AUBURN
BANCORP, INC. AND SUBSIDIARY
QUARTERLY
REPORT ON FORM 10-Q
December
31, 2008
TABLE
OF CONTENTS
|
|
|
Page
|
|
PART I.
FINANCIAL INFORMATION (Unaudited)
|
|
Item
1.
|
Financial
Statements
|
|
|
|
|
|
|
|
Consolidated
Balance Sheets as of December 31, 2008 (Unaudited) and June 30,
2008
|
3
|
|
|
|
|
|
|
Consolidated
Statements of Operations (Unaudited) for the Three Months Ended December
31, 2008 and 2007
|
4
|
|
|
|
|
|
|
Consolidated
Statements of Operations (Unaudited) for the Six Months Ended December 31,
2008 and 2007
|
5
|
|
|
|
|
|
|
Consolidated
Statements of Changes in Stockholders’ Equity (Unaudited) for the Six
Months Ended December 31, 2008 and 2007
|
6
|
|
|
|
|
|
|
Consolidated
Statements of Cash Flows (Unaudited) for the Six Months Ended December 31,
2008 and 2007
|
7
|
|
|
|
|
|
|
Notes
to Consolidated Financial Statements (Unaudited)
|
8
|
|
|
|
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
12
|
|
|
|
|
|
Item
3.
|
quantitative
and qualitative disclosures about market risk
|
21
|
|
|
|
|
|
Item
4.
|
Controls
and Procedures
|
21
|
|
PART
II. OTHER INFORMATION
|
|
Item
1.
|
Legal
Proceedings
|
21
|
|
|
|
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
21
|
|
|
|
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
21
|
|
|
|
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
22
|
|
|
|
|
|
Item
5.
|
Other
Information
|
22
|
|
|
|
|
|
Item
6.
|
Exhibits
|
23
|
|
|
|
|
|
|
Signatures
|
24
|
PART I.
FINANCIAL INFORMATION (Unaudited)
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
AUBURN
BANCORP, INC. AND SUBSIDIARY
Consolidated
Balance Sheets
December
31, 2008 (Unaudited) and June 30, 2008
ASSETS
|
|
|
December
31,
|
|
|
June
30,
|
|
|
|
|
2008
|
|
|
2008
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Cash
and due from banks
|
|
$
|
1,047,342
|
|
|
$
|
1,782,970
|
|
|
Interest-earning
deposits
|
|
|
242,819
|
|
|
|
229,517
|
|
|
Total
cash and cash equivalents
|
|
|
1,290,161
|
|
|
|
2,012,487
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates
of deposit
|
|
|
6,017,854
|
|
|
|
2,257,504
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available for sale, at fair value
|
|
|
1,301,803
|
|
|
|
1,433,732
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
Home Loan Bank stock, at cost
|
|
|
954,200
|
|
|
|
901,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
held for sale
|
|
|
230,274
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
59,957,198
|
|
|
|
57,021,649
|
|
|
Less
allowance for loan losses
|
|
|
(373,418
|
)
|
|
|
(345,550
|
)
|
|
Net
loans
|
|
|
59,583,780
|
|
|
|
56,676,099
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
1,950,604
|
|
|
|
1,945,233
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed
real estate
|
|
|
309,240
|
|
|
|
87,383
|
|
|
Accrued
interest receivable:
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
27,048
|
|
|
|
23,725
|
|
|
Mortgage-backed
securities
|
|
|
1,756
|
|
|
|
2,034
|
|
|
Loans
|
|
|
237,618
|
|
|
|
249,547
|
|
|
Prepaid
expenses and other assets
|
|
|
176,257
|
|
|
|
710,448
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
72,080,595
|
|
|
$
|
66,299,292
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
Liabilities:
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
48,429,414
|
|
|
$
|
46,073,155
|
|
|
Federal
Home Loan Bank advances
|
|
|
17,650,000
|
|
|
|
15,350,000
|
|
|
Accrued
interest and other liabilities
|
|
|
126,067
|
|
|
|
269,752
|
|
|
Deferred
income taxes
|
|
|
74,844
|
|
|
|
88,786
|
|
|
Total
liabilities
|
|
|
66,280,325
|
|
|
|
61,781,693
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
Preferred
stock, 1,000,000 shares authorized, no shares issued or
outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common
stock, $.01 par value per share, 10,000,000 shares authorized, 503,284
shares issued and outstanding at December 31, 2008, none at June 30,
2008
|
|
|
5,033
|
|
|
|
—
|
|
|
Additional
paid-in-capital
|
|
|
1,471,203
|
|
|
|
—
|
|
|
Retained
earnings
|
|
|
4,552,800
|
|
|
|
4,566,433
|
|
|
Accumulated
other comprehensive loss
|
|
|
(60,469
|
)
|
|
|
(48,834
|
)
|
|
Unearned
compensation (ESOP shares)
|
|
|
(168,297
|
)
|
|
|
—
|
|
|
Total
stockholders’ equity
|
|
|
5,800,270
|
|
|
|
4,517,599
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
72,080,595
|
|
|
$
|
66,299,292
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
AUBURN
BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Operations
Three
Months Ended December 31, 2008 and 2007 (Unaudited)
|
|
|
Three Months Ended December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
Interest
on loans
|
|
$
|
944,052
|
|
|
$
|
934,431
|
|
|
Interest
on investments and other interest-earning deposits
|
|
|
62,714
|
|
|
|
66,317
|
|
|
Dividends
on Federal Home Loan Bank stock
|
|
|
5,663
|
|
|
|
14,763
|
|
|
Total
interest and dividend income
|
|
|
1,012,429
|
|
|
|
1,015,511
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Interest
on deposits and escrow accounts
|
|
|
353,983
|
|
|
|
431,111
|
|
|
Interest
on Federal Home Loan Bank advances
|
|
|
184,763
|
|
|
|
179,682
|
|
|
Total
interest expense
|
|
|
538,746
|
|
|
|
610,793
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
473,683
|
|
|
|
404,718
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for (recovery of) loan losses
|
|
|
28,029
|
|
|
|
(4,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for (recovery of) loan
losses
|
|
|
445,654
|
|
|
|
409,230
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
Net
gain on sales of loans
|
|
|
2,389
|
|
|
|
4,681
|
|
|
Other
non-interest income
|
|
|
29,123
|
|
|
|
36,052
|
|
|
Total
non-interest income
|
|
|
31,512
|
|
|
|
40,733
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expenses:
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
232,806
|
|
|
|
219,666
|
|
|
Occupancy
expense
|
|
|
31,472
|
|
|
|
25,364
|
|
|
Depreciation
|
|
|
25,882
|
|
|
|
25,110
|
|
|
Federal
insurance premiums
|
|
|
7,110
|
|
|
|
1,286
|
|
|
Computer
charges
|
|
|
38,071
|
|
|
|
36,017
|
|
|
Advertising
expense
|
|
|
11,363
|
|
|
|
12,170
|
|
|
Consulting
expense
|
|
|
10,822
|
|
|
|
9,909
|
|
|
Other
operating expenses
|
|
|
142,169
|
|
|
|
52,183
|
|
|
Total
non-interest expenses
|
|
|
499,695
|
|
|
|
381,705
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
(22,529
|
)
|
|
|
68,258
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense (benefit)
|
|
|
(4,600
|
)
|
|
|
20,300
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(17,929
|
)
|
|
$
|
47,958
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share
|
|
$
|
(.04
|
)
|
|
|
N/A
|
|
The accompanying notes are
an integral part of these unaudited consolidated financial
statements.
AUBURN
BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Operations
Six
Months Ended December 31, 2008 and 2007 (Unaudited)
|
|
|
Six Months Ended December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
Interest
on loans
|
|
$
|
1,919,975
|
|
|
$
|
1,860,600
|
|
|
Interest
on investments and other interest-earning deposits
|
|
|
111,206
|
|
|
|
132,829
|
|
|
Dividends
on Federal Home Loan Bank stock
|
|
|
12,496
|
|
|
|
29,366
|
|
|
Total
interest and dividend income
|
|
|
2,043,677
|
|
|
|
2,022,795
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Interest
on deposits and escrow accounts
|
|
|
703,947
|
|
|
|
867,358
|
|
|
Interest
on Federal Home Loan Bank advances
|
|
|
375,800
|
|
|
|
355,248
|
|
|
Total
interest expense
|
|
|
1,079,747
|
|
|
|
1,222,606
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
963,930
|
|
|
|
800,189
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for (recovery of) loan losses
|
|
|
46,603
|
|
|
|
(7,024
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for (recovery of) loan
losses
|
|
|
917,327
|
|
|
|
807,213
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
Net
gain on sales of loans
|
|
|
4,844
|
|
|
|
9,325
|
|
|
Other
non-interest income
|
|
|
49,070
|
|
|
|
67,644
|
|
|
Total
non-interest income
|
|
|
53,914
|
|
|
|
76,969
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expenses:
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
445,783
|
|
|
|
429,715
|
|
|
Occupancy
expense
|
|
|
60,118
|
|
|
|
52,066
|
|
|
Depreciation
|
|
|
50,913
|
|
|
|
51,931
|
|
|
Federal
insurance premiums
|
|
|
10,497
|
|
|
|
2,559
|
|
|
Computer
charges
|
|
|
79,480
|
|
|
|
73,319
|
|
|
Advertising
expense
|
|
|
20,382
|
|
|
|
23,225
|
|
|
Consulting
expense
|
|
|
20,472
|
|
|
|
18,975
|
|
|
Impairment
write-down on investment securities available for sale
|
|
|
60,270
|
|
|
|
—
|
|
|
Other
operating expenses
|
|
|
207,591
|
|
|
|
112,899
|
|
|
Total
non-interest expenses
|
|
|
955,506
|
|
|
|
764,689
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
15,735
|
|
|
|
119,493
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
26,600
|
|
|
|
35,700
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(10,865
|
)
|
|
$
|
83,793
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) per common share
|
|
$
|
(.03
|
)
|
|
|
N/A
|
|
The accompanying
notes are an integral part of these unaudited consolidated financial
statements.
AUBURN
BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Changes in Stockholders’ Equity
Six
Months Ended December 31, 2008 and 2007 (Unaudited)
|
|
|
Common
Stock
|
|
|
Additional
Paid-in-Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Unearned
Compensation (ESOP
Shares)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2007
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,362,193
|
|
|
$
|
(12,392
|
)
|
|
$
|
-
|
|
|
$
|
4,349,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
-
|
|
|
|
-
|
|
|
|
83,793
|
|
|
|
-
|
|
|
|
-
|
|
|
|
83,793
|
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding loss on securities, net of taxes of $(3,034)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,890
|
)
|
|
|
-
|
|
|
|
(5,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
-
|
|
|
|
-
|
|
|
|
83,793
|
|
|
|
(5,890
|
)
|
|
|
-
|
|
|
|
77,903
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of adoption of SFAS No. 156, net of tax effect of $17,812
|
|
|
-
|
|
|
|
-
|
|
|
|
53,441
|
|
|
|
-
|
|
|
|
-
|
|
|
|
53,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2007
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,499,427
|
|
|
|
(18,282
|
)
|
|
|
-
|
|
|
$
|
4,481,145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,566,433
|
|
|
$
|
(48,834
|
)
|
|
$
|
-
|
|
|
$
|
4,517,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,865
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,865
|
)
|
|
Other
comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding loss on securities, net of taxes of $(26,485)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(51,413
|
)
|
|
|
-
|
|
|
|
(51,413
|
)
|
|
Less
reclassification adjustment for items included in net income, net of taxes
of $20,492
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
39,778
|
|
|
|
-
|
|
|
|
39,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive loss
|
|
|
-
|
|
|
|
-
|
|
|
|
(10,865
|
)
|
|
|
(11,635
|
)
|
|
|
-
|
|
|
|
(22,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 (432
shares)
|
|
|
-
|
|
|
|
192
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,323
|
|
|
|
4,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2008
|
|
$
|
5,033
|
|
|
$
|
1,471,203
|
|
|
$
|
4,552,800
|
|
|
$
|
(60,469
|
)
|
|
$
|
(168,297
|
)
|
|
$
|
5,800,270
|
|
The accompanying notes are an integral part of these unaudited
consolidated financial statements.
AUBURN
BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Cash Flows
Six
Months Ended December 31, 2008 and 2007 (Unaudited)
|
|
|
Six
Months Ended
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(10,865
|
)
|
|
$
|
83,793
|
|
|
Adjustments
to reconcile net income (loss) to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
50,913
|
|
|
|
51,931
|
|
|
Net
accretion of discounts on investment securities available for
sale
|
|
|
(8,139
|
)
|
|
|
(76
|
)
|
|
Provision
for (recovery of) loan losses
|
|
|
46,603
|
|
|
|
(7,024
|
)
|
|
Loss
on disposal of property and equipment
|
|
|
615
|
|
|
|
-
|
|
|
Deferred
income tax benefit
|
|
|
(7,949
|
)
|
|
|
(61,706
|
)
|
|
Other-than-temporary
impairment on investment securities available for sale
|
|
|
60,270
|
|
|
|
-
|
|
|
Gain
on sales of loans
|
|
|
(4,844
|
)
|
|
|
(9,325
|
)
|
|
ESOP
compensation expense
|
|
|
4,515
|
|
|
|
-
|
|
|
Increase
in loans held for sale
|
|
|
(230,274
|
)
|
|
|
-
|
|
|
Net
decrease (increase) in prepaid expenses and other assets
|
|
|
564,685
|
|
|
|
(167,201
|
)
|
|
Net
decrease in accrued interest receivable
|
|
|
8,884
|
|
|
|
2,207
|
|
|
Net
increase (decrease) in accrued interest payable and other
liabilities
|
|
|
(143,685
|
)
|
|
|
125,299
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
330,729
|
|
|
|
17,898
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of investment securities available for sale
|
|
|
(250,000
|
)
|
|
|
(576,519
|
)
|
|
Proceeds
from maturities and principal paydowns on investment securities available
for sale
|
|
|
312,170
|
|
|
|
1,225,574
|
|
|
Net
change in certificates of deposit
|
|
|
(3,760,350
|
)
|
|
|
(1,371,150
|
)
|
|
Net
increase in loans to customers
|
|
|
(3,201,791
|
)
|
|
|
(1,693,170
|
)
|
|
Purchase
of Federal Home Loan Bank stock
|
|
|
(53,100
|
)
|
|
|
-
|
|
|
Capital
expenditures
|
|
|
(56,899
|
)
|
|
|
(19,611
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash used in investing activities
|
|
|
(7,009,970
|
)
|
|
|
(2,434,876
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Advances
from Federal Home Loan Bank
|
|
|
500,000
|
|
|
|
1,521,000
|
|
|
Repayment
of advances from Federal Home Loan Bank
|
|
|
(1,000,000
|
)
|
|
|
(771,000
|
)
|
|
Net
change in short term borrowings
|
|
|
2,800,000
|
|
|
|
-
|
|
|
Net
increase in deposits
|
|
|
2,356,259
|
|
|
|
111,840
|
|
|
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
|
|
|
5,956,915
|
|
|
|
861,840
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(722,326
|
)
|
|
|
(1,555,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
2,012,487
|
|
|
|
3,413,330
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
1,290,161
|
|
|
$
|
1,858,192
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary
cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,078,939
|
|
|
$
|
1,227,932
|
|
|
Taxes
|
|
$
|
97,240
|
|
|
$
|
10,000
|
|
|
Transfer
of loans to foreclosed real estate
|
|
$
|
221,857
|
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
AUBURN
BANCORP, INC. AND SUBSIDIARY
Notes
to Financial Statements
|
1.
|
Basis of
Presentation
|
|
|
|
|
|
The
financial information included herein presents the financial condition and
results of operations for Auburn Bancorp, Inc. and its wholly-owned
subsidiary, Auburn Savings Bank, FSB as of December 30, 2008, and for the
interim periods ended December 31, 2008 and 2007. 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 six months
ended December 30, 2008 and 2007 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, 2008 included in the Company’s
annual report on Form 10-K (File No. 000-53370).
|
|
|
|
|
|
Since
the reorganization discussed in Note 2 was effective on August 15, 2008,
the June 30, 2008 financial statements do not include the holding company,
Auburn Bancorp, Inc.
|
|
|
|
|
|
In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, 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, the Board of Directors of Auburn Savings Bank (the
“Bank”) adopted a Plan of Reorganization From a Mutual Savings Bank to a
Mutual Holding Company and Stock Issuance Plan (the “Plan”) under which
Auburn Savings Bank reorganized into a mutual holding company structure.
As part of the reorganization, Auburn Savings 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 pursuant to the laws of the United States of
America and the rules and regulations of the Office of Thrift Supervision
(“OTS”). 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%. Shares of the Company’s
common stock were offered on a first priority basis in a subscription
offering to eligible account holders, tax-qualified employee plans, and
other members. Shares remaining after the conclusion of the subscription
offering were offered for sale in a community offering. 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 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 Auburn Savings 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
September 2006, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 157,
Fair Value
Measurements
. This Statement defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted
accounting principles, and expands disclosures about fair value
measurements. This Statement is effective for the Company on July 1, 2008,
with earlier adoption permitted for fiscal year 2008, and is not expected
to have a material impact on the Company’s financial statements. In
February 2008, FASB issued FASB Staff Position (FSP) FAS No. 157-2 which
delays by one year the effective date of SFAS No. 157 for certain types of
nonfinancial assets and nonfinancial liabilities. In October
2008, FASB issued FSP FAS No. 157-3,
Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active
. FSP
FAS No. 157-3 clarifies the application of SFAS No. 157 in a market that
is not active and provides an example to illustrate key considerations in
determining the fair value of a financial asset when the market for that
financial asset is not active.
|
|
|
|
|
|
On
February 15, 2007, FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities
, which provides
companies with an option to report selected financial assets and
liabilities at fair value. SFAS No. 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between
companies that choose different measurement attributes for similar types
of assets and liabilities. This Statement is effective for the Company’s
2009 fiscal year, with early adoption permitted for the Company’s 2008
fiscal year, provided that the Company also adopts SFAS No. 157 for fiscal
year 2008. Management is currently evaluating the potential impacts of
adopting this Statement on the Company’s financial
statements.
|
|
|
|
|
|
In
March 2008, FASB issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities - an amendment of SFAS No.
133
. SFAS No. 161 is intended to enhance the current
disclosure framework in SFAS No. 133. This Statement has the same scope as
SFAS No. 133. SFAS No. 133 requires that objectives for using derivative
instruments be disclosed in terms of underlying risk and accounting
designation. The disclosures required by SFAS No. 161 better convey the
purpose of derivative use in terms of the risk that the entity is
intending to manage, the fair values of the derivative instruments and
their gains and losses in a tabular format, as well as information about
credit-risk-related contingent features. This Statement is effective for
financial statements issued for fiscal years and interim periods beginning
after November 15, 2008. Management does not expect
implementation of SFAS No. 161 to have a material impact on the financial
statements of the Company.
|
|
|
|
|
4.
|
Income (Loss) Per
Share
|
|
|
|
|
|
Basic
income (loss) per share is determined by dividing net income (loss)
available to common stockholders 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 is not
applicable for the three or six months ended December 31, 2007, as the
Company did not become a public entity until August 15,
2008.
|
|
|
Net
income (loss) per common share for the three and six months ended December
31, 2008 is based on the following:
|
|
|
|
Three Months
Ended
December
31, 2008
|
|
|
Six Months
Ended
December
31, 2008
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(17,929
|
)
|
|
$
|
(10,865
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average common shares outstanding
|
|
|
503,284
|
|
|
|
380,198
|
|
|
Less:
Average unallocated ESOP shares
|
|
|
(17,083
|
)
|
|
|
(12,934
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
weighted average common shares outstanding
|
|
|
486,201
|
|
|
|
367,264
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per common share
|
|
$
|
(0.04
|
)
|
|
$
|
(0.03
|
)
|
|
5.
|
Comprehensive Income
or Loss
|
|
|
|
|
|
Accounting
principles generally accepted in the United States of America require 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 other comprehensive income (loss) and related tax effects
for the three and six months ended December 31, 2008 and 2007 are as
follows:
|
|
|
|
Three
months ended
December
31,
|
|
|
Six
months ended
December
31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(17,929
|
)
|
|
$
|
47,958
|
|
|
$
|
(10,865
|
)
|
|
$
|
83,793
|
|
|
Other
comprehensive loss, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding losses on securities available for sale arising during the
period
|
|
|
(7,521
|
)
|
|
|
(15,780
|
)
|
|
|
(77,898
|
)
|
|
|
(8,924
|
)
|
|
Reclassification
adjustment for items included in net income (loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
60,270
|
|
|
|
-
|
|
|
Tax
effect
|
|
|
2,557
|
|
|
|
5,365
|
|
|
|
5,993
|
|
|
|
3,034
|
|
|
Other
comprehensive loss, net of tax
|
|
|
(4,964
|
)
|
|
|
(10,415
|
)
|
|
|
(11,635
|
)
|
|
|
(5,890
|
)
|
|
Total
comprehensive income (loss)
|
|
$
|
(22,893
|
)
|
|
$
|
37,543
|
|
|
$
|
(22,500
|
)
|
|
$
|
77,903
|
|
|
6.
|
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 and six months ended December 31, 2008
totaled approximately $2,000 and $5,000, respectively. The fair
value of the unallocated shares as of December 31, 2008 was
$172,508.
|
|
|
|
|
7.
|
Impairment Write-Down
on Investment Securities
|
|
|
|
|
|
In
accordance with SFAS No. 115, “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.
|
|
|
|
|
8.
|
Fair Value
Measurement
|
|
|
|
|
|
SFAS
No. 157 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.
SFAS No. 157 also 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 at December 31, 2008, Using
|
|
|
|
December
31,
2008
|
|
Quoted
Prices
In
Active
Markets
for
Identical
Assets
(Level
1)
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available for sale
|
|
$
|
1,301,803
|
|
|
$
|
—
|
|
|
$
|
1,301,803
|
|
|
$
|
—
|
|
|
|
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 does not have any assets and liabilities measured at fair value on
a non-recurring basis at December 31,
2008.
|
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.
Short-term interest rates (which influence the rates we pay on deposits) have
until recently increased, while longer-term interest rates (which influence the
rates we earn on loans) have not. The narrowing of the spread between the
interest we earn on loans and investments and the interest we pay on deposits
would negatively 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 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.
As
a result of the mutual holding company reorganization and minority stock
offering, we will incur additional non-interest expenses as a result of
operating as a public company. These additional expenses will consist primarily
of legal and accounting fees and expenses of stockholder communications and
meetings.
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 recent Annual Report on Form 10-K. 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 uncollectibility 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 collectibility 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. At December 31, 2008, we had no impaired loans as
defined by Statement of Financial Accounting Standards No. 114 and, therefore,
there is no established valuation allowance for impaired loans.
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 adequacy of the current 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 investment securities
available for sale below their cost that are deemed to be other-than-temporary
are reflected in earnings as realized losses. In estimating other-than-temporary
impairment losses, management considers (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) our intent and ability to retain our
investment in the issuer for a period of time sufficient to allow for any
anticipated recovery in fair value. 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 December 31, 2008 and June 30, 2008
Total
Assets.
Total assets increased by $5.8 million, or 8.7%, from $66.3
million at June 30, 2008 to $72.1 million at December 31, 2008. This increase
was largely the result of an increase of $3.1 million in the loan portfolio as
well as an increase of $3.8 million in certificate of deposit investments,
offset by a reduction of cash.
Cash
and Cash Equivalents.
Cash and correspondent bank balances decreased by
$722,000, or 35.9%, from $2.0 million at June 30, 2008 to $1.3 million at
December 31, 2008. This decrease was primarily the result of the
increase in loan originations exceeding the increase in
deposits.
Certificates
of Deposit.
Certificate
of deposit balances at other banks increased by $3.8 million, or 166.6%, from
$2.3 million at June 30, 2008 to $6.0 million at December 31, 2008.
Certificates with a maximum maturity of 12 months were purchased using low
cost FHLB advances with a maturity of less than 12 months. The
Company anticipates this strategy should enhance the Company’s net interest
margin, provided that it is able to achieve a higher return on these funds that
the cost of borrowing the funds from the FHLB.
Securities
Available for
Sale
.
Securities available for sale totaled $1.3 million at December 31, 2008, a
decrease of $132,000, or 9.2%, from $1.4 million at June 30, 2008. This decrease
was primarily the result of an impairment write-down of the remaining book value
of Federal National Mortgage Association (“FNMA”) and Federal Home Loan Mortgage
Corporation (“FHLMC”) common stock which totaled $60,000 and regular principal
payments on investments, offset by the purchase of additional
investments.
Net
Loans.
Net loans, including loans held for sale, increased
$3.1 million, or 5.5%, from $56.7 million at June 30, 2008 to $59.8 million at
December 31, 2008. The majority of growth has been in residential mortgage
loans, which increased $1.8 million, or 5.6%. The increase is primarily due to
increased interest from consumers in lower rate fixed and adjustable rate
mortgage loan products on owner occupied 1-4 family
property. Commercial real estate loans increased $645,000, or 6.3%,
home equity loans increased $242,000, or 2.2%, commercial loans increased
$104,000, or 5.0%, and consumer installment loans increased $107,000, or
20.6%.
Deposits
and Borrowed Funds.
Deposits increased $2.4 million, or 5.1%, from $46.1
million at June 30, 2008 to $48.4 million at December 31, 2008. Demand accounts
increased $646,000, or 21.4%. The increase in demand accounts was
mainly due to balances in new IOLTA checking accounts offset by fluctuations in
existing checking accounts. NOW checking accounts increased $24,000,
or 1.1%, and certificates of deposit increased $2.2 million, or
7.6%. The increase in certificates of deposit was due primarily to
promotional rates offered on 6 month and 1-year certificates during the months
of September and October. Money market accounts decreased $153,000,
or 1.6% and savings accounts decreased $320,000 or 10.4%.
Total
borrowings from the Federal Home Loan Bank of Boston (“FHLB”) increased $2.3
million, or 15.0%, from $15.4 million at June 30, 2008 to $17.7 million at
December 31, 2008. The increase was primarily due to a balance sheet
management strategy of borrowing short term advances at low rates to purchase
certificate of deposit investments at a higher rate.
Total
Stockholders’ Equity.
Total equity increased $1.3 million
,
or 28.4%, to $5.8 million at December 31, 2008, from $4.5 million at June 30,
2008, primarily as a result of the $1.5 million net capital infusion from the
stock offering, offset by a $173,000 loan to the ESOP and $25,000 to capitalize
the MHC.
Comparison
of Operating Results for the Three Months Ended December 31, 2008 and December
31, 2007
Net
Income (Loss).
Net income decreased $66,000, or 137.4%, to a net loss of
$18,000 for the three months ended December 31, 2008 compared to net income of
$48,000 for the three months ended December 31, 2007. The decrease was primarily
the result of additional expenses of the Company as a result of becoming
public.
Net
Interest Income.
Net interest income increased $69,000, or 17.0%, from
$405,000 for the three months ended December 31, 2007 to $474,000 for the three
months ended December 31, 2008.
Interest
and Dividend Income.
Interest income decreased $3,000, or 0.3%, from the
three months ended December 31, 2007 to $1.0 million for the three months
ended December 31, 2008. This decrease was due principally to a decrease
in the average yield on interest-earning assets. Interest income on loans
increased by $10,000 due to the increase in volume, but was more
than offset by a decrease in interest income on securities and
interest-earning deposits of $4,000 and a decrease in dividends on FHLB stock of
$9,000. The average yield on the loan portfolio decreased from 6.98% for the
three months ended December 31, 2007 to 6.40% for the three months ended
December 31, 2008. The average yield on investments, including securities, FHLB
stock and interest-bearing deposits decreased from 5.08% for the three months
ended December 31, 2007 to 4.08% for the three months ended December 31,
2008.
Interest
Expense.
Interest expense decreased by $72,000, or 11.8%, to $539,000 for
the three months ended December 31, 2008 from $611,000 for the comparable period
of 2007. The decrease was due to lower cost of funds. While average
deposit balances increased, the average cost of these deposits decreased from
4.03% to 3.13%. Average borrowings from FHLB also increased, however, the
average cost of the borrowings decreased from 5.48% to
4.83%.
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 December 31, 2008
Compared
to Three Months
Ended
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
change
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
52,000
|
|
|
$
|
(42,000
|
)
|
|
$
|
10,000
|
|
|
Investment
securities
|
|
|
(5,000
|
)
|
|
|
(1,000
|
)
|
|
|
(6,000
|
)
|
|
Interest-earning
deposits
|
|
|
12,000
|
|
|
|
(19,000
|
)
|
|
|
(7,000
|
)
|
|
Total
interest-earning assets
|
|
$
|
59,000
|
|
|
$
|
(62,000
|
)
|
|
$
|
(3,000
|
)
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
|
$
|
1,000
|
|
|
$
|
(2,000
|
)
|
|
$
|
(1,000
|
)
|
|
NOW
accounts
|
|
|
1,000
|
|
|
|
5,000
|
|
|
|
6,000
|
|
|
Money
market accounts
|
|
|
10,000
|
|
|
|
(19,000
|
)
|
|
|
(9,000
|
)
|
|
Certificates
of deposit
|
|
|
11,000
|
|
|
|
(84,000
|
)
|
|
|
(73,000
|
)
|
|
Total
deposits
|
|
|
23,000
|
|
|
|
(100,000
|
)
|
|
|
(77,000
|
)
|
|
Federal
Home Loan Bank of Boston advances
|
|
|
18,000
|
|
|
|
(13,000
|
)
|
|
|
5,000
|
|
|
Total
interest-bearing liabilities
|
|
$
|
41,000
|
|
|
$
|
(113,000
|
)
|
|
$
|
(72,000
|
)
|
|
Change
in net interest income
|
|
$
|
18,000
|
|
|
$
|
51,000
|
|
|
$
|
69,000
|
|
Provision
for Loan Losses.
Our provision for loan losses increased from a negative
provision of $5,000 for the three months ended December 31, 2007 to a provision
of $28,000 for the three months ended December 31, 2008. Management deemed the
increase necessary due to the increase in loan balances, as well as an increase
in delinquencies. There were two loans totaling $19,000 charged off during the
three months ended December 31, 2008 and none during the comparable period of
2007. The allowance for loan losses of $373,000 at December 31, 2008 represented
0.62% of total loans, compared to an allowance of $346,000, representing 0.61%
of total loans at June 30, 2008. 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 decreased $9,000, or 22.6%, to $32,000
for the three months ended December 31, 2008, compared to $41,000 for the three
months ended December 31, 2007. This decrease was primarily the result of a
$6,000 negative change in the fair value adjustment on the Bank’s
interest rate cap and floor agreements and because the Bank no sold loan agent
fees this quarter.
Non-interest
Expense.
Non-interest expense increased $118,000, or 30.9%, to $500,000
for the three months ended December 31, 2008, compared to $382,000 for the three
months ended December 31, 2007. The increase was primarily the result of
increases in Company expenses of $35,000 in legal fees, $21,000 in accounting
fees, and $10,000 for stockholder communication and meetings due to becoming
public. 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 $25,000 to a tax benefit of $5,000
for the three months ended December 31, 2008, reflecting an effective tax rate
of 20.4%, compared to a $20,000 expense for the three months ended December 31,
2007, an effective tax rate of 29.7%. The decrease in income taxes are due to
the fact that there was a pre-tax loss of $23,000 for the three months ended
December 31, 2008 compared to pre-tax income of $68,000 for the comparable
period of 2007.
Comparison
of Operating Results for the Six Months Ended December 31, 2008 and December 31,
2007
Net
Income (Loss).
Net income decreased $95,000, or 113.0%, to a net loss of
$11,000 for the six months ended December 31, 2008 compared to net income of
$84,000 for the six months ended December 31, 2007. The decrease was primarily
due to additional Company expenses as a result of becoming public, partially
offset by an increase in net interest income. The Company also recognized an
impairment write-down of $60,000 on investments in FNMA and FHLMC common stock
during the six months ended December 31, 2008. Without the impairment
write-down, net income would have been $49,000 for the
period.
Net
Interest Income.
Net interest income increased $164,000, or 20.5%, from
$800,000 for the six months ended December 31, 2007 to $964,000 for the six
months ended December 31, 2008.
Interest
and Dividend Income.
Interest income increased $21,000, or 1.0%, to $2.04
million for the six months ended December 31, 2008 from $2.02 million for the
comparable period of 2007. This increase was due principally to an increased
volume of loans, offset by a decrease in the average yield on interest-earning
assets. Interest income on loans increased by $59,000, which was offset by a
decrease in interest income on securities and interest-bearing deposits of
$22,000 and a decrease in dividends on FHLB stock of $17,000. The average yield
on the loan portfolio decreased from 6.99% for the six months ended December 31,
2007 to 6.59% for the six months ended December 31, 2008. The average yield on
investment securities, including FHLB stock decreased from 5.40% for the six
months ended December 31, 2007 to 5.07% for the six months ended December
31, 2008. The average yield on interest-earning deposits decreased from 4.80%
for the six months ended December 31, 2007 to 3.56% for the six months ended
December 31, 2008.
Interest
Expense.
Interest expense decreased by $143,000, or 11.7%, to $1.1
million for the six months ended December 31, 2008 from $1.2 million for the
comparable period of 2007. The decrease was due to lower cost of
funds. While average interest-bearing deposit balances increased, the
average cost of these deposits decreased from 4.06% to 3.14%. Average borrowings
from FHLB also increased, however, the average cost of the borrowings decreased
from 5.48% during the six months ended December 31, 2007 to 4.95% for
the comparable period of 2008
.
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.
|
|
|
Six
Months Ended December 31, 2008
Compared
to Six Months
Ended
December 31, 2007
|
|
|
|
|
Volume
|
|
|
Rate
|
|
|
Net
change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
151,000
|
|
|
$
|
(92,000
|
)
|
|
$
|
59,000
|
|
|
Investment
securities
|
|
|
(16,000
|
)
|
|
|
(4,000
|
)
|
|
|
(20,000
|
)
|
|
Interest-earning
deposits
|
|
|
6,000
|
|
|
|
(24,000
|
)
|
|
|
(18,000
|
)
|
|
Total
interest-earning assets
|
|
$
|
141,000
|
|
|
$
|
(120,000
|
)
|
|
$
|
21,000
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
|
$
|
2,000
|
|
|
$
|
(1,000
|
)
|
|
$
|
1,000
|
|
|
NOW
accounts
|
|
|
1,000
|
|
|
|
7,000
|
|
|
|
8,000
|
|
|
Money
market accounts
|
|
|
10,000
|
|
|
|
(38,000
|
)
|
|
|
(28,000
|
)
|
|
Certificates
of deposit
|
|
|
10,000
|
|
|
|
(154,000
|
)
|
|
|
(144,000
|
)
|
|
Total
deposits
|
|
|
23,000
|
|
|
|
(186,000
|
)
|
|
|
(163,000
|
)
|
|
Federal
Home Loan Bank of Boston advances
|
|
|
47,000
|
|
|
|
(27,000
|
)
|
|
|
20,000
|
|
|
Total
interest-bearing liabilities
|
|
$
|
70,000
|
|
|
$
|
(213,000
|
)
|
|
$
|
(143,000
|
)
|
|
Change
in net interest income
|
|
$
|
71,000
|
|
|
$
|
93,000
|
|
|
$
|
164,000
|
|
Provision
for Loan Losses.
Our provision for loan losses increased from a negative
provision of $7,000 for the six months ended December 31, 2007 to a provision of
$47,000 for the six months ended December 31, 2008. Two loans totaling $19,000
were charged off during the six months ended December 31, 2008 and one loan
totaling $1,300 was
charged
off during the six months ended December 31, 2007. 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 decreased $23,000, or 30.0%, to $54,000
for the six months ended December 31, 2008, compared to $77,000 for the six
months ended December 31, 2007. This decrease was primarily the result of fair
value adjustments on the Bank’s interest rate cap and floor
agreements.
Non-interest
Expense.
Non-interest expenses increased $191,000, or 25.0%, to $956,000
for the six months ended December 31, 2008, compared to $765,000 for the six
months ended December 31, 2007. The increase was primarily attributable to
increases in Company expenses of $35,000 in legal fees, $21,000 in accounting
fees, and $10,000 for stockholder communication and meetings, as a result of
becoming public. In addition, the Company recognized an impairment write-down of
$60,000 on investments in FNMA and FHLMC common stock. Salaries and benefits,
computer charges and other operating expenses also increased commensurate with
the growth of the Company.
Income
Taxes.
Income tax expense was $27,000 for the six months ended December
31, 2008, reflecting an effective tax rate of 169.0%, compared to $36,000 for
the six months ended December 31, 2007, an effective tax rate of 29.9%. The
increase in the effective tax rate is due to the fact that the Company did not
record a tax benefit associated with the impairment write-down since it does not
expect to realize a material tax benefit in connection with the impairment of
this stock. Without the impairment write-down, the Company’s pre-tax
income would have been $76,000, resulting in an effective tax rate of
35.0%.
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 December 31, 2008, cash and cash
equivalents totaled $1.3 million, including interest-earning deposits of
$243,000. Securities classified as available-for-sale, which provide additional
sources of liquidity, totaled $1.3 million at December 31, 2008, and
certificates of deposit at other banks totaled $6.0 million. At December 31,
2008, we had $17.7 million of outstanding borrowings from FHLB, and the ability
to borrow an additional $5.5 million. FHLB Boston has
disclosed, in its Quarterly Report on Form 10-Q for the period ended September
30, 2008, that over time, current market trends may have a negative impact on
FHLB Boston’s own liquidity. We are currently exploring additional
sources of liquidity that could complement FHLB borrowings in the
future.
At
December 31, 2008, we had $2.1 million in loan commitments outstanding and $3.6
million in unused lines of credit.
Certificates
of deposit due to mature within one year of December 31, 2008 totaled $22.2
million, or 45.9% 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
We are
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
December 31, 2008, we exceeded all of our regulatory capital requirements. We
are considered “well-capitalized” under regulatory guidelines.
The
capital from the recent stock offering increased our 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.
|
ITEM
3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Not
applicable.
|
ITEM
4.
|
CONTROLS
AND PROCEDURES
|
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 controls that have materially affected, or are reasonable
likely to materially affect, the Company’s internal controls over financial
reporting.
PART
II. OTHER INFORMATION
|
ITEM
1.
|
LEGAL
PROCEEDINGS
|
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.
|
ITEM
2.
|
UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
|
None.
|
ITEM
3.
|
DEFAULTS
UPON SENIOR SECURITIES
|
None.
|
ITEM
4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
The
Company’s Annual Meeting of Stockholders was held Tuesday, November 18,
2008. At the Annual Meeting, M. Kelly Matzen, Allen T. Sterling and
Philip R. St. Pierre of the Company were elected as Directors, each to serve for
a three-year term and until his or her successor is duly elected and
qualified. The Company’s continuing directors are August M. Berta,
Peter E. Chalke and Sharon A. Millett, whose terms expire at the 2009 Annual
Meeting of Stockholders, and Bonnie G. Adams and Claire D. Thompson, whose terms
expire at the 2010 Annual Meeting of Stockholders.
Also at
the Annual Meeting, the stockholders ratified the appointment of Berry, Dunn,
McNeil & Parker as the Company’s independent registered public accounting
firm for the fiscal year 2009.
A
tabulation of the votes cast for, against or withheld and of abstentions and
broker non-votes as to each matter presented, including a separate tabulation
with respect to each Director nominee, is set forth below:
Proposal
1. Election of three Directors, each for a three-year term.
|
Director
Nominee
|
|
For
|
|
Withheld
|
|
M.
Kelly Matzen
|
|
418,264 97.7%
|
|
10,000 0.3%
|
|
Allen
T. Sterling
|
|
418,264 97.7%
|
|
10,000 0.3%
|
|
Philip
R. St. Pierre
|
|
418,264 97.7%
|
|
10,000 0.3%
|
Proposal
2. Ratification of Appointment of Berry, Dunn, McNeil & Parker.
|
For
|
428,164
|
|
Against
|
0
|
|
Abstain
|
100
|
|
ITEM
5.
|
OTHER
INFORMATION
|
None.
|
Exhibit
Number
|
|
Exhibit
Description
|
|
|
|
|
|
2.1
|
|
Plan
of Reorganization from Mutual Savings Bank to Mutual Holding Company and
Stock Issuance Plan **
|
|
|
|
|
|
3.1
|
|
Charter
of Auburn Bancorp, Inc. **
|
|
|
|
|
|
3.2
|
|
Bylaws
of Auburn Bancorp, Inc. **
|
|
|
|
|
|
4.1
|
|
Specimen
Stock Certificate of Auburn Bancorp, Inc. **
|
|
|
|
|
|
31.1
|
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the
Company
|
|
|
|
|
|
31.2
|
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the
Company
|
|
|
|
|
|
32.1
|
|
Section
1350 Certification of Chief Executive Officer of the Company in accordance
with Section 906 of the Sarbanes-Oxley Act of 2002
|
|
|
|
|
|
32.2
|
|
Section
1350 Certification of Chief Financial Officer of the Company in accordance
with Section 906 of the Sarbanes-Oxley Act of
2002
|
|
**
|
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).
|
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.
|
|
|
|
Auburn
Bancorp, Inc.
|
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
February 13, 2009
|
|
By:
|
/s/ Allen
T. Sterling
|
|
|
|
|
|
Allen
T. Sterling
|
|
|
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Date:
February 13, 2009
|
|
By:
|
/s/ Rachel
A. Haines
|
|
|
|
|
|
Rachel
A. Haines
|
|
|
|
|
|
Principal
Financial Officer
|
|
24