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 September 30, 2004
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.
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(Exact name of small business issuer as specified in its charter)
Maryland 36-4482786
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(State or other jurisdiction of (I.R.S. Employer identification
incorporation or organization) or number)
387 Shuman Boulevard, Suite 290 E, Naperville, IL 60563
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(Address of principal executive offices) (Zip Code)
(630) 778-7700
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(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 November 9, 2004, there were 527,688 shares of the Registrant's common
stock issued and outstanding.
Allied First Bancorp, Inc.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Unaudited Consolidated Condensed Financial Statements
Unaudited Consolidated Balance Sheets at September 30, 2004 and
June 30, 2004 1
Unaudited Consolidated Statements of Income and Comprehensive
Income for the three months ended September 30, 2004 and 2003 2
Unaudited Consolidated Statements of Cash Flows for the three
months ended September 30, 2004 and 2003 3
Notes to Unaudited Consolidated Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 3. Controls and Procedures 13
PART II. OTHER INFORMATION
Items 1-6 14
Signature Page 15
10-QSB Certifications 16
PART I: FINANCIAL INFORMATION, Item 1.
Allied First Bancorp, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS: At At
------- Sept 30, June 30,
2004 2004
---- ----
Cash and cash equivalents ......................................................... $ 4,552,405 $ 6,363,686
Securities available for sale ..................................................... 16,443,366 7,072,627
Time deposits with other financial institutions ................................... 199,062 298,121
Loans, net of allowance for loan losses of $621,905 at
September 30,2004 and $597,515 at June 30, 2004 ............................. 118,640,054 113,295,920
Federal Home Loan Bank stock, at cost ............................................. 2,028,300 2,000,000
Accrued interest receivable ....................................................... 436,982 375,843
Premises and equipment-net ........................................................ 362,595 339,541
Servicing agent receivable ........................................................ 702,605 1,967,903
Goodwill .......................................................................... 514,507 514,507
Other assets ...................................................................... 607,021 579,597
------------- -------------
Total assets .......................................................... $ 144,486,897 $ 132,807,745
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
-------------------------------------
Liabilities:
Non-interest-bearing demand deposits ............................................. $ 8,093,845 $ 8,525,828
Interest-bearing demand deposits ................................................. 2,568,530 2,733,400
Savings, Now and money market deposits ........................................... 47,796,256 51,264,178
Time deposits .................................................................... 42,185,721 22,139,234
------------- -------------
Total deposits ......................................................... 100,644,352 84,662,640
Borrowed funds ................................................................... 32,232,670 35,632,670
Other liabilities ................................................................ 1,175,120 1,648,559
------------- -------------
Total liabilities ...................................................... 134,052,142 121,943,869
------------- -------------
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 527,688 outstanding at September 30, 2004
and 558,350 at June 30, 2004 ............................................. 6,084 6,084
Additional paid-in capital ........................................................ 5,271,948 5,271,948
Retained earnings ................................................................. 6,326,373 6,283,253
Accumulated other comprehensive income ............................................ 38,862 (34,909)
Treasury stock, at cost, 80,662 shares at September 30, 2004 and 50,000 shares
at June 30, 2004 ........................................................ (1,208,512) (662,500)
------------- -------------
Total shareholders' equity ........................................... 10,434,755 10,863,876
------------- -------------
Total liabilities and shareholders' equity ................... $ 144,486,897 $ 132,807,745
============= =============
The accompanying notes are an integral part of these unaudited
consolidated financial statements
1
PART I: FINANCIAL INFORMATION, Item 1
Allied First Bancorp, Inc.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended
September 30,2004
2004 2003
---- ----
Interest income:
Loans receivable .................................................. $1,366,386 $1,231,411
Interest earning deposits ......................................... 39,698 55,279
Securities ........................................................ 110,773 70,705
---------- ----------
Total interest income ........................................ 1,516,857 1,357,395
Interest expense:
Deposits .......................................................... 447,161 401,165
Borrowed funds .................................................... 172,120 60,772
---------- ----------
Total interest expense ....................................... 619,281 461,937
Net interest income: ....................................................... 897,576 895,458
Provision for loan losses .................................................. 81,000 121,000
---------- ----------
Net interest income after
provision for loan losses .................................................. 816,576 774,458
Non-interest income:
Credit and debit card transaction ................................. 16,180 129,459
Account fees ...................................................... 28,585 40,350
Gain on sale of securities ........................................ -- 4,910
First mortgage loan fees .......................................... 7,711 23,310
Call center processing income ..................................... 188,432 --
Other ............................................................. 33,521 6,037
---------- ----------
Total non-interest income .................................... 274,429 204,066
Non-interest expense:
Salaries and employee benefits .................................... 544,229 333,192
Office operations and equipment ................................... 164,129 107,716
Occupancy ......................................................... 35,331 25,818
Data processing ................................................... 69,624 63,486
Credit and debit card processing .................................. 18,760 119,385
Travel and conference ............................................. 14,261 17,403
Professional services ............................................. 107,713 108,934
Marketing and promotion ........................................... 41,834 38,664
Other expenses .................................................... 28,289 36,753
---------- ----------
Total non-interest expense ................................... 1,024,170 851,351
Income before income taxes: ................................................ 66,835 127,173
Income tax expense ................................................ 23,714 49,822
---------- ----------
Net income: ................................................................ 43,121 77,351
========== ==========
Other comprehensive income ................................................. 73,771 7,221
---------- ----------
Total comprehensive income ................................................. $ 116,892 $ 84,572
========== ==========
Earnings per common share
Basic ............................................................. $ 0.08 $ 0.14
Diluted ........................................................... $ 0.08 $ 0.14
The accompanying notes are an integral part of these unaudited
consolidated financial statements
2
Allied First Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three months Ended
September 30,
2004 2003
---- ----
Cash flows from operating activities
Net Income .................................................................. $ 43,121 $ 77,351
Adjustment to reconcile net income to net cash from
operating activities
Depreciation ........................................................... 43,928 11,469
Amortization of premiums on securities ................................. 12,067 28,424
Amortization of intangible assets ...................................... 14,466 --
Net gain on sale of securities ......................................... -- (4,910)
Provision for loan losses .............................................. 81,000 121,000
FHLB stock dividend .................................................... (28,300) (26,300)
Net Changes in
Accrued interest receivable ....................................... 199 (93,071)
Servicing agent receivable ........................................ 1,265,298 412,089
Other assets ...................................................... (148,442) 286,880
Other liabilities ................................................. (473,440) (74,507)
------------ ------------
Net cash from operating activities .......................... $ 809,897 738,425
Cash flows from investing activities
Purchase of available for sale securities ................................... (9,676,436) (7,221,039)
Sale of available for sale securities ....................................... -- 357,863
Principal collected on mortgage backed securities ........................... 412,615 1,088,030
Net expenditures of premises and equipment .................................. (66,982) (65,340)
Purchase of loans from other institutions ................................... (6,640,787) (35,328,795)
Net changes in:
Loans .................................................................. 1,215,653 11,907,347
Time deposits with other financial institutions ........................ 99,059 794,561
------------ ------------
Net cash from investing activities ....................... (14,656,878) (28,467,373)
Cash flows from financing activities
Net change in deposits ...................................................... 15,981,712 (2,932,099)
Proceeds from borrowings .................................................... -- 31,000,000
Repayments of borrowings .................................................... (3,400,000) --
Purchase of treasury stock .................................................. (546,012) --
------------ ------------
Net cash from financing activities ................ 12,035,700 28,067,901
Increase (decrease) in cash and cash equivalents ................................. (1,811,281) 338,953
Cash and cash equivalents at beginning of period ................................. 6,363,686 3,035,791
------------ ------------
Cash and cash equivalents at end of period ....................................... $ 4,552,405 $ 3,374,744
============ ============
The accompanying notes are an integral part of these unaudited
consolidated financial statements
3
Allied First Bancorp, Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying unaudited consolidated condensed financial statements
include the accounts of Allied First Bancorp, Inc. (the "Company"). and its
wholly owned subsidiaries, Allied First Bank, sb an Illinois state-chartered
savings bank and AnyHour Lending, Inc., a loan processing call center which was
acquired on April 1, 2004. AnyHour Lending, Inc. was formally known as Eagles
Nest Marketing Solutions, Inc. The company officially changed its name on
November 1, 2004. 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 U.S. generally accepted accounting principles complete
consolidated financial statements.
In the opinion of management, the unaudited 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 September 30, 2004 and June 30, 2004 and the results of its
operations, for the three months ended September 30, 2004 and 2003. Financial
statement reclassifications have been made for the prior period to conform to
classifications used as of and for the period ended September 30, 2004.
Operating results for the three months ended September 30, 2004 are not
necessarily indicative of the results that may be expected for the fiscal year
ending June 30, 2005. Allied First Bancorp, Inc.'s 2004 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
U.S. generally accepted accounting principles, 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 period ended September 30, 2004, the weighted average number of
common shares used in the computation of basic earning per share was 548,998.
The weighted average number of common shares for the same period in 2003 was
558,350. There are no potential dilutive common shares.
(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 contained a
period of free rent in the
4
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 September 30, 2004
for all operating leases are as follows:
Year Ending June 30, Amount
-------------------- ------
2005 $ 88,244
2006 120,988
2007 124,618
2008 128,357
2009 109,625
---------
Total $ 601,052
=========
(5) Borrowed Funds
At September 30, 2004 the advance on the $5.0 million LaSalle Bank LIBOR based
line of credit was as follows:
Open line advance, 3.60% fixed rate and 3 month term $732,670
At September 30, 2004, variable rate and term advance from the Federal Home Loan
Bank was as follows:
Open line advance, 2.21% variable rate and term $2,000,000
At September 30, 2004, the scheduled maturities of fixed rate Federal Home Loan
Bank were as follows.
2005 1.24% $ 8,500,000
2006 1.70%-2.37% 9,000,000
2007 2.12%-3.45% 10,500,000
2008 3.94% 1,500,000
------------
Total $ 29,500,000
============
Each advance is payable at its maturity date, with a prepayment penalty.
All advances including open line advances were collateralized by $6,430,000 in
mortgaged backed securities and $61,174,000 of first mortgage loans under a
blanket lien arrangement at September 30, 2004.
(6) Segment Information
Internal financial information is primarily reported and aggregated in two
lines of business, banking and loan processing. Loans, investments, and deposits
provide the revenues in the banking operation, and loan processing fees provide
the revenues in loan processing. All operations are domestic. The loan
processing and call center, AnyHour Lending, Inc., was acquired by the Company
in April 2004. The financial results for AnyHour Lending, Inc. met the
requirements for segment reporting for the first time for the quarter ended
September 30, 2004.
5
The accounting policies used are the same as those described in the summary of
significant accounting policies except (describe any variances, if any). Segment
performance is evaluated using net income. Income taxes are allocated and
indirect expenses are allocated on revenue. Transactions among segments are made
at fair value.
Significant segment totals are reconciled to the interim financial statements as
follows.
Loan
Three Months Ended September 2004 Banking Processing Total
Net interest income $ 897,576 $ -- $ 897,576
Provision for loan losses 81,000 -- 81,000
Non-interest income 85,997 188,432 274,429
Non-interest expense 784,179 239,991 1,024,170
Income tax expense(credit) 43,728 (20,014) 23,714
Net income 74,666 (31,545) 43,121
Assets 143,566,020 920,877 144,486,987
6
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.
On October 1, 2004, the Company purchased certain fixed assets and began
employing personnel for a retail mortgage operation. The financial results of
this operation will be reflected in the December 31, 2004 interim statements.
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
7
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, determining the fair value of securities and
other financial instruments, and the valuation of intangible assets and
goodwill.
FINANCIAL CONDITION
The Company's total assets increased $11.7 million during the three months
ended September 30, 2004, to $144.5 million from $132.8 million at June 30,
2004. The increase was due to increases in net loans of $5.3 million and $9.4
million in available for sale securities. Since the sale of the credit card
portfolio in May of 2004, the Company has purchased 1-4 family first mortgages
and mortgage backed securities to offset the loss of revenue from credit cards.
The Company's total liabilities increased $12.1 million from $121.9
million at June 30, 2004, to $134.0 million at September 30, 2004. Total
deposits increased from $84.7 million at June 30, 2004 to $100.6 million at
September 30, 2004. The increase was due primarily to a $20.0 million increase
in time deposits and was offset by a decrease in savings, NOW and money market
deposits of $3.5 million. Recently Allied First Bank has had success in
increasing time deposits by utilizing advertising on BankRate.com.
Stockholders' equity decreased by $429,000 from $10.9 million at June 30,
2004 to $10.4 million at September 30, 2004. The decrease is due to the increase
in treasury stock of $546,000, and was offset by net income of $43,000 and an
increase in unrealized appreciation on available for sale securities of $74,000.
During the first quarter of fiscal 2005 the company began a stock repurchase
program of 50,000 shares. As of September 30, 2004 the company had bought back
30,662 shares at an average price of $17.81 per share. At June 30, 2004, the
company had 558,350 shares outstanding. At September 30, 2004 there were 527,688
shares outstanding.
COMPARISON OF THREE-MONTH PERIODS
ENDED SEPTEMBER 30, 2004 AND 2003
GENERAL
Net income for the three-month periods ended September 30, 2004 and 2003
was $43,000 and $77,000. The decrease in net income for the three-month period
ended September 30, 2004 over the same period in 2003 was due to higher
non-interest expense. The increase in non-interest expenses was partially
attributable to higher legal and accounting expenses resulting from an
acquisition which the company is no longer pursuing.
NET INTEREST INCOME
The net interest income for the three-month period ended September 30,
2004 was $898,000 compared to $895,000 for the same period in 2003. This is a
.34% increase over the same period in 2003. Although net interest income grew as
a result of asset growth the net interest margin dropped to 2.71% from 3.25% for
the same period in 2003. The reason for the lower yield in 2004 was that the
yield on interest earnings assets decreased from 4.93% to 4.57%. The average
rate paid on interest bearing liabilities increased 18 basis to 2.13% for the
three-month period ended September 30, 2004 from 1.95% in the same period in
2003. The reason for the increase in average rate paid is the increase in time
deposits over the previous period.
Total average interest earning balances increased $22.7 million for the
three-month period over one-year ago. The increase is due primarily to the
increase in average loans. Total average loans increased $20.7 million for the
three-month period over one-year ago. The yields on total average interest
earning assets were
8
4.72% for the three-month period ended September 30, 2004 and 5.18% for the same
period in 2003. The drop in yield is a result of the Company shifting the loan
portfolio from unsecured loan products to variable rate first mortgages and
variable rate home equity loans which typically have lower yields.
Total average interest bearing liabilities increased $21.4 million for the
three-month period ended September 30, 2004, over the comparative period in
2003. Interest bearing liabilities increased primarily due to the increase in
time deposits.
INTEREST INCOME
Interest income for the three month period ended September 30, 2004 was
$1,517,000 compared to $1,357,000 for the same period in 2003. The increase in
the three-month period was due to an increase in average interest earning
assets.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 2004 was
$619,000 compared to $462,000 for the same period in 2003. The increase was due
higher interest bearing liabilities balances as well as higher rates paid on
interest-bearing liabilities during 2004. The average rate paid on interest
bearing liabilities was 2.13% for the three-month period ending September 30,
2004. This represents an 18 basis point increase in the rates paid over the same
period in the prior year. Interest on borrowed funds for the three months ended
September 30, 2004 was $172,000 compared to $61,000 for the same period in 2003.
The increase was due to a higher average balance outstanding in borrowed funds
well as higher rates paid 2004.
9
The following tables set forth consolidated information regarding average
balances and annualized average rates.
Allied First Bancorp, Inc.
Three Months ending September 30 Three Months ending September 30
2004 2003
--------------------------------- ------------------------------------
Average Average Average Average
INTEREST EARNING ASSETS Balance Interest Rate Balance Interest Rate
----------------------- ------- -------- ---- ------- -------- ----
Loans $ 115,775 $ 1,366 4.72% $ 95,100 $ 1,231 5.18%
Available for sale securities 7,348 111 6.04% 7,037 71 4.04%
Federal Home Loan Bank stock 2,009 28 5.57% 1,649 26 6.31%
Interest earning balances 7,577 12 0.63% 6,310 29 1.84%
--------- --------- ---- --------- --------- ----
Total interest earning assets 132,709 1,517 4.57% 110,096 1,357 4.93%
--------- --------- ---- --------- --------- ----
NON-INTEREST EARNING ASSETS
---------------------------
Premises and equipment 330 80
Allowance for loan losses (610) (585)
Other non-earning assets 2,994 2,015
--------- ---------
Total assets $ 135,423 $ 111,606
========= =========
INTEREST BEARING LIABILITIES
----------------------------
Interest checking $ 2,493 $ 7 1.12% $ 4,628 $ 17 1.47%
Savings 13,038 17 0.52% 14,334 18 0.50%
Money market 36,265 127 1.40% 43,047 168 1.56%
Time deposits 31,187 296 3.80% 18,824 198 4.21%
Borrowed funds 33,104 172 2.08% 13,791 61 1.77%
--------- --------- ---- --------- --------- ----
116,087 619 2.13% 94,624 462 1.95%
--------- --------- ---- --------- --------- ----
NON-INTEREST BEARING LIABILITIES AND EQUITY
-------------------------------------------
Checking 6,997 6,875
Other liabilities 1,569 454
Equity 10,770 9,653
--------- ---------
Total liabilities and equity $ 135,423 $ 111,606
========= =========
Net Interest/Spread $ 898 2.44% $ 895 2.98%
========= ==== ========= ====
Margin 2.71% 3.25%
==== ====
(1) Total Loans less deferred net loan fees
10
PROVISION FOR LOAN LOSSES
The provision for loan losses was $81,000 for the three-month period ended
September 30, 2004 and $121,000 for the same period in 2003. The decrease is due
primarily to the decrease in net charge-offs. 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 incurred losses. Net charge-offs of $57,000
have been recorded for the three-month period ended September 30, 2004, compared
to $72,000 of net charge-offs for the same period in 2003. The allowance for
loan losses was $622,000 or 0.53% of net loans as of September 30, 2004,
compared to $598,000 or 0.53% of net loans at June 30, 2004. Allied First
Bancorp, Inc. holds a small percentage in secured commercial loans, which was
$4.9 million or 4.1% of net loans at September 30, 2004. At September 30, 2004
first mortgage and home equity loans comprise nearly 76% of the loan portfolio.
We establish provisions for loan losses, which are charged to operations,
at a level management believes is appropriate to absorb probable incurred 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 90% of our deposit 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 including higher oil prices 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 September 30, 2004,
our delinquent loans past due 60 days or more, was less than 0.11% of our loan
portfolio, compared to less than 0.07% at June 30, 2004. In an effort to
diversify our loan portfolio, the Company has purchased loans without recourse
from other financial institutions. These purchased loans currently represent
approximately 50% of the gross loan portfolio.
NON-INTEREST INCOME
Non-interest income for the three-month period ended September 30, 2004
was $274,000 and $204,000 for the three-month period ended September 30, 2003.
The increase for the three-month period ended September 30, 2004 from 2003 was
primarily due the recognition of call center processing income of $188,000,
generated from the purchase of AnyHour Lending Inc. in April 2004. This income
is expected to continue in future periods as well. Credit and debit card
transaction income was $16,000 for the three month period ended September 30,
2004 compared to $129,000 for the same period in 2003. The reason for the
decrease was the sale of the credit card loan portfolio in May 2004 to Town
North Bank. Account fee income was $29,000 for the three months ended September
30, 2004 compared to $40,000 for the three months ended September 30, 2003, a
decrease of $11,000 due to less overdraft volume. Mortgage loan originations
have dropped significantly from the previous fiscal year. First mortgage
origination income was $8,000 for the three-month period ended September 30,
2004 compared to $23,000 in the same three-month period in 2003. Other income
was $34,000 for three months ended September 30, 2004 compared to 6,000 for the
same period in 2003, an increase of $28,000. This increase was due to
commissions from Town North Bank on card transaction volume related to the sale
of the credit card portfolio as well as commissions received from Smith Barney
for Retirement
11
accounts. As part of the agreement with Town North Bank, the Company will
receive a percent of revenue generated from the card base as well as premiums
for new credit card customers for a period of six years.
NON-INTEREST EXPENSE
Non-interest expense for the three-month period ended September 30, 2004,
was $1.0 million, an increase of $173,000, or 20.33%, compared to the same
period in 2003. Salary and employee benefits was $544,000 for the three-month
period ended September 30, 2004 an increase of $211,000 or 63.36%, from $333,000
for the same period in 2003. This increase is partially attributable to the
addition of staff salaries and benefits from the acquisition of AnyHour Lending,
Inc. in April 2004. The remainder is attributable to normal merit increases,
increased participants in retirement plans, as well as rising health care
premiums. Office operations and equipment was $164,000 for the three-month
period ended September 30, 2004 an increase of $56,000 or 51.85%, from $108,000
for the same period in 2003. This increase in expense was partially due to
higher depreciation expense primarily related to the purchase of new data
processing equipment and new furniture and equipment during the 2004 fiscal
year. Another factor in the increase is the addition of the operating expenses
of AnyHour Lending, Inc. Occupancy expense was $35,000 for the three-month
period ended September 30, 2004, an increase of $9,000 compared to the same
period in 2004. The increase was primarily the result of the addition rent
relating to AnyHour Lending, Inc. Data processing expenses were $70,000 for the
three-month period ended September 30, 2004 compared to $63,000 for the same
period in 2003, an increase of $7,000 or 11.11%. This increase is related to
upgrades on data processing systems for accounting, lending, and customer
service during the 2004 fiscal year. Credit and debit card processing expense
was down $100,000 from $119,000 for the three month period ended September 30,
2003 to $19,000 for the same period in 2004. This decrease was due to the sale
of the credit card loan portfolio. The company will no longer incur expenses
related to credit card processing. Travel and conference for the three-month
period ended September 30, 2004, was $14,000, a decrease of $3,000, compared to
the same period in 2003. Other expenses were $28,000 for the three-month period
ended September 30, 2004 a decrease of $9,000 from $37,000 for the same period
in 2003.
INCOME TAXES
The provision for income taxes was $24,000 and $50,000, for the
three-month periods ending September 30, 2004 and 2003. The effective rates for
the three-month periods ended September 30, 2004 and 2003 were 35.5% and 39.1%.
REGULATORY CAPITAL REQUIREMENTS
Pursuant to federal law, Allied First Bank must meet three separate
minimum capital ratio requirements. As of September 30, 2004, Allied First Bank
had core capital, Tier I risk-based and total risk-based ratios of 7.16%, 9.97%
and 10.61%, respectively, compared to well-capitalized requirements of 5.00%,
6.00% and 10.00%. At June 30, 2004, Allied First Bank had core capital, Tier I
risk-based ratios of 8.30%, 11.50% and 12.10%, respectively.
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 September 30, 2004, Allied First Bank
had $4.6 million in cash and cash equivalents that could be used for its funding
needs. Cash and
12
cash equivalents decreased by $1.8 million compared to the period ending June
30, 2004. Securities available for sale increased by $9.3 million and time
deposits with other institutions decreased $99,000.
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 has a fed funds line of $4.0 million and a working capital line
of $5.0 million with LaSalle Bank. The remaining borrowing capacity at September
30, 2004 was approximately $21.2 million.
As of September 30, 2004, 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.
ADOPTION OF NEW ACCOUNTING POLICY
Allied First Bank adopted separate segment reporting requirements of
Statement of Financial Accounting Standard No. 131, and accordingly has
presented financial information on AnyHour Lending, Inc., a loan processing and
call center, in the notes to the interim financial statements. Previous
financial reports reflected banking as the only segment.
Item 3
Allied First Bancorp, Inc.
CONTROLS AND PROCEDURES
An evaluation was carried out as of September 30, 2004 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 Securities Exchange Act of 1934 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.
13
Part II - Other Information
---------------------------
Item 1 - Legal Proceedings - Not Applicable.
-----------------
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
-----------------------------------------------------------
Total Number of
Shares Purchased as Maximum Number of
Total Number of Average Price Paid Part of a Publicly Shares That May Be
Shares Purchased Per Share Announced Plan Purchased Under Plan(1)
---------------- --------- -------------- -----------------------
July1-July 31 -- -- -- 50,000
August 1- August 31 2,300 $16.05 2,300 47,700
September 1- September 30 28,362 17.95 30,662 19,338
------ ------ ------ ------
Total September 30, 2004 30,662 $17.81 30,662 19,338
====== ====== ====== ======
(1) On August 23, 2004, the Company announced a stock repurchase plan of up to
50,000 shares.
Item 3 - Defaults upon Senior Securities - Not Applicable.
-------------------------------------------------
Item 4 - Submission of Matters to a vote of Security Holders
---------------------------------------------------
On October 21, 2004, the Company held its annual meeting of shareholders
to consider and act upon the election of Mr. John G. Maxwell, Jr. and Mr. John
R. Brick to serve as directors for terms of three years and the ratification of
the appointment of Crowe Chizek and Company LLC as auditors for the Company for
the fiscal year ending June 30, 2005. Both of the foregoing items were approved
by the shareholders at the meeting by the following vote totals based upon
558,350 shares outstanding and entitled to vote at the meeting.
I. Election of Directors- 454,591 shares voted, as follows:
John G. Maxwell Jr.: 453,306 votes for; 1,285 votes withheld.
John R Brick : 453,106 votes for; 1,485 votes withheld.
II. Ratification of the appointment of Crowe Chizek and Company LLC as
auditors for the company for the fiscal year ending June 30, 2005 -
454,591 shares voted, as follows:
453,541 votes for; 0 votes withheld; 0 against
William G. Mckeown and Kenneth L. Bertrand continued as directors for a
term expiring in 2005 and Frank K. Voris and Brien J. Nagle continued as
directors for a term expiring in 2006.
Item 5 - Other Information - Not Applicable
----------------------------------
Item 6 - Exhibits
--------
(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
14
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: November 9, 2004 /s/ Kenneth L. Bertrand
-------------------------------------
Kenneth L. Bertrand
President and Chief Executive Officer
Date: November 9, 2004 /s/ Brian K. Weiss
-------------------------------------
Brian K. Weiss
Chief Financial Officer
15