-----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, JdX3kQJIzq1pbxFe+7Y4Q7Q+iChuKyeVgYbuQnWIFxffcJr56mPsrIXDWoYzB9ov O/uF9yg5ebrZNayIoktosw== 0001133884-03-000061.txt : 20030211 0001133884-03-000061.hdr.sgml : 20030211 20030211113638 ACCESSION NUMBER: 0001133884-03-000061 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030211 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: 03549099 MAIL ADDRESS: STREET 1: 186 MONTAGUE ST CITY: BROOKLYN STATE: NY ZIP: 11201 10QSB 1 g10qsb-30456.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, 2002 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, 2002, 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 8-17 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 SIGNATURES 19 ITEM 1. FINANCIAL STATEMENTS ATLANTIC LIBERTY FINANCIAL CORP. CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (IN THOUSANDS OF DOLLARS) (UNAUDITED)
At At December 31, March 31, 2002 2002 -------- -------- ASSETS Cash and cash equivalents Cash and amounts due from depository Institutions $ 1,921 $ 785 Interest bearing deposits 6,241 9,156 -------- -------- Total cash and cash equivalents 8,162 9,941 -------- -------- Investment securities held to maturity 1,027 1,032 Mortgage-backed securities held to maturity 24,600 15,758 Loans receivable, net 100,890 92,856 Premises and equipment 1,623 1,353 Federal Home Loan Bank of New York Stock 902 902 Interest receivable 776 698 Deferred income tax 351 305 Investment in real estate 78 78 Other assets 2,969 1,121 -------- -------- Total Assets $141,378 $124,044 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities Deposits $111,061 $110,990 Federal Home Loan Bank of New York advances 1,600 2,000 Advance payments by borrowers for taxes and insurance 1,124 969 Other liabilities 2,879 1,296 -------- -------- Total Liabilities 116,664 115,255 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 - Paid in Capital 16,086 - Unearned ESOP Shares (1,232) - Retained Earnings-substantially restricted 9,689 8,789 -------- -------- Total Stockholders' Equity 24,714 8,789 -------- -------- Total liabilities and Stockholders' Equity $141,378 $124,044 ======== ========
See notes to consolidated financial statements. -1- ATLANTIC LIBERTY FINANCIAL CORP. CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS OF DOLLARS EXCEPT PER SHARE DATA) (UNAUDITED)
Three Months Nine Months Ended December 31, Ended December 31, ------------------ ------------------ 2002 2001 2002 2001 ---- ---- ---- ---- Interest income Loans $ 1,811 $ 1,703 $ 5,327 $ 5,010 Mortgage backed securities 203 217 598 732 Investments held to maturity 16 16 49 61 Other interest-earning assets 86 45 178 191 -- -- --- --- Total interest income 2,116 1,981 6,152 5,994 ----- ----- ----- ----- Interest expense Deposits 588 903 1,911 3,023 Advances 19 22 63 30 Escrow 3 3 8 8 - - - - Total interest expense 610 928 1,982 3,061 --- --- ----- ----- Net interest income 1,506 1,053 4,170 2,933 Provision for loan losses 40 (8) 40 (8) -- -- -- -- Net interest income after provision for loan losses 1,466 1,061 4,130 2,941 ----- ----- ----- ----- Non-interest income Service fees 49 50 154 114 Miscellaneous 28 21 86 81 -- -- -- -- Total non-interest income 77 71 240 195 -- -- --- --- Non-interest expenses Salaries and employee benefits 488 383 1,399 1,132 ESOP Expense 184 0 184 0 Directors Compensation 40 58 118 180 Net occupancy expenses 37 8 61 36 Equipment 153 67 457 204 Advertising 10 16 26 40 Federal Insurance Premium 5 5 14 23 Legal fees 15 11 35 66 Miscellaneous 160 139 495 386 --- --- --- --- Total non-interest expenses 1,092 687 2,789 2,067 ----- --- ----- ----- Income before income taxes 451 445 1,581 1,069 Income tax expense 209 189 681 451 --- --- --- --- Net income $242 $256 $900 $618 ==== ==== ==== ==== Earnings per share Basic and diluted $ 0.15 n/a n/a n/a Weighted average shares 1,574,301 n/a n/a n/a
See notes to consolidated financial statements. -2- ATLANTIC LIBERTY FINANCIAL CORP. CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF DOLLARS) (UNAUDITED)
NINE MONTHS ENDED DECEMBER 31, CASH FLOWS FROM OPERATING ACTIVITIES 2002 2001 - ------------------------------------ ------------ ----------- Net income $ 900 $ 618 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 100 89 Provision for loan losses 40 -- Net accretion of premiums, discounts and deferred loan fees (54) (42) Deferred inocme taxes (47) (109) ESOP compensation expense 184 -- (Increase) decrease in interest receivable (78) 87 (Increase) decrease in other assets (1,848) 578 Increase in other liabilities 1,583 253 ------------ ----------- Net cash provided by operating activities 780 1,474 ------------ ----------- Cash flows from investing activities: Purchases of Mortgage-backed securities held to maturity (14,323) (2,032) Purchases of Invesment Securities held to maturity -- (1,036) Proceeds of maturities,calls and principal repayments on: Investment securities held to maturity 0 4,000 Mortgage-backed securities held to maturity 5,483 6,469 Net change in loans receivable (8,016) (7,953) Additions to premises and equipment (370) (34) ------------ ----------- Net cash (used in) investing activities (17,226) (586) ------------ ----------- Cash flows from financing activities: Increase in deposits 71 2,394 Increase in advance payments by borrowers for taxes and insurance 155 101 (Decrease) increase on Federal Home Loan Bank of New York advances (400) 2,000 Net proceeds from stock conversion 14,841 -- ------------ ----------- Net cash provided by investing activities 14,667 4,495 ------------ ----------- Net (decrease) increase in cash and cash equivalents (1,779) 5,383 Cash and cash equivalents at beginning of period 9,941 4,689 ------------ ----------- Cash and cash equilvalents at end of period $ 8,162 $ 10,072 ============ =========== Supplemental disclosures of cash flow information Cash paid for: Interest $ 1,976 $ 3,062 ------------ ----------- Federal, state and city income taxes $ 855 $ 677 ------------ -----------
See notes to consolidated financial statements. -3- ATLANTIC LIBERTY FINANCIAL CORP. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS OF DOLLARS) (UNAUDITED)
Unearned Common Paid-in ESOP Retained Stock Capital Shares Earnings Total ------ -------- -------- -------- -------- Balance at March 31, 2002 -- -- -- $ 8,789 $ 8,789 Issuance of common stock, net of issuance costs 171 16,039 (1,369) -- 14,841 ESOP shares earned -- 47 137 -- 184 Net income -- -- -- 900 900 ------ -------- -------- ------- -------- Balance at December 31, 2002 $ 171 $ 16,086 $ (1,232) $ 9,689 $ 24,714 ====== ======== ======== ======= ========
See notes to consolidated financial statements. -4- ATLANTIC LIBERTY FINANCIAL CORP. Notes to Consolidated Financial Statements December 31, 2002 (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, 2003. 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. 5 NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) - ------------------------------------------------------------- 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. 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- ADOPTION OF PLAN OF CONVERSION AND STOCK ISSUANCE - ------------------------------------------------------------- On April 17, 2002, the Board of Directors of the Association adopted a Plan of Conversion 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 of Conversion ("Plan") was approved by the Office of Thrift Supervision (OTS) and by the Association's members at a Special Meeting of Members held on October 4, 2002. On October 22, 2002 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 after the conversion. The Association will maintain the liquidation account in accordance with applicable federal regulations. 6 NOTE 4- EMPLOYEE STOCK OWNERSHIP PLAN - ---------------------------------------- As part of the conversion transaction, 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. The first such principal and interest payment took place on December 31, 2002 thereby releasing 13,688 to eligible employees. NOTE 5- EARNINGS PER SHARE - ----------------------------- Amounts reported as 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. 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. 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, 2002 to the Association's financial condition at March 31, 2002 and the consolidated results of operations for the three-month and nine-month periods ended December 31, 2002 to the same periods in 2001. This discussion should be read in conjunction with the interim financial statements and footnotes included herein. COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 2002 AND MARCH 31, 2002 Our total assets at December 31, 2002 were $141.4 million an increase of $17.4 million from the $124.0 million at March 31, 2002. The increase reflects growth in loans receivable and mortgage-backed securities as well as our investment in Bank Owned Life Insurance primarily funded by the investment of the net proceeds provided by our 8 stock offering in October 2002 and a decrease in cash and cash equivalents. Loans increased by $8.0 million or 8.6% to $100.9 million at December 31, 2002 from $92.9 million at March 31, 2002. Our increase in loans resulted principally from increased one-to-four family mortgage loan originations reflecting customers seeking to take advantage of low market interest rates as well as increased new originations of commercial real estate loans. Mortgage-backed securities increased $8.8 million or 55.7% to $24.6 million at December 31, 2002 from $15.8 million at March 31, 2002 reflecting new purchases of $14.3 million partially offset by pre-payments and amortization of $5.5 million. Other assets includes a $2.0 million investment in Bank Owned Life Insurance at December 31, 2002. There was no similar investment at March 31, 2002. Cash and cash equivalents decreased $1.7 million or 17.2% to $8.2 million at December 31, 2002 from $9.9 million at March 31, 2002 to provide funding for loan originations, purchase of mortgage-backed securities and the BOLI investment. Total deposits of $111.1 million were relatively unchanged at December 31, 2002 from $111.0 million at March 31, 2002. Federal Home Loan Bank of New York advances decreased $400,000 to $1.6 million at December 31, 2002 from $2.0 million at March 31, 2002, reflecting repayments of advances due. Equity increased $15.9 million or 180.7% to $24.7 million at December 31, 2002 from $8.8 million at March 31, 2002. The increase is primarily the result of the stock conversion in October 2002 in which the company received $17.1 million in stock proceeds reduced by conversion expenses of $900,000 and $1.4 million used to purchase shares to fund our employee stock ownership plan. Equity at December 31, 2002 also includes net income for the nine months ended December 31, 2002 of $900,000. COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED DECEMBER 31, 2002 AND DECEMBER 31, 2001. GENERAL. Net income for the three months ended December 31, 2002 was $242,000 which was a decrease of $14,000 or 5.5% from $256,000 for the three months ended December 31, 2001. The decrease in net income was primarily due to an increase of $405,000 in non-interest expense, a $48,000 net change in the provision for loan losses and a $20,000 increase in income tax expense; partially offset by increases of $453,000 in net interest income and $6,000 in non-interest income. INTEREST INCOME. Interest income increased by $135,000 during the comparative three months ended December 31, 2002 and 2001. The increase in interest income resulted primarily from an increase of $108,000 in interest received from loans and an increase in interest received on other interest earnings assets of $41,000 partially offset by a $14,000 decrease in interest received on mortgage-backed securities. Interest income from loans increased $108,000 or 6.3% to $1.8 million for the three months ended December 31, 2002 from $1.7 million for the three months ended December 31, 2001. The average balance of loans outstanding for the periods increased by $8.5 million to $98.8 million from $90.3 million. The average yield on loans declined 21 basis points to 7.33% for the three months ended December 31, 2002 from 7.54% for 9 the three months ended December 31, 2001, reflecting a decrease in market interest rates generally. Interest income on other interest earning assets increased $41,000 or 91.1% to $86,000 for the three months ended December 31, 2002 from $45,000 for the same period in 2001. The increase was due to a increase in the average balance of other interest earning assets to $21.5 million from $9.1 million partially offset by an decrease in the rates paid on overnight deposits held at other financial institutions. The increase in the average balance of other interest earning assets reflects the temporary use of cash subscriptions received in connection with our stock offering. Interest income from mortgage-backed securities decreased $14,000 or 6.5% to $203,000 for the three months ended December 31, 2002 from $217,000 for the same period in 2001. The decrease was due to a 181 basis point decrease in the average yield partially offset by an increase in average mortgage-backed securities of $6.1 million to $21.7 million for the three months ended December 31, 2002 from $15.6 million for the three months ended December 31, 2001. INTEREST EXPENSE. Total interest expense decreased by $318,000 or 34.3% to $610,000 for the three months ended December 31, 2002 from $928,000 for the three months ended December 31, 2001. The decrease in interest expense resulted primarily from a decrease in the average cost of our interest bearing liabilities to 1.97% from 3.42%, reflecting the decrease in market interest rates during the period partially offset by an increase in average total interest bearing liabilities of $15.3 million to $124.0 million from 108.7 million. Interest expense on deposits decreased $315,000 or 34.9% to $588,000 for the three months ended December 31, 2002 from $903,000 for the three months ended December 31, 2001. The average balance of certificate of deposit accounts decreased $5.6 million from $66.9 million for the three months ended December 31, 2001 to $61.3 million for the three months ended December 31, 2002, and the average cost on such accounts decreased from 4.38% to 2.81%. In addition, although the average balance of transaction and savings deposits increased $21.4 million or 55.2% to $60.2 million for the three months ended December 31, 2002 from $38.8 million for the three months ended December 31, 2001, the average cost on such accounts declined 70 basis points to 1.05% from 1.75%. The increase in the average balance of transaction and savings deposits primarily reflects the temporary deposits resulting from cash subscriptions received in connection with our stock offering. Interest expense on Federal Home Loan Bank of New York advances was $19,000 for the three months ended December 31, 2002, a decrease of $3,000 from the $22,000 recorded in the three months ended December 31, 2001. Average Federal Home Loan Bank of New York advances decreased to $1.6 million for the three months ended December 31, 2002, from $2.0 million in the prior period. NET INTEREST INCOME. Net interest income increased $453,000 or 43.0% to $1,506,000 for the three months ended December 31, 2002 from $1,053,000 for the three months ended December 31, 2001. Our net interest spread increased 54bp to 3.95% for the three months ended December 31, 2002, from 3.41% for the comparable period in 2001, while our net interest margin increased 58 basis points to 4.21% from 3.63% . 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 made a provision of $40,000 for the three months ended December 31, 2002 and recognized an $8,000 recovery for the three months ended December 31, 2001. 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 $484,000 or .48% of loans outstanding at December 31, 2002 as compared with $358,000 or .39% of loans outstanding at December 31, 2001. The allowance for loan losses represented 386.5% of non-performing loans at December 31, 2002 and 67.9% of non-performing loans at December 31, 2001. 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, 2002 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 $6,000 to $77,000 for the three months ended December 31, 2002, as compared to $71,000 for the three months ended December 31, 2001. The increase was attributable to increases in income from safe deposit box rentals of $4,000 and miscellaneous operating income of $2,000. NON-INTEREST EXPENSE. Non-interest expense for the three months ended December 31, 2002 was $1,092,000 compared to $687,000 for the three months ended December 31, 2001, an increase of $405,000 or 59.0%. The increase was primarily attributable to a $105,000 increase in salaries and employee benefits, $72,000 in expenses related to the conversion to a new data service provider which occurred in October 2002, an increase of $29,000 in occupancy expenses, $184,000 in ESOP expenses related to the release of 13,688 shares to eligible employees and an increase of $21,000 in miscellaneous expenses partially offset by a $18,000 decrease in directors' compensation. PROVISION FOR INCOME TAXES. The provision for income taxes increased to $209,000 for the three months ended December 31, 2002 from $189,000 for the three months ended December 31, 2001. The increase in the provision for income taxes is primarily due to an increase in the effective tax rate to 46.4% for the three months 11 ending December 31, 2002 from 42.5% 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. COMPARISON OF OPERATING RESULTS FOR THE NINE-MONTHS ENDED DECEMBER 31, 2002 AND DECEMBER 2001. GENERAL. Net income for the nine months ended December 31, 2002 was $900,000 which was an increase of $282,000 or 45.6% from $618,000 for the nine months ended December 31, 2001. The increase in net income was primarily due to increases of $1.2 million in net interest income and $45,000 in non-interest income, which were partially offset by an increase of $722,000 in non-interest expense and a $48,000 net change in the provision for loan losses. INTEREST INCOME. Interest income increased by $158,000 during the comparative nine months ended December 31, 2002 and 2001. The increase in interest income resulted primarily from an increase of $317,000 in interest received from loans offset by a $134,000 decrease in interest received on mortgage-backed securities, a $12,000 decrease in interest on investments held to maturity, and a $13,000 decrease in interest received on other interest-earning assets. Interest income from loans increased $317,000 or 6.3% to $5.3 million for the nine months ended December 31, 2002 from $5.0 million for the nine months ended December 31, 2001. The average yield on loans declined 23 basis points to 7.40% for the nine months ended December 31, 2002 from 7.63% for the nine months ended December 31, 2001, reflecting a decrease in market interest rates generally. The effect of the decline was more than offset by a $8.5 million increase in the average balance of loans outstanding for the same period. Interest income from mortgage-backed securities decreased $134,000 or 18.3% to $598,000 for the nine months ended December 31, 2002 from $732,000 for the same period in 2001. The decrease was due to a 148 basis point decrease in the average yield partially offset by an increase in mortgage-backed securities of $1.5 million to $18.1 million for the nine months ended December 31, 2002 from $16.6 million for the nine months ended December 31, 2001. Interest income on investment securities decreased $12,000 or 19.7% to $49,000 for the nine months ended December 31, 2002, from $61,000 for the nine months ended December 31, 2001.The decrease in interest income on investment securities was due to a decrease in the average balance of investment securities to $1.0 million from $1.3 million partially offset by an increase of 6 basis points in the average yield. Interest income on other interest earning assets decreased $13,000 or 6.8% to $178,000 for the nine months ended December 31, 2002 from $191,000 for the same period in 2001. The decrease was due to a decrease in the rates paid on overnight 12 deposits held at other financial institutions, which was partially offset by an increase in the average balance of other interest earning assets to $14.8 million from $8.0 million. INTEREST EXPENSE. Total interest expense decreased by $1.1 or 35.5% to $2.0 million for the nine months ended December 31, 2002 from $3.1 million for the nine months ended December 31, 2001. The decrease in interest expense resulted primarily from a decrease in the average cost of our interest bearing liabilities to 2.24% from 3.85%, reflecting the decrease in market interest rates during the period partially offset by an increase in interest paid on Federal Home Loan Bank of New York advances. Interest expense on deposits decreased $1.1million or 36.7% to $1.9 million for the nine months ended December 31, 2002 from $3.0 million for the nine months ended December 31, 2001. The average balance of certificate of deposit accounts decreased $2.2 million from $66.1 million for the nine months ended December 31, 2001 to $63.9 million for the nine months ended December 31, 2002, and the average cost on such accounts decreased to 3.07% from 4.88%. In addition, although the average balance of transaction and savings deposits increased $13.1 million or 34.3% to $51.3 million for the nine months ended December 31, 2002 from $38.2 at December 31, 2001, the average cost on such accounts declined 98 basis points to 1.14% from 2.12%. Interest expense on Federal Home Loan Bank of New York advances was $63,000 for the nine months ended December 31, 2002, an increase of $33,000 from the $30,000 recorded in the nine months ended December 31, 2001. Average Federal Home Loan Bank of New York advances increased to $1.8 million for the nine months ended December 31, 2002, from $894,000 during the prior period. NET INTEREST INCOME. Net interest income increased $1.2 million or 41.4% to $4.2 million for the nine months ended December 31, 2002 from $2.9 million for the nine months ended December 31, 2001. Our net interest spread increased 87 basis points to 4.07% for the nine months ended December 31, 2002, from 3.20% for the comparable period in 2001, while our net interest margin increased 83 basis points to 4.28% from 3.45% . 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 made a provision of $40,000 for the nine months ended December 31, 2002 and recognized an $8,000 recovery for the nine months ended December 31, 2001. 13 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 $484,000 or .48% of loans outstanding at December 31, 2002 as compared with $358,000 or .39% of loans outstanding at December 31, 2001. The allowance for loan losses represented 386.5% of non-performing loans at December 31, 2002 and 67.9% of non-performing loans at December 31, 2001. 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 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, 2002 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 $45,000 or 23.1% to $240,000 for the nine months ended December 31, 2002, as compared to $195,000 for the nine months ended December 31, 2001. The increase was primarily attributed to an increase in loan prepayment penalty fees of $20,000; a $10,000 increase in late charges on mortgages; and a $12,000 increase in checking account fees. NON-INTEREST EXPENSE. Non-interest expense for the nine months ended December 31, 2002 was $2.8 million compared to $2.1 million for the nine months ended December 31, 2001, an increase of $722,000 or 34.9%. The increase was primarily attributable to a $267,000 increase in salaries and employee benefits, $245,000 in expenses related to the conversion to a new data service provider, which occurred in October, an increase of $25,000 in net occupancy expenses, $184,000 in ESOP expenses related to the release of 13,688 shares of stock to eligible employees, and an increase in other miscellaneous expenses of $109,000 partially offset by decreases of $62,000 in Directors Compensation and $31,000 in legal fees. PROVISION FOR INCOME TAXES. The provision for income taxes for the nine months ended December 31, 2002 increased to $681,000 from $451,000 for the nine months ended December 31, 2001. The increase in the provision for income taxes is primarily due to our higher level of income before taxes of $1.6 million for the nine months ended December 31, 2002 compared with $1.1 million in the prior period. 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 14 and other short-term interest-bearing assets to provide liquidity to meet these needs. At December 31, 2002, cash and cash equivalents totaled $8.2 million. At December 31, 2002, the Association had commitments to funds loans of $11.5 million. At December 31, 2002, certificates of deposit represented 54.7% of total deposits. The Association expects to retain these deposit accounts. In addition, the Association could borrow up to $16.4 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. 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, 2002:
ACTUAL REQUIRED EXCESS ----------------- ---------------- ---------------- (Dollars in thousands) AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- ------- ----- Core capital (to adjusted total assets) $ 16.6 11.8% $ 5.7 4.0% $ 10.9 7.8% Risk-based capital To (risk-weighted assets) $ 17.0 22.7% $ 6.0 8.0% $ 13.0 14.7%
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. 15 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 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 30, 2002, 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 $13,447 $(3,561) (21)% 7.88% (179) basis points +200 15,102 (1,906) (11) 8.74 (93) basis points +100 16,390 (618) (4) 9.39 (28) basis points 0 17,008 - - 9.67 - basis points - -100 17,268 260 +2 9.77 +9 basis points
The table above indicates that at September 30, 2002, in the event of a 100 basis point decrease in interest rates, we would experience a 2% increase in net portfolio value. In the event of a 200 basis point increase in interest rates, we would experience a 11% 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 16 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. ITEM 3. CONTROLS AND PROCEDURES (a) Evaluation of disclosure controls and procedures. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-14(c) under the Exchange Act) as of a date (the "Evaluation Date") within 90 days prior to the filing date of this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in timely alerting them to the material information relating to us (or our consolidated subsidiaries) required to be included in our periodic SEC filings. (b) Changes in internal controls. There were no significant changes made in our internal controls during the period covered by this report or, to our knowledge, in other factors that could significantly affect these controls subsequent to the date of their evaluation. 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, 2002, 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. None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit 99.1 Sarbanes-Oxley Certifications pursuant to Section 906. 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 11, 2002 /s/ Barry M. Donohue -------------------------------------- Barry M. Donohue President and Chief Executive Officer Date: February 11, 2002 /s/ William M. Gilfillan -------------------------------------- William M. Gilfillan Chief Financial Officer and Corporate Secretary 19 EX-99.1 3 gex99_1-30456.txt EX-99.1 EXHIBIT 99.1 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 (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, 2002 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 11 , 2003 /s/ Barry M. Donohue - -------------------- --------------------------------------- Date Barry M. Donohue President and Chief Executive Officer February 11 , 2003 /s/ William M. Gilfillan - -------------------- --------------------------------------- Date William M. Gilfillan Executive Vice President and Chief Financial Officer 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 December 31, 2002 ; 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 registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. February 11 , 2003 /s/ Barry M. Donohue - ----------------------- ------------------------------------- Date Barry M. Donohue President and Chief Executive Officer 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 December 31, 2002; 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 registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. February 11, 2003 /s/ William M. Gilfillan - -------------------- ------------------------------------- Date William M. Gilfillan Executive Vice President and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----