Auburn National Bancorporation, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Auburn National is a bank holding company whose subsidiary, AuburnBank, provides banking services primarily in Lee County and surrounding areas of Alabama.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue, tax-equivalent basis | $7.1 million | $7.4 million | $14.2 million | $14.9 million |
| Net interest income, GAAP | $6.0 million | $6.1 million | $11.9 million | $12.3 million |
| Net earnings | $2.3 million | $1.7 million | $4.3 million | $3.5 million |
| Diluted earnings per share | $0.65 | $0.47 | $1.21 | $0.97 |
| Net interest margin, tax-equivalent | 2.60% | 2.95% | 2.63% | 3.09% |
- Six-month interest income fell to $13.2 million from $14.3 million, while interest expense declined to $1.3 million from $2.0 million. Management attributed margin pressure to low market rates and a shift toward lower-yielding securities as deposits grew.
- Six-month noninterest income was $2.3 million versus $2.6 million, including lower bank-owned life insurance income after a $0.3 million death benefit in 2020. Noninterest expense declined to $9.6 million from $9.8 million, chiefly reflecting lower headquarters redevelopment costs.
- The company recorded a $0.6 million negative provision for loan losses in the first half of 2021, compared with a $0.9 million provision in the prior-year period. Management cited improving local economic conditions and asset quality.
- At June 30, 2021, total assets were $1.036 billion, deposits $923.5 million, loans net of unearned income $457.0 million, and stockholders’ equity $106.0 million. At December 31, 2020, these were $956.6 million, $839.8 million, $461.7 million, and $107.7 million, respectively.
- Cash and cash equivalents were $141.3 million, up from $112.6 million at year-end. First-half cash flow was $5.4 million provided by operations, $58.9 million used in investing, and $82.2 million provided by financing.
- The allowance for loan losses was $5.1 million, or 1.12% of loans (1.17% excluding SBA-guaranteed PPP loans), compared with $5.6 million, or 1.22%, at year-end. Nonperforming assets were $0.6 million, 0.06% of assets; there were no loans 90 days past due and still accruing and no other real estate owned.
- The Bank reported a 17.94% total risk-based capital ratio, 17.03% CET1 ratio, and 9.81% tier 1 leverage ratio, above regulatory “well-capitalized” minimums. The company had no long-term debt; short-term repurchase-agreement borrowings were $3.5 million.
Changes, outlook, and risks
- Net earnings improved year over year despite lower revenue, helped by the swing from a loan-loss provision to a provision reversal and lower expenses. The six-month efficiency ratio increased to 66.37% from 64.88%.
- Deposits rose $83.7 million, or 10%, from December 2020, which management linked to PPP proceeds, government stimulus, delayed tax payments, and lower customer spending. Securities available-for-sale increased to $384.9 million from $335.2 million; management said higher long-term rates reduced their fair value.
- COVID-related loan modifications totaled $32.3 million across 16 loans, about 7% of loans, broadly unchanged from year-end and down from $112.7 million at June 30, 2020. Management expected modifications to decline further in the second half of 2021; this is commentary, not formal earnings guidance.
- Credit concentrations warrant attention: commercial real estate represented 53% of loans, and approximately 79% of loans were secured by real estate. Hotel/motel loans were $47.0 million; $26.4 million of hotel loans had COVID-related modifications. The portfolio is concentrated in the company’s local Alabama markets.
- Other disclosed sensitivities include continued margin pressure, borrower credit deterioration and collateral values, interest-rate changes, the uncertain effects of COVID-19, and execution, timing, and rental income associated with headquarters redevelopment. The allowance depends on subjective estimates; the company expects to adopt the CECL credit-loss standard in January 2023 and said the eventual impact remained under evaluation.
- The company repurchased 20,511 shares in the first half for $0.8 million at an average $36.56 per share and paid $0.52 per share in dividends. Management stated liquidity was adequate for known obligations and commitments; available FHLB credit was $297.9 million and federal funds lines totaled $41.0 million, with no federal funds borrowings outstanding.
- No material subsequent events were reported through the filing date. Management reported effective disclosure controls and no material change in internal control over financial reporting. No material pending legal proceedings were identified.
Important facts for investors to verify
- Whether margin compression persists as excess deposits are deployed and lower-yielding securities remain a larger share of assets.
- Whether the loan-loss reversal and lower allowance remain appropriate as pandemic effects, loan modifications, and local credit conditions evolve—especially for hotel and other commercial real estate borrowers.
- How PPP forgiveness, fee recognition, and repayments affect loan balances and future interest income.
- Whether deposit growth is durable and whether liquidity, capital, dividends, and repurchases remain appropriate as rates and funding needs change.
- Progress, cost, completion timing, and potential rental income from the headquarters redevelopment; the filing provides no clear quantified forward earnings guidance.