Deposits and Loans - The Bank had the largest share of deposits in Lee County, Alabama, with 21.3% as of June 30, 2024[22]. - As of December 31, 2024, the Bank's commercial real estate loans totaled 82.8 million in construction and land development loans, representing approximately 73% of the Bank's total risk-based capital[6]. - The Bank had 69,213 during the same period[26]. - Higher interest rates and increased housing costs since 2020 have slowed housing sales, adversely affecting mortgage loan production and residential mortgage collateral values[198]. - The Tax Cuts and Jobs Act's limitations on the deductibility of residential mortgage interest could negatively impact consumer behavior and housing market activity[200]. - The concentration of commercial real estate loans poses risks of possible loss due to market conditions and regulatory scrutiny, necessitating improved underwriting and risk management policies[212]. Regulatory Environment - The Company has a "satisfactory" CRA rating as of February 28, 2022, with satisfactory ratings on both its lending and community development tests[60]. - The New CRA Regulations classify banks into categories based on asset size, with the Bank transitioning from "intermediate small bank" to "intermediate bank" due to assets of 2.0 billion[64]. - The New CRA Regulations will become effective on January 1, 2026, with data reporting requirements starting on January 1, 2027[63]. - The Federal Reserve requires bank holding companies to act as a source of financial and managerial strength to their FDIC-insured subsidiaries[44]. - The Federal Reserve and the Alabama Superintendent must approve mergers and acquisitions by the Bank, with the FDIC and OCC also having a role in commenting on such transactions[49]. Management and Employees - The Company had 145 full-time equivalent employees as of December 31, 2024, with an average tenure of approximately 11 years[30]. - The Company successfully transitioned management in 2022, with a new President and CFO who have extensive experience in financial services[32]. - The Company offers a variety of equity and equity-based awards under its 2024 Equity and Incentive Compensation Plan to attract and retain talent[33]. Financial Performance - The Bank paid total cash dividends of approximately 9.7 million[118]. - As of December 31, 2024, the Bank is categorized as "well capitalized" under regulatory standards, maintaining a total risk-based capital ratio of 10% or greater[117]. - The capital conservation buffer for the Bank exceeded 2.5% at December 31, 2024, allowing for distributions from eligible retained income[116]. Competition - The East Alabama banking markets are highly competitive, served by 19 banks, including 10 headquartered outside Alabama[214]. - Competitors include national and regional banks such as J.P. Morgan Chase, Wells Fargo, and PNC, which have greater resources and broader geographic reach[214]. - The presence of fintech and non-bank competitors is increasing, posing additional challenges to customer retention[214]. - The rapid growth of nationwide lenders operating online is a significant threat to market position[214]. Risk Management - The risks associated with operational, financial, and legal factors are intertwined and could significantly affect the company's performance[189]. - Future acquisitions may disrupt business operations and dilute shareholder value, posing additional risks to financial condition[194]. - The allowance for loan losses may prove inadequate due to unanticipated adverse changes in the economy, including inflation and higher interest rates, which could materially affect the company's financial condition and results of operations[196]. - Nonperforming loans were 0.09% of total loans as of December 31, 2024, with no other real estate owned due to foreclosures, indicating a stable credit quality[197]. Compliance and Legal - The Company expects to continue spending significant amounts on compliance with SEC and FDIC rules regarding internal controls[95]. - The Company adopted the CECL accounting standard effective January 1, 2023, recognizing all effects on its regulatory capital in the year of adoption[111]. - The Company has not elected to become a financial holding company but may consider this option in the future[40]. - The Anti-Money Laundering Act of 2020 and the Corporate Transparency Act require entities to report beneficial ownership information, effective January 1, 2024[88].
Auburn National Bancorporation(AUBN) - 2024 Q4 - Annual Report