Think Local, Stay Solvent

Bigger is not always better when it comes to surviving in today’s ever-struggling economy.  Banks with assets of $1 billion or greater are seven times more likely to fail than small banks, according to FDIC data. For the sixth consecutive year, U.S. Banker magazine named AuburnBank’s parent company, Auburn National Bancorporation (Nasdaq: AUBN), among the “Top 200 Community Banks” in the nation, based on average return on equity during a three-year period.

“We are the only bank in the state to be on the list for that many years, ” observes Bob Dumas, AuburnBank’s president and CEO. Auburn National Bancorporation—a one-bank holding company established in 1984—is ranked 144th nationally among publicly-traded banks with less than $2 billion in assets in U.S. Banker’s June 2011 issue, averaging an 8.47 percent return on equity over the past three years. 

While many big banks are being bought out and changing hands, AuburnBank has operated continuously since it opened with $10, 000 in 1907 as the city’s first financial institution. Among the 22 financial institutions in Alabama still in existence for a century or more, AuburnBank was the first to be chartered in Auburn and is the only one remaining. 

According to an account in More Than Money—published in 2007 by AuburnBank to commemorate its 100th anniversary—pharmacist Shel Toomer, weary of making the slow seven-mile, horse-and-buggy trip to Opelika to do his banking, urged a group of his fellow local businessmen to create the Bank of Auburn. The bank’s primary location remains across College Street from the famed Toomer’s Corner in downtown Auburn. 

Auburn National Bancorporation reported net earnings of approximately $1.4 million, or $0.38 per share, for the third quarter of 2011, compared to $1.2 million, or $0.34 per share, for the third quarter of 2010. Net earnings for the first nine months of 2011 were $4.4 million, or $1.20 per share, compared to $4.5 million, or $1.23 per share, for the first nine months of 2010. Assets totaled $765 million as of Sept. 30, 2011.  AuburnBank has paid an increasing rate on its stock’s dividend for the last 14 out of 15 years, Dumas notes.

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The November/December 2008 issue of Washington Monthly included an article called “Too Small to Fail, ” a look at small-scale financial institutions and how their “surprising resilience holds a key lesson for 21st century global finance.” Dumas points to a multi-pronged strategy that has allowed the bank to hold steady during what is arguably the worse economic downturn since the Great Depression.

“Certainly, we’ve had to ask ourselves, ‘where is loan growth going to come from?’ just as other financial institutions have, ” Dumas says. Nonetheless, AuburnBank is recognized by the industry for having strong underwriting practices for its loans, he explains, as well as having a robust credit administration department and a strong loan review process. 

“By regulatory definition, AuburnBank is a well-capitalized bank with sound reserves and significant liquidity to meet both short and long-term cash needs, ” Dumas adds. He notes that AuburnBank did not participate in the TARP program—a government bailout offered to troubled banks in October of 2008. Dumas also cites the ability to control operating expenses as another essential component in keeping the bank afloat in troubled economic times. 

Customer service is a hallmark of any successful hometown business, be it a bank or a barber shop, Dumas says, and non-perfunctory approach to dealing with its customers is a cornerstone of its corporate culture. Customer service “begins with empathy, ” he asserts.

Along with customer service, he adds, participation in community affairs is also crucial for businesses if they are to maintain a strong, longtime local presence. “We are proud of our involvement in many local charities, special events, education and opportunities for service, both at a corporate level and among individual employees, ” Dumas says. “For decades, the bank has enjoyed a synergistic relationship among its customers, the University and the communities we serve.”

In addition to its main office, AuburnBank operates full-service branches in Auburn, Opelika, Hurtsboro and Notasulga.  In-store branches are located in Auburn and Opelika Kroger grocery stores, and in Walmart stores in Auburn, Opelika and Phenix City. Mortgage loan offices are located in Phenix City and Valley, and a commercial lending office recently opened in Montgomery. An additional full-service branch is opening in Valley in December. All of AuburnBank’s facilities are in Alabama.

Dumas acknowledges the board of directors and longtime Chairman E.L. Spencer Jr. for continuing to lead the bank through the latest economic crisis and period of instability in financial markets. A seat on the board opened in 1975 for Spencer, a Loachapoka native and Fulbright scholar who became chairman of the board in 1980.

Spencer has been part of many significant changes since 1980. Most notably, Spencer says, has been an increased emphasis on customer service, such as products and banking hours, and the growth in the number of locations and size. As AuburnBank moves forward, Spencer says its greatest challenges are “a stable economy, productive political leadership and the federal regulatory environment.”

Jessica Armstrong is a freelance contributor to Business Alabama. She lives in Auburn.

By Jessica Armstrong

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