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, 2005
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number 001-16763
Allied First Bancorp, Inc.
(Exact name of small business issuer as specified in its charter)
Maryland 36-4482786
--------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer identification
incorporation or organization) or number)
387 Shuman Boulevard, Suite 290 E, Naperville, IL 60563
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(630) 778-7700
--------------------------------------------------------------------------------
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Transitional Small Business Disclosure Format (check one):
Yes |_| No |X|
Indicate the number of Shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of May 5, 2005, there were 511,318 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 March 31, 2005 and 1
June 30, 2004
Unaudited Consolidated Statements of Income and Comprehensive 2
Income for the three months and nine months ended March 31,
2005 and 2004
Unaudited Consolidated Statements of Cash Flows for the nine 3
months ended March 31, 2005 and 2004
Notes to Unaudited Consolidated Financial Statements 4
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
Items 1-6 16
Signature Page 17
10-QSB Certifications 18
PART I: FINANCIAL INFORMATION, Item 1.
Allied First Bancorp, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
At At
ASSETS: March 31, June 30,
------- 2005 2004
------------- -------------
Cash and cash equivalents .................................................. $ 4,121,077 $ 6,363,686
Securities available for sale .............................................. 13,792,643 7,072,627
Time deposits with other financial institutions ............................ -- 298,121
Loans held for sale ........................................................ 3,181,063 --
Loans, net of allowance for loan losses of $626,744 at
March 31, 2005 and $597,515 at June 30, 2004 ......................... 120,464,118 113,295,920
Federal Home Loan Bank stock, at cost ...................................... 2,086,800 2,000,000
Accrued interest receivable ................................................ 527,444 437,181
Premises and equipment-net ................................................. 438,502 339,541
Servicing agent receivable ................................................. 275,761 1,967,903
Goodwill ................................................................... 514,507 514,507
Other assets ............................................................... 674,351 518,259
------------- -------------
Total assets ................................................... $ 146,076,266 $ 132,807,745
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
-------------------------------------
Liabilities:
Non-interest-bearing demand deposits ....................................... $ 7,698,653 $ 8,525,828
Interest-bearing demand deposits ........................................... 2,028,487 2,733,400
Savings, now and money market deposits ..................................... 44,989,449 51,264,178
Time deposits .............................................................. 44,664,693 22,139,234
------------- -------------
Total deposits ................................................... 99,381,282 84,662,640
Borrowed funds ............................................................. 36,232,670 35,632,670
Other liabilities .......................................................... 353,761 1,648,560
------------- -------------
Total liabilities ................................................ 135,967,713 121,943,870
------------- -------------
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 511,318 outstanding at March 31, 2005
and 558,350 at June 30, 2004 ...................................... 6,084 6,084
Additional paid-in capital ................................................. 5,271,948 5,271,948
Retained earnings .......................................................... 6,443,136 6,283,252
Accumulated other comprehensive income ..................................... (75,412) (34,909)
Treasury stock, at cost 97,032 shares at March 31, 2005 and 50,000
Shares at June 30, 2004 .......................................... (1,537,203) (662,500)
------------- -------------
Total shareholders' equity ................................................. 10,108,553 10,863,875
------------- -------------
Total liabilities and shareholders' equity ............ $ 146,076,266 $ 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) (Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
2005 2004 2005 2004
----------- ---------- ----------- ----------
Interest income:
Loans receivable .................... $ 1,519,955 $1,324,993 $ 4,407,830 $3,952,400
Interest earning deposits ........... 33,512 35,967 114,740 138,712
Securities .......................... 170,614 103,793 462,499 271,746
----------- ---------- ----------- ----------
Total interest income .......... 1,724,081 1,464,753 4,985,069 4,362,858
Interest expense:
Deposits ............................ 593,843 344,327 1,597,922 1,105,952
Borrowed funds ...................... 200,756 135,556 563,995 320,266
----------- ---------- ----------- ----------
Total interest expense ......... 794,599 479,883 2,161,917 1,426,218
Net interest income: .................................. 929,482 984,870 2,823,152 2,936,640
Provision for loan losses ............................. 35,000 75,000 161,000 287,000
----------- ---------- ----------- ----------
Net interest income after
provision for loan losses ............................. 894,482 909,870 2,662,152 2,649,640
Non-interest income:
Credit and debit card
transaction ......................... 17,150 132,382 52,068 386,239
Account fees ........................ 46,596 41,845 108,430 118,666
Gain on sale of securities ......... -- -- -- 4,910
Gain on sale of first mortgages ..... 211,559 -- 394,567 25,087
Call center processing income ....... 153,218 -- 504,715 --
Other ............................... 12,539 5,509 65,944 15,829
----------- ---------- ----------- ----------
Total non-interest income ...... 441,062 179,736 1,125,724 550,731
Non-interest expense:
Salaries and employee benefits ...... 748,217 354,321 2,021,413 1,022,116
Office operations and equipment ..... 152,722 117,843 453,635 317,974
Occupancy ........................... 38,654 26,952 120,875 79,955
Data processing ..................... 90,631 95,202 249,215 290,546
Credit and debit card processing .... 15,835 113,056 55,613 342,942
Travel and conference ............... 9,542 21,777 41,168 46,536
Professional services ............... 87,016 52,982 272,462 185,132
Marketing and promotion ............. 48,980 35,333 128,365 116,672
Loan origination and servicing ...... 39,915 4,722 66,975 8,123
Other expenses ...................... 43,014 28,445 119,432 89,550
----------- ---------- ----------- ----------
Total non-interest expense ..... 1,274,526 850,633 3,529,153 2,499,546
----------- ---------- ----------- ----------
Income before income taxes: ........................... 61,018 238,973 258,723 700,825
Income tax expense .................. 27,122 95,620 98,839 276,432
----------- ---------- ----------- ----------
Net income: ........................................... 33,896 143,353 159,884 424,393
=========== ========== =========== ==========
Other comprehensive income (loss) ..................... (110,341) 38,076 (40,503) 30,260
----------- ---------- ----------- ----------
Total comprehensive income (loss) ..................... $ (76,445) $ 181,429 $ 119,381 $ 454,653
=========== ========== =========== ==========
Earnings per common share
Basic ............................... $ 0.07 $ 0.26 $ 0.30 $ 0.76
Diluted ............................. $ 0.07 $ 0.26 $ 0.30 $ 0.76
The accompanying notes are an integral part of these consolidated financial
statements
2
Allied First Bancorp, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine months Ended
March 31,
2005 2004
------------ ------------
Cash flows from operating activities
Net Income ................................................... $ 159,884 $ 424,393
Adjustment to reconcile net income to net cash from
operating activities
Depreciation ...................................... 124,747 75,612
Amortization of premiums on securities ............ 89,169 75,857
Amortization of intangible assets ................. 43,398 --
Net gain on sale of securities .................... -- (4,910)
Net gain on sale of first mortgages ............... (394,567) --
Provision for loan losses ......................... 161,000 287,000
FHLB stock dividend ............................... (86,800) (84,000)
Net changes in
Accrued interest receivable .................... (90,263) (77,831)
Servicing agent receivable ..................... 1,692,142 (2,015,181)
Other assets ................................... (199,490) 187,163
Other liabilities .............................. (1,272,084) 153,184
------------ ------------
Net cash from operating activities .... 227,136 (978,713)
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
First mortgage originations .................................. (21,567,415) --
Sale of first mortgage loans ................................. 18,780,919 --
Principal collected on mortgage backed securities ............ 2,804,033 2,468,373
Purchase of Federal Home Loan Bank stock ..................... -- (104,500)
Net expenditures of premises and equipment ................... (223,708) (266,124)
Purchase of loans from other institutions .................... (9,697,268) (38,582,526)
Net changes in:
Loans ............................................. 2,368,070 17,877,698
Time deposits with other financial institutions ... 298,121 2,839,059
------------ ------------
Net cash from investing activities .... (16,913,684) (22,631,196)
Cash flows from financing activities
Net change in
Deposits .......................................... 14,718,642 (8,795,922)
Proceeds from borrowed funds ................................. 1,600,000 35,500,000
Repayments of borrowings ..................................... (1,000,000) (1,000,000)
Purchase of treasury stock ................................... (874,703) --
------------ ------------
Net cash from financing activities .... 14,443,939 25,704,078
Increase (decrease) in cash and cash equivalents ......................... ($ 2,242,609) 2,094,169
Cash and cash equivalents at beginning of period ......................... 6,363,686 3,035,791
------------ ------------
Cash and cash equivalents at end of period ............................... $ 4,121,077 $ 5,129,960
============ ============
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. (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. 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 necessary to represent fairly the financial
condition of the Company as of March 31, 2005 and June 30, 2004 and the results
of its operations, for the three months and nine months ended March 31, 2005 and
2004. Financial statement reclassifications have been made for the prior period
to conform to classifications used as of and for the period ended March 31,
2005.
Operating results for the three months and nine months ended March 31,
2005 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 nine-month periods ended March 31, 2005, the weighted average
number of common shares used in the computation of basic earning per share was
518,098 and 531,611, respectively. The weighted average number of common shares
for the same periods in 2004 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 April 30, 2006.
The future minimum commitments under the full lease term at March 31, 2005 for
all operating leases are as follows:
Year Ending June 30, Amount
-------------------- ------
2005 $ 34,576
2006 144,848
2007 124,618
2008 128,357
2009 109,625
--------
Total $542,024
========
(5) Borrowed Funds
At March 31, 2005 the advance on the $5.0 million LaSalle Bank LIBOR based line
of credit was as follows:
Open line advance, 4.56% fixed rate and 3 month term $732,670
At March 31, 2005, variable rate and term advance from the Federal Home Loan
Bank was as follows:
Open line advance, 3.15% variable rate and term $10,000,000
At March 31, 2005, the scheduled maturities of fixed rate Federal Home Loan Bank
were as follows.
2006 1.70%-3.84% $12,000,000
2007 2.12%-4.04% 12,000,000
2008 3.94% 1,500,000
-----------
Total $25,500,000
===========
Each advance is payable at its maturity date, with a prepayment penalty.
All advances including open line advances were collateralized by $5,548,000 in
mortgage backed securities and $61,978,000 of first mortgage loans under a
blanket lien arrangement at March 31, 2005.
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.
Three Months Ended March 31, 2005 Banking Loan Total
Processing
--------------------------------------------
Net Interest Income $ 929,482 $ -- $ 929,482
Provision for loan losses 35,000 -- 35,000
Non-interest income 287,844 153,218 441,062
Non-interest expense 1,024,744 249,782 1,274,526
Income tax expense (credit) 60,160 (33,038) 27,122
Net income (loss) 97,422 (63,526) 33,896
Assets 145,091,007 985,259 146,076,266
Nine Months Ended March 31, 2005 Banking Loan Total
Processing
--------------------------------------------
Net Interest Income $ 2,823,152 $ -- $ 2,823,152
Provision for loan losses 161,000 -- 161,000
Non-interest income 620,903 504,821 1,125,724
Non-interest expense 2,812,737 716,416 3,529,153
Income tax expense (credit) 176,408 (77,569) 98,839
Net income (loss) 293,910 (134,026) 159,884
Assets 145,091,007 985,259 146,076,266
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 $13.3 million during the nine months
ended March 31, 2005, to $146.1 million from $132.8 million at June 30, 2004.
The increase was due to increases in net loans of $7.2 million and $6.7 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 servicing agent receivable has decreased $1.7 million from $2.0
million at June 30, 2004, to $276,000 at March 31, 2005. The reason for the
decrease is that mortgage prepayments have slowed significantly, which results
in less principal due from the mortgage servicing agent.
The Company's total liabilities increased $14.1 million from $121.9
million at June 30, 2004, to $136.0 million at March 31, 2005. Total deposits
increased from $84.7 million at June 30, 2004 to $99.4 million at March 31,
2005. The increase was due primarily to a $22.6 million increase in time
deposits and was offset by a decrease in savings, NOW and money market deposits
of $7.8 million. Recently, Allied First Bank has had success in increasing time
deposits by utilizing advertising on BankRate.com.
Stockholders' equity decreased by $755,000 from $10.9 million at June 30,
2004 to $10.1 million at March 31, 2005. The decrease is due to the increase in
treasury stock of $875,000, and a decrease in value on available for sale
securities of $41,000 and was offset by net income of $160,000. During the first
quarter of fiscal 2005 the Company began a stock repurchase program of 50,000
shares. As of March 31, 2005 the Company had bought back 47,032 shares at an
average price of $18.60 per share. At June 30, 2004, the Company had 558,350
shares outstanding. At March 31, 2005 there were 511,318 shares outstanding.
COMPARISON OF THREE-MONTH AND NINE-MONTH PERIODS
ENDED MARCH 31, 2005 AND 2004
GENERAL
Net income for the three-month and nine-month periods ended March 31, 2005
was $34,000 and $160,000, respectively, compared to net income of $143,000 and
$424,000 for the equivalent periods in 2004. The decrease in net income for the
three-month and nine-month periods ending 2005 over the same periods in 2004 was
due, to lower net interest income combined with 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 nine-month periods ended March
31, 2005. 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 March 31, 2005
was $929,000 compared to $985,000 for the same period in 2004. This is a 5.7%
decrease over the same period in 2004. The net interest margin dropped from
3.12% to 2.64%. The reason for the lower net interest margin in 2005 was that
the
8
average rate paid on interest bearing liabilities increased 80 basis points to
2.54% while yields on interest earning assets rose only 25 basis points 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 nine-month period ended March 31, 2005, was
$2,823,000 compared to $2,937,000 for the same period in 2004, a decrease of
3.88%. The net interest margin was 2.71% as of March 31, 2005. The reason for
the lower net interest margin in nine-month period ended March 31, 2005 was that
the yield on earnings assets decreased from 4.83% to 4.79% while the yield on
interest bearing liabilities increased from 1.82% to 2.35%.
Total average interest earning balances increased $14.5 million and $18.4
million, for the three-month and nine-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 $9.3 million and
$13.5 million, for the three-month and nine-month periods over one-year ago.
Total average available for sale securities increased $6.1 million and $4.4
million for the three-month and nine-month periods over the prior year. The
yields on total average earning assets were 4.89% and 4.64% for the three-month
periods ended March 31, 2005, and 2004 and 4.79% and 4.83% for the nine-month
periods ended March 31, 2005 and 2004.
Total average interest bearing liabilities increased $14.5 million, and
$18.0 million, for the three-month and nine-month periods ended March 31, 2005,
over the comparative periods in 2004. Interest bearing liabilities increased in
the three-month period ended March 31, 2005 compared to the same period in 2004
due to the $25.1 million increase in time deposits. This increase was partially
offset by the decrease of $8.3 million in money market deposits. Interest
bearing liabilities increased in the nine-month period ended March 31, 2005
compared to the same period in 2004 due to the $7.2 million increase in borrowed
funds and a $21.1 million increase in time deposits. This increase was partially
offset by the decrease of $7.7 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 nine months ended March 31, 2005
was $1,724,000 and $4,985,000 compared to $1,465,000 and $4,363,000 for the same
period in 2004. The increase in both the three-month and nine-month periods was
due to an increase in average interest earning assets.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 2005 was $795,000
compared to $480,000 for the same period in 2004. The increase in interest
expense for the three-month period ended March 31, 2005 was due to higher
balances and higher rates paid on interest-bearing liabilities during the 2005
period which was 2.54% a 80 basis point increase from 1.74% paid during 2004.
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 and money markets has increased due to the
current rising rate environment.
Interest expense for the nine months ended March 31, 2005 was $2,162,000
compared to $1,426,000 for the same period in 2004. The increase in interest
expense for the nine-month period ended March 31, 2005 was due to higher
balances and higher rates paid on interest-bearing liabilities which was 2.35% a
53 basis point increase from the 1.82% paid during 2004. The increase in average
rate paid is primarily due to the increase in average rate paid for borrowed
funds and money market 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 March 31 Three Months ending March 31
2005 2004
----------------------------------- -----------------------------------
Average Average Average Average
INTEREST EARNING ASSETS Balance Interest Rate Balance Interest Rate
----------------------- --------- --------- ------- --------- --------- -------
Loans $ 121,742 $ 1,520 4.99% $ 112,457 $ 1,325 4.71%
Available for sale securities 14,618 170 4.65% 8,524 104 4.88%
Federal Home Loan Bank stock 2,070 28 5.41% 1,798 29 6.45%
Interest earning balances 2,526 6 0.95% 3,631 7 0.77%
--------- --------- ----- --------- --------- -----
Total interest-earning assets 140,956 1,724 4.89% 126,410 1,465 4.64%
--------- --------- ----- --------- --------- -----
NON-INTEREST EARNING ASSETS
---------------------------
Premises and equipment 441 265
Allowance for loan losses (617) (655)
Other non-earning assets 2,293 1,868
--------- ---------
Total assets $ 143,073 $ 127,888
========= =========
INTEREST BEARING LIABILITIES
----------------------------
Interest checking $ 2,035 $ 7 1.38% $ 3,192 $ 8 1.00%
Savings 12,965 16 0.49% 13,322 17 0.51%
Money market 31,318 146 1.86% 39,578 138 1.39%
Time deposits 44,174 425 3.85% 19,071 181 3.80%
Borrowed funds 34,575 201 2.33% 35,358 136 1.54%
--------- --------- ----- --------- --------- -----
125,067 795 2.54% 110,521 480 1.74%
--------- --------- ----- --------- --------- -----
NON-INTEREST BEARING LIABILITIES AND EQUITY
-------------------------------------------
Checking 7,060 6,678
Other liabilities 549 604
Equity 10,397 10,085
--------- ---------
Total liabilities and equity $ 143,073 $ 127,888
========= =========
Net Interest/Spread $ 929 2.35% $ 985 2.90%
=================== ===================
Margin 2.64% 3.12%
===== =====
(1) Total Loans less deferred net loan fees
10
Allied First Bancorp, Inc.
Nine months ending March 31 Nine months ending March 31
2005 2004
----------------------------------- -----------------------------------
Average Average Average Average
INTEREST EARNING ASSETS Balance Interest Rate Balance Interest Rate
----------------------- --------- --------- ------- --------- --------- -------
Loans $ 119,501 $ 4,408 4.92% $ 105,996 $ 3,952 4.97%
Available for sale securities 12,615 462 4.88% 8,250 272 4.40%
Federal Home Loan Bank stock 2,041 86 5.68% 1,726 84 6.49%
Interest earning balances 4,621 29 0.84% 4,418 55 1.66%
--------- --------- ----- --------- --------- -----
Total interest-earning assets 138,778 4,985 4.79% 120,390 4,363 4.83%
--------- --------- ----- --------- --------- -----
NON-INTEREST EARNING ASSET
--------------------------
Premises and equipment 403 176
Allowance for loan losses (620) (626)
Other non-earning assets 2,635 1,855
--------- ---------
Total assets $ 141,196 $ 121,795
========= =========
INTEREST BEARING LIABILITIES
----------------------------
Interest checking $ 2,269 $ 20 1.18% $ 3,962 $ 41 1.38%
Savings 13,112 49 0.50% 13,998 53 0.50%
Money market 33,520 397 1.58% 41,193 460 1.49%
Time deposits 39,590 1,131 3.81% 18,485 552 3.98%
Borrowed funds 34,180 565 2.20% 27,001 320 1.58%
--------- --------- ----- --------- --------- -----
Total interest-bearing liabilities 122,671 2,162 2.35% 104,639 1,426 1.82%
--------- --------- ----- --------- --------- -----
NON-INTEREST BEARING LIABILITIES AND EQUITY
-------------------------------------------
Checking 6,951 6,786
Other liabilities 1,073 524
Equity 10,501 9,846
--------- ---------
Total liabilities and equity $ 141,196 $121,795
========= ========
Net Interest/Spread $ 2,823 2.44% $ 2,937 3.01%
=================== ===================
Margin 2.71% 3.25%
===== =====
(1) Total Loans less deferred net loan fees
11
PROVISION FOR LOAN LOSSES
The provision for loan losses was $35,000 and $161,000, respectively, for
the three-month and nine-month periods ended March 31, 2005 and $75,000 and
$287,000 for the same periods in 2004. The decrease in both the three-month and
the nine-month periods ended December 31, 2004 over the same periods in 2004 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 incurred losses. Net charge-offs of $39,000
have been recorded for the three-month period ended March 31, 2005, compared to
$101,000 of net charge-offs for the same period in 2004. Net charge-offs of
$132,000 have been recorded for the nine-month period ended March 31, 2005,
compared to $255,000 of net charge-offs for the same period in 2004. The
allowance for loan losses was $627,000 or 0.52% of net loans as of March 31,
2005, 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
$6.0 million or 5.0% of net loans at March 31, 2005. At March 31, 2005 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 89% 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 March
31, 2005, our delinquent loans past due 60 days or more, was less than 0.02% 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 March 31, 2005 and
2004 were $441,000 and $180,000, respectively and for the nine-month periods
were $1,126,000 and $551,000. The increase for both the three-month and
nine-month periods ended March 31, 2005 from 2004 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 $115,000, and $334,000, respectively, for the
three-month and nine-month periods ended March 31, 2005, over the comparative
periods in 2004. 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
nine-month period ended March 31, 2005 was $108,000 compared to $119,000 in
2004, a decrease of $11,000 due to less overdraft volume. Other income for the
three-month periods ended March 31, 2005 and 2004 was $13,000 and $6,000,
respectively and for the nine-month periods were $66,000 and $16,000. The
increase for both the three-month and nine-month periods ended March 31,
12
2005 from 2004 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 March 31, 2005, was
$1,275,000, an increase of $424,000, compared to $851,000 for the same period in
2004. Salary and employee benefits was $748,000 for the three-month period ended
March 31, 2005 an increase of $394,000, from $354,000 for the same period in
2004. Office operations and equipment was $153,000 for the three-month period
ended March 31, 2005 an increase of $35,000 or 29.66%, from $118,000 for the
same period in 2004. Occupancy expense was $39,000 for the three-month period
ended March 31, 2005, an increase of $12,000 compared to the same period in
2004. 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 $16,000 for the three months ended March 31, 2005 a decrease of
$97,000 or 85.84%, from $113,000 in the same period ended 2004. 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 March 31, 2005, was $10,000, a
decrease of $12,000, compared to the same period in 2004. Professional services
expense was $87,000 for the three-month period ended March 31, 2005, an increase
of $34,000, from $53,000 for the same period in 2004. The increase in
professional services was primarily 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 $49,000 for the three-month period ended March 31,
2005 an increase of $14,000 or 40.00%, from $35,000 for the same period in 2004.
Marketing has increased due to promotion of our mortgage origination. Loan
origination and servicing expense was $40,000 for the three-month period ended
March 31, 2005 compared to $5,000 for the same period in 2004. This increase is
attributed to mortgage origination. Other expenses for the three-month period
ended March 31, 2005 were $43,000 an increase of $15,000 from the same period
ended March 31, 2004.
Non-interest expense was $3,529,000 for the nine-month period ended March
31, 2005, an increase of $1,029,000 or 41.16% from $2,500,000 for the same
nine-month period ended in 2004. Salary and employee benefits was $2,021,000 for
the nine-month period ended March 31, 2005 an increase of $999,000, from
$1,022,000 for the same period ended in 2004. Office operations and equipment
was $454,000 for the nine-month period ended March 31, 2005 an increase of
$136,000 or 42.77%, from $318,000 for the same period ended in 2004. Occupancy
expense was $121,000 for the nine-month period ended March 31, 2005, an increase
of $41,000 compared to the same period ended in 2004. 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 $249,000 for the nine-month period ended
March 31, 2005 a decrease of $42,000 from $291,000 for the same period ended in
2004. Credit card and debit card processing expense was $56,000 for the
nine-month period ended March 31, 2005 a $287,000 decrease from the $343,000 for
the same period ended in 2004. This decrease is due to the sale of the credit
card loan portfolio in May of 2004. Travel and conference for the nine-month
period ended March 31, 2005, was $41,000, an increase of $6,000, compared to the
same period ended in 2004. Professional service expense was $272,000 for the
nine-month period ended March 31, 2005, an increase of $87,000 from $185,000 for
the same nine-month period ended in 2004. Loan origination and servicing expense
was $67,000 for the nine-month period ended March 31, 2005 compared to $8,000
for the same period ended 2003. This expense is attributed to mortgage
origination expenses. Other expenses for the nine-month period ended March 31,
2005 were $119,000 an increase of $29,000 from the same period ended March 31,
2004.
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 $27,000 and $99,000, for the
three-month periods ending March 31, 2005 and 2004. The provision for income
taxes was $96,000 and $276,000, for the nine-month periods ending March 31, 2005
and 2004. The decreases in both the three-month and nine-month periods in 2005
are a result of lower income. The effective rate for the three-month periods
ended March 31, 2005 and 2004 was 44.45% and 38.20%, and for the nine-month
periods were 40.01% and 39.44%. The reason for the effective rate increase for
the three-month period ended March 31, 2005 over the three-month period ended in
2004 was due to an adjustment was made to the tax estimate based on the latest
tax filing.
REGULATORY CAPITAL REQUIREMENTS
Pursuant to federal law, Allied First Bank must meet three separate
minimum capital ratio requirements. As of March 31, 2005, Allied First Bank had
core capital, Tier I risk-based and total risk-based ratios of 6.94%, 10.00% and
10.64%, 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. The company is
currently, and expects to continue to be, in compliance with the minimum capital
ratios to be considered well capitalized.
LIQUIDITY
Liquidity management refers to the ability to generate sufficient cash to
fund current loan demand; meet deposit withdrawals and pay operating expenses.
Allied First Bancorp, Inc. relies on various funding sources in order to meet
these demands. Primary sources of funds include interest-earning balances with
other financial institutions, money market mutual funds, proceeds from principal
and interest payments on loans as well as the ability to borrow against first
mortgages, and marketable securities. At March 31, 2005, Allied First Bank had
$4.1 million in cash and cash equivalents that could be used for its funding
needs. Cash and cash equivalents decreased by $2.3 million compared to the
period ended June 30, 2004. Securities available for sale increased by $6.7
million and time deposits with other institutions decreased $298,000.
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 March 31,
2005 was approximately $16.8 million.
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 March 31, 2005 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)
---------------- --------- -------------- ------------------------
July 1-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
January 1- January 31 1,300 19.85 33,532 16,468
February 1-February 28 13,500 20.11 47,032 2,968
March 1- March 31 -- -- 47,032 2,968
------ ------ ------ ------
Total March 31, 2005 47,032 $18.60 47,032 2,968
====== ====== ====== ======
(1) On August 23, 2004, the Company announced a stock repurchase plan of up to
50,000 shares. At March 31, 2005 the stock repurchase plan was completed
with a total of 47,032 shares purchased.
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: May 5, 2005 /s/ Kenneth L. Bertrand
----------- ------------------------------------
Kenneth L. Bertrand
President and Chief Executive
Officer
Date: May 5, 2005 /s/ Brian K. Weiss
----------- ------------------------------------
Brian K. Weiss
Chief Financial Officer
17