SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 001-16763
Allied First Bancorp, Inc.
(Exact name of small business issuer as specified in its charter)
Maryland 36-4482786
(State or other jurisdiction of (I.R.S. Employer identification
incorporation or organization) or number)
387 Shuman Boulevard, Suite 290 E, Naperville, IL 60563
(Address of principal executive offices) (Zip Code)
(630) 778-7700
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for 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 |_|
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
Indicate the number of Shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of February 3, 2004, there were 558,350 shares of the Registrant's common
stock issued and outstanding.
Allied First Bancorp, Inc.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Condensed Financial Statements
Consolidated Balance Sheets at December 31, 2003 and June 30, 2003 3
Consolidated Statements of Income and Comprehensive Income for the 4
three months and six months ended December 31, 2003 and 2002
Consolidated Statements of Cash Flows for the six months ended 5
December 31, 2003 and 2002
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and 8
Results of Operations
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION
Items 1-6 16
Signature Page 17
10-QSB Certifications 18
2
PART I: FINANCIAL INFORMATION, Item 1.
Allied First Bancorp, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
At At
ASSETS: December 31, June 30,
2003 2003
------------- -------------
Cash and cash equivalents ........................................................ $ 3,858,686 $ 3,035,791
Securities available for sale .................................................... 8,688,260 3,805,606
Time deposits with other financial institutions .................................. 2,045,329 3,137,257
Loans held for sale .............................................................. 54,567 734,151
Loans, net of allowance for loan losses of $649,743 at
December 31, 2003 and $592,373 at June 30, 2003 ............................ 111,023,876 87,250,293
Federal Home Loan Bank stock, at cost ............................................ 1,779,100 1,640,100
Accrued interest receivable ...................................................... 402,305 315,421
Premises and equipment-net ....................................................... 229,745 66,050
Servicing agent receivable ....................................................... 1,204,801 1,105,087
Other assets ..................................................................... 277,688 471,755
------------- -------------
Total assets ......................................................... $ 129,564,357 $ 101,561,511
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Non-interest-bearing demand deposits ............................................. $ 7,986,429 $ 8,385,779
Interest-bearing demand deposits ................................................. 4,138,852 4,337,974
Savings, now and money market deposits ........................................... 54,767,893 59,678,230
Other Time deposits .............................................................. 16,659,455 18,841,382
------------- -------------
Total deposits ......................................................... 83,552,629 91,243,365
Borrowed funds ................................................................... 35,500,000 --
Other liabilities ................................................................ 422,112 501,753
------------- -------------
Total liabilities .................................................... 119,474,741 91,745,118
------------- -------------
Shareholders' Equity:
Preferred stock, $.01 par value, 2,000,000 shares authorized, none issued ........ -- --
Common stock, $.01 par value, 8,000,000 shares authorized,
608,350 shares issued and 558,350 outstanding at December 31, 2003 and
June 30, 2003 ........................................................... 6,084 6,084
Additional paid-in capital ....................................................... 5,271,948 5,271,948
Retained earnings ................................................................ 5,443,040 5,162,001
Accumulated other comprehensive income ........................................... 31,044 38,860
Treasury stock, at cost 50,000 shares ............................................ (662,500) (662,500)
------------- -------------
Total shareholders' equity ........................................... 10,089,616 9,816,393
------------- -------------
Total liabilities and shareholders' equity ..................... $ 129,564,357 $ 101,561,511
============= =============
The accompanying notes are an integral part of these consolidated
financial statements
3
PART I: FINANCIAL INFORMATION, Item 1
Allied First Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
2003 2002 2003 2002
----------- ----------- ----------- ----------
Interest income:
Loans receivable .................... $ 1,395,996 $ 1,209,889 $ 2,627,407 $2,391,613
Interest earning deposits ........... 47,466 73,462 102,745 145,404
Securities .......................... 97,248 110,227 167,953 218,352
----------- ----------- ----------- ----------
Total interest income .......... 1,540,710 1,393,578 2,898,105 2,755,369
Interest expense:
Deposits ............................ 360,460 554,803 761,624 1,105,279
Borrowed funds ...................... 123,937 3,850 184,709 5,390
----------- ----------- ----------- ----------
Total interest expense ......... 484,397 558,653 946,333 1,110,669
Net interest income: .................................. 1,056,313 834,925 1,951,772 1,644,700
Provision for loan losses ............................. 91,000 101,000 212,000 161,000
----------- ----------- ----------- ----------
Net interest income after
provision for loan losses ............................. 965,313 733,925 1,739,772 1,483,700
Non-interest income:
Credit and debit card transaction ... 124,398 131,981 253,857 269,959
Account fees ........................ 36,470 33,825 80,771 65,115
Gain on sale of securities .......... -- 4,132 4,910 4,132
First mortgage loan fees ............ 1,777 22,339 21,136 45,515
Other ............................... 4,282 8,245 10,319 16,864
----------- ----------- ----------- ----------
Total non-interest income ...... 166,927 200,522 370,993 401,585
Non-interest expense:
Salaries and employee benefits ...... 334,602 292,247 667,795 579,131
Office operations and equipment ..... 92,415 106,508 200,131 210,134
Occupancy ........................... 27,184 20,693 53,003 41,385
Data processing ..................... 65,108 64,670 128,593 127,025
Credit and debit card processing .... 110,500 120,042 229,885 257,217
Travel and conference ............... 7,356 18,829 24,759 30,912
Professional services ............... 93,835 76,678 202,767 170,876
Marketing and promotion ............. 42,675 52,444 81,339 158,449
Other ............................... 25,017 19,768 61,772 39,971
----------- ----------- ----------- ----------
Total non-interest expense ..... 798,692 771,879 1,650,044 1,615,100
Income before income taxes: ........................... 333,548 162,568 460,721 270,185
Income tax expense .................. 129,860 63,516 179,682 105,648
----------- ----------- ----------- ----------
Net income: ........................................... 203,688 99,052 281,039 164,537
=========== =========== =========== ==========
Other comprehensive income (Loss) ..................... (15,037) (9,034) (7,816) 40,937
----------- ----------- ----------- ----------
Total comprehensive income ............................ $ 188,651 $ 90,018 $ 273,223 $ 205,474
=========== =========== =========== ==========
Earnings per common share
Basic ............................... $ 0.36 $ 0.16 $ 0.50 $ 0.27
Diluted ............................. $ 0.36 $ 0.16 $ 0.50 $ 0.27
The accompanying notes are an integral part of these consolidated
financial statements
4
PART I: Financial Information, Item 1
Allied First Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months
Ended
December 31,
2003 2002
------------ ------------
Cash flows from operating activities
Net Income ...................................................... $ 281,039 $ 164,537
Adjustment to reconcile net income to net cash from
operating activities
Depreciation ........................................ 41,269 22,918
Amortization of premiums on securities .............. 59,976 69,631
Net gain on sale of securities ...................... (4,910) (4,132)
Provision for loan losses ........................... 212,000 161,000
FHLB stock dividend ................................. (55,400) (38,600)
Net Changes in
Accrued interest receivable .................... (86,884) (71,331)
Servicing agent receivable ..................... (99,714) --
Other assets ................................... 194,067 (78,954)
Other liabilities .............................. (73,582) (103,311)
------------ ------------
Net cash from operating activities .... $ 467,861 121,758
Cash flows from investing activities
Purchase of available for sale securities ....................... (7,221,039) (6,068,154)
Sale of available for sale securities ........................... 357,863 4,172,635
Principal collected on mortgage backed securities ............... 1,911,581 2,241,518
Purchase of Federal Home Loan Bank stock ........................ (83,600) --
Net expenditures of premises and equipment ...................... (204,964) (15,628)
Purchase of loans from other institutions ....................... (38,582,526) (8,806,546)
Net changes in:
Loans ............................................... 15,276,527 (4,065,086)
Time deposits with other financial institutions ..... 1,091,928 892,770
------------ ------------
Net cash from investing activities .... (27,454,230) (11,648,491)
Cash flows from financing activities
Net change in
Deposits ............................................ (7,690,736) 5,897,189
Proceeds from borrowed funds .................................... 35,500,000 1,000,000
------------ ------------
Net cash from financing activities .... 27,809,264 6,897,189
Increase (decrease) in cash and cash equivalents .............................. $ 822,895 (4,629,544)
Cash and cash equivalents at beginning of period .............................. 3,035,791 7,363,100
------------ ------------
Cash and cash equivalents at end of period .................................... $ 3,858,686 $ 2,733,556
============ ============
The accompanying notes are an integral part of these consolidated
financial statements
5
Allied First Bancorp, Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying consolidated condensed financial statements include the
accounts of Allied First Bancorp, Inc. and its wholly owned subsidiary, Allied
First Bank, sb. All significant inter-company transactions and balances are
eliminated in consolidation. The accompanying unaudited consolidated condensed
financial statements have been prepared in accordance with accounting principles
for interim financial information and with the instructions to Form 10-QSB and
Regulation SB. Accordingly, they do not include all the information and
footnotes required by accounting principles generally accepted in the United
States of America for complete consolidated financial statements.
In the opinion of management, the consolidated condensed financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to represent fairly the financial condition of the
Company as of December 31, 2003 and June 30, 2003 and the results of its
operations, for the three months and six months ended December 31, 2003 and
2002. Financial statement reclassifications have been made for the prior period
to conform to classifications used as of and for the period ended December 31,
2003.
Operating results for the three months and six months ended December 31,
2003 are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 2004. Allied First Bancorp, Inc.'s 2003 annual
report on Form 10-KSB should be read in conjunction with these statements.
(2) Use of Estimates
The preparation of consolidated financial statements, in conformity with
accounting principles generally accepted in the United States of America,
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and the
reported amounts of income and expenses during the reporting period. Actual
results could differ from current estimates. Estimates that are more susceptible
to change in the near term include the allowance for loan losses and the fair
values of financial instruments.
(3) Earnings Per Common Share
Basic earnings per common share is computed by dividing net income by the
weighted average number of shares of common stock outstanding. For the
three-month and six month periods ended December 31, 2003, the weighted average
number of common shares used in the computation of basic earning per share was
558,350. The weighted average number of common shares for the same periods in
2002 was 608,350. There are no potential dilutive common shares.
6
(4) Premises and Equipment
The company is obligated under a five year operating lease for office space that
contains a termination option effective as of April 30, 2007. The lease was
effective as of September 16, 2003 with terms to begin occupancy in November
2003. The expiration of the lease is April 30, 2009. It contains a period of
free rent in the 2004 fiscal year, and escalation clauses providing for
increases in rental expense based primarily on increases in real estate taxes
and operating costs.
The future minimum commitments under the full lease term at December 31, 2003
for all operating leases are as follows:
Year Ending June 30, Amount
-------------------- ------
2004 $ 7,564
2005 117,464
2006 120,988
2007 124,618
2008 128,357
Thereafter 109,625
--------
Total $608,616
========
(5) Federal Home Loan Bank Advances
At December 31, 2003, advances from the Federal Home Loan Bank were as follows.
Open line advance, variable rate and term $20,500,000
Maturity July 2004, fixed rate of 1.34% 5,000,000
Maturity July 2005, fixed rate of 1.70% 5,000,000
Maturity July 2006, fixed rate of 2.12% 5,000,000
-----------
Total $35,500,000
===========
Each advance is payable at its maturity date, with a prepayment penalty.
All advances including open line advances were collateralized by $8,688,000 in
mortgaged backed securities and $57,637,000 of first mortgage loans under a
blanket lien arrangement at December 31, 2003.
7
Part I, Item 2
Allied First Bancorp, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Allied First Bancorp, Inc.'s results of operations are primarily dependent
on Allied First Bank's net interest margin, which is the difference between
interest income on interest-earning assets and interest expense on
interest-bearing liabilities. Allied First Bank's net income is also affected by
the level of its non-interest income and non-interest expenses, such as employee
compensation and benefits, occupancy expenses and other expenses.
FORWARD-LOOKING STATEMENTS
When used in this filing and in future filings by Allied First Bancorp,
Inc. and Allied First Bank, sb with the U.S. Securities and Exchange Commission,
in Allied First Bancorp, Inc. and Allied First Bank press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be,"
"will allow," "intends to," "will likely result," "are expected to," "will
continue," "is anticipated," "estimate," "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
Such statements are subject to risks and uncertainties, including but not
limited to changes in economic conditions in our market area, changes in
policies by regulatory agencies, fluctuations in interest rates, demand for
loans in our market area and competition, all or some of which could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected.
Allied First Bancorp, Inc. wishes to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made, and advises readers that various factors, including regional and national
economic conditions, substantial changes in levels of market interest rates,
credit and other risks of lending and investment activities and competitive and
regulatory factors, could affect our financial performance and could cause
Allied First Bancorp, Inc.'s actual results for future periods to differ
materially from those anticipated or projected.
These risks and uncertainties should be considered in evaluating
forward-looking statements and you should not rely on these statements.
CRITICAL ACCOUNTING POLICIES
Certain of the Company's accounting policies are important to the portrayal of
the Company's financial condition, since they require management to make
difficult, complex or subjective judgments, some of which may relate to matters
that are inherently uncertain. Estimates associated with these policies are
susceptible to material changes as a result of changes in facts and
circumstances. Some of the facts and circumstances which could affect these
judgments include changes in interest rates, in the performance of the economy
or in the financial condition of borrowers. Management believes that its
critical accounting policies include determining the allowance for loan losses
and determining the fair value of securities and other financial instruments.
8
FINANCIAL CONDITION
The Company's total assets increased $28.0 million during the six months
ended December 31, 2003, to $129.6 million from $101.6 million at June 30, 2003.
The increase was due to increases in net loans of $23.8 million and an increase
of $4.9 million in available for sale securities.
The Company's total liabilities increased $27.7 million from $91.7 million
at June 30, 2003, to $119.5 million at December 31, 2003. The increase was due
primarily to $35.5 million in borrowed funds and was offset by a decrease in
deposits of $7.7 million. Total deposits decreased from $91.2 million at June
30, 2003 to $83.6 million at December 31, 2003.
Stockholders' equity increased by $273,000 from $9.8 million at June 30,
2003 to $10.1 million at December 31, 2003. The increase is due to year to date
net income of $281,000, and is offset by a decrease in unrealized deprecation of
value on available for sale securities of $8,000.
COMPARISON OF THREE-MONTH AND SIX-MONTH PERIODS
ENDED DECEMBER 31, 2003 AND 2002
GENERAL
Net income for the three-month and six-month periods ended December 31,
2003 was $204,000 and $281,000, respectively, compared to net income of $99,000
and $165,000 for the equivalent periods in 2002. The increase in net income for
both the three-month and six-month periods ending 2003 over the same periods in
2002 was due primarily to higher net interest income.
NET INTEREST INCOME
The net interest income for the three-month period ended December 31, 2003,
was $1,056,000 compared to $835,000 for the same period in 2002. This is a
26.47% increase over the same period in 2002. Although net interest income grew
as a result of asset growth the net interest margin dropped to 3.38% from 3.63%
for the same period in 2002. The reason for the lower net yield in 2003 was that
the yield on earnings assets decreased from 6.05% to 4.93%. The net interest
income for the six-month period ended December 31, 2003, was $1,952,000 compared
to $1,645,000 for the same period in 2002, an increase of 18.66% and resulted in
a net interest margin of 3.32% compared to 3.70% in 2002. The reason for the
lower net yield in six-month period ending December 31, 2003 was that the yield
on earnings assets decreased from 6.19% to 4.93%.
Total average interest earning balances decreased $6.8 million and $5.0
million, for the three-month and six-month periods over one-year ago. The
decrease is due primarily to shifting assets from cash and cash equivalents to
loans. Total average loans increased $39.1 million and $33.8 million, for the
three-month and six-month periods over one-year ago. The yields on total average
earning assets were 4.93% and 6.05% for the three-month periods ended December
31, 2003, and 2002 and 4.93% and 6.19% for the six-month periods ended December
31, 2003 and 2002.
Total average interest bearing liabilities increased $34.1 million, and
$30.0 million, for the three-month and six-month periods ended December 31,
2003, over the comparative periods in 2002. Interest bearing liabilities
increased primarily due to the use of Federal Home Loan Bank of Chicago loan
advances to fund the purchase of first mortgage loans.
9
INTEREST INCOME
Interest income for the three months and six months ended December 31, 2003
was $1,541,000 and $2,898,000 compared to $1,394,000 and $2,755,000 for the same
period in 2002. The increase in both the three-month and six-month periods was
due to an increase in average earning assets.
INTEREST EXPENSE
Interest expense for the three months and six months ended December 31,
2003 was $484,000 and $946,000 compared to $559,000 and $1,110,000 for the same
period in 2002. The decrease was primarily due to lower rates paid on
interest-bearing liabilities during 2002, which was 1.78% for the three-month
period ending December 31, 2003, and 1.86% for the six months ending December
31, 2003. This represents a 121 basis point decrease and a 124 basis point
decrease in the rates paid over the same periods in the prior year.
10
The following tables set forth consolidated information regarding average
balances and annualized average rates.
Allied First Bancorp, Inc.
Three Months ending Three Months ending
December 31 December 31
2003 2002
----------------------------------- ----------------------------------
Average Average Average Average
INTEREST EARNING ASSETS Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Loans $ 110,547 $1,396 5.05% $ 71,402 $1,210 6.78%
Available for sale securities 9,223 97 4.21% 9,007 110 4.89%
Federal Home Loan Bank tock 1,732 29 6.70% 1,571 24 6.11%
Interest earning balances 3,510 19 2.17% 10,117 50 1.98%
--------- ------ ---- -------- ------ ----
Total interest-earning assets 125,012 1,541 4.93% 92,097 1,394 6.05%
--------- ------ ---- -------- ------ ----
NON-INTEREST EARNING ASSETS
Premises and equipment 184 66
Allowance for loan losses (639) (626)
Other non-earning assets 1,612 619
--------- --------
Total assets $ 126,169 $ 92,156
========= ========
INTEREST BEARING LIABILITIES
Interest checking $ 4,059 $ 15 1.48% $ 11,517 $ 99 3.44%
Savings 14,330 18 0.50% 11,394 27 0.95%
Money market 40,929 154 1.51% 32,481 196 2.41%
Time deposits 17,565 173 3.94% 18,495 233 5.04%
Borrowed funds 32,024 124 1.55% 937 4 1.71%
--------- ------ ---- -------- ------ ----
108,907 484 1.78% 74,824 559 2.99%
--------- ------ ---- -------- ------ ----
NON-INTEREST BEARING LIABILITIES AND EQUITY
Checking 6,804 6,588
Other liabilities 512 517
Equity 9,946 10,227
--------- --------
Total liabilities and equity $ 126,169 $ 92,156
========= ========
Net Interest/Spread $1,057 3.15% $ 835 3.06%
====== ==== ====== ====
Margin 3.38% 3.63%
==== ====
(1) Total Loans less deferred net loan fees
11
Allied First Bancorp, Inc.
Six Months ending Six Months ending
December 31 December 31
2003 2002
----------------------------------- ----------------------------------
Average Average Average Average
INTEREST EARNING ASSETS Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Loans $ 102,802 $2,627 5.11% $ 68,989 $2,392 6.93%
Available for sale securities 8,115 168 4.14% 8,582 218 5.08%
Federal Home Loan Bank stock 1,690 56 6.63% 1,561 43 5.51%
Interest earning balances 5,015 47 1.87% 9,840 102 2.07%
--------- ------ ---- -------- ------ ----
Total interest-earning assets 117,622 2,898 4.93% 88,972 2,755 6.19%
--------- ------ ---- -------- ------ ----
NON-INTEREST EARNING ASSETS
Premises and equipment 133 66
Allowance for loan losses (612) (643)
Other non-earning assets 1,815 627
--------- --------
Total assets $ 118,958 $ 89,022
========= ========
INTEREST BEARING LIABILITIES
Interest checking $ 4,343 $ 32 1.47% $ 6,357 $ 110 3.46%
Savings 14,332 36 0.50% 11,456 58 1.01%
Money market 41,992 322 1.53% 34,707 458 2.64%
Time deposits 18,196 372 4.09% 18,677 479 5.13%
Borrowed funds 22,868 184 1.61% 505 5 1.98%
--------- ------ ---- -------- ------ ----
101,731 946 1.86% 71,702 1,110 3.10%
--------- ------ ---- -------- ------ ----
NON-INTEREST BEARING LIABILITIES AND EQUITY
Checking 6,840 6,598
Other liabilities 483 540
Equity 9,904 10,182
--------- --------
Total liabilities and equity $ 118,958 $ 89,022
========= ========
Net interest/spread $1,952 3.07% $1,645 3.09%
====== ==== ====== ====
Margin 3.32% 3.70%
==== ====
(1) Total loans less deferred net loan fees
12
PROVISION FOR LOAN LOSSES
The provision for loan losses was $91,000 and $212,000, respectively, for
the three-month and six-month periods ended December 31, 2003 and $101,000 and
$161,000 for the same periods in 2002. The increase in the six-month period
ended December 31, 2003 over the same period in 2002 is due to the increase in
the loan portfolio balances and in net charge-offs, as well as current probable
losses in the loan portfolio. Changes in the provision for loan losses are
attributed to management's analysis of the adequacy of the allowance for loan
losses to address probable losses. Net charge-offs of $82,000 have been recorded
for the three-month period ended December 31, 2003, compared to $80,000 of net
charge-offs for the same period in 2002. Net charge-offs of $155,000 have been
recorded for the six-month period ended December 31, 2003, compared to $139,000
of net charge-offs for the same period in 2002. The allowance for loan losses
was $650,000 or 0.58% of net loans as of December 31, 2003, compared to $592,000
or 0.68% of net loans at June 30, 2003. The decline in percentage of allowance
for loan loss to net loans was primarily due to loan portfolio shifting to a
greater percentage of real estate secured loans and a smaller percentage of
unsecured loans. The portfolio continued to shift to more real estate loans with
the purchase of $35.3 million in first mortgage loans during the first quarter
of the fiscal 2004 year. Allied First Bancorp, Inc. holds a small percentage in
secured commercial loans, which was $5.4 million or 4.9% of net loans at
December 31, 2003. At December 31, 2003 first mortgage and home equity loans
comprise nearly 70% of the loan portfolio compared to 62% at June 30, 2003.
We establish provisions for loan losses, which are charged to operations,
at a level management believes is appropriate to absorb probable credit losses
in the loan portfolio. In evaluating the level of the allowance for loan losses,
management considers historical loss experience, the nature and volume of the
loan portfolio, adverse situations that may affect the borrower's ability to
repay, estimated value of any underlying collateral, peer group information, and
prevailing economic conditions. This evaluation is inherently subjective as it
requires estimates that are susceptible to significant revisions as more
information becomes available or as future events change.
Approximately 93% of our customer base consists of American Airlines pilots
and their family members. Although this customer base had historically
relatively stable employment and sources of income, the terrorist attacks on the
United States in September 2001, the war in Iraq, and the current economic
environment have adversely affected the airline industry. As a result of these
factors, the stability of the employment and income of the American Airline
pilots has been adversely affected and could negatively affect the ability of
our customers to repay their loans, although the effect on our loan
delinquencies and loan losses cannot be identified with reasonable certainty at
this time. As a result of these factors, we may have higher loan delinquencies
and defaults in future periods. At December 31, 2003, our delinquent loans past
due 60 days or more, was less than 0.01% of our loan portfolio, compared to less
than .01% at June 30, 2003 and .03% at December 31, 2002.
NON-INTEREST INCOME
Non-interest income for the three-month periods ended December 31, 2003 and
2002 was $167,000 and $201,000, respectively and for the six-month periods were
$371,000 and $402,000. The decline for both the three-month and six-month
periods ended December 31, 2003 from 2002 was due to the decline in income from
mortgage originations which have dropped significantly in the 2004 fiscal year.
Account fees were $81,000 for the first six-month period ended December 31, 2003
and $65,000, an increase of $16,000, or 24.62% for the same period in 2002. The
increase in account fees was due to the overdraft privilege program which began
in
13
October of 2002. Overdraft privilege allows a customer to overdraw their
checking account up to a specified limit for a fee.
NON-INTEREST EXPENSE
Non-interest expense for the three-month period ended December 31, 2003,
was $799,000, an increase of $27,000, or 3.50%, compared to the same period in
2002. Salary and employee benefits was $335,000 for the three-month period ended
December 31, 2003 an increase of $43,000 or 14.73%, from $292,000 for the same
period in 2002. The increase in salaries and employee benefits was due to
additional personnel, normal merit raises as well as rising health care
premiums. Office operations and equipment was $92,000 for the three-month period
ended December 31, 2003 a decrease of $15,000 or 14.02%, from $107,000 for the
same period in 2002. The decrease was mainly a result of computer network
maintenance expense being lower for the 2003 three-month period. Occupancy
expense was $27,000 for the three-month period ended December 31, 2003, an
increase of $6,000 compared to the same period in 2002. The increase was due to
an increase in rent expense related to a new lease effective January 2003.
Travel and conference for the three-month period ended December 31, 2003, was
$7,000, a decrease of $12,000, compared to the same period in 2002. Professional
services expense was $94,000 for the three-month period ended December 31, 2003
an increase of $17,000 or 22.08%, from $77,000 for the same period in 2002. The
increase in professional services was a result of increasing professional fees
related to new legislation and regulation on the banking industry and SEC
registrants. Marketing and promotion was $43,000 for the three-month period
ended December 31, 2003 a decrease of $9,000 or 17.31%, from $52,000 for the
same period in 2002. The decrease in marketing and promotion expense was a
result of decreased promotional activities.
Non-interest expense was $1,650,000 for the six-month period ended December
31, 2003, an increase of $35,000 or 2.17% from $1,615,000 for the same six-month
period in 2002. Salary and employee benefits was $668,000 for the six-month
period ended December 31, 2003 an increase of $89,000 or 15.37%, from $579,000
for the same period in 2002. The increase in salaries and employee benefits was
due to additional personnel, normal merit raises as well as rising health care
premiums. Occupancy expense was $53,000 for the six-month period ended December
31, 2003, an increase of $12,000 compared to the same period in 2002. The
increase was due to an increase in rent expense related to a new lease effective
January 2003. Travel and conference for the six-month period ended December 31,
2003, was $25,000, a decrease of $6,000, compared to the same period in 2002.
Professional service fees were $203,000 for the six-month period ended December
31, 2003, and $171,000 for the same period in 2002. The increase in professional
services was a result of increasing professional fees related to new legislation
and regulation on the banking industry and SEC registrants. Marketing and
promotion was $81,000 for the six-month period ended December 31, 2003 a
decrease of $77,000 or 48.67%, from $158,000 for the same period in 2002. Other
expenses for the six-month period ended December 31, 2003 and 2002 were $62,000
and $40,000. This increase in other expenses was a result of an increase in
regulatory expense related to the cost of a regulatory exam fee.
INCOME TAXES
The provision for income taxes was $130,000 and $64,000, for the
three-month periods ending December 31, 2003 and 2002. The provision for income
taxes was $180,000 and $106,000, for the six-month periods ending December 31,
2003 and 2002. The increases in both the three-month and six-month periods in
2003 are a result of higher income. The effective rate for the three-month
periods ended December 31, 2003 and 2002 was 38.93% and 39.07%, and for the
six-month periods were 39.00% and 39.10%.
14
REGULATORY CAPITAL REQUIREMENTS
Pursuant to federal law, Allied First Bank must meet three separate minimum
capital ratio requirements. As of December 31, 2003, Allied First Bank had core
capital, Tier I risk-based and total risk-based ratios of 7.80%, 11.01% and
11.74% compared to well-capitalized requirements of 5.00%, 6.00% and 10.00%. At
June 30, 2003, Allied First Bank had core capital, Tier I risk-based ratios of
9.50%, 12.10% and 12.90%.
LIQUIDITY
Liquidity management refers to the ability to generate sufficient cash to
fund current loan demand; meet deposit withdrawals and pay operating expenses.
Allied First Bancorp, Inc. relies on various funding sources in order to meet
these demands. Primary sources of funds include interest-earning balances with
other financial institutions, money market mutual funds, proceeds from principal
and interest payments on loans as well as the ability to borrow against first
mortgages, and marketable securities. At December 31, 2003, Allied First Bank
had $3.9 million in cash and cash equivalents that could be used for its funding
needs. Cash and cash equivalents decreased by $823,000 compared to the period
ending June 30, 2003 securities available for sale increased by $4.9 million and
time deposits with other institutions decreased $1.1 million.
For further liquidity, the Company may borrow against its mortgage-backed
securities and first mortgages through the Federal Home Loan Bank of Chicago.
The Company also established a fed funds line of $4.0 million with LaSalle Bank
during 2002. The remaining borrowing capacity at December 31, 2003 was
approximately $11.9 million.
As of December 31, 2003, management is not aware of any current
recommendations by regulatory authorities, which, if they were to be
implemented, would have or are reasonably likely to have a material adverse
effect on the Allied First Bancorp, Inc.'s liquidity, capital resources or
operations.
Item 3
Allied First Bancorp, Inc.
CONTROLS AND PROCEDURES
An evaluation was carried out as of December 31, 2003 under the supervision
and with the participation of Allied First Bancorp Inc.'s management, including
the Chief Executive Offer and Chief Financial Officer, of the effectiveness of
disclosure controls and procedures. Based on their evaluation, Allied First
Bancorp Inc.'s Chief Executive Officer and Chief Financial Officer have
concluded that Allied First Bancorp, Inc's disclosure controls and procedures
are to the best of their knowledge, effective to ensure that the information
required to be disclosed by Allied First Bancorp Inc. in reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in Securities and Exchange Commission
rules and forms. Subsequent to the date of their evaluation, there were no
significant changes in Allied First Bancorp Inc.'s internal controls or in other
factors that could significantly affect these controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.
15
Part II - Other Information
Item 1 - Legal Proceedings - Not Applicable.
Item 2 - Changes in Securities and Use of Proceeds - Not Applicable.
Item 3 - Defaults upon Senior Securities - Not Applicable.
Item 4 - Submission of Matters to a vote of Security Holders - Not Applicable
Item 5 - Other Information - Not Applicable
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 31.1 Rule 13a-14(a)/15d/14(a) Certification of Chief
Executive Officer
Exhibit 31.2 Rule 13a-14(a)/15d/14(a) Certification of Chief
Financial Officer
Exhibit 32.1 Chief Executive Officer's Section 906
Certification under the Sarbanes-Oxley Act of
2002
Exhibit 32.2 Chief Financial Officer's Section 906
Certification Under the Sarbanes-Oxley Act of
2002
(b) Reports on Form 8-K
None
16
SIGNATURES
Pursuant to the requirement of 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.
Allied First Bancorp, Inc.
Registrant
Date: February 3, 2004 /s/ Kenneth L. Bertrand
----------------------------------------
Kenneth L. Bertrand
President and Chief Executive Officer
Date: February 3, 2004 /s/ Brian K. Weiss
----------------------------------------
Brian K. Weiss
Chief Financial Officer
17