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, 2003
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
----- EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 001-16763
Allied First Bancorp, Inc.
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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
--- ---
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 15, 2003, there were 558,350 shares of the Registrant's common stock
issued and outstanding.
Allied First Bancorp, Inc.
INDEX
PAGE NO.
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Condensed Financial Statements
Consolidated Balance Sheets at March 31, 2003 and June 30, 2002 3
Consolidated Statements of Income and Comprehensive Income for the three and nine 4
months ended March 31, 2003 and 2002
Consolidated Statements of Cash Flows for the nine months ended March 31, 2003 and 5
2002
Notes to Consolidated Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7
Item 3. Controls and Procedures 14
PART II. OTHER INFORMATION
Items 1-6 15
Signature Page 16
10-QSB Certifications 17
2
PART I: FINANCIAL INFORMATION, Item 1.
Allied First Bancorp, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
At At
March 31, June 30,
2003 2002
---- ----
ASSETS:
Cash and cash equivalents........................................................ $ 9,796,052 $7,363,100
Securities available for sale.................................................... 4,887,646 6,357,945
Time deposits with other financial institutions.................................. 3,137,926 4,427,403
Loans, net of allowance for loan losses of $622,106 at
March 31, 2003 and $655,633 at June 30, 2002.............................. 75,110,900 66,911,855
Federal Home Loan Bank stock at cost............................................. 1,614,400 1,532,400
Accrued interest receivable...................................................... 286,552 269,613
Premises and equipment-net....................................................... 72,436 67,932
Other assets.................................................................... 827,907 353,970
------------ -----------
Total Assets......................................................... $ 95,733,819 $87,284,218
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Non-interest-bearing demand deposits............................................. $8,184,696 $8,654,978
Interest-bearing demand deposits................................................. 6,912,674 -
Savings, Now and Money Market deposits........................................... 51,572,024 49,776,811
Other time deposits............................................................. 18,244,677 18,287,575
------------ -----------
Total Deposits......................................................... 84,914,071 76,719,364
Other liabilities............................................................... 400,795 491,928
------------ -----------
Total Liabilities...................................................... 85,314,866 77,211,292
------------ -----------
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 outstanding at March 31, 2003 and
June 30, 2002........................................................... 6,084 6,084
Additional paid-in capital....................................................... 5,271,948 5,271,948
Retained earnings................................................................ 5,083,682 4,775,108
Accumulated other comprehensive income........................................... 57,239 19,786
------------ -----------
Total shareholders' equity.......................................... 10,418,953 10,072,926
------------ -----------
Total Liabilities and Shareholders' Equity.................. $ 95,733,819 $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 Nine MonthsEnded
March 31, March 31,
2003 2002 2003 2002
Interest Income:
Loans receivable...................................... $ 1,231,235 $ 1,136,606 $ 3,622,847 $ 3,774,681
Interest earning deposits............................. 54,521 85,983 199,925 284,666
Securities............................................ 50,814 43,377 269,166 61,221
----------- ------------ ----------- -----------
Total Interest Income............................ 1,336,570 1,265,966 4,091,938 4,120,568
Interest Expense:
Deposits.............................................. 456,138 537,805 1,561,417 1,896,388
Other................................................. 9,070 - 14,460 27,305
----------- ------------ ----------- -----------
Total Interest Expense........................... 465,208 537,805 1,575,877 1,923,693
Net Interest Income: ............................................... 871,362 728,161 2,516,061 2,196,875
Provision for loan losses........................................... 60,000 55,000 221,000 175,000
----------- ------------ ----------- -----------
Net interest income after
provision for loan losses........................................... 811,362 673,161 2,295,061 2,021,875
Non-interest income:
Credit and debit card transaction..................... 139,497 143,638 409,456 425,815
Account fees.......................................... 43,592 28,071 108,707 77,664
Gain on sale of securities............................ 4,132 - 4,132 -
First mortgage loan fees.............................. 16,926 20,575 62,441 59,235
Other................................................. 8,671 6,758 25,535 27,767
----------- ------------ ----------- -----------
Total non-interest income........................ 212,818 199,042 610,271 590,481
Non-interest expense:
Salaries and employee benefits........................ 317,694 292,231 896,825 835,639
Office operations and equipment....................... 90,021 103,364 277,773 300,724
Occupancy expense..................................... 24,109 19,369 65,494 58,105
Data processing....................................... 31,755 31,804 95,435 95,046
Loan servicing........................................ 101,868 107,541 315,396 325,874
Travel and conference................................. 29,497 9,324 69,409 72,958
Professional services................................. 68,845 95,041 239,720 238,783
Marketing and promotion............................... 34,416 43,349 192,865 116,441
Other expenses........................................ 90,298 89,373 246,554 236,130
----------- ------------ ----------- -----------
Total non-interest expense....................... 788,503 791,396 2,399,471 2,279,700
Income before income taxes: ........................................ 235,677 80,807 505,861 332,656
Income tax expense (benefit).......................... 91,639 31,499 197,287 (103,472)
----------- ------------ ----------- -----------
Net income: ........................................................ 144,038 49,308 308,574 436,128
=========== ============ =========== ===========
Other Comprehensive Income (Loss).................................... (3,484) (25,914) 37,453 (40,610)
----------- ------------ ----------- -----------
Total Comprehensive Income........................................... 140,554 23,394 346,027 395,518
=========== ============ =========== ===========
Earning per common shares
Basic.................................................. $0.24 $0.08 $0.51 $0.08
Diluted................................................ $0.24 $0.08 $0.51 $0.08
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,
2003 2002
---- ----
Cash flows from operating activities
Net Income......................................................................... $ 308,574 $ 436,128
Adjustment to reconcile net income to net cash from
operating activities
Depreciation....................................................... 33,655 48,901
Amortization of premiums on securities............................. 103,671 2,586
Net gain on sale of securities..................................... (4,132) -
Provision for loan losses.......................................... 221,000 175,000
FHLB stock dividend............................................... (82,000) -
Net Changes in
Accrued interest receivable.................................. (16,939) (54,299)
Other assets................................................. (496,822) (48,839)
Other liabilities............................................ (91,133) 1,738
-------------- ------------
Net cash from operating activities..................... (24,126) 561,215
Cash flows from investing activities
Purchase of available for sale securities......................................... (6,068,154) (5,202,553)
Sale of available for sale securities............................................. 4,172,635 -
Principal collected on mortgage backed securities................................. 3,326,617 278,676
Purchase of Federal Home Loan Bank stock.......................................... - (1,276,675)
Net expenditures of premises and equipment........................................ (38,159) (42,198)
Purchase of loans from other institutions......................................... (10,556,546) -
Net changes in:
Loans to customers................................................ 2,136,501 91,558
Time deposits with other financial institutions................... 1,289,477 (4,003,623)
National Credit Union Share Insurance Fund deposit................ - 618,802
-------------- ------------
Net cash from investing activities..................... (5,737,629) (9,536,013)
Cash flows from financing activities
Net changes in deposits........................................................... 8,194,707 (3,095,901)
Net proceeds from sale of common stock............................................ - 5,278,032
Borrowings ....................................................................... 11,500,000 -
Repayments of borrowings.......................................................... (11,500,000) -
Proceeds from the issuance of subordinated debt................................... - 1,000,000
Retirement of subordinated debt................................................... - (1,000,000)
-------------- ------------
Net cash from financing activities..................... 8,194,707 2,182,131
Increase (decrease) in cash and cash equivalents........................................... 2,432,952 (6,792,667)
Cash and cash equivalents at beginning of period........................................... 7,363,100 16,455,200
-------------- ------------
Cash and cash equivalents at end of period................................................. $ 9,796,052 $ 9,662,533
============== ============
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 March 31, 2003 and June 30, 2002 and the results of its
operations, for the three and nine months ended March 31, 2003 and 2002.
Financial statement reclassifications have been made for the prior period to
conform to classifications used as of and for the period ended March 31, 2003.
Operating results for the three and nine months ended March 31, 2003
are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 2003. Allied First Bancorp, Inc.'s 2002 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 $1.0
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.
6
On December 27, 2001, Allied First Bancorp, Inc. sold 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 Common Share
The conversion to a stock based institution occurred on December 27,
2001. Earnings per common share information is only presented for periods since
December 27, 2001. Since earnings per common share is not presented for
financial quarters before the quarter ended March 31, 2002 both the quarter
ended March 31, 2002 and the nine-month period ended March 31, 2002 had $.08
earnings per common share. Earnings per common share was computed based on
608,350 shares issued and outstanding. There are no potential dilutive 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.
7
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.
COMPARISON OF THREE-MONTH AND NINE-MONTH PERIODS
ENDED MARCH 31, 2003 AND 2002
GENERAL
Net income for the three-month and nine-month periods ended March 31,
2003 was $144,000 and $309,000, respectively, compared to net income of $49,000
and $436,000 for the equivalent periods in 2002. The increase in net income for
the three-month period ended March 31, 2003 compared to the same three month
period in 2002 was due primarily to a higher net interest margin. In the
nine-month period ended March 31, 2003 net income was lower than the nine-month
period ended March 31, 2002 due to the tax credit being recorded. As a former
credit union, the bank was not subject to federal incomes taxes or state income
taxes. Effective September 1, 2001, the bank 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, the 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 March 31,
2003, was $872,000 compared to $728,000 for the same period in 2002. This is a
19.78% increase over the same period in 2002. The net interest margins were
3.73% and 3.49% for the three-month periods ended March 31, 2003 and 2002. The
net interest income for the nine-month period ended March 31, 2003, was
$2,516,000 compared to $2,197,000 for the same period in 2002, an increase of
14.52% and resulted in a net interest margin of 3.71% compared to 3.55% in 2002.
The reason net interest income rose in the nine-month and three-month period
ended March 31, 2003 compared to the same periods in 2002 was due to a higher
average loans as well as a lower percentage cost on interest bearing
liabilities. The nine-month period ended March 31, 2003 had a rising interest
rate margin due to a 95 basis point drop in interest bearing liabilities from
the prior nine-month period.
Total average investment securities increased $2,405,000 and
$5,708,000, for the three-month and nine-month periods over one-year ago. Total
average loans increased $15,731,000 and $7,797,000, for the three-month and
nine-month periods over one-year ago. The increase in average loans in 2003 over
2002 average loans is due to the purchase of $8,807,000 in first mortgage loans
as well as $1,750,000 in commercial mortgage loans. The yields on total average
earning assets were 5.72% and 6.06% for the three-month periods ended March 31,
2003, and 2002 and 6.03% and 6.66% for the nine-month periods, ended March 31,
2003 and 2002.
Total average interest bearing liabilities increased $11,181,000 and
$6,121,000, for the three-month and nine-month periods ended March 31, 2003,
over the comparative periods in 2002. Interest bearing liabilities increased
primarily due to the introduction and promotion of an interest bearing checking
account.
INTEREST INCOME
Interest income for the three months and nine months ended March 31,
2003 was $1,337,000 and $4,092,000 compared to $1,266,000 and $4,121,000 for the
same period in 2002. The decrease in the nine-month period was primarily due to
8
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 increase in interest income.
INTEREST EXPENSE
Interest expense for the three months and nine months ended March 31,
2003 was $465,000 and $1,576,000 compared to $538,000 and $1,924,000 for the
same period in 2002. The decrease was primarily due to lower rates paid on
interest-bearing liabilities during 2003, which was 2.43% for the three-month
period ending March 31, 2003, and 2.87% for the nine months ending March 31,
2003. This represents an 86 and a 95 basis point decrease in the rates paid over
the same periods in the prior year.
9
The following tables set forth consolidated information regarding average
balances and annualized average rates.
Allied First Bancorp, Inc.
Three Months Ended March 31 Three Months Ended March 31
2003 2002
---------------------------------------- ----------------------------------------
Average Average Average Average
INTEREST EARNING ASSETS Balance Interest Rate Balance Interest Rate
----------------------- ------- -------- ---- ------- -------- ----
Loans (1) $ 79,392 $ 1,231 6.20% $ 63,661 $ 1,137 7.14%
Available for sale securities 5,506 51 3.71% 3,101 45 5.80%
Federal Home Loan Bank stock 1,594 20 5.02% 1,514 19 5.02%
Interest earning balances 7,082 35 1.98% 15,277 65 1.71%
--------- --------- ----- ------ ------- ------
Total interest-earning assets 93,574 1,337 5.72% 83,503 1,266 6.06%
--------- --------- ----- ------ ------- ------
NON-INTEREST EARNING ASSETS
Premises and equipment 67 81
Allowance for loan losses (648) (701)
Other non-earning assets 917 662
--------- ------
Total assets $ 93,910 $ 83,545
========= ======
INTEREST BEARING LIABILITIES
Interest checking $ 7,759 $ 37 1.91% $ - - 0.00%
Savings 11,640 21 0.72% 11,959 35 1.17%
Money market 37,032 199 2.15% 35,971 259 2.88%
Time deposits 17,971 199 4.43% 17,471 244 5.59%
Borrowings 2,180 9 1.65% - - 0.00%
--------- --------- ----- ------ ------- ------
Total interest-bearing liabilities 76,582 465 2.43% 65,401 538 3.29%
--------- --------- ----- ------ ------- ------
NON-INTEREST BEARING LIABILITIES AND EQUITY
Checking 6,571 8,028
Other liabilities 462 280
Equity 10,295 9,836
---------------- ----------------
Total liabilities and equity $ 93,910 $ 83,545
================ ================
Net Interest/Spread 872 3.29% 728 2.77%
============================= =========================
Margin 3.73% 3.49%
=========== ============
(1) Total loans less deferred net loans fees
Allied First Bancorp, Inc.
Nine Months Ended March Nine Months Ended March
2003 2002
------------------------------------- ------------------------------------
Average Average Average Average
INTEREST EARNING ASSETS Balance Interest Rate Balance Interest Rate
Loans (1) $ 72,457 $ 3,623 6.67% 64,660 3,775 7.78%
Available for sale securities 7,158 269 5.01% 1,450 62 5.70%
Federal Home Loan Bank stock 1,572 63 5.34% 943 42 5.94%
Interest earning balances 9,319 137 1.96% 15,473 242 2.09%
Total interest-earning assets 90,506 4,092 6.03% 82,526 4,121 6.66%
NON-INTEREST EARNING ASSET
Premises and equipment 66 82
Allowance for loan losses (645) (679)
Other non-earning assets 724 755
--------------- --------------
Total assets 90,651 $ 82,684
=============== ==============
INTEREST BEARING LIABILITIES
Interest Checking 6,824 $ 148 2.89% - - 0.00%
Savings 11,517 79 0.91% 12,505 151 1.61%
Money market 35,482 656 2.47% 36,253 913 3.36%
Time deposits 18,441 679 4.91% 18,025 833 6.16%
Borrowings 1,064 14 1.75% - - 0.00%
Subordinated Debt - - 0.00% 424 27 8.49%
Total interest-bearing liabilities 73,328 1,576 2.87% 67,207 1,924 3.82%
NON-INTEREST BEARING LIABILITIES AND EQUITY
Checking 6,589 8,264
Other liabilities 514 372
Equity 10,220 6,841
--------------- --------------
Total liabilities and equity 90,651 $ 82,684
=============== ==============
Net Interest/Spread 2,516 3.16% 2,197 2.84%
======================= =========================
Margin 3.71% 3.55%
========== ==========
(1) Total Loans less deferred net loan fees
PROVISION FOR LOAN LOSSES
The provision for loan losses was $60,000 and $221,000, for the
three-month and nine-month periods ended March 31, 2003 and $55,000 and $175,000
for the same periods in 2002. 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 $115,000 have
10
been recorded for the three-month period ended March 31, 2003, compared to
$67,000 of net charge-offs for the same period in 2002. Net charge-offs of
$255,000 have been recorded for the nine-month period ended March 31, 2003,
compared to $123,000 of net charge-offs for the same period in 2002. The
allowance for loan losses was $622,000 or 0.83% of net loans as of March 31,
2003, compared to $656,000 or 0.98% of net loans at June 30, 2002. The reason
for 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
shifting to more real estate loans occurred with the purchase of $8.8 million in
first mortgage loans as well as $1.8 million in commercial real estate loans.
Allied First Bancorp, Inc. holds a small percentage in secured commercial loans,
which was $3.7 million or 4.93% of net loans at March 31, 2003. Allied First
Bancorp also held $35.3 million in real estate secured loans an increase of
$11.7 million or 49.57%, from $23.6 million in real estate secured loans at June
30, 2002. This increase put the total real estate secured loans to approximately
47% of the net 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 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, the Severe Acute Respiratory
Syndrome outbreak in a number of countries, initially in the Peoples' Republic
of China in late 2002, and the current economic environment have adversely
affected the airline industry. More recently, AMR Corp, the parent company of
American Airlines, indicated that it was able to avoid filing for bankruptcy
protection after it was able to resolve differences regarding pay and benefit
concessions with the union representing the employees. 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, 2003, our delinquent loans past due
60 days or more was 0.14% or $105,000 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 March 31, 2003
and 2002 was $213,000 and $199,000, respectively and for the nine-month periods
were $610,000 and $590,000.
NON-INTEREST EXPENSE
Non-interest expense for the three-month period ended March 31, 2003,
was $789,000, a decrease of $3,000, or 0.25%, compared to the same period in
2002. Salary and employee benefits was $318,000 for the three-month period ended
March 31, 2003 an increase of $25,000 or 8.90%, from $292,000 for the same
period in 2002. The increase in salaries and employee benefits is due to normal
11
merit raises. Office operations and equipment expense was $90,000 down $13,000
or 12.62% for the three-month period ended March 31, 2003 compared to $103,000
for the same three-month period in 2002. The decrease was due to lower expense
for stationary, forms, and office supplies. These expenses were increased in the
prior year due to additional purchases in connection with the name change to
Allied First Bank. Occupancy expense was $24,000 for the quarter ended March 31,
2003 up $5,000 or 26.32% from $19,000 for same three-month period in 2002. The
reason for the increase was a change in rent effective January 1, 2003. The
travel and conference expense was $29,000, an increase of $20,000 from $9,000
for the same period in 2002. The increase is a result of a planning conference
that was held in March of 2003. Professional services were $69,000 for the
three-month period ended March 31, 2003 down $26,000 or 27.37% from $95,000 for
the same three-month period in 2002. This expense was increased in the previous
year due to additional professional fees in connection with becoming a publicly
held company on December 27, 2001. Marketing and promotion was $34,000 for the
three-month period ended March 31, 2003, a decrease of $9,000 or 20.93%, from
$43,000 for the same period in 2002. The decrease in marketing and promotion
expense is a result of decreased promotional activities in the first calendar
quarter of 2003.
Non-interest expense was $2,399,000 for the nine-month period ended
March 31, 2003, an increase of $119,000 or 5.22% from $2,280,000 for the same
nine-month period in 2002. Salary and employee benefits was $897,000 for the
nine-month period ended March 31, 2003 an increase of $61,000 or 7.30%, from
$836,000 for the same period in 2002. Occupancy expense was $65,000 for the
nine-month period ended March 31, 2003 up $7,000 or 12.07% from $58,000 for the
same nine-month period in 2002. The primary reason for the increase was a change
in rent effective January 1, 2003. Marketing and promotion was $193,000 for the
nine-month period ended March 31, 2003 an increase of $77,000 or 66.38%, from
$116,000 for the same period in 2002. The reason for the increase in marketing
and promotions in the nine-month period ending March 31, 2003 is that marketing
efforts increased to promote Allied First Bank in new markets, which were not
available until the charter and name change that took place on September 1,
2001.
INCOME TAXES
The provision for income taxes was $92,000 and $31,000, for the
three-month periods ending March 31, 2003 and 2002. The reason for a higher
provision for income taxes for the three-month period ended March 31, 2003 over
that same period in 2002 was due to a $156,000 or 192.59% increase in income
prior to tax. For the nine-month period ended March 31, 2003 the provision for
income tax was $197,000. For the nine-months ended March 31, 2002 a net tax
benefit of $103,000 was recorded. Due to credit unions being not-for-profit
organizations, the institution was not subject to federal or state income taxes
prior to September 1, 2001. 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 March 31, 2003, Allied First Bank had
core capital, Tier I risk-based and total risk-based ratios of 10.8%, 12.9% and
13.8% compared to well-capitalized requirements of 5.00%, 6.00% and 10.00%. At
June 30, 2002, Allied First Bank had core capital, Tier I risk-based and total
risk-based ratios of 11.9%, 13.6% and 14.5%.
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
12
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, 2003, Allied
First Bank had $9.8 million in cash and cash equivalents that could be used for
its funding needs. Cash and cash equivalents increased by $2.4 million compared
to the period ending June 30, 2002 and securities available for sale decreased
by $1.5 million, time deposits with other institutions decreased $1.3 million.
The increase in cash and cash equivalents in primarily due to deposit growth,
which was $8.2 million for the nine months, ended March 31, 2003.
As of March 31, 2003, management is not aware of any current
recommendations by regulatory authorities, which, if they were to be
implemented, would have or are reasonably likely to have a material adverse
effect on 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.
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
13
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 15, 2003 /s/ Kenneth L. Bertrand
---------------------------------
Kenneth L. Bertrand
President and Chief
Executive Officer
Date: May 15, 2003 /s/ Brian K. Weiss
---------------------------------
Brian K. Weiss
Chief Financial Officer
14
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):
(a) 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
(b) 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: May 15, 2003 /s/ Kenneth L. Bertrand
-----------------------------------
Kenneth L. Bertrand
Chief Executive Officer
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):
(a) 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
(b) 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: May 15, 2003 /s/ Brian K. Weiss
--------------------------------
Brian K. Weiss
Chief Financial Officer