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Nelson Hsu
Nelson Hsu
Articles (105) 

Quality Bank for Dividend Investors

Community bank has 3.19% dividend yield

For investors searching for yield, they may want to consider Auburn National Bancorporation (NASDAQ:AUBN), a bank holding company. Auburn Bank, the company’s primary subsidiary, was founded in 1907 by Sheldon L. Toomer, a successful local businessman. The company and the bank are headquartered in Auburn, Alabama. The bank primarily serves Lee County and surrounding areas in east Alabama. The bank operates branches in

  • Auburn
  • Opelika
  • Notasulga
  • Valley
  • Phenix City

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Financials

Market capitalization is $102.53 million and total assets are $846.6 million. The stock has traded in a tight range in the last 52 weeks, between $24.50 and $30.50 per share. Shares are currently $28.14. Since 1996, the bank has not had negative net income in any single year. Tangible book value has risen from $9.21 per share in 1996 to $23.30 per share today. The price-earnings (P/E) ratio is 12.9 and the price to tangible book ratio is 1.21. The TBV ratio from 2001 to 2015 has ranged from 1.03 to 2.23, with an average of 1.45. The dividend yields 3.19%, with a payout ratio of 0.41. Dividends per share have increased from 10.7 cents per year in 1996 to 89 cents per year today.

The net interest margin is at 2.95%, with the cost of funding from its earning assets at 0.50%. ROA is 1.02% and ROE is 9.65%. Its efficiency ratio is 60.60%, which is good for a bank of its size. Efficiency ratio simply measures expenses as a percentage of revenue. The common equity tier 1 capital ratio is 16.56%, which is high. To put it in perspective, a bank with a common equity tier 1 capital ratio of 8% is considered well capitalized. Noncurrent loans to total loans is 0.39%. From 1996 to the present, the highest credit loss provision expense as a percentage of net loans was 1.40% in any single year.

The table below shows the company’s loan composition. Commercial real estate makes up 48.4% of loans, 26.4% of the loans are in residential mortgages, 11.6% percent of the loans are in commercial and industrial and 11.4% percent of the loans are in construction and land development. A very small percentage of loans are consumer loans such as auto loans.

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Final Thoughts

Auburn Bank has many attributes that I like. It’s been around since 1907 and has not lost money in any single year for a very long time. Deposits, total assets, net income, dividends and tangible book value have all steadily risen over time. From a risk standpoint, community banks are dependent on the communities they serve. For Auburn Bank, the biggest employers in the region are Auburn University, East Alabama Medical Center, Wal-Mart’s Distribution Center (NYSE:WMT) , Mando America Corporation and Briggs & Stratton (NYSE:BGG). Kia Motors (XKRX:000270) and Hyundai Motors (LSE:HYUO)have large automobile factories in Montgomery, Alabama as well. If any of these employers experience downturns, it will affect the bank’s customers.

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The chart above shows how steadily total assets and total liabilities have grown over time. Total assets are primarily comprised of loans, plain vanilla securities and cash. Total liabilities are primarily comprised of deposits.

To decrease risk, I own a basket of community banks with exposure to different geographies around the country and this is one of my holdings. Since this a small-cap stock with low trading volumes, be sure to use limit orders if you decide to trade.

Disclosure: The author is long AUBN.

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