceed the minimum regulatory capital percentages of 4.0%
for Tier 1 leverage ratio, 4.0% for Tier I risk-based capital ratio and 8.0% for
Total risk-based capital ratio. 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 2000
was deposit growth. The Company used these funds primarily in federal funds sold
and the purchase of investment securities. In addition, an advance of $3 million
matured from the Federal Home Loan Bank of Atlanta ("FHLB-Atlanta"). Under the
advance program with FHLB-Atlanta, the Bank had outstanding advances totaling
approximately $43,610,000, leaving credit available, net of advances drawn down,
of approximately $6,390,000 at March 31, 2000.
Net cash provided by operating activities of $927,000 for the three
months ended March 31, 2000, consisted primarily of net earnings. Net cash used
in investing activities of $15,726,000 funded loan growth and investment
securities held to maturity purchases of $4,097,000 and $17,898,000,
respectively, offset by proceeds from maturities, calls and paydowns of
investment securities available for sale of $4,013,000. The $22,537,000 in net
cash provided by financing activities resulted primarily from increases of
$16,468,000 in non-interest bearing deposits, NOW accounts and savings accounts,
increases in certificates of deposit of $8,616,000 offset by a decrease in
borrowings from FHLB of $3,030,000.
Interest Rate Sensitivity Management
At March 31, 2000, interest sensitive assets that repriced or matured
within the next 12 months were $179,438,000, compared to interest sensitive
liabilities that reprice or mature within the same time frame totaling
$251,843,000. The cumulative GAP position (the difference between interest
sensitive assets and interest sensitive liabilities) of a negative $72,405,000,
resulted in a GAP ratio (calculated as interest sensitive assets divided by
interest sensitive liabilities) of 71%. This compares to a twelve month
cumulative GAP position at December 31, 1999, of a negative $2,534,000 and a GAP
ratio of 99%. 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. A positive GAP position
indicates that the Company has more interest-earning assets than
interest-bearing liabilities that reprice within the GAP period. The Bank's
Asset/Liability Management Committee ("ALCO") is charged with the responsibility
of managing, to the degree prudently possible, its exposure to "interest rate
risk," while attempting to provide earnings enhancement opportunities. 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, 2000 and
various assumptions and estimates, the Company's asset/liability model predicts
that the changes in the Company's net interest income would be less than 5.0%
over 12 months. Such estimates and predictions are forecasts which may or may
not be realized.
10
<PAGE>
Results of Operations
Net Income
Net income decreased $27,000 (2.8%) to $924,000 for the three month
period ended March 31, 2000 compared to $951,000 for the same period of 1999.
Basic earnings per share was $0.24 for both of the first quarters of 2000 and
1999. During the three month period ended March 31, 2000 compared to the same
period of 1999, the Company experienced increases in net interest income,
provision for loan losses, noninterest income, and noninterest expense due to
the continued growth of the Company.
Net Interest Income
Net interest income was $3,168,000 for the first quarter of 2000. The
increase of $334,000 (11.8%) over $2,834,000 for the same period of 1999,
resulted primarily from the increase in interest and fees on loans and interest
and dividends from investment securities offset by increases in interest on
deposits and interest on other borrowings. Such increases resulted from overall
growth in the Company's average interest-earning assets offset by a decrease in
net taxable yield on the Company's interest-earning assets during the three
months of 2000 compared to the same period of 1999. Through the first quarter of
2000, the Company's GAP position remained more liability sensitive to changes in
interest rates as compared to December 31, 1999. The Company continues to
regularly review and manage its asset/liability position in an effort to manage
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 $7,283,000 and $5,859,000 for the
three months ended March 31, 2000 and 1999, respectively. This represents an
increase of $1,424,000 (24.3%) for the first quarter of 2000 compared to 1999.
This change for the first three months of 2000 resulted as the average volume of
interest earning assets outstanding increased $60,575,000 (20.0%) over the same
period of 1999 and the Company's yield on interest earning assets increased 19
basis points. 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 $5,613,000 and $4,615,000 for the first quarter of 2000 and
1999, respectively. This reflects an increase of $998,000 (21.6%) during the
three months ended March 31, 2000 over the same period of 1999. The average
volume of loans increased $41,695,000 (18.7%) as of March 31, 2000 compared to
the same period of 1999, while the Company's yield on loans also increased by 11
basis points comparing these same periods.
For the three month period ended March 31, 2000, interest income on
investment securities increased $292,000 (25.2%) to $1,450,000 from $1,158,000
for the same period of 1999. The Company's average volume of investment
securities increased by $11,374,000 (15.5%) for the first three months of 2000,
compared to the same period of 1999, while the net yield on these average
balances also increased by 44 basis points. See the "CONSOLIDATED AVERAGE
BALANCES, INTEREST INCOME/EXPENSE AND YIELDS/RATES" table.
Interest Expense
Total interest expense increased $1,090,000 (36.0%) to $4,115,000 for
the first quarter of 2000 compared to $3,025,000 for the same period of 1999.
This change resulted as the Company's average interest-bearing liabilities
increased 24.0% and the rates paid on these liabilities increased 40 basis
points during the first three months of 2000 compared to the same period of
1999. See the "CONSOLIDATED AVERAGE BALANCES, INTEREST INCOME/EXPENSE AND
YIELDS/RATES" table.
Interest on deposits, the primary component of total interest expense,
increased $1,000,000 (41.3%) to $3,420,000 for the first quarter of 2000
compared to $2,420,000 for the same period of 1999. The increase for the three
month period ended March 31, 2000 is due to a 27.3% increase in the average
volume and a 45 basis point increase in the rate paid on interest-bearing
deposits.
Interest expense on other borrowed funds, was $613,000 and $439,000 for
the first quarters of 2000 and 1999, respectively. This represents an increase
of $174,000 or 39.6%. This increase for the three month period ended March 31,
2000 is due to a 35.3% increase in the average volume and a 12 basis point
increase in the rate
11
<PAGE>
paid on other borrowed funds. The increase in the average volume is primarily
from the increase in FHLB-Atlanta advances.
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 $315,000 for the three
months ended March 31, 2000 compared to $150,000 for the three months ended
March 31, 1999. The increase in the provision is due to loan growth and as a
result of a deterioration in certain loans determined by recent analyses and
loan reviews performed during a normal independent loan review and a recent
regulatory examination. See "---ALLOWANCE FOR LOAN LOSSES AND RISK ELEMENTS."
Noninterest Income
Noninterest income increased $187,000 (27.8%) to $859,000 for the first
quarter of 2000 from $672,000 for the same period of 1999. This increase for the
first quarter is mainly due to increases in service charges on deposit accounts
and other noninterest income.
Service charges on deposit accounts for the first quarter of 2000
increased $51,000 (19.6%) to $311,000 from $260,000 for the first quarter of
1999. These increases are primarily due to increases in nonsufficient funds and
overdraft charges due to an increase in nonsufficient fund items.
Other noninterest income increased $114,000 (27.5%) to $528,000 for the
first quarter of 2000 from $414,000 for the same period of 1999. This increase
primarily resulted from an increase in Mastercard/VISA discounts and fees due to
the Auburn University's acceptance of Mastercard/VISA for tuition, an increase
in checkcard income due to inception of the checkcard in January 1999 and an
increase in stock dividends from stock owned in other companies.
Noninterest Expense
Total noninterest expense was $2,307,000 and $1,858,000 for the first
quarter of 2000 and 1999, respectively, representing an increase of $449,000 or
24.2%. This increase was due to increases in salaries and benefits expense, net
occupancy expense and other noninterest expense.
Salaries and benefits expense was $1,092,000 and $928,000 for the three
months ended March 31, 2000 and 1999, respectively. This represents an increase
of $164,000 (17.7%) in the first quarter of 2000 compared to the first quarter
of 1999. This increase is primarily due to the increase in overall employee
levels from the same period of 1999.
Net occupancy expense was $301,000 and $262,000 for the first quarters
of 2000 and 1999, respectively, representing an increase of $39,000 or 14.9%.
The increase is primarily due to increases in lease payments for computer
equipment.
For the first quarter of 2000, other noninterest expense increased
$246,000 (36.8%) to $914,000 from $668,000 for the first quarter of 1999. This
increase is mainly due to the expenses associated with Auburn University's
acceptance of Mastercard/VISA for tuition mentioned above, expenses due to the
increased monitoring of nonaccrual loans, increase in assessments due to an
increase in FDIC Insurance Assessment rates and state bank assessment in which
did not occur in the first quarter of 1999.
Income taxes
Income tax expense was $481,000 and $548,000 for the first quarters of
2000 and 1999, respectively. For the three months ended March 31, 2000, income
tax expense decreased $67,000 (1.2%) These levels represent an effective tax
rate on pre-tax earnings of 34.2% for the three months ended March 31, 2000
which is consistent with the Company's expected annual effective rate.
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.
12
<PAGE>
Interest rates do not necessarily move in the same direction or with the same
magnitude as the price of goods and services because such prices are affected 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information called for concerning market risk of the Company is not
included as there have not been any significant changes in the market rate table
as shown in the Company's 1999 Annual Report filed on Form 10-K.
PART II OTHER INFORMATION
ITEM 5. OTHER EVENTS
The proxy statement solicited by the Company's Board of Directors with
respect to the Company's 2000 Annual Meeting of Shareholders will confer
discretionary authority to vote on any proposals of shareholders intended to be
presented for consideration at such Annual Meeting that are submitted to the
Company after February 27, 2001.
13
<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,
------------------------------------------------------------------
2000 1999
------------------------------- ----------------------------------
Average Yield/ Average Yield/
ASSETS Balance Interest Rate Balance Interest Rate
------------------------------------------- ------- -------- ---- ------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans, net of unearned income (1) $ 264,450 5,613 8.51% 222,755 4,615 8.40%
Investment securities:
Taxable 83,694 1,436 6.88% 71,785 1,137 6.42%
Tax-exempt (2) 1,154 21 7.37% 1,689 32 7.68%
---------------------- ----------------------
Total investment securities 84,848 1,457 6.89% 73,474 1,169 6.45%
Federal funds sold 11,986 166 5.56% 4,993 56 4.55%
Interest-earning deposits with other banks 3,163 53 6.72% 2,650 30 4.59%
---------------------- ----------------------
Total interest-earning assets 364,447 7,289 8.02% 303,872 5,870 7.83%
Allowance for loan losses (3,877) (2,863)
Cash and due from banks 11,147 8,925
Premises and equipment 3,337 3,509
Rental property, net 1,608 1,751
Other assets 9,704 5,675
------------ -----------
Total assets $ 386,366 320,869
============ ===========
LIABILITIES & STOCKHOLDERS' EQUITY
-------------------------------------------
Interest-bearing liabilites:
Deposits:
Demand $ 35,121 278 3.17% 24,758 139 2.28%
Savings and money market 79,693 951 4.79% 62,749 631 4.08%
Certificates of deposits less than
$100,000 73,453 1,099 6.00% 71,370 1,027 5.84%
Certificates of deposits and other time
deposits of $100,000 or more 80,498 1,092 5.44% 52,208 623 4.84%
----------------------- ----------------------
Total interest-bearing deposits 268,765 3,420 5.10% 211,085 2,420 4.65%
Federal funds purchased and securities sold
under agreements to repurchase 5,890 81 5.52% 13,439 166 5.01%
Other borrowed funds 44,562 614 5.53% 32,928 439 5.41%
----------------------- ----------------------
Total interest-bearing liabilities 319,217 4,115 5.17% 257,452 3,025 4.77%
Noninterest-bearing deposits 36,341 31,963
Accrued expenses and other liabilities 1,890 2,166
Stockholders' equity 28,918 29,288
------------ -----------
Total liabilities and stockholders'
equity $ 386,366 320,869
============ ===========
Net interest income $3,174 2,845
=========== ===========
Net yield on total interest-earning assets 3.49% 3.80%
========== ===========
</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%.
14
<PAGE>
AUBURN NATIONAL BANCORPORATION, INC.
Item 6(a)
EXHIBIT INDEX
Exhibit Sequentially
Number Description Numbered Page
- ------ ----------- -------------
3.A Certificate of Incorporation of Auburn National
Bancorporation, Inc. * ---
3.B Bylaws of Auburn National Bancorporation, Inc. * ---
10.A Auburn National Bancorporation, Inc. 1994
Long-term Incentive Plan. * ---
10.B Lease and Equipment Purchase Agreement, Dated
September 15, 1987. * ---
27 Financial Data Schedule 17
- ----------
* Incorporated by reference from Registrant's Registration Statement on Form
SB-2.
(b) Reports filed on Form 8-K for the quarter ended March 31, 2000:
none
15
<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 12, 2000 By: /s/ E. L. Spencer, Jr.
------------------------ --------------------------------
E. L. Spencer, Jr.
President, Chief Executive
Officer and Director
Date: May 12, 2000 By: /s/ Linda D. Fucci
------------------------ --------------------------------
Linda D. Fucci
Chief Financial Officer and
Principal Accounting Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE 10-Q FOR
MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 14,071
<INT-BEARING-DEPOSITS> 2,223
<FED-FUNDS-SOLD> 21,040
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,697
<INVESTMENTS-CARRYING> 24,821
<INVESTMENTS-MARKET> 24,422
<LOANS> 264,664
<ALLOWANCE> 4,050
<TOTAL-ASSETS> 401,359
<DEPOSITS> 319,806
<SHORT-TERM> 0
<LIABILITIES-OTHER> 2,063
<LONG-TERM> 43,826
0
0
<COMMON> 40
<OTHER-SE> 28,877
<TOTAL-LIABILITIES-AND-EQUITY> 401,359
<INTEREST-LOAN> 5,613
<INTEREST-INVEST> 1,450
<INTEREST-OTHER> 219
<INTEREST-TOTAL> 7,283
<INTEREST-DEPOSIT> 3,420
<INTEREST-EXPENSE> 4,115
<INTEREST-INCOME-NET> 3,168
<LOAN-LOSSES> 315
<SECURITIES-GAINS> 21
<EXPENSE-OTHER> 2,307
<INCOME-PRETAX> 1,405
<INCOME-PRE-EXTRAORDINARY> 1,405
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 924
<EPS-BASIC> 0.24
<EPS-DILUTED> 0.24
<YIELD-ACTUAL> 3.49
<LOANS-NON> 6,866
<LOANS-PAST> 1,381
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,375
<ALLOWANCE-OPEN> 3,775
<CHARGE-OFFS> 75
<RECOVERIES> 35
<ALLOWANCE-CLOSE> 4,050
<ALLOWANCE-DOMESTIC> 4,050
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
