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, 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 February 11, 2005, there were 524,888 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 Financial Statements
Unaudited Consolidated Balance Sheets at December 31, 2004 and 1
June 30, 2004
Unaudited Consolidated Statements of Income and Comprehensive
Income for the three months and six months ended 2
December 31, 2004 and 2003
Unaudited Consolidated Statements of Cash Flows for the 3
six months ended December 31, 2004 and 2003
4
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition 7
and Results of Operations
Item 3. Controls and Procedures 15
PART II. OTHER INFORMATION
16
Items 1-6
17
Signature Page
18
10-QSB Certifications
PART I: FINANCIAL INFORMATION, Item 1.
Allied First Bancorp, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
At At
ASSETS: December 31, June 30,
------- 2004 2004
----- ----
Cash and cash equivalents ........................................................... $ 3,587,605 $ 6,363,686
Securities available for sale ....................................................... 15,129,965 7,072,627
Time deposits with other financial institutions ..................................... 199,010 298,121
Loans held for sale ................................................................. 1,350,979 --
Loans, net of allowance for loan losses of $631,094 at
December 31, 2004 and $597,515 at June 30, 2004 ................................ 119,732,403 113,295,920
Federal Home Loan Bank stock, at cost ............................................... 2,058,600 2,000,000
Accrued interest receivable ......................................................... 516,953 437,181
Premises and equipment-net .......................................................... 436,219 339,541
Servicing agent receivable .......................................................... 296,224 1,967,903
Goodwill ............................................................................ 514,507 514,507
Other assets ........................................................................ 724,708 518,259
------------- -------------
Total assets ............................................................ $ 144,547,173 $ 132,807,745
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
-------------------------------------
Liabilities:
Non-interest-bearing demand deposits ................................................ $ 9,168,619 $ 8,525,828
Interest-bearing demand deposits .................................................... 2,453,743 2,733,400
Savings, Now and money market deposits .............................................. 45,418,176 51,264,178
Time deposits ....................................................................... 43,350,121 22,139,234
------------- -------------
Total deposits ............................................................ 100,390,659 84,662,640
Borrowed funds ...................................................................... 33,232,670 35,632,670
Other liabilities ................................................................... 441,555 1,648,560
------------- -------------
Total liabilities ......................................................... 134,064,884 121,943,870
------------- -------------
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 526,118 outstanding at December 31, 2004
and 558,350 at June 30, 2004 ............................................... 6,084 6,084
Additional paid-in capital .......................................................... 5,271,948 5,271,948
Retained earnings ................................................................... 6,409,242 6,283,252
Accumulated other comprehensive income .............................................. 34,929 (34,909)
Treasury stock, at cost, 82,232 shares at December 31, 2004 and 50,000
shares at June 30,2004 .................................................... (1,239,914) (662,500)
------------- -------------
Total shareholders' equity .......................................................... 10,482,289 10,863,875
------------- -------------
Total liabilities and shareholders' equity ..................... $ 144,547,173 $ 132,807,745
============= =============
The accompanying notes are an integral part of these 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 Six Months Ended
December 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Interest income:
Loans .................................... $ 1,521,490 $ 1,395,996 $ 2,887,875 $ 2,627,407
Interest earning deposits ................ 41,530 47,466 81,228 102,745
Securities ............................... 181,114 97,248 291,887 167,953
----------- ----------- ----------- -----------
Total interest income ................... 1,744,134 1,540,710 3,260,990 2,898,105
Interest expense:
Deposits ................................. 556,917 360,460 1,004,078 761,624
Borrowed funds ........................... 191,119 123,937 363,239 184,709
----------- ----------- ----------- -----------
Total interest expense .................. 748,036 484,397 1,367,317 946,333
Net interest income: ........................................ 996,098 1,056,313 1,893,673 1,951,772
Provision for loan losses ................................... 45,000 91,000 126,000 212,000
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses ................................... 951,098 965,313 1,767,673 1,739,772
Non-interest income:
Credit and debit card transaction ........ 18,738 124,398 34,918 253,857
Account fees ............................. 33,249 36,470 61,834 80,771
Gain on sale of securities ............... -- -- -- 4,910
First mortgage loan sales and fees ....... 175,296 1,777 183,007 21,136
Call center processing income ............ 163,065 -- 351,497 --
Other .................................... 19,883 4,282 53,404 10,319
----------- ----------- ----------- -----------
Total non-interest income ............... 410,231 166,927 684,660 370,993
Non-interest expense:
Salaries and employee benefits ........... 728,967 334,602 1,273,195 667,795
Office operations and equipment .......... 151,252 92,415 300,913 200,131
Occupancy ................................ 46,888 27,184 82,221 53,003
Data processing .......................... 88,959 95,913 158,583 128,593
Credit and debit card processing ......... 21,019 110,500 39,778 229,885
Travel and conference .................... 17,364 7,356 31,625 24,759
Professional services .................... 77,732 63,030 185,447 202,767
Marketing and promotion .................. 37,553 42,675 79,385 81,339
Loan origination and servicing ........... 20,696 499 27,060 3,401
Other expenses ........................... 40,027 24,578 76,419 58,371
----------- ----------- ----------- -----------
Total non-interest expense .............. 1,230,457 798,692 2,254,626 1,650,044
Income before income taxes: ................................. 130,872 333,548 197,707 460,721
Income tax expense ....................... 48,003 129,860 71,717 179,682
----------- ----------- ----------- -----------
Net income: ........................................... 82,869 203,688 125,990 281,039
=========== =========== =========== ===========
Other comprehensive income (loss) ........................... (3,933) (15,037) 69,838 (7,816)
----------- ----------- ----------- -----------
Total comprehensive income .................................. $ 78,936 $ 188,651 $ 195,828 $ 273,223
=========== =========== =========== ===========
Earnings per common share
Basic .................................... $ 0.15 $ 0.36 $ 0.23 $ 0.50
Diluted .................................. $ 0.15 $ 0.36 $ 0.23 $ 0.50
The accompanying notes are an integral part of these consolidated financial statements
2
Allied First Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months Ended
December 31,
2004 2003
---- ----
Cash flows from operating activities
Net Income ............................................................... $ 125,990 $ 281,039
Adjustments to reconcile net income to net cash from
operating activities
Depreciation .................................................. 82,233 41,269
Amortization of premiums on securities ........................ 54,527 59,976
Amortization of intangible assets ............................. 28,932 --
Net gain on sale of securities ................................ -- (4,910)
Provision for loan losses ..................................... 126,000 212,000
FHLB stock dividend ........................................... (58,600) (55,400)
Net Changes in
Loans held for sale .......................................... (1,350,979) --
Accrued interest receivable .................................. (79,772) (86,884)
Servicing agent receivable ................................... 1,671,679 (99,714)
Other assets ................................................. (278,183) 194,067
Other liabilities ............................................ (1,207,005) (73,582)
------------ ------------
Net cash from operating activities ................. (885,178) 467,861
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 ........................ 1,677,211 1,911,581
Purchase of Federal Home Loan Bank stock ................................. -- (83,600)
Net expenditures of premises and equipment ............................... (178,911) (204,964)
Purchase of loans from other institutions ................................ (7,780,170) (38,582,526)
Net changes in:
Loans ......................................................... 1,217,687 15,276,527
Time deposits with other financial institutions ............... 99,111 1,091,928
------------ ------------
Net cash from investing activities ................. (14,641,508) (27,454,230)
Cash flows from financing activities
Net change in
Deposits ...................................................... 15,728,019 (7,690,736)
Proceeds from borrowed ................................................... 1,000,000 35,500,000
Repayments of borrowings ................................................. (3,400,000) --
Purchase of treasury stock ............................................... (577,414) --
------------ ------------
Net cash from financing activities ................. 12,750,605 27,809,264
Increase (decrease) in cash and cash equivalents ..................................... (2,776,081) 822,895
Cash and cash equivalents at beginning of period ..................................... 6,363,686 3,035,791
------------ ------------
Cash and cash equivalents at end of period ........................................... $ 3,587,605 $ 3,858,686
============ ============
The accompanying notes are an integral part of these consolidated financial statements
3
Allied First Bancorp, Inc.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Allied First Bancorp, Inc. (or the "Company") and it's 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 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 for complete consolidated
financial statements.
In the opinion of management, the unaudited consolidated 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, 2004 and June 30, 2004 and the results of its
operations, for the three months and six months ended December 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 December 31,
2004.
Operating results for the three months and six months ended December 31,
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 and six-month periods ended December 31, 2004, the weighted average
number of common shares used in the computation of basic earning per share was
527,671 and 538,257, respectively. The weighted average number of common shares
for the same periods in 2003 was 558,350. There are no potential dilutive common
shares.
4
(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 2004 fiscal year, and escalation clauses providing
for increases in rental expense based primarily on increases in real estate
taxes and operating costs. The company is also obligated under a lease for
office space relating to the expansion of mortgage origination. The expiration
of this lease is January 31, 2005
The future minimum commitments under the full lease term at December 31, 2004
for all operating leases are as follows:
Year Ending June 30, Amount
-------------------- ------
2005 $ 61,322
2006 120,988
2007 124,618
2008 128,357
2009 109,625
--------
Total $544,910
========
(5) Borrowed Funds
At December 31, 2004 the advance on the $5.0 million LaSalle Bank LIBOR based
line of credit was as follows:
Open line advance, 4.03% fixed rate and 3 month term $732,670
At December 31, 2004, variable rate and term advance from the Federal Home Loan
Bank was as follows:
Open line advance, 2.47% variable rate and term $3,000,000
At December 31, 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 $6,036,000 in
mortgaged backed securities and $60,136,000 of first mortgage loans under a
blanket lien arrangement at December 31, 2004.
5
(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.
The accounting policies used are the same as those described in the summary of
significant accounting policies. Segment performance is evaluated using net
income. Income taxes are allocated and indirect expenses are allocated on
revenue.
Significant segment totals are reconciled to the interim consolidated financial
statements as follows.
Loan
Three Months Ended December 31, 2004 Banking Processing Total
Net interest income $ 996,098 $ -- $ 996,098
Provision for loan losses 45,000 -- 45,000
Non-interest income 247,061 163,170 410,231
Non-interest expense 1,003,814 226,643 1,230,457
Income tax expense (credit) 72,520 (24,517) 48,003
Net income (loss) 121,825 (38,956) 82,869
Assets 143,598,160 949,013 144,547,173
Loan
Six Months Ended December 31, 2004 Banking Processing Total
Net interest income $ 1,893,673 $ -- $ 1,893,673
Provision for loan losses 126,000 -- 126,000
Non-interest income 333,058 351,602 684,660
Non-interest expense 1,787,992 466,634 2,254,626
Income tax expense (credit) 116,248 (44,531) 71,717
Net income (loss) 196,491 (70,501) 125,990
Assets 143,598,160 949,013 144,547,173
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
employed personnel to expand the retail mortgage operation.
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 six months
ended December 31, 2004, to $144.5 million from $132.8 million at June 30, 2004.
The increase was due to increases in net loans of $6.4 million and $8.0 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 $134.1 million at December 31, 2004. Total deposits
increased from $84.7 million at June 30, 2004 to $100.4 million at December 31,
2004. The increase was due primarily to a $21.2 million increase in time
deposits and was offset by a decrease in savings, NOW and money market deposits
of $5.8 million. Recently, Allied First Bank has had success in increasing time
deposits by utilizing advertising on BankRate.com.
Stockholders' equity decreased by $382,000 from $10.9 million at June 30,
2004 to $10.5 million at December 31, 2004. The decrease is due to the increase
in treasury stock of $577,000, and was offset by net income of $126,000 and an
increase in unrealized appreciation on available for sale securities of $70,000.
During the first quarter of fiscal 2005 the company began a stock repurchase
program of 50,000 shares. As of December 31, 2004 the company had bought back
32,232 shares at an average price of $17.91 per share. At June 30, 2004, the
company had 558,350 shares outstanding. At December 31, 2004 there were 526,118
shares outstanding.
COMPARISON OF THREE-MONTH AND SIX-MONTH PERIODS
ENDED DECEMBER 31, 2004 AND 2003
GENERAL
Net income for the three-month and six-month periods ended December 31,
2004 was $83,000 and $126,000, respectively, compared to net income of $204,000
and $281,000 for the equivalent periods in 2003. The decrease in net income for
both the three-month and six-month periods ending 2003 over the same periods in
2003 was due, to higher non-interest expenses primarily from two strategies.
The new loan processing call center, which is a separate operating segment,
contributed net losses for the three and six-month periods ended December 31,
2004. The Company also expanded its mortgage origination operation with the
opening of a new origination office and the employment of additional personnel.
Both of these strategies have resulted in the Company initially experiencing
increases in non-interest expense. Management expects these strategies will
ultimately add to the Company's profitability.
NET INTEREST INCOME
The net interest income for the three-month period ended December 31, 2004
was $996,000 compared to $1,056,000 for the same period in 2003. This is a 5.68%
decrease over the same period in 2003. The net interest margin dropped from
3.38% from 2.79%. The reason for the lower yield in 2004 was that the average
rate paid on interest bearing liabilities increased 58 basis points to 2.36%, as
well as the yield on interest earnings assets
8
decreasing from 4.93% to 4.89%. The increase in average rate paid was due to the
increase in time deposits as well as the rate increasing on borrowed funds.
The net interest income for the six-month period ended December 31, 2004, was
$1,894,000 compared to $1,952,000 for the same period in 2003, a decrease of
2.97% and resulted in a net interest margin of 2.75% compared to 3.32% in 2003.
The reason for the lower net yield in six-month period ended December 31, 2004
was that the yield on earnings assets decreased from 4.93% to 4.74% while the
yield on interest bearing liabilities increased from 1.86% to 2.25%.
Total average interest earning balances increased $17.7 million and $20.1
million, for the three-month and six-month periods over one-year ago. The
increase is primarily due to increases in loans as well as an increase in
available for sale securities. Total average loans increased $10.5 million and
$5.6 million, for the three-month and six-month periods over one-year ago. Total
average available for sale securities increased $6.8 million and $3.6 million
for the three-month and six-month periods over the prior year. The yields on
total average earning assets were 4.89% and 4.93% for the three-month periods
ended December 31, 2004, and 2003 and 4.74% and 4.93% for the six-month periods
ended December 31, 2004 and 2003.
Total average interest bearing liabilities increased $17.7 million, and
$19.8 million, for the three-month and six-month periods ended December 31,
2004, over the comparative periods in 2003. Interest bearing liabilities
increased in the three-month period ended December 31, 2004 compared to the same
period in 2003 due to the $25.9 million increase in time deposits. This increase
was partially offset by the decrease of $8.0 million in money market deposits.
Interest bearing liabilities increased in the six-month period ended December
31, 2004 compared to the same period in 2003 due to the $11.1 million increase
in borrowed funds and a $19.0 million increase in time deposits. This increase
was partially offset by the decrease of $8.4 million in money market deposits.
During 2004, the company used both time deposits as well as Federal Home Loan
Bank advances to purchase loans and mortgage backed securities.
INTEREST INCOME
Interest income for the three months and six months ended December 31,
2004 was $1,744,000 and $3,261,000 compared to $1,541,000 and $2,898,000 for the
same period in 2003. The increase in both the three-month and six-month periods
was due to an increase in average earning assets.
INTEREST EXPENSE
Interest expense for the three months ended December 31, 2004 was $748,000
compared to $484,000 for the same period in 2003. The increase in interest
expense for the three-month period ended December 31, 2004 was due to higher
balances and higher rates paid on interest-bearing liabilities during the 2004
period which was 2.36% a 58 basis point increase from 1.78% paid during 2003.
The increase in average rate is primarily due to the company increasing its time
deposits which have a higher cost than money market and savings deposits. Also
the average cost of borrowed funds has increased due to the current rising rate
environment.
Interest expense for the six months ended December 31, 2004 was $1,367,000
compared to $946,000 for the same period in 2003. The increase in interest
expense for the six-month period ended December 31, 2004 was due to higher
balances and higher rates paid on interest-bearing liabilities which was 2.25% a
39 basis point increase from the 1.86% paid during 2003. The increase in average
rate is primarily due to the increase in average rate paid for borrowed funds as
a result of market conditions.
9
The following tables set forth consolidated information regarding average
balances and annualized average rates.
Allied First Bancorp, Inc.
Three Months ending December 31 Three Months ending December 31
2004 2003
------------------------------------- ------------------------------------
Average Average Average Average
INTEREST EARNING ASSETS Balance Interest Rate Balance Interest Rate
----------------------- ------- -------- ---- ------- -------- ----
Loans (1) $ 121,033 $ 1,521 5.03% $ 110,547 $ 1,396 5.05%
Available for sale securities 15,998 181 4.53% 9,223 97 4.21%
Federal Home Loan Bank stock 2,044 30 5.87% 1,732 29 6.70%
Interest earning balances 3,642 12 1.32% 3,510 19 2.17%
--------- --------- ------- --------- --------- -------
Total interest-earning assets 142,717 1,744 4.89% 125,012 1,541 4.93%
--------- --------- ------- --------- --------- -------
NON-INTEREST EARNING ASSETS
---------------------------
Premises and equipment 420 184
Allowance for loan losses (634) (639)
Other non-earning assets 3,244 1,612
--------- ---------
Total assets $ 145,747 $ 126,169
========= =========
INTEREST BEARING LIABILITIES
----------------------------
Interest checking $ 2,275 $ 7 1.23% $ 4,059 $ 15 1.48%
Savings 13,044 17 0.52% 14,330 18 0.50%
Money market 32,930 124 1.51% 40,929 154 1.51%
Time deposits 43,510 409 3.76% 17,565 174 3.94%
Borrowed funds 34,868 191 2.19% 32,024 124 1.55%
--------- --------- ------- --------- --------- -------
126,627 748 2.36% 108,907 485 1.78%
--------- --------- ------- --------- --------- -------
NON-INTEREST BEARING LIABILITIES AND EQUITY
-------------------------------------------
Checking 7,615 6,804
Other liabilities 1,098 512
Equity 10,407 9,946
--------- ---------
Total liabilities and equity $ 145,747 $ 126,169
========= =========
Net Interest/Spread $ 996 2.53% $ 1,056 3.15%
====================== ======================
Margin 2.79% 3.38%
==== ====
(1) Total Loans less deferred net loan fees
10
Six Months ending December 31 Six Months ending December 31
2004 2003
-------------------------------------- ------------------------------------
Average Average Average Average
INTEREST EARNING ASSETS Balance Interest Rate Balance Interest Rate
----------------------- ------- -------- ---- ------- -------- ----
Loans (1) $ 118,404 $ 2,888 4.88% $ 102,802 $ 2,627 5.11%
Available for sale securities 11,673 292 5.00% 8,115 168 4.14%
Federal Home Loan Bank stock 2,027 59 5.82% 1,690 56 6.63%
Interest earning balances 5,610 22 0.78% 5,015 47 1.87%
--------- --------- --------- --------- --------- ---------
Total interest-earning assets 137,714 3,261 4.74% 117,622 2,898 4.93%
--------- --------- --------- --------- --------- ---------
NON-INTEREST EARNING ASSETS
---------------------------
Premises and equipment 384 133
Allowance for loan losses (622) (612)
Other non-earning assets 3,429 1,815
--------- ---------
Total assets $ 140,905 $ 118,958
========= =========
INTEREST BEARING LIABILITIES
----------------------------
Interest checking $ 2,384 $ 14 1.17% $ 4,343 $ 32 1.47%
Savings 13,184 33 0.50% 14,332 36 0.50%
Money market 34,597 251 1.45% 41,992 322 1.53%
Time deposits 37,349 706 3.78% 18,196 372 4.09%
Borrowed funds 33,987 363 2.14% 22,868 184 1.61%
--------- --------- --------- --------- --------- ---------
121,501 1,367 2.25% 101,731 946 1.86%
--------- --------- --------- --------- --------- ---------
NON-INTEREST BEARING LIABILITIES AND EQUITY
-------------------------------------------
Checking 7,311 6,840
Other liabilities 1,355 483
Equity 10,738 9,904
--------- ---------
Total liabilities and equity $ 140,905 $ 118,958
========= =========
Net Interest/Spread $ 1,894 2.49% $ 1,952 3.07%
======================== =======================
Margin 2.75% 3.32%
==== ====
(1) Total Loans less deferred net loan fees
11
PROVISION FOR LOAN LOSSES
The provision for loan losses was $45,000 and $126,000, respectively, for
the three-month and six-month periods ended December 31, 2004 and $91,000 and
$212,000 for the same periods in 2003. The decrease in both the three-month and
the six-month periods ended December 31, 2003 over the same periods in 2003 is
due to the decrease in net charge-offs. The decrease in net charge-offs is a
result of an increase in recoveries, the change in the loan portfolio
composition and the economic environment. 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 $36,000 have been
recorded for the three-month period ended December 31, 2004, compared to $82,000
of net charge-offs for the same period in 2003. Net charge-offs of $93,000 have
been recorded for the six-month period ended December 31, 2004, compared to
$155,000 of net charge-offs for the same period in 2003. The allowance for loan
losses was $631,000 or 0.53% of net loans as of December 31, 2003, 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 $4.8 million or
4.0% of net loans at December 31, 2004. At December 31, 2004 first mortgage and
home equity loans comprised 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 has had
historically relatively stable employment and sources of income, terrorist
attacks on the United States in 2001 and the current economic environment
including higher oil prices may have adverse affects on the airline industry. As
a result of these factors, the stability of the employment and income of the
American Airline pilots may be adversely affected and could negatively affect
the ability of our customers to repay their loans. As a result of these factors,
we may have higher loan delinquencies and defaults in future periods. At
December 31, 2004, our delinquent loans past due 60 days or more, was less than
0.10% 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 secured
commercial loans, and 1-4 family residential mortgage 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 periods ended December 31, 2004
and 2003 were $410,000 and $167,000, respectively and for the six-month periods
were $685,000 and $371,000. The increase for both the three-month and six-month
periods ended December 31, 2004 from 2003 was due to the increase in mortgage
originations as well as call center processing income. Call center processing
income is generated from the purchase of AnyHour Lending, Inc. in April 2004.
The increase in first mortgage sales and fees is a result of the expansion of
our mortgage origination function, through the employment of additional
personnel in October 2004. This income should increase in the future as a result
of the Company utilizing resources to originate mortgage loans. Credit card
income decreased by $105,000, and $219,000, respectively, for the three-month
and six-month periods ended December 31, 2004, over the comparative periods in
2003. The reason for the decrease was the sale of the credit card loan portfolio
to Town North Bank in May 2004. Account fee income for the six-month period
ended December 31, 2004 was $62,000 compared to $81,000 in 2003, a decrease of
$19,000 due to less overdraft volume. Other income for the three-month periods
ended December 31, 2004
12
and 2003 was $20,000 and $4,000, respectively and for the six-month periods were
$54,000 and $10,000. The increase for both the three-month and six-month periods
ended December 31, 2004 from 2003 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 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 December 31, 2004,
was $1,230,000, an increase of $431,000, compared to $799,000 for the same
period in 2003. Salary and employee benefits was $729,000 for the three-month
period ended December 31, 2003 an increase of $394,000, from $335,000 for the
same period in 2003. Office operations and equipment was $151,000 for the
three-month period ended December 31, 2004 an increase of $59,000 or 64.13%,
from $92,000 for the same period in 2003. Occupancy expense was $47,000 for the
three-month period ended December 31, 2004, an increase of $20,000 compared to
the same period in 2003. The increase in salaries and benefits, office
operations and equipment and occupancy was primarily due to the expansion of
mortgage origination efforts and the new AnyHour Lending, Inc. office. Credit
card and debit card processing expense was $21,000 for the three months ended
December 31, 2004 a decrease of $90,000 or 81.08%, from $111,000 in the same
period ended 2003. This decrease was due to the sale of the credit card loan
portfolio in May 2004. Travel and conference for the three-month period ended
December 31, 2004, was $17,000, an increase of $10,000, compared to the same
period in 2003. Professional services expense was $78,000 for the three-month
period ended December 31, 2003, an increase of $15,000 or 23.81%, from $63,000
for the same period in 2003. The increase in professional services was a result
of the additional professional fees related to AnyHour Lending, Inc. AnyHour
Lending, Inc. incurs professional fees related to the setup and maintenance of
technology for customer accounts. Marketing and promotion was $38,000 for the
three-month period ended December 31, 2004 a decrease of $5,000 or 11.63%, from
$43,000 for the same period in 2003. Loan origination and servicing expense was
$21,000 for the three-month period ended December 31, 2004. This expense is
attributed to mortgage origination expenses. Other expenses for the three-month
period ended December 31, 2004 were $40,000 an increase of $15,000 from the same
period ended December 31, 2003.
Non-interest expense was $2,255,000 for the six-month period ended
December 31, 2004, an increase of $605,000 or 36.64% from $1,650,000 for the
same six-month period in 2003. Salary and employee benefits was $1,273,000 for
the six-month period ended December 31, 2004 an increase of $605,000, from
$668,000 for the same period in 2003. Office operations and equipment was
$301,000 for the six-month period ended December 31, 2004 an increase of
$101,000 or 50.50%, from $200,000 for the same period in 2003. Occupancy expense
was $82,000 for the six-month period ended December 31, 2003, an increase of
$29,000 compared to the same period in 2003. The increase in salaries and
benefits, office operations and equipment and occupancy was primarily due to the
expansion of mortgage origination efforts and the new AnyHour Lending, Inc.
office. Data processing expense was $159,000 for the six-month period ended
December 31, 2004 a decrease of $17,000 from $176,000 for the same period in
2003. Credit card and debit card processing expense was $40,000 for the six
month period ended December 31, 2004 a $190,000 decrease from the $230,000 for
the same period in 2003. This decrease is due to the sale of the credit card
loan portfolio in May of 2004. Travel and conference for the six-month period
ended December 31, 2004, was $32,000, an increase of $7,000, compared to the
same period in 2003. Professional service expense was $185,000 for the six-month
period ended December 31, 2004, an increase of $30,000 or 19.55% from $155,000
for the same six-month period in 2003. Loan origination and servicing expense
was $27,000 for the three-month period ended December 31, 2004 compared to
$3,000 for the same period ended 2003. This expense is attributed to mortgage
origination expenses. Other expenses for the six-month period ended December 31,
2004 were $76,000 an increase of $18,000 from the same period ended December 31,
2003.
13
The company has undertaken a long term strategy with the local mortgage market
and mortgage originations through the call center operation. Although net
operating expenses have increased due to expansion of the operations and the
associated start up costs, management believes that the future increases in
non-operating income will justify this strategy.
INCOME TAXES
The provision for income taxes was $48,000 and $130,000, for the
three-month periods ending December 31, 2004 and 2003. The provision for income
taxes was $71,000 and $180,000, for the six-month periods ending December 31,
2004 and 2003. The decreases in both the three-month and six-month periods in
2003 are a result of lower income. The effective rate for the three-month
periods ended December 31, 2004 and 2003 was 36.68% and 38.93%, and for the
six-month periods were 36.27% and 39.00%.
REGULATORY CAPITAL REQUIREMENTS
Pursuant to federal law, Allied First Bank must meet three separate
minimum capital ratio requirements. As of December 31, 2004, Allied First Bank
had core capital, Tier I risk-based and total risk-based ratios of 6.76%, 9.91%
and 10.55%, 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 December 31, 2004, Allied First Bank
had $3.6 million in cash and cash equivalents that could be used for its funding
needs. Cash and cash equivalents decreased by $2.8 million compared to the
period ended June 30, 2004. Securities available for sale increased by $8.0
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 December
31, 2004 was approximately $18.5 million.
As of December 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.
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 consolidated financial statements.
Previous financial reports reflected banking as the only segment.
14
Item 3
Allied First Bancorp, Inc.
CONTROLS AND PROCEDURES
An evaluation was carried out as of December 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 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.
15
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
October 1- October 31 -- -- 30,662 19,338
November 1 - November 30 -- -- 30,662 19,338
December 1- December 31 1,570 20.00 32,232 17,768
------ ---------- ------ ------
Total December 31, 2004 32,232 $ 17.91 32,232 17,768
====== ========== ====== ======
(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 - Not Applicable
---------------------------------------------------
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
16
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Allied First Bancorp, Inc.
Registrant
Date: February 11, 2005 /s/ Kenneth L. Bertrand
--------------------- -------------------------------------
Kenneth L. Bertrand
President and Chief Executive Officer
Date: February 11, 2005 /s/ Brian K. Weiss
--------------------- -------------------------------------
Brian K. Weiss
Chief Financial Officer
17