UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended:
September 30,
2008
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or
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from ___________ to ____________
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000-53370
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(Commission
File Number)
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Auburn
Bancorp, Inc.
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(Exact
name of registrant as specified in its charter)
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United
States
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26-2139168
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(State
or other jurisdiction
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(IRS
Employer
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of
incorporation)
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Identification
No.)
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256
Court Street, P.O. Box 3157, Auburn, Maine 04212
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(Address
and zip code of principal executive offices)
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(207)
782-0400
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(Registrant’s
telephone number, including area code)
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None
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(Former
name, former address and former fiscal year, if changed since last
report)
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Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
x
Yes
o
No
*
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer
o
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Accelerated
filer
o
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Non-accelerated
filer
o
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Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes
o
No
x
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date:
Common
Stock, $0.01 par value, 503,284 shares outstanding as of November 13,
2008.
AUBURN
BANCORP, INC. AND SUBSIDIARY
QUARTERLY
REPORT ON FORM 10-Q
September
30, 2008
TABLE
OF CONTENTS
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Page
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PART
I. FINANCIAL INFORMATION (Unaudited)
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Item
1.
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Financial
S
tatements
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Consolidated
Balance Sheets as of September 30, 2008 (Unaudited) and June 30,
2008
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3
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Consolidated
Statements of Income for the Three Months Ended September 30, 2008 and
2007 (Unaudited)
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4
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Consolidated
Statements of Changes in Stockholders’ Equity for the Three Months Ended
September
30, 2008 and 2007 (Unaudited)
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5
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Consolidated
Statements of Cash Flows for the Three Months Ended September 30, 2008 and
2007 (Unaudited)
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6
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Notes
to Consolidated Financial Statements (Unaudited)
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7
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Item
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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10
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Item
3.
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Quantitative
and Qualitative Disclosures About Market Risk
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16
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Item
4.
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Controls
and Procedures
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16
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PART
II. OTHER INFORMATION
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Item
1.
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Legal
Proceedings
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17
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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17
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Item
3.
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Defaults
Upon Senior Securities
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17
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Item
4.
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Submission
of Matters to a Vote of Security Holders
|
17
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Item
5.
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Other
Information
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17
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Item
6.
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Exhibits
|
18
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Signatures
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19
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PART
I. FINANCIAL INFORMATION (Unaudited)
ITEM
1. FINANCIAL
STATEMENTS
AUBURN
BANCORP, INC. AND SUBSIDIARY
Consolidated
Balance Sheets
September
30, 2008 (Unaudited) and June 30, 2008
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September
30,
2008
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June
30,
2008
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(Unaudited)
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ASSETS
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Cash
and due from banks
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$
|
1,399,308
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$
|
1,782,970
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Interest-bearing
deposits
|
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1,330,789
|
|
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|
229,517
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Total
cash and cash equivalents
|
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2,730,097
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2,012,487
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Certificates
of deposit
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2,453,051
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2,257,504
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Investment
securities available for sale
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1,332,623
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|
1,433,732
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Federal
Home Loan Bank stock, at cost
|
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901,100
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901,100
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Loans
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|
58,586,424
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|
57,021,649
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Less
allowance for loan losses
|
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|
(364,124
|
)
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|
(345,550
|
)
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|
Net
loans
|
|
|
58,222,300
|
|
|
|
56,676,099
|
|
|
|
|
|
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Property
and equipment, net
|
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1,938,163
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1,945,233
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Foreclosed
real estate
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224,732
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87,383
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|
Accrued
interest receivable:
|
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|
|
|
|
|
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Investments
|
|
|
35,480
|
|
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|
23,725
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|
|
Mortgage-backed
securities
|
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|
1,892
|
|
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|
2,034
|
|
|
Loans
|
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|
255,887
|
|
|
|
249,547
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Prepaid
expenses and other assets
|
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196,371
|
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|
710,448
|
|
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|
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|
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|
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Total
assets
|
|
$
|
68,291,696
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|
$
|
66,299,292
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|
|
|
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LIABILITIES
AND STOCKHOLDERS’ EQUITY
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Liabilities:
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Deposits
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$
|
47,327,779
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|
$
|
46,073,155
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Federal
Home Loan Bank advances
|
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|
14,900,000
|
|
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|
15,350,000
|
|
|
Accrued
interest and other liabilities
|
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|
165,349
|
|
|
|
269,752
|
|
|
Deferred
income taxes
|
|
|
78,336
|
|
|
|
88,786
|
|
|
Total
liabilities
|
|
|
62,471,464
|
|
|
|
61,781,693
|
|
|
|
|
|
|
|
|
|
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|
Stockholders’
equity:
|
|
|
|
|
|
|
|
|
|
Preferred
stock, 1,000,000 shares authorized, no shares outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common
stock, $.01 par value per share, 10,000,000 shares authorized, 503,284
shares issued and outstanding at September 30, 2008, none at June 30,
2008
|
|
|
5,033
|
|
|
|
—
|
|
|
Additional
paid-in-capital
|
|
|
1,471,148
|
|
|
|
—
|
|
|
Retained
earnings
|
|
|
4,570,730
|
|
|
|
4,566,433
|
|
|
Accumulated
other comprehensive loss
|
|
|
(55,505
|
)
|
|
|
(48,834
|
)
|
|
Unearned
compensation (ESOP shares)
|
|
|
(171,174
|
)
|
|
|
—
|
|
|
Total
stockholders’ equity
|
|
|
5,820,232
|
|
|
|
4,517,599
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
68,291,696
|
|
|
$
|
66,299,292
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
AUBURN
BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Income
Three
Months Ended September 30, 2008 and 2007 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended September 30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
(Unaudited)
|
|
|
Interest
and dividend income:
|
|
|
|
|
|
|
|
Interest
on loans
|
|
$
|
975,923
|
|
|
$
|
926,169
|
|
|
Interest
on investments and other interest-bearing deposits
|
|
|
48,492
|
|
|
|
66,512
|
|
|
Dividends
on Federal Home Loan Bank stock
|
|
|
6,833
|
|
|
|
14,603
|
|
|
Total
interest and dividend income
|
|
|
1,031,248
|
|
|
|
1,007,284
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense:
|
|
|
|
|
|
|
|
|
|
Interest
on deposits and escrow accounts
|
|
|
349,963
|
|
|
|
436,247
|
|
|
Interest
on Federal Home Loan Bank advances
|
|
|
191,037
|
|
|
|
175,567
|
|
|
Total
interest expense
|
|
|
541,000
|
|
|
|
611,814
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
490,248
|
|
|
|
395,470
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for (recovery of) loan losses
|
|
|
18,574
|
|
|
|
(2,512
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income after provision for (recovery of) loan
losses
|
|
|
471,674
|
|
|
|
397,982
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
income:
|
|
|
|
|
|
|
|
|
|
Net
gain on sales of loans
|
|
|
2,455
|
|
|
|
4,644
|
|
|
Other
non-interest income
|
|
|
19,949
|
|
|
|
31,592
|
|
|
Total
non-interest income
|
|
|
22,404
|
|
|
|
36,236
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest
expenses:
|
|
|
|
|
|
|
|
|
|
Salaries
and employee benefits
|
|
|
212,977
|
|
|
|
210,050
|
|
|
Occupancy
expense
|
|
|
28,646
|
|
|
|
26,702
|
|
|
Depreciation
|
|
|
25,031
|
|
|
|
26,821
|
|
|
Federal
insurance premiums
|
|
|
3,387
|
|
|
|
1,273
|
|
|
Computer
charges
|
|
|
41,409
|
|
|
|
37,302
|
|
|
Advertising
expense
|
|
|
9,019
|
|
|
|
11,055
|
|
|
Consulting
expense
|
|
|
9,651
|
|
|
|
9,066
|
|
|
Impairment
writedown of investment securities available for sale
|
|
|
60,270
|
|
|
|
—
|
|
|
Other
operating expenses
|
|
|
65,423
|
|
|
|
60,713
|
|
|
Total
non-interest expenses
|
|
|
455,813
|
|
|
|
382,982
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
38,265
|
|
|
|
51,236
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
tax expense
|
|
|
31,200
|
|
|
|
15,400
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
7,065
|
|
|
$
|
35,836
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per common share
|
|
$
|
.03
|
|
|
|
N/A
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
AUBURN
BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Changes in Stockholders’ Equity
Three
Months Ended September 30, 2008 and 2007 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Additional
Paid-
in-Capital
|
|
|
Retained
Earnings
|
|
|
Accumulated
Other
Comprehensive
Loss
|
|
|
Unearned
Compensation
(ESOP
Shares)
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2007
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,362,193
|
|
|
$
|
(12,392
|
)
|
|
$
|
—
|
|
|
$
|
4,349,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
35,836
|
|
|
|
—
|
|
|
|
—
|
|
|
|
35,836
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding gains on securities, net of taxes of $2,331
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
4,525
|
|
|
|
—
|
|
|
|
4,525
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
35,836
|
|
|
|
4,525
|
|
|
|
—
|
|
|
|
40,361
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of adoption of SFAS No.156, net of tax effect of $17,812
|
|
|
—
|
|
|
|
—
|
|
|
|
53,438
|
|
|
|
—
|
|
|
|
—
|
|
|
|
53,438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2007 (unaudited)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,451,467
|
|
|
$
|
(7,867
|
)
|
|
$
|
—
|
|
|
$
|
4,443,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
June 30, 2008
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,566,433
|
|
|
$
|
(48,834
|
)
|
|
$
|
—
|
|
|
$
|
4,517,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
|
—
|
|
|
|
—
|
|
|
|
7,065
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,065
|
|
|
Other
comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized
holding loss on securities, net of taxes of $(23,928)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(46,449
|
)
|
|
|
—
|
|
|
|
(46,449
|
)
|
|
Less
reclassification adjustment for items included in net income, net of taxes
of $20,492
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
39,778
|
|
|
|
—
|
|
|
|
39,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
7,065
|
|
|
|
(6,671
|
)
|
|
|
—
|
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued in public offering, net of offering costs of $766,504 (226,478
shares)
|
|
|
2,265
|
|
|
|
1,496,011
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,498,276
|
|
|
Shares
issued to MHC (276,806 shares)
|
|
|
2,768
|
|
|
|
—
|
|
|
|
(2,768
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Capitalization
of MHC
|
|
|
—
|
|
|
|
(25,000
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25,000
|
)
|
|
Shares
purchased by ESOP (17,262 shares)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(172,620
|
)
|
|
|
(172,620
|
)
|
|
Common
stock held by ESOP committed to be released (145 shares)
|
|
|
—
|
|
|
|
137
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,446
|
|
|
|
1,583
|
|
|
Balance,
September 30, 2008 (unaudited)
|
|
$
|
5,033
|
|
|
$
|
1,471,148
|
|
|
$
|
4,570,730
|
|
|
$
|
(55,505
|
)
|
|
$
|
(171,174
|
)
|
|
$
|
5,820,232
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
AUBURN
BANCORP, INC. AND SUBSIDIARY
Consolidated
Statements of Cash Flows
Three
Months Ended September 30, 2008 and 2007 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three
Months Ended
September
30,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Cash
flows from operating activities
|
|
|
|
|
|
|
|
Net
income
|
|
$
|
7,065
|
|
|
$
|
35,836
|
|
|
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
25,031
|
|
|
|
26,821
|
|
|
Net
amortization of premiums (accretion of discounts) on investment securities
available for sale
|
|
|
(1,799
|
)
|
|
|
1,463
|
|
|
Provision
for (recovery of) loan losses
|
|
|
18,574
|
|
|
|
(2,512
|
)
|
|
Deferred
income tax expense
|
|
|
(7,014
|
)
|
|
|
1,076
|
|
|
Other-than-temporary
impairment on investment securities available for sale
|
|
|
60,270
|
|
|
|
—
|
|
|
Gain
on sales of loans
|
|
|
(2,455
|
)
|
|
|
(4,644
|
)
|
|
ESOP
compensation expense
|
|
|
1,583
|
|
|
|
—
|
|
|
Net
decrease (increase) in prepaid expenses and other assets
|
|
|
525,502
|
|
|
|
(22,594
|
)
|
|
Net
increase in accrued interest receivable
|
|
|
(17,953
|
)
|
|
|
(2,942
|
)
|
|
Net
decrease in accrued interest payable and other liabilities
|
|
|
(104,405
|
)
|
|
|
(30,262
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by operating activities
|
|
|
504,399
|
|
|
|
2,242
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Purchase
of investment securities available for sale
|
|
|
(250,000
|
)
|
|
|
—
|
|
|
Proceeds
from maturities and principal paydowns on investment securities available
for sale
|
|
|
282,531
|
|
|
|
540,940
|
|
|
Net
change in certificates of deposit
|
|
|
(195,547
|
)
|
|
|
(295,000
|
)
|
|
Net
increase in loans to customers
|
|
|
(1,711,094
|
)
|
|
|
(72,136
|
)
|
|
Capital
expenditures
|
|
|
(17,961
|
)
|
|
|
(14,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided (used) by investing activities
|
|
|
(1,892,071
|
)
|
|
|
159,374
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Advances
from Federal Home Loan Bank
|
|
|
—
|
|
|
|
500,000
|
|
|
Repayment
of advances from Federal Home Loan Bank
|
|
|
(250,000
|
)
|
|
|
(250,000
|
)
|
|
Net
change in short term borrowings
|
|
|
(200,000
|
)
|
|
|
—
|
|
|
Net
increase in deposits
|
|
|
1,254,626
|
|
|
|
226,154
|
|
|
Proceeds
from issuance of common stock, net of offering costs
|
|
|
1,498,276
|
|
|
|
—
|
|
|
Capitalization
of MHC
|
|
|
(25,000
|
)
|
|
|
—
|
|
|
Cash
provided to ESOP for purchases of shares
|
|
|
(172,620
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
2,105,282
|
|
|
|
476,154
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
717,610
|
|
|
|
637,770
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
2,012,487
|
|
|
|
3,413,330
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
2,730,097
|
|
|
$
|
4,051,100
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary
cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
541,467
|
|
|
$
|
611,611
|
|
|
Taxes
|
|
$
|
79,000
|
|
|
$
|
—
|
|
The
accompanying notes are an integral part of these unaudited consolidated
financial statements.
AUBURN
BANCORP, INC. AND SUBSIDIARY
Notes
to Financial Statements
|
|
|
|
1.
|
Basis of
Presentation
|
|
|
|
|
|
The
financial information included herein presents the financial condition and
results of operations for Auburn Bancorp, Inc. and its wholly-owned
subsidiary, Auburn Savings Bank, FSB. as of September 30, 2008, and for
the interim periods ended September 30, 2008 and 2007. The financial
information is unaudited; however, in the opinion of management, the
information reflects all adjustments, consisting of normal recurring
adjustments that are necessary to make the financial statements not
misleading for a fair presentation. The results shown for the three months
ended September 30, 2008 and 2007 are not necessarily indicative of the
results to be obtained for a full year. The accompanying consolidated
financial statements have been prepared in conformity with U.S. generally
accepted accounting principles (“GAAP”) and with the rules and regulations
of the Securities and Exchange Commission for interim financial reporting.
Accordingly they do not include all of the information and footnotes
required for complete financial statements. These interim financial
statements should be read in conjunction with the audited financial
statements for the year ended June 30, 2008 included in the Company’s
annual report on Form 10-K (File No. 000-53370).
|
|
|
|
|
|
Since
the reorganization discussed in Note 2 was effective on August 15, 2008,
the June 30, 2008 financial statements do not include the holding company,
Auburn Bancorp, Inc.
|
|
|
|
|
|
In
preparing financial statements in conformity with accounting principles
generally accepted in the United States of America, management is required
to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the balance sheet and reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Material estimates that are
particularly susceptible to significant change in the near term relate to
the determination of the allowance for loan losses. In connection with the
determination of the allowance for loan losses, management obtains
independent appraisals for significant properties.
|
|
|
|
|
2.
|
Reorganization
|
|
|
|
|
|
On
January 11, 2008, the Board of Directors of Auburn Savings Bank (the
“Bank”) adopted a Plan of Reorganization From a Mutual Savings Bank to a
Mutual Holding Company and Stock Issuance Plan (the “Plan”) under which
Auburn Savings Bank reorganized into a mutual holding company structure.
As part of the reorganization, Auburn Savings Bank converted to a federal
stock savings bank and became a wholly-owned subsidiary of Auburn Bancorp,
Inc. (the “Company”), and the Company became a majority-owned subsidiary
of Auburn Mutual Holding Company (the “MHC”). In addition, the Company
conducted a stock offering pursuant to the laws of the United States of
America and the rules and regulations of the Office of Thrift Supervision
(“OTS”). Following completion of the reorganization and stock offering,
the MHC owns 55.0% of the outstanding common stock of the Company and the
minority public shareholders own 45.0%. Shares of the Company’s common
stock were offered on a first priority basis in a subscription offering to
eligible account holders, tax-qualified employee plans, and other members.
Shares remaining after the conclusion of the subscription offering were
offered for sale in a community offering. So long as the MHC is in
existence, the MHC will be required to own at least a majority of the
voting stock of the Company.
|
|
|
|
|
|
Net proceeds of $1.5
million were raised in the stock offering, after deduction of expenses of
$766,000 and excluding $25,000 used to capitalize the MHC and $173,000
which was loaned by the Company to a trust for the Employee Stock
Ownership Plan (the “ESOP”), enabling the ESOP to purchase 17,262 shares
of common stock in the offering, equal to 3.43% of the shares of common
stock
sold in the stock offering, for the benefit of the Bank’s
employees.
|
|
|
The
Company may not declare or pay a cash dividend on, or repurchase any of
its common stock, if the effect thereof would cause the regulatory capital
of Auburn Savings Bank to be reduced below the amount required under OTS
rules and regulations.
|
|
|
|
|
|
Auburn
Bancorp, Inc.’s common stock is quoted on the OTC Bulletin Board under the
symbol “ABBB.”
|
|
|
|
|
3.
|
Impact of Recent
Accounting Standards
|
|
|
|
|
|
On
February 15, 2007, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standard (SFAS) No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities
, which provides
companies with an option to report selected financial assets and
liabilities at fair value. SFAS No. 159 also establishes presentation and
disclosure requirements designed to facilitate comparisons between
companies that choose different measurement attributes for similar types
of assets and liabilities. This Statement is effective for the Bank’s 2009
fiscal year, with early adoption permitted for the Bank’s 2008 fiscal
year, provided that the Bank also adopts SFAS No. 157 for fiscal year
2008. Management is currently evaluating the potential impacts of adopting
this Statement on its financial statements.
|
|
|
|
|
|
In
September 2006, the FASB issued SFAS No. 157,
Fair Value
Measurements
. This Statement defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted
accounting principles, and expands disclosures about fair value
measurements. This Statement is effective for the Bank on July 1, 2008,
with earlier adoption permitted for fiscal year 2008, and is not expected
to have a material impact on the Bank’s financial statements. In February
2008, FASB issued FASB Staff Position (FSP) FAS No. 157-2 which delays by
one year the effective date of SFAS No. 157 for certain types of
nonfinancial assets and nonfinancial liabilities. In October 2008, FASB
issued FSP FAS No. 157-3,
Determining the Fair Value of
a Financial Asset When the Market for That Asset Is Not Active
. FSP
FAS No. 157-3 clarifies the application of SFAS No. 157 in a market that
is not active and provides an example to illustrate key considerations in
determining the fair value of a financial asset when the market for that
financial asset is not active.
|
|
|
|
|
|
In
March 2008, FASB issued SFAS No. 161,
Disclosures about Derivative
Instruments and Hedging Activities - an amendment of SFAS No. 133
.
SFAS No. 161 is intended to enhance the current disclosure framework in
SFAS No. 133. This Statement has the same scope as SFAS No. 133. SFAS No.
133 requires that objectives for using derivative instruments be disclosed
in terms of underlying risk and accounting designation. The disclosures
required by SFAS No. 161 better convey the purpose of derivative use in
terms of the risk that the entity is intending to manage, the fair values
of the derivative instruments and their gains and losses in a tabular
format, as well as information about credit-risk-related contingent
features. This Statement is effective for financial statements issued for
fiscal years and interim periods beginning after November 15, 2008.
Management does not expect implementation of SFAS No. 161 to have a
material impact on the financial statements of the
Company.
|
|
4.
|
Earnings
Per Share
|
|
|
|
|
|
Basic
earnings per share represents income available to common stockholders
divided by the
adjusted weighted-average number of common shares
outstanding during the period. The adjusted outstanding common shares
equals the gross number of common shares issued less unallocated shares of
the ESOP. Net income per common share is not applicable for the three
months ended September 30, 2007, as the Company did not become a public
entity until August 15, 2008.
|
|
|
|
|
|
Net
income per common share for the three months ended September 30, 2008 is
based upon net income of $7,065 and weighted-average shares outstanding of
257,112, less average ESOP shares not yet committed to be released of
8,768, or 248,344.
|
|
|
|
|
5.
|
Employee Stock
Ownership Plan
|
|
|
|
|
|
Shares
of the Company’s common stock purchased by the ESOP are held in a suspense
account until released for allocation to participants. Shares released are
allocated to each eligible participant based on the ratio of each such
participant’s compensation, as defined in the ESOP, to the total
compensation of all eligible plan participants. As the unearned shares are
released from suspense, the Company recognizes compensation expense equal
to the fair value of the ESOP shares committed to be released during the
period. To the extent that the fair value of the ESOP shares differs from
the cost of such shares, the difference is charged or credited to equity
as additional paid-in capital. Expense related to the ESOP totaled
approximately $2,000 for the three months ended September 30, 2008. The
fair value of the unallocated shares as of September 30, 2008 was
$176,936.
|
|
|
|
|
6.
|
Impairment Writedown
on Securities
|
|
|
|
|
|
In
accordance with SFAS No. 115, “Accounting for Certain Investments in Debt
and Equity Securities” and SEC Staff Accounting Bulletin No. 59,
“Accounting for Non-current Marketable Securities”, the Company determined
that it would write-down investments in Federal National Mortgage
Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC)
common stock in the quarter ended September 30, 2008 as a result of the
appointment of the Federal Housing Finance Agency as conservator over both
of the entities. The amount of the other-than-temporary impairment charge
was $60,000, the total amount of such FNMA and FHLMC common stock on the
Company’s books at that date.
|
|
|
|
|
|
The
Company did not record a tax benefit in connection with the impairment of
its FNMA and FHLMC common stock. Although the Company would realize a
capital loss if it sells the FNMA and FHLMC common stock, such capital
loss would result in a tax benefit to the Company only to the extent the
capital loss can be used to reduce capital gains available during the
applicable carryback and carryforward periods. The Company does not expect
those capital gains to be material in relation to the amount of the
other-than-temporary impairment charge.
|
|
|
|
|
7.
|
Fair Value
Measurement
|
|
|
|
|
|
SFAS
No. 157 defines fair value as the exchange price that would be received
for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an
orderly transaction between market participants on the measurement date.
SFAS No. 157 also establishes a fair value hierarchy which requires an
entity to maximize the use of observable inputs and minimize the use of
unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair
value:
|
|
|
|
|
|
Level
1: Quoted prices (unadjusted) or identical assets or liabilities in active
markets that the entity has the ability to access as of the measurement
date
|
|
|
Level
2: Significant other observable inputs other than Level 1 prices, such as
quoted prices for similar assets or liabilities, quoted prices in markets
that are not active, and other inputs that are observable or can be
corroborated by observable market data
|
|
|
|
|
|
Level
3: Significant unobservable inputs that reflect a company’s own
assumptions about the assumptions that market participants would use in
pricing an asset or liability
|
|
|
|
|
|
Assets
and liabilities measured at fair value on a recurring basis are summarized
below.
|
|
|
|
Fair
Value Measurements at September 30, 2008, Using
|
|
|
|
|
September
30,
2008
|
|
|
Quoted
Prices
In
Active
Markets
for
Identical
Assets
(Level
1)
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
securities available for sale
|
|
$
|
1,332,623
|
|
|
$
|
—
|
|
|
$
|
1,332,623
|
|
|
$
|
—
|
|
The
Company does not have any assets and liabilities measured at fair value on a
non-recurring basis at September 30, 2008.
ITEM
2. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Our
principal business is to acquire deposits from individuals and businesses in the
communities surrounding our offices and to use these deposits to fund loans. We
focus on providing our products and services to two segments of customers:
individuals and businesses.
Income
.
Our primary source of income
is net interest income. Net interest income is the difference between interest
income, which is the income that we earn on our loans and investments, and
interest expense, which is the interest that we pay on our deposits and
borrowings. Changes in levels of interest rates affect our net interest income.
Short-term interest rates (which influence the rates we pay on deposits) have
until recently increased, while longer-term interest rates (which influence the
rates we earn on loans) have not. The narrowing of the spread between the
interest we earn on loans and investments and the interest we pay on deposits
would negatively affect our net interest income. A secondary source of income is
non-interest income, which includes revenue that we receive from providing
products and services. The majority of our non-interest income generally comes
from loan servicing fees and service charges on deposit accounts, as well as
gains on sales of loans.
Allowance for
Loan Losses
.
The
allowance for loan losses is a valuation allowance for probable losses inherent
in the loan portfolio. We evaluate the need to establish allowances against
losses on loans on a regular basis. When additional allowances are necessary, a
provision for loan losses is charged to earnings.
Expenses.
The non-interest expenses we incur in operating our business consist of expenses
for salaries and employee benefits, occupancy and equipment, data processing,
marketing and advertising, professional services and various other miscellaneous
expenses. Our
largest
non-interest expense is salaries and employee benefits, which consist primarily
of salaries and wages paid to our employees, payroll taxes, and expenses for
health insurance, retirement plans and other employee benefits. We will
recognize additional annual employee compensation expenses stemming from the
adoption of new equity benefit plans. We cannot determine the actual amount of
these new stock-related compensation and benefit expenses at this time because
applicable accounting practices require that they be based on the fair market
value of the shares of common stock at specific points in the
future.
As a
result of the mutual holding company reorganization and minority stock offering,
we will incur additional non-interest expenses as a result of operating as a
public company. These additional expenses will consist primarily of legal and
accounting fees and expenses of stockholder communications and
meetings.
Forward-Looking
Statements
Certain
statements herein constitute “forward-looking statements” within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
can be identified by the fact that they do not relate strictly to historical or
current facts. They often include words like “believe”, “expect”, “anticipate”,
“estimate”, and “intend” or future or conditional verbs such as “will”, “would”,
“should”, “could”, or “may.” These forward-looking statements are based on the
beliefs and expectations of management, as well as the assumptions made using
information currently available to management. Since these statements reflect
the views of management concerning future events, these statements involve
risks, uncertainties and assumptions. As a result, actual results may differ
from those contemplated by these forward-looking statements as a result of any
number of factors. These factors include, but are not limited to, risks related
to the Company’s continued ability to originate quality loans, fluctuation in
interest rates, real estate conditions in the Company’s lending areas, changes
in the securities or financial markets, changes in loan delinquency and
charge-off rates, general and local economic conditions, the Company’s continued
ability to attract and retain deposits, the Company’s ability to control costs,
new accounting pronouncements, and changing regulatory requirements. For more
information about these factors, please see our recent Annual Report on Form
10-K. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements, which speak only as of the date of this Quarterly Report on Form
10-Q. The Company does not undertake and specifically disclaims any obligation
to publicly release updates or revisions to any such forward-looking statements
as a result of new information, future events or otherwise.
Critical
Accounting Policies
We
consider accounting policies that require management to exercise significant
judgment or discretion, or make significant assumptions that have or could have
a material impact on the carrying value of certain assets or on income, to be
critical accounting policies. We consider the following to be our critical
accounting policies.
Allowance
for loan losses.
The
allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance. The allowance for loan losses is evaluated on a regular basis by
management and is based on management’s periodic review of the collectibility of
the loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower’s ability to repay,
estimated value of the underlying collateral and prevailing economic conditions.
This evaluation is inherently subjective as it requires estimates that are
susceptible to significant revision as more information becomes
available.
The
allowance consists of specific and general components. The specific component
relates to loans that are classified as impaired, whereby an allowance is
established when the discounted cash flows, collateral value or observable
market price of the impaired loan is lower than the carrying value of that loan.
The general component relates to pools of non-impaired loans and is based on
historical loss experience adjusted for qualitative factors.
A loan is
considered impaired when, based on current information and events, it is
probable that we will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan agreement.
Management considers factors including payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due
when determining impairment. Loans that experience insignificant payment delays
and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a
case-by-case basis, taking into consideration all of the circumstances
surrounding the loan and the borrower, including the length of the delay, the
reasons for the delay, the borrower’s prior payment record, and the amount of
the shortfall in relation to the principal and interest owed. Impairment is
measured on a loan by loan basis for commercial loans by either the present
value of expected future cash flows discounted at the loan’s effective interest
rate, the loan’s obtainable market price, or the fair value of the collateral if
the loan is collateral dependent. Large groups of smaller balance homogeneous
loans are collectively evaluated for impairment. Accordingly, we do not
separately identify individual consumer and residential loans for impairment
disclosures. At September 30, 2008, we had no impaired loans as defined by
Statement of Financial Accounting Standards No. 114 and, therefore, there is no
established valuation allowance for impaired loans.
Management
believes that, based on information currently available, the allowance for loan
losses is sufficient to cover losses inherent in our loan portfolio at this
time. However, no assurances can be given that the level of the allowance will
be sufficient to cover loan losses or that future adjustments to the allowance
will not be necessary if economic and/or other conditions differ substantially
from the economic and other conditions considered by management in evaluating
the adequacy of the current level of the allowance.
Actual
loan losses may be significantly more than the allowance we have established,
which could have a material negative effect on our financial
results.
Securities.
We classify our investments as available for sale. These assets are recorded at
fair value, with unrealized gains and losses excluded from earnings and reported
in other comprehensive income or loss. Purchase premiums and discounts are
recognized in interest income using the interest method over the terms of the
securities. Declines in the fair value of investment securities available for
sale below their cost that are deemed to be other-than-temporary are reflected
in earnings as realized losses. In estimating other-than-temporary impairment
losses, management considers (1) the length of time and the extent to which the
fair value has been less than cost, (2) the financial condition and near-term
prospects of the issuer, and (3) our intent and ability to retain our investment
in the issuer for a period of time sufficient to allow for any anticipated
recovery in fair value. Gains and losses on the sale of securities are recorded
on the trade date and are determined using the specific identification
method.
Loans.
Loans
that management has the intent and ability to hold for the foreseeable future or
until maturity or pay-off generally are reported at their outstanding unpaid
principal balances adjusted for charge-offs, the allowance for loan losses, and
any deferred fees or costs on originated loans. Interest income is accrued on
the unpaid principal balance. Loan origination fees, net of certain direct
origination costs, are deferred and recognized over the contractual life of the
loans as an adjustment of the related loan yield using the interest
method.
Loans
past due 30 days or more are considered delinquent. The accrual of interest on
mortgage and commercial loans is discontinued at the time the loan is 90 days
delinquent unless the credit is well secured and in process of collection.
Consumer loans are typically charged off when they are no more than 180 days
past due. In all cases, loans are placed on nonaccrual or charged-off at an
earlier date if collection of principal or interest is considered
doubtful.
All
interest accrued but not collected for loans that are placed on nonaccrual or
charged off is reversed against interest income. Cash payments on these loans
are applied to principal balances until qualifying for return to accrual. Loans
are returned to accrual status when all the principal and interest amounts
contractually due are brought current and future payments are reasonably
assured.
Comparison
of Financial Condition at September 30, 2008 and June 30, 2008
Total
Assets.
Total assets increased by $2.0 million, or 3.0%, from $66.3
million at June 30, 2008 to $68.3 million at September 30, 2008. This increase
was largely the result of an increase of $1.5 million in the loan portfolio as
well as the infusion of cash from the stock offering, offset by the payment of
offering expenses that had been deferred at June 30, 2008.
Cash and Cash
Equivalents.
Cash and correspondent bank balances increased by $718,000,
or 35.7%, from $2.0 million at June 30, 2008 to $2.7 million at September 30,
2008. This increase was primarily the result of the larger demand deposit
accounts and the infusion of cash from the stock offering.
Certificates of
Deposit.
Certificate of deposit
balances at other banks increased by $196,000, or 8.7%, from $2.3 million at
June 30, 2008 to $2.5 million at September 30, 2008 due to an increase in
certificates of deposit held. Certificates were purchased at a discount and at
rates favorable to those of U.S. treasuries and agency obligations, which should
enhance the Bank’s net interest margin.
Securities
Available for Sale.
Securities available for sale totaled $1.3 million at
September 30, 2008, a decrease of $101,000, or 7.1%, from $1.4 million at June
30, 2008. This decrease was primarily the result of an impairment writedown of
the remaining book value of Federal National Mortgage Association (“FNMA”) and
Federal Home Loan Mortgage Corporation (“FHLMC”) common stock which totaled
$60,000 and regular principal payments on investments, offset by the purchase of
additional investments.
Net
Loans.
Net
loans increased $1.5 million, or 2.7%, from $56.7 million at June 30, 2008 to
$58.2 million at September 30, 2008. The majority of growth has been in
residential mortgage loans, which increased $1.2 million, or 3.9%. The increase
is due primarily from a combination of increased interest from consumers in
lower rate Adjustable Rate Mortgage loan products and investment in non-owner
occupied real estate loans. Commercial real estate loans increased $336,000, or
3.3%, home equity loans increased $252,000, or 2.3%, commercial loans decreased
$106,000, or 5.0%, and consumer installment loans increased $124,000, or 23.9%.
This growth was offset by a decrease in construction loans of $206,000, or
28.2%.
Deposits
and Borrowed Funds.
Deposits increased $1.3 million, or 2.7%, from $46.1
million at June 30, 2008 to $47.3 million at September 30, 2008. Demand accounts
increased $663,000, or 22.0%. The increase in demand accounts was due to new
commercial checking accounts together with fluctuations in balances of existing
commercial checking accounts. Money market accounts increased $358,000, or 3.7%,
NOW checking accounts increased $22,000, or 1.1%, savings accounts decreased
$139,000, or 4.5%, certificates of deposit increased $351,000, or 1.2%. Total
borrowings from the Federal Home Loan Bank of Boston (“FHLB”) decreased
$450,000, or 2.9%, from $15.4 million as of June 30, 2008 to $14.9 million as of
September 30, 2008 as proceeds from the stock offering precluded the need for
additional borrowings and certain existing FHLB borrowings were
repaid..
Total
Stockholders’ Equity.
Total equity increased $1.3 million, or 28.7%, to
$5.8 million at September 30, 2008, from $4.5 million at June 30, 2008,
primarily as a result of the $1.5 million net capital infusion from the stock
offering, offset by a $173,000 loan to the ESOP and $25,000 to capitalize net
MHC.
Comparison
of Operating Results for the Three Months Ended September 30, 2008 and September
30, 2007
Net
Income.
Net
income decreased $29,000, or 80%, to $7,000 for the three months ended September
30, 2008 compared to net income of $36,000 for the three months ended September
30, 2007. The decrease was primarily the result of an impairment write-down of
$60,000 on investments in FNMA and FHLMC common stock. Without this write down,
our net income for the quarter would have been $67,000, an increase of 86% over
net income for the three months ended September 30, 2007.
Net Interest
Income.
Net interest income increased $95,000, or 24.0%, from $395,000 in
the three months ended September 30, 2007 to $490,000 in the three months ended
September 30, 2008.
Interest and
Dividend Income.
Interest income increased $24,000, or 2.4%, to $1.03
million for the three months ended September 30, 2008 from $1.01 million for the
comparable period of 2007. This increase was due principally to increased volume
of loans, offset by a decrease in the average yield on interest-earning assets.
Interest income on loans increased by $50,000, which was offset by a decrease in
interest income on securities and interest-bearing deposits of $18,000 and a
decrease in dividends on FHLB stock of $8,000. The average yield on the loan
portfolio decreased from 6.99% for the three months ended September 30, 2007 to
6.78% for the three months ended September 30, 2008. The average yield on
investment securities, including FHLB stock, and interest-bearing deposits
decreased from 5.07% for the three months ended September 30, 2007 to 4.19% for
the three months ended September 30, 2008.
Interest
Expense.
Interest expense decreased by $71,000, or 11.6%, to $541,000 for
the three months ended September 30, 2008 from $612,000 for the comparable
period of 2007. The decrease was due to lower cost of funds. While average
deposit balances increased $1.7 million, or 3.8%, the average cost of these
deposits decreased from 4.10% to 3.16%. Average borrowings from FHLB increased
from $12.8 million to $15.1 million, an increase of $2.2 million, or 17.5%.
However, the average cost of the borrowings decreased from 5.48% to
5.07%.
Provision for
Loan Losses.
Our provision for loan losses increased from a negative
provision of $3,000 for the three months ended September 30, 2007 to a positive
provision of $19,000 for the three months ended September 30, 2008. There were
no loans charged off during the three months ended September 30, 2007 or 2008.
The allowance for loan losses of $364,000 at September 30, 2008 represented
0.62% of total loans, compared to an allowance of $346,000, representing 0.61%
of total loans at June 30, 2008. Our analysis of the adequacy of the allowance
considers economic conditions, historical losses and management’s estimate of
losses inherent in the portfolio. For further discussion of our current
methodology, please refer to, “
Critical Accounting
Policies—Allowance for Loan Losses.”
Non-interest
Income.
Total non-interest income decreased $14,000, or 38.2%, to $22,000
for the three months ended September 30, 2008, compared to $36,000 for the three
months ended September 30, 2007. This decrease was primarily the result of fair
value adjustments on the Bank’s interest rate cap and floor
agreements.
Non-interest
Expense.
Non-interest expenses increased $73,000, or 19.0%, to $456,000
for the three months ended September 30, 2008, compared to $383,000 for the
three months ended September 30, 2007. The increase was primarily attributable
to the impairment write-down of $60,000 on investments in FNMA and FHLMC common
stock. Salaries and benefits, computer charges and other operating expenses also
increased commensurate with the growth of the Company.
Income
Taxes.
Income tax expense was $31,000 for the three months ended
September 30, 2008, reflecting an effective tax rate of 81.5%, compared to
$15,000 for the three months ended September 30, 2008, an effective tax rate of
30.1%. The increase in income taxes and the effective tax rate are due to the
fact that, but for the impairment write-off of $60,000 of FNMA and FHLMC common
stock during the three months ended September 30, 2008, the Company’s income
would have been significantly higher than for the three months ended September
30, 2007. The Company did not record a tax benefit associated with the
impairment write-off and does not expect to realize a material tax benefit in
connection with the impairment of this stock.
Liquidity
Liquidity
is the ability to meet current and future financial obligations of a short-term
nature. Our primary sources of funds consist of deposit inflows, loan
repayments, loan sales and maturities of investment securities. While maturities
and scheduled amortization of loans and securities are predictable sources of
funds, deposit flows and mortgage and mortgage-backed security prepayments are
greatly influenced by general interest rates, economic conditions and
competition.
We
regularly adjust our investments in liquid assets based upon our assessment of
(1) expected loan demand, (2) expected deposit flows, (3) yields available on
interest-earning deposits and securities and (4) the objectives of our
asset/liability management program. Excess liquid assets are invested generally
in interest-earning deposits and federal funds sold. Our most liquid assets are
cash and cash equivalents and interest-bearing deposits. The levels of these
assets are dependent on our operating, financing, lending and investing
activities during any given period. At September 30, 2008, cash and cash
equivalents totaled $2.7 million, including interest-earning deposits of $1.3
million. Securities classified as available-for-sale, which provide additional
sources of liquidity, totaled $1.3 million at September 30, 2008. At September
30, 2008, we had $14.9 million of outstanding borrowings from FHLB, and the
ability to borrow an additional $7.6 million.
At
September 30, 2008, we had $2.2 million in loan commitments outstanding and $3.6
million in unused lines of credit.
Certificates
of deposit due to mature within one year of September 30, 2008 totaled $20.2
million, or 42.9% of total deposits. If these deposits do not remain with us, we
will be required to seek other sources of funds, including other certificates of
deposit and lines of credit. We believe, however, based on past experience, that
a significant portion of our certificates of deposit will remain with
us.
Our
primary investing activities are the origination of loans and the purchase of
securities. Our primary financing activity consists of activity in deposit
accounts. However, we may from time to time utilize borrowings to fund a portion
of our operations where the cost of such borrowings is more favorable than that
of deposits of a similar duration. Deposit flows are affected by the overall
level of interest rates, the interest rates and products offered by us and our
local competitors and other factors. We generally manage the pricing of our
deposits to be competitive and to increase core deposits. Occasionally, we offer
promotional rates to attract certain deposit products.
We are
not aware of any known trends, events or uncertainties that will have or are
reasonably likely to have a material effect on our liquidity, capital or
operations, nor are we aware of any current recommendations by regulatory
authorities, which if implemented, would have a material effect on liquidity,
capital or operations.
Capital
Resources
We are
subject to various regulatory capital requirements, including a risk-based
capital measure. The risk-based capital guidelines include both a definition of
capital and a framework for calculating risk-weighted assets by assigning
balance sheet assets and off-balance sheet items to broad risk categories. At
September 30, 2008, we exceeded all of our regulatory capital requirements. We
are considered “well-capitalized” under regulatory guidelines.
The
capital from the recent stock offering increased our liquidity and capital
resources. Over time, the initial level of liquidity will be reduced as net
proceeds from the stock offering are used for general corporate purposes,
including repaying a portion of our borrowings. Our financial condition and
results of operations will be enhanced by the capital from the reorganization,
resulting in increased net interest-earning assets and net income. However, due
to the increase in equity resulting from the capital raised in the stock
offering, return on equity is adversely affected as a result of the
reorganization.
ITEM
3. QUANTITATIVE AND
QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not
applicable.
ITEM
4. CONTROLS AND
PROCEDURES
The
Company’s chief executive officer and principal financial officer, after
evaluating the effectiveness of the Company’s “disclosure controls and
procedures” (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e)
and 15d-15(e)) as of the end of the period covered by this quarterly report (the
“Evaluation Date”), have concluded that as of the Evaluation Date the Company’s
disclosure controls and procedures were effective and designed to ensure that
information required to be disclosed by the Company in the reports that it files
or submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms.
During
the period covered by this quarterly report, there were no changes in the
Company’s internal controls that have materially affected, or are reasonable
likely to materially affect, the Company’s internal controls over financial
reporting.
PART
II. OTHER INFORMATION
ITEM
1. LEGAL
PROCEEDINGS
Neither
the Company nor the Bank is involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, involve amounts believed by
management to be immaterial to the consolidated financial condition and results
of operations of the Company.
ITEM
2. UNREGISTERED SALES
OF EQUITY SECURITIES AND USE OF PROCEEDS
On August
15, 2008, Auburn Savings Bank, FSB (the “Bank”) completed its mutual holding
company reorganization and Auburn Bancorp, Inc. (the “Company”) completed its
initial public offering. In connection with the reorganization and public
offering, the Bank formed Auburn Bancorp, MHC (the “MHC”), as a federally
chartered mutual holding company, the Company issued 276,806 shares of
unregistered common stock to the MHC, representing 55.0% of the Company’s
outstanding stock, and the Company received from the MHC 1,000 shares of the
Bank’s common stock, representing 100% of the Bank’s outstanding common stock.
The shares held by the MHC were issued pursuant to the exemption from
registration set forth under Section 4(2) of the Securities Act of 1933, as
amended.
ITEM
3. DEFAULTS UPON
SENIOR SECURITIES
None.
ITEM
4. SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM
5. OTHER
INFORMATION
On
November 14, 2008, we issued a press release announcing our financial
results for the three months ended September 30, 2008. A copy of the press
release is attached as Exhibit 99.1 to this Quarterly Report on Form 10-Q.
The information contained in Exhibit 99.1 shall not be deemed “filed” for
purposes of Section 18 of the Securities Exchange Act of 1934, nor shall it
be deemed incorporated by reference in any filing with the Securities and
Exchange Commission under the Exchange Act of 1934 or the Securities Act of
1933, except as expressly set forth by specific reference in such a
filing.
ITEM
6. EXHIBITS
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|
|
Exhibit
Number
|
|
Exhibit
Description
|
|
|
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2.1
|
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Plan
of Reorganization from Mutual Savings Bank to Mutual Holding Company and
Stock Issuance Plan **
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3.1
|
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Charter
of Auburn Bancorp, Inc. **
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3.2
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Bylaws
of Auburn Bancorp, Inc. **
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4.1
|
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Specimen
Stock Certificate of Auburn Bancorp, Inc. **
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31.1
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Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the
Company
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31.2
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Rule
13a-14(a)/15d-14(a) Certification of Chief Financial Officer of the
Company
|
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32.1
|
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Section
1350 Certification of Chief Executive Officer of the Company in accordance
with Section 906 of the Sarbanes-Oxley Act of 2002
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32.2
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Section
1350 Certification of Chief Financial Officer of the Company in accordance
with Section 906 of the Sarbanes-Oxley Act of 2002
|
|
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99.1
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Press
Release dated November 14, 2008
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**
|
Incorporated
by reference into this document from the Exhibits filed with the
Securities and Exchange Commission on the Company’s Registration Statement
on Form S-1, as amended, initially filed on March 14, 2008 and declared
effective on May 13, 2008 (File Number
333-149723).
|
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this Report to be signed on its behalf by the undersigned thereunto
duly authorized.
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Auburn
Bancorp, Inc.
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(Registrant)
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Date:
November 14, 2008
|
By:
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/s/
Allen T. Sterling
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Allen
T. Sterling
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|
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President
and Chief Executive Officer
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Date:
November 14, 2008
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By:
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/s/
Rachel A. Haines
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|
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Rachel
A. Haines
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Principal
Financial Officer
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19
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