-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UYQKi5QPx62a/iF1HVi6NxkqAybPsZhOPr5P3qcSqfXNrVUy3cHzCJUi3Ztse4tx uXLv1qfrB5pUHp3p1153Jg== 0001019056-04-000139.txt : 20040206 0001019056-04-000139.hdr.sgml : 20040206 20040206143847 ACCESSION NUMBER: 0001019056-04-000139 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20031231 FILED AS OF DATE: 20040206 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTIC LIBERTY FINANCIAL CORP CENTRAL INDEX KEY: 0001172095 STANDARD INDUSTRIAL CLASSIFICATION: SAVINGS INSTITUTION, FEDERALLY CHARTERED [6035] IRS NUMBER: 161615014 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-49967 FILM NUMBER: 04573613 MAIL ADDRESS: STREET 1: 186 MONTAGUE ST CITY: BROOKLYN STATE: NY ZIP: 11201 10QSB 1 atlantic_q.txt 10QSB UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2003 Commission file number 000-49967 Atlantic Liberty Financial Corp. Delaware 16-1615014 186 Montague Street, Brooklyn, New York 12201 (718) 855-3555 Check whether the issuer: (1); filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. Yes [X] No [ ] State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date. As of December 31, 2003, the Registrant had outstanding 1,710,984 shares of common stock. Transitional Small Business Disclosure format Yes [X] No [ ] ATLANTIC LIBERTY FINANCIAL CORP. Form 10-QSB Quarterly Report Index Page ---- PART I - Financial Information Item 1. Financial Statements 1-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-16 Item 3. Controls and Procedures 17 PART II - Other Information Item 1. Legal Proceedings 18 Item 2. Changes in Securities 18 Item 3. Defaults Upon Senior Securities 18 Item 4. Submission of Matters to a Vote of Security Holders 18 Item 5. Other Information 18 Item 6. Exhibits and Reports on Form 8-K 18-33 SIGNATURES ITEM 1. FINANCIAL STATMENTS Atlantic Liberty Financial Corp. Consolidated Statements of Financial Condition (in thousands of dollars) (unaudited)
At At December 31, March 31, 2003 2003 ------------ ------------ ASSETS Cash and cash equivalents Cash and amounts due from depository Institutions $ 1,855 $ 1,773 Interest bearing deposits 4,098 4,464 ------------ ------------ Total cash and cash equivalents 5,953 6,237 ------------ ------------ Securities available for sale 3,228 1,703 Investment securities held to maturity 2,018 1,024 Mortgage-backed securities held to maturity 32,352 21,002 Loans receivable, net 109,930 100,655 Premises and equipment 1,516 1,616 Federal Home Loan Bank of New York Stock 1,160 902 Interest receivable 792 672 Deferred income tax 484 307 Investment in real estate 78 78 Other assets 3,296 3,000 ------------ ------------ Total Assets $ 160,807 $ 137,196 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $ 107,635 $ 107,515 Federal Home Loan Bank of New York advances 23,200 1,600 Advance payments by borrowers for taxes and insurance 1,087 886 Other liabilities 2,642 2,104 ------------ ------------ Total Liabilities 134,564 112,105 Commitments & Contingencies -- -- Stockholders' equity -- Preferred Stock $.10 par value, 500,000 shares authorized -- -- Common Stock $.10 par value, 6,000,000 shares authorized 1,710,984 Shares Issued 171 171 Paid in Capital 16,254 16,141 Retained Earnings-substantially restricted 10,888 9,976 Unearned ESOP Shares (1,095) (1,197) Accumulated other comprehensive income 25 0 ------------ ------------ Total Stockholders' Equity 26,243 25,091 ------------ ------------ Total liabilities and Stockholders' Equity $ 160,807 $ 137,196 ============ ============
See notes to consolidated financial statements. 1 Atlantic Liberty Financial Corp. Statements of Income (in thousands of dollars) (unaudited)
Three Months Nine Months Ended December 31 Ended December 31 ----------------------- ----------------------- 2003 2002 2003 2002 ---------- ---------- ---------- ---------- Interest and dividend income Loans $ 1,791 $ 1,811 $ 5,341 $ 5,327 Mortgage backed securities 319 203 692 598 Investment Securities 55 16 95 49 Other interest-earning assets 9 86 59 178 ---------- ---------- ---------- ---------- Total interest income 2,174 2,116 6,187 6,152 ---------- ---------- ---------- ---------- Interest expense Deposits 429 588 1,331 1,911 Advances 150 19 243 63 Escrow 3 3 11 8 ---------- ---------- ---------- ---------- Total interest expense 582 610 1,585 1,982 ---------- ---------- ---------- ---------- Net interest income 1,592 1,506 4,602 4,170 Provision for loan losses 0 40 0 40 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses 1,592 1,466 4,602 4,130 ---------- ---------- ---------- ---------- Non-interest income Service fees 51 49 155 154 Miscellaneous 45 28 150 74 ---------- ---------- ---------- ---------- Total non-interest income 96 77 305 228 ---------- ---------- ---------- ---------- Non-interest expenses Salaries and employee benefits 617 672 1,733 1,582 Directors Compensation 47 40 119 106 Net occupancy expenses 39 37 119 61 Equipment 108 153 276 458 Advertising 10 10 26 26 Federal Insurance Premium 4 5 14 14 Legal fees 34 15 107 35 Miscellaneous 181 160 560 495 ---------- ---------- ---------- ---------- Total non-interest expenses 1,040 1,092 2,954 2,777 ---------- ---------- ---------- ---------- Income before income taxes 648 451 1,953 1,581 Income tax expense 302 209 882 681 ---------- ---------- ---------- ---------- Net income $ 346 $ 242 $ 1,071 $ 900 ========== ========== ========== ========== Earnings per share Basic and diluted $ 0.22 $ 0.15 $ 0.67 n/a Weighted average shares 1,599,214 1,574,301 1,595,804 n/a Fully diluted average shares 1,607,020 n/a 1,603,610 n/a
See notes to financial statements 2 Atlantic Liberty Financial Corp. Consolidated Statements of changes in Stockholders' equity (in thousands of dollars) (unaudited)
Accumulated Other Common Paid-in Retained Unearned Comprehensive Stock Capital Earnings ESOP Shares Income/(loss) Total ----------- ----------- ----------- ----------- ----------- ----------- Balance at March 31, 2003 $ 171 $ 16,141 $ 9,976 $ (1,197) $ -- $ 25,091 Comprehensive Income Net income -- -- 1,071 -- -- 1,071 Change in net unrealized gain (loss) -- -- -- -- 25 25 ----------- Total comprehensive income -- -- -- -- -- 1,096 ESOP shares committed to be released -- 113 -- 102 -- 215 Dividends paid ($.10 per share) (159) (159) ----------- ----------- ----------- ----------- ----------- ----------- Balance December 31,2003 $ 171 $ 16,254 $ 10,888 $ (1,095) $ 25 $ 26,243 =========== =========== =========== =========== =========== ===========
See notes to consolidated financial statements 3 Atlantic Liberty Financial Corp. Consolidated Statements of Cash Flows (in thousands of dollars) (unaudited)
Nine Months Ended Cash flows from operating activities December 31, - ------------------------------------ -------------------- 2003 2002 -------- -------- Net income $ 1,071 $ 900 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 124 100 Provision for loan losses -- 40 Net accretion of premiums, discounts and deferred loan fees 250 (54) Deferred income taxes (177) (47) ESOP compensation expense 189 184 Recognition and Retention Plan expense 26 -- (Increase) in interest receivable (120) (78) (Increase) in other assets (296) (1,848) Increase in other liabilities 538 1,583 -------- -------- Net cash provided by operating activities 1,605 780 -------- -------- Cash flows from investing activities: Purchases of: Investment securities held to maturity (1,000) -- Investment securities available for sale (2,000) -- Mortgage-backed securities held to maturity (19,816) (14,323) Proceeds of maturities,calls and principal repayments on: Mortgage-backed securities held to maturity 8,291 5,483 Mortgage-backed securities available for sale 490 -- (Increase) in loans receivable (9,334) (8016) Additions to premises and equipment (24) (370) Purchase of Federal Home Loan Bank of New York Stock (258) -- -------- -------- Net cash (used in) investing activities (23,651) (17,226) -------- -------- Cash flows from financing activities: Increase in deposits 120 71 Increase in advance payments by borrowers for taxes and insurance 201 155 Increase (decrease) in Federal Home Loan Bank advances 21,600 (400) Net proceeds from stock conversion -- 14,841 Cash dividends paid (159) -- -------- -------- Net cash provided by financing activities 21,762 14,667 -------- -------- Net (decrease) in cash and cash equivalents (284) (1,779) Cash and cash equivalents at beginning of period 6,237 9,941 -------- -------- Cash and cash equilvalents at end of period $ 5,953 $ 8,162 ======== ======== Supplemental disclosures of cash flow information Cash paid for: Interest $ 1,585 $ 1,976 -------- -------- Federal, state and city income taxes $ 865 $ 855 -------- --------
See notes to consolidated financial statements. 4 Atlantic Liberty Financial Corp. Notes to Consolidated Financial Statements December 31, 2003 (Unaudited) Note 1- Basis of Presentation - --------------------------------- Principles of Consolidation: The accompanying Consolidated Interim financial Statements include the accounts of Atlantic Liberty Financial Corp. ("The Company") and its wholly owned subsidiary Atlantic Liberty Savings, F.A. ("The Association"). All significant inter-company balances and transactions have been eliminated. The Company began operations on October 22, 2002 following the completion of Atlantic Liberty Savings F.A.'s conversion from mutual to stock form. The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations for reporting on Form 10-QSB. Accordingly, certain disclosures required by accounting principles generally accepted in the United States of America are not included herein. These interim statements should be read in conjunction with the Association's audited financial statements and notes thereto included in the Registration Statement filed with the Securities and Exchange Commission by the Company. Interim statements are subject to possible adjustment in connection with the annual audit of the Company for the year ending March 31, 2004. In the opinion of management of the Company, the accompanying unaudited interim consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated financial position and consolidated results of operations for the periods presented. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Note 2- Summary of Significant Accounting Policies - ------------------------------------------------------ Nature of Operations: The Association is a federally chartered stock savings and loan association, which maintains insurance on deposit accounts with the Savings Association Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation. The Association is engaged in the business of retail banking with operations conducted through its main office and one branch, both of which are located in Brooklyn, New York. Use of Estimates in the Preparation of Financial Statements: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. 5 Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the amount of deferred taxes, which are more likely than not to be realized. Management believes that the allowance for loan losses is adequate and that all deferred taxes are more likely than not to be realized. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions in the Association's market area. The assessment of the amount of deferred tax assets more likely than not to be realized is based upon projected future taxable income, which is subject to continual revisions for updated information. Note 3- Conversion and Stock Issuance - ----------------------------------------- On April 17, 2002, the Board of Directors of the Association adopted a Plan of Conversion ("Plan") under which Atlantic Liberty Savings, F.A. converted from a federal mutual savings and loan association to a federal stock savings and loan association, and formed the Company. The Plan received member and regulatory approval and was completed on October 22, 2002 at which time the Company sold 1,710,984 shares of common stock at $10 per share and received net proceeds of $14.8 million, exclusive of conversion expenses of $900,000 and $1.4 million to fund the purchase of shares for our employee stock ownership plan. Approximately 50% of the net proceeds were used by the Company to acquire all of the capital stock of the Association. At the time of conversion, the Association established a liquidation account in an amount equal to its total retained earnings as of March 31, 2002. The liquidation account is maintained by the association for the benefit of eligible account holders as of March 31, 2001 and supplemental eligible account holders as of June 30, 2002 who continue to maintain deposit accounts at the Association. The Association will maintain the liquidation account in accordance with applicable federal regulations. Note 4- Employee Stock Ownership Plan - ----------------------------------------- As part of the conversion, the Association established an employee stock ownership plan (ESOP) for the benefit of eligible employees. The ESOP borrowed $1,368,790 from the Company and used those funds to acquire 136,879 shares of the Company's stock at $10 per share. Shares held by the ESOP are released to ESOP participants based on principal and interest repayments made by the ESOP on the loan from the Company. The loan is secured by shares purchased with the loan proceeds and will be repaid by the ESOP with funds from the Association's discretionary contributions to the ESOP and earnings on the ESOP's assets. Principal and interest payments are scheduled to occur over a ten-year period. However, in the event the Company's contributions exceed the minimum debt service requirements, additional principal payment will be made. Principal and interest payments took place on December 31, 2002 and December 29, 2003 resulting in 13,688 shares being released to eligible employees in each year. 6 Note 5- Incentive Stock Benefit Plan - ---------------------------------------- On November 19, 2003, the stockholders approved the Company's 2003 Incentive Stock Benefit Plan. In accordance with the terms of the Plan, 256,648 shares of common stock of the company, in the aggregate, are reserved for issuance, which shares shall be available for issuance pursuant to the exercise of stock options or as restricted stock awards. Note 6- Earnings Per Share - ------------------------------ Amounts reported as basic earnings per share of common stock reflect earnings available to stockholders for the period divided by the weighted average number of common shares outstanding during the period. Diluted earnings per share, which did not differ from basic earnings per share, give effect to stock awards and option securities exercisable into common stock, which would have a dilution effect. Earnings per share is calculated beginning with the date of reorganization and, therefore, no earnings per share is reported for periods prior to the reorganization. Note-7 Dividend Declaration - -------------------------------- On January 15, 2004, the Company's Board of Directors declared a quarterly cash dividend of $0.05 per share to be paid on February 13, 2004 to shareholders of record on January 30, 2004. Note 8- Recent Development - ------------------------------ At its January meeting, the Company's Board of Directors approved a Stock Repurchase Program to acquire up to 85,550 shares of the Company's common stock, which represents approximately 5% of the outstanding common stock. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The company intends such forward-looking statements to be covered by the safe harbor provision for forward-looking statements contained in the Private Securities Reform Act of 1995 as amended and is including these statements for purposes of these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies, and expectations of the Company, are generally identifiable by use of the words "believe", "expect", "intend", "anticipate", "estimate", "project", or similar expressions. The Company's ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors that could have a material adverse affect on the operation and future prospects of the Company and its wholly-owned subsidiaries include, but are not limited to, changes in: interest rates; general economic conditions; legislative/regulatory provision; monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and the Federal Reserve Board; the quality or composition of the loan or investment portfolios; demand for loan products; deposit flows; competition; demand for financial services in the Company's market area; and accounting principles, policies and guidelines. These risks and uncertainties should be considered in evaluating forward-looking statements, and undue reliance should not be placed on such statements. Further information concerning the Company and its business, including additional factors that could materially affect the Company's financial results, is included in the company's filings with the Securities and Exchange Commission. The following discussion compares the consolidated financial condition of Atlantic Liberty Financial Corp. at December 31, 2003 to the Association's financial condition at March 31, 2003 and the consolidated results of operations for the three-month and nine-month periods ended December 31, 2003 and December 31, 2002. This discussion should be read in conjunction with the interim financial statements and footnotes included herein. Comparison of Financial Condition At December 31, 2003 and March 31, 2003 Our total assets at December 31, 2003 were $160.8 million an increase of $23.6 million or 17.2% from $137.2 million at March 31, 2003. The increase reflects growth in loans receivable, mortgage-backed securities and investment securities primarily funded by increases in advances from the Federal Home Loan Bank of New York (FHLB, NY) and deposits. Loans increased by $9.3 million or 9.2% to $109.9 million at December 31, 2003 from $100.7 million at March 31, 2003. Our increase in loans resulted principally from the increased one-to-four family mortgage loan originations as new customers sought to take advantage of low market interest rates as well as an increase of $12.5 million in commercial loans, $5.0 million of which were purchased from other financial institutions. Mortgage-backed securities including those held to maturity and available for sale increased $10.9 million or 48.0% to $33.6 million at December 31, 2003 from 8 $22.7 million at March 31., 2003 reflecting new purchases of $19.8 million partially offset by $8.9 million of pre-payments and amortization. Investment securities held to maturity and available for sale, increased $3.0 million to $4.0 million at December 31, 2003 from $1.0 million at March 31, 2003. Cash and cash equivalents decreased $200,000 or 3.2% to $6.0 million at December 31, 2003 from $6.2 million at March 31, 2003. Total deposits of $107.6 million at December 31, 2003 increased $100,000 or 0.1% from $107.5 million at March 31, 2003. Federal Home Loan bank of New York advances increased $21.6 million to $23.2 million at December 31, 2003 from $1.6 million at March 31, 2003 to provide funding for the increases in interest earning assets noted above. Stockholders' equity increased $1.2 million or 4.6% to $26.2 million at December 31, 2003 from $25.1 million at March 31, 2003, primarily the result of net income of $1.1 million for the nine-months ended December 31, 2003. Comparison of Results of Operations for the three-months ended December 31, 2003 and December 31, 2002. General. Net income for the three months ended December 31, 2003 was $346,000 an increase of $104,000 or 43.0% form $242,000 for the three months ended December 31, 2002. The increase in net income was primarily due to increases of $86,000 in net interest income and $19,000 in non-interest income, decreases of $52,000 in non-interest expense and $40,000 in the provision for loan losses, partially offset by an increase of $93,000 in income tax expense. Interest Income. Interest income increased $58,000 during the comparative three months ended December 31, 2003 and 2002. The increase in interest income resulted primarily from increases of $116,000 in interest received on mortgage backed securities and $39,000 in interest received on investment securities, partially offset by decreases of $20,000 in interest received from loans and $77,000 on interest received on other interest earning assets. The Federal Home Loan Bank of New York announced in September, 2003 a suspension of their quarterly dividend. The dividend on our Federal Home Loan Bank of New York stock has been approximately $13,000 per quarter and the suspension thereof should not have a material impact on our financial condition or results of operation in the future. In January, 2004 The Federal Home Loan Bank of New York reinstated the dividend at a lower rate. Interest income received on mortgage-backed securities increased $116,000 or 57.1% to $319,000 for the three months ended December 31, 2003 from $203,000 for the three months ended December 31, 2002. The average balance of mortgage-backed securities for the periods increased by $13.2 million to $34.9 million from $21.7 million. The average yield on mortgage-backed securities declined 9 basis points to 3.66% for the three months ended December 31, 2003 from 3.75% for the three months ended December 31, 2002, reflecting the declining interest rate environment in 2003. Interest income on investment securities increased $39,000 or 243.8% to $55,000 for the three months ended December 31, 2003 from $16,000 for the three months ended December 31, 2002. The increase was due to an increase of 9 $2.6 million in the average balance of investment securities to $3.6 million for the three months ended December 31, 2003 from $1.0 million in the comparable period in 2002, partially offset by a decrease in the average yield of 17 basis points to 6.06% from 6.23% for the respective periods. Interest income from loans decreased $20,000 or 1.1% to $1,791,000 for the three months ended December 31, 2003 from $1,811,000 for the same period in 2002. The decrease was due to a 70 basis point decrease in the average yield, partially offset by an increase in average loans outstanding of $9.3 million to $108.1 million for the three months ended December 31, 2003 from $98.8 million for the three months ended December 31, 2002. The decrease in yield reflects a decrease in market interest rates generally. Interest income on other interest earning assets decreased $77,000 or 89.5% to $9,000 for the three months ended December 31, 2003 from $86,000 for the same period in 2002. The decrease was due to a decrease in the average balance of other interest earning assets to $4.4 million from $21.5 million as well as a decrease of 79 basis points in the average yield. Interest Expense. Total interest expense decreased by $28,000 or 4.6% to $582,000 for the three months ended December 31, 2003 from $610,000 for the three months ended December 31, 2002. The decrease in interest expense resulted primarily from a decrease in the average cost of our interest bearing liabilities to 1.81% from 1.97%, reflecting the decrease in market interest rates during the period, partially offset by an increase of $4.8 million in average total interest bearing liabilities to $128.8 million from $124.0 million. Interest expense on deposits decreased $159,000 or 27.0% to $429,000 for the three months ended December 31, 2003 from $588,000 for the three months ended December 31, 2002. The average balance of certificate of deposit accounts decreased $4.4 million to $56.9 million for the three months ended December 31, 2003 from $61.3 million for the three months ended December 31, 2002, and the average cost on such accounts decreased to 2.30% from 2.81%. In addition, the average balance of transaction and savings deposits decreased $11.2 million or 18.6% to $49.0 million for the three months ended December 31, 2003 from $60.2 million for the three months ended December 31, 2002, and the average cost on such accounts declined 23 basis points to 0.82% from 1.05%, reflecting the decline in market interest rates paid on deposits during 2002 and 2003. Interest expense on Federal Home Loan Bank of New York advances was $150,000 for the three months ended December 31, 2003, an increase of $131,000 from the $19,000 recorded in the three months ended December 31, 2002. Average Federal Home Loan Bank of New York advances increased to $22.1 million for the three months ended December 31, 2003, from $1.6 million in the prior period, however, the average cost of such advances decreased 203 basis points to 2.72% from 4.75%. Net Interest Income. Net interest income increased $86,000 or 5.7% to $1.6 million for the three months ended December 31, 2003 from $1.5 million for the three months ended December 31, 2002. The increase in our net interest income for the quarter ended December 31, 2003 compared to the prior quarter is attributable to an $8.1 million increase in interest earning assets. Our net interest spread was 3.95% for both periods. Our net interest margin for the quarter ended December 31, 2003 compared to the prior period increased 1 basis point to 4.22% from 4.21%. 10 Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, peer group information, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. Based on our evaluation of these factors, management did not make a provision for the three months ended December 31, 2003, while we established a provision of $40,000 for the three months ended December 31, 2002. We used the same methodology and generally similar assumptions in assessing the adequacy of the allowance for both periods. The allowance for loan losses was $582,000 or .53% of loans outstanding at December 31, 2003 as compared with $484,000 or .48% of loans outstanding at December 31, 2002. The allowance for loan losses represented 481.7% of non-performing loans at December 31, 2003 and 386.4% of non-performing loans at December 31, 2002. The level of the allowance is based on estimates and the ultimate losses may vary from the estimates. Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as a part of their examination process, periodically will review the allowance for loan losses and may require us to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of December 31, 2003 is maintained at a level that represents management's best estimate of inherent losses in the loan portfolio, and such losses were both probable and reasonably estimable. Non-Interest Income. Non-interest income increased $19,000 to $96,000 for the three months ended December 31, 2003, as compared to $77,000 for the three months ended December 31, 2002. The increase was attributable to $24,000 of income on Atlantic Liberty Savings, F.A.'s investment in Bank owned Life Insurance (BOLI) as to which there is no comparable income in the prior period, partially offset by a decrease of $5,000 in saving account fees. Non-Interest Expense. Non-interest expense for the three months ended December 31, 2003 was $1,040,000 compared to $1,092,000 for the three months ended December 31, 2002, a decrease of $52,000 or 4.8%. The decrease was primarily attributable to decreases of $55,000 in salaries and employee benefits and $45,000 in equipment expense, partially offset by increases of $19,000 in legal expense, $21,000 in miscellaneous expense and $7,000 in director's compensation. Provision for Income Taxes. The provision for income taxes increased to $302,000 for the three months ended December 31, 2003 from $209,000 for the three months ended December 31, 2002. The increase in the provision for income taxes is primarily due to a higher level of income before taxes of $648,000 for the three months ended December 31, 2003, compared with income before taxes of $451,000 for the comparative 2002 period. 11 Comparison of Operating Results for the nine-months ended December 31, 2003 and December 2002. General. Net income for the nine months ended December 31, 2003 was $1,071,000 an increase of $171,000 or 19.0% from $900,000 for the nine months ended December 31, 2002. The increase in net income was primarily due to increases of $432,000 in net interest income and $77,000 in non-interest income, as well as a decrease of $40,000 in the provision for loan losses, partially offset by increases of $177,000 in non-interest expense and $201,000 in income tax expense. Interest Income. Interest income increased $35,000 during the comparative nine months ended December 31, 2003 and 2002. The increase in interest income resulted primarily from increases of $14,000 in interest received from loans, $94,000 in interest received on mortgage-backed securities and $46,000 in interest on investment securities, partially offset by a decrease of $119,000 of interest received on other interest earning assets. Interest income from loans increased $14,000 or 0.3% to $5.34 million for the nine months ended December 31, 2003 from $5.32 million for the nine months ended December 31, 2002. The average balance of loans outstanding for the periods increased by $8.8 million to $104.8 million from $96.0 million. The average yield on loans declined 60 basis points to 6.80% for the nine months ended December 31, 2003 from 7.40% for the nine months ended December 31, 2002, reflecting a decrease in market interest rates generally. Interest income from mortgage-backed securities increased $94,000 or 15.7% to $692,000 for the nine months ended December 31, 2003 from $598,000 for the same period in 2002. The increase was due to an increase in average mortgage-backed securities of $9.2 million to $27.3 million for the nine months ended December 31, 2003 from $18.1 million for the nine months ended December 31, 2002, partially offset by a 103 basis point decrease in the average yield. The decrease in yield reflects the declining interest rate environment in 2002 and 2003. Interest income on investment securities increased $46,000 or 93.4% to $95,000 for the nine months ended December 31, 2003 from $49,000 for the nine months ended December 31, 2002. The increase was due to an increase in average investment securities of $1.1 million to $2.1 million for the nine months ended December 31, 2003 from $1.0 million in the comparable period in 2002, partially offset by a decrease in the average yield of 13 basis points to 6.18% from 6.31% for the respective periods. Interest income on other interest earning assets decreased $119,000 or 66.9% to $59,000 for the nine months ended December 31, 2003, from $178,000 for the same period in 2002. The decrease was due to a decrease in the average balance of other interest earning assets to $4.9 million from $14.9 million, partially offset by an increase of 4 basis points in the average yield. Interest Expense. Total interest expense decreased by $397,000 or 20.0% to $1.6 million for the nine months ended December 31, 2003 from $2.0 million for the nine months ended December 31, 2002. The decrease in interest expense resulted primarily from a decrease in the average cost of our interest bearing liabilities to 1.79% from 2.24%, reflecting the decrease in market interest rates during the period as well as a decrease in the average balance of interest bearing liabilities of $100,000 to $117.8 million from $117.9 million. 12 Interest expense on deposits decreased $580,000 or 30.4% to $1.3 million for the nine months ended December 31, 2003 from $1.9 million for the nine months ended December 31, 2002. The average balance of certificate of deposit accounts decreased $6.3 million to $57.6 million for the nine months ended December 31, 2003 from $63.9 million for the nine months ended December 31, 2002, and the average cost on such accounts decreased to 2.40% from 3.07%. In addition, the average balance of transaction and savings deposits decreased $2.9 million or 5.7% to $48.4 million for the nine months ended December 31, 2003 from $51.3 million for the nine months ended December 31, 2002, and the average cost on such accounts declined 33 basis points to 0.81% from 1.14% reflecting the decline in market interest rates paid on deposits during 2002 and 2003. Interest expense on Federal Home Loan Bank of New York advances was $243,000 for the nine months ended December 31, 2003, an increase of $180,000 from the $63,000 recorded in the nine months ended December 31, 2002. Average Federal Home Loan Bank of New York advances increased to $11.1 million for the nine months ended December 31, 2003, from $1.8 million in the prior period however, the average cost on such advances decreased 171 basis points to 2.91% from 4.62%. Net Interest Income. Net interest income increased $432,000 or 10.4% to $4.6 million for the nine months ended December 31, 2003 from $4.2 million for the nine months ended December 31, 2002. Our net interest spread increased 7 basis points to 4.14% for the nine months ended December 31, 2003, from 4.07% for the comparable period in 2002, while our net interest margin increased 13 basis points to 4.41% from 4.28% . In addition, average interest earning assets increased $9.1 million to $139.0 million for the nine months ended December 31, 2003 from $129.9 for the nine months ended December 31, 2002. Provision for Loan Losses. We establish provisions for loan losses, which are charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers historical loss experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, peer group information, and prevailing economic conditions. This evaluation is inherently subjective, as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. Based on our evaluation of these factors, management did not make a provision for the nine months ended December 31, 2003 while we established a provision of $40,000 for the nine months ended December 31, 2002. We used the same methodology and generally similar assumptions in assessing the adequacy of the allowance for both periods. The allowance for loan losses was $582,000 or .0.53% of loans outstanding at December 31, 2003 as compared with $484,000 or .0.48% of loans outstanding at December 31, 2002. The allowance for loan losses represented 481.7% of non-performing loans at December 31, 2003 and 386.4% of non-performing loans at December 31, 2002. The level of the allowance is based on estimates and the ultimate losses may vary from the estimates. 13 Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance. While management uses available information to recognize losses on loans, future loan loss provisions may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to recognize additional provisions based on their judgment of information available to them at the time of their examination. The allowance for loan losses as of December 31, 2003 is maintained at a level that represents management's best estimate of inherent losses in the loan portfolio, and such losses were both probable and reasonably estimable. Non-Interest Income. Non-interest income increased $77,000 to $305,000 for the nine months ended December 31, 2003, as compared to $228,000 for the nine months ended December 31, 2002. The increase was attributed to increases of $22,000 in savings and checking account fees and $69,000 of income on Atlantic Liberty Savings, F.A. investment in Bank Owned Life Insurance (BOLI), as to which there is no comparable income in the prior period, partially offset by a decrease of $13,000 in loan prepayment penalty fees. Non-Interest Expense. Non-interest expense for the nine months ended December 31, 2003 increased $177,000 or 6.4% to $3.0 million from $2.8 million of the nine months ended December 31, 2002. The increase was primarily attributable to increases of $151,000 in salaries and employee benefits, $13,000 in directors' compensation, $58,000 in occupancy expense, $72,000 in legal expense and $65,000 in miscellaneous expense, partially offset by a decrease of $182,000 in equipment expense. Provision for Income Taxes. The provision for income taxes increased to $882,000 for the nine months ended December 31, 2003 from $681,000 for the nine months ended December 31, 2002. The increase in the provision for income taxes is primarily due to our higher level of income before taxes of $2.0 million for the nine months ended December 31, 2003, compared with $1.6 million for the comparative 2002 period as well as an increase in the effective tax rate to 45.2% for the nine months ended December 31, 2003 from 43.1% in the prior period caused principally by the non-deductibility for income tax purposes of the excess of market value on the release date over purchase price of the ESOP shares. Liquidity and Capital Resources Liquidity. The Association must maintain an adequate level of liquidity to ensure the availability of sufficient funds to fund loan originations and deposit withdrawals, to satisfy other financial commitments, and to take advantage of investment opportunities. The Association invests excess funds in overnight deposits and other short-term interest-bearing assets to provide liquidity to meet these needs. At December 31, 2003, cash and cash equivalents totaled $6.0 million. At December 31, 2003, the Association had commitments to funds loans of $2.0 million. At December 31, 2003, certificates of deposit represented 52.4% of total deposits. The Association expects to retain these deposit accounts. In addition, the Association could borrow up to $16.2 million from the Federal Home Loan Bank of New York without providing additional collateral. The Association considers its liquidity and capital resources sufficient to meet its outstanding short-term and long-term needs. 14 Capital Resources. The Association is subject to various regulatory capital requirements administered by federal regulatory agencies. The following table summarizes the Association's regulatory capital requirements versus actual capital as of December 31, 2003:
ACTUAL REQUIRED EXCESS ------------------- ------------------ ------------------ (Dollars in thousands) AMOUNT % AMOUNT % AMOUNT % ------ ----- ------ ----- ------ ----- Core capital (to adjusted total assets) $ 18.3 11.6% $ 6.3 4.0% $ 12.0 7.6% Risk-based capital To (risk-weighted assets) $ 18.8 21.2% $ 7.1 8.0% $ 11.7 13.2%
Management of Market Risk General. The majority of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets, consisting primarily of mortgage loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is to manage interest rate risk and reduce the exposure of our net interest income to changes in market interest rates. Accordingly, our board of directors has established an Asset/Liability Management Committee which is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing the risk consistent with the guidelines approved by the board of directors. Senior management monitors the level of interest rate risk on a regular basis and the Asset/Liability Management Committee, which consists of senior management operating under a policy adopted by the board of directors, meets as needed to review our asset/liability policies and interest rate risk position. We have sought to manage our interest rate risk by more closely matching the maturities of our interest rate sensitive assets and liabilities. In particular, we offer one, three, and five year adjustable rate mortgage loans, a loan product that has a fixed rate of interest for seven years and which adjusts annually thereafter, and three and five year balloon loans. We also invest in mortgage-backed securities which reprice within one and three years. We do not solicit high-rate jumbo certificates of deposit or brokered funds. Net Portfolio Value. In past years, many savings associations have measured interest rate sensitivity by computing the "gap" between the assets and liabilities which are expected to mature or reprice within certain time periods, based on assumptions regarding loan prepayment and deposit decay rates formerly provided by the Office of Thrift Supervision. However, the Office of Thrift Supervision now requires the computation of amounts by which the net present value of an institution's cash flow from assets, liabilities and off balance sheet items (the institution's net portfolio value or "NPV") would change in the event of a range of assumed changes in market interest rates. The Office of Thrift Supervision provides all institutions that file a Consolidated Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with an interest rate sensitivity report of net portfolio value. The Office of Thrift Supervision simulation model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net 15 portfolio value. Historically, the Office of Thrift Supervision model estimated the economic value of each type of asset, liability and off-balance sheet contract under the assumption that the United States Treasury yield curve increases or decreases instantaneously by 100 to 300 basis points in 100 basis point increments. However, given the current low level of market interest rates, we did not receive a NPV calculation for an interest rate decrease of greater than 100 basis points. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100 basis point increase in the "Change in Interest Rates" column below. The Office of Thrift Supervision provides us the results of the interest rate sensitivity model, which is based on information we provide to the Office of Thrift Supervision to estimate the sensitivity of our net portfolio value. The table below sets forth, as of September 31, 2003, the latest date for which the Office of Thrift Supervision has provided Atlantic Liberty Savings, F.A. an interest rate sensitivity report of net portfolio value, the estimated changes in our net portfolio value that would result form the designated instantaneous changes in the United States Treasury yield curve.
Net Portfolio Value as a %of Present Value of Net Portfolio Value Assets/liabilities - ----------------------------------------------------------- -------------------------------- Change in Interest Rates Estimated Amount of (Basis Points) NPV Change Percent NPV Ratio Change - -------------- --- ------ ------- --------- ------------------- (Dollars in Thousands) +300 $ 18,833 $(7,046) (27)% 12.07% (357) basis points +200 21,449 (4,430) (17) 13.47 (218) basis points +100 23,881 (1,999) (8) 14.69 ( 95) basis points 0 25,879 -- -- 15.64 -- basis points - -100 26,995 1,116 +4 16.10 +46 basis points
The table above indicates that at September 30, 2003, in the event of a 100 basis point decrease in interest rates, we would experience a 4% increase in net portfolio value. In the event of a 200 basis point increase in interest rates, we would experience a 17% decrease in net portfolio value. Certain shortcomings are inherent in the methodology used in the above interest rate risk measurement. Modeling changes in net portfolio value require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the net portfolio value table presented assumes that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the net portfolio value table provides an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on its net interest income and will differ from actual results. 16 ITEM 3. CONTROLS AND PROCEDURES Under the supervision and with the participation of the Company's management, including the Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this quarterly report, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company 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. There has been no change in the Company's internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are not involved in any pending legal proceedings as a defendant other than routine legal proceedings occurring in the ordinary course of business. At December 31, 2003, we were not involved in any legal proceedings, the outcome of which would be material to our financial condition or results of operations. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. At the special meeting of stockholders held on November 19, 2003, the following proposal was voted upon and approved by the stockholders: Resolved, that the adoption of the Atlantic Liberty Financial Corp., 2003 Incentive Stock Benefit Plan is hereby approved. The voting as to the proposal was as follows: For Against Withheld --------- -------- --------- 860,056 149,058 8,202 ITEM 5. OTHER INFORMATION At its January meeting, the Board of Directors of Atlantic Liberty Financial Corp. declared a quarterly cash dividend of $0.05 per share to be paid on February 13, 2004 to shareholders of record on January 30, 2004. At its January meeting, the Company's Board of Directors approved a Stock Repurchase Program to acquire up to 85,550 shares of Company's common stock, which represent approximately 5% of the outstanding common stock. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit 10.1 Atlantic Liberty Financial Corp. 2003 Incentive Stock Benefit Plan Exhibit 31.1 Exhibit 31.2 Exhibit 32 Sarbanes-Oxley Certifications pursuant to Section 906 On January 26, 2004 we filed a Form 8-K which contained our Press Release of earnings for the quarter ended December 31, 2003. 18 SIGNATURES Pursuant to the requirement of the securities Exchange Act of 1934. The Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Atlantic Liberty Financial Corp. Date: February 6, 2004 /s/ BARRY M. DONOHUE --------------------------------------- Barry M. Donohue President and Chief Executive Officer Date: February 6, 2004 /s/ WILLIAM M. GILFILLAN --------------------------------------- William M. Gilfillan Chief Financial Officer and Corporate Secretary 19 EX-10 3 ex10_1.txt EXHIBIT 10.1 Exhibit 10.1 ATLANTIC LIBERTY FINANCIAL CORP. 2003 INCENTIVE STOCK BENEFIT PLAN 1. PURPOSE. The purpose of the Atlantic Liberty Financial Corp. 2003 Incentive Stock Benefit Plan (the "Plan") is to (i) provide employees, officers and directors of Atlantic Liberty Financial Corp. (the "Company"), Atlantic Liberty Savings, F. A. (the "Association") and any Affiliates of the Company (as defined below), with additional incentives to improve the growth and performance of the Company, and (ii) to attract and retain qualified and experienced personnel to the Company and its Affiliates. 2. TERM. The Plan shall be effective as of the date of stockholder approval (the "Effective Date"), and shall remain in effect for ten years thereafter, unless sooner terminated by the Company's Board of Directors (the "Board"). After termination of the Plan, no additional awards may be granted, but previously granted awards shall remain outstanding in accordance with their applicable terms and conditions and the terms and conditions of the Plan. 3. PLAN ADMINISTRATION. (a) Role of the Committee. The Plan shall be administered by the Committee. The Committee shall consist of either (i) at least two "Non-Employee Directors" of the Company, or (ii) the entire Board of the Company. A "Non-Employee Director" means, for purposes of the Plan, a director who: (a) is not employed by the Company or an Affiliate; (b) does not receive compensation directly or indirectly from the Company as a consultant (or in any capacity other than as a director) greater than $60,000; (c) does not have an interest in a transaction requiring disclosure under Item 404(a) of Regulation S-K; or (d) is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K. The interpretation and construction by the Committee of any provisions of the Plan or of any Award granted hereunder shall be final and binding, except as set forth herein below. The Committee shall act by vote or written consent of a majority of its members. Subject to the express provisions and limitations of the Plan, the Committee may adopt such rules and procedures as it deems appropriate for the conduct of its affairs. The Committee shall have the power to interpret and implement the Plan and any rules, regulations, guidelines or agreements adopted hereunder, and to adopt such rules, regulations and guidelines for carrying out the Plan as it may deem necessary or proper. These powers shall include, but not be limited to: (i) determination of the type or types of awards to be granted under the Plan; (ii) determination of the terms and conditions of any awards under the Plan; (iii) determination of whether, to what extent and under what circumstances awards may be settled, paid or exercised in cash, shares, other securities, other awards, other property, or accelerated, canceled, extended, forfeited or suspended; (iv) adoption of modifications, amendments, procedures, and subplans as may be necessary; (v) subject to the rights of participants, modification, amendment or cancellation of any award to correct an administrative error; and (vi) taking any other action the Committee deems necessary or desirable for the administration of the Plan. The Committee shall report its actions and decisions with respect to the Plan to the Board at appropriate times, but in no event less than one time per calendar year. (b) Role of the Board. The members of the Committee shall be appointed or approved by, and will serve at the pleasure of, the Board of Directors of the Company. The Board may in its discretion from time to time remove members from, or add members to, the Committee, subject to the requirements set forth in subsection (a) above. The Board shall have all of the powers allocated to it in the Plan, may take any action under or with respect to the Plan that the Committee is authorized to take, and may reverse or override any action taken or decision made by the Committee under or with respect to the Plan;provided, however, that the Board may not revoke any Award except in the event of revocation for Cause or with respect to unearned Awards in the event the Recipient of an Award voluntarily terminates employment with the Company or its Affiliates prior to Normal Retirement. (c) Plan Administration Restrictions. All transactions involving a grant, award or other acquisitions from the Company shall: (i) be approved by the Company's full Board or by the Committee; 20 (ii) be approved, or ratified, in compliance with Section 14 of the Exchange Act, by either: the affirmative vote of the holders of a majority of the shares present, or represented and entitled to vote at a meeting duly held in accordance with the laws under which the Company is incorporated; or the written consent of the holders of a majority of the securities of the issuer entitled to vote, provided that such ratification occurs no later than the date of the next annual meeting of stockholders; or (iii) result in the acquisition of an Option or Limited Right that is held by the Recipient for a period of six months following the date of such acquisition. (d) Limitation on Liability. No member of the Board or the Committee shall be liable for any determination made in good faith with respect to the Plan or any Awards granted under it. If a member of the Board or the Committee is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of anything done or not done by him in such capacity under or with respect to the Plan, the Company or its Affiliates shall indemnify such member against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in the best interests of the Company and its Affiliates and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. 4. ELIGIBILITY TO PARTICIPATE. Officers and employees of the Company and its Affiliates shall be eligible to receive Incentive Stock Options, Non-Statutory Stock Options, Stock Awards, Limited Rights, Reload Options and /or Dividend Equivalent Rights under the Plan (collectively, "awards"). Outside directors shall be eligible to receive Non-Statutory Stock Options, Reload Options, Dividend Equivalent Rights and Stock Awards under the Plan. The term "Company" includes any entity that is directly or indirectly controlled by the Company or any entity in which the Company has a significant equity interest, as determined by the Committee. The term "Affiliate" means any "parent corporation" or "subsidiary corporation" of the Company within the meaning of Sections 424(e) and (f) of the Internal Revenue Code ("Code"), respectively. An "outside director" means a director of the Company or an Affiliate who is not an employee of the Company or an Affiliate. 5. SHARES OF STOCK SUBJECT TO THE PLAN. 256,648 shares of common stock of the Company ("Common Stock") in the aggregate are reserved for issuance under the Plan, which shares shall be available for issuance (subject to adjustment as provided in Section 6) pursuant to the exercise of Stock Options, granted under Sections 7(a) and 7(c) of the Plan, or Stock Awards, under Section 7(d) of the Plan. The maximum number of Stock Options that may be granted to any one employee of the Company is 60,000. Any shares that are issued by the Company, and any awards that are granted by, or become obligations of, the Company, through the assumption by the Company or an Affiliate thereof, or in substitution for, outstanding awards previously granted by an acquired company, shall not be counted against the shares available for issuance under the Plan. In addition, any shares that are used for the full or partial payment of the exercise price of any option or in full or partial payment of a tax-withholding obligation under the Plan will not be counted as issued under the Plan and will be available for future grants under the Plan. Any shares issued under the Plan may consist, in whole or in part, of authorized and unissued shares, treasury shares or shares purchased by the Plan. No fractional shares shall be issued under the Plan. Cash may be paid in lieu of any fractional shares in settlement of awards under the Plan. 6. ADJUSTMENTS. If the number of outstanding shares of Common Stock is increased or decreased or the shares of Common Stock are changed into or exchanged for a different number or kind of shares or other securities of the Company on account of any recapitalization, reclassification, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock, or other increase or decrease in such shares effected without receipt of consideration by the Company occurring after the Effective Date, the number and kinds of shares for which grants of awards may be made under the Plan shall be adjusted proportionately and accordingly by the Company. In addition, the number and kind of shares for which grants are outstanding shall be adjusted proportionately and accordingly so that the proportionate interest of the grantee immediately following such event shall, to the extent practicable, be the same as immediately before such event. Any such adjustment 21 in outstanding Stock Options shall not change the aggregate Stock Option purchase price payable with respect to shares that are subject to the unexercised portion of the Stock Option outstanding but shall include a corresponding proportionate adjustment in the Stock Option purchase price per share. Adjustments under this Section 6 relating to shares of Common Stock or securities of the Company shall be made by the Committee, whose determination in that respect shall be final, binding and conclusive. No fractional shares or other securities shall be issued pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole share. The granting of awards pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure or to merge, consolidate, dissolve, or liquidate, or to sell or transfer all or any part of its business or assets. 7. AWARDS. The Committee shall determine the type or types of award(s) to be made to each participant under the Plan and shall approve the terms and conditions governing these awards in accordance with Section 11. Awards may be granted singly, in combination or in tandem so that the settlement or payment of one automatically reduces or cancels the other. The types of awards that may be made under the Plan are set forth below. (a) "Stock Option" - means a grant of a right to purchase a specified number of shares of Common Stock under the Plan during a specified period. A Stock Option may be in the form of an "Incentive Stock Option", which means a Stock Option granted by the Committee that complies with Section 422 of the Code, as amended, and the regulations thereunder at the time of grant, or of a Non-Statutory Stock Option, as defined in this paragraph. A "Non-Statutory Stock Option" means a Stock Option granted by the Committee to (i) an outside director or (ii) to any other participant, and such option is either (A) not designated by the Committee as an Incentive Stock Option, or (B) fails to satisfy the requirements of an Incentive Stock Option as set forth in Section 422 of the Code and the regulations thereunder. The exercise price of each Stock Option shall be the per share Fair Market Value of Common Stock on the date the award is granted. However, if a key employee owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or its Affiliates (or under Section 424(d) of the Code, is deemed to own stock representing more than 10% of the total combined voting power of all classes of stock of the Company or its Affiliates by reason of the ownership of such classes of stock, directly or indirectly, by or for any brother, sister, spouse, ancestor or lineal descendent of such key employee, or by or for any corporation, partnership, estate or trust of which such key employee is a shareholder, partner or beneficiary), the purchase price per share of Common Stock deliverable upon the exercise of each Incentive Stock Option shall not be less than 110% of the Fair Market Value of the Company's Common Stock on the date the Incentive Stock Option is granted. A Stock Option may be exercised in whole or in installments, which may be cumulative. The price at which shares of Common Stock may be purchased under a Stock Option shall be paid in full at the time of the exercise, in either cash or such other methods as provided by the Committee at the time of grant or as provided in the form of agreement approved in accordance herewith, including tendering (either actually or by attestation) Common Stock at Fair Market Value on the date of surrender, or any combination thereof. (b) "Limited Right" - means the right to receive an amount of cash based upon the terms set forth in Section 12. (c) "Reload Option" - means an additional Stock Option granted pursuant to Section 13. (d) "Dividend Equivalent Right" means the right to receive an amount of cash based upon the terms set forth in Section 14 hereof. (e) "Stock Award" - means an award under the Plan, made in stock or denominated in units of stock. All or part of any Stock Award may be subject to conditions established by the Committee, and set forth in the award agreement, which may include, but are not limited to, continuous service with the Company, achievement of specific business objectives, and other measurements of individual, business unit or Company performance. 8. DEFERRALS AND SETTLEMENTS. Payment of awards may be in the form of Common Stock or other awards, or in the case of Limited Rights, cash, or in combinations thereof as the Committee determines at the time of grant, and with such restrictions as it may impose. No Stock Option is to be considered 22 exercised until payment in full is accepted by the Committee. The means by which a recipient of an award may make payment is set forth below. (a) Cash Payment. The exercise price may be paid in cash or by certified check. To the extent permitted by law, the Committee may permit all or a portion of the exercise price of a Stock Option to be paid from borrowed funds. (b) Cashless Exercise. Subject to vesting requirements, if applicable, a participant may engage in a "cashless exercise" of the Stock Option. Upon a cashless exercise, the participant shall give the Company written notice of the exercise of the Stock Option together with an order to a registered broker-dealer or equivalent third party, to sell part or all of the Common Stock subject to the Stock Option and to deliver enough of the proceeds to the Company to pay the Stock Option exercise price and any applicable withholding taxes. If the participant does not sell the Common Stock subject to the Stock Option through a registered broker-dealer or equivalent third party, the participant may give the Company written notice of the exercise of the Stock Option and the third-party purchaser of the Common Stock subject to the Stock Option shall pay the Stock Option exercise price plus applicable withholding taxes to the Company. (c) Exchange of Common Stock. The Committee may permit payment of the Stock Option exercise price by the tendering of previously acquired shares of Common Stock. All shares of Common Stock tendered in payment of the exercise price of a Stock Option shall be valued at the Fair Market Value of the Common Stock. No tendered shares of Common Stock which were acquired by the participant upon the prior exercise of a Stock Option or as awards under this or any other stock award plan sponsored by the Company shall be accepted for exchange unless the participant has held such shares (without restrictions imposed by said plan or award) for at least six months prior to the exchange. 9. FAIR MARKET VALUE. "Fair Market Value" for all purposes under the Plan shall mean the reported closing price of Common Stock as reported by the Nasdaq stock market on such date (as reported in The Wall Street Journal, if published), or if the Common Stock was not traded on such date, on the next preceding day on which Common Stock was traded thereon. If the Common Stock is not reported on the Nasdaq stock market, Fair Market Value shall mean the average sale price of all shares of Common Stock sold during the 30-day period immediately preceding the date on which such stock option was granted, and if no shares of stock have been sold within such 30-day period, the average sale price of the last three sales of Common Stock sold during the 90-day period immediately preceding the date on which such stock option was granted. In the event Fair Market Value cannot be determined in the manner described above, then Fair Market Value shall be determined by the Committee. The Committee is authorized, but is not required, to obtain an independent appraisal to determine the Fair Market Value of the Common Stock. Under no circumstances shall Fair Market Value be less than the par value of the Common Stock. 10. TRANSFERABILITY AND EXERCISABILITY. All awards under the Plan, other than Non-Statutory Stock Options, will be nontransferable and shall not be assignable, alienable, saleable or otherwise transferable by the participant other than by will or the laws of descent and distribution, except pursuant to a domestic relations order entered by a court of competent jurisdiction or as otherwise determined by the Committee. If so permitted by the Committee, a participant may designate a beneficiary or beneficiaries to exercise his rights under any Stock Option, Reload Option, Limited Right or Dividend Equivalent Right who would be entitled to and receive any distributions under the Plan upon the participant's death. However, in the case of participants who are subject to Section 16 of the Securities Exchange Act 1934 (the "1934 Act"), any contrary requirements of Rule 16b-3 under the 1934 Act, or any successor rule, shall prevail over the provisions of this Section. Awards granted pursuant to the Plan may be exercisable pursuant to a vesting schedule as determined by the Committee. The Committee may, in its sole discretion, accelerate or extend the time during which any Stock Option may be exercised, or any Stock Award may vest, in whole or in part, provided, however, that with respect to an Incentive Stock Option, it must be consistent with the terms of Section 422 of the Code in order to continue to qualify as an Incentive Stock Option. Notwithstanding the above, in the event of Retirement (as defined in Section 26 hereof), death or Disability (as defined in Section 26 hereof), all awards shall immediately vest. 11. AWARD AGREEMENTS. Each award of Stock Options, Reload Options, Limited Rights, Dividend Equivalent Rights and Stock Award under the Plan shall be evidenced by an agreement that is approved by the Committee. The agreement 23 must set forth the terms, conditions and limitations to an award and the provisions applicable in the event the participant's employment terminates, provided, however, in no event shall the term of any Incentive Stock Option exceed a period of ten years from the date of its grant. If any key employee, at the time an Incentive Stock Option is granted to him, owns stock representing more than 10% of the total combined voting power of all classes of stock of the Company or its Affiliate (or, under Section 424(d) of the Code, is deemed to own stock representing more than 10% of the total combined voting power of all classes of stock, by reason of the ownership of such classes of stock, directly or indirectly, by or for any brother, sister, spouse, ancestor or lineal descendent of such key employee, or by or for any corporation, partnership, estate or trust of which such key employee is a shareholder, partner or beneficiary), the Incentive Stock Option granted to him shall not be exercisable after the expiration of five years from the date of grant. In addition, to the extent required by Section 422 of the Code, the aggregate Fair Market Value (determined at the time the option is granted) of the Common Stock for which Incentive Stock Options are exercisable for the first time by a participant during any calendar year (under all plans of the Company and its Affiliates) shall not exceed $100,000. In the event the amount exercisable shall exceed $100,000, the first $100,000 of Incentive Stock Options (determined as of the date of grant) shall be exercisable as Incentive Stock Options and any excess shall be exercisable as Non-Statutory Stock Options. 12. LIMITED RIGHTS. The Committee may grant a Limited Right simultaneously with the grant of any Stock Option, with respect to all or some of the shares covered by such option. Limited Rights granted under the Plan are subject to the following terms and conditions: (a) Terms of Limited Rights. A Limited Right shall not be exercisable in whole or in part before the expiration of six months from the date of grant of the Limited Right. A Limited Right may be exercised only in the event of a Change in Control of the Company or the Association. The Limited Right may be exercised only when the underlying Stock Option is eligible to be exercised; provided that the Fair Market Value of the underlying shares on the day of exercise is greater than the exercise price of the related Stock Option. Upon exercise of a Limited Right, the related Stock Option shall cease to be exercisable. Upon exercise or termination of a Stock Option, any related Limited Rights shall terminate. The Limited Right may be for no more than 100% of the difference between the exercise price and the Fair Market Value of the Common Stock subject to the underlying Stock Option. The Limited Right is transferable only when the underlying Stock Option is transferable and under the same conditions. (b) Payment. Upon exercise of a Limited Right, the holder shall promptly receive from the Company an amount of cash equal to the positive difference between the Fair Market Value on the date of grant of the related Stock Option and the Fair Market Value of the underlying shares on the date the Limited Right is exercised, multiplied by the number of shares with respect to which such Limited Right is being exercised. In the event of a merger transaction, the Limited Right shall be exercisable solely for shares of the acquiring corporation or its parent, as applicable. The number of shares to be received on the exercise of such Limited Right shall be determined by dividing the amount of cash that would have been available under the first sentence above by the Fair Market Value at the time of exercise of the shares underlying the option subject to the Limited Right. 13. RELOAD OPTION. Simultaneously with the grant of any Stock Option to a participant, the Committee may grant a Reload Option with respect to all or some of the shares covered by such Stock Option. A Reload Option may be granted to a participant who satisfies all or part of the exercise price of the Stock Option with shares of Common Stock. The Reload Option represents an additional Stock Option to acquire the same number of shares of Common Stock used by the participant to pay for the original Stock Option. Reload Options may also be granted to replace Common Stock withheld by the Company for payment of a participant's withholding tax under Section 16. A Reload Option is subject to all of the same terms and conditions as the original Stock Option, including the remaining option exercise term, except that (i) the exercise price of the shares of Common Stock subject to the Reload Option will be determined at the time the original Stock Option is exercised, and (ii) such Reload Option will conform to all provisions of the Plan at the time the original option is exercised. 14. DIVIDEND EQUIVALENT RIGHTS. Simultaneously with the grant of any Stock Option to a participant, the Committee may grant a Dividend Equivalent Right with respect to all or some of the shares covered by such Stock Option. 24 Dividend Equivalent Rights granted under this Plan are subject to the following terms and conditions: (a) Terms of Rights. The Dividend Equivalent Right provides the participant with a cash benefit per share for each share underlying the unexercised portion of the related Stock Option equal to the amount of any extraordinary dividend (as defined in Section 14 (c)) per share of Common Stock declared by the Company. The terms and conditions of any Dividend Equivalent Right shall be evidenced in the option agreement entered into with the participant and shall be subject to the terms and conditions of the Plan. The Dividend Equivalent Right is transferable only when the related option is transferable and under the same conditions. (b) Payment. Upon the payment of an extraordinary dividend, the participant holding a Dividend Equivalent Right with respect to Stock Options or portions thereof which have vested shall promptly receive from the Company or its Affiliate, as applicable, the amount of cash equal to the difference between the amount of the extraordinary dividend per share of Common Stock and the average dividend per share of Common Stock based on the current and preceding three quarters (assuming dividends were paid in each quarter, and if not then based on the average of the quarters in the last four quarters in which dividends were paid), multiplied by the number of shares of Common Stock underlying the unexercised portion of the related Stock Option. With respect to Stock Options or portions thereof which have not vested, the amount that would have been received pursuant to the Dividend Equivalent Right with respect to the shares underlying such unvested Stock Option or portion thereof shall be paid to the participant holding such Dividend Equivalent Right together with earnings thereon, on such date as the Stock Option or portion thereof becomes vested. Payment of an extraordinary dividend will be decreased by the amount of any applicable tax withholding prior to distribution to the participant as set forth in Section 16. (c) Extraordinary Dividend. For purposes of this Section 14, an extraordinary dividend is any cash dividend paid on shares of Common Stock where (i) the dividend rate exceeds 200% of the Association's weighted average cost of funds on interest-bearing liabilities for the current quarter and preceding three quarters, and (ii) the annualized aggregate dollar amount of the dividend exceeds the Association's net income after taxes for the current quarter and preceding three quarters. For purposes of this Section 14, the dividend rate equals the quotient, expressed as a percentage, of (i) the annualized dollar amount of the dividend, and (ii) the last trade price of the Company's Common Stock on the day immediately before the dividend is declared. 15. PLAN AMENDMENT. The Board or the Committee may modify or amend the Plan as it deems necessary or appropriate or modify or amend an award received by key employees and/or outside directors. No such amendment shall adversely affect any outstanding awards under the Plan without the consent of the holders thereof. 16. TAX WITHHOLDING. The Company may deduct from any settlement of an award made under the Plan, including the delivery or vesting of shares, an amount sufficient to cover the minimum withholding required by law for any federal, state or local taxes or to take such other action as may be necessary to satisfy any such withholding obligations. The Committee may permit shares to be used to satisfy the minimum required tax withholding and such shares shall be valued at the Fair Market Value as of the settlement date of the applicable award. 17. OTHER COMPANY BENEFIT AND COMPENSATION PROGRAMS. Settlements of awards received by participants under the Plan shall not be deemed a part of a participant's regular, recurring compensation for purposes of calculating payments or benefits from any Company benefit plan, severance program or severance pay law of any country, unless otherwise determined by the Committee, or unless the contrary is specifically provided in a Company benefit plan that is exempt from tax under Section 401(a) of the Code. 18. UNFUNDED PLAN. Unless otherwise determined by the Committee, the Plan is an unfunded plan. The Plan shall not create (or be construed to create) a trust or a separate fund or funds. The Plan shall not establish any fiduciary relationship between the Company and any participant or other person. To the extent any person holds any rights by virtue of a grant awarded under the Plan, such right (unless otherwise determined by the Committee) shall be no greater than the right of an unsecured general creditor of the Company. 25 19. FUTURE RIGHTS. No person shall have any claim or right to be granted an award under the Plan, and no participant shall have any rights by reason of the grant of any award under the Plan to continued employment by the Company or any subsidiary of the Company. 20. GENERAL RESTRICTION. Each award shall be subject to the requirement that, if at any time the Committee shall determine, in its sole discretion, that the listing, registration or qualification of any award under the Plan upon any securities exchange or under any state or federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such award or the grant or settlement thereof, such award may not be exercised or settled in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 21. GOVERNING LAW. The validity, construction and effect of the Plan and any actions taken or relating to the Plan shall be determined in accordance with the laws of the State of Delaware. 22. SUCCESSORS AND ASSIGNS. The Plan shall be binding on all successors and permitted assigns of a participant, including, without limitation, the guardian or estate of such participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the participant's creditors. 23. RIGHTS AS A SHAREHOLDER. A participant shall have no rights as a shareholder with respect to awards under the Plan until he or she becomes the holder of record of shares granted under the Plan. 24. CHANGE IN CONTROL. Notwithstanding anything to the contrary in the Plan, the following shall apply to all outstanding awards granted under the Plan in the event of a Change in Control: (a) Definition. A "Change in Control" of the Association or the Company means a change in control of a nature that: (i) would be required to be reported in response to Item 1(a) of the current report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a Change in Control of the Association or the Company within the meaning of the Home Owners' Loan Act, as amended ("HOLA"), and applicable rules and regulations promulgated thereunder, as in effect at the time of the Change in Control; or (iii) without limitation such a Change in Control shall be deemed to have occurred at such time as (a) any "person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 25% or more of the combined voting power of Company's outstanding securities except for any securities purchased by the Association's employee stock ownership plan or trust; or (b) individuals who constitute the Board on the date hereof (the "Incumbent Board") cease for any reason to constitute at least a majority thereof, provided that any person becoming a director subsequent to the date hereof whose election was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board, or whose nomination for election by the Company's stockholders was approved by the same Nominating Committee serving under an Incumbent Board, shall be, for purposes of this clause (b), considered as though he were a member of the Incumbent Board; or (c) a plan of reorganization, merger, consolidation, sale of all or substantially all the assets of the Association or the Company or similar transaction in which the Association or Company is not the surviving corporation occurs; or (d) a proxy statement soliciting proxies from stockholders of the Company, by someone other than the current Board of Directors of the Company, seeking stockholder approval of a plan of reorganization, merger or consolidation of the Company or similar transaction with one or more corporations as a result of which the outstanding shares of the common stock of the Company are exchanged for or converted into cash or property or securities not issued by the Company; or (e) a tender offer is made for 25% or more of the voting securities of the Company and the shareholders owning beneficially or of record 25% or more of the outstanding securities of the Company have tendered or offered to sell their shares pursuant to such tender offer and such tendered shares have been accepted by the tender offeror. 26 (b) Acceleration of Vesting and Payment of Limited Rights. (1) Upon the occurrence of an event constituting a Change in Control, all Limited Rights, Stock Options, Stock Awards or any other award granted pursuant to this Plan outstanding on such date shall become 100% vested. (2) Upon the occurrence of an event constituting a Change in Control involving an exchange of stock, all Stock Options shall become options to purchase the exchanged stock at the applicable exchange ratio (with no change in the aggregate exercise price). (c) Effect of a Change in Control on Stock Option Awards. In the event of a Change in Control, the Committee and the Board of Directors will take one or more of the following actions to be effective as of the date of such Change in Control: (1) provide that such Stock Options shall be assumed, or equivalent stock options shall be substituted ("Substitute Options") by the acquiring or succeeding corporation (or an affiliate thereof), provided that: (A) any such Substitute Options exchanged for Incentive Stock Options shall meet the requirements of Section 424(a) of the Code, and (B) the shares of stock issuable upon the exercise of such Substitute Options shall be registered in accordance with the Securities Act of 1933, as amended ("1933 Act") or such securities shall be exempt from such registration in accordance with Sections 3(a)(2) or 3(a)(5) of the 1933 Act, (collectively, "Registered Securities"), or in the alternative, if the securities issuable upon the exercise of such Substitute Options shall not constitute Registered Securities, then the participant will receive upon consummation of the Change in Control a cash payment for each Stock Option surrendered equal to the difference between (1) the fair market value of the consideration to be received for each share of Common Stock in the Change in Control times the number of shares of Common Stock subject to such surrendered Stock Options, and (2) the aggregate exercise price of all such surrendered Stock Options; or (2) in the event of a Change in Control transaction whereby the holders of Common Stock will receive a cash payment (the "Merger Price") for each share of Common Stock exchanged in the Change in Control transaction, make or provide for a cash payment to the participants equal to the difference between (1) the Merger Price times the number of shares of Common Stock subject to such Stock Options held by each participant (to the extent then exercisable at prices not in excess of the Merger Price), and (2) the aggregate exercise price of all such surrendered Stock Options. 25. COMPLIANCE WITH SECTION 16. With respect to persons subject to Section 16 of the 1934 Act, transactions under this Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent any provisions of the Plan or actions of the Committee fail to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 26. TERMINATION OF EMPLOYMENT. Upon the termination of an employee's employment for any reason other than Disability, Retirement, Change in Control, death or Termination for Cause, the employee's Stock Options shall be exercisable, but only as to those shares that were immediately purchasable by, or vested in, such employee at the date of termination, and such options may be exercised only for a period of three (3) months following such termination. Upon the termination of an employee's service because of Disability, Retirement, Change in Control or death, the employee's Stock Options shall be exercisable as to all shares whether or not then exercisable, and the employee's Stock Awards shall vest as to all shares subject to an outstanding award, whether or not otherwise immediately vested in such employee at the date of termination and options may be exercised for a period of five (5) years following termination. Notwithstanding anything to the contrary herein, in no event shall the exercise period extend beyond the expiration of the Stock Option term. In the event of termination of employment or service for Cause (as defined herein) all rights and awards granted to an employee or director under the Plan not exercised or vested shall expire upon termination. No option shall be eligible for treatment as an Incentive Stock Option in the event such option is exercised more than three (3) months following the date of the employee's Retirement or termination of employment following a Change in Control; and provided further, that no option shall be eligible for treatment as an Incentive Stock Option in the event such option is exercised 27 more than one year following termination of employment due to Disability, and provided further, in order to obtain Incentive Stock Option treatment for options exercised by heirs or devisees of an optionee, the optionee's death must have occurred while employed or within three (3) months of termination of employment. "Disability" means, with respect to an employee, the permanent and total inability by reason of mental or physical infirmity or both, of an employee to perform the work customarily assigned to him. Additionally, a medical doctor selected or approved by the Board of Directors must advise the Committee that it is either not possible to determine when such Disability will terminate or that it appears probable that such Disability will be permanent during the remainder of the employee's lifetime. "Retirement" means, with respect to an employee, retirement at the normal or early retirement date set forth in the Association's employee stock ownership plan, or as determined by the Board of Directors, or such other time as determined by written resolution of the Committee. Termination "for Cause" means the termination upon personal dishonesty, willful misconduct, any breach of fiduciary duty involving personal profit, intentional failure to perform stated duties, or the willful violation of any law, rule or regulation (other than traffic violations or similar offenses) or a final cease-and-desist order, any of which results in a material loss to the Company or an Affiliate. 27. TERMINATION OF SERVICE AS A DIRECTOR. Upon the termination of a director's service for any reason other than Disability, Retirement, Change in Control, death or Termination for Cause, the director's Stock Options shall be exercisable, but only as to those shares that were immediately purchasable by, or vested in, such director at the date of termination, and options may be exercised for a period of one (1) year following termination of service, and all of the director's unvested Stock Awards shall be forfeited. In the event of termination of service for Cause (as defined above) all rights granted to the director under the Plan not exercised by or vested in such director shall expire upon termination of service. Upon the termination of a director's service because of Retirement, Disability, Change in Control or death, the director's Stock Options shall be exercisable as to all shares, whether or not then exercisable, and the director's Stock Awards shall vest as to all shares subject to an outstanding award, whether or not otherwise immediately vested in such director at the date of termination, and options may be exercised for a period of five (5) years following such termination. In no event shall the exercise period extend beyond the expiration of the Stock Option term. "Disability" means, with respect to an outside director, the permanent and total inability by reason of mental or physical infirmity or both, of a director to carry out the responsibilities of a director of the Company or an Affiliate, as required by applicable state and federal law. "Retirement" means, with respect to a director, retirement on or after attainment of age sixty-five (65) or seven (7) years of service at the Company or an Affiliate, or such other time as determined by written resolution of the Committee. "Termination for Cause" has the same meaning as set forth under Paragraph 26 above. 28 EX-31 4 ex31_1.txt EXHIBIT 31.1 Exhibit 31.1 Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, Barry M. Donohue, President and Chief Executive Officer, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Atlantic Liberty Financial Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this quarterly report; 4. The small business issuer's other certifying officers and I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the small business issuer and have: a) designed such disclosure controls and procedures, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report ("Evaluation Data"); and c) described in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the evaluation date; and 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the small business issuer's ability to record, process, summarize and report financial data and have identified for the small business issuer's auditors any material weaknesses in internal controls; and 29 b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control. Date: February 6, 2004 /s/ Barry M. Donohue - ---------------------- ------------------------------------ Barry M. Donohue, President and Chief Executive Officer 30 EX-31 5 ex31_2.txt EXHIBIT 31.2 Exhibit 31.2 Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 I, William M. Gilfillan, Executive Vice President and Chief Financial Officer, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of Atlantic Liberty Financial Corp.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this quarterly report; 4. The small business issuer's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the small business issuer and have: a) designed such disclosure controls and procedures, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the small business issuer's disclosure controls and procedure as of a date within 90 days prior to the filing date of this quarterly report ("Evaluation Data") ; and c) described in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedure based on our evaluation as of the evaluation date; and 5. The small business issuer's other certifying officers and I have disclosed, based on our most recent evaluation, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls, which could adversely affect the small business issuer's ability to record, process, summarize and report financial data and have identified for the small business issuer's auditors any material weaknesses in internal controls; and 31 b) any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal controls. Date: February 6, 2004 /s/ WILLIAM M. GILFILLAN - ---------------------- --------------------------------------- William M. Gilfillan, Executive Vice President and Chief Financial Officer 32 EX-32 6 ex_32.txt EXHIBIT 32 Exhibit 32 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Barry M. Donohue, President and Chief Executive Officer, and William M. Gilfillan, Executive Vice President and Chief Financial Officer of Atlantic Liberty Financial Corp. (the "Company"), each certify in his/her capacity as an officer of the Company that he/she has reviewed the Quarterly Report of the Company on Form 10-QSB for the quarter ended December 31, 2003 and that to the best of his/her knowledge: 1. the report fully complies with the requirements of Sections 13(a) of the Securities Exchange Act of 1934; and 2. the information contained in the report fairly presents, in all material respects, the financial condition and results of operations of the Company. The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002. February 6, 2004 /s/ BARRY M. DONOHUE Date ---------------------------------------------------- Barry M. Donohue President and Chief Executive Officer February 6, 2004 /s/ WILLIAM M. GILFILLAN Date ---------------------------------------------------- William M. Gilfillan Executive Vice President and Chief Financial Officer 33 -----END PRIVACY-ENHANCED MESSAGE-----