UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2003
Commission file number 000-49967
ATLANTIC LIBERTY FINANCIAL CORP.
Delaware 16-1615014
186 Montague Street, Brooklyn, New York 12201
(718) 855-3555
Check whether the issuer: (1); filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirement for the past 90 days. Yes [X] No [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
As of June 30, 2003, the Registrant had outstanding 1,710,984 shares of common
stock.
Transitional Small Business Disclosure format Yes [X] No [ ]
ATLANTIC LIBERTY FINANCIAL CORP.
Form 10-QSB Quarterly Report
Index
Page
----
PART I - Financial Information
Item 1. Financial Statements 1-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-13
Item 3. Controls and Procedures 13
PART II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
ITEM 1. FINANCIAL STATEMENTS
ATLANTIC LIBERTY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(IN THOUSANDS OF DOLLARS)(UNAUDITED)
AT AT
JUNE 30, MARCH 31,
2003 2003
------------- -------------
ASSETS
Cash and cash equivalents
Cash and amounts due from depository Institutions $1,535 $1,773
Interest bearing deposits 6,035 4,464
------------- -------------
Total cash and cash equivalents 7,570 6,237
------------- -------------
Investment securities held to maturity 1,022 1,024
Mortgage-backed securities held to maturity 17,627 21,002
Mortgage-backed securities available for sale 1,576 1,703
Loans receivable, net 104,191 100,655
Premises and equipment 1,593 1,616
Federal Home Loan Bank of New York Stock 1,056 902
Interest receivable 757 672
Deferred income tax 484 307
Investment in real estate 78 78
Other assets 3,176 3,000
------------- -------------
Total Assets $139,130 $137,196
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $107,984 $107,515
Federal Home Loan Bank of New York advances 1,600 1,600
Advance payments by borrowers for taxes and insurance 1,026 886
Other liabilities 2,988 2,104
------------- -------------
Total Liabilities 113,598 112,105
Commitments & Contingencies - -
Stockholders' equity
Preferred Stock $.10 par value, 500,000 shares authorized - -
Common Stock $.10 par value, 6,000,000 shares authorized
1,710,984 Shares Issued 171 171
Paid in Capital 16,165 16,141
Unearned ESOP Shares (1,163) (1,197)
Retained Earnings-substantially restricted 10,345 9,976
Accumulated other comprehensive income 14 -
------------- -------------
Total Stockholders' Equity 25,532 25,091
------------- -------------
Total liabilities and Stockholders' Equity $139,130 $137,196
============= =============
See notes to consolidated financial statements
-1-
ATLANTIC LIBERTY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THREE MONTHS
ENDED JUNE 30,
--------------
2003 2002
---- ----
Interest income
Loans $1,787 $1,742
Mortgage backed securities 160 204
Investments held to maturity 16 16
Other interest-earning assets 23 42
Total interest income 1,986 2,004
----- -----
Interest expense
Deposits 456 681
Advances 19 22
Escrow 5 3
Total interest expense 480 706
--- ---
Net interest income 1,506 1,298
Provision for loan losses 0 0
- -
Net interest income after provision for loan losses 1,506 1,298
----- -----
Non-interest income
Service fees 49 66
Miscellaneous 56 23
-- --
Total non-interest income 105 89
--- --
Non-interest expenses
Salaries and employee benefits 531 423
ESOP Expense 58 0
Directors Compensation 28 28
Net occupancy expenses 42 6
Equipment 74 136
Advertising 8 6
Federal Insurance Premium 5 5
Legal fees 30 16
Miscellaneous 172 173
--- ---
Total non-interest expenses 948 793
--- ---
Income before income taxes 663 594
Income tax expense 294 248
--- ---
Net income $369 $346
==== ====
Earnings per share
Basic and diluted $ 0.23 n/a
Weighted average shares 1,587,793 n/a
See notes to consolidated financial statements
-2-
ATLANTIC LIBERTY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
THREE MONTHS ENDED
CASH FLOWS FROM OPERATING ACTIVITIES JUNE 30,
- ------------------------------------ 2003 2002
---------- ----------
Net income $ 369 $ 346
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 42 31
Net accretion of premiums,
discounts and deferred loan fees 107 (27)
Deferred income taxes (177) (47)
ESOP compensation expense 58 -
(Increase) in interest receivable (85) (11)
(Increase) in other assets (176) (63)
Increase in other liabilities 884 62
---------- ----------
Net cash provided by operating activities 1,022 291
---------- ----------
Cash flows from investing activities:
Purchases of Mortgage-backed securities held to maturity - (2,464)
Proceeds of maturities, calls and principal repayments on:
Mortgage-backed securities held to maturity 3,299 1,734
Mortgage-backed securities available for sale 138 -
Net change in loans receivable (3,562) (2,415)
Additions to premises and equipment (19) (181)
Purchase of Federal Home Loan Bank of New York Stock (154) -
---------- ----------
Net cash (used in) investing activities (298) (3,326)
---------- ----------
Cash flows from financing activities:
Increase in deposits 469 441
Increase in advance payments
by borrowers for taxes and insurance 140 166
---------- ----------
Net cash provided by investing activities 609 607
---------- ----------
Net increase (decrease) in cash and cash equivalents 1,333 (2,428)
Cash and cash equivalents at beginning of period 6,237 9,941
---------- ----------
Cash and cash equivalents at end of period $ 7,570 $ 7,513
========== ==========
Supplemental disclosures of cash flow information
Cash paid for:
Interest $ 480 $ 706
---------- ----------
Federal , state and city income taxes $ 139 $ 209
---------- ----------
See notes to consolidated financial statements.
-3-
ATLANTIC LIBERTY FINANCIAL CORP.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
Accumulated
Additional Other
Common Pain-in Retained Benefit Comprehensive
Stock Capital Earnings Plans Income/(loss) Total
------------ ----------- ----------- ------------ -------------- ------------
Balance at March 31, 2003 $ 171 $ 16,141 $ 9,976 $ (1,197) $ - $ 25,091
Comprehensive Income
Net income - - 369 - - 369
Net unrealized gain/(loss) - - - - 14 14
Total comprehensive income - - - - - 383
Employee stock ownership plan-shares earned - 24 - 34 - 58
------------ ----------- ----------- ------------ -------------- ------------
Balance, June 30, 2003 $ 171 $ 16,165 $ 10,345 $ (1,163) $ 14 $ 25,532
============ =========== =========== ============ ============== ============
See notes to consolidated financial statements.
-4-
ATLANTIC LIBERTY FINANCIAL CORP.
Notes to Consolidated Financial Statements
June 30, 2003
(Unaudited)
NOTE 1- BASIS OF PRESENTATION
- ---------------------------------
Principles of Consolidation:
The accompanying Consolidated Interim financial Statements include the accounts
of Atlantic Liberty Financial Corp. ("The Company") and its wholly owned
subsidiary Atlantic Liberty Savings, F.A. ("The Association"). All significant
inter-company balances and transactions have been eliminated. The Company began
operations on October 22, 2002 following the completion of Atlantic Liberty
Savings F.A.'s conversion from mutual to stock form.
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-QSB.
Accordingly, certain disclosures required by accounting principles generally
accepted in the United States of America are not included herein. These interim
statements should be read in conjunction with the Association's audited
financial statements and notes thereto included in the Registration Statement
filed with the Securities and Exchange Commission by the Company.
Interim statements are subject to possible adjustment in connection with the
annual audit of the Company for the year ending March 31, 2004. In the opinion
of management of the Company, the accompanying unaudited interim consolidated
financial statements reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the consolidated financial
position and consolidated results of operations for the periods presented.
The results of operations for interim periods are not necessarily indicative of
the results to be expected for the full year.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ------------------------------------------------------
Nature of Operations
- --------------------
The Association is a federally chartered stock savings and loan association,
which maintains insurance on deposit accounts with the Savings Association
Insurance Fund (SAIF) of the Federal Deposit Insurance Corporation. The
Association is engaged in the business of retail banking with operations
conducted through its main office and one branch, both of which are located in
Brooklyn, New York.
Use of Estimates in the Preparation of Financial Statements
- -----------------------------------------------------------
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and
5
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expense during the reporting
period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the amount of
deferred taxes, which are more likely than not to be realized. Management
believes that the allowance for loan losses is adequate and that all deferred
taxes are more likely than not to be realized. While management uses available
information to recognize losses on loans, future additions to the allowance for
loan losses may be necessary based on changes in economic conditions in the
Association's market area. The assessment of the amount of deferred tax assets
more likely than not to be realized is based upon projected future taxable
income, which is subject to continual revisions for updated information.
NOTE 3- ADOPTION OF PLAN OF CONVERSION AND STOCK ISSUANCE
- --------------------------------------------------------------
On April 17, 2002, the Board of Directors of the Association adopted a Plan of
Conversion under which Atlantic Liberty Savings, F.A. converted from a federal
mutual savings and loan association to a federal stock savings and loan
association, and formed the Company. The Plan of Conversion ("Plan") was
approved by the Office of Thrift Supervision (OTS) and by the Association's
members at a Special Meeting of Members held on October 4, 2002.
On October 22, 2002 the Company sold 1,710,984 shares of common stock at $10 per
share and received net proceeds of $14.8 million, exclusive of conversion
expenses of $900,000 and $1.4 million to fund the purchase of shares for our
employee stock ownership plan. Approximately 50% of the net proceeds were used
by the Company to acquire all of the capital stock of the Association.
At the time of conversion, the Association established a liquidation account in
an amount equal to its total retained earnings as of March 31, 2002. The
liquidation account is maintained by the association for the benefit of eligible
account holders as of March 31, 2001 and supplemental eligible account holders
as of June 30, 2002 who continue to maintain deposit accounts at the Association
after the conversion. The Association will maintain the liquidation account in
accordance with applicable federal regulations.
NOTE 4- EMPLOYEE STOCK OWNERSHIP PLAN
- -----------------------------------------
As part of the conversion transaction, the Association established an employee
stock ownership plan (ESOP) for the benefit of eligible employees. The ESOP
borrowed $1,368,790 from the Company and used those funds to acquire 136,879
shares of the Company's stock at $10 per share.
Shares held by the ESOP are released to ESOP participants based on principal and
interest repayments made by the ESOP on the loan from the Company. The loan is
secured by shares purchased with the loan proceeds and will be repaid by the
ESOP with funds from the Association's discretionary contributions to the ESOP
and earnings on the ESOP's assets. Principal and interest payments are scheduled
to occur over a ten-year period. However, in the event the Company's
contributions exceed the minimum debt service requirements, additional principal
payment will be made. The first such
6
principal and interest payment took place on December 31, 2002 thereby releasing
13,688 to eligible employees.
NOTE 5- EARNINGS PER SHARE
- ------------------------------
Amounts reported as earnings per share of common stock reflect earnings
available to stockholders for the period divided by the weighted average number
of common shares outstanding during the period. Earnings per share is calculated
beginning with the date of reorganization and, therefore, no earnings per share
is reported for periods prior to the reorganization.
NOTE 6- DIVIDEND DECLARATION
- --------------------------------
On July 16, 2003, the Company's Board of Directors declared an initial quarterly
cash dividend of $0.05 per share to be paid on August 15, 2003 to shareholders
of record on August 1, 2003.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The company intends such
forward-looking statements to be covered by the safe harbor provision for
forward-looking statements contained in the Private Securities Reform Act of
1995 as amended and is including these statements for purposes of these safe
harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies, and expectations of the
Company, are generally identifiable by use of the words "believe", "expect",
"intend", "anticipate", "estimate", "project", or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors that could have a material adverse
affect on the operation and future prospects of the Company and its wholly-owned
subsidiaries include, but are not limited to, changes in: interest rates;
general economic conditions; legislative/regulatory provision; monetary and
fiscal policies of the U.S. Government, including policies of the U.S. Treasury
and the Federal Reserve Board; the quality or composition of the loan or
investment portfolios; demand for loan products; deposit flows; competition;
demand for financial services in the Company's market area; and accounting
principles, policies and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements, and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the company's filings with the
Securities and Exchange Commission.
The following discussion compares the consolidated financial condition of
Atlantic Liberty Financial Corp. at June 30, 2003 to the Association's financial
condition at March
7
31, 2003 and the consolidated results of operations for the three-month periods
ended June 30, 2003 and June 30, 2002. This discussion should be read in
conjunction with the interim financial statements and footnotes included herein.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2003 AND MARCH 31, 2003
Our total assets at June 30, 2003 were $139.1 million an increase of $1.9
million or 1.4% from the $137.2 million at March 31, 2003. The increase reflects
increases in cash and cash equivalents funded by increases in deposits and other
liabilities. Loans increased by $3.5 million or 3.5% to $104.2 million at June
30, 2003 from $100.7 million at March 31, 2003. Our increase in loans resulted
principally from increased one-to-four family mortgage loan originations
reflecting customers seeking to take advantage of low market interest rates as
well as an increase of $5.0 million in commercial loans, $2.0 million of which
were purchased from other financial institutions. Mortgage-backed securities
decreased $3.5 million or 15.4% to $19.2 million at June 30, 2003 from $22.7
million at March 31, 2003 reflecting pre-payments and amortization. Cash and
cash equivalents increased $1.4 million or 22.6% to $7.6 million at March 31,
2003 from $6.2 million at March 31, 2003 , principally as a result of increases
in deposits and other liabilities.
Total deposits of $108.0 million June 30, 2003 increased $500,000 or 0.5%
from $107.5 million at March 31, 2003. Other liabilities increased $900,000
principally as a result of increased outstanding bank checks.
Equity increased $400,000 or 1.6% to $25.5 million at June 30, 2003 from
$25.1 million at March 31, 2003, primarily the result of including net income
for the quarter ended June 30, 2003 of $369,000.
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE-MONTHS ENDED JUNE 30, 2003 AND
JUNE 30, 2002
GENERAL. Net income for the three months ended June 30, 2003 was $369,000,
an increase of $23,000 or 6.6% from $346,000 for the three months ended June 30,
2002. The increase in net income was primarily due to increases of $208,000 in
net interest income and $16,000 in non-interest income partially offset by
increases of $155,000 in non-interest expense and $47,000 in income tax expense.
INTEREST INCOME. Interest income decreased $18,000 during the comparative
three months ended June 30, 2003 and 2002. The decrease in interest income
resulted primarily from decreases of $44,000 in interest received on mortgage
backed securities and $19,000 on other interest-earning assets partially offset
by a $45,000 increase in interest received from loans.
Interest income from mortgage-backed securities decreased $44,000 or 21.6%
to $160,000 for the three months ended June 30, 2003 from $204,000 for the same
period in 2002. The decrease was due to a 208 basis point decrease in the
average yield partially offset by an increase in average mortgage-backed
securities of $5.4 million to $21.4 million for the three months ended June 30,
2003 from $16.0 million for the three months ended June 30, 2002. The decrease
in yield reflects the declining interest rate environment in 2002 and 2003.
8
Interest income on other interest earning assets decreased $19,000 or 45.2%
to $23,000 the three months ended June 30, 2003 from $42,000 for the same period
in 2002. The decrease was due to a decrease in the average balance of other
interest earning assets to $5.2 million from $9.9 million partially offset by an
increase of 3 basis points in the average yield.
Interest income from loans increased $45,000 or 2.6% to $1.8 million for
the three months ended June 30,2003 from $1.75 million for the three months
ended June 30, 2002. The average balance of loans outstanding for the periods
increased by $8.9 million to $102.1 million from $93.2 million. The average
yield on loans declined 47 basis points to 7.00% for the three months ended June
30, 2003 from 7.47% for the three months ended June 30, 2002 , reflecting a
decrease in market interest rates generally.
INTEREST EXPENSE. Total interest expense decreased by $226,000 or 32.0% to
$480,000 for the three months ended June 30, 2003 from $706,000 for the three
months ended June 30, 2002. The decrease in interest expense resulted primarily
from a decrease in the average cost of our interest bearing liabilities to 1.78%
from 2.52%, reflecting the decrease in market interest rates during the period
as well as a decrease in the average balance of interest bearing liabilities of
$4.4 million to $107.7 million from $112.1 million.
Interest expense on deposits decreased $225,000 or 33.0% to $456,000 for
the three months ended June 30, 2003 from $681,000 for the three months ended
June 30, 2002. The average balance of certificate of deposit accounts decreased
$6.8 million from $64.9 million for the three months ended June 30, 2002 to
$58.1 million for the three months ended June 30, 2003, and the average cost on
such accounts decreased from 3.31% to 2.48%. In addition, although the average
balance of transaction and savings deposits increased $2.9 million or 6.6% to
$47.1 million for the three months ended June 30, 2003 from $44.2 million for
the three months ended June 30, 2002, the average cost on such accounts declined
48 basis points to .82% from 1.30%, reflecting the decline in market interest
rates paid on deposits during 2002 and 2003.
Interest expense on Federal Home Loan Bank of New York advances was $19,000
for the three months ended June 30, 2003, a decrease of $3,000 from the $22,000
recorded in the three months ended June 30, 2002. Average Federal Home Loan Bank
of New York advances decreased to $1.6 million for the three months ended June
30, 2003, from $2.0 million in the prior period.
NET INTEREST INCOME. Net interest income increased $208,000 or 16.0% to
$1.5 million for the three months ended June 30, 2003 from $1.3 million for the
three months ended June 30, 2002 Our net interest spread increased 19 basis
points to 4.34 % for the three months ended June 30, 2003, from 4.15% for the
comparable period in 2002, while our net interest margin increased 32 basis
points to 4.64% from 4.32%.
PROVISION FOR LOAN LOSSES. We establish provisions for loan losses, which
are charged to operations, at a level management believes is appropriate to
absorb probable incurred credit losses in the loan portfolio. In evaluating the
level of the allowance for loan losses, management considers historical loss
experience, the nature and volume of the loan portfolio, adverse situations that
may affect the borrower's ability to repay, estimated value of any underlying
collateral, peer group information, and prevailing
9
economic conditions. This evaluation is inherently subjective, as it requires
estimates that are susceptible to significant revision as more information
becomes available or as future events change. Based on our evaluation of these
factors, management did not make a provision for the three months ended June 30,
2003 and June 30, 2002.
We used the same methodology and generally similar assumptions in assessing
the adequacy of the allowance for both periods. The allowance for loan losses
was $484,000 or 0.46% of loans outstanding at June 30, 2003, as compared with
$435,000 or 0.45% of loans outstanding at June 30, 2002. The allowance for loan
losses represented 225.1% of non-performing loans at June 30, 2003 and 41.7% of
non-performing loans at June 30, 2002. The level of the allowance is based on
estimates and the ultimate losses may vary from the estimates.
Management assesses the allowance for loan losses on a quarterly basis and makes
provisions for loan losses as necessary in order to maintain the adequacy of the
allowance. While management uses available information to recognize losses on
loans, future loan loss provisions may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as a part of their
examination process, periodically will review the allowance for loan losses and
may require us to recognize additional provisions based on their judgment of
information available to them at the time of their examination. The allowance
for loan losses as of June 30, 2003 is maintained at a level that represents
management's best estimate of inherent losses in the loan portfolio, and such
losses were both probable and reasonably estimable.
NON-INTEREST INCOME. Non-interest income increased $16,000 to $105,000 for
the three months ended June 30, 2003, as compared to $89,000 for the three
months ended June 30, 2002. The increase was attributable to increases of
$12,000 in savings and checking account fees and $26,000 of income on Atlantic
Liberty Savings F.A.'s investment in Bank owned Life Insurance (BOLI), which was
purchased subsequent to June 30, 2002 and as to which there is no comparable
income in the prior period; partially offset by a decrease of $23,000 in loan
prepayment penalty fees.
NON-INTEREST EXPENSE. Non-interest expense for the three months ended June
30, 2003 was $948,000 compared to $793,000 for the three months ended June 30,
2002, an increase of $155,000 or 19.5%. The increase was primarily attributable
to a $108,000 increase in salaries and employee benefits, $58,000 of ESOP
expense for which there was no similar charge in the prior year, and $36,000 in
occupancy expense partially offset by a decrease of $62,000 in equipment
expense.
PROVISION FOR INCOME TAXES. The provision for income taxes increased to
$294,000 for the three months ended June 30, 2003 from $248,000 for the three
months ended June 30, 2002. The increase in the provision for income taxes is
primarily due to a higher level of income before taxes of $663,000 for the
three-months ending June 30, 2003, compared with income before taxes of $594,000
for the comparative 2002 period as well as an increase in the effective tax rate
to 44.4% for the three months ended June 30, 2003 from 41.8% in the prior period
caused principally by the non-deductibility for income tax purposes of the
excess of market value on the release date over purchase price of the ESOP
shares.
10
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY. The Association must maintain an adequate level of liquidity to
ensure the availability of sufficient funds to fund loan originations and
deposit withdrawals, to satisfy other financial commitments, and to take
advantage of investment opportunities. The Association invests excess funds in
overnight deposits and other short-term interest-bearing assets to provide
liquidity to meet these needs. At June 30, 2003, cash and cash equivalents
totaled $7.6 million. At June 30, 2003, the Association had commitments to funds
loans of $2.5 million. At June 30, 2003, certificates of deposit represented
48.4% of total deposits. The Association expects to retain these deposit
accounts. In addition, the Association could borrow up to $40.1 million from the
Federal Home Loan Bank of New York without providing additional collateral. The
Association considers its liquidity and capital resources sufficient to meet its
outstanding short-term and long-term needs.
CAPITAL RESOURCES. The Association is subject to various regulatory capital
requirements administered by federal regulatory agencies. The following table
summarizes the Association's regulatory capital requirements versus actual
capital as of June 30, 2003 :
ACTUAL REQUIRED EXCESS
------------------- ------------------- -------------------
(Dollars in thousands) AMOUNT % AMOUNT % AMOUNT %
--------- ------- --------- ------- --------- -------
Core capital
(to adjusted total assets) $ 17.4 12.6% $ 5.5 4.0% $ 11.9 8.6%
Risk-based capital
To (risk-weighted assets) $ 17.8 23.0% $ 6.2 8.0% $ 11.6 15.0%
MANAGEMENT OF MARKET RISK
GENERAL. The majority of our assets and liabilities are monetary in nature.
Consequently, our most significant form of market risk is interest rate risk.
Our assets, consisting primarily of mortgage loans, have longer maturities than
our liabilities, consisting primarily of deposits. As a result, a principal part
of our business strategy is to manage interest rate risk and reduce the exposure
of our net interest income to changes in market interest rates. Accordingly, our
board of directors has established an Asset/Liability Management Committee which
is responsible for evaluating the interest rate risk inherent in our assets and
liabilities, for determining the level of risk that is appropriate given our
business strategy, operating environment, capital, liquidity and performance
objectives, and for managing the risk consistent with the guidelines approved by
the board of directors. Senior management monitors the level of interest rate
risk on a regular basis and the Asset/Liability Management Committee, which
consists of senior management operating under a policy adopted by the board of
directors, meets as needed to review our asset/liability policies and interest
rate risk
11
position. We have sought to manage our interest rate risk by more closely
matching the maturities of our interest rate sensitive assets and liabilities.
In particular, we offer one, three, and five year adjustable rate mortgage
loans, a loan product that has a fixed rate of interest for seven years and
which adjusts annually thereafter, and three and five year balloon loans. We
also invest in mortgage-backed securities which reprice within one and three
years. We do not solicit high-rate jumbo certificates of deposit or brokered
funds.
NET PORTFOLIO VALUE. In past years, many savings associations have measured
interest rate sensitivity by computing the "gap" between the assets and
liabilities which are expected to mature or reprice within certain time periods,
based on assumptions regarding loan prepayment and deposit decay rates formerly
provided by the Office of Thrift Supervision. However, the Office of Thrift
Supervision now requires the computation of amounts by which the net present
value of an institution's cash flow from assets, liabilities and off balance
sheet items (the institution's net portfolio value or "NPV") would change in the
event of a range of assumed changes in market interest rates. The Office of
Thrift Supervision provides all institutions that file a Consolidated
Maturity/Rate Schedule as a part of their quarterly Thrift Financial Report with
an interest rate sensitivity report of net portfolio value. The Office of Thrift
Supervision simulation model uses a discounted cash flow analysis and an
option-based pricing approach to measure the interest rate sensitivity of net
portfolio value. Historically, the Office of Thrift Supervision model estimated
the economic value of each type of asset, liability and off-balance sheet
contract under the assumption that the United States Treasury yield curve
increases or decreases instantaneously by 100 to 300 basis points in 100 basis
point increments. However, given the current low level of market interest rates,
we did not receive a NPV calculation for an interest rate decrease of greater
than 100 basis points. A basis point equals one-hundredth of one percent, and
100 basis points equals one percent. An increase in interest rates from 3% to 4%
would mean, for example, a 100 basis point increase in the "Change in Interest
Rates" column below. The Office of Thrift Supervision provides us the results of
the interest rate sensitivity model, which is based on information we provide to
the Office of Thrift Supervision to estimate the sensitivity of our net
portfolio value.
The table below sets forth, as of March 31, 2003, the latest date for which
the Office of Thrift Supervision has provided Atlantic Liberty Savings, F.A. an
interest rate sensitivity report of net portfolio value, the estimated changes
in our net portfolio value that would result from the designated instantaneous
changes in the United States Treasury yield curve.
Net Portfolio Value as a %of Present
Value of
Net Portfolio Value Assets/Liabilities
- --------------------------------------------------------- -------------------------------------
Change in
Interest Rates Estimated Amount of
(basis points) NPV Change Percent NPV Ratio Change
- -------------- --------- ---------- ---------- ------------ --------------------
(Dollars in Thousands)
+300 $20,556 $(5,816) (22)% 14.85% (327) basis points
+200 22,722 (3,650) (14) 16.12 (200) basis points
+100 24,800 (1,572) (6) 17.29 (83) basis points
0 26,372 - - 18.12 - basis points
- -100 27,254 882 +3 18.54 +42 basis points
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The table above indicates that at March 31, 2003, in the event of a 100
basis point decrease in interest rates, we would experience a 3% increase in net
portfolio value. In the event of a 200 basis point increase in interest rates,
we would experience a 14% decrease in net portfolio value.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in net portfolio value require
making certain assumptions that may or may not reflect the manner in which
actual yields and costs respond to changes in market interest rates. In this
regard, the net portfolio value table presented assumes that the composition of
our interest-sensitive assets and liabilities existing at the beginning of a
period remains constant over the period being measured and assumes that a
particular change in interest rates is reflected uniformly across the yield
curve regardless of the duration or repricing of specific assets and
liabilities. Accordingly, although the net portfolio value table provides an
indication of our interest rate risk exposure at a particular point in time,
such measurements are not intended to and do not provide a precise forecast of
the effect of changes in market interest rates on its net interest income and
will differ from actual results.
ITEM 3. CONTROLS AND PROCEDURES
Under the supervision and with the participation of the Company's
management, including the Chief Executive Officer and Chief Financial Officer,
the Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) as of the end of the period covered by this quarterly
report. Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that, as of the end of the period covered by this
quarterly report, the Company's disclosure controls and procedures are effective
to ensure that information required to be disclosed in the reports that the
Company files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commission's rules and forms. There has been no change
in the Company's internal control over financial reporting during the most
recent fiscal quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not involved in any pending legal proceedings as a defendant other
than routine legal proceedings occurring in the ordinary course of business. At
June 30, 2003, we were not involved in any legal proceedings, the outcome of
which would be material to our financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION
At its' July meeting, the Board of Directors of Atlantic Liberty
Financial Corp. declared an initial quarterly cash dividend of $0.05
per share to be paid on August 15, 2003 to shareholders of record on
August 1, 2003
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 31.1
Exhibit 31.2
Exhibit 32 Sarbanes-Oxley Certifications pursuant to Section 906.
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SIGNATURES
Pursuant to the requirement of the securities Exchange Act of 1934. The
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Atlantic Liberty Financial Corp.
Date: August 8, 2003 /s/ Barry M. Donohue
----------------------------------------
Barry M. Donohue
President and Chief Executive Officer
Date: August 8, 2003 /s/ William M. Gilfillan
----------------------------------------
William M. Gilfillan
Chief Financial Officer and Corporate
Secretary
15