UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended:
March 31, 2010
or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ___________ to ____________
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000-53370
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(Commission File Number)
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Auburn Bancorp, Inc.
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(Exact name of registrant as specified in its charter)
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United States
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26-2139168
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(State or other jurisdiction
of incorporation)
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(IRS Employer
Identification No.)
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256 Court Street, P.O. Box 3157, Auburn, Maine 04212
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(Address and zip code of principal executive offices)
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(207) 782-0400
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(Registrant’s telephone number, including area code)
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None
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(Former name, former address and former fiscal year, if changed since last report)
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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.
x
Yes
o
No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
o
Yes
o
No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
o
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
x
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Common Stock, $0.01 par value, 503,284 shares outstanding as of May 14, 2010.
AUBURN BANCORP, INC. AND SUBSIDIARY
QUARTERLY REPORT ON FORM 10-Q
March 31, 2010
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION (U
naudited
)
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Item 1.
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Financial Statements
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Consolidated Balance Sheets as of March 31, 2010 (Unaudited) and June 30, 2009
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3
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Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2010 and 2009
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4
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Consolidated Statements of Operations (Unaudited) for the Nine Months Ended March 31, 2010 and 2009
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5
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Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Nine Months Ended March 31, 2010 and 2009
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6
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Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended March 31, 2010 and 2009
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7
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Notes to Consolidated Financial Statements (Unaudited)
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8
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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16
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Item 3.
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quantitative and qualitative disclosures about market risk
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28
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Item 4T.
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Controls and Procedures
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28
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PART II. OTHER INFORMATION
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Item
1.
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Legal Proceedings
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28
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ITEM 1A.
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risk factors
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28
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Item
2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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28
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Item
3.
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Defaults Upon Senior Securities
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28
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Item
4.
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Other Information
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28
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Item
5.
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Exhibits
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29
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Signatures
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30
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUBURN BANCORP, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 2010 (Unaudited) and June 30, 2009
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March 31,
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June 30,
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2010
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2009
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(Unaudited)
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ASSETS
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Cash and due from banks
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$
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1,668,521
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$
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1,403,715
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Interest-earning deposits
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3,106,164
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970,921
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Total cash and cash equivalents
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4,774,685
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2,374,636
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Certificates of deposit
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199,000
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4,451,105
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Investment securities available for sale, at fair value
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848,926
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1,564,775
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Federal Home Loan Bank stock, at cost
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1,251,700
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1,147,000
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Loans
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69,329,586
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62,574,299
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Less allowance for loan losses
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(433,845
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)
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(385,181
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)
|
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Net loans
|
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68,895,741
|
|
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62,189,118
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Property and equipment, net
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1,857,364
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1,907,877
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Foreclosed real estate, net of reserve of $67,549 at March 31, 2010
and $0 at June 30, 2009
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614,367
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337,058
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Accrued interest receivable:
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Investments
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6,423
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33,487
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Mortgage-backed securities
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|
655
|
|
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1,066
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Loans
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270,839
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242,460
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Prepaid expenses and other assets
|
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502,741
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182,128
|
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Total assets
|
|
$
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79,222,441
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$
|
74,430,710
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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Liabilities:
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Deposits
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$
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55,378,048
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$
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48,099,021
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Federal Home Loan Bank advances
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17,566,646
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20,150,000
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Accrued interest and other liabilities
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285,397
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277,810
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Total liabilities
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73,230,091
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68,526,831
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Stockholders’ equity:
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Preferred stock, 1,000,000 shares authorized, no shares issued or outstanding
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—
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—
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Common stock, $.01 par value per share, 10,000,000 shares authorized, 503,284 shares issued and outstanding at March 31, 2010 and June 30, 2009
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5,033
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5,033
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Additional paid-in-capital
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1,469,396
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1,470,790
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Retained earnings
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4,666,973
|
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4,611,470
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Accumulated other comprehensive loss
|
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(1,688
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)
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(26,225
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)
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Unearned compensation (ESOP shares)
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(147,364
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)
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(157,189
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)
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Total stockholders’ equity
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5,992,350
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5,903,879
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|
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|
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Total liabilities and stockholders’ equity
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$
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79,222,441
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$
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74,430,710
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The accompanying notes are an integral part of these consolidated financial statements.
AUBURN BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Three Months Ended March 31, 2010 and 2009
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Three Months Ended March 31,
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2010
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2009
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(Unaudited)
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Interest and dividend income:
|
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|
|
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Interest on loans
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$
|
1,017,086
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$
|
939,745
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Interest on investments and other interest-earning deposits
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|
9,526
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|
|
|
62,972
|
|
|
Total interest and dividend income
|
|
|
1,026,612
|
|
|
|
1,002,717
|
|
|
|
|
|
|
|
|
|
|
|
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Interest expense:
|
|
|
|
|
|
|
|
|
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Interest on deposits and escrow accounts
|
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243,442
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|
|
|
297,597
|
|
|
Interest on Federal Home Loan Bank advances
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|
|
168,146
|
|
|
|
187,462
|
|
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Total interest expense
|
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|
411,588
|
|
|
|
485,059
|
|
|
|
|
|
|
|
|
|
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Net interest income
|
|
|
615,024
|
|
|
|
517,658
|
|
|
|
|
|
|
|
|
|
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Provision for loan losses
|
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|
3,985
|
|
|
|
7,052
|
|
|
|
|
|
|
|
|
|
|
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Net interest income after provision for loan losses
|
|
|
611,039
|
|
|
|
510,606
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|
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Net gain on sales of loans
|
|
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16,510
|
|
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|
27,527
|
|
|
Net loss on sale of foreclosed real estate
|
|
|
—
|
|
|
|
(14,754
|
)
|
|
Other non-interest income
|
|
|
37,431
|
|
|
|
19,108
|
|
|
Total non-interest income
|
|
|
53,941
|
|
|
|
31,881
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses:
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
256,297
|
|
|
|
223,717
|
|
|
Occupancy expense
|
|
|
23,463
|
|
|
|
26,374
|
|
|
Depreciation
|
|
|
22,800
|
|
|
|
26,915
|
|
|
Federal deposit insurance premiums
|
|
|
29,114
|
|
|
|
8,770
|
|
|
Computer charges
|
|
|
47,280
|
|
|
|
37,013
|
|
|
Advertising expense
|
|
|
20,043
|
|
|
|
22,259
|
|
|
Consulting expense
|
|
|
13,073
|
|
|
|
16,152
|
|
|
Net provision for losses on foreclosed real estate
|
|
|
57,549
|
|
|
|
—
|
|
|
Other operating expenses
|
|
|
138,950
|
|
|
|
128,745
|
|
|
Total non-interest expenses
|
|
|
608,569
|
|
|
|
489,945
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
56,411
|
|
|
|
52,542
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
18,820
|
|
|
|
21,238
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,591
|
|
|
$
|
31,304
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
$
|
.08
|
|
|
$
|
.06
|
|
The accompanying notes are an integral part of these consolidated financial statements.
AUBURN BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Operations
Nine Months Ended March 31, 2010 and 2009
|
|
|
Nine Months Ended March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
(Unaudited)
|
|
|
Interest and dividend income:
|
|
|
|
|
|
|
|
Interest on loans
|
|
$
|
3,002,841
|
|
|
$
|
2,859,720
|
|
|
Interest on investments and other interest-earning deposits
|
|
|
89,616
|
|
|
|
174,178
|
|
|
Dividends on Federal Home Loan Bank stock
|
|
|
—
|
|
|
|
12,496
|
|
|
Total interest and dividend income
|
|
|
3,092,457
|
|
|
|
3,046,394
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
Interest on deposits and escrow accounts
|
|
|
760,340
|
|
|
|
1,001,544
|
|
|
Interest on Federal Home Loan Bank advances
|
|
|
534,322
|
|
|
|
563,262
|
|
|
Total interest expense
|
|
|
1,294,662
|
|
|
|
1,564,806
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
1,797,795
|
|
|
|
1,481,588
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
49,446
|
|
|
|
53,655
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses
|
|
|
1,748,349
|
|
|
|
1,427,933
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income (loss):
|
|
|
|
|
|
|
|
|
|
Net gain on sales of loans
|
|
|
59,209
|
|
|
|
32,371
|
|
|
Net loss on sale of other assets
|
|
|
—
|
|
|
|
(15,355
|
)
|
|
Net loss on sale of investment securities
|
|
|
(126,269
|
)
|
|
|
—
|
|
|
Other-than-temporary impairment of investment securities
|
|
|
—
|
|
|
|
(60,270
|
)
|
|
Other non-interest income
|
|
|
107,962
|
|
|
|
68,178
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
40,902
|
|
|
|
24,924
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses:
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
723,163
|
|
|
|
669,500
|
|
|
Occupancy expense
|
|
|
74,049
|
|
|
|
86,492
|
|
|
Depreciation
|
|
|
73,200
|
|
|
|
77,828
|
|
|
Federal deposit insurance premiums
|
|
|
104,670
|
|
|
|
19,267
|
|
|
Computer charges
|
|
|
132,926
|
|
|
|
116,492
|
|
|
Advertising expense
|
|
|
50,225
|
|
|
|
42,641
|
|
|
Consulting expense
|
|
|
36,546
|
|
|
|
36,624
|
|
|
Net provision for losses on foreclosed real estate
|
|
|
67,549
|
|
|
|
—
|
|
|
Other operating expenses
|
|
|
435,676
|
|
|
|
335,733
|
|
|
Total non-interest expenses
|
|
|
1,698,004
|
|
|
|
1,384,577
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
91,247
|
|
|
|
68,280
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
35,744
|
|
|
|
47,838
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
55,503
|
|
|
$
|
20,442
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
$
|
.11
|
|
|
$
|
.05
|
|
The accompanying notes are an integral part of these consolidated financial statements.
AUBURN BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders’ Equity
Nine Months Ended March 31, 2010 and 2009 (Unaudited)
|
|
|
Common
Stock
|
|
|
Additional Paid-
in-Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
|
Unearned
Compensation
(ESOP Shares)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2008
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,566,433
|
|
|
$
|
(48,834
|
)
|
|
$
|
-
|
|
|
$
|
4,517,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
20,442
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,442
|
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding loss on securities, net of taxes of $(17,781)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(34,516
|
)
|
|
|
-
|
|
|
|
(34,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
20,442
|
|
|
|
(34,516
|
)
|
|
|
-
|
|
|
|
(14,074
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued in public offering, net of offering costs of $766,504 (226,478 shares)
|
|
|
2,265
|
|
|
|
1,496,011
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,498,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued to MHC (276,806 shares)
|
|
|
2,768
|
|
|
|
-
|
|
|
|
(2,768
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Capitalization of MHC
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
Shares purchased by ESOP (17,262 shares)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(172,620
|
)
|
|
|
(172,620
|
)
|
|
Common stock held by ESOP committed to be released (1,312) shares)
|
|
|
-
|
|
|
|
(186
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
13,120
|
|
|
|
12,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2009 (unaudited)
|
|
$
|
5,033
|
|
|
$
|
1,470,825
|
|
|
$
|
4,584,107
|
|
|
$
|
(83,350
|
)
|
|
$
|
(159,500
|
)
|
|
$
|
5,817,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
$
|
5,033
|
|
|
$
|
1,470,790
|
|
|
$
|
4,611,470
|
|
|
$
|
(26,225
|
)
|
|
$
|
(157,189
|
)
|
|
$
|
5,903,879
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
-
|
|
|
|
-
|
|
|
|
55,503
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,503
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain on securities, net of taxes of $12,640
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,537
|
|
|
|
-
|
|
|
|
24,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
55,503
|
|
|
|
24,537
|
|
|
|
-
|
|
|
|
80,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock held by ESOP committed to be released (983 shares)
|
|
|
-
|
|
|
|
(1,394
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
9,825
|
|
|
|
8,431
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010 (unaudited)
|
|
$
|
5,033
|
|
|
$
|
1,469,396
|
|
|
$
|
4,666,973
|
|
|
$
|
(1,688
|
)
|
|
$
|
(147,364
|
)
|
|
$
|
5,992,350
|
|
The accompanying notes are an integral part of these consolidated financial statements.
AUBURN BANCORP, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Nine Months Ended March 31, 2010 and 2009 (Unaudited)
|
|
|
Nine Months Ended
March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
Net income
|
|
$
|
55,503
|
|
|
$
|
20,442
|
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
73,200
|
|
|
|
77,828
|
|
|
Net accretion of discounts on investment securities available for sale
|
|
|
(1,044
|
)
|
|
|
(9,931
|
)
|
|
Provision for loan losses
|
|
|
49,446
|
|
|
|
53,655
|
|
|
Net provision for losses on foreclosed real estate
|
|
|
67,549
|
|
|
|
-
|
|
|
Deferred income tax benefit
|
|
|
(11,380
|
)
|
|
|
-
|
|
|
Loss on sale of investment securities available for sale
|
|
|
126,269
|
|
|
|
-
|
|
|
Other-than-temporary impairment on investment securities available for sale
|
|
|
-
|
|
|
|
60,270
|
|
|
Gain on sales of loans
|
|
|
(59,209
|
)
|
|
|
(32,371
|
)
|
|
ESOP compensation expense
|
|
|
8,431
|
|
|
|
12,934
|
|
|
Net decrease (increase) in prepaid expenses and other assets
|
|
|
(320,613
|
)
|
|
|
569,130
|
|
|
Net decrease in accrued interest receivable
|
|
|
(904
|
)
|
|
|
(3,030
|
)
|
|
Net increase (decrease) in accrued interest payable and other liabilities
|
|
|
6,327
|
|
|
|
(136,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(6,425
|
)
|
|
|
612,878
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase of investment securities available for sale
|
|
|
(263,370
|
)
|
|
|
(250,000
|
)
|
|
Proceeds from sales of investment securities available for sale
|
|
|
800,499
|
|
|
|
-
|
|
|
Proceeds from maturities and principal paydowns on investment securities available for sale
|
|
|
89,777
|
|
|
|
374,614
|
|
|
Proceeds from sale of foreclosed real estate
|
|
|
-
|
|
|
|
70,057
|
|
|
Net change in certificates of deposit
|
|
|
4,253,000
|
|
|
|
(3,073,116
|
)
|
|
Net increase in loans to customers
|
|
|
(7,041,718
|
)
|
|
|
(4,630,349
|
)
|
|
Purchase of Federal Home Loan Bank stock
|
|
|
(104,700
|
)
|
|
|
(193,900
|
)
|
|
Capital expenditures
|
|
|
(22,687
|
)
|
|
|
(63,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(2,289,199
|
)
|
|
|
(7,766,302
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Advances from Federal Home Loan Bank
|
|
|
3,500,000
|
|
|
|
4,500,000
|
|
|
Repayment of advances from Federal Home Loan Bank
|
|
|
(3,750,000
|
)
|
|
|
(3,000,000
|
)
|
|
Net change in short term borrowings
|
|
|
(2,333,354
|
)
|
|
|
2,800,000
|
|
|
Net increase in deposits
|
|
|
7,279,027
|
|
|
|
1,362,770
|
|
|
Proceeds from issuance of common stock, net of offering costs
|
|
|
-
|
|
|
|
1,498,276
|
|
|
Capitalization of MHC
|
|
|
-
|
|
|
|
(25,000
|
)
|
|
Cash provided to ESOP for purchases of shares
|
|
|
-
|
|
|
|
(172,620
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
4,695,673
|
|
|
|
6,963,426
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
2,400,049
|
|
|
|
(189,998
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of period
|
|
|
2,374,636
|
|
|
|
2,012,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
4,774,685
|
|
|
$
|
1,822,489
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,301,106
|
|
|
$
|
1,564,982
|
|
|
Taxes
|
|
$
|
26,177
|
|
|
$
|
120,143
|
|
|
Transfer of loans to foreclosed real estate
|
|
$
|
344,858
|
|
|
$
|
197,951
|
|
The accompanying notes are an integral part of these consolidated financial statements.
AUBURN BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
1.
Basis of Presentation
The financial information included herein presents the consolidated financial condition and results of operations for Auburn Bancorp, Inc. and its wholly-owned subsidiary, Auburn Savings Bank, FSB, as of March 31, 2010 and as of June 30, 2009, and for the interim periods ended March 31, 2010 and 2009. Except for the June 30, 2009 Consolidated Balance Sheet, the financial information is unaudited; however, in the opinion of management, the information reflects all adjustments, consisting of normal recurring adjustments that are necessary to make the financial statements not misleading for a fair presentation. The results shown for the three and nine months ended March 31, 2010 are not necessarily indicative of the results to be obtained for a full year. The accompanying consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) and with the rules and regulations of the Securities and Exchange Commission for interim financial reporting. Accordingly they do not include all of the information and footnotes required for complete financial statements. These interim financial statements should be read in conjunction with the audited financial statements for the year ended June 30, 2009 included in the Company’s Annual Report on Form 10-K (File No. 000-53370) filed on September 28, 2009.
In preparing financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and valuation of foreclosed real estate. In connection with the determination of these estimates, management obtains independent appraisals for significant properties.
2.
Reorganization
On January 11, 2008, Auburn Savings Bank, FSB (the “Bank”) reorganized into the mutual holding company structure. As part of the reorganization, the Bank converted to a federal stock savings bank and became a wholly-owned subsidiary of Auburn Bancorp, Inc. (the “Company”), and the Company became a majority-owned subsidiary of Auburn Mutual Holding Company (the “MHC”). In addition, the Company conducted a stock offering. Following completion of the reorganization and stock offering, the MHC owns 55.0% of the outstanding common stock of the Company and the minority public shareholders own 45.0%. So long as the MHC is in existence, the MHC will be required to own at least a majority of the voting stock of the Company.
Net proceeds of $1.5 million were raised in the stock offering, after deduction of expenses of $766,000 and excluding $25,000 used to capitalize the MHC and $173,000 which was loaned by the Company to a trust for the Employee Stock Ownership Plan (the “ESOP”), enabling the ESOP to purchase 17,262 shares of common stock in the stock offering, equal to 3.43% of the shares of common stock sold in the stock offering, for the benefit of the Bank’s employees.
The Company may not declare or pay a cash dividend on, or repurchase any of its common stock, if the effect thereof would cause the regulatory capital of the Bank to be reduced below the amount required under OTS rules and regulations.
Auburn Bancorp, Inc.’s common stock is quoted on the OTC Bulletin Board under the symbol “ABBB.”
3.
Impact of Recent Accounting Standards
In June 2009, the Financial Accounting Standards Board (FASB) issued amended guidance with respect to accounting for transfers of financial assets
to improve the reporting for the transfer of financial assets resulting from concerns of financial statement users that many of the financial assets (and related obligations) that have been derecognized should continue to be reported in the financial statements of transferors. This Statement must be applied as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. Earlier application is prohibited. The Company will review the requirements of this Statement and comply with its requirements. The Company does not expect that the adoption of this Statement will have a material impact on the Company’s financial statements.
In June 2009, the FASB issued
The FASB Accounting Standards Codification
TM
and the Hierarchy of Generally Accepted Accounting Principles.
Under the Statement,
The FASB Accounting Standards Codification
(Codification) has become the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the Securities and Exchange Commission (SEC) under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. On the effective date of this Statement, the Codification supersedes all then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC accounting literature not included in the Codification becomes non-authoritative. The Codification was effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company adopted the Codification which has not had a material impact on the Company’s financial statements.
In January 2010, the FASB issued guidance to amend the disclosure requirements related to recurring and nonrecurring fair value measurements. The guidance requires new disclosures on the transfers of assets and liabilities between Level 1 (quoted prices in active market for identical assets or liabilities) and Level 2 (significant other observable inputs) of the fair value measurement hierarchy, including the reasons and the timing of the transfers. Additionally, the guidance requires a roll forward of activities on purchases, sales, issuance, and settlements of the assets and liabilities measured using significant unobservable inputs (Level 3 fair value measurements). The guidance will become effective for us with the reporting period beginning July 1, 2010, except for the disclosure on the roll forward activities for any Level 3 fair value measurements, which will become effective for us with the reporting period beginning July 1, 2011. Other than requiring additional disclosures, adoption of this new guidance will not have a material impact on the Company’s financial statements.
4.
Securities
The amortized cost and fair value of investment securities available for sale, with gross unrealized gains and losses, are as follows:
March 31, 2010
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bond
|
|
$
|
712,532
|
|
|
$
|
10,384
|
|
|
$
|
(17,352
|
)
|
|
$
|
705,564
|
|
|
FNMA mortgage-backed securities
|
|
|
128,952
|
|
|
|
2,946
|
|
|
|
(854
|
)
|
|
|
131,044
|
|
|
U.S. Government sponsored enterprise securities
|
|
|
2
|
|
|
|
2,316
|
|
|
|
-
|
|
|
|
2,318
|
|
|
Corporate common stock
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available for sale
|
|
$
|
851,486
|
|
|
$
|
15,646
|
|
|
$
|
(18,206
|
)
|
|
$
|
848,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
|
Gross
Unrealized
Gains
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bond
|
|
$
|
1,370,276
|
|
|
$
|
9,740
|
|
|
$
|
(51,823
|
)
|
|
$
|
1,328,193
|
|
|
FHLMC mortgage-backed securities
|
|
|
27,940
|
|
|
|
260
|
|
|
|
-
|
|
|
|
28,200
|
|
|
FNMA mortgage-backed securities
|
|
|
196,295
|
|
|
|
3,344
|
|
|
|
(2,455
|
)
|
|
|
197,184
|
|
|
U.S. Government sponsored enterprise securities
|
|
|
2
|
|
|
|
1,196
|
|
|
|
-
|
|
|
|
1,198
|
|
|
Corporate common stock
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available for sale
|
|
$
|
1,604,513
|
|
|
$
|
14,540
|
|
|
$
|
(54,278
|
)
|
|
$
|
1,564,775
|
|
Investments with a fair value of approximately $848,900 and $1,564,800 at March 31, 2010 and June 30, 2009, respectively, are held in a custody account to secure certain deposits.
The amortized cost and fair value of debt securities by contractual maturity follow. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
|
|
|
March 31, 2010
|
|
|
June 30, 2009
|
|
|
|
|
Amortized
|
|
|
Fair
|
|
|
Amortized
|
|
|
Fair
|
|
|
|
|
Cost
|
|
|
Value
|
|
|
Cost
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
473,961
|
|
|
$
|
473,961
|
|
|
Over 1 year through 5 years
|
|
|
512,532
|
|
|
|
495,180
|
|
|
|
496,315
|
|
|
|
444,492
|
|
|
After 5 years through 10 years
|
|
|
200,000
|
|
|
|
210,384
|
|
|
|
400,000
|
|
|
|
409,740
|
|
|
|
|
|
712,532
|
|
|
|
705,564
|
|
|
|
1,370,276
|
|
|
|
1,328,193
|
|
|
Mortgage-backed securities
|
|
|
128,952
|
|
|
|
131,044
|
|
|
|
224,235
|
|
|
|
225,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
841,484
|
|
|
$
|
836,608
|
|
|
$
|
1,594,511
|
|
|
$
|
1,553,577
|
|
Information pertaining to securities with gross unrealized losses at March 31, 2010 and June 30, 2009, aggregated by investment category and length of time that individual securities have been in a
continuous loss position, follows:
|
|
|
Less Than 12 Months
|
|
|
12 Months or Greater
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
Gross Unrealized Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized
Losses
|
|
|
Fair Value
|
|
|
Gross
Unrealized Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
512,532
|
|
|
$
|
17,352
|
|
|
$
|
512,532
|
|
|
$
|
17,352
|
|
FNMA mortgage-backed
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
57,939
|
|
|
|
854
|
|
|
|
57,939
|
|
|
|
854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
570,471
|
|
|
$
|
18,206
|
|
|
$
|
570,471
|
|
|
$
|
18,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate bonds
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
496,315
|
|
|
$
|
51,823
|
|
|
$
|
496,315
|
|
|
$
|
51,823
|
|
FNMA mortgage-backed
securities
|
|
|
-
|
|
|
|
-
|
|
|
|
70,790
|
|
|
|
2,455
|
|
|
|
70,790
|
|
|
|
2,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
567,105
|
|
|
$
|
54,278
|
|
|
$
|
567,105
|
|
|
$
|
54,278
|
|
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the length of time and the extent to which the fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
At March 31, 2010, three debt securities with unrealized losses had depreciated 3% in total from the amortized cost basis. These unrealized losses related principally to current interest rates for similar types of securities compared to the underlying yields on these securities. At June 30, 2009, three debt securities with unrealized losses then depreciated 10% in total from the amortized cost basis. These unrealized losses related principally to current interest rates for similar types of securities compared to the underlying yields on these securities. In analyzing an issuer’s financial condition, management considers whether the securities are issued by the federal government or its agencies, whether downgrades by bond rating agencies have occurred, and the results of reviews of the issuer’s financial condition and the Company’s ability to hold such securities. The Company did not record an other-than-temporary impairment loss during the three fiscal quarters of 2010, but did record an other-than-temporary impairment loss of $60,270 during the first fiscal quarter of 2009 on its U.S. Government sponsored enterprise securities.
5.
Income Per Share
Basic income per share is determined by dividing net income by the adjusted weighted average number of common shares outstanding during the period. The adjusted outstanding common shares equals the gross number of common shares issued less unallocated shares of the ESOP. Net income per common share for the three and nine months ended March 31, 2010 and 2009 is based on the following:
|
|
|
Three Months Ended
March 31,
|
|
|
Nine Months Ended
March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
37,591
|
|
|
$
|
31,304
|
|
|
$
|
55,503
|
|
|
$
|
20,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common
shares outstanding
|
|
|
503,284
|
|
|
|
503,284
|
|
|
|
503,284
|
|
|
|
420,628
|
|
|
Less: Average unallocated
ESOP shares
|
|
|
(14,833
|
)
|
|
|
(15,950
|
)
|
|
|
(15,157
|
)
|
|
|
(13,633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted weighted average
common shares outstanding
|
|
|
488,451
|
|
|
|
487,334
|
|
|
|
488,127
|
|
|
|
406,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share
|
|
$
|
0.08
|
|
|
$
|
0.06
|
|
|
$
|
0.11
|
|
|
$
|
0.05
|
|
6.
Comprehensive Income or Loss
GAAP requires that recognized revenue, expenses, gains, and losses be included in net income or loss. Although certain changes in assets and liabilities, such as unrealized gains and losses on available for sale securities, are reported as a separate component of the equity section of the balance sheet, such items, along with net income, are components of comprehensive income or loss.
The components of total comprehensive income (loss) and related tax effects for the three and nine months ended March 31, 2010 and 2009 are as follows:
|
|
|
Three Months Ended
March 31,
|
|
|
Nine Months Ended
March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,591
|
|
|
$
|
31,304
|
|
|
$
|
55,503
|
|
|
$
|
20,442
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities available for sale arising during the period
|
|
|
1,741
|
|
|
|
(52,297
|
)
|
|
|
(89,092
|
)
|
|
|
(112,567
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification adjustment for items included in net income
|
|
|
-
|
|
|
|
-
|
|
|
|
126,269
|
|
|
|
60,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect
|
|
|
(592
|
)
|
|
|
17,781
|
|
|
|
(12,640
|
)
|
|
|
17,781
|
|
|
Other comprehensive income (loss), net of tax
|
|
|
1,149
|
|
|
|
(34,516
|
)
|
|
|
24,537
|
|
|
|
(34,516
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income (loss)
|
|
$
|
38,740
|
|
|
$
|
(3,212
|
)
|
|
$
|
80,040
|
|
|
$
|
(14,074
|
)
|
7.
Employee Stock Ownership Plan
Shares of the Company’s common stock purchased by the ESOP are held in a suspense account until released for allocation to participants. Shares released are allocated to each eligible participant based on the ratio of each such participant’s compensation, as defined in the ESOP, to the total compensation of all eligible plan participants. As the unearned shares are released from suspense, the Company recognizes compensation expense equal to the fair value of the ESOP shares committed to be released during the period. To the extent that the fair value of the ESOP shares differs from the cost of such shares, the difference is charged or credited to equity as additional paid-in capital. Expense related to the ESOP for the three months ended March 31, 2010 and 2009 approximated $2,000 for both periods and for the nine months ended March 31, 2010 and 2009 approximated $8,000 and $13,000, respectively. The fair value of the unallocated shares as of March 31, 2010 and 2009 was $147,400 and $159,500, respectively.
8.
Impairment Write-Down on Investment Securities
|
|
In accordance with FASB guidance with respect to accounting for certain investments in debt and equity securities and SEC Staff Accounting Bulletin No. 59,
Accounting for Non-current Marketable Securities
, the Company determined that it would write down its investments in Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC) common stock in the quarter ended September 30, 2008 as a result of the appointment of the Federal Housing Finance Agency as conservator over both of the entities. The amount of the other-than-temporary impairment charge was $60,270, the total amount of such FNMA and FHLMC common stock on the Company’s books at that date.
|
The Company did not record a tax benefit in connection with the impairment of its FNMA and FHLMC common stock. Although the Company would realize a capital loss if it sells the FNMA and FHLMC common stock, such capital loss would result in a tax benefit to the Company only to the extent the capital loss can be used to reduce capital gains available during the applicable carryback and carryforward periods. The Company does not expect those capital gains to be material in relation to the amount of the other-than-temporary impairment charge.
9.
Fair Value Measurement
GAAP defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices (unadjusted) or identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date
Level 2: Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data
Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
The balances of financial assets and liabilities measured at fair value on a recurring basis are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
In Active
|
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
|
Markets for
|
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
|
Identical Assets
|
|
|
Inputs
|
|
Inputs
|
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
(Level 3)
|
|
|
March 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale
Corporate bond
|
|
$
|
705,564
|
|
|
$
|
---
|
|
|
$
|
705,564
|
|
|
$
|
---
|
|
|
FNMA mortgage-backed securities
|
|
|
131,044
|
|
|
|
---
|
|
|
|
131,044
|
|
|
|
---
|
|
|
U.S. Government sponsored enterprise securities
|
|
|
2,318
|
|
|
|
---
|
|
|
|
2,318
|
|
|
|
---
|
|
|
Corporate common stock
|
|
|
10,000
|
|
|
|
---
|
|
|
|
10,000
|
|
|
|
---
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
|
|
|
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
|
|
|
|
|
Inputs
|
|
Inputs
|
|
|
|
|
Total
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
(Level 3)
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities available for sale
Corporate bond
|
|
$
|
1,328,193
|
|
|
$
|
---
|
|
|
$
|
1,328,193
|
|
|
$
|
---
|
|
|
FHLMC mortgage-backed securities
|
|
|
28,200
|
|
|
|
---
|
|
|
|
28,200
|
|
|
|
---
|
|
|
FNMA mortgage-backed securities
|
|
|
197,184
|
|
|
|
---
|
|
|
|
197,184
|
|
|
|
---
|
|
|
U.S. Government sponsored enterprise securities
|
|
|
1,198
|
|
|
|
---
|
|
|
|
1,198
|
|
|
|
---
|
|
|
Corporate common stock
|
|
|
10,000
|
|
|
|
---
|
|
|
|
10,000
|
|
|
|
---
|
|
The Company used the following methods and significant assumptions to estimate fair value:
Securities available for sale (market approach)
: The fair value of securities available for sale are determined by obtaining quoted prices on nationally recognized securities exchanges or matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities.
The Company did not have any material financial assets and liabilities measured at fair value on a non-recurring basis at March 31, 2010 and June 30, 2009.
GAAP requires disclosure of estimated fair values of all financial instruments where it is practicable to estimate such values. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The disclosure requirements exclude certain financial instruments and all nonfinancial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments:
Cash and cash equivalents and certificates of deposit:
The carrying amounts of cash, due from banks, deposits with the FHLB, federal funds sold and certificates of deposit approximate fair values as these financial instruments have short maturities.
Securities:
Fair values for securities, excluding Federal Home Loan Bank stock, are based on quoted market prices. The carrying value of Federal Home Loan Bank stock approximates fair value based on the redemption provisions of the FHLB.
Loans receivable:
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Fair values for nonperforming loans are estimated using discounted cash flow analyses or underlying collateral values, where applicable.
Deposit liabilities:
The fair values disclosed for demand deposits (e.g., interest and non-interest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). Fair values for certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates of similar remaining maturity.
Federal Home Loan Bank advances:
The fair values of these borrowings are estimated using discounted cash flow analyses based on the Company’s current incremental borrowing rates for similar types of borrowing arrangements.
Accrued interest:
The carrying amounts of accrued interest approximate fair value.
Off-balance-sheet instruments:
The Company’s off-balance-sheet instruments consist of loan commitments. Fair values for loan commitments have not been presented as the future revenue derived from such financial instruments is not significant.
The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments are as follows:
|
|
|
March 31, 2010
|
|
|
June 30, 2009
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Carrying
|
|
|
Fair
|
|
|
|
|
Amount
|
|
|
Value
|
|
|
Amount
|
|
|
Value
|
|
|
|
|
(In thousands)
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,775
|
|
|
$
|
4,775
|
|
|
$
|
2,375
|
|
|
$
|
2,375
|
|
|
Certificates of deposit
|
|
|
199
|
|
|
|
199
|
|
|
|
4,451
|
|
|
|
4,451
|
|
|
Securities available for sale
|
|
|
849
|
|
|
|
849
|
|
|
|
1,565
|
|
|
|
1,565
|
|
|
Federal Home Loan Bank stock
|
|
|
1,252
|
|
|
|
1,252
|
|
|
|
1,147
|
|
|
|
1,147
|
|
|
Loans, net
|
|
|
68,896
|
|
|
|
71,003
|
|
|
|
62,189
|
|
|
|
63,721
|
|
|
Accrued interest receivable
|
|
|
278
|
|
|
|
278
|
|
|
|
277
|
|
|
|
277
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
55,378
|
|
|
|
54,506
|
|
|
|
48,099
|
|
|
|
47,390
|
|
|
Federal Home Loan Bank advances
|
|
|
17,567
|
|
|
|
17,976
|
|
|
|
20,150
|
|
|
|
20,648
|
|
10.
Subsequent Events
Subsequent events represent events or transactions occurring after the balance sheet date but before the financial statements are issued. Financial statements are considered “issued” when they are widely distributed to stockholders and others for general use and reliance in a form and format that complies with GAAP.
Specifically, there are two types of subsequent events:
|
●
|
Those comprising events or transactions providing additional evidence about conditions that existed at the balance sheet date, including estimates inherent in the financial statement preparation process (referred to as recognized subsequent events).
|
|
|
Those comprising events that provide evidence about conditions not existing at the balance sheet date but, rather, that arose after such date (referred to as non-recognized subsequent events).
|
Subsequent events have been evaluated through the issuance date of the March 31, 2010 financial statements, and management determined there were no subsequent events to disclose.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Our principal business is to acquire deposits from individuals and businesses in the communities surrounding our offices and to use these deposits to fund loans. We focus on providing our products and services to two segments of customers: individuals and businesses.
Income
.
Our primary source of income is net interest income. Net interest income is the difference between interest income, which is the income that we earn on our loans and investments, and interest expense, which is the interest that we pay on our deposits and borrowings. Changes in levels of interest rates affect our net interest income. A secondary source of income is non-interest income, which includes revenue that we receive from providing products and services. The majority of our non-interest income generally comes from loan servicing fees and service charges on deposit accounts, as well as gains on sales of loans.
Allowance for Loan Losses
.
The allowance for loan losses is a valuation allowance for probable losses inherent in the loan portfolio. We evaluate the need to establish allowances against losses on loans on a regular basis. When additional allowances are necessary, a provision for loan losses is charged to earnings.
Expenses.
The non-interest expenses we incur in operating our business consist of expenses for salaries and employee benefits, occupancy and equipment, data processing, marketing and advertising, professional services, FDIC insurance premiums and various other miscellaneous expenses. Our largest non-interest expense is salaries and employee benefits, which consist primarily of salaries and wages paid to our employees, payroll taxes, and expenses for health insurance, retirement plans and other employee benefits. We will recognize additional annual employee compensation expenses stemming from the adoption of new equity benefit plans. We cannot determine the actual amount of these new stock-related compensation and benefit expenses at this time because applicable accounting practices require that they be based on the fair market value of the shares of common stock at specific points in the future.
Forward-Looking Statements
Certain statements herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe”, “expect”, “anticipate”, “estimate”, and “intend” or future or conditional verbs such as “will”, “would”, “should”, “could”, or “may.” These forward-looking statements are based on the beliefs and expectations of management, as well as the assumptions made using information currently available to management. Since these statements reflect the views of management concerning future events, these statements involve risks, uncertainties and assumptions. As a result, actual results may differ from those contemplated by these forward-looking statements as a result of any number of factors. These factors include, but are not limited to, risks related to the Company’s continued ability to originate quality loans, fluctuation in interest rates, real estate conditions in the Company’s lending areas, changes in the securities or financial markets, changes in loan delinquency and charge-off rates, general and local economic conditions, the Company’s continued ability to attract and retain deposits, the Company’s ability to control costs, new accounting pronouncements, and changing regulatory requirements. For more information about these factors, please see our Annual Report on Form 10-K filed on September 28, 2009. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements, which speak only as of the date of this Quarterly Report on Form 10-Q. The Company does not undertake and specifically disclaims any obligation to publicly release updates or revisions to any such forward-looking statements as a result of new information, future events or otherwise.
Critical Accounting Policies
We consider accounting policies that require management to exercise significant judgment or discretion, or make significant assumptions that have or could have a material impact on the carrying value of certain assets or on income, to be critical accounting policies. We consider the following to be our critical accounting policies.
Allowance for loan losses.
The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectability of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based on management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of the underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
The allowance consists of specific and general components. The specific component relates to loans that are classified as impaired, whereby an allowance is established when the discounted cash flows, collateral value or observable market price of the impaired loan is lower than the carrying value of that loan. The general component relates to pools of non-impaired loans and is based on historical loss experience adjusted for qualitative factors.
A loan is considered impaired when, based on current information and events, it is probable that we will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Management considers factors including payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due when determining impairment. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent. Large groups of smaller balance homogeneous loans are collectively evaluated for impairment. Accordingly, we do not separately identify individual consumer and residential loans for impairment disclosures. The allowance for loan losses includes specific reserve amounts assigned to individual loans on the basis of loan impairment. Certain loans are evaluated individually and are judged to be impaired when management believes it is probable that not all of the contractual interest and principal payments will be collected as scheduled in the loan agreement. Under this method, loans are selected for evaluation based on internal risk ratings or non-accrual status. A specific reserve is allocated to an individual loan when that loan has been deemed impaired and when the amount of a probable loss is estimable on the basis of its collateral value, the present value of anticipated future cash flows, or its net realizable value. As of March 31, 2010, one impaired loan was assigned a specific reserve of $10,893. Additionally, the Company has recognized impairment of value on three properties held and reported as Foreclose Real Estate. Specific reserves totaling $56,655 have been assigned as of March 31, 2010. As of June 30, 2009, the Company ascertained that no impairment recognition was warranted.
Management believes that, based on information currently available, the allowance for loan losses is sufficient to cover losses inherent in our loan portfolio at this time. However, no assurances can be given that the level of the allowance will be sufficient to cover loan losses or that future adjustments to the allowance will not be necessary if economic and/or other conditions differ substantially from the economic and other conditions considered by management in evaluating the appropriate level of the allowance.
Actual loan losses may be significantly more than the allowance we have established, which could have a material negative effect on our financial results.
Securities.
We classify our investments as available for sale. These assets are recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income or loss. Purchase premiums and discounts are recognized in interest income using the interest method over the terms of the securities. Declines in the fair value of individual equity securities that are deemed to be other than temporary are reflected in earnings when identified. For individual debt securities where the Bank does not intend to sell the security and it is not more likely than not that the Bank will be required to sell the security before recovery of its amortized cost basis, the other-than-temporary decline in the fair value of the debt security related to 1) credit loss is recognized in earnings and 2) other factors is recognized in other comprehensive income or loss. Credit loss is deemed to exist if the present value of expected future cash flows using the effective rate at date of acquisition is less than the amortized cost basis of the debt security. For individual debt securities where the Bank intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost, the other-than-temporary impairment is recognized in earnings equal to the entire difference between the security’s cost basis and its fair value at the balance sheet date. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
Loans.
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized over the contractual life of the loans as an adjustment of the related loan yield using the interest method.
Loans past due 30 days or more are considered delinquent. The accrual of interest on mortgage and commercial loans is discontinued at the time the loan is 90 days delinquent unless the credit is well secured and in process of collection. Consumer loans are typically charged off when they are no more than 180 days past due. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on nonaccrual or charged off is reversed against interest income. Cash payments on these loans are applied to principal balances until qualifying for return to accrual. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Comparison of Financial Condition at March 31, 2010 and June 30, 2009
Total Assets.
Total assets increased by $4.8 million, or 6.4%, from $74.4 million at June 30, 2009 to $79.2 million at March 31, 2010. This increase was largely the result of an increase of $6.7 million in the loan portfolio and a $2.4 million increase in cash and cash equivalents, partly offset by a reduction of $4.3 million in certificate of deposit investments.
Cash and Cash Equivalents.
Cash and correspondent bank balances increased by $2.4 million, or 101.1%, from $2.4 million at June 30, 2009 to $4.8 million at March 31, 2010. This increase was primarily the result of the maturities of certificate of deposit investments.
Certificates of Deposit.
Certificate of deposit balances at other banks decreased by $4.3 million, or 95.5%, from $4.5 million at June 30, 2009 to $199,000 at March 31, 2010. The decrease reflected the Company previously utilizing low cost FHLB advances as a short-term strategy to invest in certificates of deposit, and the maturity of those deposits.
Securities Available for Sale.
Securities available for sale totaled $849,000 at March 31, 2010, a decrease of $716,000, or 45.7%, from $1.6 million at June 30, 2009. The decrease was primarily due to the sale of four corporate bonds out of our investment portfolio at attractive market prices.
Net Loans.
Net loans increased $6.7 million, or 10.8%, from $62.2 million at June 30, 2009 to $68.9 million at March 31, 2010. The majority of loan growth has been in commercial real estate and commercial loans, which increased $2.0 million, or 16.3%, and $3.2 million, or 125.9%, respectively. The increases were primarily due to the market demand for commercial real estate and commercial loans. Residential mortgage loans increased $841,000, or 2.4%, home equity loans increased $97,000, or 0.9%, construction loans increased $351,000, or 51.1%, and consumer installment loans increased $150,000, or 21.0%, from June 30, 2009 to March 31, 2010.
Deposits and Borrowed Funds.
Deposits increased $7.3 million, or 15.1%, from $48.1 million at June 30, 2009 to $55.4 million at March 31, 2010. Demand accounts decreased $544,000, or 14.5%. NOW checking accounts increased $274,000, or 11.7%, and certificates of deposit increased $2.2 million, or 7.7%. Money market accounts increased $4.1 million, or 39.1% and savings accounts increased $1.3 million or 41.9%. An increase in money market accounts resulted from the transfer of some maturing customer certificates of deposit and some large commercial checking account demand deposits being transferred and swept to money market accounts.
Total borrowings from the Federal Home Loan Bank of Boston (“FHLB”) decreased $2.6 million, or 12.8%, from $20.2 million at June 30, 2009 to $17.6 million at March 31, 2010.
Total Stockholders’ Equity.
Total equity increased $88,000
,
or 1.5%, during the nine months ended March 31, 2010, primarily as a result of net income of $56,000 and decrease in unrealized loss on investment securities, net of tax, of $25,000.
Comparison of Operating Results for the Three Months Ended March 31, 2010 and March 31, 2009
Net Income.
Net income increased $6,000 to $38,000 for the three months ended March 31, 2010 compared to net income of $31,000 for the three months ended March 31, 2009. The increase was primarily the result of higher net interest income and non-interest income partially offset by higher non-interest expenses.
Net Interest Income.
Net interest income increased $97,000, or 18.8%, from $518,000 for the three months ended March 31, 2009 to $615,000 for the three months ended March 31, 2010. The increase was primarily due to the increase in interest and dividend income of $24,000 and decrease in interest expense of $73,000. The interest rate spread increased from 2.76% for the three months ended March 31, 2009 to 3.26% for the three months ended March 31, 2010. Net interest margin increased from 3.01% for the three months ended March 31, 2009 to 3.41% for the three months ended March 31, 2010.
Interest and Dividend Income.
Interest income increased $24,000, or 2.4%, from $1.0 million for the three months ended March 31, 2009 to $1.02 million for the three months ended March 31, 2010. This increase was due principally to an increase in the average balance of interest-earning assets, partly offset by a decrease in yield. Interest income increased by $77,000 on loans and decreased $53,000 on investment securities and other interest-earning deposits, including Federal Home Loan Bank stock. The average yield on the loan portfolio decreased from 6.25% for the three months ended March 31, 2009 to 6.02% for the three months ended March 31, 2010 in the generally lower interest rate environment. The average yield on investments, including securities, FHLB stock and interest-bearing deposits decreased from 2.93% for the three months ended March 31, 2009 to 0.78% for the three months ended March 31, 2010.
Interest Expense.
Interest expense decreased by $73,000, or 15.1%, to $412,000 for the three months ended March 31, 2010 from $485,000 for the three months ended March 31, 2009. The decrease was due to lower cost of funds. While average deposit balances increased, the average cost of these deposits decreased from 2.70% to 1.97% in the generally lower market interest rate environment . Average borrowings from FHLB decreased with the average cost of the borrowings decreasing from 3.94% to 3.67%.
The following table presents the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). Changes due to the interaction between volume and rate were allocated pro rata between volume and rate.
|
|
|
Three Months Ended March 31, 2010
Compared to Three Months
Ended March 31, 2009
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
216,000
|
|
|
$
|
(139,000
|
)
|
|
$
|
77,000
|
|
|
Investment securities
|
|
|
(7,000
|
)
|
|
|
(3,000
|
)
|
|
|
(10,000
|
)
|
|
Federal Home Loan Bank stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Interest-earning deposits
|
|
|
(17,000
|
)
|
|
|
(26,000
|
)
|
|
|
(43,000
|
)
|
|
Total interest-earning assets
|
|
$
|
192,000
|
|
|
$
|
(168,000
|
)
|
|
$
|
24,000
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
2,000
|
|
|
$
|
1,000
|
|
|
$
|
3,000
|
|
|
NOW accounts
|
|
|
6,000
|
|
|
|
(9,000
|
)
|
|
|
(3,000
|
)
|
|
Money market accounts
|
|
|
45,000
|
|
|
|
(42,000
|
)
|
|
|
3,000
|
|
|
Certificates of deposit
|
|
|
(2,000
|
)
|
|
|
(55,000
|
)
|
|
|
(57,000
|
)
|
|
Total deposits
|
|
|
51,000
|
|
|
|
(105,000
|
)
|
|
|
(54,000
|
)
|
|
Federal Home Loan Bank of Boston advances
|
|
|
(7,000
|
)
|
|
|
(12,000
|
)
|
|
|
(19,000
|
)
|
|
Total interest-bearing liabilities
|
|
$
|
44,000
|
|
|
$
|
(117,000
|
)
|
|
$
|
(73,000
|
)
|
|
Change in net interest income
|
|
$
|
148,000
|
|
|
$
|
(51,000
|
)
|
|
$
|
97,000
|
|
Provision for Loan Losses.
The Company’s provision for loan losses was $4,000 and $7,000 for the three months ended March 31, 2010 and 2009, respectively. There were no loans charged off during the three months ended March 31, 2010 and the comparable period of 2009. The allowance for loan losses of $434,000 at March 31, 2010 represented 0.63% of total loans, compared to an allowance of $385,000, representing 0.62% of total loans at June 30, 2009 and allowance of $380,000, representing 0.62% of total loans at March 31, 2009. Our analysis of the adequacy of the allowance considers economic conditions, historical losses and management’s estimate of losses inherent in the portfolio. For further discussion of our current methodology, please refer to “
Critical Accounting Policies—Allowance for Loan Losses.”
Non-interest Income.
Total non-interest income increased $22,000, or 69.2%, to $54,000 for the three months ended March 31, 2010, from $32,000 for the three months ended March 31, 2009. This increase was the result of a combination of changes, including a decrease in net gain on sales of loans and increased fee income. Additionally, there was no charge for the three months ended March 31, 2010 resulting from fair market adjustments on interest rate floor and cap agreements; the three months ended March 31, 2009 had reflected a charge of $7,900.
Non-interest Expenses.
Non-interest expenses increased $119,000, or 24.2%, to $609,000 for the three months ended March 31, 2010, compared to $490,000 for the three months ended March 31, 2009. The increase was primarily the result of increases in FDIC insurance premiums and special assessments of $20,000, $10,000 in independent audit expense, and a $58,000 provision for foreclosed real estate. Salaries and benefits, computer charges and other operating expenses also increased commensurate with the growth of the Company.
Income Taxes.
Income tax expense decreased by $2,000, to a tax expense of $19,000 for the three months ended March 31, 2010, reflecting an effective tax rate of 33.4%, compared to a tax expense of $21,000 for the three months ended March 31, 2009, reflecting an effective tax rate of 40.4%.
Average Daily Balance Sheet
. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, and discounts and premiums that are amortized or accreted to interest income or expense. We do not accrue interest on loans in non-accrual status, however, the balance of these loans is included in the total average balance, which has the effect of lowering average loan yields.
|
|
|
|
|
|
|
|
For the Three Months Ended March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Average Outstanding Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
Average Outstanding Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
67,534
|
|
|
$
|
1,017
|
|
|
|
6.02
|
%
|
|
$
|
60,155
|
|
|
$
|
940
|
|
|
|
6.25
|
%
|
|
Investment securities(1)
|
|
|
599
|
|
|
|
6
|
|
|
|
4.19
|
%
|
|
|
1,269
|
|
|
|
17
|
|
|
|
5.25
|
%
|
|
Federal Home Loan Bank stock
|
|
|
1,252
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
1,030
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
Interest-earning deposits
|
|
|
2,749
|
|
|
|
3
|
|
|
|
0.47
|
%
|
|
|
6,286
|
|
|
|
46
|
|
|
|
2.95
|
%
|
|
Total interest-earning assets
|
|
|
72,134
|
|
|
$
|
1,026
|
|
|
|
5.69
|
%
|
|
|
68,740
|
|
|
$
|
1,003
|
|
|
|
5.83
|
%
|
|
Non-interest-earning assets
|
|
|
5,063
|
|
|
|
|
|
|
|
|
|
|
|
3,954
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
77,197
|
|
|
|
|
|
|
|
|
|
|
$
|
72,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
3,927
|
|
|
$
|
8
|
|
|
|
0.87
|
%
|
|
$
|
2,872
|
|
|
$
|
6
|
|
|
|
0.84
|
%
|
|
NOW accounts
|
|
|
2,581
|
|
|
|
5
|
|
|
|
0.76
|
%
|
|
|
2,200
|
|
|
|
8
|
|
|
|
1.52
|
%
|
|
Money market accounts
|
|
|
13,745
|
|
|
|
49
|
|
|
|
1.43
|
%
|
|
|
9,590
|
|
|
|
46
|
|
|
|
1.90
|
%
|
|
Certificates of deposit
|
|
|
29,157
|
|
|
|
181
|
|
|
|
2.48
|
%
|
|
|
29,371
|
|
|
|
238
|
|
|
|
3.24
|
%
|
|
Total interest-bearing deposits
|
|
|
49,410
|
|
|
|
243
|
|
|
|
1.97
|
%
|
|
|
44,033
|
|
|
|
298
|
|
|
|
2.70
|
%
|
|
FHLB advances
|
|
|
18,324
|
|
|
|
168
|
|
|
|
3.67
|
%
|
|
|
19,045
|
|
|
|
187
|
|
|
|
3.94
|
%
|
|
Total interest-bearing liabilities
|
|
$
|
67,734
|
|
|
$
|
411
|
|
|
|
2.43
|
%
|
|
$
|
63,078
|
|
|
$
|
485
|
|
|
|
3.08
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
3,145
|
|
|
|
|
|
|
|
|
|
|
$
|
3,520
|
|
|
|
|
|
|
|
|
|
|
Other non-interest-bearing liabilities
|
|
|
243
|
|
|
|
|
|
|
|
|
|
|
|
189
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
71,122
|
|
|
|
|
|
|
|
|
|
|
|
66,787
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
|
6,075
|
|
|
|
|
|
|
|
|
|
|
|
5,907
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and capital
|
|
$
|
77,197
|
|
|
|
|
|
|
|
|
|
|
$
|
72,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
615
|
|
|
|
|
|
|
|
|
|
|
$
|
518
|
|
|
|
|
|
|
Net interest rate spread(2)
|
|
|
|
|
|
|
|
|
|
|
3.26
|
%
|
|
|
|
|
|
|
|
|
|
|
2.76
|
%
|
|
Net interest-earning assets(3)
|
|
$
|
4,400
|
|
|
|
|
|
|
|
|
|
|
$
|
5,663
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(4)
|
|
|
|
|
|
|
|
|
|
|
3.41
|
%
|
|
|
|
|
|
|
|
|
|
|
3.01
|
%
|
|
Average of interest-earning assets to interest-bearing liabilities
|
|
|
106.50
|
%
|
|
|
|
|
|
|
|
|
|
|
108.98
|
%
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists entirely of taxable investment securities.
|
|
(2)
|
Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
|
|
(3)
|
Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
|
|
(4)
|
Net interest margin represents net interest income divided by average total interest-earning assets.
|
Comparison of Operating Results for the Nine Months Ended March 31, 2010 and March 31, 2009
Net Income.
Net income increased $35,000 to $56,000 for the nine months ended March 31, 2010 from $20,000 for the nine months ended March 31, 2009. The increase was primarily the result of higher net interest income partially offset by higher non-interest expense.
Net Interest Income.
Net interest income increased $316,000, or 21.3%, from $1.5 million for the nine months ended March 31, 2009 to $1.8 million for the nine months ended March 31, 2010. The increase was primarily the result of a $270,000 decrease in interest expense and an increase in interest and dividend income of $46,000. The interest rate spread increased from 2.75% for the nine months ended March 31, 2009 to 3.15% for the nine months ended March 31, 2010. Net Interest margin increased from 3.00% for the nine months ended March 31, 2009 to 3.32% for the nine months ended March 31, 2010.
Interest and Dividend Income.
Interest and dividend income increased $46,000, or 1.5%, from $3.0 million for the nine months ended March 31, 2009 to $3.1 million for the nine months ended March 31, 2010. This increase was due principally to an increase in the average balance of interest-earning assets, partly offset by a decrease in yield. Interest income increased by $143,000 on loans and decreased $97,000 on investment securities and other interest-earning deposits, including Federal Home Loan Bank stock. The average yield on the loan portfolio decreased from 6.47% for the nine months ended March 31, 2009 to 6.09% for the nine months ended March 31, 2010. The average yield on investments, including securities, FHLB stock and interest-bearing deposits decreased from 3.63% for the nine months ended March 31, 2009 to 1.89% for the nine months ended March 31, 2010.
Interest Expense.
Interest expense decreased by $270,000, or 17.3%, to $1.3 million for the nine months ended March 31, 2010 from $1.6 million for the nine months ended March 31, 2009. The decrease was due to lower cost of funds. While average deposit balances increased, the average cost of these deposits decreased from 3.00% for the nine months ending March 31, 2009 to 2.15% for the comparable period of 2010. Average borrowings from FHLB also increased; however, the average cost of the borrowings decreased from 4.56% for the nine months ended March 31, 2009 to 3.59% for the comparable period of 2010.
The following table presents the dollar amount of changes in interest income and interest expense for the major categories of our interest-earning assets and interest-bearing liabilities. Information is provided for each category of interest-earning assets and interest-bearing liabilities with respect to (i) changes attributable to changes in volume (i.e., changes in average balances multiplied by the prior-period average rate) and (ii) changes attributable to rate (i.e., changes in average rate multiplied by prior-period average balances). Changes due to the interaction between volume and rate were allocated pro rata between volume and rate.
|
|
|
Nine Months Ended March 31, 2010
Compared to Nine Months
Ended March 31, 2009
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
change
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
320,000
|
|
|
$
|
(177,000
|
)
|
|
$
|
143,000
|
|
|
Investment securities
|
|
|
(16,000
|
)
|
|
|
(14,000
|
)
|
|
|
(30,000
|
)
|
|
Federal Home Loan Bank stock
|
|
|
2,000
|
|
|
|
(15,000
|
)
|
|
|
(13,000
|
)
|
|
Interest-earning deposits
|
|
|
(9,000
|
)
|
|
|
(45,000
|
)
|
|
|
(54,000
|
)
|
|
Total interest-earning assets
|
|
$
|
297,000
|
|
|
$
|
(251,000
|
)
|
|
$
|
46,000
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
2,000
|
|
|
$
|
4,000
|
|
|
$
|
6,000
|
|
|
NOW accounts
|
|
|
4,000
|
|
|
|
(14,000
|
)
|
|
|
(10,000
|
)
|
|
Money market accounts
|
|
|
40,000
|
|
|
|
(74,000
|
)
|
|
|
(34,000
|
)
|
|
Certificates of deposit
|
|
|
(19,000
|
)
|
|
|
(184,000
|
)
|
|
|
(203,000
|
)
|
|
Total deposits
|
|
|
27,000
|
|
|
|
(268,000
|
)
|
|
|
(241,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank of Boston advances
|
|
|
103,000
|
|
|
|
(132,000
|
)
|
|
|
(29,000
|
)
|
|
Total interest-bearing liabilities
|
|
$
|
130,000
|
|
|
$
|
(400,000
|
)
|
|
$
|
(270,000
|
)
|
|
Change in net interest income
|
|
$
|
167,000
|
|
|
$
|
149,000
|
|
|
$
|
316,000
|
|
Provision for Loan Losses.
The Company’s provision for loan losses decreased $4,000 from $54,000 for the nine months ended March 31, 2009 to $49,000 for the nine months ended March 31, 2010. There was a $1,000 write down on a foreclosed motorcycle during the nine months ended March 31, 2010 and $19,000 during the comparable period of 2009. The allowance for loan losses of $434,000 at March 31, 2010 represented 0.63% of total loans, compared to an allowance of $385,000, representing 0.62% of total loans at June 30, 2009 and allowance of $380,000, representing 0.62% of total loans at March 31, 2009. Our analysis of the adequacy of the allowance considers economic conditions, historical losses and management’s estimate of losses inherent in the portfolio. For further discussion of our current methodology, please refer to “
Critical Accounting Policies—Allowance for Loan Losses.”
Non-interest Income.
Total non-interest income increased $16,000, or 64.1%, to $41,000 for the nine months ended March 31, 2010, compared to $25,000 for the nine months ended March 31, 2009. This increase was the result of a combination of changes. Net gain on sales of loans increased $27,000 to $59,000 for the nine months ended March 31, 2010, compared to $32,000 for the comparable period the previous year. During the nine months ended March 31, 2010, the Company recognized a net loss on sale of investment securities of $126,000, compared to zero for the nine months ended March 31, 2009. Conversely, the Company reflected no other than temporary impairment of investment securities for the current nine months, versus $60,000 for the nine month period in the previous year. Other non-interest income increased $40,000 to $108,000 for the nine months ended March 31, 2009. This increase was the result of a combination of changes, including increased fee income and the fact that there was no charge for the nine months ended March 31, 2010. The nine months ended March 31, 2009 had reflected a charge of $23,400 resulting from fair market adjustments on interest rate floor and cap agreements
Non-interest Expenses.
Non-interest expenses increased $313,000, or 22.6%, to $1.7 million for the nine months ended March 31, 2010, compared to $1.4 million for the nine months ended March 31, 2009. The increase was primarily the result of increases in FDIC insurance premiums and special assessments of $85,000, Company expenses of $8,000 in advertising, $28,000 in independent audit, $4,000 in internal audit fees, $17,000 in legal fees and $7,000 in accounting expenses, and a $68,000 expense provision for losses on foreclosed real estate. Salaries and benefits, computer charges and other operating expenses also increased commensurate with the growth of the Company.
Income Taxes.
Income tax expense decreased by $12,000, to a tax expense of $36,000 for the nine months ended March 31, 2010, reflecting an effective tax rate of 39.2%, compared to a tax expense of $48,000 for the nine months ended March 31, 2009, reflecting an effective tax rate of 70.1%. The decrease in income taxes was due to capital losses in the nine months ended March 31, 2009 for which the Company does not expect to receive a tax benefit, partly offset by pre-tax income of $91,000 for the nine months ended March 31, 2010 compared to pre-tax income of $68,000 for the comparable period of 2009.
Average Daily Balance Sheet
. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, and discounts and premiums that are amortized or accreted to interest income or expense. We do not accrue interest on loans in non-accrual status, however, the balance of these loans is included in the total average balance, which has the effect of lowering average loan yields.
|
|
|
For the Nine Months Ended March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Average Outstanding Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
Average Outstanding Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
65,775
|
|
|
$
|
3,002
|
|
|
|
6.09
|
%
|
|
$
|
58,917
|
|
|
$
|
2,860
|
|
|
|
6.47
|
%
|
|
Investment securities(1)
|
|
|
891
|
|
|
|
30
|
|
|
|
4.45
|
%
|
|
|
1,306
|
|
|
|
61
|
|
|
|
6.19
|
%
|
|
Federal Home Loan Bank stock
|
|
|
1,224
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
945
|
|
|
|
12
|
|
|
|
1.76
|
%
|
|
Interest-earning deposits
|
|
|
4,213
|
|
|
|
60
|
|
|
|
1.89
|
%
|
|
|
4,602
|
|
|
|
113
|
|
|
|
3.29
|
%
|
|
Total interest-earning assets
|
|
|
72,103
|
|
|
$
|
3,092
|
|
|
|
5.72
|
%
|
|
|
65,770
|
|
|
$
|
3,046
|
|
|
|
6.18
|
%
|
|
Non-interest-earning assets
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
4,014
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
76,603
|
|
|
|
|
|
|
|
|
|
|
$
|
69,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
3,557
|
|
|
$
|
23
|
|
|
|
0.87
|
%
|
|
$
|
3,277
|
|
|
$
|
17
|
|
|
|
0.71
|
%
|
|
NOW accounts
|
|
|
2,578
|
|
|
|
15
|
|
|
|
0.77
|
%
|
|
|
2,149
|
|
|
|
25
|
|
|
|
1.55
|
%
|
|
Money market accounts
|
|
|
12,491
|
|
|
|
140
|
|
|
|
1.49
|
%
|
|
|
9,753
|
|
|
|
173
|
|
|
|
2.36
|
%
|
|
Certificates of deposit
|
|
|
28,626
|
|
|
|
582
|
|
|
|
2.71
|
%
|
|
|
29,358
|
|
|
|
786
|
|
|
|
3.57
|
%
|
|
Total interest-bearing deposits
|
|
|
47,252
|
|
|
|
760
|
|
|
|
2.15
|
%
|
|
|
44,537
|
|
|
|
1,001
|
|
|
|
3.00
|
%
|
|
FHLB advances
|
|
|
19,829
|
|
|
|
534
|
|
|
|
3.59
|
%
|
|
|
16,452
|
|
|
|
563
|
|
|
|
4.56
|
%
|
|
Total interest-bearing liabilities
|
|
$
|
67,081
|
|
|
$
|
1,294
|
|
|
|
2.57
|
%
|
|
$
|
60,989
|
|
|
$
|
1,564
|
|
|
|
3.42
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
3,293
|
|
|
|
|
|
|
|
|
|
|
|
3,039
|
|
|
|
|
|
|
|
|
|
|
Other non-interest-bearing liabilities
|
|
|
210
|
|
|
|
|
|
|
|
|
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
70,584
|
|
|
|
|
|
|
|
|
|
|
|
64,249
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
|
6,019
|
|
|
|
|
|
|
|
|
|
|
|
5,535
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and capital
|
|
$
|
76,603
|
|
|
|
|
|
|
|
|
|
|
$
|
69,784
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
$
|
1,798
|
|
|
|
|
|
|
|
|
|
|
$
|
1,482
|
|
|
|
|
|
|
Net interest rate spread(2)
|
|
|
|
|
|
|
|
|
|
|
3.15
|
%
|
|
|
|
|
|
|
|
|
|
|
2.75
|
%
|
|
Net interest-earning assets(3)
|
|
$
|
5,022
|
|
|
|
|
|
|
|
|
|
|
$
|
4,781
|
|
|
|
|
|
|
|
|
|
|
Net interest margin(4)
|
|
|
|
|
|
|
|
|
|
|
3.32
|
%
|
|
|
|
|
|
|
|
|
|
|
3.00
|
%
|
|
Average of interest-earning assets to interest-bearing liabilities
|
|
|
107.49
|
%
|
|
|
|
|
|
|
|
|
|
|
107.84
|
%
|
|
|
|
|
|
|
|
|
|
(1)
|
Consists entirely of taxable investment securities.
|
|
(2)
|
Net interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
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(3)
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Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
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(4)
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Net interest margin represents net interest income divided by average total interest-earning assets.
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Liquidity
Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments, loan sales and maturities of investment securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage and mortgage-backed security prepayments are greatly influenced by general interest rates, economic conditions and competition.
We regularly adjust our investments in liquid assets based upon our assessment of (1) expected loan demand, (2) expected deposit flows, (3) yields available on interest-earning deposits and securities and (4) the objectives of our asset/liability management program. Excess liquid assets are invested generally in interest-earning deposits and federal funds sold. Our most liquid assets are cash and cash equivalents and interest-earning deposits. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At March 31, 2010 cash and cash equivalents totaled $4.8 million, including interest-earning deposits of $3.1 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $800,000 at March 31, 2010, and certificates of deposit at other banks totaled $199,000. At March 31, 2010, we had $17.6 million of outstanding borrowings from FHLB, and the ability to borrow an additional $6.6 million. The Company is also enrolled in the CDARS “buy” program which provides an alternative source of liquidity.
At March 31, 2010, the Company had $1.6 million in loan commitments outstanding and $4.1 million in unused lines of credit and unadvanced portions of construction loans.
Certificates of deposit due to mature within one year of March 31, 2010 totaled $20.0 million, or 36.1% of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other certificates of deposit and lines of credit. We believe, however, based on past experience, that a significant portion of our certificates of deposit will remain with us.
Our primary investing activities are the origination of loans and the purchase of securities. Our primary financing activity consists of activity in deposit accounts. However, we may from time to time utilize borrowings to fund a portion of our operations where the cost of such borrowings is more favorable than that of deposits of a similar duration. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by us and our local competitors and other factors. We generally manage the pricing of our deposits to be competitive and to increase core deposits. Occasionally, we offer promotional rates to attract certain deposit products.
Other than those discussed above, we are not aware of any known trends, events or uncertainties that will have or are reasonably likely to have a material effect on our liquidity, capital or operations, nor are we aware of any current recommendations by regulatory authorities, which if implemented, would have a material effect on liquidity, capital or operations.
Capital Resources
The Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2010, the Bank exceeded all of our regulatory capital requirements. The Bank is considered “well-capitalized” under regulatory guidelines
.
The capital from the recent stock offering increased the Bank’s liquidity and capital resources. The initial level of liquidity is being reduced as net proceeds from the stock offering are used for general corporate purposes, including the funding of loan originations and repaying a portion of our borrowings. Due to the increase in equity resulting from the capital raised in the stock offering, return on equity has been adversely affected as a result of the reorganization.
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ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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Not applicable for smaller reporting companies.
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ITEM 4T.
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CONTROLS AND PROCEDURES
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The Company’s chief executive officer and principal financial officer, after evaluating the effectiveness of the Company’s “disclosure controls and procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report (the “Evaluation Date”), have concluded that as of the Evaluation Date the Company’s disclosure controls and procedures were effective and designed to ensure that information required to be disclosed by the Company in the 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 the Securities and Exchange Commission’s rules and forms.
During the period covered by this quarterly report, there were no changes in the Company’s internal control that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II. OTHER INFORMATION
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ITEM 1.
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LEGAL PROCEEDINGS
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Neither the Company nor the Bank is involved in any pending legal proceedings other than routine legal proceedings occurring in the ordinary course of business. Such routine legal proceedings, in the aggregate, involve amounts believed by management to be immaterial to the consolidated financial condition and results of operations of the Company.
Not applicable for smaller reporting companies.
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ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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The Company did not repurchase any shares during the quarter ended March 31, 2010.
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ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES
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None.
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ITEM 4.
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OTHER INFORMATION
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(b)
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There were no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors during the period covered by the Form 10Q.
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Exhibit
Number
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Exhibit Description
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2.1
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Plan of Reorganization from Mutual Savings Bank to Mutual Holding Company and Stock Issuance Plan **
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3.1
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Charter of Auburn Bancorp, Inc. **
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3.2
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Bylaws of Auburn Bancorp, Inc. **
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4.1
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Stock Certificate of Auburn Bancorp, Inc. **
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10.1
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Form of Auburn Savings Bank Employee Stock Ownership Plan and Trust **
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10.2
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Form of ESOP Loan Commitment Letter and ESOP Loan Documents **
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10.3
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Form of Employment Agreement between Auburn Savings Bank and
Allen T. Sterling **
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31.1
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Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the Company
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31.2
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Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of the Company
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32.1
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Section 1350 Certification of Chief Executive Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Section 1350 Certification of Principal Financial Officer of the Company in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
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**
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Incorporated by reference into this document from the Exhibits filed with the Securities and Exchange Commission on the Company’s Registration Statement on Form S-1, as amended, initially filed on March 14, 2008 and declared effective on May 13, 2008 (File Number 333-149723).
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SIGNATURES
Pursuant to the requirements 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.
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Auburn Bancorp, Inc.
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(Registrant)
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Date: May 14, 2010
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By:
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/s/ Allen T. Sterling
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Allen T. Sterling
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President and Chief Executive Officer
(Principal Executive Officer)
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Date: May 14, 2010
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By:
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/s/ Rachel A. Haines
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Rachel A. Haines
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Senior Vice President and Treasurer
(Principal Accounting and Financial Officer)
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30
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