UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-K
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Annual
Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
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For
the fiscal year ended June 30, 2008
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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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Commission
File Number __________
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Auburn
Bancorp, Inc.
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(Exact
name of registrant as specified in its charter)
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United
States
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26-2139168
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(State
or other jurisdiction
of
incorporation)
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(IRS
Employer
Identification
No.)
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256
Court Street, P.O. Box 3157, Auburn, Maine 04212
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(Address
and zip code of principal executive offices)
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(207)
782-0400
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(Registrant’s
telephone number, including area code)
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None
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(Former
name, former address and former fiscal year, if changed since last
report)
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Securities
Registered Pursuant to Section 12(b) of the Exchange Act:
None
Securities
Registered Pursuant to Section 12(g) of the Exchange Act:
Common
Stock, par value $0.01 per share
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.
Indicate
by check mark if the registrant is not required to file pursuant to Section 13
or Section 15(d) of the Act.
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
¨
No*
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
x
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
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting company
x
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes
¨
No
x
Based
upon the closing price of the registrant’s common stock as of August 15, 2008,
the aggregate market value of the voting common equity held by non-affiliates
was $1,942,160. The registrant has provided this information as of August 15,
2008 because there was no stock outstanding as of the last business day of its
most recently completed second fiscal quarter. For purposes of the
calculation, all directors and executive officers were deemed to be affiliates
of the registrant. However, such assumption is not intended as an
admission of affiliate status as to any such individual.
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
outstanding as of September 22, 2008.
DOCUMENTS
INCORPORATED BY REFERENCE
List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the
document is incorporated:
(1)
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Portions
of the Company’s definitive Proxy Statement for its 2008 Annual Meeting of
Stockholders (the “Proxy Statement”) are incorporated by reference in
Part III of this
Form 10-K.
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PART
I
Forward-Looking
Statements.
Certain statements herein constitute
“forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995. These 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 statements. 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.” Certain factors that could have a material adverse affect on
the operations of Auburn Savings Bank include, but are not limited to, increased
competitive pressure among financial service companies, national and regional
economic conditions, changes in interest rates, changes in consumer spending,
borrowing and savings habits, legislative and regulatory changes, adverse
changes in the securities markets, inability of key third-party providers to
perform their obligations to Auburn Savings Bank, changes in relevant accounting
principles and guidelines and our ability to successfully implement our branch
expansion strategy. These risks and uncertainties should be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Annual
Report on Form 10-K. We disclaim any intent or obligation to update any
forward-looking statements, whether in response to new information, future
events or otherwise.
Item
1. Business.
The terms “we,” “our,” “our
company,” and “us” refer, unless the context suggests otherwise, to Auburn
Bancorp, Inc. (the “Company”) and its wholly-owned subsidiary, Auburn Savings
Bank, FSB (the “Bank”)
.
Business
of Auburn Bancorp, Inc.
The
Company was organized as a federal corporation in connection with the
reorganization of the Bank from the mutual form of organization to the mutual
holding company form of organization. The reorganization was completed on August
15, 2008. In the reorganization, the Company issued a total of 503,284 shares of
common stock, selling 226,478 shares of its common stock to eligible depositors
and other members of the Bank, an employee stock ownership plan and members of
the general public and issued 276,806 shares of its common stock to Auburn
Bancorp, MHC, a federally-chartered mutual holding company.
As a
result of the reorganization, the Company owns all of the issued and outstanding
common stock of the Bank. In the future, the Company, as the holding
company of the Bank, will be authorized to pursue other business activities
permitted by applicable laws and regulations for savings and loan holding
companies, which may include the acquisition of banking and financial services
companies. We have no plans for any mergers or acquisitions or other
diversification of the activities of the Company at the present
time.
Our cash
flow will depend on earnings from the investment of the net proceeds we retained
from the stock offering and any dividends received from the Bank. Currently, the
Company neither owns nor leases any property, but will instead use the premises,
equipment and furniture of the Bank. At the present time, the Company employs
only persons who are officers of the Bank as officers of the Company. We will,
however, use the support staff of the Bank from time to time. All of these
persons will be paid by the Bank under the terms of a management agreement with
the Company. The Company may hire additional employees, as
appropriate, to the extent it expands its business in the future.
Business
of Auburn Savings Bank, FSB
The Bank
is a community-oriented savings bank. We were originally established
in 1887 as a state-chartered loan and building association named “Auburn Loan
and Building Association” and later converted to a state-chartered savings and
loan association named “Auburn Savings and Loan Association.” In July
2006, the Bank converted from a state-chartered savings and loan association to
a federal mutual savings bank and changed its name to “Auburn Savings Bank,
FSB.” On August 15, 2008, the Bank reorganized into the mutual
holding company form of organization and became a stock form federal savings
institution.
Our
principal business consists of attracting retail deposits from the general
public in the areas surrounding our main office in Auburn, Maine and our branch
office in Lewiston, Maine and investing those deposits, together with funds
generated from operations, primarily in one- to four-family residential mortgage
loans and home equity loans and lines of credit, commercial and multi-family
real estate loans, and, to a lesser extent, commercial business loans,
construction loans, consumer loans, and investment securities. Our revenues are
derived principally from interest on loans and securities. We also generate
revenues from fees and service charges and other income. Our primary sources of
funds are deposits, borrowings and principal and interest payments on loans and
securities.
Our
website address is www.auburnsavings.com. Information on our website should not
be considered a part of this Annual Report on Form 10-K.
Market
Area
We
primarily serve communities located in Androscoggin County, Maine. We
are headquartered in Auburn, Maine. In addition to our main office, we operate a
full-service branch office in Lewiston, Maine. Lewiston and Auburn are in
Androscoggin County, Maine, approximately 35 miles northeast of Portland, Maine.
Historically, substantially all of our loans have been made to borrowers who
resided within Androscoggin County.
During
the past several years, the population in the Lewiston-Auburn area as well as in
Androscoggin County has increased moderately. In 2007, Androscoggin
County’s total population increased 5.9% from the county’s population in
2000. Similarly, the total population in each of Lewiston and Auburn
increased 4.1% from 2000 to 2007.
The
largest industries in Androscoggin County are educational services, health care
and social assistance. The two largest employers in the area,
Central Maine Medical Center and St. Mary’s Health Systems, are
both health service providers. The median household income in
Androscoggin County in 2007 was $43,000, below the Maine and national median
household incomes in 2007 of $45,000 and 53,100, respectively. As of
July 2008, the unemployment rate in Androscoggin County was 5.3%, below the
Maine unemployment rate of 5.4% and the United States unemployment rate of
5.7%.
Competition
We face
significant competition for the attraction of deposits and origination of loans.
Our most direct competition for deposits has historically come from the many
financial institutions operating in our market area and, to a lesser extent,
from other financial service companies such as brokerage firms and insurance
companies. Federal and state credit unions accounted for approximately 24% of
market deposits in the Lewiston-Auburn metropolitan statistical area as of June
30, 2007 and have the competitive advantage of not paying state and federal
income tax while having a broad range of banking powers. In addition,
several large holding companies operate banks in our market area, including TD
Banknorth, N.A., Bank of America and Key Bank, as well as several Maine-based
banks including Androscoggin Savings Bank, Mechanics Savings Bank and Northeast
Bank. These institutions are significantly larger than us and, therefore, have
significantly greater resources. We also face competition for investors’ funds
from money market funds, mutual funds and other corporate and government
securities. At June 30, 2007, which is the most recent date for which data
is available from the Federal Deposit Insurance Corporation, we held 3.9% of the
deposits in the Lewiston-Auburn metropolitan statistical area.
Our
competition for loans comes primarily from financial institutions in our market
area and, to a lesser extent, from other financial service providers, such as
mortgage companies and mortgage brokers. Competition for loans also comes from
the increasing number of non-depository financial service companies entering the
mortgage market, such as insurance companies, securities companies and specialty
finance companies.
We expect
competition to remain intense in the future as a result of legislative,
regulatory and technological changes and the continuing trend of consolidation
in the financial services industry. Technological advances, for example, have
lowered barriers to entry, allowed banks to expand their geographic reach by
providing services over the Internet and made it possible for non-depository
institutions to offer products and services that traditionally have been
provided by banks. Changes in federal law permit affiliation among banks,
securities firms and insurance companies, which promotes a competitive
environment in the financial services industry. Competition for deposits and the
origination of loans could limit our growth in the future.
Lending
Activities
We
originate one- to four-family residential loans and home equity
loans. We also originate commercial and multi-family real estate
loans and, to a lesser extent, commercial business loans, construction loans and
consumer loans. We believe that originating a limited amount of
non-residential and multi-family loans allows us to provide more comprehensive
financial services to families and businesses within our community as well as
increase the yield and interest rate sensitivity of our loan
portfolio.
Loan Portfolio
Composition
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The
following table sets forth the composition of our loan portfolio by type of loan
as of the dates indicated.
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At
June 30,
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2008
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2007
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Amount
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Percent
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Amount
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Percent
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(Dollars
in Thousands)
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Mortgage
loans:
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One-
to four-family residential
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$
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32,739
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57.4
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%
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$
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31,817
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59.9
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%
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Commercial
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10,181
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17.8
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7,553
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14.2
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Construction
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1,053
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1.8
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1,041
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1.9
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Equity
lines of credit and loans
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10,845
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19.0
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11,106
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20.9
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Undisbursed
portion of construction loan
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(321
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(0.6
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(123
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(0.2
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Total
mortgage loans on real estate
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$
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54,497
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95.4
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%
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$
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51,394
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96.7
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%
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Other
loans:
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Commercial
loans
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2,103
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3.7
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1,257
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2.4
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Consumer
loans
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520
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0.9
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501
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0.9
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Total
loans
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$
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57,120
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100.0
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%
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$
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53,152
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100.0
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%
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Other
items:
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Deferred
loan origination costs
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$
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142
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$
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135
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Deferred
loan origination fees
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(240
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)
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(170
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Allowance
for loan losses
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(346
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)
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(318
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Total
loans, net
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$
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56,676
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$
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52,799
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One- to
Four-Family Residential Loans
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Our primary lending activity
consists of the origination of one- to four-family residential mortgage loans,
substantially all of which are secured by properties located in our primary
market area. We offer fixed-rate mortgage loans, which generally have
terms of 15, 20 or 30 years. We also offer adjustable-rate mortgage loans
(“ARMs”) with interest rates and payments that adjust annually or every three
years. Interest rates and payments on our adjustable-rate loans generally are
adjusted to a rate equal to a percentage above the one-year U.S. Treasury index,
in the case of one-year ARMs, and the three-year U.S. Treasury index, in the
case of three-year ARMs. The maximum amount by which the interest rate may be
increased or decreased is generally 1% per adjustment period with a
lifetime interest rate cap of 5% over the initial interest rate of the loan on
one-year ARM loans and 2% per adjustment period with a lifetime rate cap of 6%
over the initial interest rate of the loan on three-year ARM loans.
At June
30, 2008, $32.7 million, or 57.4% of our loan portfolio, consisted of one- to
four-family residential mortgage loans. Of the one- to four-family
residential mortgage loans outstanding on June 30, 2008, $22.4 million were
fixed-rate mortgage loans with an average yield of 6.17%, and $10.3 million were
adjustable-rate loans with an average yield of 6.39%.
Borrower
demand for adjustable-rate loans compared to fixed-rate loans is a function of
the level of interest rates, the expectations of changes in the level of
interest rates, and the difference between the interest rates and loan fees
offered for fixed-rate mortgage loans as compared to the interest rates and loan
fees for adjustable-rate loans. The relative amount of fixed-rate and
adjustable-rate mortgage loans that can be originated at any time is largely
determined by the demand for each in a competitive environment. The loan fees,
interest rates and other provisions of mortgage loans are determined by us on
the basis of our own pricing criteria and competitive market
conditions.
Adjustable-rate
loans help to reduce our exposure to changes in interest
rates. However, adjustable-rate loans generally possess an element of
credit risk not inherent in fixed-rate mortgage loans, because borrowers are
potentially exposed to increases in debt service requirements over the life of
the loan in the event market interest rates rise. Higher payments may
increase the risk of default. In addition, although adjustable-rate mortgage
loans make our asset base more responsive to changes in interest rates, the
extent of this interest sensitivity is limited by the annual and lifetime
interest rate adjustment limit.
We
generally underwrite all residential real estate loans to secondary market
credit standards. While one- to four-family residential real estate
loans are normally originated with up to 30-year terms, such loans typically
remain outstanding for substantially shorter periods because borrowers often
prepay their loans in full either upon sale of the property pledged as security
or upon refinancing the original loan. Therefore, average loan maturity is a
function of, among other factors, the level of purchase and sale activity in the
real estate market, prevailing interest rates and the interest rates payable on
outstanding loans. We do not offer loans with negative amortization and
generally do not offer interest only loans. We generally do not make
loans known as subprime or Alt-A loans.
We
generally do not make loans with a loan-to-value ratio of more than 80% without
private mortgage insurance. We make first mortgage loans on owner-occupied
one-to-four family dwellings up to 95% of value and loans on condominium units
up to 80% of value. We generally require all properties securing
mortgage loans to be appraised by a board-approved independent appraiser. We
generally require title insurance on all first mortgage loans. Borrowers must
obtain hazard insurance, and flood insurance is required for loans on properties
located in a flood zone.
Our
residential mortgage loans customarily include due-on-sale clauses giving us the
right to declare the loan immediately due and payable in the event that, among
other things, the borrower sells or otherwise disposes of the property subject
to the mortgage and the loan is not repaid.
At June
30, 2008, our largest one- to four-family residential real estate loan had a
principal balance of $375,000 and was secured by a residence located in Minot,
Maine.
Home Equity
Loans.
We
offer home equity lines of credit and home equity loans. At June 30,
2008, we had $10.8 million of home equity lines-of-credit and loans outstanding,
representing 19.0% of our loan portfolio. At June 30, 2008, the
unadvanced amounts of home equity lines of credit totaled $3.2
million.
Home
equity lines of credit and loans are secured by a mixture of first and second
mortgages on one- to four-family owner occupied properties. The
procedures for underwriting home equity lines of credit and loans include a
determination of the applicant’s credit history, an assessment of the
applicant’s ability to meet existing obligations and payments on the proposed
loan and the value of the collateral securing the loan. We generally
require all properties securing second mortgage loans to be appraised by a
board-approved independent appraiser unless the first mortgage is also held by
Auburn Savings Bank. Home equity lines of credit and loans are made
in amounts such that the combined first and second mortgage balances do not
exceed 90% of value.
Home
equity loans are offered with fixed interest rates and generally have terms of
five, 10 or 15 years. Our home equity lines of credit have adjustable
rates of interest, which are adjusted monthly to a rate equal to a percentage
above the Prime Rate as published by
The Wall Street Journal
on
the last business day of the month. Home equity lines of credit have
a maturity of 40 years with a five-year draw period.
Commercial and
Multi-Family Real Estate Loans
.
In 1999, we began to expand
our loan product line to include commercial real estate and commercial business
lending in our primary market area in order to diversify our portfolio and
better serve our primary market base. We now offer commercial real
estate loans, including commercial business, and multi-family real estate loans
that are generally secured by five or more unit apartment buildings and
properties used for business purposes such as small office buildings or retail
facilities substantially all of which are located in our primary market
area. We have placed increasing emphasis on commercial real estate
loans over the past several years. As a result, these loans have
grown from $5.0 million at December 31, 2005 to $10.2 million at June 30,
2008. At June 30, 2008, commercial and multi-family real estate loans
represented 17.8% of our loan portfolio. We intend to grow further
these segments of our loan portfolio, both in absolute terms and as a percentage
of our loan portfolio.
We
typically offer adjustable rate commercial and multi-family real estate loans
with terms of up to 20 years. Interest rates on our commercial and multi-family
real estate loans adjust annually from the outset of the loan or after a
five-year initial fixed rate period. In general, rates on commercial
and multi-family real estate loans are initially priced at a percentage above
the corresponding Federal Home Loan Bank borrowing rate and, thereafter,
interest rate adjustments are based upon a percentage above either the Prime
Rate published by
The Wall
Street
Journal on the last business day of the month or the corresponding
Federal Home Loan Bank borrowing rate. Commercial and multi-family real estate
loan amounts generally do not exceed 80% of the lesser of the property’s
appraised value or sales price.
We
generally require title insurance for commercial and multi-family real estate
loans, an appraisal on all such loans if the total amount of loans with that
borrower is in excess of $250,000, and an evaluation of the property by an
approved appraiser for loans between $100,000 and $250,000. We may
require a full appraisal on property securing any loan less than
$250,000.
In
reaching a decision on whether to make a multi-family or commercial real estate
loan, we consider the net operating income of the property, the borrower’s
expertise and credit history, and the profitability of the underlying business
and the value of the underlying property. In addition, with respect to real
estate rental properties, we will also consider the term of the lease and the
quality of the tenants. We generally require that the properties securing these
real estate loans have debt service coverage ratios (the ratio of earnings
before debt service to debt service) of at least 1.2 times. Generally,
multi-family and commercial real estate loans made to corporations, partnerships
and other business entities require the principals to execute the loan
agreements in their individual capacity as well as signing on behalf of such
business entity.
A
commercial borrower’s financial information is monitored on an ongoing basis by
requiring periodic financial statement updates, payment history reviews and
periodic face-to-face meetings with the borrower. We generally require
commercial borrowers to provide federal tax returns and financial statements
annually. These requirements also apply to the individual principals of our
commercial borrowers. We may require borrowers with rental investment property
to provide an annual report of income and expenses for the property, including a
tenant list and copies of leases, as applicable.
Loans
secured by commercial real estate, including multi-family properties, generally
involve larger principal amounts and a greater degree of risk than one- to
four-family residential mortgage loans. Because payments on loans secured by
commercial real estate, including multi-family properties, are often dependent
on successful operation or management of the properties, repayment of such loans
may be affected by adverse conditions in the real estate market or the
economy.
At June
30, 2008, our largest commercial real estate loan was for $521,209 and was
secured by real estate in Sabattus, Maine. This loan was performing according to
its original repayment terms at June 30, 2008. At June 30, 2008, our largest
multi-family real estate loan was for $220,039, was secured by real estate in
Poland, Maine and was performing according to its original repayment terms at
June 30, 2008. For more information on our commercial and
multi-family real estate loans, see “
Risk Factors—Our increased emphasis
on commercial and construction lending may expose us to increased lending
risks.
”
Construction
Loans.
We
also offer construction loans for the development of one- to four-family
residential properties located in our primary market
area. Residential construction loans are generally offered to
individuals for construction of their personal residences. Our
construction loans were $2.6 million at December 31, 2005 as compared to $1.1
million at June 30, 2008. At June 30, 2008, residential construction
loans represented 1.8% of our loan portfolio. At June 30, 2008, the
unadvanced portion of these construction loans totaled $321,000.
Our
residential construction loans generally provide for the payment of interest
only during the construction phase, which is usually six months. In the case of
construction loans to individuals for the construction of their primary
residences, our policies require that the loan convert to a permanent mortgage
loan at the end of the construction phase. Residential construction loans can be
made with a maximum loan-to-value ratio of 95%, provided that the borrower
obtains private mortgage insurance on the loan if the loan balance exceeds 80%
of the appraised value of the secured property.
At June
30, 2008, the largest outstanding residential construction loan commitment was
for $181,000 of which $161,687 was outstanding. This loan was performing
according to its terms at June 30, 2008. Residential construction loans are
generally made on the same terms as our one- to four-family mortgage
loans.
Before
making a commitment to fund a residential construction loan, we require an
appraisal on the property by an independent licensed appraiser. We also review
and inspect each property before disbursement of funds during the terms of the
construction loan. Loan proceeds are disbursed after inspection based on the
percentage of completion method.
Construction
and development financing is generally considered to involve a higher degree of
credit risk than long-term financing on improved, owner-occupied real estate.
Risk of loss on a construction loan depends largely upon the accuracy of the
initial estimate of the value of the property at completion of construction
compared to the estimated cost (including interest) of construction and other
assumptions. If the estimate of construction cost proves to be inaccurate, we
may be required to advance funds beyond the amount originally committed in order
to protect the value of the property. Additionally, if the estimate of value
proves to be inaccurate, we may be confronted with a project, when completed,
having a value which is insufficient to assure full repayment.
Commercial
Loans.
We
make commercial business loans primarily in our market area to a variety of
small businesses, professionals and sole proprietorships. Our
commercial business loan portfolio has grown from $1.3 million at December 31,
2005 to $2.1 million at June 30, 2008. At June 30, 2008, commercial
business loans represented 3.7% of our loan portfolio. We intend to
grow further these segments of our loan portfolio, both in absolute terms and as
a percentage of our loan portfolio.
Commercial
lending products include term loans and revolving lines of credit. The maximum
amount of a commercial business loan is limited by our loans-to-one-borrower
limit of 15% of unimpaired capital, which at June 30, 2008 was
$729,000. As a result of the stock offering, our regulatory loans to
one borrower limit increased, and was approximately $865,000 as of August 30,
2008. Commercial business loans are generally used for longer-term working
capital purposes such as purchasing equipment or furniture. Commercial loans are
made with either adjustable or fixed rates of interest. Adjustable rate loans
are based on the Prime Rate, as published in
The Wall Street Journal,
plus
a margin. The rate adjusts monthly from the outset of the
loan. Our adjustable rate commercial business loans amortize over
terms up to 15 years and may carry prepayment penalties. Fixed rate commercial
loans are set at percentage above either the corresponding Federal Home Loan
Bank borrowing rate or the Prime Rate.
When
making commercial loans, we consider the financial statements of the borrower,
our lending history with the borrower, the debt service capabilities of the
borrower, the projected cash flows of the business and the value of the
collateral. Commercial loans are generally secured by a variety of collateral,
primarily accounts receivable, inventory and equipment, and we also require the
business principals to execute such loans in their individual capacities.
Depending on the amount of the loan and the collateral used to secure the loan,
commercial loans are made in amounts of up to 50-80% of the value of the
collateral securing the loan, or up to 100% of the value of the collateral
securing the loan if the collateral consists of cash or cash equivalents. We
generally do not make unsecured commercial loans. We require adequate
insurance coverage including, where applicable, title insurance, flood
insurance, builder’s risk insurance and environmental insurance.
Commercial
loans generally have greater credit risk than residential mortgage loans. Unlike
residential mortgage loans, which generally are made on the basis of the
borrower’s ability to make repayment from his or her employment or other income,
and which are secured by real property whose value tends to be more easily
ascertainable, commercial loans generally are made on the basis of the
borrower’s ability to repay the loan from the cash flow of the borrower’s
business. As a result, the availability of funds for the repayment of commercial
loans may depend substantially on the success of the business itself. Further,
any collateral securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value. We seek to minimize these risks through our
underwriting standards.
At June
30, 2008, our largest commercial business loan was a $400,000 line of credit
secured by equipment, machinery and other business assets located in our primary
market area. This loan was performing according to its terms at June 30,
2008. For more information on our commercial business loans, see
“Risk Factors—Our increased
emphasis on commercial and construction lending may expose us to increased
lending risks.”
Consumer
Loans
.
We offer a
limited range of consumer loans, primarily to our customers residing in our
primary market area. Our consumer loans generally consist of loans on
new and used automobiles, loans secured by deposit accounts and unsecured
personal loans. As of June 30, 2008, these loans totaled $520,000, or
0.9% of our loan portfolio.
Our
automobile loans have fixed interest rates and generally have terms up to five
years for new automobiles and four years for used automobiles. We will generally
offer automobile loans with a maximum loan-to-value ratio of 80% of the base
vehicle price plus accessories or, if less for used cars, the average retail
value taken from a current month’s issue of the “NADA Used Car
Guide.”
The
procedures for underwriting consumer loans include an assessment of the
applicant’s payment history on other debts and ability to meet existing
obligations and payments on the proposed loan. Although the applicant’s
creditworthiness is a primary consideration, the underwriting process also
includes a comparison of the value of the collateral, if any, to the proposed
loan amount.
Consumer
loans may entail greater risk than do residential mortgage loans, particularly
in the case of consumer loans that are unsecured or secured by assets that
depreciate rapidly, such as motor vehicles. In the latter case, repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment for the outstanding loan and a small remaining deficiency often does
not warrant further substantial collection efforts against the borrower.
Consumer loan collections depend on the borrower’s continuing financial
stability, and therefore are likely to be adversely affected by various factors,
including job loss, divorce, illness or personal bankruptcy. Furthermore, the
application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount that can be recovered on
such loans.
Origination, Sale
and Servicing of Loans.
We originate real estate and other loans through
marketing efforts, our customer base, walk-in customers and referrals from real
estate brokers, builders and attorneys. We generally do not purchase
loans or participation interests in loans.
Since
2000, we have sold a portion of the fixed-rate one- to four-family mortgages
that we originate to the Federal Home Loan Bank of Boston. We
generally make decisions regarding the amount of loans that we wish to sell
based on an evaluation of asset/liability position and similar
factors. See “
Management’s Discussion and Analysis
of Financial Condition and Operating Results – Management of Market
Risk
.” During the fiscal year 2008 and 2007, we sold $2.1
million and $2.5 million, respectively, in loans to the Federal Home Loan Bank
of Boston. We retained servicing on all but one of those loans. At
June 30, 2008, we serviced $10.9 million of mortgage loans that were sold by us
to the Federal Home Loan Bank of Boston.
We
account for the sale of participation interests in loans in accordance with
paragraphs 9 to 11 of SFAS No. 140, “Accounting for Transfers and Servicing
of Financial Assets.” In accordance with SFAS No. 140, we account for a
transfer of financial assets, or a portion of a financial asset, as a sale when
we surrender control of the transferred assets. Servicing rights and other
retained interests in the sold assets are recorded by allocating the previously
recorded investment between the assets sold and interest retained based on their
relative fair values at the date of transfer. We determine the fair values of
servicing rights and other retained interests at the date of transfer using a
method that approximates the present value of estimated future cash flows, using
assumptions that market participants would use in their estimates of
values.
Loan Approval
Procedures and Authority
.
Our lending activities
follow written, non-discriminatory, underwriting standards and loan origination
procedures established by the board of directors of Auburn Savings Bank. The
board of directors has granted loan approval authority to certain officers up to
prescribed individual limits based on the type and amount of the loan request,
whether the loan is secured or unsecured, and the officer’s position at Auburn
Savings Bank. Residential mortgage loans over $225,000, home equity loans over
$125,000, commercial mortgage loans over $300,000, secured commercial business
loans over $125,000 and unsecured commercial business loans over $5,000 must be
approved by the management loan committee of Auburn Savings Bank, which consists
of the President, Senior Loan Officer and Commercial Loan
Officer. Residential mortgage loans over $300,000, home equity loans
over $150,000, commercial mortgage loans over $400,000, secured commercial
business loans over $150,000 and unsecured commercial business loans over
$20,000 must be approved by either the loan committee of the board of directors
or the full board of directors of Auburn Savings Bank based upon the type and
amount of the loan request.
Loans to One
Borrower
.
The maximum
amount that we may lend to one borrower and the borrower's related entities is
limited by regulation generally, with certain exceptions, to 15% of our
unimpaired capital and reserves. At June 30, 2008, our regulatory
limit on loans to one borrower was $729,000. As a result of the stock
offering, our regulatory loans to one borrower limit increased, and is
approximately $865,000 as of August 30, 2008. As of August 30, 2008,
our largest lending relationship was $765,277 and was secured by real estate and
equipment in Sabattus, Maine.
Loan
Commitments
.
We
issue commitments for fixed- and adjustable-rate mortgage loans conditioned upon
the occurrence of certain events. Commitments to originate mortgage loans are
legally binding agreements to lend to our customers. Generally, our loan
commitments expire after 45 days.
Loan
Maturity.
The following table sets forth certain information
at June 30, 2008 regarding the dollar amount of loan principal repayments
becoming due during the periods indicated. The table does not reflect
scheduled principal payments, unscheduled prepayments, or the ability of certain
loans to reprice prior to maturity dates. Demand loans, loans having no stated
repayment schedule, and overdraft loans are reported as being due in one year or
less.
|
|
Mortgage
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family
Residential
|
|
|
Commercial
|
|
|
Construction
|
|
|
Equity
Lines of
Credit
|
|
|
Undisbursed
Portion
of
Construction
Loan
|
|
|
Commercial
|
|
|
Consumer
|
|
|
Total
|
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
Amount
|
|
|
Weighted
Average
Rate
|
|
|
|
(Dollars
in Thousands)
|
|
Due
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Within
1 year
|
|
$
|
7
|
|
|
|
7.28
|
%
|
|
$
|
-
|
|
|
|
-
|
%
|
|
$
|
1,053
|
|
|
|
7.73
|
%
|
|
$
|
2,783
|
|
|
|
5.51
|
%
|
|
$
|
(321
|
)
|
|
|
7.73
|
%
|
|
$
|
1,527
|
|
|
|
6.03
|
%
|
|
$
|
18
|
|
|
|
11.79
|
%
|
|
$
|
5,067
|
|
|
|
6.01
|
%
|
After
1 year through 3 years
|
|
|
15
|
|
|
|
7.44
|
|
|
|
3
|
|
|
|
6.00
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
520
|
|
|
|
5.93
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
298
|
|
|
|
7.30
|
%
|
|
|
185
|
|
|
|
8.85
|
%
|
|
|
1,021
|
|
|
|
6.88
|
%
|
After
3 years through 5 years
|
|
|
250
|
|
|
|
8.30
|
%
|
|
|
968
|
|
|
|
5.99
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
1,755
|
|
|
|
5.07
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
278
|
|
|
|
8.18
|
%
|
|
|
106
|
|
|
|
8.41
|
%
|
|
|
3,356
|
|
|
|
5.94
|
%
|
After
5 years through 10 years
|
|
|
3,621
|
|
|
|
5.84
|
%
|
|
|
7,281
|
|
|
|
7.69
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
2,629
|
|
|
|
6.31
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
145
|
|
|
|
8.57
|
%
|
|
|
13,676
|
|
|
|
6.95
|
%
|
After
10 years though 15 years
|
|
|
4,981
|
|
|
|
6.47
|
%
|
|
|
1,675
|
|
|
|
6.45
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
3,158
|
|
|
|
6.88
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
9,815
|
|
|
|
6.60
|
%
|
After
15 years
|
|
|
23,865
|
|
|
|
6.23
|
%
|
|
|
254
|
|
|
|
6.75
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
-
|
|
|
|
-
|
%
|
|
|
66
|
|
|
|
9.00
|
%
|
|
|
24,185
|
|
|
|
6.24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
32,739
|
|
|
|
6.24
|
%
|
|
$
|
10,181
|
|
|
|
7.30
|
%
|
|
$
|
1,053
|
|
|
|
7.73
|
%
|
|
$
|
10,845
|
|
|
|
6.05
|
%
|
|
$
|
(321
|
)
|
|
|
7.73
|
%
|
|
$
|
2,103
|
|
|
|
6.49
|
%
|
|
$
|
520
|
|
|
|
8.80
|
%
|
|
$
|
57,120
|
|
|
|
6.45
|
%
|
Asset
Quality
General.
One
of our most important operating objectives is to maintain a high level of asset
quality. Management uses a number of strategies in furtherance of
this goal including maintaining sound credit standards in loan originations,
monitoring the loan portfolio through internal and third-party loan reviews, and
employing active collection and workout processes for delinquent or problem
loans.
Delinquency
Procedures.
Management performs a monthly review of all delinquent
loans. The actions taken with respect to delinquencies vary depending
upon the nature of the delinquent loans and the period of
delinquency. When a borrower fails to make a required payment on a
loan, we attempt to cause the delinquency to be cured by contacting the
borrower. A late notice is generated and is sent to all mortgage loans 15 days
delinquent and to all consumer loans 15 days delinquent. The borrower is
contacted by the collections officer between 30 and 45 days after the due date
of all loans. Another late notice along with any required demand letters as set
forth in the loan contract are sent up to 90 days after the due date. Additional
written and verbal contacts may be made with the borrower between 60 and 90 days
after the due date. If the delinquency is not cured by the 91
st
day,
the customer is normally provided 30 days written notice that the account will
be referred to counsel for collection and foreclosure, if necessary. If it
becomes necessary to foreclose, the property is sold at public sale and we may
bid on the property to protect our interest. The decision to foreclose is made
by our Senior Loan Officer.
Non-Performing
Assets.
The table below sets forth the amounts and categories
of non-performing assets in our loan portfolio at the dates
indicated. Loans are placed on non-accrual status when reasonable
doubt exists as to the full timely collection of interest and principal or when
a loan becomes 90 days past due unless an evaluation clearly indicates that the
loan is well-secured and in the process of collection. When a loan is
placed on non-accrual status, unpaid interest credited to income is reversed.
Interest received on nonaccrual loans generally is applied against principal.
Generally, loans are restored to accrual status when the obligation is brought
current, has performed in accordance with the contractual terms for a reasonable
period of time and the ultimate collectibility of the total contractual
principal and interest is no longer in doubt.
Real
estate we acquire as a result of foreclosure or by deed-in-lieu of foreclosure
is classified as real estate owned until it is sold. When property is
acquired, it is recorded at the lower of its cost, which is the unpaid balance
of the loan plus foreclosure costs, or fair market value at the date of
foreclosure. Holding costs and declines in fair market value after
acquisition of the property result in charges against income. At each
of the dates presented below, we did not have any troubled debt restructurings
that involve forgiving a portion of interest or principal on any loans or making
loans at a rate materially less than that of market rates or any accruing loans
past due 90 days or more.
|
|
At
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in Thousands)
|
|
Non-accrual
loans:
|
|
|
|
|
|
|
Mortgage
loans
|
|
$
|
242
|
|
|
$
|
—
|
|
Commercial
loans
|
|
|
9
|
|
|
|
—
|
|
Consumer
loans
|
|
|
—
|
|
|
|
—
|
|
Total
nonaccrual loans
|
|
$
|
251
|
|
|
$
|
—
|
|
Loans
greater than 90 days delinquent and still accruing:
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
$
|
—
|
|
|
$
|
—
|
|
Commercial
loans
|
|
|
—
|
|
|
|
—
|
|
Consumer
loans
|
|
|
—
|
|
|
|
—
|
|
Total
loans greater than 90 days delinquent still accruing
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Other
real estate owned
|
|
$
|
87
|
|
|
$
|
—
|
|
Total
non-performing assets
|
|
$
|
338
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
Non-performing
loans to total loans
|
|
|
0.44
|
%
|
|
|
—
|
|
Non-performing
assets to total assets
|
|
|
0.13
|
%
|
|
|
—
|
|
Interest
income of $7,014 would have been recorded for fiscal year 2008 and no additional
interest income would have been recorded for fiscal 2007 had our non-accruing
loans been current in accordance with their original terms.
Delinquent
Loans
.
The following table sets forth our
loan delinquencies by type and amount at the dates
indicated.
|
|
At
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
30-59
days
past
due
|
|
|
60-89
days
past
due
|
|
|
30-59
days
past
due
|
|
|
60-89
days
past
due
|
|
|
|
(Dollars
in Thousands)
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family residential
|
|
$
|
174
|
|
|
$
|
137
|
|
|
$
|
215
|
|
|
$
|
102
|
|
Commercial
|
|
|
—
|
|
|
|
105
|
|
|
|
108
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Equity
lines of credit
|
|
|
88
|
|
|
|
—
|
|
|
|
13
|
|
|
|
—
|
|
Undisbursed
portion of construction loan
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Commercial
loans
|
|
|
29
|
|
|
|
9
|
|
|
|
14
|
|
|
|
—
|
|
Consumer
loans
|
|
|
17
|
|
|
|
—
|
|
|
|
2
|
|
|
|
5
|
|
Total:
|
|
$
|
308
|
|
|
$
|
251
|
|
|
$
|
352
|
|
|
$
|
107
|
|
Classified
Assets.
Federal
regulations require us to review and classify our assets on a regular basis. In
addition, the Office of Thrift Supervision has the authority to identify problem
assets and, if appropriate, require them to be classified. There are three
classifications for problem assets: substandard, doubtful and loss. “Substandard
assets” must have one or more defined weaknesses and are characterized by the
distinct possibility that we will sustain some loss if the deficiencies are not
corrected. “Doubtful assets” have the weaknesses of substandard assets with the
additional characteristic that the weaknesses make collection or liquidation in
full on the basis of currently existing facts, conditions and values
questionable, and there is a high possibility of loss. An asset classified
“loss” is considered uncollectible and of such little value that continuance as
an asset of the institution is not warranted. The regulations also provide for a
“special mention” category, described as assets that do not currently expose us
to a sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving our close attention. When we
classify an asset as substandard or doubtful we establish a specific allowance
for loan losses. If we classify an asset as loss, we charge off an amount equal
to 100% of the portion of the asset classified loss.
The
aggregate amount of our classified assets at the dates indicated were as
follows:
|
|
At
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in Thousands)
|
|
Special
Mention
|
|
$
|
487
|
|
|
$
|
139
|
|
Substandard
|
|
|
4
|
|
|
|
9
|
|
Doubtful
|
|
|
—
|
|
|
|
—
|
|
Loss
|
|
|
—
|
|
|
|
—
|
|
Total
Classified Assets
|
|
$
|
491
|
|
|
$
|
148
|
|
Other
than disclosed in the table above, there were no other loans that management has
serious doubts about the ability of the borrowers to comply with the present
loan repayment terms and would result in disclosure as nonaccrual, 90 days past
due, restructured or impaired.
Allowance for
Loan Losses.
In originating loans, we recognize that losses
will be experienced on loans and that the risk of loss will vary with many
factors, including the type of loan being made, the creditworthiness of the
borrower over the term of the loan, general economic conditions and, in the case
of a secured loan, the quality of the security for the loan over the term of the
loan. We maintain an allowance for loan losses that is intended to absorb losses
inherent in the loan portfolio, and as such, this allowance represents
management’s best estimate of the probable known and inherent credit losses in
the loan portfolio as of the date of the financial statements. 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 quarterly 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 June 30, 2008, we had no impaired loans as defined by
Statement of Financial Accounting Standards No. 114 and no established valuation
allowance.
The
Office of Thrift Supervision, as an integral part of its examination process,
periodically reviews our allowance for loan losses. The Office of Thrift
Supervision may require us to make additional provisions for loan losses based
on their judgments of information available to them at the time of their
examination.
At June
30, 2008, our allowance for loan losses represented 0.61% of total gross loans.
No portion of the allowance was allocated to problem loans at June 30, 2008. The
allowance for loan losses increased by $27,970 from June 30, 2007 to June 30,
2008, due primarily to a provision for loan loss of $29,312, offset by
charge-offs of $1,342. The decision to increase the allowance from
June 30, 2007 to June 30, 2008 reflected net loan growth and the mixture of
loans in our portfolio.
The
following table sets forth activity in our allowance for loan losses for the
periods indicated:
|
|
For
the Years Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars
in Thousands)
|
|
Balance
at beginning of period
|
|
$
|
318
|
|
|
$
|
290
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
One-
to four-family residential
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
Equity
Lines of Credit
|
|
|
—
|
|
|
|
—
|
|
Undisbursed
portion of construction loan
|
|
|
—
|
|
|
|
—
|
|
Commercial
loans
|
|
|
(1
|
)
|
|
|
—
|
|
Consumer
loans
|
|
|
—
|
|
|
|
(1
|
)
|
Total
Charge-offs
|
|
|
(1
|
)
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
Mortgage
loans:
|
|
|
—
|
|
|
|
—
|
|
One-
to four-family residential
|
|
|
—
|
|
|
|
—
|
|
Commercial
|
|
|
—
|
|
|
|
—
|
|
Construction
|
|
|
—
|
|
|
|
—
|
|
Equity
Lines of Credit
|
|
|
—
|
|
|
|
—
|
|
Undisbursed
portion of construction loan
|
|
|
—
|
|
|
|
—
|
|
Commercial
loans
|
|
|
—
|
|
|
|
—
|
|
Consumer
loans
|
|
|
—
|
|
|
|
—
|
|
Total
recoveries
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net
charge-offs
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Provision
for loan loss
|
|
|
29
|
|
|
|
34
|
|
Reclassification
|
|
|
—
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
Balance
at end of period
|
|
$
|
346
|
|
|
$
|
318
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
Net
charge-offs to average loans outstanding
|
|
|
0.002
|
%
|
|
|
0.002
|
%
|
Allowance
for loan losses to non-performing loans at end of period
|
|
|
137.83
|
%
|
|
NM
|
|
Allowance
for loan losses to total loans at end of period
|
|
|
0.61
|
%
|
|
|
0.60
|
%
|
The
following table sets forth the allowance for loan losses by loan category, the
total loan balances by category, and the percent of loans in each category to
total loans at the dates indicated. The allowance for loan losses
allocated to each category is not necessarily indicative of future losses in any
particular category and does not restrict the use of the allowance to absorb
losses in other categories.
|
|
At
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Allowance
for
Loan
Losses
|
|
|
Loan
Balance
by
Category
|
|
|
%
of Loans
in
each
Category
to
Total
Loans
|
|
|
Allowance
for
Loan
Losses
|
|
|
Loan
Balance
by Category
|
|
|
%
of Loans
in
each
Category
to
Total
Loans
|
|
|
|
(Dollars
in Thousands)
|
|
Mortgage
loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to four-family residential
|
|
$
|
147
|
|
|
$
|
32,739
|
|
|
|
57.4
|
%
|
|
$
|
137
|
|
|
$
|
31,817
|
|
|
|
59.9
|
%
|
Commercial
|
|
|
107
|
|
|
|
10,181
|
|
|
|
17.8
|
|
|
|
77
|
|
|
|
7,553
|
|
|
|
14.2
|
|
Construction
|
|
|
5
|
|
|
|
1,053
|
|
|
|
1.8
|
|
|
|
6
|
|
|
|
1,041
|
|
|
|
1.9
|
|
Equity
Lines of Credit
|
|
|
53
|
|
|
|
10,845
|
|
|
|
19.0
|
|
|
|
74
|
|
|
|
11,106
|
|
|
|
20.9
|
|
Undisbursed
portion of construction loan
|
|
|
—
|
|
|
|
(321
|
)
|
|
|
(0.6
|
)
|
|
|
—
|
|
|
|
(123
|
)
|
|
|
(0.2
|
)
|
Commercial
loans
|
|
|
29
|
|
|
|
2,103
|
|
|
|
3.7
|
|
|
|
19
|
|
|
|
1,257
|
|
|
|
2.4
|
|
Consumer
loans
|
|
|
5
|
|
|
|
520
|
|
|
|
0.9
|
|
|
|
5
|
|
|
|
501
|
|
|
|
0.9
|
|
Total
loans
|
|
$
|
346
|
|
|
$
|
57,120
|
|
|
|
100.0
|
%
|
|
$
|
318
|
|
|
$
|
53,152
|
|
|
|
100.0
|
%
|
Although
we believe that we use the best information available to establish the allowance
for loan losses, future adjustments to the allowance for loan losses may be
necessary and our results of operations could be adversely affected if
circumstances differ substantially from the assumptions used in making the
determinations. Furthermore, while we believe we have established our allowance
for loan losses in conformity with U.S. generally accepted accounting
principles, there can be no assurance that regulators, in reviewing our loan
portfolio, will not require us to increase our allowance for loan losses. In
addition, because future events affecting borrowers and collateral cannot be
predicted with certainty, there can be no assurance that the existing allowance
for loan losses is adequate or that increases will not be necessary should the
quality of any loans deteriorate as a result of the factors discussed above. Any
material increase in the allowance for loan losses may adversely affect our
financial condition and results of operations.
Investment
Activities
We have
legal authority to invest in various types of liquid assets, including U.S.
Treasury obligations, securities of various federal agencies and of state and
municipal governments, mortgage-backed securities and certificates of deposit of
federally insured institutions, overnight and short-term loans to other banks,
corporate debt instruments and Fannie Mae and Freddie Mac equity
securities. Within certain regulatory limits, we also may invest a
portion of our assets in corporate securities and mutual funds. We also are
required to maintain an investment in Federal Home Loan Bank of Boston
stock.
At June
30, 2008, our available for sale investment portfolio totaled $1.4 million, or
2.2% of total assets. We also held $2.3 million in certificates of
deposit and $901,000 in Federal Home Loan Bank of Boston stock at June 30,
2008. Our available for sale investment portfolio at June 30, 2008,
at amortized cost, consisted of $986,000 in corporate debt obligations, $446,000
of mortgage-backed securities, $6,000 of one SBA pool securities and $60,000 in
Fannie Mae and Freddie Mac common stock.
The
Company’s Board of Directors has determined that it will write-down investments
in Fannie Mae and Freddie Mac common stock in the quarter ending 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 will be $60,000, the total amount of such
Fannie Mae and Freddie Mac common stock on the Company’s books at that
date. The Company previously recorded an other-than-temporary
impairment charge of $30,000 for the fiscal year ended June 30,
2008.
The
Company does not expect to realize any material tax benefit in connection with
the impairment of its Fannie Mae and Freddie Mac common
stock. Although the Company would realize a capital loss if it sells
the Fannie Mae and Freddie Mac 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.
The
other-than-temporary impairment of the Fannie Mae and Freddie Mac common stock
will have the effect of reducing the Company and the Bank’s regulatory capital
levels and net income.
Our
investment objectives are to maintain high asset quality, provide and maintain
liquidity, to establish an acceptable level of interest rate and credit risk, to
provide an alternate source of low-risk investments when demand for loans is
weak and to generate a favorable return. Our board of directors has
the overall responsibility for the investment portfolio, including approval of
our investment policy. The board of directors is also responsible for
implementation of the investment policy and monitoring our investment
performance.
Our
board of directors reviews the status of our investment portfolio on a monthly
basis, or more frequently if warranted.
The
following table sets forth certain information regarding the amortized cost and
market values of our securities available for sale at the dates
indicated:
|
|
At
June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
|
(Dollars
in Thousands)
|
|
Securities
available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government-sponsored enterprise obligations
|
|
$
|
__
|
|
|
$
|
__
|
|
|
$
|
650
|
|
|
$
|
648
|
|
Corporate
bonds and other obligations
|
|
|
986
|
|
|
|
935
|
|
|
|
999
|
|
|
|
992
|
|
SBA
pool securities
|
|
|
6
|
|
|
|
6
|
|
|
|
123
|
|
|
|
122
|
|
Mortgage-backed
securities
|
|
|
446
|
|
|
|
447
|
|
|
|
601
|
|
|
|
593
|
|
Total
debt securities
|
|
|
1,438
|
|
|
|
1,388
|
|
|
|
2,373
|
|
|
|
2,355
|
|
U.S.
Government-sponsored enterprise securities
|
|
|
60
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
Preferred
and common stock
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
|
|
10
|
|
Total
marketable equity securities
|
|
|
70
|
|
|
|
46
|
|
|
|
10
|
|
|
|
10
|
|
Total
securities available for sale
|
|
$
|
1,508
|
|
|
$
|
1,434
|
|
|
$
|
2,383
|
|
|
$
|
2,365
|
|
We do not
have any securities of one issuer the aggregate book value of which exceeds 10%
of stockholders’ equity.
The table
below sets forth certain information regarding the amortized cost, weighted
average yields and contractual maturities of the Bank’s debt securities
portfolio at June 30, 2008. In the case of mortgage-backed securities, this
table does not reflect scheduled principal payments, unscheduled prepayments, or
the ability of certain of these securities to reprice prior to their contractual
maturity:
|
|
One
Year or Less
|
|
|
More
than One Year Through Five Years
|
|
|
More
than Five Years Through Ten Years
|
|
|
More
than Ten Years
|
|
|
Total
Securities
|
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
|
(Dollars
in Thousands)
|
|
U.S.
Government-sponsored enterprise obligations
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
Corporate
bonds and other obligations
|
|
|
250
|
|
|
|
4.35
|
%
|
|
|
736
|
|
|
|
5.73
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
986
|
|
|
|
5.38
|
%
|
SBA
pool securities
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
8.13
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
6
|
|
|
|
8.13
|
%
|
Mortgage-backed
securities
|
|
|
91
|
|
|
|
5.27
|
%
|
|
|
235
|
|
|
|
4.43
|
%
|
|
|
—
|
|
|
|
—
|
|
|
|
120
|
|
|
|
5.15
|
%
|
|
|
446
|
|
|
|
4.80
|
%
|
Total
debt securities
|
|
$
|
341
|
|
|
|
|
|
|
$
|
977
|
|
|
|
|
|
|
$
|
—
|
|
|
|
|
|
|
$
|
120
|
|
|
|
|
|
|
$
|
1,438
|
|
|
|
|
|
Auburn
Savings Bank does not have any interest-bearing assets that would be classified
as non-accrual or past due if they were loans.
Sources
of Funds
General
.
Deposits, borrowings and
loan repayments are the major sources of our funds for lending and other
investment purposes. Scheduled loan repayments are a relatively stable source of
funds, while deposit inflows and outflows and loan prepayments are significantly
influenced by general interest rates and money market conditions.
Deposit
Accounts
.
Most of
our consumer and commercial deposits are gathered from our primary market area
through the offering of a broad selection of deposit instruments, including
interest-bearing demand accounts (such as NOW and money market accounts),
savings accounts and certificates of deposit. In addition to accounts for
individuals, we also offer business advantage and commercial checking accounts
designed for the businesses operating in our market area. We have never and
currently do not have any brokered deposits.
Deposit
account terms vary according to the minimum balance required, the time periods
the funds must remain on deposit and the interest rate, among other factors. In
determining the terms of our deposit accounts, we consider the rates offered by
our competition, our liquidity needs, profitability to us, and customer
preferences and concerns. We generally review our deposit mix and pricing
weekly. Our deposit pricing strategy has generally been based on
current market conditions, demand for loans, liquidity levels and Federal Home
Loan Bank of Boston advance rates.
The following table sets forth certain
information relative to the composition of our average deposit accounts and the
weighted average interest rate on each category of deposits:
|
|
Years
Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
Balance
|
|
|
Percent
|
|
|
Weighted
Average
Rate
|
|
|
Average
Balance
|
|
|
Percent
|
|
|
Weighted
Average
Rate
|
|
|
|
(Dollars
in Thousands)
|
|
Deposit
type
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
$
|
2,553
|
|
|
|
5.65
|
%
|
|
|
0.09
|
%
|
|
$
|
2,840
|
|
|
|
6.40
|
%
|
|
|
0.00
|
%
|
Savings
deposits
|
|
|
2,550
|
|
|
|
5.65
|
%
|
|
|
0.86
|
%
|
|
|
2,662
|
|
|
|
6.00
|
%
|
|
|
0.83
|
%
|
Money
Market
|
|
|
9,247
|
|
|
|
20.48
|
%
|
|
|
2.83
|
%
|
|
|
9,505
|
|
|
|
21.43
|
%
|
|
|
3.43
|
%
|
NOW
accounts
|
|
|
1,990
|
|
|
|
4.41
|
%
|
|
|
1.45
|
%
|
|
|
1,627
|
|
|
|
3.67
|
%
|
|
|
0.55
|
%
|
Total
transaction accounts
|
|
$
|
16,340
|
|
|
|
36.19
|
%
|
|
|
1.93
|
%
|
|
$
|
16,634
|
|
|
|
37.50
|
%
|
|
|
2.15
|
%
|
Certificates
of deposit
|
|
|
28,818
|
|
|
|
63.81
|
%
|
|
|
3.70
|
%
|
|
|
27,726
|
|
|
|
62.50
|
%
|
|
|
4.55
|
%
|
Total
deposits
|
|
$
|
45,158
|
|
|
|
100.00
|
%
|
|
|
3.06
|
%
|
|
$
|
44,360
|
|
|
|
100.00
|
%
|
|
|
3.65
|
%
|
As of
June 30, 2008, the aggregate amount of outstanding certificates of deposit in
amounts greater than or equal to $100,000 was approximately $9.5 million. The
following table sets forth the maturity of those certificates as of June 30,
2008:
|
|
At
June 30, 2008
|
|
|
|
(Dollars
in Thousands)
|
|
Three
months or less
|
|
$
|
2,863
|
|
Over
three months through six months
|
|
|
1,886
|
|
Over
six months through one year
|
|
|
3,102
|
|
Over
one year through three years
|
|
|
1,192
|
|
Over
three years
|
|
|
421
|
|
Total
|
|
$
|
9,464
|
|
Borrowings
.
We utilize advances from the
Federal Home Loan Bank of Boston to supplement our investable funds. The Federal
Home Loan Bank functions as a central reserve bank providing credit for member
financial institutions. As a member, we are required to own capital stock in the
Federal Home Loan Bank and are authorized to apply for advances on the security
of such stock and certain of our mortgage loans and other assets (principally
securities that are obligations of, or guaranteed by, the United States),
provided certain standards related to creditworthiness have been met. Advances
are made under several different programs, each having its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based either on a fixed percentage of an institution’s net worth or
on the Federal Home Loan Bank’s assessment of the institution’s
creditworthiness.
The
following table sets forth information concerning balances and interest rates on
our Federal Home Loan Bank of Boston advances at the dates and for the periods
indicated:
|
|
At
or For the Fiscal Years Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Long-Term
Borrowings
|
|
|
Short-Term
Borrowings(1)
|
|
|
Long-Term
Borrowings
|
|
|
Short-Term
Borrowings(1)
|
|
|
|
(Dollars
in Thousands)
|
|
Balance
at end of period
|
|
$
|
15,150
|
|
|
$
|
200
|
|
|
$
|
12,900
|
|
|
$
|
—
|
|
Average
balance during period
|
|
$
|
14,000
|
|
|
$
|
2
|
|
|
$
|
11,765
|
|
|
$
|
1,313
|
|
Maximum
outstanding at any month end
|
|
$
|
15,150
|
|
|
$
|
200
|
|
|
$
|
13,650
|
|
|
$
|
2,500
|
|
Weighted
average interest rate at end of period
|
|
|
4.96
|
%
|
|
|
2.50
|
%
|
|
|
5.35
|
%
|
|
|
—
|
%
|
Average
interest rate during period
|
|
|
5.22
|
%
|
|
|
2.50
|
%
|
|
|
5.32
|
%
|
|
|
5.36
|
%
|
|
|
(1)
Represents short-term borrowings of less than one
year.
|
Regulation
and Supervision
General
.
The Bank is
subject to extensive regulation, examination and supervision by the Office of
Thrift Supervision, as its primary federal regulator, and the Federal Deposit
Insurance Corporation, as its deposit insurer. The Bank is a member of the
Federal Home Loan Bank System and its deposit accounts are insured up to
applicable limits by the Deposit Insurance Fund managed by the Federal Deposit
Insurance Corporation. The Bank must file reports with the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation concerning its
activities and financial condition in addition to obtaining regulatory approvals
before entering into certain transactions such as mergers with, or acquisitions
of, other financial institutions. There are periodic examinations by the Office
of Thrift Supervision and, under certain circumstances, the Federal Deposit
Insurance Corporation to evaluate the Bank’s safety and soundness and compliance
with various regulatory requirements. This regulatory structure is intended
primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the Office of Thrift Supervision, the
Federal Deposit Insurance Corporation or Congress, could have a material adverse
impact on the Company, Auburn Bancorp, MHC (the “MHC”) and the Bank and their
operations. The Company and the MHC, as savings and loan holding companies, are
required to file certain reports with, are subject to examination by, and
otherwise must comply with the rules and regulations of the Office of Thrift
Supervision. The Company is also subject to the rules and regulations of the
Securities and Exchange Commission under the federal securities
laws.
Certain
of the regulatory requirements that are applicable to the Bank, the Company and
the MHC are described below. This description of statutes and regulations is not
intended to be a complete explanation of such statutes and regulations and their
effects on the Bank, the Company and the MHC and is qualified in its entirety by
reference to the actual statutes and regulations.
Regulation
of Federal Savings Associations.
Capital Requirements
. The
Office of Thrift Supervision’s capital regulations require federal savings
institutions to meet three minimum capital standards: a 1.5% tangible capital to
total assets ratio, a 4% leverage ratio (3% for institutions receiving the
highest rating on the CAMELS examination rating system) and an 8% risk-based
capital ratio. In addition, the prompt corrective action standards discussed
below also establish, in effect, a minimum 2% tangible capital standard, a 4%
leverage ratio (3% for institutions receiving the highest rating on the CAMELS
system) and, together with the risk-based capital standard itself, a 4% Tier 1
risk-based capital standard. The Office of Thrift Supervision regulations also
require that, in meeting the tangible, leverage and risk-based capital
standards, institutions must generally deduct investments in and loans to
subsidiaries engaged in activities as principal that are not permissible for a
national bank.
The
risk-based capital standard requires federal savings institutions to maintain
Tier 1 (core) and total capital (which is defined as core capital and
supplementary capital) to risk-weighted assets of at least 4% and 8%,
respectively. In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet assets, recourse obligations, residual
interests and direct credit substitutes, are multiplied by a risk-weight factor
of 0% to 100%, assigned by the Office of Thrift Supervision capital regulation
based on the risks believed inherent in the type of asset. Core (Tier 1) capital
is defined as common stockholders’ equity (including retained earnings), certain
noncumulative perpetual preferred stock and related surplus and minority
interests in equity accounts of consolidated subsidiaries, less intangibles
other than certain mortgage servicing rights and credit card relationships. The
components of supplementary capital currently include cumulative preferred
stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, the allowance for loan and
lease losses limited to a maximum of 1.25% of risk-weighted assets and up to 45%
of unrealized gains on available-for-sale equity securities with readily
determinable fair market values. Overall, the amount of supplementary capital
included as part of total capital cannot exceed 100% of core
capital.
The Office of Thrift Supervision also
has authority to establish individual minimum capital requirements in
appropriate cases upon a determination that an institution’s capital level is or
may become inadequate in light of the particular circumstances. At June 30,
2008, the Bank met each of these capital requirements.
Prompt Corrective Regulatory
Action.
The
Office of Thrift Supervision is required to take certain supervisory actions
against undercapitalized institutions, the severity of which depends upon the
institution’s degree of undercapitalization. Generally, a savings institution
that has a ratio of total capital to risk weighted assets of less than 8%, a
ratio of Tier 1 (core) capital to risk-weighted assets of less than 4% or a
ratio of core capital to total assets of less than 4% (3% or less for
institutions with the highest examination rating) is considered to be
“undercapitalized.” A savings institution that has a total risk-based capital
ratio less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio
that is less than 3% is considered to be “significantly undercapitalized” and a
savings institution that has a tangible capital to assets ratio equal to or less
than 2% is deemed to be “critically undercapitalized.” Subject to a narrow
exception, the Office of Thrift Supervision is required to appoint a receiver or
conservator within specified time frames for an institution that is “critically
undercapitalized.” An institution must file a capital restoration plan with the
Office of Thrift Supervision within 45 days of the date it receives notice that
it is “undercapitalized,” “significantly undercapitalized” or “critically
undercapitalized.” Compliance with the plan must be guaranteed by any parent
holding company. In addition, numerous mandatory supervisory actions become
immediately applicable to an undercapitalized institution, including, but not
limited to, increased monitoring by regulators and restrictions on growth,
capital distributions and expansion. “Significantly undercapitalized” and
“critically undercapitalized” institutions are subject to more extensive
mandatory regulatory actions. The Office of Thrift Supervision could also take
any one of a number of discretionary supervisory actions, including the issuance
of a capital directive and the replacement of senior executive officers and
directors.
Standards for Safety and
Soundness.
As required by statute, the federal banking agencies have
adopted Interagency Guidelines prescribing Standards for Safety and Soundness.
The guidelines set forth the safety and soundness standards that the federal
banking agencies use to identify and address problems at insured depository
institutions before capital becomes impaired. If the Office of Thrift
Supervision determines that a savings institution fails to meet any standard
prescribed by the guidelines, the Office of Thrift Supervision may require the
institution to submit an acceptable plan to achieve compliance with the
standard. The Bank has not received any notice from the Office of Thrift
Supervision that it has failed to meet any standard prescribed by the
guidelines.
Limitation on Capital
Distributions.
Office of Thrift Supervision regulations impose
limitations upon all capital distributions by a savings institution, including
cash dividends, payments to repurchase its shares and payments to shareholders
of another institution in a cash-out merger. Under the regulations, an
application to and the prior approval of the Office of Thrift Supervision is
required before any capital distribution if the institution does not meet the
criteria for “expedited treatment” of applications under Office of Thrift
Supervision regulations (
i.e.
, generally, examination
and Community Reinvestment Act ratings in the two top categories), the total
capital distributions for the calendar year exceed net income for that year plus
the amount of retained net income for the preceding two years, the institution
would be undercapitalized following the distribution or the distribution would
otherwise be contrary to a statute, regulation or agreement with the Office of
Thrift Supervision. If an application is not required, the institution must
still provide prior notice to the Office of Thrift Supervision of the capital
distribution if, like the Bank, it is a subsidiary of a holding company. If the
Bank’s capital were ever to fall below its regulatory requirements or the Office
of Thrift Supervision notified it that it was in need of increased supervision,
its ability to make capital distributions could be restricted. In addition, the
Office of Thrift Supervision could prohibit a proposed capital distribution that
would otherwise be permitted by the regulation, if the agency determines that
such distribution would constitute an unsafe or unsound practice.
Qualified Thrift Lender
Test.
Federal law requires
savings institutions to meet a qualified thrift lender test. Under the test, a
savings association is required to either qualify as a “domestic building and
loan association” under the Internal Revenue Code or maintain at least 65% of
its “portfolio assets” (total assets less: (i) specified liquid assets up to 20%
of total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain “qualified thrift investments”
(primarily residential mortgages and related investments, including certain
mortgage-backed securities) in at least 9 months out of each 12 month period.
Education loans, consumer loans, credit card loans and small business loans may
be considered “qualified thrift investments.” A savings institution that fails
the qualified thrift lender test is subject to certain operating restrictions
and may be required to convert to a bank charter. As of June 30, 2008, the Bank
maintained 100.18% of its portfolio assets in qualified thrift
investments.
Asset Composition
Limits.
Some
of the types of loans and other investments in which a federal savings
institution, such as the Bank, may invest, sell or otherwise deal are limited to
a percentage of the savings institution’s assets or capital under federal law.
For example, the amount of commercial non-real estate loans in which the Bank
may invest or sell is limited to up to 20% of assets, with the amount over 10%
of assets limited to small business loans only, the amount of nonresidential
real property loans is limited to 400% of the savings institution’s capital,
unless the Office of Thrift Supervision permits them to exceed this limit,
investments in tangible personal property are limited to 10% of assets and other
loans for personal, family or household purposes are limited to between 30 and
35% of assets. Some other loans or investments are limited to five
percent of the savings institution’s assets, including community development
investments, and construction loans without security, among others, in which the
Bank, as a federal savings institution, may invest or sell are all limited to a
percentage of their assets fixed by statute.
Grandfathering.
Federal
law permits a federal savings bank formerly chartered or designated as a mutual
savings bank under state law, such as the Bank, which converted from a
Maine-state chartered savings institution to a federal savings institution in
July 2006, to continue to exercise any authority it was authorized to exercise
as a mutual savings bank under state law at the time of its conversion from a
state mutual savings bank to a Federal charter. Unless otherwise determined by
the OTS, a savings association, in the exercise of this grandfathered authority,
may continue to follow applicable state laws and regulations in effect at the
time of its conversion. A Federal savings association may also
enjoying grandfathered rights under the Maine state law that were available only
upon the occurrence of specific preconditions, such as the attainment of a
particular future date or specified level of regulatory capital, which had not
occurred at the time of conversion from a state mutual savings bank, provided
they occur thereafter.
Transactions with Related
Parties.
Federal law limits the Bank’s authority to lend to, and engage
in certain other transactions with (collectively, “covered transactions”),
“affiliates” (
e.g
., any
company that controls or is under common control with an institution, including
the Company, the MHC and their non-savings institution subsidiaries). The
aggregate amount of covered transactions with any individual affiliate is
limited to 10% of the capital and surplus of the savings institution. The
aggregate amount of covered transactions with all affiliates is limited to 20%
of the savings institution’s capital and surplus. Loans and other specified
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in federal law. The purchase of low quality
assets from affiliates is generally prohibited. Transactions with affiliates
must be on terms and under circumstances that are at least as favorable to the
institution as those prevailing at the time for comparable transactions with
non-affiliated companies. In addition, savings institutions are prohibited from
lending to any affiliate that is engaged in activities that are not permissible
for bank holding companies and no savings institution may purchase the
securities of any affiliate other than a subsidiary.
The Sarbanes-Oxley Act generally
prohibits loans by the Company to its executive officers and directors. However,
the Sarbanes-Oxley Act contains a specific exemption from such prohibition for
loans by the Bank to its executive officers and directors in compliance with
federal banking regulations. Federal regulations require that all loans or
extensions of credit to executive officers and directors of insured institutions
must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and must not involve more than the normal risk of repayment or
present other unfavorable features. The Bank is therefore prohibited from making
any new loans or extensions of credit to executive officers and directors at
different rates or terms than those offered to the general public.
Notwithstanding this rule, federal regulations permit the Bank to make loans to
executive officers and directors at reduced interest rates if the loan is made
under a benefit program generally available to all other employees and does not
give preference to any executive officer or director over any other
employee.
In
addition, loans made to a director or executive officer in an amount that, when
aggregated with the amount of all other loans to the person and his or her
related interests, are in excess of the greater of $25,000 or 5% of the Bank’s
capital and surplus, up to a maximum of $500,000, must be approved in advance by
a majority of the disinterested members of the board of directors.
Insurance of Deposit
Accounts.
Deposits of the Bank are insured by the Deposit Insurance Fund
of the Federal Deposit Insurance Corporation. The FDIC determines insurance
premiums based on a number of factors, primarily the risk of loss that insured
institutions pose to the Deposit Insurance Fund. The FDIC has the ability to
adjust the new insurance fund’s reserve ratio between 1.15% and 1.5%, depending
on projected losses, economic changes and assessment rates at the end of a
calendar year. The FDIC has adopted regulations that set assessment rates that
took effect at the beginning of 2007. The new assessment rates for most banks
vary between five cents and seven cents for every $100 of deposits. A change in
insurance premiums could have an adverse effect on the operating expenses and
results of operations of the Bank. The Bank cannot predict what insurance
assessment rates will be in the future. Assessment credits have been provided to
institutions that paid high premiums in the past. As a result, the Bank had
credits that offset portions of its premiums in 2007 and 2008.
Insurance of deposits may be terminated
by the Federal Deposit Insurance Corporation upon a finding that the institution
has engaged in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations or has violated any applicable law, regulation, rule,
order or condition imposed by the Federal Deposit Insurance Corporation or the
Office of Thrift Supervision. We do not know of any practice, condition or
violation that might lead to termination of deposit insurance.
In addition to the assessment for
deposit insurance, the Bank, as a savings institution, is required to make
payments on bonds issued in the late 1980s by the Financing Corporation to
recapitalize a predecessor deposit insurance fund.
Federal Home Loan Bank
System.
The Bank is a member of the Federal Home Loan Bank System, which
consists of 12 regional Federal Home Loan Banks. The Federal Home Loan Banks
provide a central credit facility primarily for member institutions. The Bank,
as a member of the Federal Home Loan Bank of Boston, is required to acquire and
hold shares of capital stock in that Federal Home Loan Bank. The Bank was in
compliance with this requirement with an investment in Federal Home Loan Bank
stock at June 30, 2008 of $901,100.
The Federal Home Loan Banks are
required to provide funds for the resolution of insolvent thrifts in the late
1980s and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the Federal Home Loan
Banks pay to their members and could also result in the Federal Home Loan Banks
imposing a higher rate of interest on advances to their members. If dividends
were reduced, or interest on future Federal Home Loan Bank advances increased,
the Bank’s net interest income would likely also be reduced.
Community Reinvestment Act.
Under the Community Reinvestment Act, as implemented by Office of Thrift
Supervision regulations, a savings association has a continuing and affirmative
obligation consistent with its safe and sound operation to help meet the credit
needs of its entire community, including low and moderate income neighborhoods.
The Community Reinvestment Act does not establish specific lending requirements
or programs for financial institutions nor does it limit an institution’s
discretion to develop the types of products and services that it believes are
best suited to its particular community, consistent with the Community
Reinvestment Act. The Community Reinvestment Act requires the Office of Thrift
Supervision, in connection with its examination of a savings association, to
assess the institution’s record of meeting the credit needs of its community and
to take such record into account in its evaluation of certain applications by
such institution.
The Community Reinvestment Act requires
public disclosure of an institution’s rating and requires the Office of Thrift
Supervision to provide a written evaluation of an association’s Community
Reinvestment Act performance utilizing a four-tiered descriptive rating system.
The Bank received an “Outstanding” rating as a result of its most recent
Community Reinvestment Act assessment.
Privacy.
Under the
Gramm-Leach-Bliley Act of 1999 (the “GLB Act”), all financial institutions are
required to establish policies and procedures to restrict the sharing of
nonpublic customer data with nonaffiliated parties at the customer’s request and
to protect customer data from unauthorized access. In addition, the
Fair and Accurate Credit Transactions Act of 2003 (the “FACT Act”) includes many
provisions concerning national credit reporting standards and permits consumers,
including customers of the Bank, to opt out of information-sharing for marketing
purposes among affiliated companies. The FACT Act also requires banks
and other financial institutions to notify their customers if they report
negative information about them to a credit bureau or if they are granted credit
on terms less favorable than those generally available. The Federal
Reserve Board and the Federal Trade Commission have extensive rulemaking
authority under the FACT Act, to which the MHC, the Company and the Bank are
subject. The Bank may also be subject to Maine state law restrictions
on the disclosure of customer information.
Data
Security
.
The
Office of Thrift Supervision and other federal bank regulatory agencies have
adopted interagency guidelines establishing standards for safeguarding nonpublic
personal information about customers that implement provisions of the GLBA
(“Information Security Guidelines”). Among other things, the
Information Security Guidelines require each financial institution, under the
supervision and ongoing oversight of its Board of Directors or an appropriate
committee thereof, to develop, implement and maintain a comprehensive written
information security program designed to ensure the security and confidentiality
of customer information, to protect against any anticipated threats or hazards
to the security or integrity of such information; and to protect against
unauthorized access to or use of such information that could result in
substantial harm or inconvenience to any customer. In April 2005, the
Office of Thrift Supervision and other bank regulatory agencies issued further
guidance for the establishment of these information security standards,
requiring financial institutions to develop and implement response programs
designed to address incidents of unauthorized access to sensitive customer
information maintained by the financial institution or its service provider,
including customer notification procedures. The Bank may also be
subject to Maine state law restrictions on data security.
Consumer Laws and
Regulations
.
In
addition to the laws and regulations discussed herein, the Bank is also subject
to certain laws and regulations designed to protect consumers in transactions
with banks. While the list set forth herein is not exhaustive, these
laws and regulations include the Truth in Lending Act, the Truth in Savings Act,
the Electronic Funds Transfer Act and Regulation E promulgated thereunder, the
Expedited Funds Availability Act, Check Clearing for the 21
st
Century
Act , the Equal Credit Opportunity Act, the Fair Housing Act, the Fair Credit
Reporting Act, Fair Debt Collection Practices Act, Home Mortgage Disclosure Act
of 1975, the Real Estate Settlement Procedures Act, Right to Financial Privacy
Act and Title III of The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
(referred to as the “USA PATRIOT Act”) and related regulations, among
others. These laws and regulations require certain disclosures and
regulate the manner in which financial institutions must deal with customers
when taking deposits, making loans to or engaging in other types of transactions
with such customers. Failure to comply with these laws and
regulations could lead to substantial monetary damages, penalties, operating
restrictions and reputational damage to the financial
institution. Interest and other charges collected or contracted for
by the Bank are subject to federal laws concerning interest rates and, as
applicable, state usury laws.
Holding Company
Regulation.
General.
The
Company and the MHC are savings and loan holding companies within the meaning of
federal law. As such, they are registered with the Office of Thrift Supervision
and are subject to Office of Thrift Supervision regulations, examinations,
supervision, reporting requirements and regulations concerning corporate
governance and activities. In addition, the Office of Thrift Supervision has
enforcement authority over the Company and the MHC and any non-savings
institution subsidiaries they may have in the future. Among other things, this
authority permits the Office of Thrift Supervision to restrict or prohibit
activities that are determined to be a serious risk to the Bank.
Restrictions Applicable to Mutual
Holding Companies.
According
to federal law and Office of Thrift Supervision regulations, a mutual holding
company, such as the MHC, may generally engage in the following activities: (1)
investing in the stock of a savings institution; (2) acquiring a mutual
association through the merger of such association into a savings institution
subsidiary of such holding company or an interim savings institution subsidiary
of such holding company and (3) merging with or acquiring another holding
company, one of whose subsidiaries is a savings institution. In some
circumstances, a savings and loan holding company, such as the MHC, may also
engage in activities approved by the Federal Reserve Board for a bank holding
company under Section 4(c) of the Bank Holding Company Act (other than
activities begun by an acquisition, in whole or in part, of a going concern) if
previously approved by Office of Thrift Supervision or if the savings and loan
holding company receives a rating of “satisfactory” or above prior to January 1,
2008, or a composite rating of “1” or “2” thereafter, in its most recent
examination and is not in a troubled condition. In certain
circumstances, a mutual holding company, such as the MHC, may also engage in
activities permitted for financial holding companies, including certain
insurance and securities activities.
Federal law prohibits a savings and
loan holding company, including a federal mutual holding company, from directly
or indirectly, or through one or more subsidiaries, acquiring more than 5% of
the voting stock of another savings institution, or its holding company, without
prior written approval of the Office of Thrift Supervision. Federal law also
prohibits a savings and loan holding company from acquiring more than 5% of a
company engaged in activities other than those authorized for savings and loan
holding companies by federal law; or acquiring or retaining control of a
depository institution that is not insured by the Federal Deposit Insurance
Corporation. In evaluating applications by holding companies to acquire savings
institutions, the Office of Thrift Supervision must consider the financial and
managerial resources and future prospects of the Company and institution
involved, the effect of the acquisition on the risk to the insurance funds, the
convenience and needs of the community and competitive factors.
The Office of Thrift Supervision is
prohibited from approving any acquisition that would result in a multiple
savings and loan holding company controlling savings institutions in more than
one state, except: (1) the approval of interstate supervisory acquisitions by
savings and loan holding companies, and (2) the acquisition of a savings
institution in another state if the laws of the state of the target savings
institution specifically permit such acquisitions. The states vary in the extent
to which they permit interstate savings and loan holding company
acquisitions.
If the savings institution subsidiary
of a savings and loan holding company fails to meet the qualified thrift lender
test, the holding company must register with the Federal Reserve Board as a bank
holding company within one year of the savings institution’s failure to so
qualify.
Stock Holding Company Subsidiary
Regulation.
The
Office of Thrift Supervision has adopted regulations governing the two-tier
mutual holding company form of organization and subsidiary stock holding
companies that are controlled by mutual holding companies. The Bank has adopted
this form of organization. The Company is the stock holding company subsidiary
of the MHC. The Company is permitted to engage in activities that are permitted
for the MHC subject to the same restrictions and conditions.
Waivers of Dividends by the
MHC.
Office
of Thrift Supervision regulations require the MHC to notify the Office of Thrift
Supervision if it proposes to waive receipt of dividends from the Company. The
Office of Thrift Supervision reviews dividend waiver notices on a case-by-case
basis, and, in general, does not object to a waiver if: (i) the waiver would not
be detrimental to the safe and sound operation of the savings association; and
(ii) the mutual holding company’s board of directors determines that such waiver
is consistent with such directors’ fiduciary duties to the mutual holding
company’s members. The Office of Thrift Supervision requires a mutual holding
company to certify that the dividends declared by its subsidiary holding
company, distributed and waived by the mutual holding company for the last two
calendar quarters or since the date of its minority stock issuance, whichever is
later, and the current year do not exceed cumulative net income of the stock
holding company subsidiary for the same period of time. We anticipate that the
MHC will waive its receipt of dividends that the Company may pay, if
any.
Conversion of the MHC to Stock
Form.
Office
of Thrift Supervision regulations permit the MHC to convert from the mutual form
of organization to the capital stock form of organization. There can be no
assurance when, if ever, a conversion transaction will occur, and the Board of
Directors has no current intention or plan to undertake a conversion
transaction. In a conversion transaction a new holding company would be formed
as the successor to the Company, the MHC’s corporate existence would end, and
certain depositors of the Bank would receive the right to subscribe for
additional shares of the new holding company. In a conversion transaction, each
share of common stock held by stockholders other than the MHC would be
automatically converted into a number of shares of common stock of the new
holding company based on an exchange ratio determined at the time of conversion
that ensures that stockholders other than the MHC own the same percentage of
common stock in the new holding company as they owned in the Company immediately
before conversion. The total number of shares held by stockholders other than
the MHC after a conversion transaction would be increased by any purchases by
such stockholders in the stock offering conducted as part of the conversion
transaction.
Acquisition of Control.
Under
the federal Change in Bank Control Act, a notice must be submitted to the Office
of Thrift Supervision if any person (including a company), or group acting in
concert, seeks to acquire “control” of a savings and loan holding company or
savings association. An acquisition of “control” can occur upon the acquisition
of 10% or more of the voting stock of a savings and loan holding company or
savings institution or as otherwise defined by the Office of Thrift Supervision.
Under the Change in Bank Control Act, the Office of Thrift Supervision has 60
days from the filing of a complete notice to act, taking into consideration
certain factors, including the financial and managerial resources of the
acquirer and the anti-trust effects of the acquisition. Any company that so
acquires control would then be subject to regulation as a savings and loan
holding company.
Future
Legislation.
Various legislation is
from time to time introduced in Congress, and state legislatures with respect to
the regulation of financial institutions. Such legislation may change
the banking statutes and the operating environment of the MHC, the Company, the
Bank and any future subsidiaries in substantial and unpredictable
ways. The Company cannot determine the ultimate effect that potential
legislation, or implementing regulations, if enacted, would have upon the
financial condition or results of operations of the MHC, the Company, the Bank
or any future subsidiaries.
Personnel
As of
June 30, 2008, we had 16 full-time employees and one part-time employee, none of
whom is represented by a collective bargaining unit. We believe our relationship
with our employees is good.
Item
1A. Risk Factors.
Future
changes in interest rates could reduce our profits.
Our
profitability, like that of most financial institutions, depends to a large
extent upon our net interest income, which is the difference between our
interest income on interest-earning assets, such as loans and investment
securities, and our interest expense on interest-bearing liabilities, such as
deposits and borrowed funds. Accordingly, our results of operations depend
largely on movements in market interest rates and our ability to manage our
interest-rate-sensitive assets and liabilities in response to these movements.
Short-term market rates of interest (which we use as a guide to price our
deposits) have until recently risen from historically low levels, while
longer-term market rates of interest (which we use as a guide to price our
longer-term loans) have not. As a result, many financial institutions, including
Auburn Savings Bank, experienced a narrowing or “compression” of their net
interest spread, which is the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities. Our interest rate spread was 2.47% for the fiscal year ended June
30, 2008, as compared to 2.38% and 2.50% for the fiscal years ended June 30,
2007 and 2006, respectively. If short-term interest rates rise, and if rates on
our deposits reprice upwards faster than the rates on our loans and investments,
we would experience further compression of our interest rate spread, which would
have a negative effect on our profitability.
From
December 11, 2007 to April 30, 2008, the U.S. Federal Reserve decreased its
target for the federal funds rate from 4.25% to 2.00%. Decreases in long-term
interest rates can result in increased prepayments of loans and mortgage-related
securities, if any, as borrowers refinance to reduce their borrowing costs.
Under these circumstances, we are subject to reinvestment risk as we may have to
redeploy such loan or securities proceeds into lower-yielding assets, which
might also negatively impact our income.
We
principally manage interest rate risk by managing the volume and mix of our
earning assets and funding liabilities. In a changing interest rate environment,
we may not be able to manage this risk effectively. If we are unable to manage
interest rate risk effectively, our business, financial condition and results of
operations could be materially harmed. Changes in the level of interest rates
also may negatively affect our ability to originate real estate loans, the value
of our assets and our ability to realize gains from the sale of our assets, all
of which ultimately affect our earnings. For further discussion of how changes
in interest rates could impact us, see “
Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Management of Market
Risk
.”
Strong
competition within our market area could reduce our profits and slow
growth.
We face
intense competition in making loans and attracting deposits. This competition
has made it more difficult for us to make new loans and attract deposits. Price
competition for loans and deposits sometimes results in us charging lower
interest rates on our loans and paying higher interest rates on our deposits,
which reduces our net interest income. Competition also makes it more difficult
and costly to attract and retain qualified employees. Some of the institutions
with which we compete have substantially greater resources and lending limits
than we have and may offer services that we do not provide. There also are a
number of credit unions in Androscoggin County, which, as tax-exempt
organizations, are able to offer higher rates on retail deposits than banks. We
expect competition to increase in the future as a result of legislative,
regulatory and technological changes and the continuing trend of consolidation
in the financial services industry. Our profitability depends upon our continued
ability to compete successfully in our market area. For more information about
our market area and the competition we face, see
“Business of Auburn Savings Bank,
FSB—Market Area”
and
“Business of Auburn Savings Bank,
FSB—Competition.”
A
downturn in the local economy could reduce our profits.
Nearly
all of our real estate loans are secured by real estate in Androscoggin County.
As a result of this concentration of our customers in Androscoggin County, a
downturn in the local economy could cause significant increases in
non-performing loans, which would hurt our profits. A decrease in asset quality
could require additions to our allowance for loan losses through increased
provisions for loan losses, which would hurt our profits. For a discussion of
our market area, see “
Business
of Auburn Savings Bank, FSB—Market Area
.”
A
downturn in real estate values could reduce our profits.
At June
30, 2008, $32.7 million, or 57.4%, of our loan portfolio consisted of one- to
four-family residential real estate loans. After the stock offering, we intend
to maintain a relatively high concentration of loans in one- to four-family
lending. Although these types of loans generally expose a lender to less risk of
non-payment and loss than commercial and construction loans, the market for
loans on one- to four-family homes is significantly dependent on real estate
values. A decline in real estate values could cause some of our one- to
four-family residential real estate loans to become inadequately collateralized,
which would expose us to a greater risk of loss. Additionally, a decline in real
estate values could result in a decline in the origination of such
loans.
Our
increased emphasis on commercial and construction lending may expose us to
increased lending risks.
At June
30, 2008, our commercial mortgage loans totaled $10.2 million, or 17.8% of our
total loan portfolio, up from $5.0 million at December 31,
2005. Construction loans at June 30, 2008 totaled $1.1 million, or
1.8% of our total loan portfolio, as compared to $2.6 million at December 31,
2005. Commercial business loans at June 30, 2008 totaled $2.1
million, or 3.7% of our total loan portfolio, as compared to $1.3 million at
December 31, 2005. We have grown these loan portfolios in recent
years and intend to continue to emphasize these types of lending. These types of
loans generally expose a lender to greater risk of non-payment and loss than
one- to four-family residential mortgage loans because repayment of the loans
often depends on the successful operation of the property, the income stream of
the borrowers and, for construction loans, the accuracy of the estimate of the
property’s value at completion of construction and the estimated cost of
construction. Such loans typically involve larger loan balances to single
borrowers or groups of related borrowers compared to one- to four-family
residential mortgage loans. Commercial business loans expose us to additional
risks since they typically are made on the basis of the borrower’s ability to
make repayments from the cash flow of the borrower’s business and are secured by
non-real estate collateral that may depreciate over time. In addition, since
commercial business loans generally entail greater risk than one- to four-family
residential mortgage loans, we may need to increase our allowance for loan
losses in the future to account for the likely increase in probable incurred
credit losses associated with the growth of such loans. For a discussion of our
lending activities, see
“Business of Auburn Savings Bank,
FSB—Lending Activities.”
Our
business is continually subject to technological change, and we may have fewer
resources than our competitors to continue to invest in technological
improvements.
The
banking and financial services industry continually undergoes technological
changes, with frequent introductions of new technology-driven products and
services. In addition to serving customers better, the effective use of
technology increases efficiency and enables financial institutions to reduce
costs. Our future success will depend, in part, upon our ability to address the
needs of our customers by using technology to provide products and services that
enhance customer convenience, as well as create additional efficiencies in our
operations. Many of our competitors have greater resources to invest in
technological improvements than we do. We may not effectively implement new
technology-driven products and services or do so as quickly, which could reduce
our ability to effectively compete, and could adversely affect
earnings.
We
operate in a highly regulated environment and may be adversely affected by
changes in laws and regulations.
We are
subject to extensive regulation, supervision and examination by the Office of
Thrift Supervision, our chartering authority, and by the Federal Deposit
Insurance Corporation, as insurer of the deposits of Auburn Savings Bank. Such
regulation and supervision governs the activities in which an institution and
its holding company may engage and are intended primarily for the protection of
the insurance fund and the depositors and borrowers of Auburn Savings Bank
rather than for the holders of Auburn Bancorp, Inc.’s common stock. Regulatory
authorities have extensive discretion in their supervisory and enforcement
activities, including the imposition of restrictions on our operations, the
classification of our assets and determination of the level of our allowance for
loan losses. Any change in such regulation and oversight, whether in the form of
regulatory policy, regulations, legislation or supervisory action, may have a
material impact on our operations.
If
our allowance for loan losses is not sufficient to cover actual loan losses, our
earnings will decrease.
We make
various assumptions and judgments about the collectibility of our loan
portfolio, including the creditworthiness of our borrowers and the value of the
real estate and other assets serving as collateral for the repayment of many of
our loans. In determining the amount of the allowance for loan losses, we review
our loans and our loss and delinquency experience, and we evaluate economic
conditions. If our assumptions are incorrect, our allowance for loan losses may
not be sufficient to cover losses inherent in our loan portfolio, resulting in
additions to our allowance. Our allowance for loan losses was 0.61% of total
loans at June 30, 2008, and material additions to our allowance could materially
decrease our net income. In addition, bank regulators periodically review our
allowance for loan losses and may require us to increase our provision for loan
losses or recognize further loan charge-offs. Any increase in our allowance for
loan losses or loan charge-offs as required by these regulatory authorities
might have a material adverse effect on our financial condition and results of
operations.
If
we are unable to retain the services of our senior management team, our business
may be adversely affected.
The
success of Auburn Bancorp, Inc. and Auburn Savings Bank will depend largely upon
the efforts of our senior management team. The loss of the services
of any member of our senior management team may adversely affect our
business. Not unlike many small financial institutions, Auburn
Savings Bank relies substantially on its President and Chief Executive Officer,
Allen T. Sterling. The loss of the services of Mr. Sterling, which is
not currently contemplated, may have a material adverse effect on our ability to
implement our operating strategy.
Item
1B. Unresolved Staff Comments.
Not
applicable.
Item
2. Properties.
We
conduct our business through our main office in Auburn, Maine and our branch
office in Lewiston, Maine, both of which we own. The following is a list of our
locations:
Location
|
|
Year
Acquired
|
|
|
|
256
Court Street
Auburn,
ME 04212
|
|
1957
|
|
|
|
325
Sabattus St.
Lewiston,
ME 04240
|
|
2003
|
Item
3. Legal Proceedings.
Periodically,
there have been various claims and lawsuits against us, such as claims to
enforce liens, condemnation proceedings on properties in which we hold security
interests, claims involving the making and servicing of real property loans and
other issues incident to our business. We are not a party to any pending legal
proceedings that we believe would have a material adverse effect on our
financial condition, results of operations or cash flows.
Item
4. Submission of Matters to a Vote of Security Holders.
Not
applicable.
PART
II
Item
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
The
Company was formed and closed its minority stock offering on August 15,
2008. Shares of the Company’s common stock began trading on the OTC
Bulletin Board on Monday, August 18, 2008 under the symbol
“ABBB”. Accordingly, no information prior to this date is
available.
The
Company had approximately 164 holders of record as of September 15,
2008. Certain shares of the Company’s common stock are held in
“nominee” or “street” name and accordingly, the number of beneficial owners of
such shares is not known or included in the foregoing number.
Pursuant
to a Plan of Reorganization From a Mutual Savings Bank to a Mutual Holding
Company and Stock Issuance Plan, the Bank converted into a federal stock savings
association and became a wholly-owned subsidiary of the Company, and the Company
became a majority-owned subsidiary of the MHC. The Company filed a
Registration Statement on Form S-1 (File No. 333-149723) in connection with the
stock offering which, as amended, was declared effective on May 13,
2008. On August 15, 2008, 226,478 shares of common stock , or 45% of
the outstanding shares, were sold to eligible depositors and other members of
the Bank, an employee stock ownership plan and members of the general public at
a price of $10.00 per share in a subscription and community offering and 276,806
shares of common stock, or 55% of the outstanding shares, were issued to Auburn
Bancorp, MHC.
The stock
offering resulted in gross proceeds of $2.3 million. Expenses related to the
offering were approximately $767,000, including $155,750 paid to Keefe, Bruyette
& Woods, Inc. for their services as marketing agent. No
underwriting discounts, commissions or finders fees were paid in connection with
the stock offering. Net investable proceeds of the offering were approximately
$1.5 million.
The
Company retained $600,000 of the net proceeds of the offering ($173,000 of which
was loaned to the employee stock ownership plan to purchase shares in the stock
offering). The Company contributed $873,000 of the net proceeds of
the offering to the Bank and $25,000 of the net proceeds of the offering to
capitalize the MHC. In the future, the Company may use the proceeds
it retained from the stock offering to invest in securities, to repurchase
shares of our common stock, including shares for our equity incentive plans and
for general corporate purposes. Under current Office of Thrift
Supervision regulations, we may not repurchase shares of our common stock during
the first year following the stock offering, except to fund equity benefit plans
or, with prior regulatory approval, when extraordinary circumstances
exist. The Bank invested the proceeds it received from the stock
offering in short-term, liquid investments. Over time, the Bank may
use the proceeds that it receives from the stock offering to fund new loans, to
invest in securities, to pay down borrowings from the Federal Home Loan Bank of
Boston and for general corporate purposes.
In order
to retain capital to support the continued growth of Auburn Savings Bank, we do
not intend to pay cash dividends on the Company’s common stock. In determining
whether or not to pay dividends in the future, our board of directors will take
into account our financial condition and results of operations, capital
requirements, tax considerations, statutory and regulatory limitations and
general economic conditions. No assurances can be given that any dividends will
be paid or that, if paid, any dividends will not be reduced or eliminated in
future periods. Special cash dividends, stock dividends or returns of capital
may, to the extent permitted by regulations, be paid in addition to, or in lieu
of, regular cash dividends.
Item
6. Selected Financial Data.
Not
required.
Item
7. 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 service charges and service
charges on deposit accounts.
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. In the future, 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.
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.
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.
Operating
Strategy
Our mission is to operate and grow a
profitable community-oriented financial institution. We plan to
achieve this by executing on our strategy of:
|
●
|
Remaining
a community-oriented institution;
|
|
|
|
|
●
|
Continuing
to use conservative underwriting practices to maintain the high quality of
our loan portfolios;
|
|
|
|
|
●
|
Building
core and other deposits;
|
|
|
|
|
●
|
Continuing
to grow our commercial real estate and commercial business loan
portfolios; and
|
|
|
|
|
●
|
Continuing
to emphasize the origination of one- to four-family residential real
estate lending.
|
Remaining a
community-oriented institution.
We were established in Auburn,
Maine in 1887 and have been operating continuously since that time. We have
been, and continue to be, committed to meeting the financial needs of the
communities in which we operate and remain dedicated to providing customer
service as a means to attract and retain customers. We deliver personalized
service and respond promptly to customer needs and inquiries. We believe that
our community orientation is attractive to our customers and distinguishes us
from the larger banks that operate in our area.
Continue to use
conservative underwriting practices to maintain the high quality of our loan
portfolio
.
We believe that
maintaining high asset quality is a key to long-term financial success. We have
sought to grow our loan portfolio while keeping nonperforming assets to a
minimum. We use underwriting standards that we believe are conservative, and we
diligently monitor collection efforts. At June 30, 2008, we had four
non-performing loans totaling approximately $251,000 in our total loan portfolio
and had only one real estate loan totaling $87,000 in process of
foreclosure. Although we intend to continue our efforts to originate
commercial and multi-family loans, we intend to maintain our philosophy of
managing loan exposure through our conservative approach to
lending.
Building Core and
Other Deposits.
We offer checking accounts, NOW accounts and
savings accounts, which generally are lower-cost sources of funds than
certificate of deposits and are less sensitive to withdrawal when interest rates
fluctuate. In order to build our core deposit base, we intend to
continue to offer a broad range of deposit products. As we grow our
commercial loan portfolio, we expect to attract core deposits from our new
commercial loan customers. We also intend to allocate additional
marketing funds for advertisements targeted toward core deposit
growth.
Continuing to
grow our commercial real estate and commercial business loan
portfolios.
Our business plan anticipates that we will
emphasize originating commercial real estate and commercial business
loans. These loans provide higher returns than loans secured by one-
to four-family real estate. Commercial real estate and commercial
business loans, however, involve a greater degree of credit risk than one- to
four-family residential mortgage loans. Because payments on these
loans are often dependent on the successful operation or management of the
properties or business, repayment of such loans may be subject to adverse
conditions in the real estate market or the economy. Commercial
loans, including both commercial real estate and commercial business loans,
increased $3.5 million, or 39.4%, from June 30, 2007 to June 30, 2008 and at
June 30, 2008 comprised approximately 21.5% of total loans. As commercial
development of industrial parks, new office space and retail shopping areas in
Lewiston and Auburn creates new jobs and supports new and existing small
businesses, we anticipate that there will be many commercial real estate and
commercial business loan opportunities that we may pursue with what we believe
are our conservative underwriting guidelines. We believe that our
customer service in the commercial loan area will distinguish us from the larger
banks that operate in this area.
Continue to
emphasize the origination of one- to four-family residential real estate
lending.
Our primary lending activity is the origination of
residential real estate loans secured by homes in our market area. We intend to
continue emphasizing the origination of residential real estate loans after
completion of the stock offering. At June 30, 2008, 57.4% of our total loans
were one- to four-family residential real estate loans. We believe our emphasis
on residential real estate lending, which carries a lower credit risk than
commercial and multi-family real estate lending, contributes to our high asset
quality.
Comparison
of Financial Condition at June 30, 2008 and June 30, 2007
Total
Assets.
Total assets increased by $3.9 million, or 6.2%, from $62.4
million at June 30, 2007 to $66.3 million at June 30, 2008. This increase in
total assets resulted largely from an increase in the number and dollar value of
total loans.
Cash and Cash
Equivalents.
Cash and correspondent bank balances decreased by $1.4
million, or 41.0%, from $3.4 million at June 30, 2007 to $2.0 million at June
30, 2008. This decrease was largely the result of the increase in
funding of loans.
Certificates of
deposit.
Certificate of deposit balances in other banks
increased by $1.7 million, or 280.1%, from $594,000 at June 30, 2007 to $2.3
million at June 30, 2008. This increase was largely the result of new
investments coming from maturities of securities from the investment portfolio
available for sale.
Securities
Available for Sale.
The investment portfolio available for sale
aggregated $1.4 million at June 30, 2008, a decrease of $930,000, or 39.4%, from
$2.4 million at June 30, 2007. Within the securities portfolio, U.S.
Government-sponsored enterprise obligations decreased by $648,000, due to
obligations that matured and were not replaced. Mortgage-backed
securities decreased $146,000, or 24.6%, and SBA securities decreased $115,000,
or 95.4%, from $121,000 at June 30, 2007 to $6,000 at June 30,
2008.
Net Loans.
Including loans held for sale, net loans increased $3.9 million, or 7.3%, from
$52.8 million at June 30, 2007 to $56.7 million at June 30, 2008 as a result of
an increase in commercial real estate, commercial and residential mortgage
loans, partially offset by a decrease in home equity
loans. Residential mortgage loans increased $1.0 million, or
3.2%. Commercial real estate loans increased $2.6 million, or 34.8%,
as a result of the market demand for commercial real estate. Home
equity loans decreased $261,000, or 2.3%, as a result of loan
prepayments. Construction loans increased $12,000, or 1.1%, due
primarily to a net increase in loan volume. Commercial loans
increased $846,000, or 67.3%, and consumer installment loans increased $20,000,
or 3.9%.
Deposits and
Borrowed Funds.
Deposits increased $1.2 million, or 2.7%, from $44.9
million at June 30, 2007 to $46.1 million at June 30, 2008. Demand accounts
increased $226,000 million, or 8.1%, NOW accounts decreased $161,000, or 7.2%,
savings accounts increased $486,000, or 18.7%, money market accounts increased
$298,000, or 3.2%, and certificates of deposits increased $345,000, or
1.2%. The increase in demand accounts is associated with the
corresponding increase in new commercial loans and the increase in savings
accounts is associated with funds deposited for the purchase of Auburn Bancorp
Inc. common stock.
Total borrowings from the Federal Home
Loan Bank of Boston increased $2.5 million, or 19.0%, from $12.9 million as of
June 30, 2007 to $15.4 million at June 30, 2008. This increase was used to fund
loan growth.
Total
Capital.
Retained earnings increased by $204,000, comprised of
net income of $151,000 and the cumulative effect of capitalizing mortgage
servicing rights of $53,000. Accumulated other comprehensive loss increased from
$(12,000) at June 30, 2007 to $(49,000) at June 30, 2008, a result of net
unrealized losses arising during the year, which led to an overall capital
increase of $168,000.
Comparison
of Operating Results For the Years Ended June 30, 2008 and June 30,
2007
Net
Income.
Net income increased $31,000, or 25.7%, to $151,000 for the year
ended June 30, 2008 compared to $120,000 for the year ended June 30, 2007. The
increase was primarily the result of an increase of $86,000 in net interest
income and $62,000 in non-interest income, offset by an increase of $94,000 in
non-interest expense.
Net Interest
Income.
The table on page 40 sets forth the components of the Bank’s net
interest income, yields on interest-earning assets and interest-bearing
liabilities, and the effect on net interest income arising from changes in
volume and rate. Net interest income increased $86,000, or 5.5%, from $1.6
million for the year ended June 30, 2007 to $1.7 million for the year ended June
30, 2008. The positive effects of an increase in volume of interest earning
assets and higher yields on interest-earning assets were partially offset by an
increase in interest expense due to an increase in volume of interest-bearing
liabilities and decrease in rates on interest-bearing liabilities.
The increase in volume of
interest-earning assets increased interest income by $91,000, while the increase
in the volume of interest-bearing liabilities increased interest expense by
$85,000. The changes in volume had the effect of increasing net interest income
by $6,000. The increase in net interest income attributable to higher yields on
interest-earning assets totaled $38,000 compared to a $43,000 increase in net
interest income attributable to lower rates on interest-bearing liabilities. Net
interest margin increased from 2.67% for the year ended June 30, 2007 to 2.74%
for the year ended June 30, 2008. During fiscal 2008, short-term market interest
rates increased at a faster rate than did longer-term market interest
rates.
Interest and
Dividend Income.
Total interest and dividend income increased from $3.9
million for the year ended June 30, 2007 to $4.0 million for the year ended June
30, 2008. This increase of $128,000, or 3.3%, was due primarily to an increase
in interest income on commercial real estate, multi-family and fixed rate home
equity loans. Interest income on loans increased by $120,000, or 3.3%, and
interest income on securities and interest-bearing deposits increased by
$21,000, or 9.1%.
Interest
Expense.
Interest expense increased by $42,000, or 1.8%, from the year
ended June 30, 2007 to the year ended June 30, 2008. Average deposit
balances increased $799,000, while average rates decreased from 3.65% to 3.06%
due to increase in balances with lower cost of funds. Average borrowings
increased from $13.2 million to $14.0 million. The average rate on borrowings
decreased from 5.44% to 4.92%.
Provision for
Loan Losses.
Our provision for loan losses decreased from $34,000 for the
year ended June 30, 2007 to $29,000 for the year ended June 30, 2008. Net loan
charge-offs for the years ended June 30, 2008 and 2007 were each $1,000. The
allowance for loan losses of $346,000 at June 30, 2008 represented .61% of total
loans, as compared to an allowance of $318,000, representing 0.60% of total
loans at June 30, 2007. Our analysis of the adequacy of the allowance considers
economic conditions, historical losses, and management’s estimate of losses
inherent in the portfolio. For further discussion of our current methodology,
please refer to “
Business of
Auburn Savings Bank, FSB
.”
Non-interest
Income.
Total non-interest income increased from $112,000 for the year
ended June 30, 2007 to $174,000 for the year ended June 30, 2008. The increase
was due to a $41,000 increase in gains realized on the sale of loans into the
secondary market for the year ended June 30, 2008, and an increase in other
non-interest income of $54,000.
Non-interest
Expense.
Non-interest expense increased $94,000, or 6.4%, to $1.6 million
for the year ended June 30, 2008 as compared to $1.5 million for the year ended
June 30, 2007. The increase was primarily attributable to increases in employee
salaries and benefits of $67,000, an increase in occupancy expense of $5,000, an
increase in computer charges of $12,000 and an increase in consulting expense of
$11,000. These increases were offset partially by a decrease in
depreciation of $16,000.
Income
Taxes.
Income tax expense was $77,000 for the year ended June 30, 2008,
reflecting an effective tax rate of 33.8%, compared to $50,000 for the year
ended June 30, 2007, reflecting an effective tax rate of 29.4%. The
increase in income taxes was due to higher pre-tax earnings and an increase in
the effective tax rate.
Analysis
of Net Interest Income
Net interest income represents the
difference between income on interest-earning assets and expense on
interest-bearing liabilities. Net interest income depends upon the relative
amounts of interest-earning assets and interest-bearing liabilities, and the
interest rates earned or paid on them.
The following table sets forth average
balance sheets, average yields and costs, and certain other information for the
periods indicated. All average balances are daily average
balances. The yields set forth below include the effect of deferred
fees, and discounts and premiums that are amortized or accreted to interest
income or expense. We do not accrue interest on loans on non-accrual
status, however, the balance of these loans is included in the total average
balance, which has the effect of lowering average loan yields.
|
|
Fiscal
Years Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
|
|
Average
Outstanding Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
Average
Outstanding Balance
|
|
|
Interest
|
|
|
Yield/Rate
|
|
|
|
(Dollars
in Thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
53,937
|
|
|
$
|
3,735
|
|
|
|
6.93
|
%
|
|
$
|
52,773
|
|
|
$
|
3,616
|
|
|
|
6.85
|
%
|
Investment
securities(1)
|
|
|
2,610
|
|
|
|
137
|
|
|
|
5.23
|
%
|
|
|
3,894
|
|
|
|
185
|
|
|
|
4.75
|
%
|
Interest-earning
deposits
|
|
|
3,866
|
|
|
|
163
|
|
|
|
4.22
|
%
|
|
|
2,050
|
|
|
|
107
|
|
|
|
5.22
|
%
|
Total
interest-earning assets
|
|
|
60,413
3,584
|
|
|
$
|
4,035
|
|
|
|
6.68
|
%
|
|
|
58,717
|
|
|
$
|
3,908
|
|
|
|
6.66
|
%
|
Non-interest-earning
assets
|
|
|
|
|
|
|
|
|
|
|
3,439
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
63,997
|
|
|
|
|
|
|
|
|
|
|
$
|
62,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
|
$
|
2,550
|
|
|
$
|
21
|
|
|
|
0.83
|
%
|
|
$
|
2,662
|
|
|
$
|
22
|
|
|
|
0.83
|
%
|
NOW
accounts
|
|
|
1,990
|
|
|
|
18
|
|
|
|
0.93
|
%
|
|
|
1,628
|
|
|
|
9
|
|
|
|
0.55
|
%
|
Money
market accounts
|
|
|
9,247
|
|
|
|
281
|
|
|
|
3.04
|
%
|
|
|
9,504
|
|
|
|
326
|
|
|
|
3.43
|
%
|
Certificates
of deposit
|
|
|
28,819
|
|
|
|
1,318
|
|
|
|
4.57
|
%
|
|
|
27,726
|
|
|
|
1,262
|
|
|
|
4.55
|
%
|
Total
interest-bearing deposits
|
|
|
42,606
|
|
|
|
1,638
|
|
|
|
3.85
|
%
|
|
|
41,520
|
|
|
|
1,619
|
|
|
|
3.90
|
%
|
FHLB
advances
|
|
|
14,002
|
|
|
|
743
|
|
|
|
5.30
|
%
|
|
|
13,234
|
|
|
|
720
|
|
|
|
5.44
|
%
|
Total
interest-bearing liabilities
|
|
$
|
56,608
|
|
|
$
|
2,381
|
|
|
|
4.21
|
%
|
|
$
|
54,754
|
|
|
$
|
2,339
|
|
|
|
4.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
deposits
|
|
$
|
2,554
|
|
|
|
|
|
|
|
|
|
|
$
|
2,840
|
|
|
|
|
|
|
|
|
|
Other
non-interest-bearing liabilities
|
|
|
281
|
|
|
|
|
|
|
|
|
|
|
|
227
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
59,443
|
|
|
|
|
|
|
|
|
|
|
|
57,821
|
|
|
|
|
|
|
|
|
|
Total
capital
|
|
|
4,554
|
|
|
|
|
|
|
|
|
|
|
|
4,335
|
|
|
|
|
|
|
|
|
|
Total
liabilities and capital
|
|
$
|
63,997
|
|
|
|
|
|
|
|
|
|
|
$
|
62,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$
|
1,654
|
|
|
|
|
|
|
|
|
|
|
$
|
1,569
|
|
|
|
|
|
Net
interest rate spread(2)
|
|
|
|
|
|
|
|
|
|
|
2.47
|
%
|
|
|
|
|
|
|
|
|
|
|
2.38
|
%
|
Net
interest-earning assets(3)
|
|
$
|
3,805
|
|
|
|
|
|
|
|
|
|
|
$
|
3,963
|
|
|
|
|
|
|
|
|
|
Net
interest margin(4)
|
|
|
|
|
|
|
|
|
|
|
2.74
|
%
|
|
|
|
|
|
|
|
|
|
|
2.67
|
%
|
Average
of interest-earning assets to interest-bearing liabilities
|
|
|
106.72
|
%
|
|
|
|
|
|
|
|
|
|
|
107.24
|
%
|
|
|
|
|
|
|
|
|
__________________________________
(1)
|
Consists
entirely of taxable investment securities.
|
(2)
|
Net
interest rate spread represents the difference between the yield on
average interest-earning assets and the cost of average interest-bearing
liabilities.
|
(3)
|
Net
interest-earning assets represents total interest-earning assets less
total interest-bearing liabilities.
|
(4)
|
Net
interest margin represents net interest income divided by average total
interest-earning assets.
|
Rate/Volume
Analysis
The following table presents the dollar
amount of changes in interest income and interest expense for the major
categories of our interest-earning assets and interest-bearing liabilities.
Information is provided for each category of interest-earning assets and
interest-bearing liabilities with respect to (i) changes attributable to changes
in volume (i.e., changes in average balances multiplied by the prior-period
average rate) and (ii) changes attributable to rate (i.e., changes in average
rate multiplied by prior-period average balances). Changes due to the
interaction between volume and rate were allocated pro rata between volume and
rate.
|
|
Fiscal
Years Ended June 30,
2008
vs. 2007
|
|
|
|
Increase
(Decrease) Due to
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
|
Volume
|
|
|
Rate
|
|
|
(Decrease)
|
|
|
|
(Dollars
in Thousands)
|
|
Loans
|
|
$
|
81
|
|
|
$
|
39
|
|
|
$
|
120
|
|
Investment
securities
|
|
|
(67
|
)
|
|
|
19
|
|
|
|
(48
|
)
|
Interest-earning
deposits
|
|
|
77
|
|
|
|
(20
|
)
|
|
|
57
|
|
Total
interest-earning assets
|
|
$
|
91
|
|
|
$
|
38
|
|
|
$
|
129
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings
deposits
|
|
$
|
(1
|
)
|
|
$
|
-
|
|
|
$
|
(1
|
)
|
NOW
accounts
|
|
|
3
|
|
|
|
6
|
|
|
|
9
|
|
Money
market accounts
|
|
|
(8
|
)
|
|
|
(37
|
)
|
|
|
(45
|
)
|
Certificates
of deposit
|
|
|
50
|
|
|
|
6
|
|
|
|
56
|
|
Total
deposits
|
|
|
44
|
|
|
|
(25
|
)
|
|
|
19
|
|
Federal
Home Loan Bank of Boston advances
|
|
|
41
|
|
|
|
(18
|
)
|
|
|
23
|
|
Repurchase
agreements
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
interest-bearing liabilities
|
|
$
|
85
|
|
|
$
|
(43
|
)
|
|
$
|
42
|
|
Change
in net interest income
|
|
$
|
6
|
|
|
$
|
81
|
|
|
$
|
87
|
|
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, the
Bank's Board of Directors has established an Asset/Liability Committee that 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 this risk consistent with the guidelines approved by
the Bank's Board of Directors. Senior management monitors the level of interest
rate risk on a regular basis and the Asset/Liability Committee meets at least on
a quarterly basis to review our asset/liability policies and interest rate risk
position.
We have sought to manage our interest
rate risk in order to minimize the exposure of our earnings and capital to
changes in interest rates. In order to mitigate the potential effects
of dramatic increases in market rates of interest, we have, among other things,
implemented or will implement a number of strategies, including the
following:
|
●
|
emphasize
growth of less interest rate sensitive and lower cost “core deposits” in
the form of transaction accounts, such as checking and savings
accounts;
|
|
●
|
sell
a portion of Auburn Savings Bank’s newly originated fixed-rate residential
mortgage loans;
|
|
●
|
reduce
the interest rate sensitivity of interest-bearing liabilities through
utilization of fixed rate borrowings with terms of more than one
year;
|
|
●
|
use
interest rate caps and floors, as determined by the Asset Liability
Management Committee, to attempt to preserve net interest income in
periods of rising or declining short-term interest rates;
and
|
|
●
|
maintain
a level of assets in shorter-term securities and adjustable-rate
mortgage-backed securities.
|
Depending on market conditions, we
often place more emphasis on enhancing net interest margin rather than matching
the interest rate sensitivity of our assets and liabilities. In particular, we
believe that the increased net interest income resulting from a mismatch in the
maturity of our asset and liabilities portfolios can, during periods of stable
or declining interest rates provide high enough returns to justify increased
exposure to sudden and unexpected increasing in interest rates. As a result of
this philosophy, our results of operations and the economic value of our equity
will remain vulnerable to increases in interest rates and to declines in the
difference between long- and short-term interest rates.
We have not engaged in hedging through
the use of financial futures or interest rate swaps. However, we have
entered into interest rate cap and floor agreements as part of our interest rate
risk management process. These agreements are used to manage the effect of
fluctuating interest rates on net interest income. In March 2006, we
purchased a three-year, $5.0 million notional value interest rate cap, in order
to limit our potential exposure to rising interest rates. The cost of the
transaction was $14,750. The counter-party in the transaction, the Federal
Home Loan Bank of Boston, will pay us if and when the three-month LIBOR rate is
above the rate cap of 6%. The interest rate cap agreement expires in March
2009. In January 2007, we purchased a three-year, $5.0 million notional value
interest rate floor, in order to limit our potential exposure to decreasing
interest rates. The cost of the transaction was $17,000. The
counter-party in the transaction, the Federal Home Loan Bank of Boston, will pay
us if and when the three-month LIBOR rate is below the rate floor of
3.75%. The interest rate floor agreement expires in January
2009. We do not use hedge accounting for the interest rate cap and
interest rate floor agreements and, therefore, changes in fair value of the
agreements are reported in the statements of income. At June 30, 2008, the fair
value of the interest rate floor and cap is $23,380 and $1, respectively, and is
reflected on the balance sheet in prepaid expenses and other
assets.
Net Portfolio
Value Simulation Analysis.
An important measure of interest risk is the
amount 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”) changes in the event of a range of assumed changes in market interest
rates. The Office of Thrift Supervision provides us with the information
presented in the following table, which is based on information provided to the
Office of Thrift Supervision by Auburn Savings Bank. It presents the
estimated changes in Auburn Savings Bank’s net portfolio value at June 30, 2008
that would occur upon the assumed instantaneous changes in interest rates based
on Office of Thrift Supervision assumptions and without giving effect to any
steps that management might take, within the parameters established by our
asset/liability management committee, to counter the effect of such interest
rate changes. The Office of Thrift Supervision uses certain
assumptions in assessing the interest rate risk of savings
banks. These assumptions relate to interest rates, loan prepayment
rates, deposit decay rates, and the market values of certain assets under
differing interest rate scenarios.
|
|
|
Net
Portfolio Value
|
|
|
NPV
as a Percentage of
Present
Value of Assets
|
|
Change
in Interest Rates
(basis
points)
|
|
|
Amount
|
|
|
Change
|
|
|
Percent
Change
|
|
|
NPV
Ratio
|
|
|
Increase
(Decrease)
(basis
points)
|
|
|
|
|
(Dollars
in Thousands)
|
|
+300
|
|
|
$
|
3,273
|
|
|
$
|
(2,315
|
)
|
|
|
(41
|
%)
|
|
|
5.09
|
%
|
|
|
(313
|
)
|
+200
|
|
|
|
4,192
|
|
|
|
(1,396
|
)
|
|
|
(25
|
%)
|
|
|
6.38
|
%
|
|
|
(183
|
)
|
+100
|
|
|
|
4,957
|
|
|
|
(631
|
)
|
|
|
(11
|
%)
|
|
|
7.41
|
%
|
|
|
(80
|
)
|
+50
|
|
|
|
5,290
|
|
|
|
(298
|
)
|
|
|
(5
|
%)
|
|
|
7.84
|
%
|
|
|
(37
|
)
|
0
|
|
|
|
5,588
|
|
|
|
0
|
|
|
|
0
|
%
|
|
|
8.21
|
%
|
|
|
0
|
|
-50
|
|
|
|
5,832
|
|
|
|
244
|
|
|
|
4
|
%
|
|
|
8.51
|
%
|
|
|
29
|
|
-100
|
|
|
|
5,990
|
|
|
|
402
|
|
|
|
7
|
%
|
|
|
8.68
|
%
|
|
|
47
|
|
As indicated in the table above, the
result of a 100 basis point increase in interest rates is estimated to decrease
net portfolio value by 11%, 25% for a 200 basis point increase and 41% for a 300
basis point increase over a 12-month horizon, when compared to the flat rate
scenario. The estimated change in net interest income from the flat rate
scenario to a 100 basis point decrease in interest rates is estimated to
increase net portfolio value by 7%. Inherent in these estimates is
the assumption that interest rates on interest bearing liabilities would change
in direct proportion to changes in the U.S. Treasury yield curve. In all
simulations, the lowest possible interest rate would be zero.
There are shortcomings inherent in the
methodology used in the above interest rate risk measurement. Modeling changes
in net portfolio value requires making certain assumptions that may or may not
reflect the manner in which actual yields and costs respond to changes in market
interest rates. In this regard, the net portfolio value table presented assumes
that the composition of our interest-sensitive assets and liabilities existing
at the beginning of a period remains constant over the period being measured and
assumes that a particular change in interest rates is reflected uniformly across
the yield curve regardless of the duration or repricing of specific assets and
liabilities. Accordingly, although the net portfolio value table provides an
indication of our interest rate risk exposures 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 our net interest income and
will differ from actual results.
Liquidity
Management.
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 June 30, 2008, cash and cash equivalents
totaled $2.0 million, including interest-earning deposits of $230,000.
Securities classified as available-for-sale, which provide additional sources of
liquidity, totaled $1.4 million at June 30, 2008. For a discussion of our
expected other-than-temporary impairment charge relating to certain securities
in our available for sale investment portfolio, see
“Business of Auburn Savings Bank,
FSB-Investment Activities”
. On June 30, 2008, we had $15.4
million of outstanding borrowings from the Federal Home Loan Bank of Boston, and
the ability to borrow an additional $6.4 million from the Federal Home Loan Bank
of Boston.
At June
30, 2008, we had $1.6 million in loan commitments outstanding, as compared to
$854,000 at June 30, 2007. The $761,000 increase in the amount of loan
commitments outstanding at June 30, 2008 compared to June 30, 2007 was primarily
the result of a $724,000 increase in one-to-four family residential mortgage
loan commitments. We believe that the lower level of one- to
four-family residential mortgage loan commitments at June 30, 2007 is a
consequence of a special home equity loan program that we offered during the
three-month period ended June 30, 2007. This program resulted in the
origination of $1.2 million in fixed rate home equity loans. Most of
these home equity loans closed prior to June 30, 2007 and, therefore, are not
reflected in the amount of loan commitments outstanding at June 30,
2007. In addition to commitments to originate loans, we also had $3.6
million in unused lines of credit at June 30, 2008.
Certificates of deposit due within one
year of June 30, 2008 totaled $21.9 million, or 47.4% 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
activities consist 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
Management.
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 June 30, 2008, we exceeded all of our
regulatory capital requirements. We are considered “well-capitalized” under
regulatory guidelines. See “
Business of Auburn
Savings Bank, FSB-
Regulation and Supervision
—Regulation of Federal Savings Associations — Capital Requirements
,” and
Note 11 to the Financial Statements attached hereto.
The capital from the 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 have been enhanced by the capital
from the stock offering, 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 will be adversely
affected by the stock offering.
Impact
of Inflation and Changing Prices
The financial statements, accompanying
notes, and related financial data presented herein have been prepared in
accordance with generally accepted accounting principles, which require the
measurement of financial position and operating results in terms of historical
dollar amounts without considering the changes in the relative purchasing power
of money over time due to inflation. The impact of inflation is reflected in the
increased cost of our operations. Most of our assets and liabilities are
monetary in nature, and, therefore, the impact of interest rates has a greater
impact on its performance than do the effects of general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
Impact
of Recent Accounting Standards
On February 15, 2007, the Financial
Accounting Standards Board (FASB) issued SFAS No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities
, which provides companies with an option
to report selected financial assets and liabilities at fair value. SFAS No. 159
also establishes presentation and disclosure requirements designed to facilitate
comparisons between companies that choose different measurement attributes for
similar types of assets and liabilities. This Statement is effective for the
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) 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 July
2006, the FASB issued Financial Accounting Standards Interpretation No. 48 (FIN
48),
Accounting for
Uncertainty in Income Taxes
. FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements
in accordance with SFAS No. 109,
Accounting for Income Taxes
.
FIN 48 prescribes a recognition threshold and measurement attributable for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognizing, classification, interest and penalties, accounting in interim
periods, disclosures and transitions. FIN 48 was effective for the Bank on July
1, 2007, and did not have a material impact on the Bank’s financial
statements.
In March
2006, the FASB issued SFAS No. 156,
Accounting for Servicing of
Financial Assets – an Amendment of FASB Statement No. 140
. The Statement
amends SFAS No. 140,
Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities
, with
respect to the accounting for separately recognized servicing assets and
servicing liabilities. Consistent with SFAS No. 140, SFAS No. 156 requires
companies to recognize a servicing asset or servicing liability each time it
undertakes an obligation to service a financial asset by entering into a
servicing contract. However, the Statement permits a company to choose either
the amortized cost method or fair value measurement method for each class of
separately recognized servicing assets. The Statement is effective as of the
beginning of a company’s first fiscal year after September 15, 2006. Earlier
adoption is permitted as of the beginning of an entity’s fiscal year, provided
the entity has not yet issued financial statements, including interim financial
statements. The Bank adopted SFAS No. 156 on July 1, 2007 using the amortized
cost method, and the adoption of this Statement did not have a material impact
on its financial statements.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
Not
required.
Item
8. Financial Statements and Supplementary Data.
The
information required by this Item is included at the end of this Annual Report
on Form 10-K beginning on page F-1.
Item
9. Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure.
On
September 19, 2006, the Bank appointed Berry, Dunn, McNeil & Parker as our
independent accountants and dismissed Baker Newman Noyes, LLC, which had
performed an audit of our financial statements as of and for the year ended June
30, 2006. The Board of Directors participated in and approved decision to change
independent accountants.
Baker
Newman Noyes, LLC’s report on our financial statements as of and for the fiscal
year ended June 30, 2006 did not contain an adverse opinion or a disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles. During the fiscal years ended June 30, 2006 and 2005 and
through September 19, 2006, there were no disagreements with Baker Newman Noyes,
LLC on any matter of accounting principles or practices, financial statement
disclosure or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Baker Newman Noyes, LLC, would have caused them to make
reference to the subject matter of the disagreements in its
reports.
Item
9A(T). Controls and Procedures.
The
Company’s management, including the Company’s principal executive officer and
principal financial officer, have evaluated the effectiveness of the Company’s
“disclosure controls and procedures,” as such term is defined in
Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as
amended, (the “Exchange Act”). Based upon their evaluation, the principal
executive officer and principal financial officer concluded that, as of the end
of the period covered by this report, the Company’s disclosure controls and
procedures were effective for the purpose of ensuring that the information
required to be disclosed in the reports that the Company files or submits under
the Exchange Act with the Securities and Exchange Commission (the “SEC”)
(1) is recorded, processed, summarized and reported within the time periods
specified in the SEC’s rules and forms, and (2) is accumulated and
communicated to the Company’s management, including its principal executive and
principal financial offers, as appropriate to allow timely decisions regarding
required disclosure.
There
were no changes in the Company’s internal control over financial reporting
during the three months ended June 30, 2008 that have materially affected, or
are reasonable likely to materially affect, the Company’s internal control over
financial reporting.
This
annual report does not include a report of management’s assessment regarding
internal control over financial reporting or an attestation report of the
Company's registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for newly public
companies.
Item
9B. Other Information.
Not
applicable.
PART
III
Item
10. Directors, Executive Officers and Corporate Governance.
Information
required by this Item is incorporated by reference herein from the Company’s
definitive Proxy Statement relating to the 2008 Annual Meeting of Stockholders
of the Company (the “Proxy Statement”).
Item
11. Executive Compensation.
Information
required by this Item is incorporated by reference herein from the Company’s
Proxy Statement.
Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
Information
required by this Item is incorporated by reference herein from the Company’s
Proxy Statement.
Item
13. Certain Relationships and Related Transactions, and Director
Independence.
Information
required by this Item is incorporated by reference herein from the Company’s
Proxy Statement.
Item
14. Principal Accounting Fees and Services.
Information
required by Item 14 of this Form is incorporated by reference herein from the
Company’s Proxy Statement.
PART
IV
Item
15. Exhibits, Financial Statement Schedules.
(a)
|
The
following documents are filed as part of this report:
|
|
|
|
|
(1)
|
Financial Statements
:
The financial statements, including notes thereto, and financial schedules
required in response to this Item are set forth in Part II, Item 8 of this
Annual Report on Form 10-K, and can be found on the following
pages:
|
|
|
Page
|
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
|
Balance
Sheets as of June 30, 2008 and 2007
|
F-2
|
|
Statements
of Income for the years ended June 30, 2008 and 2007
|
F-3
|
|
Statements
of Changes in Capital for the years ended June 30, 2008 and
2007
|
F-4
|
|
Statements
of Cash Flows for the years ended June 30, 2008 and 2007
|
F-5
|
|
Notes
to Financial Statements
|
F-7
|
|
|
|
|
Auburn
Bancorp, Inc. was in formation and had no operations as of June 30,
2008. Thus, no separate financial statements are
presented.
|
|
(2)
Financial Statement Schedules
:
Schedules to the financial statements required by Regulation S-X and all other
schedules to the financial statements have been omitted because they are either
not required, are not applicable or are included in the financial statements or
notes thereto, which can be found in this Annual Report on Form 10-K in Part II,
Item 8.
|
2.0
|
Plan
of Reorganization from Mutual Savings Bank to Mutual Holding Company and
Stock Issuance Plan **
|
|
3.1
|
Charter
of Auburn Bancorp, Inc. **
|
|
3.2
|
Bylaws
of Auburn Bancorp, Inc. **
|
|
4.0
|
Specimen
Stock Certificate of Auburn Bancorp, Inc. **
|
|
10.1
|
Auburn
Savings Bank Employee Stock Ownership Plan and Trust
|
|
10.2
|
ESOP
Loan Commitment Letter and ESOP Loan Documents
|
|
10.3
|
Employment
Agreement between Auburn Savings Bank and Allen T.
Sterling
|
|
14.0
|
Code
of Ethics
|
|
21.1
|
Subsidiaries
of Auburn Bancorp, Inc. **
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer of the
Company
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Principal Financial Officer of the
Company
|
|
32.1
|
Section 1350
Certification of Chief Executive Officer of the Company in accordance with
Section 906 of the Sarbanes-Oxley Act of 2002
|
|
32.2
|
Section 1350
Certification of Chief Financial Officer of the Company in accordance with
Section 906 of the Sarbanes-Oxley Act of
2002
|
**
Incorporated by reference into this document from the Exhibits filed with the
Securities and Exchange Commission on the Company’s Registration Statement on
Form S-1, as amended, initially filed on March 14, 2008 and declared
effective on May 13, 2008 (File Number 333-149723).
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
|
|
|
Auburn
Bancorp, Inc.
|
|
|
|
|
(Registrant)
|
|
|
|
|
|
|
|
|
|
|
|
Date:
September 29, 2008
|
|
By:
|
/s/
Allen T. Sterling
|
|
|
|
|
Allen
T. Sterling
|
|
|
|
|
President
and Chief Executive Officer
|
In
accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated. .
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
/s/
Allen T. Sterling
|
|
President
and Chief Executive Officer
|
|
September
29, 2008
|
Allen
T. Sterling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Rachel A. Haines
|
|
Principal
Financial Officer
|
|
September
29, 2008
|
Rachel
A. Haines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Claire D. Thompson
|
|
Director
|
|
September
29, 2008
|
Claire
D. Thompson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Philip R. St. Pierre
|
|
Director
|
|
September
29, 2008
|
Philip
R. St. Pierre
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Bonnie G. Adams
|
|
Director
|
|
September
29, 2008
|
Bonnie
G. Adams
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
August M. Berta
|
|
Director
|
|
September
29, 2008
|
August
M. Berta
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Peter E. Chalke
|
|
Director
|
|
September
29, 2008
|
Peter
E. Chalke
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
M. Kelly Matzen
|
|
Director
|
|
September
29, 2008
|
M.
Kelly Matzen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/
Sharon A. Millett
|
|
Director
|
|
September
29, 2008
|
Sharon
A. Millett
|
|
|
|
|