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, 2002
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 120 W, 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
--- ---
State the number of Shares outstanding of each of the issuer's classes of common
equity, as of the latest date:
As of February 10, 2003, there were 608,350 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, 2002 and June 30, 2002 3
Consolidated Statements of Income and Comprehensive Income for the three 4
and six months ended December 31, 2002 and 2001
Consolidated Statements of Cash Flows for the six months ended December 31, 5
2002 and 2001
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 7
Operations
Item 3. Controls and Procedures 13
PART II. OTHER INFORMATION
Items 1-6 14
Signature Page 15
10-QSB Certifications 16
2
PART I: FINANCIAL INFORMATION, Item 1.
Allied First Bancorp, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
At At
December 31, June 30,
2002 2002
---- ----
Cash and cash equivalents.......................................... $ 2,733,556 $ 7,363,100
Time deposits with other financial institutions................... 3,534,633 4,427,403
Securities available for sale..................................... 6,012,404 6,357,945
Loans, net of allowance for loan losses of $677,503 at
December 31, 2002 and $655,633 at June 30, 2002................... 79,622,487 66,911,855
Federal Home Loan Bank Stock at cost.............................. 1,571,000 1,532,400
Accrued interest receivable....................................... 340,944 269,613
Premises and equipment-net........................................ 60,642 67,932
Other assets...................................................... 407,904 353,970
------------ ------------
Total assets............................................. $ 94,283,570 $ 87,284.218
============ ============
Non-interest bearing demand deposits............................... $ 8,274,860 $ 8,654,978
Interest-bearing demand deposits.................................. 13,234,652 -
Savings, Now and MM DA deposits................................... 43,206,496 49,776,811
Other time deposits............................................... 17,900,545 18,287,575
------------ ------------
Total deposits........................................... 82,616,553 76,719,364
Loan advances..................................................... 1,000,000 -
Other liabilities................................................. 388,617 491,928
------------ ------------
Total liabilities........................................ $ 84,005,170 $ 77,211,292
============ ============
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 outstanding at December 31, 6,084 6,084
2002 and June 30, 2002...................................
Additional paid-in capital........................................ 5,271,948 5,271,948
Retained earnings................................................. 4,939,645 4,775,108
Accumulated other comprehensive income............................ 60,723 19,786
------------ ------------
Total shareholders' equity............................... $ 10,278,400 $ 10,072,926
------------ ------------
Total liabilities and shareholders equity....... $ 94,283,570 $ 87,284,218
============ ============
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,
2002 2001 2002 2001
---- ---- ---- ----
Interest income:
Loans receivable............................. $ 1,209,889 $ 1,286,325 $ 2,391,613 $ 2,638,075
Interest earning deposits.................... 73,462 88,509 145,404 198,682
Securities................................... 110,227 17,844 218,352 17,844
------------ ------------ ------------ ------------
Total interest income.................... 1,393,578 1,392,678 2,755,369 2,854,601
Interest expense:
Deposits..................................... 554,803 610,271 1,105,279 1,358,583
Other........................................ 3,850 20,672 5,390 27,305
------------ ------------ ------------ ------------
Total interest expense................... 558,653 630,943 1,110,669 1,385,888
------------ ------------ ------------ ------------
Net interest income:.............................. 834,925 761,735 1,644,700 1,468,713
Provision for loan losses......................... 101,000 60,000 161,000 120,000
------------ ------------ ------------ ------------
Net interest income after
Provision for loan losses......................... 733,925 701,735 1,483,700 1,348,713
Non-Interest Income:
Credit and debit card transaction............ 131,981 132,579 269,959 282,179
Account fees................................. 33,825 26,150 65,115 49,592
Gain on sale of securities................... 4,132 - 4,132 -
First mortgage loan fees..................... 22,339 23,238 45,515 38,657
Other........................................ 8,245 13,941 16,864 21,006
------------ ------------ ------------ ------------
Total non-interest income................. 200,522 195,908 401,585 391,434
Non-Interest expense:
Salaries and employee benefits .............. 292,247 276,092 579,131 543,409
Office operations and equipment.............. 96,351 99,538 187,752 197,359
Occupancy expense............................ 20,693 19,369 41,385 38,737
Data processing.............................. 32,010 31,484 63,680 63,242
Loan servicing............................... 98,462 109,530 213,528 218,232
Travel and conference........................ 18,829 13,654 30,912 63,634
Professional services........................ 76,678 65,028 170,876 143,740
Marketing and promotion...................... 52,444 34,805 158,449 73,091
Other expenses............................... 84,165 73,530 169,387 146,755
------------ ------------ ------------ ------------
Total non-interest expense................ 771,879 723,030 1,615,100 1,488,299
Income before income taxes:....................... 162,568 174,613 270,185 251,848
Income tax expense (benefit)................. 63,516 67,876 105,648 (134,972)
------------ ------------ ------------ ------------
Net Income:....................................... $ 99,052 $ 106,737 $ 164,537 $ 386,820
============ ============ ============ ============
Other comprehensive income (loss)................. (9,034) (14,696) 40,937 (14,696)
----------- ----------- ------------ ------------
Total comprehensive income........................ $ 90,018 $ 92,041 $ 205,474 $ 372,124
============ ============ ============ ============
Earning per shares:
Basic........................................ $0.16 N/A $0.27 N/A
Diluted...................................... $0.16 N/A $0.27 N/A
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,
2002 2001
---- ----
Cash flows from operating activities
Net income................................................... $ 164,537 $ 386,820
Adjustment to reconcile net income to net cash from 6,012,404 6,357,945
Operating activities
Depreciation......................................... 22,918 33,393
Amortization of premiums on securities............... 69,631 1,048
Net gain on sale of securities....................... 4,132) -
Provision for loan losses............................ 161,000 120,000
FHLB stock dividend.................................. (38,600) -
Net Changes in
Accrued interest receivable..................... (71,331) (79,861)
Other assets.................................... (78,954) (111,619)
Other liabilities............................... (103,311) 50,660
----------- -----------
Net cash from operating activities.......... 121,758 400,441
Cash flows from investing activities
Purchase of available for sale securities.................... (6,068,154) (1,456,569)
Sale of available for sale securities........................ 4,172,635 -
Principal collected on mortgage backed securities............ 2,241,518 94,247
Purchase of Federal Home Loan Bank stock..................... - (1,257,075)
Net expenditures of premises and equipment................... (15,628) (34,668)
Purchase of loans from other institutions.................... (8,806,546) -
Net changes in:
Loans to customers....................................... (4,065,086) (290,886)
Time deposits with other financial institutions.......... 892,770 (2,481,704)
National Credit Union Share Insurance
Fund deposit.......................................... - 618,802
----------- -----------
Net cash from investing activities................... (11,648,491) (4,807,853)
Cash flows from financing activities
Net change in
Deposits............................................. 5,897,189 (2,616,262)
Net proceeds from sale of common stock................... - 5,278,032
Borrowings............................................... 1,000,000
Proceeds from the issuance of subordinated debt.......... - 1,000,000
Retirement of subordinated debt.......................... - (1,000,000)
----------- -----------
Net cash from financing activities 6,897,189 2,661,770
Increase (decrease) in cash and cash equivalents.................. (4,629,544) (1,745,642)
Cash and cash equivalents at beginning of period.................. 7,363,100 16,455,200
----------- -----------
Cash and cash equivalents at end of period........................ $ 2,733,556 $14,709,558
=========== ===========
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. Prior to September 1, 2001, the Bank operated as
Allied Pilots Association Federal Credit Union. 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 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, 2002 and June 30, 2002 and the results of its
operations, for the three and six months ended December 31, 2002 and 2001.
Financial statement reclassifications have been made for the prior period to
conform to classifications used as of and for the period ended December 31,
2002.
Operating results for the three and six months ended December 31, 2002 are
not necessarily indicative of the results that may be expected for the fiscal
year ended June 30, 2003. The 2002 Allied First Bancorp, Inc.'s 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) Plan of Stock Conversion
On September 1, 2001, Allied Pilots Association Federal Credit Union
converted to Allied First Bank, an Illinois mutual savings bank as the first
part in a two-part plan to improve the capital position of the institution. In
conjunction with the first part of the plan, Allied First Bank issued
subordinated capital notes, qualifying as Tier 2 capital, in the amount of $1
million on September 1, 2001. The subordinated capital notes had a term of five
years, interest rate of 8.5% and were redeemable without any prepayment penalty.
The issuance of the notes was sufficient to qualify Allied First Bank as
adequately capitalized. In the second part of the Plan, on September 17, 2001,
the Board of Directors of Allied First Bank adopted a Plan of Stock Conversion
to convert from an Illinois mutual savings bank to an Illinois stock savings
bank with the concurrent formation of a holding company. The purpose of the
mutual to stock conversion was to increase the capital of Allied First Bank in
order to enable it to meet the well-capitalized requirements of an FDIC insured
institution and to support the future growth of the institution. The
subordinated capital notes were retired upon completion of the stock conversion.
On December 27, 2001, Allied First Bancorp, Inc. sold
6
608,350 shares of common stock at $10 per share and received proceeds of
$5,278,032 net of conversion expenses of $805,468. Approximately 98% of the net
proceeds were used by Allied First Bancorp, Inc. to acquire all of the capital
stock of Allied First Bank.
(4) Earnings Per Share
The conversion to a stock based institution occurred on December 27, 2001.
Earnings per share information is only presented for periods since December 27,
2001. Earnings per share was computed based on 608,350 shares issued and
outstanding. There are no dilutive potential common shares.
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.
7
COMPARISON OF THREE-MONTH AND SIX-MONTH PERIODS
ENDED DECEMBER 31, 2002 AND 2001
GENERAL
Net income for the three-month and six-month periods ended December 31,
2002 was $99,000 and $165,000, respectively, compared to net income of $107,000
and $387,000 for the equivalent periods in 2001. As a former credit union, the
organization was not subject to federal incomes taxes or state income taxes.
Effective September 1, 2001, the company was subject to federal and state income
taxes. As a result of the change in tax status and in accordance with Financial
Accounting Standards No. 109, Accounting for Income Taxes, Allied First Bank
recorded a net deferred tax asset in the amount of $205,000 on September 1, 2001
as an income tax benefit.
NET INTEREST INCOME
The net interest income for the three-month period ended December 31, 2002,
was $835,000 compared to $762,000 for the same period in 2001. This is a 9.58%
increase over the same period in 2001. Although net interest income grew as a
result of asset growth the net interest margin dropped to 3.63% from 3.71% for
the same period in 2001. The reason for the lower net yield in 2002 was that the
yield on earnings assets decreasing from 6.78% to 6.05%. The net interest income
for the six-month period ended December 31, 2002, was $1,645,000 compared to
$1,469,000 for the same period in 2001, an increase of 11.98% and resulted in a
net interest margin of 3.70% compared to 3.58% in 2001. The six-month period
ending December 31, 2002 had a rising interest rate margin due to a 96 basis
point drop in interest bearing liabilities from the prior six-month period.
Total average investment securities increased $9,883,000 and $7,875,000,
for the three-month and six-month periods over one-year ago. Total average loans
increased $6,508,000 and $3,829,000, for the three-month and six-month periods
over one-year ago. The yields on total average earning assets were 6.05% and
6.78% for the three-month periods ended December 31, 2002, and 2001 and 6.19%
and 6.96% for the six-month periods, ended December 31, 2002 and 2001,
respectively.
Total average interest bearing liabilities increased $7,149,000 and
$3,457,000, for the three-month and six-month periods ended December 31, 2002,
over the comparative periods in 2001. Interest bearing liabilities increased due
to the introduction of an interest bearing checking account that had a promotion
rate of up to 3.5% annual percentage rate.
INTEREST INCOME
Interest income for the three months and six months ended December 31, 2002
was $1,394,000 and $2,755,000 compared to $1,393,000 and $2,854,000 for the same
period in 2001. The decrease in the six-month period was primarily due to a
decline in yields on earning assets during 2002. In the three-month period the
increase in average earning assets offset the lower yields earned during that
period resulting in the same interest income for both periods.
INTEREST EXPENSE
Interest expense for the three months and six months ended December 31,
2002 was $559,000 and $1,110,000 compared to $631,000 and $1,385,000 for the
same period in 2001. The decrease was primarily due to lower rates paid on
interest-bearing liabilities during 2002, which was 2.99% for the three-month
period ending December 31, 2002, and 3.10% for the six months ending December
31, 2002. This represents a 74 and a 96 basis point decrease in the rates paid
over the same periods in the prior year.
8
The following tables set forth consolidated information regarding average
balances and rates.
Allied First Bancorp, Inc.
(Dollars In Thousands)
Three Months ending December 31 Three Months ending December 31
2002 2001
---------------------------------- ---------------------------------
Average Average Average Average
INTEREST EARNINGS ASSETS Balance Interest Rate Balance Interest Rate
------------------------ ------- -------- ---- ------- -------- ----
Loans $ 71,402 $ 1,210 6.78% $ 64,894 $ 1,286 7.93%
Available for sale securities 9,007 110 4.89% 1,413 18 5.10%
Federal Home Loan Bank stock 1,571 24 6.11% 1.076 14 5.20%
Interest earning balances 10,117 50 1.98% 14,831 75 2.02%
--------- --------- ----- --------- -------- -----
Total interest-earning assets 92,097 1,394 6.05% 82,214 1,393 6.78%
--------- --------- ----- --------- -------- -----
NON-INTEREST EARNING ASSETS
---------------------------
Premises and equipment 66 88
Allowance for loan losses (626) (684)
Other non-earning assets 619 970
--------- ---------
Total assets $ 92,156 $ 82,588
========= =========
INTEREST-BEARING LIABILITIES
----------------------------
Interest checking $ 11,517 $ 99 3.44% $ - $ - 0.00%
Savings 11,394 27 0.95% 13,120 47 1.43%
Money market 32,481 196 2.41% 35,853 279 3.11%
Time deposits 18,495 233 5.04% 17,761 285 6.42%
Loan advance 937 4 1.71% - - 0.00%
Subordinated debt - - 0.00% 941 20 8.50%
--------- --------- ----- --------- -------- -----
74,824 559 2.99% 67,675 631 3.73%
--------- --------- ----- --------- -------- -----
NON-INTEREST BEARING LIABILITIES AND EQUITY
-------------------------------------------
Checking 6,588 8,247
Other liabilities 517 325
Equity 10,227 6,311
--------- ---------
Total liabilities and equity $ 92,156 $ 82,558
========= =========
Net interest/spread $ 835 3.06% $ 762 3.05%
========= ===== ======== =====
Net interest margin 3.63% 3.71%
===== =====
(1) Total Loans less deferred net loan fees
9
Allied First Bancorp, Inc.
(Dollars In Thousands)
Six Months ending December 31 Six Months ending December 31
2002 2001
---------------------------------- ---------------------------------
Average Average Average Average
INTEREST EARNINGS ASSETS Balance Interest Rate Balance Interest Rate
------------------------ ------- -------- ---- ------- -------- ----
Loans $ 68,989 $ 2,392 6.93% $ 65,160 $ 2,638 8.10%
Available for sale securities 8,582 218 5.08% 707 18 5.09%
Federal Home Loan Bank stock 1,561 43 5.51% 659 19 5.77%
Interest earning balances 9,840 102 2.07% 15,512 180 2.29%
--------- --------- ----- --------- -------- -----
Total interest-earning assets 88,972 2.755 6.19% 82,038 2,855 6.96%
--------- --------- ----- --------- -------- -----
NON-INTEREST EARNING ASSETS
---------------------------
Premises and equipment 66 82
Allowance for loan losses (643) (668)
Other non-earning assets 627 802
--------- ---------
Total assets $ 89,022 $ 82,254
========= =========
INTEREST-BEARING LIABILITIES
----------------------------
Interest checking $ 6,357 $ 110 3.46% $ - $ - 0.00%
Savings 11,456 58 1.01% 12,777 116 1.82%
Money market 34,707 458 2.64% 36,531 654 3.58%
Time deposits 18,677 479 5.13% 18,302 589 6.43%
Loan advance 505 5 1.98% - - 0.00%
Subordinated debt - - 0.00% 635 27 8.50%
--------- --------- ----- --------- -------- -----
71,702 1,110 3.10% 68,245 1,386 4.06%
--------- --------- ----- --------- -------- -----
NON-INTEREST BEARING LIABILITIES AND EQUITY
-------------------------------------------
Checking 6,598 8,382
Other liabilities 540 459
Equity 10,192 5,168
--------- ---------
Total liabilities and equity $ 89,022 $ 82,254
========= =========
Net interest/spread $ 1,645 3.09% $ 1,469 2.90%
======== ===== ======== =====
Net interest margin 3.70% 3.58%
===== =====
(1) Total Loans less deferred net loan fees.
10
PROVISION FOR LOAN LOSSES
The provision for loan losses was $101,000 and $161,000, respectively, for
the three-month and six-month periods ended December 31, 2002 and $60,000 and
$120,000 for the same periods in 2001. 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 $80,000 have been
recorded for the three-month period ended December 31, 2002, compared to $31,000
of net charge-offs for the same period in 2001. Net charge-offs of $139,000 have
been recorded for the six-month period ended December 31, 2002, compared to
$54,000 of net charge-offs for the same period in 2001. The allowance for loan
losses was $678,000 or 85% of net loans as of December 31, 2002, compared to
$656,000 or .98% of net loans at June 30, 2002. The percentage of allowance for
loan losses to net loans has decreased due to the loan portfolio shifting to a
greater percentage of real estate secured loans and a smaller percentage of
unsecured loans in the portfolio. At December 31, 2002 Allied First Bancorp held
$37.3 million in real estate secured loans an increase of $13.7 million or
58.05%, from $23.6 million in real estate secured loans at June 30, 2002.
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 96% 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 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 airline pilots has also been adversely
affected. Current and future layoffs 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, 2002, our delinquent loans past due 60 days or
more was 0.25% or $203,000 of our loan portfolio compared to 0.11 % or $75,000
at June 30, 2002. This increase was due to new bankruptcy filings during the
period.
NON-INTEREST INCOME
Non-interest income remained relatively stable over all periods presented.
Non-interest income for the three-months periods ended December 31, 2002 and
2001 was $201,000 and $196,000, respectively and for the six-month periods were
$402,000 and $391,000.
11
NON-INTEREST EXPENSE
Non-interest expense for the three-month period ended December 31, 2002,
was $772,000, an increase of $49,000, or 6.78%, compared to the same period in
2001. Salary and employee benefits was $292,000 for the three-month period ended
December 31, 2002 an increase of $16,000 or 5.8%, from $276,000 for the same
period in 2001. The increase in salaries and employee benefits is due to normal
merit raises as well as rising health care premiums. Marketing and promotion was
$52,000 for the three-month period ended December 31, 2002 an increase of
$17,000 or 48.57%, from $35,000 for the same period in 2001. The increase in
marketing and promotion expense is a result of increased promotional activities
in connection with marketing Allied First Bank into new target markets. These
increases in non-interest expenses were partially offset by a decrease of
$12,000, or 10.91% decrease in loan servicing expenses, which totaled $98,000
for the three-month period, ended December 31, 2002. The decrease in loan
servicing expense was primarily due to the elimination of the Visa Platinum Home
Equity product, which was phased out in December 2001.
Non-interest expense was $1,615,000 for the six-month period ended December
31, 2002, an increase of $127,000 or 8.53% from $1,488,000 for the same
six-month period in 2001. Salary and employee benefits was $579,000 for the
six-month period ended December 31, 2002 an increase of $36,000 or 6.63%, from
$543,000 for the same period in 2001. Professional service fees were $171,000
for the six-month period ended December 31, 2002, and $144,000 for the same
period in 2001. The increase in professional fees is primarily a result of the
additional reporting requirements of a public company including annual
reporting. Marketing and promotion was $158,000 for the six-month period ended
December 31, 2002 an increase of $85,000 or 116.44%, from $73,000 for the same
period in 2001. The reason for the increase in marketing and promotions in the
six-month period ending December 31, 2002 is that marketing efforts increased to
promote Allied First Bank in new markets, which were not available to the Bank
until the charter and name change that took place on September 1, 2001. Other
expenses for the six-month period ended December 31, 2002 and 2001 was $84,000
and $74,000. This increase in other expenses is a result of additional cost for
blanket bond coverage as well as typical increases in other expense items.
INCOME TAXES
The provision for income taxes was $65,000 and $68,000, respectively, for
the three-month periods ending December 31, 2002 and 2001. For the six-month
period ending December 31, 2002 the provision for income tax was $106,000. For
the six-months ended December 31, 2001 a net tax benefit of $135,000 was
recorded. Due to credit unions being not-for-profit organizations, the
institution was not subject to federal or state income taxes during 2000 and
during the first two months of fiscal year 2002. As a result of the change in
tax status and in accordance with Financial Accounting Standards No. 109,
Accounting for Income Taxes, Allied First Bancorp, Inc. recorded a net deferred
tax asset in the amount of $205,000 on September 1, 2001. The recording of the
deferred tax asset was reflected as an income tax benefit on our income
statement.
REGULATORY CAPITAL REQUIREMENTS
Pursuant to federal law, Allied First Bank must meet three separate minimum
capital ratio requirements. As of December 31, 2002, Allied First Bank had core
capital, Tier I risk-based and total risk-based ratios of 10.79%, 12.88% and
13.76% compared to well-capitalized requirements of 5.00%, 6.00% and 10.00%.
12
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, 2002, Allied First Bank
had $2.7 million in cash and cash equivalents that could be used for its funding
needs. Cash and cash equivalents decreased by $4.7 million compared to the
period ending June 30, 2002 and securities available for sale decreased by
$400,000, time deposits with other institutions decreased $900,000.
As of December 31, 2002, 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
Within the 90-day period prior to the filing of this report an evaluation
was carried out 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
(as defined in Rule 13a-14(c)/15d-14(c)) under the Securities Exchange Act of
1934). Based on their evaluation, Allied First Bancorp, Inc.'s Chief Executive
Officer and Chief Financial Officer have concluded that the Company'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.
13
Part II - Other Information
Item 1 - Legal Proceedings - Not Applicable.
Item 2 - Changes in Securities - 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 99.1 Chief Executive Officer's Section 906 Certification
under the Sarbanes-Oxley Act of 2002
Exhibit 99.2 Chief Financial Officer's Section 906 Certification
under the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
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: February 14, 2003 /s/ Kenneth L. Bertrand
------------------------ ---------------------------
Kenneth L. Bertrand
President and Chief Executive Officer
Date: February 14, 2003 /s/Brian K. Weiss
----------------------- ----------------------------
Brian K. Weiss
Chief Financial Officer
15
Certification
I, Kenneth L. Bertrand, Chief Executive Officer of Allied First Bancorp, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Allied First
Bancorp, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report,
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(d) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(e) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls: and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 14, 2003 /s/ Kenneth L. Bertrand
------------------------------------
Kenneth L. Bertrand
Chief Executive Officer
16
Certification
I, Brian K. Weiss, Chief Financial Officer of Allied First Bancorp, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Allied First
Bancorp, Inc.:
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
(c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date,
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
(d) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(e) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to date of their evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 14, 2003 /s/ Brian K. Weiss
--------------------------------------------
Brian K. Weiss
Chief Financial Officer
17