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 March 31, 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.
(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 May 6, 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 March 31, 2004 and June 30, 2003 3
Consolidated Statements of Income and Comprehensive Income for the
three months and nine months ended March 31, 2004 and 2003 4
Consolidated Statements of Cash Flows for the nine months ended
March 31, 2004 and 2003 5
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION
Items 1-6 17
Signature Page 18
10-QSB Certifications 19
2
PART I: FINANCIAL INFORMATION, Item 1.
Allied First Bancorp, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
At At
ASSETS: March 31, June 30,
2004 2003
---- ----
Cash and cash equivalents ........................................................ $ 5,129,960 $ 3,035,791
Time deposits with other financial institutions .................................. 298,198 3,137,257
Securities available for sale .................................................... 8,177,000 3,805,606
Loans held for sale .............................................................. -- 734,151
Credit card loans held for sale .................................................. 4,615,292 --
Loans, net of allowance for loan losses of $623,956 at
March 31, 2004 and $592,373 at June 30, 2003 .................................. 103,786,980 87,250,293
Federal Home Loan Bank stock, at cost ............................................ 1,828,600 1,640,100
Accrued interest receivable ...................................................... 393,252 315,421
Premises and equipment-net ....................................................... 256,562 66,050
Servicing agent receivable ....................................................... 3,120,268 1,105,087
Other assets ..................................................................... 284,592 471,755
------------- -------------
Total assets ............................................................... $ 127,890,704 $ 101,561,511
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Non-interest-bearing demand deposits ............................................. $ 7,972,189 $ 8,385,779
Interest-bearing demand deposits ................................................. 2,791,771 4,337,974
Savings, Now, and money market deposits .......................................... 52,476,994 59,678,230
Time deposits .................................................................... 19,206,489 18,841,382
------------- -------------
Total deposits .............................................................. 82,447,443 91,243,365
Borrowed funds ................................................................... 34,500,000 --
Other liabilities ................................................................ 672,215 501,753
------------- -------------
Total liabilities ........................................................... 117,619,658 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 March 31, 2004 and
June 30, 2003 ............................................................... 6,084 6,084
Additional paid-in capital ....................................................... 5,271,948 5,271,948
Retained earnings ................................................................ 5,586,394 5,162,001
Accumulated other comprehensive income ........................................... 69,120 38,860
Treasury stock, at cost 50,000 shares ............................................ (662,500) (662,500)
------------- -------------
Total shareholders' equity ................................................ 10,271,046 9,816,393
------------- -------------
Total liabilities and shareholders' equity ............................ $ 127,890,704 $ 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 Nine months Ended
March 31, March 31,
2004 2003 2004 2003
---- ---- ---- ----
Interest income:
Loans receivable $1,324,993 $ 1,231,235 $3,952,400 $3,622,847
Interest earning deposits 35,967 54,521 138,712 199,925
Securities 103,793 50,814 271,746 269,166
---------- ----------- ---------- ----------
Total interest income 1,464,753 1,336,570 4,362,858 4,091,938
Interest expense:
Deposits 344,327 456,138 1,105,952 1,561,417
Borrowed funds 135,556 9,070 320,266 14,460
---------- ----------- ---------- ----------
Total interest expense 479,883 465,208 1,426,218 1,575,877
Net interest income: 984,870 871,362 2,936,640 2,516,061
Provision for loan losses 75,000 60,000 287,000 221,000
---------- ----------- ---------- ----------
Net interest income after
provision for loan losses 909,870 811,362 2,649,640 2,295,061
Non-interest income:
Credit and debit card transaction 132,382 139,497 386,239 409,456
Account fees 41,845 43,592 118,666 108,707
Gain on sale of securities -- -- 4,910 4,132
First mortgage loan fees -- 16,926 25,087 62,441
Other 5,509 8,671 15,829 25,535
---------- ----------- ---------- ----------
Total non-interest income 179,736 208,686 550,731 610,271
Non-interest expense:
Salaries and employee benefits 354,321 317,694 1,022,116 896,825
Office operations and equipment 117,843 100,974 317,974 311,108
Occupancy 26,952 24,109 79,955 65,494
Data processing 62,880 58,519 191,474 185,544
Credit and debit card processing 113,056 117,242 342,942 374,460
Travel and conference 21,777 29,947 46,536 60,859
Professional services 85,304 68,845 284,204 239,720
Marketing and promotion 35,332 34,416 116,672 192,865
Other expenses 33,168 32,625 97,673 72,596
---------- ----------- ---------- ----------
Total non-interest expense 850,633 784,371 2,499,546 2,399,471
Income before income taxes: 238,973 235,677 700,825 505,861
Income tax expense 95,620 91,639 276,432 197,287
---------- ----------- ---------- ----------
Net income: $ 143,353 $ 144,038 $ 424,393 $ 308,574
========== =========== ========== ==========
Other comprehensive income (loss) 38,076 (3,484) 30,260 37,453
---------- ----------- ---------- ----------
Total comprehensive income $ 181,429 $ 140,554 $ 454,653 $ 346,027
========== =========== ========== ==========
Earnings per common share
Basic $ 0.26 $ 0.24 $ 0.76 $ 0.51
Diluted $ 0.26 $ 0.24 $ 0.76 $ 0.51
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)
Nine months Ended
March 31,
2004 2003
---- ----
Cash flows from operating activities
Net Income ............................................................... $ 424,393 $ 308,574
Adjustment to reconcile net income to net cash from
operating activities
Depreciation .................................................. 75,612 33,655
Amortization of premiums on securities ........................ 75,857 103,671
Net gain on sale of securities ................................ (4,910) (4,132)
Provision for loan losses ..................................... 287,000 221,000
FHLB stock dividend ........................................... (84,000) (82,000)
Net Changes in
Accrued interest receivable ................................ (77,831) (16,939)
Servicing agent receivable ................................. (2,015,181) --
Other assets ............................................... 187,163 (496,822)
Other liabilities .......................................... 153,184 (91,133)
------------ ------------
Net cash from operating activities ................. ($978,713) (24,126)
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 ........................ 2,468,373 3,326,617
Purchase of Federal Home Loan Bank stock ................................. (104,500) --
Net expenditures of premises and equipment ............................... (266,124) (38,159)
Purchase of loans from other institutions ................................ (38,582,526) (10,556,546)
Net changes in:
Loans ......................................................... 17,877,698 2,136,501
Time deposits with other financial institutions ............... 2,839,059 1,289,477
------------ ------------
Net cash from investing activities ................. (22,631,196) (5,737,629)
Cash flows from financing activities
Net change in
Deposits ...................................................... (8,795,922) 8,194,707
Proceeds from borrowed ................................................... 35,500,000 11,500,000
Repayments of borrowings ................................................. (1,000,000) (11,500,000)
------------ ------------
Net cash from financing activities ................. 25,704,078 8,194,707
Increase in cash and cash equivalents ................................................ 2,094,169 2,432,952
Cash and cash equivalents at beginning of period ..................................... 3,035,791 7,363,100
------------ ------------
Cash and cash equivalents at end of period ........................................... $ 5,129,960 $ 9,796,052
============ ============
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 March 31, 2004 and June 30, 2003 and the results of its
operations, for the three months and nine months ended March 31, 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 March 31, 2004.
Operating results for the three months and nine months ended March 31, 2004
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 nine-month periods ended March 31, 2004, 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
2003 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 March 31, 2004 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 March 31, 2004, advances from the Federal Home Loan Bank were as follows.
Open line advance, variable rate and term $ 7,000,000
Maturity July 2004, fixed rate of 1.34% 5,000,000
Maturity March 2005, fixed rate of 1.24% 8,500,000
Maturity July 2005, fixed rate of 1.70% 5,000,000
Maturity July 2006, fixed rate of 2.12% 5,000,000
Maturity March 2007, fixed rate of 2.63% 4,000,000
-----------
Total $34,500,000
===========
Each advance is payable at its maturity date, with a prepayment penalty.
All advances including open line advances were collateralized by $8,177,000 in
mortgaged backed securities and $52,799,000 of first mortgage loans under a
blanket lien arrangement at March 31, 2004.
(6) Credit card portfolio pending sale
On March 23, 2004, Allied First Bank signed a letter of intent to sell its
credit card portfolio for a premium of approximately 20%.
(7) Subsequent events
On April 1, 2004 Allied First Bancorp, Inc. purchased Eagle's Nest
Marketing Solutions Inc., a loan servicing call center for approximately
$704,000. The purchase price included intangible assets and goodwill
totaling approximately $532,000.
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
8
determining the allowance for loan losses and determining the fair value of
securities and other financial instruments.
FINANCIAL CONDITION
The Company's total assets increased $26.3 million during the nine months
ended March 31, 2004, to $127.9 million from $101.6 million at June 30, 2003.
The increase was due to increases in net loans of $21.2 million and an increase
of $4.4 million in available for sale securities.
The Company's total liabilities increased $25.9 million from $91.7 million
at June 30, 2003, to $117.6 million at March 31, 2004. The increase was due
primarily to $34.5 million in borrowed funds and was offset by a decrease in
deposits of $8.8 million. Total deposits decreased from $91.2 million at June
30, 2003 to $82.4 million at March 31, 2004. To offset a drop in customer
deposits Allied First Bank issued approximately $3.4 million in brokered time
deposit with varying terms and rates.
Stockholders' equity increased by $455,000 from $9.8 million at June 30,
2003 to $10.3 million at March 31, 2004. The increase is due to year to date net
income of $424,000, and an increase decrease in unrealized appreciation on
available for sale securities of $30,000.
COMPARISON OF THREE-MONTH AND NINE-MONTH PERIODS
ENDED MARCH 31, 2004 AND 2003
GENERAL
Net income for the three-month and nine-month periods ended March 31, 2004
was $143,000 and $424,000, respectively, compared to net income of $144,000 and
$309,000 for the equivalent periods in 2003. The increase in net income for the
nine-month period ended 2004 over the same period in 2003 was due primarily to
higher net interest income.
NET INTEREST INCOME
The net interest income for the three-month period ended March 31, 2004,
was $985,000 compared to $871,000 for the same period in 2003. This is a 13.09%
increase over the same period in 2003. Although net interest income grew as a
result of asset growth the net interest margin dropped to 3.12% from 3.73% for
the same period in 2003. The reason for the lower yield in 2004 was that the
yield on earnings assets decreased from 5.72% to 4.64%. The net interest income
for the nine-month period ended March 31, 2004, was $2,937,000 compared to
$2,516,000 for the same period in 2003, an increase of 16.73% and resulted in a
net interest margin of 3.25% compared to 3.71% in 2003. The reason for the lower
net yield in nine-month period ending March 31, 2004 was that the yield on
earnings assets decreased from 6.03% to 4.83%.
Total average interest earning balances decreased $3.5 million and $4.8
million, for the three-month and nine-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 $33.1 million and $33.5 million, for the
three-month and nine-month periods over one-year ago. The yields on total
average earning assets were 4.64% and 5.72% for the three-month periods ended
March 31, 2004, and 2003 and 4.83% and 6.03% for the nine-month periods ended
March 31, 2004 and 2003.
9
Total average interest bearing liabilities increased $34.0 million, and
$31.3 million, for the three-month and nine-month periods ended March 31, 2004,
over the comparative periods in 2003. 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.
INTEREST INCOME
Interest income for the three months and nine months ended March 31, 2004
was $1,465,000 and $4,363,000 compared to $1,337,000 and $4,092,000 for the same
period in 2003. The increase in both the three-month and nine-month periods was
due to an increase in average earning assets.
INTEREST EXPENSE
Interest expense for the three months and nine months ended March 31, 2004
was $480,000 and $1,426,000 compared to $465,000 and $1,576,000 for the same
period in 2003. The decrease was primarily due to lower rates paid on
interest-bearing liabilities during 2004, which was 1.74% for the three-month
period ending March 31, 2004, and 1.82% for the nine months ending March 31,
2004. This represents a 69 basis point decrease and a 106 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 March 31 Three Months ending March 31
2004 (Dollars in thousands) 2003
----------------------------------------------------------------------------
Average Average Average Average
INTEREST EARNING ASSETS Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Loans $ 112,457 $ 1,325 4.71% $ 79,392 $ 1,231 6.20%
Available for sale securities 8,524 104 4.88% 5,506 51 3.71%
Federal Home Loan Bank stock 1,798 29 6.45% 1,594 20 5.02%
Interest earning balances 3,631 7 0.77% 7,082 35 1.98%
--------- --------- ---- --------- --------- ----
Total interest-earning assets 126,410 1,465 4.64% 93,574 1,337 5.72%
--------- --------- ---- --------- --------- ----
NON-INTEREST EARNING ASSETS
Premises and equipment 265 67
Allowance for loan losses (655) (648)
Other non-earning assets 1,868 917
--------- ---------
Total assets $ 127,888 $ 93,910
========= =========
INTEREST BEARING LIABILITIES
Interest checking $ 3,192 $ 8 1.00% $ 7,759 $ 37 1.91%
Savings 13,322 17 0.51% 11,640 21 0.72%
Money market 39,578 138 1.39% 37,032 199 2.15%
Time deposits 19,071 181 3.80% 17,971 199 4.43%
Borrowed funds 35,358 136 1.54% 2,180 9 1.65%
--------- --------- ---- --------- --------- ----
110,521 480 1.74% 76,582 465 2.43%
--------- --------- ---- --------- --------- ----
NON-INTEREST BEARING LIABILITIES AND EQUITY
Checking 6,678 6,571
Other liabilities 604 462
Equity 10,085 10,295
--------- ---------
Total liabilities and equity $ 127,888 $ 93,910
========= =========
Net Interest/Spread $ 985 2.90% $ 872 3.29%
=================== ===================
Margin 3.12% 3.73%
==== ====
(1) Total Loans less deferred net loan fees
11
Allied First Bancorp, Inc.
Nine months ending March Nine months ending March
2004 (Dollars in thousands) 2003
-------------------------------------------------------------------------
Average Average Average Average
INTEREST EARNING ASSETS Balance Interest Rate Balance Interest Rate
------- -------- ---- ------- -------- ----
Loans $ 105,996 $ 3,952 4.97% $ 72,457 $ 3,623 6.67%
Available for sale securities 8,250 272 4.40% 7,158 269 5.01%
Federal Home Loan Bank stock 1,726 84 6.49% 1,572 63 5.34%
Interest earning balances 4,418 55 1.66% 9,319 137 1.96%
--------- --------- ---- --------- --------- ----
Total interest-earning assets 120,390 4,363 4.83% 90,506 4,092 6.03%
--------- --------- ---- --------- --------- ----
NON-INTEREST EARNING ASSET
Premises and equipment 176 66
Allowance for loan losses (626) (645)
Other non-earning assets 1,855 724
--------- ---------
Total assets $ 121,795 $ 90,651
========= =========
INTEREST BEARING LIABILITIES
Interest Checking $ 3,962 $ 41 1.38% $ 6,824 $ 148 2.89%
Savings 13,998 53 0.50% 11,517 79 0.91%
Money market 41,193 460 1.49% 35,482 656 2.47%
Time deposits 18,485 552 3.98% 18,441 679 4.91%
Borrowings 27,001 320 1.58% 1,064 14 1.75%
--------- --------- ---- --------- --------- ----
Total interest-bearing liabilities 104,639 1,426 1.82% 73,328 1,576 2.87%
--------- --------- ---- --------- --------- ----
NON-INTEREST BEARING LIABILITIES AND EQUITY
Checking 6,786 6,589
Other liabilities 524 514
Equity 9,846 10,220
--------- ---------
Total liabilities and equity $ 121,795 $ 90,651
========= =========
Net Interest/Spread $ 2,937 3.01% $ 2,516 3.16%
================== ==================
Margin 3.25% 3.71%
==== ====
(1) Total Loans less deferred net loan fees
12
PROVISION FOR LOAN LOSSES
The provision for loan losses was $75,000 and $287,000, respectively, for
the three-month and nine-month periods ended March 31, 2004 and $60,000 and
$221,000 for the same periods in 2003. The increase in the nine-month period
ended March 31, 2004 over the same period in 2003 is due to the increase in the
loan portfolio balances and 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 $101,000 have been recorded for the three-month period ended March 31, 2004,
compared to $115,000 of net charge-offs for the same period in 2003. Net
charge-offs of $255,000 have been recorded for the nine-month period ended March
31, 2004, compared to $255,000 of net charge-offs for the same period in 2003.
The allowance for loan losses was $624,000 or 0.57% of net loans as of March 31,
2004, 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 $5.3 million or
4.9% of net loans at March 31, 2004. At March 31, 2004 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 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 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 March 31, 2004, our delinquent loans past due
60 days or more, was less than 0.08% of our loan portfolio, compared to less
than 0.01% at June 30, 2003 and 0.14% at March 31, 2003.
13
NON-INTEREST INCOME
Non-interest income for the three-month periods ended March 31, 2004 and
2003 was $180,000 and $209,000, respectively and for the nine-month periods were
$551,000 and $610,000. The decline for both the three-month and nine-month
periods ended March 31, 2004 from 2003 was primarily due to the decline in
income from mortgage originations which have dropped significantly in the 2004
fiscal year. Account fee income was $119,000 for the nine-months ended March 31,
2004 compared to $109,000 for the nine months ended March 31, 2003, an increase
of $10,000, or 9.17%. The increase in account fees was due to the overdraft
privilege program which began in 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 March 31, 2004, was
$851,000, an increase of $67,000, or 8.55%, compared to the same period in 2003.
Salary and employee benefits was $354,000 for the three-month period ended March
31, 2004 an increase of $36,000 or 11.32%, from $318,000 for the same period in
2003. 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 $118,000 for the three-month period ended March 31,
2004 an increase of $17,000 or 16.83%, from $101,000 for the same period in
2003. The increase was partly related to an increase in office supplies for
technology upgrades. Another factor in the increase in office operations and
equipment expense is that our corporate settlement expense increased. Corporate
settlement expense is what our corporate bank charges us for maintenance and
transactions. Occupancy expense was $27,000 for the three-month period ended
March 31, 2004, an increase of $3,000 compared to the same period in 2003. 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 March 31,
2004, was $22,000, a decrease of $8,000, compared to the same period in 2003.
Professional services expense was $85,000 for the three-month period ended March
31, 2004 an increase of $16,000 or 23.19%, from $69,000 for the same period in
2003. 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.
Non-interest expense was $2,500,000 for the nine-month period ended March
31, 2004, an increase of $101,000 or 4.21% from $2,399,000 for the same
nine-month period in 2003. Salary and employee benefits was $1,022,000 for the
nine-month period ended March 31, 2004 an increase of $125,000 or 13.94%, from
$897,000 for the same period in 2003. 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 $80,000 for the nine-month period
ended March 31, 2004, an increase of $15,000 compared to the same period in
2003. The increase was due to an increase in rent expense related to a new lease
effective January 2003. Travel and conference for the nine-month period ended
March 31, 2004, was $47,000, a decrease of $14,000, compared to the same period
in 2003. Professional service fees were $284,000 for the nine-month period ended
March 31, 2004, and $240,000 for the same period in 2003. 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 $117,000 for the nine-month period ended March 31,
2004 a decrease of $76,000 or 39.38%, from $193,000 for the same period in 2003.
The reason for the decrease during the 2004 fiscal year is that Allied First
Bank has cut back on its higher cost marketing efforts. Other expenses for the
nine-month period ended March 31, 2004 and 2003 were $98,000 and $73,000. This
increase in other expenses was a result of an increase in regulatory expense
related to the cost of a regulatory exam fee.
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INCOME TAXES
The provision for income taxes was $96,000 and $92,000, for the three-month
periods ending March 31, 2004 and 2003. The provision for income taxes was
$276,000 and $197,000, for the nine-month periods ending March 31, 2004 and
2003. The increase in the nine-month period in 2004 is a result of higher
pre-tax income. The effective rate for the three-month periods ended March 31,
2004 and 2003 was 40.0% and 38.9%, and for the nine-month periods were 39.4% and
39.0%.
REGULATORY CAPITAL REQUIREMENTS
Pursuant to federal law, Allied First Bank must meet three separate minimum
capital ratio requirements. As of March 31, 2004, Allied First Bank had core
capital, Tier I risk-based and total risk-based ratios of 7.83%, 11.00% and
11.69% 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 March 31, 2004, Allied First Bank had
$5.1 million in cash and cash equivalents that could be used for its funding
needs. Cash and cash equivalents increased by $2.1 million compared to the
period ending June 30, 2003. Securities available for sale increased by $4.4
million and time deposits with other institutions decreased $2.8 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 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 March
31, 2004 was approximately $14.9 million.
As of March 31, 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.
15
Item 3
Allied First Bancorp, Inc.
CONTROLS AND PROCEDURES
An evaluation was carried out as of March 31, 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 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.
16
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
On April 7, 2004, Allied First Bancorp, Inc. filed a form 8-k
attaching a press release regarding the acquisition of Eagle's Nest Marketing
Solutions, Inc.
17
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: May 6, 2004 /s/ Kenneth L. Bertrand
---------------- -------------------------------------
Kenneth L. Bertrand
President and Chief Executive Officer
Date: May 6, 2004 /s/ Brian K. Weiss
---------------- -------------------------------------
Brian K. Weiss
Chief Financial Officer
18