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0001019056-08-000407.txt : 20080717
0001019056-08-000407.hdr.sgml : 20080627
20080314160037
ACCESSION NUMBER: 0001019056-08-000407
CONFORMED SUBMISSION TYPE: S-1
PUBLIC DOCUMENT COUNT: 44
FILED AS OF DATE: 20080314
DATE AS OF CHANGE: 20080513
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: Auburn Bancorp, Inc.
CENTRAL INDEX KEY: 0001428802
STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000]
IRS NUMBER: 000000000
FISCAL YEAR END: 0630
FILING VALUES:
FORM TYPE: S-1
SEC ACT: 1933 Act
SEC FILE NUMBER: 333-149723
FILM NUMBER: 08689517
BUSINESS ADDRESS:
STREET 1: 256 COURT STREET
STREET 2: P.O. BOX 3157
CITY: AUBURN
STATE: ME
ZIP: 04212
BUSINESS PHONE: 207-782-6871
MAIL ADDRESS:
STREET 1: 256 COURT STREET
STREET 2: P.O. BOX 3157
CITY: AUBURN
STATE: ME
ZIP: 04212
S-1
1
auburn_s1.htm
S-1
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UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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Washington, D.C. 20549
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FORM S-1
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REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
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Auburn Bancorp, Inc.
(Exact name of
registrant as specified in its charter)
United States
(State or
jurisdiction of incorporation or organization)
6035
(Primary
Standard Industrial Classification Code Number)
26-2139168
(I.R.S. Employer Identification No.)
256 Court Street, P.O. Box 3157
Auburn, ME 04212
(Address and
telephone number of registrants principal executive offices)
Allen T. Sterling
President & Chief Executive Officer
Auburn Bancorp, Inc. (In Organization)
256 Court Street, P.O. Box 3157
Auburn, ME 04212
(207) 782-6871
(Name, address
and telephone number of agent for service)
Copy to:
Michelle L. Basil
Nutter, McClennen & Fish LLP
155 Seaport Boulevard
Boston, MA 02210
(617) 439-2000
Approximate date of proposed sale to public: As soon as practicable after this
Registration Statement becomes effective.
If any of the securities
being registered on this Form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933 check the following
box: o
If this Form is filed to
register additional securities for an offering pursuant to Rule 462(b)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities
Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. o
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the Securities
Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same
offering. o
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, non-accelerated filer and
smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company x
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of
Securities
to be Registered
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Amount to be
Registered
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Proposed Maximum
Offering Price per
Share
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Proposed Maximum
Aggregate Offering
Price (1)
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Amount of
Registration
Fee
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Common Stock, $0.01 par
value
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351,124
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$ 10.00
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$ 3,511,240
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$ 137.99
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(1) Estimated solely for the
purpose of calculating the registration fee.
The Registrant hereby amends this
Registration
Statement on such date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said Section 8(a), may determine.
PROSPECTUS
(Proposed Holding
Company for Auburn Savings Bank)
Up to 305,325 Shares of Common Stock
This
is the initial public offering of shares of common stock of Auburn Bancorp,
Inc., a federally-chartered corporation Auburn Savings Bank, FSB will form in
connection with its reorganization into the mutual holding company form of
organization. The shares we are offering will represent 45% of our
outstanding common stock. Auburn Bancorp, MHC, a mutual holding company that
Auburn Savings Bank will form in connection with its reorganization, will own
55% of our outstanding common stock. We intend to have our common stock quoted
on the OTC Bulletin Board.
If
you are or were a depositor or borrower of Auburn Savings Bank:
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You may have priority
rights to purchase shares of common stock.
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If
you do not fit the above category, but are interested in purchasing shares of
our common stock:
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You may have an
opportunity to purchase shares of common stock after priority orders are
filled.
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We
are offering up to 305,325 shares of common stock for sale on a best
efforts basis, subject to certain conditions. We must sell a minimum of 225,675
shares to complete the stock offering. The amount of capital being raised is
based on an appraisal of Auburn Savings Bank. Most of the terms of this stock
offering are required by regulations of the Office of Thrift Supervision. If,
as a result of regulatory considerations, demand for the shares or changes in
market conditions, the independent appraiser determines our market value has
increased, we may sell up to 351,124 shares without giving you further notice
or the opportunity to change or cancel your order.
The
stock offering is scheduled to terminate at 12:00 Noon, Eastern time, on [ ], 2008. We
may extend this termination date
without notice to you until [ ], 2008, unless the Office of Thrift Supervision approves
a later date.
Funds received before completion of the stock offering will be maintained at
Auburn Savings Bank or, at our discretion, in an escrow account at an
independent insured depository institution. All subscriptions received will
earn interest at our passbook savings rate, which is currently 1.0% per annum.
The
minimum purchase is 25 shares. Once submitted, orders are irrevocable unless
the stock offering is terminated or extended beyond [ ], 2008. If we extend the stock
offering
beyond [ ],
2008, we will promptly return the funds of all subscribers who do not reconfirm
their subscriptions. If we terminate the stock offering because we fail to sell
the minimum number of shares or for any other reason, we will promptly return
your funds with interest at our passbook savings rate.
Keefe,
Bruyette & Woods, Inc. will use its best efforts to assist us in our
selling efforts, but is not required to purchase any of the common stock that
we are offering for sale. Purchasers will not pay a commission to
purchase shares of common stock in the stock offering. All shares offered for
sale are offered at a price of $10.00 per share.
We
expect our directors and executive officers, together with their associates, to
subscribe for [ ] shares, which equals [ ]% of the shares
offered for sale at the
maximum of the offering range.
The
Office of Thrift Supervision conditionally approved our plan of reorganization
and stock issuance plan on [ ], 2008. However, such approval does not
constitute a recommendation or endorsement of this stock offering.
This investment involves a degree of risk, including
the possible loss of principal.
Please read Risk Factors beginning on page [ ].
OFFERING SUMMARY
Price Per Share:
$10.00
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Minimum
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Maximum
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Maximum As
Adjusted
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Number of shares
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225,675
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305,325
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351,124
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Gross offering proceeds
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$
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2,256,750
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$
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3,053,250
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$
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3,511,240
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Estimated offering expenses, excluding
underwriting fees and expenses
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$
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445,000
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$
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445,000
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$
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445,000
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Underwriting fees and expenses(1)
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$
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155,000
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$
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155,000
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$
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155,000
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Estimated net proceeds
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$
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1,656,750
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$
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2,453,250
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$
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2,911,240
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Estimated net proceeds per share
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$
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7.34
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$
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8.03
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$
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8.29
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(1)
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Excludes fees to be paid to
broker-dealers in the event a syndicated community offering is
conducted. For information regarding underwriting compensation to be paid to
Keefe Bruyette & Woods, Inc., see The
Reorganization and stock offeringMarketing Arrangements.
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These securities are not deposits
or savings accounts
and are not insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
Neither the Securities and
Exchange Commission, the
Office of Thrift Supervision nor any state securities regulator has approved or
disapproved of these securities or determined if this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
For
assistance, please contact the stock information center at (207) [ ].
KEEFE, BRUYETTE & WOODS
The date of this prospectus is [ ], 2008
This summary highlights selected information from
this document and may not contain all the information that is important to you.
To understand the reorganization and stock offering fully, you should read this
entire prospectus carefully, including the financial statements and notes to
the financial statements that appear at the end of the prospectus. For
assistance, please call our stock information center at (207) [ ].
The Companies
Auburn Bancorp, MHC
Auburn Bancorp, Inc.
Auburn Savings Bank
256 Court Street
P.O. Box 3157
Auburn, ME 04212
(207) 782-0400
Auburn
Bancorp, MHC is a federally-chartered mutual
holding company that we are forming to own a majority of the common stock of
Auburn Bancorp, Inc. As a mutual holding company, Auburn Bancorp, MHC will be a
non-stock company that has as its members the depositors
of Auburn Savings Bank.
Upon completion of the stock offering, Auburn Bancorp, MHC will own
55% of Auburn Bancorp, Inc.s common stock. As long as Auburn Bancorp, MHC
exists, it will own a majority of the voting stock of Auburn Bancorp, Inc. and,
through its board of directors, will be able to exercise voting control over
most matters put to a vote of stockholders. Following the stock offering,
Auburn Bancorp, MHC will not engage in any business activity other than owning
a majority of the common stock of Auburn Bancorp, Inc. The initial directors of
Auburn Bancorp, MHC will consist of the current directors of Auburn Savings
Bank and Allen T. Sterling, President and Chief Executive Officer of Auburn
Savings Bank.
Auburn Bancorp, Inc.
is a federally-chartered mid-tier stock holding company that we are forming to
be the holding company of Auburn Savings Bank. This stock offering is made by
Auburn Bancorp, Inc. Upon completion of the stock offering, Auburn Bancorp,
Inc. will own all of Auburn Savings Banks capital stock and direct, plan and
coordinate Auburn Savings Banks business activities. In the future, Auburn
Bancorp, Inc. might also acquire or organize other operating subsidiaries,
including other financial institutions or financial services companies,
although it currently has no specific plans or agreements to do so.
Auburn Savings Bank, FSB is a
federally-chartered mutual savings
bank that operates from two full-service locations in Auburn and Lewiston,
Maine, located in Androscoggin County. Auburn Savings Bank is a
community-oriented financial institution that offers a variety of deposit and
loan products to individuals and small businesses located in Androscoggin
County. In 2007, Androscoggin County had a total population of approximately
110,000. The largest industry in Androscoggin County is educational and health
care services, which accounted for 25% of employment in the county, and the two
largest employers in the area are both health service providers. At December
31, 2007, we had total assets of $63.5 million, deposits of $45.0 million and
total retained earnings of $4.5 million.
The Reorganization and Our Corporate
Structure
Currently,
Auburn Savings Bank is a federally-chartered mutual savings bank with no
stockholders. The depositors and borrowers of Auburn Savings Bank currently
have the right to vote on certain matters such as the election of directors and
this reorganization.
1
The
mutual holding company reorganization process that we are now undertaking
involves a series of transactions by which Auburn Savings Bank will convert its
organization from the mutual form of organization to the mutual holding company
form of organization. In the mutual holding company structure, Auburn Savings
Bank will become a federally-chartered stock savings bank and all of its stock
will be owned by Auburn Bancorp, Inc. Initially, 45% of Auburn Bancorp, Inc.s
stock will be owned by the public, including our employee stock ownership plan,
and 55% of Auburn Bancorp, Inc.s stock will be owned by Auburn Bancorp, MHC.
The members of Auburn Savings Bank will become members of Auburn Bancorp, MHC
and will have similar voting rights in Auburn Bancorp, MHC as they currently
have in Auburn Savings Bank.
The
following diagram depicts our corporate structure immediately after the
reorganization and stock offering:
The
normal business operations of Auburn Savings Bank will continue without
interruption during the reorganization. The current directors of Auburn Savings
Bank and Allen T. Sterling, President and Chief Executive Officer of Auburn
Savings Bank, will serve as directors of Auburn Bancorp, MHC, Auburn Bancorp,
Inc. and Auburn Savings Bank after the reorganization. The initial executive
officers of Auburn Bancorp, MHC, Auburn Bancorp, Inc. and Auburn Savings Bank
will be persons who are currently officers of Auburn Savings Bank.
Our Operating Strategy (page [ ])
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Remaining a
community-oriented institution;
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Continuing
to use conservative underwriting practices to maintain the high quality of
our loan portfolios;
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Building
core and other deposits;
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Continuing
to grow our commercial real estate and commercial business loan portfolios;
and
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Continuing
to emphasize the origination of one- to four-family residential real estate
lending.
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2
Regulation and Supervision (page [ ])
Auburn
Savings Bank is, and upon completion of the reorganization and stock offering
Auburn Bancorp, MHC and Auburn Bancorp, Inc. will be, subject to regulation,
supervision and examination by the Office of Thrift Supervision. Auburn Savings
Bank is also subject to regulation by the Federal Deposit Insurance
Corporation.
The Offering
Purchase Price
The
purchase price is $10.00 per share. You will not pay a commission to buy any
shares in the stock offering.
Number of Shares to be Sold
We
are offering for sale between 225,675 and 305,325 shares of Auburn
Bancorp, Inc. common stock in this stock offering. The amount of capital being
raised is based on an appraisal of the pro forma market value of Auburn
Bancorp, Inc. Most of the terms of this stock offering are required by
regulations of the Office of Thrift Supervision. With regulatory approval, we
may increase the number of shares to be sold to 351,124 shares without giving
you further notice or the opportunity to change or cancel your order. In
considering whether to increase the offering size, the Office of Thrift
Supervision will consider the level of subscriptions, the views of our
independent appraiser, our financial condition and results of operations and
changes in market conditions.
How We Determined the Offering Range (page [
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We
decided to offer between 225,675 and 305,325 shares, which is our
offering range, based on an independent appraisal of our pro forma market value
prepared by Keller & Company, Inc., an appraisal firm experienced in
appraisals of financial institutions. Keller & Company will receive fees
totaling $25,000 for the preparation and delivery of the original appraisal
report and the final updated appraisal report, plus reimbursement of
out-of-pocket expenses not to exceed $1,500, and $1,500 for the preparation and
delivery of each additional required updated appraisal report. Keller &
Company estimates that as of February 15, 2008, our pro forma market value on a
fully converted basis was between $5.0 million and $6.8 million, with a
midpoint of $5.9 million. The term fully converted means that Keller & Company
assumed that 100% of our common stock had been sold to the public, rather than
the 45% that will be sold in connection with this stock offering.
In
preparing its appraisal, Keller & Company considered the information in
this prospectus, including our financial statements. Keller & Company also
considered the following factors, among others:
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our
historical, present and projected operating results and financial condition
and the economic and demographic characteristics of our market area;
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a
comparative evaluation of the operating and financial statistics of Auburn
Savings Bank with those of other similarly-situated, publicly-traded savings
banks and bank holding companies;
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the effect
of the capital raised in this stock offering on our net worth and earnings
potential; and
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the trading
market for securities of comparable institutions and general conditions in
the market for such securities.
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Our
board of directors determined that the common stock should be sold at $10.00
per share and that 45% of the shares of our common stock should be offered for
sale to the public in the stock offering. The following table shows the number
of shares that will be sold in the stock offering, issued to Auburn Bancorp,
MHC, based on the estimated valuation range and the purchase price.
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At Minimum
of
Offering Range
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At Maximum
of
Offering Range
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Percent of
Shares
Outstanding
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Shares sold in the
offering
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225,675
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305,325
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45
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%
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Shares issued to Auburn
Bancorp, MHC
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275,825
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373,175
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55
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%
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Total
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501,500
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678,500
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100
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%
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Keller
& Company considered the ratio of the offering price to the issuers
book value and the ratio of the offering price to the issuers annual
core earnings in preparing its appraisal, among other factors. Book value is
the same as total equity and represents the difference between the value of the
issuers assets and liabilities. Core earnings, for purposes of the appraisal,
were defined as net earnings after taxes, excluding the after-tax portion of
income from nonrecurring items. Keller & Companys appraisal also
incorporates an analysis of a peer group of publicly traded mutual holding
companies that Keller & Company considered to be comparable to us.
The
following table presents a summary of selected pricing ratios for the peer
group companies and pro forma pricing ratios for us utilized by Keller &
Company in its appraisal. These ratios are based on earnings for the 12 months
ended December 31, 2007 and book value as of December 31, 2007.
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Fully Converted Price
to Core Earnings
Multiple
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Fully Converted Price
to Book Value Ratio
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Auburn
Bancorp, Inc. (pro forma):
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Minimum
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36.55x
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59.74%
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Midpoint
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42.53x
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64.19%
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Maximum
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48.39x
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67.93%
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Maximum, as adjusted
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54.97x
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71.56%
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Peer Group
(on a fully-converted basis):
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Average
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35.51x
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79.02%
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Median
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30.74x
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78.45%
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Compared
to the average pricing ratios of the peer group at the maximum of the
offering range, our stock would be priced at discount of 14.03% to the peer
group on a price-to-book basis and a premium of 36.27% on a price-to-core
earnings basis. This means that, at the maximum of the offering range, a
share of our common stock would be less expensive than the peer group based on
a book value per share basis and more expensive on a core earnings per share
basis. The disparity between the pricing ratios results from Auburn Bancorp,
Inc., on a pro forma basis, generally having higher levels of equity but lower
earnings than the companies in the peer group. The appraisal concluded that
these ranges represented the appropriate balance of the two approaches to
valuing Auburn Bancorp, Inc., and the number of shares to be sold, in
comparison to the peer group institutions.
The
independent appraisal does not indicate market value. You should not assume or
expect that the valuation described above means that our common stock will
trade at or above the $10.00 purchase price after the stock offering.
4
Mutual Holding Company Data
The following table presents a
summary of selected pricing ratios for publicly traded mutual holding companies
and the pricing ratios for us, without the ratios being adjusted to the
hypothetical case of being fully converted. These ratios are based on earnings
for the 12 months ended December 31, 2007 and book value as of December 31,
2007.
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Non-Fully Converted
Price to Core
Earnings Multiple
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Non-Fully Converted
Price to Book Value
Ratio
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Auburn
Bancorp, Inc. (pro forma):
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Minimum
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38.64x
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85.48%
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Midpoint
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45.08x
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94.83%
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Maximum
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51.43x
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103.17%
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Maximum, as adjusted
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58.60x
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111.71%
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Publicly traded mutual holding companies as of
February 15, 2008
(1):
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Average
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64.75x
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138.92%
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Median
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46.94x
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131.52%
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(1)
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The information for
publicly traded mutual holding companies may not be meaningful for investors
because it presents average and median information for mutual holding
companies that issued a different percentage of their stock in their
offerings than the 45% that we are offering to the public. In addition,
the effect of stock repurchases also affects the ratios to a greater or
lesser degree depending upon repurchase activity.
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Possible Change in Offering Range (page [ ])
Keller
& Company will update its appraisal before we complete the stock offering.
If, as a result of regulatory considerations, demand for the shares or changes
in market conditions, Keller & Company determines that our pro forma market
value has increased, we may sell up to 351,124 shares without further notice to
you. If our pro forma market value at that time is either below $5.0 million or
above $7.8 million, then, after consulting with the Office of Thrift
Supervision, we may: (i) terminate the stock offering and promptly return all
funds with interest; (ii) promptly return all funds with interest, set a new
offering range and give all subscribers the opportunity to place a new
order; or (iii) take such other actions as may be permitted by the Office of
Thrift Supervision and the U.S. Securities and Exchange Commission.
Possible Termination of the Offering
We
must sell a minimum of 225,675 shares to complete the stock offering. If we
terminate the stock offering because we fail to sell the minimum number of
shares or for any other reason, we will promptly return your funds with
interest at our passbook savings rate and without deduction of any fees, and
holds on funds authorized for withdrawal from deposit accounts will be
released.
5
After-Market Performance of First-Step
Mutual Holding Company Offerings
The
following table provides information regarding the after-market performance of
all first-step mutual holding company offerings completed from January 1,
2007 through February 15, 2008. First-step mutual holding company offerings
are initial public offerings by companies in the mutual holding company form of
organization.
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Appreciation From Initial Offering Price
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Issuer (Market/Symbol)
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Date of
IPO
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After
1 Day
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After
1 Week
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After
4 Weeks
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Through
2/15/08
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|
|
|
|
|
|
|
|
|
|
|
|
|
Meridian Interstate Bancorp (NasdaqGS:EBSB)
|
|
|
01/23/08
|
|
|
(4.0
|
)%
|
|
|
(5.2
|
)%
|
|
|
NA
|
%
|
|
(5.0
|
)%
|
|
Sound Financial Inc.
(OTCBB: SNFL)
|
|
|
01/09/08
|
|
|
(10.0
|
)%
|
|
|
(10.0
|
)%
|
|
|
(8.5
|
)%
|
|
(7.0
|
)%
|
|
Northfield Bancorp Inc.
(NasdaqGS:NFBK)
|
|
|
11/08/07
|
|
|
4.5
|
%
|
|
|
13.0
|
%
|
|
|
4.9
|
%
|
|
3.8
|
%
|
|
LaPorte Bancorp Inc. (NasdaqCM:LPSB)
|
|
|
10/15/07
|
|
|
(8.1
|
)%
|
|
|
(13.8
|
)%
|
|
|
(21.0
|
)%
|
|
(29.0
|
)%
|
|
FSB Community Bankshares
Inc.
(NasdaqGM:FSBC)
|
|
|
08/15/07
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
(5.0
|
)%
|
|
(14.3
|
)%
|
|
Beneficial Mutual Bancorp
(NasdaqGS:BNCL)
|
|
|
07/16/07
|
|
|
(7.9
|
)%
|
|
|
(6.8
|
)%
|
|
|
(11.5
|
)%
|
|
(6.3
|
)%
|
|
Hometown Bancorp Inc.
(OTCBB: HTWC)
|
|
|
06/29/07
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
(5.0
|
)%
|
|
(28.0
|
)%
|
|
TFS Financial Corp
(NasdaqGS:TFSL)
|
|
|
04/23/07
|
|
|
17.9
|
%
|
|
|
18.0
|
%
|
|
|
23.4
|
%
|
|
23.0
|
%
|
|
Sugar Creek Financial Corp
(OTCBB: SUGR)
|
|
|
04/04/07
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
6.0
|
%
|
|
(9.0
|
)%
|
|
Delanco Bancorp Inc.
(OTCBB: DLNO)
|
|
|
04/02/07
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
(5.0
|
)%
|
|
(25.0
|
)%
|
|
Oritani Financial Corp.
(NasdaqGS:ORIT)
|
|
|
01/24/07
|
|
|
59.7
|
%
|
|
|
54.3
|
%
|
|
|
55.0
|
%
|
|
13.4
|
%
|
|
Average
|
|
|
|
|
|
4.7
|
%
|
|
|
4.5
|
%
|
|
|
3.3
|
%
|
|
(7.6
|
)%
|
|
Median
|
|
|
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
|
|
(5.0
|
)%
|
|
(7.0
|
)%
|
|
This
table is not intended to be indicative of how our stock may perform.
Furthermore, this table presents only short-term price performance with respect
to several companies that only recently completed their initial public
offerings and may not be indicative of the longer-term stock price performance
of these companies. Stock price appreciation is
affected by many factors, including, but not limited to: general market and
economic conditions; the interest rate environment; the amount of proceeds a
company raises in its offering; and numerous factors relating to the
specific company, including the experience and ability of management,
historical and anticipated operating results, the nature and quality of Auburn
Bancorp, Inc.s assets, Auburn Bancorp, Inc.s market area, the quality of
management and managements ability to deploy proceeds (such as through loans
and investments, the acquisition of other financial institutions or other
businesses, the payment of dividends and common stock repurchases), the
presence of professional and other investors who purchase stock on speculation,
as well as other unforeseeable events not in the control of management. In
addition, the companies listed in the table above may not be similar to Auburn
Bancorp, Inc. with regard to market capitalization, offering size,
earnings quality and growth potential, among other factors. Further, the
pricing ratios for their offerings were in some cases different from the
pricing ratios for Auburn Bancorp Inc.s common stock and the market conditions
in which these offerings were completed were, in some cases, different from
current market conditions. Any or all of these differences may cause our stock
to perform differently from these other offerings. Before you make an
investment decision, we urge you to carefully read this prospectus, including,
but not limited to, the Risk Factors section of this prospectus.
You
should be aware that, in certain market conditions, stock prices of thrift
initial public offerings have decreased. For example, as the above table
illustrates, the stock of eight companies traded at or below the initial
offering price at various times through February 15, 2008. We can give you
6
no assurance
that our stock will not trade below the $10.00 purchase price or that our stock
will perform similarly to other recent mutual to stock conversions.
Conditions to Completing the Offering
We
are conducting the stock offering under the terms of our plan of reorganization
and stock issuance plan. We cannot complete the stock offering unless we sell at
least the minimum number of shares offered and we receive the final approval of
the Office of Thrift Supervision to complete the stock offering.
Reasons for the Reorganization and Offering
(page [ ])
As
part of our business planning process, our board of directors concluded that
Auburn Savings Bank needed additional capital in order to increase
profitability and support asset growth. The proceeds from the sale of our
common stock in the stock offering will provide Auburn Savings Bank with
additional capital. The reorganization and stock offering also will enable
Auburn Bancorp, Inc. and Auburn Savings Bank to increase their capital in
response to any future regulatory capital requirements. Although Auburn Savings
Bank currently exceeds all regulatory capital requirements, the sale of common
stock will assist Auburn Savings Bank with the orderly preservation and
expansion of its capital base and will provide flexibility to respond to sudden
and unanticipated capital needs.
The
stock offering will increase capital at Auburn Savings Bank and, as a result,
increase the maximum amount that we may lend to one borrower. Although we intend
to continue to use conservative underwriting practices to maintain the high
quality of our loan portfolios, increased lending limits would provide Auburn
Savings Bank with flexibility to make larger loans and to grow our loan
portfolios in situations where we can do so while continue to use conservative
underwriting practices to maintain the high quality of our loan portfolios;
The
stock offering will afford our directors, officers and employees the
opportunity to become stockholders through various stock benefit plans, which
we believe to be an effective performance incentive and an effective means of
attracting and retaining qualified personnel. The stock offering also will
provide our customers and local community members with an opportunity to
acquire our stock.
The
board of directors determined that a minority stock issuance was preferable to
a full stock conversion because it
provides for the continued control of Auburn Bancorp, Inc. by Auburn Bancorp,
MHC through its majority ownership position. We chose not to sell more than 45%
of our shares of common stock to the public so that we would have the
flexibility to issue authorized but unissued shares to fund future stock
benefit plans without exceeding the regulatory limit on the percentage of
shares that can be owned by persons other than Auburn Bancorp, MHC.
Benefits of the Offering to Management (page
[ ])
We
intend to adopt the benefit plans and employment agreement described below.
Auburn Bancorp, Inc. will recognize compensation expense related to the
employee stock ownership plan and the equity incentive plan. The actual expense
will depend on the market value of Auburn Bancorp, Inc.s common stock and,
with respect to the employee stock ownership plan, will increase as the value
of Auburn Bancorp, Inc.s common stock increases. As reflected under Pro Forma Data, based upon assumptions
set forth therein, the annual expense related to the employee stock ownership
plan and the equity incentive plan would be $10,000 and $38,000, respectively,
assuming shares are sold at the
7
maximum of the
offering range. See Pro Forma Data
for a detailed analysis of the effects of each of these plans.
Employee
Stock Ownership Plan. We intend to establish an
employee stock ownership plan that will purchase an amount of shares equal to
3.43% of the shares issued in the stock offering, including shares issued to
Auburn Bancorp, MHC. The plan will use the proceeds from a 15-year loan from
Auburn Bancorp, Inc. to purchase these shares. As the loan is repaid and shares
are released from collateral, the shares will be allocated to the accounts of
employee participants. Allocations will be based on a participants individual
compensation as a percentage of total plan compensation. Non-employee directors
are not eligible to participate in the employee stock ownership plan. We will
incur additional compensation expense as a result of this plan. See Pro Forma Data for an illustration of
the effects of this plan.
Equity
Incentive Plan. We intend to adopt an equity
incentive plan no earlier than six months after completion of the
reorganization and stock offering. Under current Office of Thrift Supervision
regulations, the equity incentive plan must be approved by a majority of the
total votes cast by our stockholders, other than Auburn Bancorp, MHC. The
number of stock options granted under the plan may not exceed 4.90% of the
total shares issued in the stock offering and the number of shares of
restricted stock awarded under the plan may not exceed 1.47% of the total shares
issued in the stock offering, in each case including shares issued to Auburn
Bancorp, MHC. We will grant all stock options at an exercise price equal to
100% of the fair market value of the stock on the date of grant. We will grant
restricted stock awards at no cost to recipients. We will incur additional
compensation expense as a result of this plan.
The
following table presents the total value of all shares to be available for
restricted stock awards under the equity incentive plan, based on a range of
market prices from $8.00 per share to $14.00 per share. Ultimately, the value
of the grants will depend on the actual trading price of our common stock,
which depends on numerous factors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
Share Price
|
|
7,372
Shares
Awarded
(Minimum
of Range)
|
|
8,673
Shares
Awarded
(Midpoint of
Range)
|
|
9,974
Shares
Awarded
(Maximum
of Range)
|
|
11,470
Shares
Awarded
(15% Above
Maximum of
Range)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
$
|
8.00
|
|
$
|
59
|
|
$
|
69
|
|
$
|
80
|
|
$
|
92
|
|
|
10.00
|
|
|
74
|
|
|
87
|
|
|
100
|
|
|
115
|
|
|
12.00
|
|
|
88
|
|
|
104
|
|
|
120
|
|
|
138
|
|
|
14.00
|
|
|
103
|
|
|
121
|
|
|
140
|
|
|
161
|
|
The
following table presents the total value of all stock options available for
grant under the equity incentive plan, based on a range of market prices from
$8.00 per share to $14.00 per share. For purposes of this table, the value of
the stock options was determined using the Black-Scholes option-pricing
formula. See Pro Forma Data.
Ultimately, financial gains can be realized on a stock option only if the
market price of the common stock increases above the price at which the option
is granted.
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Value of
|
|
|
|
|
|
|
|
Exercise
Price
|
|
Option Value
|
|
24,574
Options
Granted
(Minimum
of Range)
|
|
28,910
Options
Granted
(Midpoint
of Range)
|
|
33,247
Options
Granted
(Maximum
of Range)
|
|
38,233
Options
Granted
(15% Above
Maximum of
Range)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands, Except Exercise Price and Option
Value)
|
$
|
8.00
|
|
$
|
3.27
|
|
$
|
84
|
|
$
|
95
|
|
$
|
109
|
|
$
|
125
|
|
|
10.00
|
|
|
4.08
|
|
|
104
|
|
|
118
|
|
|
136
|
|
|
156
|
|
|
12.00
|
|
|
4.90
|
|
|
125
|
|
|
142
|
|
|
163
|
|
|
187
|
|
|
14.00
|
|
|
5.72
|
|
|
146
|
|
|
165
|
|
|
190
|
|
|
219
|
|
The
following table summarizes, at the maximum of the offering range, the
total number and value of the shares of common stock that the employee stock
ownership plan expects to acquire and the total value of all restricted stock
awards and stock options that are expected to be available under the equity
incentive plan. At the maximum of the offering range, we will sell
305,325 shares and have 678,500 shares outstanding. The number of shares
reflected for the benefit plans in the table below assumes the application of
the net proceeds as described under Use of
Proceeds.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares to be Granted or Purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At
Maximum
of
Offering
Range
|
|
As a
Percent of
Common
Stock
Sold at
Maximum
of Range
|
|
As a Percent
of Common
Stock
Outstanding
|
|
Total
Estimated
Value of
Grants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
Employee stock ownership
plan (1)
|
|
|
23,273
|
|
|
7.6
|
%
|
|
3.4
|
%
|
$
|
233
|
|
Restricted stock awards (1)
|
|
|
9,974
|
|
|
3.3
|
|
|
1.5
|
|
|
100
|
|
Stock options (2)
|
|
|
33,247
|
|
|
10.9
|
|
|
4.9
|
|
|
136
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
66,494
|
|
|
21.8
|
%
|
|
9.8
|
%
|
$
|
469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Assumes the value of Auburn
Bancorp, Inc. common stock is $10.00 per share for determining the total
estimated value of the grants.
|
|
|
(2)
|
Assumes the value of a
stock option is $4.08, which was determined using the Black-Scholes
option-pricing formula.
|
Employment
Agreement. We intend to enter into an employment
agreement with Allen T. Sterling,
President and Chief Executive Officer of Auburn Savings Bank, who will also
serve as President and CEO of Auburn Bancorp, Inc., immediately following the
stock offering. The agreement will provide for severance benefits if Mr.
Sterling is terminated without cause, or if he resigns within 90 days after an
event constituting good reason under the agreement, which benefits vary
depending on whether or not the termination occurs within one year following a
change in control. Based solely on estimated taxable compensation and excluding
any benefits that would be payable under any employee benefit plan, if a change
in control of Auburn Bancorp, Inc. occurred and we
terminated Mr. Sterling, the total cash payments due under the employment
agreement would be approximately $190,685.
Tax Consequences (page [ ])
As
a general matter, the reorganization will not be a taxable transaction for
purposes of federal or state income taxes to us or persons who receive or
exercise subscription rights. We have received a federal tax opinion from our
counsel and a state tax opinion from our accountants that we will not recognize
any gain or loss as a result of the reorganization and that it is more likely
than not that members
9
of Auburn
Savings Bank will not realize any income upon the issuance or exercise of the
subscription rights.
Persons Who Can Order Stock in the Offering
(page [ ])
We
have granted rights to subscribe for shares of Auburn Bancorp, Inc. common
stock in a subscription offering to the following persons in the
following order of priority:
|
|
|
|
1.
|
Persons with
deposits at Auburn Savings Bank with balances aggregating $50 or more (qualifying
deposits) as of September 30, 2006 (eligible account holders). For this
purpose, deposit accounts include all savings, time and demand accounts.
|
|
|
|
|
2.
|
Our employee
stock ownership plan.
|
|
|
|
|
3.
|
Persons with
qualifying deposits in Auburn Savings Bank as of March 31, 2008
(supplemental eligible account holders), other than our officers, directors
and their associates.
|
|
|
|
|
4.
|
Depositors
of Auburn Savings Bank as of [ ], 2008, who are not eligible or supplemental
eligible account holders and borrowers as of July 1, 2006 whose loans
continue to be outstanding at [ ], 2008 (other members).
|
If
we receive subscriptions for more shares than are to be sold in this stock
offering, we may be unable to fill or may only partially fill your order.
Shares will be allocated in order of the priorities described above under a
formula outlined in the plan of reorganization and stock issuance plan. Generally,
shares first will be allocated so as to permit each eligible subscriber, if
possible, to purchase a number of shares sufficient to make the subscribers
total allocation equal to 100 shares or the number of shares actually
subscribed for, whichever is less. After that, unallocated shares will be
allocated among the remaining eligible subscribers whose subscriptions remain
unfilled in proportion to the amounts their respective qualifying deposits bear
to the total qualifying deposits of all remaining eligible subscribers whose
subscriptions remain unfilled. If we increase the number of shares to be sold
above 305,325, Auburn Savings Banks employee stock ownership plan will have
the first priority right to purchase any shares exceeding that amount to the
extent that its subscription has not previously been filled. Any shares
remaining will be allocated in the order of priorities described above. See The Reorganization and stock
offeringSubscription
Offering and Subscription Rights for a description of the
allocation procedure.
We
may offer shares not sold in the subscription offering to the general
public in a direct community offering that can begin concurrently with,
during or immediately following the subscription offering. Orders
received in the direct community offering will be subordinate to
subscription offering orders. Natural persons who are residents of
Androscoggin County, Maine will have first preference to purchase shares in the
direct community offering. Shares of common stock not purchased in the
subscription offering or the direct community offering may be
offered for sale through a syndicated community offering managed by
Keefe, Bruyette & Woods, Inc. We have the right to accept or reject, in our
sole discretion, orders we receive in the direct community offering and
syndicated community offering.
Subscription Rights are Not Transferable
You
are not allowed to transfer your subscription rights and we will act to ensure
that you do not do so. You will be required to certify that you are purchasing
shares solely for your own account and that you have no agreement or
understanding with another person to sell or transfer subscription rights or
the shares that you purchase. We will not accept any stock orders that we
believe involve the transfer of
10
subscription
rights. Eligible depositors who enter into
agreements to allow ineligible investors to participate in the subscription
offering may be violating federal and state law and may be subject to
civil enforcement actions or criminal prosecution.
How to Purchase Common Stock (page [ ])
In
the subscription offering and the community offering, you may pay
for your shares by:
|
|
|
|
1.
|
Personal
check, bank check or money order made payable directly to Auburn Bancorp,
Inc. (third-party checks of any type and cash will not be accepted); or
|
|
|
|
|
2.
|
Authorizing
us to withdraw money from your Auburn Savings Bank deposit account(s) other
than checking accounts or individual retirement accounts (IRAs). To use
funds from accounts with check writing privileges, please submit a check. To
use IRA funds, please see the next section.
|
Auburn
Savings Bank is not permitted to lend funds (including funds drawn on a Auburn
Savings Bank line of credit) to anyone for the purpose of purchasing shares of
common stock in the stock offering. Also, payment may not be made by wire
transfer.
Checks
and money orders will be immediately cashed, so the funds must be available
within the account when your stock order form is received by us. Do not
overdraft your account. The funds will be deposited by us into a Auburn Savings
Bank segregated escrow account. We will pay interest at Auburn Savings Banks
passbook savings rate from the date those funds are processed until completion
or termination of the stock offering. Withdrawals from certificates of deposit
at Auburn Savings Bank for the purpose of purchasing common stock in the stock
offering may be made without incurring an early withdrawal penalty. All funds
authorized for withdrawal from deposit accounts with Auburn Savings Bank must
be available within the deposit accounts at the time the stock order form is
received. A hold will be placed on the amount of funds designated on your stock
order form. Those funds will be unavailable to you during the stock offering;
however, the funds will not be withdrawn from the accounts until the stock
offering is completed and will continue to earn interest at the applicable
contractual deposit account rate until the completion of the stock offering.
You
may submit your order form in one of three ways: by mail, using the reply
envelope provided; by overnight courier to the address indicated on the order
form; or by taking the stock order form and payment to either of our offices or
our stock information center, which is located at Auburn Savings Banks
Lewiston office. Once submitted, your order is irrevocable. We are not required
to accept copies or facsimiles of order forms.
Using IRA Funds to Purchase Shares in the
Offering (page [ ])
You
may be able to subscribe for shares of common stock using funds in your
individual retirement account(s), or IRA, provided that such IRAs are not
maintained at Auburn Savings Bank. If you wish to use some or all of the funds
in your Auburn Savings Bank IRA, the applicable funds must first be transferred
to a self-directed account maintained by an unaffiliated institutional trustee
or custodian, such as a brokerage firm. If you do not have such an account, you
will need to establish one and transfer your funds before placing your stock
order. Our stock information center can give you guidance in this regard. Because processing this type of order takes additional
time, we recommend that you contact our stock information center promptly,
preferably at least two weeks before the [ ], 2008 offering deadline.
Whether you may use retirement funds for the purchase of shares in the
11
stock offering
will depend on timing constraints and, possibly, limitations imposed by the
institution where the funds are held.
Purchase Limitations (page [ ])
Our
plan of reorganization and stock issuance plan establishes limitations on the
purchase of stock in the stock offering. These limitations include the
following:
|
|
|
|
|
The minimum
purchase is 25 shares.
|
|
|
|
|
|
No
individual (or individuals exercising subscription rights through a single
deposit account held jointly) may purchase more than $100,000 of common stock
(which equals 10,000 shares) in the stock offering.
|
|
|
|
|
|
No
individual together with any of his or her associates and no group of persons
acting in concert may purchase more than $150,000 of common stock (which
equals 15,000 shares) in the stock offering, or 5% of the common stock sold
in the stock offering (which may be fewer than 15,000 shares under certain
circumstances). For purposes of applying this limitation, your associates
include:
|
|
|
|
|
|
|
O
|
Your spouse,
or any relative of you or your spouse, who either lives in your home or who
is a director or officer of Auburn Savings Bank;
|
|
|
|
|
|
|
O
|
Companies or
other entities in which you are a director, officer or partner or have a 10%
or greater beneficial ownership interest; and
|
|
|
|
|
|
|
O
|
Trusts or
other estates in which you have a substantial beneficial interest or as to
which you serve as a trustee or in another fiduciary capacity.
|
Unless
we determine otherwise, persons having the same address and persons exercising
subscription rights through qualifying deposit accounts registered to the same
address will be subject to this overall purchase limitation. We have the right
to determine, in our sole discretion, whether prospective purchasers are
associates or acting in concert.
Subject
to the Office of Thrift Supervisions approval, we may increase or decrease the
purchase limitations at any time. Our tax-qualified employee benefit plans,
including our employee stock ownership plan, are authorized to purchase up to
10% of the shares issued in the stock offering, not including shares issued to
Auburn Bancorp, MHC, without regard to these purchase limitations.
12
Deadline for Ordering Stock (page [ ])
The
subscription offering will end at 12:00 Noon, Eastern time, on [ ], 2008.
If you wish to purchase shares, a properly completed and signed original stock order
form, together with full payment for the shares of common stock, must be received by us (not postmarked) no later
than this time. We expect that the direct community offering will
terminate at the same time, although it may continue for up to 45 days after
the end of the subscription offering, or longer if regulators approve a
later date. No single extension may be for more than 90 days. If we extend the
offering beyond [ ], 2008, all subscribers will be notified and given the
opportunity to confirm, change or cancel their orders. If you do not respond to
this notice, we will promptly return your funds with interest at our passbook
savings rate or cancel your deposit account withdrawal authorization. If we
intend to sell fewer than 225,675 shares or more than 351,124 shares, we will
promptly return all funds with interest, set a new offering range and all
subscribers will be notified and given the opportunity to confirm, change or
cancel their orders.
13
How We Will Use the Proceeds of this Offering
(page [ ])
The
following table summarizes how we will use the proceeds of this stock offering,
based on the sale of shares at the minimum and maximum of the offering
range.
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Based Upon the Sale at $10.00 Per Share of
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225,675 Shares
(Minimum of Range)
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265,500 Shares
(Midpoint of Range)
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305,325 Shares
(Maximum of Range)
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351,124 Shares
(Maximum of Range,
as adjusted) (1)
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Amount
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Percent of
Net
Proceeds
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|
Amount
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Percent of
Net
Proceeds
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|
Amount
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Percent of
Net
Proceeds
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Amount
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Percent of
Net
Proceeds
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(Dollars in Thousands)
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Gross offering proceeds
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$
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2,257
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$
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2,655
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$
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3,053
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$
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3,511
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Less: offering expenses
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(600
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)
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(600
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)
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(600
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)
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(600
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)
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Net offering proceeds
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1,657
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|
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100.00
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%
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2,055
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|
|
100.00
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%
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2,453
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|
|
100.00
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%
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2,911
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100.00
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%
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Less:
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Proceeds contributed to Auburn Savings
Bank
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(1,032
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)
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(62.29
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)
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(1,430
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)
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(69.59
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)
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(1,828
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)
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|
(74.51
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)
|
|
(2,286
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)
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|
(78.52
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)
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Proceeds used for loan to employee stock ownership
plan
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|
(172
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)
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|
(10.38
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)
|
|
(202
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)
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|
(9.83
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)
|
|
(233
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)
|
|
(9.50
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)
|
|
(268
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)
|
|
(9.21
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)
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Proceeds contributed to Auburn Bancorp,
MHC
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(25
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)
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(1.51
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)
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(25
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)
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(1.22
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)
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(25
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)
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(1.02
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)
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(25
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)
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(0.86
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)
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Proceeds remaining for Auburn Bancorp,
Inc.
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$
|
428
|
|
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25.82
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%
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$
|
398
|
|
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19.37
|
%
|
$
|
367
|
|
|
14.96
|
%
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$
|
332
|
|
|
11.41
|
%
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(1)
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As adjusted
to give effect to a 15% increase in the number of shares outstanding after
the offering that could occur due to an increase in the maximum of the
independent valuation as a result of regulatory considerations, demand for
the shares, or changes in market conditions or general financial and economic
conditions following the commencement of the stock offering.
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Initially,
Auburn Bancorp, Inc. intends to invest the proceeds it retains from the stock
offering in short-term, liquid investments. In the future, we may liquidate our
investments and use those funds to invest in securities, to repurchase shares
of our common stock, subject to regulatory restrictions, and for general
corporate purposes. Auburn Savings Bank initially intends to invest the
proceeds it receives from the stock offering in short-term, liquid investments.
Over time, Auburn Savings 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. Except as described above, neither Auburn Bancorp, Inc. nor Auburn
Savings Bank has any specific plans for the investment of the proceeds of this
stock offering and has not allocated a specific portion of the proceeds to any
particular use.
14
Purchases by Directors and Executive Officers
(page [ ])
We
expect that our directors and executive officers, together with their
associates, will subscribe for [ ] shares, which equals [ ]% of the shares that
would be sold at the maximum of the offering range. Our directors and
executive officers will pay the same $10.00 per share price as everyone else
who purchases shares in the stock offering. Like all of our depositors, our
directors and executive officers have subscription rights based on their
deposits and, in the event of an oversubscription, their orders will be subject
to the allocation provisions set forth in our plan of reorganization and stock
issuance plan. Purchases by our directors and executive officers will count towards
the minimum number of shares we must sell to close the stock offering.
Market for Auburn Bancorp, Inc.s Common
Stock (page [ ])
We
intend to have the common stock of Auburn Bancorp, Inc. quoted on the OTC
Bulletin Board. Keefe, Bruyette & Woods, Inc. currently intends to become a
market maker in the common stock, but it is under no obligation to do so. We
cannot assure you that other market makers will be obtained or that an active
and liquid trading market for our common stock will develop or, if developed,
will be maintained. After shares of the common stock begin trading, you may
contact a stock broker to buy or sell shares. There can be no assurance that
persons purchasing the common stock in the stock offering will be able to sell
their shares at or above the $10.00 offering price, and brokerage firms
typically charge commissions related to the purchase or sale of securities.
Auburn Bancorp, Inc.s Dividend Policy (page
[ ])
We
do not intend to pay cash dividends on the common stock of Auburn Bancorp, Inc.
Our board of directors may decide to pay dividends in the future. Our ability
to pay dividends will depend on a number of factors, including our financial
condition and results of operations, capital requirements, tax considerations,
statutory and regulatory limitations and general economic conditions. Dividends
from Auburn Bancorp, Inc., if any, will depend in large part upon receipt of
dividends from Auburn Savings Bank because Auburn Bancorp, Inc. initially will
have no source of income other than dividends from Auburn Savings Bank,
earnings from the investment of net proceeds from the sale of shares of common
stock retained by Auburn Bancorp, Inc. and interest payments with respect to
Auburn Bancorp, Inc.s loan to the employee stock ownership plan. The ability
of Auburn Savings Bank to dividend funds to Auburn Bancorp, Inc. is subject to
regulatory limitations described in more detail in Dividend Policy. We anticipate that Auburn Bancorp, MHC
will waive receipt of any dividends that we pay.
Possible Conversion of Auburn Bancorp, MHC to
Stock Form (page [ ])
In
the future, we may undertake a transaction commonly known as a second-step conversion
in which we would convert from the mutual holding company form of organization
to the capital stock form of organization. In a second-step conversion, members
of Auburn Bancorp, MHC would have subscription rights to purchase common stock
of Auburn Bancorp, Inc. or its successor, and the public stockholders of Auburn
Bancorp, Inc. would be entitled to exchange their shares of common stock for an
equal percentage of shares of the new holding company. This percentage may be
adjusted to reflect any assets owned by Auburn Bancorp, MHC. Auburn Bancorp,
Inc.s public stockholders, therefore, would own approximately the same
percentage of the resulting entity as they owned before the second-step
conversion. Any second-step conversion would require the approval of the
stockholders of Auburn Bancorp, Inc., other than Auburn Bancorp, MHC, and the
members of Auburn Bancorp, MHC. We have no current plan to undertake a
second-step conversion transaction.
15
Delivery of Prospectus
To ensure that each person receives a prospectus at
least 48 hours before the offering deadline, we may not mail prospectuses
any later than five days prior to such date or hand-deliver prospectuses later
than two days prior to that date. Stock order forms may only be delivered if
accompanied or preceded by a prospectus. We are not obligated to deliver a
prospectus or order form by means other than U.S. mail.
We
will make reasonable attempts to provide a prospectus and offering
materials to holders of subscription rights. The subscription offering
and all subscription rights will expire at 12:00 Noon, Eastern time, on [ ],
2008 whether or not we have been able to locate each person entitled to
subscription rights.
Delivery of Stock Certificates (page [ ])
Certificates
representing shares of common stock issued in the stock offering will be mailed
to purchasers at the address provided on the order form as soon as practicable
following completion of the stock offering and receipt of all necessary
regulatory approvals.
Stock Information Center
If
you have any questions regarding the stock offering, please call the stock
information center at Auburn Savings Banks Lewiston branch to speak to a
registered representative of Keefe, Bruyette & Woods, Inc. The stock
information center is open Monday through Friday from 9:00 a.m. to 5:00 p.m.
Eastern time.
16
RISK
FACTORS
You should consider carefully the following
risk factors before purchasing Auburn Bancorp, Inc. common stock.
Risks Related to Our Business
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. For the six months ended
December 31, 2007, our interest rate spread was 2.39% compared to 2.39% 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 January 30, 2008, the U.S. Federal Reserve decreased its
target for the federal funds rate from 4.25% to 3.00%. 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 Managements
Discussion and Analysis of Financial Condition and Results of
OperationsManagement of Market Risk.
Strong competition within our market area could reduce our
profits and slow growth.
We
face intense competition in making loans, attracting deposits and hiring and retaining experienced employees. 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. 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
metropolitan statistical area of Lewiston-Auburn, Maine. 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
17
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, FSBCompetition.
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, FSBMarket
Area.
A downturn in real estate values could reduce our profits.
At
December 31, 2007, $31.4 million, or 57.3%, 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
December 31, 2007, our loan portfolio consisted of $8.9 million, or
16.2%, of commercial mortgage loans, $1.4 million, or 2.6%, of commercial
business loans and $2.4 million, or 4.3%, of construction loans. 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
propertys 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 borrowers ability to
make repayments from the cash flow of the borrowers 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, FSBLending Activities.
18
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
0.56% of total loans at December 31, 2007, 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.
19
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. In connection with the reorganization and stock offering, we will
enter into an employment agreement with Mr. Sterling. For a discussion of the
terms of the employment agreement, see ManagementProposed Employment Agreement.
Risks Related to this Offering
We expect there to be a limited market for our common stock,
which may adversely affect our stock price.
Although
we intend to have our shares of common stock quoted on the OTC Bulletin Board,
there is no guarantee that the shares will be actively traded. If an active
trading market for our common stock does not develop, you may not be able to
sell your shares of common stock on short notice and the sale of a large number
of shares at one time could temporarily depress the market price. There also
may be a wide spread between the bid and asked price for our common stock. When
there is a wide spread between the bid and asked price, the price at which you
may be able to sell our common stock may be significantly lower than the price
at which you could buy it at that time.
Our stock price may decline when trading commences.
We
cannot guarantee that if you purchase shares in the stock offering that you
will be able to sell them at or above the $10.00 purchase price. After the shares of our common stock begin
trading, the trading price of the common stock will be determined by the
marketplace and will be influenced by many factors outside of our control, including prevailing interest rates, investor
perceptions, securities analyst research reports and general industry,
geopolitical and economic conditions. Publicly traded stocks, including stocks
of financial institutions, often experience substantial market price
volatility. These market fluctuations may not be related to the operating
performance of particular companies whose shares are traded.
Additional expenses following the stock offering from new
equity benefit plans will adversely affect our profitability.
Following
the reorganization and stock offering, we will recognize additional annual
employee compensation expenses stemming from options and shares granted to
employees, directors and executives under new benefit plans. These additional
expenses will adversely affect our profitability. We cannot determine the
actual amount of these new stock-related compensation expenses at this time
because applicable accounting practices generally require that they be based on the fair market value of the
options or shares of common stock at the date of the grant; however, we expect
them to be material. We will recognize expenses for our employee stock
ownership plan when shares are committed to be released to participants
accounts and will recognize expenses for restricted stock awards and stock
options over the vesting period of awards made to recipients. The pro forma
benefit expenses for the year ended June 30, 2007 have been estimated to be
approximately $48,000 at the maximum of the offering range, as set forth
in the pro forma financial information under Pro
Forma Data, assuming the $10.00 per share purchase price as fair
market value. Actual expenses, however, may be higher or lower, depending on
the
20
price of our common stock,
the number of shares awarded under the plans and the timing of the implementation
of the plans. For further discussion of these plans, see ManagementBenefit Plans.
We will need to implement additional finance and accounting
systems, procedures and controls in order to satisfy our new public company
reporting requirements, which will increase our operating expenses.
As
a result of the completion of this stock offering, we will become a public
reporting company. The federal securities laws and the regulations of the Securities and
Exchange Commission require that we file annual, quarterly and current reports
and that we maintain effective disclosure controls and procedures and internal
controls over financial reporting. We expect that the obligations of being a
public company, including substantial public reporting obligations, will
require significant expenditures and place additional demands on our management
team. Compliance with the Sarbanes-Oxley Act of 2002 and the related rules and
regulations of the Securities and Exchange Commission will require us to
certify the adequacy of our internal controls and procedures, which will
require us to upgrade our accounting systems. These reporting and compliance
obligations will increase our operating expenses and could divert our
managements attention from our operations.
Our return on equity will initially be low compared to other
publicly traded financial institutions. A low return on equity may negatively
impact the trading price of our common stock.
Net
income divided by average equity, known as return on equity, is a ratio used
by many investors to compare the performance of a financial institution with
its peers. For the fiscal year ended June 30, 2007, our return on equity was
2.77%. Although we expect that our net income will increase following the
reorganization and stock offering, we expect that our return on equity will be reduced as a result of
the additional capital that we will raise in the stock offering. For example,
our annualized pro forma return on average equity for the twelve months ended
December 31, 2007 is 1.90%, assuming the sale of shares at the maximum of the
offering range. In comparison, the peer group used by Keller &
Company in its appraisal had an average return on equity of 3.01% for the
twelve months ended December 31, 2007, the latest date for which data is
available. Over time, we intend to use the net proceeds from this stock
offering to increase earnings per share and book value per share, without
assuming undue risk, with the goal of achieving a return on equity that is competitive
with other publicly held companies. This goal could take a number of years to
achieve, and we cannot assure you that it will be attained. Consequently, you
should not expect a competitive return on equity in the near future. Failure to
achieve a competitive return on equity might make an investment in our common
stock unattractive to some investors and might cause our common stock to trade
at lower prices than comparable companies with higher returns on equity. See Pro Forma Data for an illustration of
the
financial impact of this stock offering.
Our failure to utilize effectively the proceeds of the stock
offering would reduce our profitability.
We
have broad discretion in investing the proceeds of the stock offering. At the maximum of the
offering range, we intend to contribute approximately 74.5% of the net proceeds
of the stock offering to Auburn Savings Bank. We expect to use a portion of the
net proceeds to fund the purchase by our employee stock ownership plan of
shares in the stock offering and $25,000 of the net proceeds to capitalize
Auburn Bancorp, MHC. We may use the remaining net proceeds that we retain to,
among other things, invest in securities, pay cash dividends or repurchase
shares of common stock, subject to regulatory restrictions. Auburn Savings Bank
may use the portion of the proceeds that it receives to fund new loans, invest in securities and expand its business
activities. Auburn Bancorp, Inc. and Auburn Savings Bank may also use the
proceeds of the stock offering to diversify their businesses and acquire other
companies, although we have no specific plans to do so at this time. We have
not allocated specific
21
amounts of
proceeds for any of these purposes, and we will have significant flexibility in
determining how much of the net proceeds we apply to different uses and the
timing of such applications.
Issuance of shares for benefit programs may
dilute your ownership interest.
We
intend to adopt an equity incentive plan following the stock offering. If
stockholders approve the new equity incentive plan, we intend to issue shares
to our officers and directors through this plan. We may fund the equity
incentive plan through the purchase of common stock in the open market, subject
to regulatory restrictions, by a trust established in connection with the plan or
from authorized but unissued shares of Auburn Bancorp, Inc. common stock. If
the restricted stock awards under the equity incentive plan are funded from
authorized but unissued stock, your ownership interest in the shares could be
diluted by up to approximately 1.4%, assuming awards of common stock equal to
1.47% of the shares issued in the stock offering, including shares issued to
Auburn Bancorp, MHC, are awarded under the plan. If the shares issued upon the
exercise of stock options under the equity incentive plan are issued from
authorized but unissued stock, your ownership interest in the shares could be
diluted by up to approximately 4.7%, assuming stock option grants equal to 4.9%
of the shares issued in the stock offering, including shares issued to Auburn
Bancorp, MHC, are granted under the plan. See Pro
Forma Data and ManagementBenefit
PlansFuture Equity Incentive Plan.
Auburn Bancorp, MHCs majority control of our
common stock will enable it to exercise voting control over most matters put to
a vote of stockholders and will prevent stockholders from forcing a sale or a
second-step conversion transaction you may find advantageous.
Auburn
Bancorp, MHC will own a majority of Auburn Bancorp, Inc.s common stock after
the reorganization and stock offering and, through its board of directors, will
be able to exercise voting control over most matters put to a vote of
stockholders. The same directors and officers who will manage Auburn Bancorp,
Inc. and Auburn Savings Bank will also manage Auburn Bancorp, MHC. As a
federally-chartered mutual holding company, the board of directors of Auburn
Bancorp, MHC must ensure that the interests of depositors of Auburn Savings
Bank are represented and considered in matters put to a vote of stockholders of
Auburn Bancorp, Inc. Therefore, the votes cast by Auburn Bancorp, MHC may not
be in your personal best interests as a stockholder. For example, Auburn
Bancorp, MHC may exercise its voting control to defeat a stockholder nominee
for election to the board of directors of Auburn Bancorp, Inc. Auburn Bancorp,
MHCs ability to control the outcome of the election of the board of directors
of Auburn Bancorp, Inc. restricts the ability of minority stockholders to
effect a change of management. In addition, stockholders will not be able to
force a merger or second-step conversion transaction without the consent of
Auburn Bancorp, MHC, as such transactions require the approval of at least
two-thirds of all outstanding voting stock, which can only be achieved if Auburn
Bancorp, MHC voted to approve such transactions. Some stockholders may desire a
sale or merger transaction, since stockholders typically receive a premium for
their shares, or a second-step conversion transaction, since fully converted
institutions tend to trade at higher multiples than mutual holding companies.
While Auburn Bancorp, MHC could defeat such measures, it will not be able to
force approval of second-step transactions and implementation of equity
incentive plans, each of which require, under current Office of Thrift
Supervision regulations and policies, approval by the stockholders other than
Auburn Bancorp, MHC.
Office of Thrift Supervision regulations and
anti-takeover provisions in our charter restrict the accumulation of our common
stock, which may adversely affect our stock price.
Office
of Thrift Supervision regulations provide that, for a period of three years
following the date of the completion of the stock offering, no person, acting
alone, together with associates or in a
22
group of
persons acting in concert, will directly or indirectly offer to acquire or
acquire the beneficial ownership of more than 10% of our common stock without
the prior written approval of the Office of Thrift Supervision. In addition,
Auburn Bancorp, Inc.s charter provides that, for a period of five years from
the date of the stock offering, no person, other than Auburn Bancorp, MHC, may
acquire directly or indirectly the beneficial ownership of more than 10% of any
class of any equity security of Auburn Bancorp, Inc. In the event a person
acquires shares in violation of this charter provision, all shares beneficially
owned by such person in excess of 10% will be considered excess shares and
will not be counted as shares entitled to vote or counted as voting shares in
connection with any matters submitted to the stockholders for a vote. These
restrictions make it more difficult and less attractive for stockholders to
acquire a significant amount of our common stock, which may adversely affect
our stock price.
23
FORWARD-LOOKING STATEMENTS
This
prospectus contains a number of forward-looking statements regarding the
financial condition, results of operations, earnings outlook, and business
prospects of Auburn Bancorp, Inc. You can find many of these statements by
looking for words such as expects, projects, anticipates, believes,
intends, estimates, strategy, plan, potential, possible and
other
similar expressions. Forward-looking statements include:
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statements of
our goals, intentions and expectations;
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statements
regarding our business plans, prospects, growth and operating strategies;
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statements
regarding the quality of our loan and investment portfolios; and
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estimates of
our risks and future costs and benefits.
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The
forward-looking statements involve significant risks and uncertainties. Actual
results may differ materially from those expressed in, or implied by, the
forward-looking statements due to, among others, the factors discussed under Risk Factors as well as the
following:
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changes in
the interest rate environment that reduce our interest margins or reduce the
fair value of financial instruments;
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competitive
pressures among financial services companies in our market area;
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general
economic conditions, either nationally or in our market area, that are worse
than expected;
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increased
lending risks associated with increased commercial and construction lending;
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legislative
or regulatory changes that adversely affect our business;
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changes in
consumer spending, borrowing and savings habits;
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adverse
changes in the securities markets; and
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changes in
accounting policies and practices, as may be adopted by Auburn Savings Bank,
regulatory agencies, the Financial Accounting Standards Board or the Public
Company Accounting Oversight Board.
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Any
of the forward-looking statements that we make in this prospectus and in other
public statements we make may later prove incorrect because of inaccurate
assumptions, the factors illustrated above or other factors that we cannot
foresee. Because of these and other uncertainties, no forward-looking statement
can be guaranteed, and you should not rely on such statement. Except to the
extent required by applicable law or regulation, Auburn Bancorp, Inc.
undertakes no obligation to update these forward-looking statements to reflect
events or circumstances after the date of this document or to reflect the
occurrence of unanticipated events.
24
SELECTED FINANCIAL AND OTHER DATA
The
summary financial information presented below is derived in part from our
financial statements. The following is only a summary and you should read it in
conjunction with the financial statements and notes beginning on page F-1. The
information at June 30, 2007 and 2006 and for the fiscal years ended June 30,
2007 and 2006 is derived in part from the audited financial statements that
appear in this prospectus. The information at December 31, 2007 and for the six
months ended December 31, 2007 and 2006 was not audited, but in the opinion of
management, reflects all adjustments necessary for a fair presentation. All of
these adjustments are normal and recurring. The results of operations for the
six months ended December 31, 2007 are not necessarily indicative of the
results of operations that may be expected for the entire year.
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At December 31,
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At June 30,
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2007
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2007
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2006
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(Dollars in Thousands)
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Selected
Financial Condition Data:
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Total assets
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$
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63,458
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$
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62,404
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$
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64,170
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Cash and cash equivalents
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1,858
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3,413
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2,638
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Loans, net
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54,475
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52,799
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53,849
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Total investments and certificates of deposit
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1,707
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2,365
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3,455
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Deposits
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44,991
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44,879
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45,009
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Borrowings
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13,650
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12,900
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14,750
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Total capital
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4,481
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4,350
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4,163
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For the Six Months
Ended
December 31,
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For the Fiscal Years
Ended
June 30,
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2007
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2006
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2007
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2006
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|
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(Dollars in Thousands)
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Selected Operating Data:
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Interest and dividend income
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$
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2,023
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$
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1,953
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$
|
3,908
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$
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3,465
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Interest expense
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1,223
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|
|
1,161
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2,339
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|
1,910
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|
|
|
|
|
|
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|
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|
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Net interest income
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|
800
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792
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1,569
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1,555
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Provision for (recovery of) loan losses
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(7
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)
|
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18
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|
|
34
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|
|
62
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|
|
|
|
|
|
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|
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|
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Net interest income after provision for (recovery
of) loan losses
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807
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|
774
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|
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1,535
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|
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1,493
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Non-interest income
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|
|
68
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|
|
36
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|
|
90
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|
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86
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Gain on sales of securities and loans, net
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9
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|
|
16
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|
|
22
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|
|
(3
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)
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Non-interest expense
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|
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764
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|
|
727
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1,477
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|
|
1,414
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|
|
|
|
|
|
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|
|
|
|
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Income before income tax expense
|
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|
120
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|
|
99
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|
|
170
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|
|
162
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|
Income tax expense
|
|
|
36
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|
|
30
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|
|
50
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|
|
36
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|
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Net income
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$
|
84
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$
|
69
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$
|
120
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$
|
126
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25
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For the Six Months Ended
December 31,
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For the Years Ended
June 30,
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2007
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2006
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2007
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2006
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Selected Ratios and Other Data:
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Performance Ratios (1):
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Return on assets (ratio of net income to
average total assets)
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0.27
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%
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0.22
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%
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0.19
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%
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0.21
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%
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Return on equity (ratio of net income to
average equity)
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3.73
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%
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3.21
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%
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|
2.77
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%
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3.01
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%
|
Interest rate spread (2)
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2.39
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%
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2.40
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%
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2.39
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%
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2.50
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%
|
Net interest margin (3)
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2.68
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%
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2.68
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%
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2.67
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%
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2.73
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%
|
Efficiency ratio (4)
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87.18
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%
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86.10
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%
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87.86
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%
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86.34
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%
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Non-interest expense to average total
assets
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2.43
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%
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2.32
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%
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|
2.38
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%
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2.33
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%
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Average interest-earning assets to average
interest bearing liabilities
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107.13
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%
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107.04
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%
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107.24
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%
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106.95
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%
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|
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|
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|
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Asset Quality Ratios:
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Non-performing assets to total assets
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0.20
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%
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0.00
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%
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0.00
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%
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0.15
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%
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Non-performing loans to total loans
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0.00
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%
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0.00
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%
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0.00
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%
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|
0.18
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%
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Allowance for loan losses to non-performing
loans
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NM
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|
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NM
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NM
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|
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NM
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Allowance for loan losses to total loans
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|
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0.56
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%
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|
0.58
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%
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|
0.60
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%
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0.54
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%
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|
|
|
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|
|
|
|
|
|
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Capital Ratios:
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Tier 1 capital (to adjusted assets)
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7.09
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%
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|
6.93
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%
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|
6.98
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%
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6.54
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%
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Tier 1 capital (to risk-weighted assets)
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11.15
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%
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11.03
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%
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|
11.29
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%
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|
10.38
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%
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Total risk-based capital (to risk weighted
assets)
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|
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11.97
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%
|
|
11.89
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%
|
|
12.17
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%
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11.16
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%
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|
|
|
|
|
|
|
|
|
|
|
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|
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Other Data:
|
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|
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|
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|
|
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Number of offices
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2
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2
|
|
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2
|
|
|
2
|
|
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(1)
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Ratios for
the six-month periods ending December 31, 2007 and December 31, 2006 have
been annualized.
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(2)
|
Represents
the difference between the weighted-average yield on interest-earning assets
and the weighted average cost of interest-bearing liabilities for the period.
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|
(3)
|
Represents
net interest income as a percent of average interest-earning assets for the
period.
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(4)
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Represents
non-interest expense for the period divided by the sum of net interest income
(before the loan loss provision) and non-interest income.
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26
USE
OF PROCEEDS
The
following table shows how we intend to use the net proceeds of the stock
offering. The actual net proceeds will depend on the number of shares of common
stock sold in the stock offering and the expenses incurred in connection with
the stock offering. Payments for shares made through withdrawals from deposit
accounts at Auburn Savings Bank will reduce Auburn Savings Banks deposits and
will not result in the receipt of new funds for investment. See Pro Forma Data for the assumptions used
to arrive at these amounts.
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Based Upon the Sale at $10.00 Per Share of
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225,675 Shares
(Minimum of Range)
|
|
265,500 Shares
(Midpoint of Range)
|
|
305,325 Shares
Maximum of Range
|
|
351,124 Shares (1)
(Maximum of Range,
|
|
|
|
|
|
|
|
|
|
as adjusted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Percent
of Net
Proceeds
|
|
Amount
|
|
Percent
of Net
Proceeds
|
|
Amount
|
|
Percent
of Net
Proceeds
|
|
Amount
|
|
Percent
of Net
Proceeds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Gross offering proceeds
|
|
$
|
2,257
|
|
|
|
|
$
|
2,655
|
|
|
|
|
$
|
3,053
|
|
|
|
|
$
|
3,511
|
|
|
|
|
Less: offering expenses
|
|
|
(600
|
)
|
|
|
|
|
(600
|
)
|
|
|
|
|
(600
|
)
|
|
|
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net offering proceeds
|
|
|
1,657
|
|
|
100.00
|
%
|
|
2,055
|
|
|
100.00
|
%
|
|
2,453
|
|
|
100.00
|
%
|
|
2,911
|
|
|
100.00
|
%
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds contributed to Auburn Savings
Bank
|
|
|
(1,032
|
)
|
|
(62.29
|
)
|
|
(1,430
|
)
|
|
(69.59
|
)
|
|
(1,828
|
)
|
|
(74.51
|
)
|
|
(2,286
|
)
|
|
(78.52
|
)
|
Proceeds used for loan to employee stock ownership
plan
|
|
|
(172
|
)
|
|
(10.38
|
)
|
|
(202
|
)
|
|
(9.83
|
)
|
|
(233
|
)
|
|
(9.50
|
)
|
|
(268
|
)
|
|
(9.21
|
)
|
Proceeds contributed to Auburn Bancorp,
MHC
|
|
|
(25
|
)
|
|
(1.51
|
)
|
|
(25
|
)
|
|
(1.22
|
)
|
|
(25
|
)
|
|
(1.02
|
)
|
|
(25
|
)
|
|
(0.86
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds remaining for Auburn Bancorp,
Inc.
|
|
$
|
428
|
|
|
25.82
|
%
|
$
|
398
|
|
|
19.37
|
%
|
$
|
367
|
|
|
14.96
|
%
|
$
|
332
|
|
|
11.41
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As adjusted
to give effect to a 15% increase in the number of shares outstanding after
the stock offering that could occur due to an increase in the maximum of the
independent valuation as a result of regulatory considerations, demand for
the shares or changes in market conditions or general financial and economic
conditions following the commencement of the stock offering.
|
Auburn
Bancorp, Inc. intends to invest the proceeds it retains from the stock offering
initially in short-term, liquid investments. In addition, Auburn Bancorp, Inc.
intends to use a portion of the net proceeds to fund a loan to the employee
stock ownership plan to purchase shares of common stock in the stock offering
and $25,000 of the net proceeds to capitalize Auburn Bancorp, MHC.
In
the future, Auburn Bancorp, Inc. may also use the proceeds we retain 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.
27
Auburn
Savings Bank intends to invest the proceeds it receives from the stock
offering, which are shown in the table above as proceeds contributed to Auburn
Savings Bank, initially in short-term, liquid investments.
Over
time, Auburn Savings 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.
|
Our
expected primary use of the stock offering proceeds is to fund loan growth,
with continued emphasis on commercial real estate and one- to-four family
mortgage lending. Our ability to deploy stock offering proceeds in assets that
typically have higher yields than short-term securities will depend, in part,
on factors outside of our control, such as loan demand, local competition,
national, regional and local economic conditions, and the interest rate
environment. Accordingly, we can give no assurances that we will be able to
deploy stock offering proceeds in assets that have higher yields than
short-term securities.
Except
as described above, neither Auburn Bancorp, Inc. nor Auburn Savings Bank has
any specific plans for the investment of the proceeds of this stock offering
and has not allocated a specific portion of the proceeds to any particular use.
For a discussion of our business reasons for undertaking the stock offering,
see The Reorganization and OfferingReasons
for the Reorganization and Offering.
DIVIDEND
POLICY
In
order to retain capital to support the continued growth of Auburn Savings Bank,
we do not intend to pay cash dividends on the common stock of Auburn Bancorp,
Inc. Our board of directors may decide to pay dividends in the future. In
determining 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. Auburn Bancorp, Inc. intends to file consolidated
tax returns with Auburn Savings Bank. Accordingly, it is anticipated that any
cash distributions made by Auburn Bancorp, Inc. to its stockholders would be
treated as cash dividends and not as a non-taxable return of capital for
federal and state tax purposes. See Federal
and State Taxation.
Dividends
from Auburn Bancorp, Inc., if any, will depend, primarily, upon receipt of
dividends from Auburn Savings Bank because Auburn Bancorp, Inc. initially will
have no source of income other than dividends from Auburn Savings Bank,
earnings from the investment of net proceeds from the sale of shares of common
stock retained by Auburn Bancorp, Inc. and interest payments with respect to
Auburn Bancorp, Inc.s loan to the employee stock ownership plan. A regulation
of the Office of Thrift Supervision imposes limitations on capital
distributions by savings institutions. See Regulation
and SupervisionRegulation of Federal Savings AssociationsLimitation on Capital
Distributions.
Auburn
Bancorp, Inc. currently has no intention to initiate any action that leads to a
return of capital (as distinguished from a dividend) to stockholders of Auburn
Bancorp, Inc. Regulations of the
28
Office of
Thrift Supervision prohibit a return of capital during the three-year term of
the business plan submitted by Auburn Savings Bank to the Office of Thrift
Supervision in connection with the conversion.
If
Auburn Bancorp, Inc. pays dividends to its stockholders, it also will be
required to pay dividends to Auburn Bancorp, MHC, unless Auburn Bancorp, MHC
elects to waive the receipt of dividends. We anticipate that Auburn Bancorp,
MHC will waive any dividends that Auburn Bancorp, Inc. may pay. Any decision to
waive dividends will be subject to the non-objection of the Office of Thrift
Supervision. See Regulation and
SupervisionHolding Company RegulationWaivers of Dividends by Auburn Bancorp,
MHC.
MARKET
FOR THE COMMON STOCK
We
have not previously issued common stock, and there is currently no established
market for the common stock. Upon completion of the reorganization and stock
offering, we expect that our shares of common stock will be quoted on the OTC
Bulletin Board. Keefe, Bruyette & Woods, Inc. intends to become a
market maker in our common stock following the stock offering, but it is under
no obligation to do so. We cannot assure you that other market makers will be
obtained or that an active and liquid trading market for the common stock will
develop or, if developed, will be maintained.
The
development of a public market having the desirable characteristics of depth,
liquidity and orderliness depends on the existence of willing buyers and
sellers, the presence of which is not within our control or that of any market
maker. The number of active buyers and sellers of our common stock at any
particular time may be limited, which may have an adverse effect on the price at which our common stock can
be sold. There can be no assurance that persons purchasing the common stock will be able to sell their
shares at or above the $10.00 price per share in the stock offering. Purchasers
of our common stock should have a long-term investment intent and should
recognize that there may be a limited trading market in the common stock.
29
CAPITALIZATION
The
following table presents the historical capitalization of Auburn Savings Bank
at December 31, 2007 and the pro forma capitalization of Auburn Bancorp,
Inc. after giving effect to the stock offering. The pro forma capitalization
gives effect to the assumptions listed under Pro
Forma Data based on the sale of the number of shares of common
stock indicated in the table. A change in the number of shares to be issued in
the stock offering may materially affect pro forma capitalization. We are
offering our common stock on a best efforts basis. We must sell a minimum of
225,675 shares to complete the stock offering.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Capitalization at December 31, 2007
Based Upon the Sale of Shares at $10.00 Per Share
|
|
|
|
Auburn
|
|
|
|
|
|
Savings Bank,
FSB
Historical at
December 31,
2007
|
|
225,675
Shares
(Minimum of
Range)
|
|
265,500
Shares
(Midpoint
of Range)
|
|
305,325
Shares
(Maximum
of Range)
|
|
351,124
Shares
(Maximum of
Range, as
Adjusted)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Deposits (2)
|
|
$
|
44,991
|
|
$
|
44,991
|
|
$
|
44,991
|
|
$
|
44,991
|
|
$
|
44,991
|
|
Borrowings
|
|
|
13,650
|
|
|
13,650
|
|
|
13,650
|
|
|
13,650
|
|
|
13,650
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits and borrowed funds
|
|
$
|
58,641
|
|
$
|
58,641
|
|
$
|
58,641
|
|
$
|
58,641
|
|
$
|
58,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000 shares, $0.01 par value per share,
authorized; none issued
or outstanding
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000,000 shares, $0.01 par value per share,
authorized; specified
number of shares assumed to be issued and outstanding (3)
|
|
|
|
|
|
5
|
|
|
6
|
|
|
7
|
|
|
8
|
|
Additional paid-in capital (3)
|
|
|
|
|
|
1,652
|
|
|
2,049
|
|
|
2,446
|
|
|
2,903
|
|
Retained earnings (4)
|
|
|
4,499
|
|
|
4,499
|
|
|
4,499
|
|
|
4,499
|
|
|
4,499
|
|
Accumulated other comprehensive income
|
|
|
(18
|
)
|
|
(18
|
)
|
|
(18
|
)
|
|
(18
|
)
|
|
(18
|
)
|
Less
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalization of Auburn Bancorp, MHC
|
|
|
|
|
|
25
|
|
|
25
|
|
|
25
|
|
|
25
|
|
Common Stock acquired by employee stock ownership
plan (5)
|
|
|
|
|
|
172
|
|
|
202
|
|
|
233
|
|
|
268
|
|
Common stock to be acquired by equity incentive plan
(6)
|
|
|
|
|
|
74
|
|
|
87
|
|
|
100
|
|
|
115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
$
|
4,481
|
|
$
|
5,867
|
|
$
|
6,222
|
|
$
|
6,576
|
|
$
|
6,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total pro forma stockholders equity as a percentage of pro forma
total assets (2)(7)
|
|
|
7.06
|
%
|
|
9.04
|
%
|
|
9.54
|
%
|
|
10.03
|
%
|
|
10.59
|
%
|
|
|
|
(1)
|
As adjusted
to give effect to a 15% increase in the number of shares outstanding after
the stock offering that could occur due to an increase in the maximum of the
independent valuation as a result of regulatory considerations, demand for
the shares or changes in market conditions or general financial and economic
conditions following the commencement of the stock offering.
|
|
|
(2)
|
Does not
reflect withdrawals from deposit accounts for the purchase of common stock in
the stock offering. These withdrawals to purchase common stock will reduce
pro forma deposits and assets by the amounts of the withdrawals.
|
|
|
(3)
|
Reflects
total issued and outstanding shares of 501,500, 590,000, 678,500 and 780,275
at the minimum, midpoint, maximum and adjusted maximum of the offering
range, respectively. No effect has been given to the issuance of additional
shares of common stock pursuant to stock options to be grated under an equity
incentive plan. We intend to adopt an equity incentive plan and to submit
such plan to stockholders at a meeting of stockholders to be held at least
six months following completion of the reorganization and stock offering. If
the plan is approved by stockholders, an amount of shares of common stock
equal to 4.9% of the aggregate shares of common stock to be outstanding after
the reorganization and stock offering will be reserved for future issuance
under the plan. See Pro Forma Data
and Management-Benefit Plans
Future Equity Incentive Plan.
|
|
|
(4)
|
Retained
earnings are restricted by applicable regulatory capital requirements. Auburn
Bancorp, MHC will have an initial capitalization of $25,000.
|
|
|
(5)
|
Assumes that
3.43% of the aggregate shares of common stock to be outstanding after the
reorganization and stock offering (including shares issued to Auburn Bancorp,
MHC) will be acquired by the employee stock ownership plan with funds
borrowed from Auburn Bancorp, Inc. Under accounting principles generally
accepted in the United States, the amount of common stock to be purchased by
the employee stock ownership plan represents unearned compensation and is,
accordingly, reflected as a reduction of stockholders equity. As shares are
released to plan participants accounts, a corresponding reduction in the
charge against stockholders equity will occur. Since the funds are borrowed
from Auburn Bancorp, Inc., the borrowing will be
|
30
|
|
|
eliminated
in consolidation and no liability or interest expense will be reflected in
the financial statements of Auburn Bancorp, Inc. See Pro Forma Data and Management Benefit Plans
Employee Stock
Ownership Plan.
|
|
|
(6)
|
Gives effect
to the equity incentive plan expected to be adopted following the
reorganization and stock offering. Assumes the purchase in the open market at
$10.00 per share, for restricted stock awards under the proposed equity
incentive plan, of a number of shares equal to 1.47% of the aggregate shares
of common stock to be outstanding after the reorganization and stock offering
(including shares issued to Auburn Bancorp, MHC). The shares are reflected as
a reduction of stockholders equity. The equity incentive plan will be
submitted to stockholders for approval at a meeting following the stock
offering. See Pro Forma Data
and Management Benefit Plans Future
Equity Incentive Plan.
|
|
|
(7)
|
The
equity-to-assets ratio was calculated by using the pro forma stockholders
equity, as provided above, and the pro forma assets of $64.9 million, $65.2
million, $65.6 million and $66.0 million at the minimum, midpoint, maximum
and adjusted maximum of the offering range, respectively.
|
31
REGULATORY
CAPITAL COMPLIANCE
The
following table presents Auburn Savings Banks capital position relative to its
regulatory capital requirements at December 31, 2007, on a historical and a pro
forma basis, after giving effect to the reorganization and stock offering,
based upon the sale of the indicated number of shares of common stock at $10.00
per share. For a discussion of the assumptions underlying the pro forma capital
calculations presented below, see Use of Proceeds,
Capitalization and Pro Forma Data. The definitions of the
terms used in the table are those provided in the capital regulations issued by
the Office of Thrift Supervision. For a discussion of the capital standards
applicable to Auburn Savings Bank, see Regulation and SupervisionRegulation of Federal
Savings AssociationsCapital Requirements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma at December 31, 2007 Based Upon Sale at $10.00
Per Share
|
|
|
|
|
|
|
|
|
|
Auburn Savings
Bank, FSB
Historical at
December 31, 2007
|
|
225,675 Shares (Minimum of Range)
|
|
265,500 Shares (Midpoint of Range)
|
|
305,325 Shares (Maximum of Range)
|
|
351,124 Shares (Maximum of Range, As Adjusted)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Percent
of
Assets (2)
|
|
Amount
|
|
Percent of Assets(2)
|
|
Amount
|
|
Percent of
Assets (2)
|
|
Amount
|
|
Percent
of
Assets (2)
|
|
Amount
|
|
Percent
of
Assets (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
GAAP capital
|
|
$
|
4,481
|
|
|
7.1
|
%
|
$
|
5,341
|
|
|
8.3
|
%
|
$
|
5,709
|
|
|
8.8
|
%
|
$
|
6,076
|
|
|
9.3
|
%
|
$
|
6,499
|
|
|
9.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to adjusted total assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital level
|
|
|
4,504
|
|
|
7.1
|
|
|
5,364
|
|
|
8.3
|
|
|
5,732
|
|
|
8.8
|
|
|
6,099
|
|
|
9.4
|
|
|
6,522
|
|
|
9.9
|
|
Requirement
|
|
|
3,174
|
|
|
5.0
|
|
|
3,221
|
|
|
5.0
|
|
|
3,240
|
|
|
5.0
|
|
|
3,259
|
|
|
5.0
|
|
|
3,281
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
|
|
$
|
1,330
|
|
|
2.1
|
%
|
$
|
2,143
|
|
|
3.3
|
%
|
$
|
2,492
|
|
|
3.8
|
%
|
$
|
2,840
|
|
|
4.4
|
%
|
$
|
3,241
|
|
|
4.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to risk-weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital level
|
|
|
4,504
|
|
|
11.2
|
|
|
5,364
|
|
|
14.0
|
|
|
5,732
|
|
|
15.0
|
|
|
6,099
|
|
|
15.9
|
|
|
6,522
|
|
|
16.9
|
|
Requirement
|
|
|
2,284
|
|
|
6.0
|
|
|
2,295
|
|
|
6.0
|
|
|
2,300
|
|
|
6.0
|
|
|
2,304
|
|
|
6.0
|
|
|
2,310
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
|
|
$
|
2,220
|
|
|
5.2
|
%
|
$
|
3,069
|
|
|
8.0
|
%
|
$
|
3,432
|
|
|
9.0
|
%
|
$
|
3,795
|
|
|
9.9
|
%
|
$
|
4,212
|
|
|
10.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk-weighted assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital level (3)
|
|
|
4,554
|
|
|
12.0
|
|
|
5,414
|
|
|
14.2
|
|
|
5,782
|
|
|
15.1
|
|
|
6,149
|
|
|
16.0
|
|
|
6,572
|
|
|
17.1
|
|
Requirement
|
|
|
3,806
|
|
|
10.0
|
|
|
3,825
|
|
|
10.0
|
|
|
3,833
|
|
|
10.0
|
|
|
3,841
|
|
|
10.0
|
|
|
3,849
|
|
|
10.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excess
|
|
$
|
748
|
|
|
2.0
|
%
|
$
|
1,589
|
|
|
4.2
|
%
|
$
|
1,949
|
|
|
5.1
|
%
|
$
|
2,308
|
|
|
6.0
|
%
|
$
|
2,723
|
|
|
7.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of capital contributed to Auburn
Savings Bank:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds of offering
|
|
|
|
|
|
|
|
$
|
1,657
|
|
|
|
|
$
|
2,055
|
|
|
|
|
$
|
2,453
|
|
|
|
|
$
|
2,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds contributed to
Auburn Savings Bank
|
|
|
|
|
|
|
|
$
|
1,032
|
|
|
|
|
$
|
1,430
|
|
|
|
|
$
|
1,828
|
|
|
|
|
$
|
2,286
|
|
|
|
|
Less: common stock acquired by employee stock ownership
plan
|
|
|
|
|
|
|
|
|
(172
|
)
|
|
|
|
|
(202
|
)
|
|
|
|
|
(233
|
)
|
|
|
|
|
(268
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma increase in GAAP and regulatory capital
|
|
|
|
|
|
|
|
$
|
860
|
|
|
|
|
$
|
1,228
|
|
|
|
|
$
|
1,595
|
|
|
|
|
$
|
2,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
As adjusted to give effect to a 15% increase in the number of shares
outstanding after the stock offering that could occur due to an increase in
the maximum of the independent valuation as a result of regulatory considerations,
demand for the shares or changes in market conditions or general financial
and economic conditions following the commencement of the stock offering.
|
|
(2)
|
Shown as a
percentage of total assets under generally accepted accounting principles
(GAAP) in the United States of America, adjusted total assets, or adjusted
total risk-weighted assets, as appropriate.
|
|
(3)
|
Pro forma
amounts and percentages assume net proceeds are invested in assets that carry
a 20% risk-weighting.
|
32
PRO FORMA DATA
The
following tables show information about our net income and stockholders equity
reflecting the stock offering. The information provided illustrates our pro
forma net income and stockholders equity based on the sale of common stock at
the minimum of the offering range, the midpoint of the offering
range, the maximum of the offering range and 15% above the maximum of the
offering range. The actual net proceeds from the sale of the common stock
cannot be determined until the stock offering is completed. Net proceeds
indicated in the following tables are based upon the following assumptions:
|
|
|
|
|
All shares of stock will
be sold in the subscription and direct community offerings;
|
|
|
|
|
|
Our employee stock
ownership plan will purchase a number of shares equal to 3.43% of the shares
to be outstanding after the stock offering (including shares issued to Auburn
Bancorp, MHC) at a price of $10.00 per share with a loan from Auburn Bancorp,
Inc. that will be repaid in equal installments over 15 years; and
|
|
|
|
|
|
Total expenses of the
stock offering, including fees paid to Keefe, Bruyette & Woods, Inc.,
will be approximately $600,000.
|
Actual
expenses may vary from this estimate, and the amount of fees paid will depend
upon whether a syndicate of broker-dealers or other means is necessary to sell
the shares, which would increase stock offering expenses, and other factors.
Pro
forma net income for the six months ended December 31, 2007 and the fiscal year
ended June 30, 2007 has been calculated as if the stock offering were completed
at the beginning of each period, and the net proceeds had been invested at
2.71% for the six months ended December 31, 2007 and 4.90% for the year ended
June 30, 2007, which represents the one-year treasury rate for each period end
date. We believe that the one-year treasury rate represents a more realistic
yield on the investment of the stock offering proceeds than the arithmetic
average of the weighted average yield earned on our interest-earning assets and
the weighted average rate paid on our deposits, which is the reinvestment rate
required by Office of Thrift Supervision regulations.
A
pro forma after-tax return of 1.79% is used for the six months ended December
31, 2007 and of 3.23% for the year ended June 30, 2007, after giving effect to
a combined federal and state income tax rate of 34% for each period. The actual
rate experienced by Auburn Bancorp, Inc. may vary. Historical and pro forma per
share amounts have been calculated by dividing historical and pro forma amounts
by the number of shares of common stock indicated in the tables.
When
reviewing the following tables you should consider the following:
|
|
|
|
|
The final column gives effect
to a 15% increase in the offering range, which may occur without any
further notice if Keller & Company increases its appraisal to reflect the
results of this stock offering, changes in our financial condition or results
of operations or changes in market conditions after the stock offering
begins. See The Reorganization and stock
offeringHow We Determined the Offering Range and the $10.00 Purchase Price.
|
|
|
|
|
|
Since funds on deposit at
Auburn Savings Bank may be withdrawn to purchase shares of common stock, the
amount of funds available for investment will be reduced by the amount of
withdrawals for stock purchases. The pro forma tables do not reflect
withdrawals from deposit accounts.
|
33
|
|
|
|
|
Historical per share
amounts have been computed as if the shares of common stock expected to be
issued in the stock offering had been outstanding at the beginning of the
period covered by the table. However, neither historical nor pro forma
stockholders equity has been adjusted to reflect the investment of the
estimated net proceeds from the sale of the shares in the stock offering, the
additional employee stock ownership plan expense or the proposed equity
incentive plan.
|
|
|
|
|
|
Pro forma stockholders
equity (book value) represents the difference between the stated amounts of
our assets and liabilities. Book value amounts do not represent fair market
values or amounts available for distribution to stockholders in the unlikely
event of liquidation. The amounts shown do not reflect the federal income tax
consequences of the restoration to income of Auburn Savings Banks special
bad debt reserves for income tax purposes, which would be required in the
unlikely event of liquidation. See Federal
and State Taxation.
|
|
|
|
|
|
The amounts shown as pro
forma stockholders equity per share do not represent possible future price
appreciation of our common stock.
|
|
|
|
|
|
The pro forma tables do
not reflect the impact of the new expenses that we expect to incur as a
result of operating as a public company.
|
The
following pro forma data may not represent the actual financial effects of the
stock offering or our operating results after the stock offering. The pro forma
data rely exclusively on the assumptions outlined above and in the notes to the
pro forma tables. The pro forma data do not represent the fair market value of
our common stock, the current fair market value of our assets or liabilities,
or the amount of money that would be available for distribution to stockholders
if we were to be liquidated after the stock offering.
We
are offering our common stock on a best efforts basis. We must sell a
minimum of 225,675 shares to complete the stock offering.
34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Six Months Ended December 31, 2007
Based Upon the Sale at $10.00 Per Share of
|
|
|
|
|
|
|
|
225,675
Shares
(Minimum
of Range)
|
|
265,500
Shares
Midpoint of
Range
|
|
305,325
Shares
(Maximum
of Range
|
|
351,124
Shares
(15% Above
Maximum
of Range)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands, Except Per Share Data)
|
|
Gross proceeds of offering
|
|
$
|
2,257
|
|
$
|
2,655
|
|
$
|
3,053
|
|
$
|
3,511
|
|
Estimated offering expenses
|
|
|
(600
|
)
|
|
(600
|
)
|
|
(600
|
)
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated net proceeds, as adjusted
|
|
$
|
1,657
|
|
$
|
2,055
|
|
$
|
2,453
|
|
$
|
2,911
|
|
Common stock acquired by employee stock ownership plan (2)
|
|
|
(172
|
)
|
|
(202
|
)
|
|
(233
|
)
|
|
(268
|
)
|
Cash to Auburn Bancorp, MHC
|
|
|
(25
|
)
|
|
(25
|
)
|
|
(25
|
)
|
|
(25
|
)
|
Common stock to be acquired by equity incentive plan (3)
|
|
|
(74
|
)
|
|
(87
|
)
|
|
(100
|
)
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated net proceeds available for
investment
|
|
$
|
1,386
|
|
$
|
1,741
|
|
$
|
2,095
|
|
$
|
2,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Net Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
84
|
|
$
|
84
|
|
$
|
84
|
|
$
|
84
|
|
Pro forma adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income on net proceeds available for
investment
|
|
|
12
|
|
|
16
|
|
|
19
|
|
|
22
|
|
Employee stock ownership plan (2)
|
|
|
(4
|
)
|
|
(4
|
)
|
|
(5
|
)
|
|
(6
|
)
|
Shares granted under equity incentive plan
(3)
|
|
|
(5
|
)
|
|
(6
|
)
|
|
(7
|
)
|
|
(8
|
)
|
Options granted under equity incentive plan
(4)
|
|
|
(9
|
)
|
|
(11
|
)
|
|
(12
|
)
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
78
|
|
$
|
79
|
|
$
|
79
|
|
$
|
78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
0.17
|
|
$
|
0.15
|
|
$
|
0.13
|
|
$
|
0.11
|
|
Pro forma adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income on adjusted net proceeds
|
|
|
0.02
|
|
|
0.03
|
|
|
0.03
|
|
|
0.03
|
|
Employee stock ownership plan (2)
|
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
Shares granted under equity incentive plan
(3)
|
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
|
(0.01
|
)
|
Options granted under equity incentive plan
(4)
|
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per share
|
|
$
|
0.15
|
|
$
|
0.14
|
|
$
|
0.12
|
|
$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering price as a multiple of pro forma net income per share
(annualized)
|
|
|
33.33
|
x
|
|
35.71
|
x
|
|
41.67
|
x
|
|
50.00
|
x
|
Number of shares used to calculate pro forma net income per share
(5)
|
|
|
484,872
|
|
|
570,438
|
|
|
656,003
|
|
|
754,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity (book value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
4,481
|
|
$
|
4,481
|
|
$
|
4,481
|
|
$
|
4,481
|
|
Estimated net proceeds
|
|
|
1,657
|
|
|
2,055
|
|
|
2,453
|
|
|
2,911
|
|
Capitalization of Auburn Bancorp, MHC
|
|
|
(25
|
)
|
|
(25
|
)
|
|
(25
|
)
|
|
(25
|
)
|
Common stock acquired by employee stock ownership
plan (2)
|
|
|
(172
|
)
|
|
(202
|
)
|
|
(233
|
)
|
|
(268
|
)
|
Common stock to be acquired by equity incentive
plan (3)
|
|
|
(74
|
)
|
|
(87
|
)
|
|
(100
|
)
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma stockholders equity
|
|
$
|
5,867
|
|
$
|
6,222
|
|
$
|
6,576
|
|
$
|
6,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
8.94
|
|
$
|
7.59
|
|
$
|
6.60
|
|
$
|
5.74
|
|
Estimated net proceeds
|
|
|
3.30
|
|
|
3.48
|
|
|
3.62
|
|
|
3.73
|
|
Capitalization of Auburn Bancorp, MHC
|
|
|
(0.05
|
)
|
|
(0.04
|
)
|
|
(0.04
|
)
|
|
(0.03
|
)
|
Common stock acquired by employee stock ownership
plan (2)
|
|
|
(0.34
|
)
|
|
(0.34
|
)
|
|
(0.34
|
)
|
|
(0.34
|
)
|
Common stock to be acquired by equity incentive
plan (3)
|
|
|
(0.15
|
)
|
|
(0.15
|
)
|
|
(0.15
|
)
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma stockholders equity per
share
|
|
$
|
11.70
|
|
$
|
10.54
|
|
$
|
9.69
|
|
$
|
8.95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering price as a percentage of pro forma stockholders
equity per
share
|
|
|
85.47
|
%
|
|
94.88
|
%
|
|
103.20
|
%
|
|
111.73
|
%
|
Number of shares used to calculate pro forma stockholders
equity per
share (5)
|
|
|
501,500
|
|
|
590,000
|
|
|
678,500
|
|
|
780,275
|
|
(Footnotes
begin on page ___)
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Fiscal Year Ended June 30, 2007
Based Upon the Sale at $10.00 Per Share of
|
|
|
|
|
|
|
|
225,675
Shares
(Minimum
of Range)
|
|
265,500
Shares
(Midpoint
of Range)
|
|
305,325
Shares
(Maximum
of Range)
|
|
351,124
Shares at
(15% Above
Maximum
of Range)(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands, Except Per Share Data)
|
|
Gross proceeds of offering
|
|
$
|
2,257
|
|
$
|
2,655
|
|
$
|
3,053
|
|
$
|
3,511
|
|
Estimated offering expenses
|
|
|
(600
|
)
|
|
(600
|
)
|
|
(600
|
)
|
|
(600
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated net proceeds, as adjusted
|
|
$
|
1,657
|
|
$
|
2,055
|
|
$
|
2,453
|
|
$
|
2,911
|
|
Common stock acquired by employee stock ownership plan (2)
|
|
|
(172
|
)
|
|
(202
|
)
|
|
(233
|
)
|
|
(268
|
)
|
Cash to Auburn Bancorp, MHC
|
|
|
(25
|
)
|
|
(25
|
)
|
|
(25
|
)
|
|
(25
|
)
|
Common stock to be acquired by equity incentive plan (3)
|
|
|
(74
|
)
|
|
(87
|
)
|
|
(100
|
)
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated proceeds available for
investment
|
|
$
|
1,386
|
|
$
|
1,741
|
|
$
|
2,095
|
|
$
|
2,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Net Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
120
|
|
$
|
120
|
|
$
|
120
|
|
$
|
120
|
|
Pro forma adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income on net proceeds available for
investment
|
|
|
45
|
|
|
57
|
|
|
68
|
|
|
81
|
|
Employee stock ownership plan (2)
|
|
|
(8
|
)
|
|
(9
|
)
|
|
(10
|
)
|
|
(12
|
)
|
Shares granted under equity incentive plan
(3)
|
|
|
(10
|
)
|
|
(11
|
)
|
|
(13
|
)
|
|
(15
|
)
|
Options granted under equity incentive plan
(4)
|
|
|
(18
|
)
|
|
(22
|
)
|
|
(25
|
)
|
|
(29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income
|
|
$
|
129
|
|
$
|
135
|
|
$
|
140
|
|
$
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share (4):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
0.25
|
|
$
|
0.21
|
|
$
|
0.18
|
|
$
|
0.16
|
|
Pro forma adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income on adjusted net proceeds
|
|
|
0.09
|
|
|
0.10
|
|
|
0.10
|
|
|
0.11
|
|
Employee stock ownership plan (2)
|
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
Shares granted under equity incentive plan
(3)
|
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
|
(0.02
|
)
|
Options granted under equity incentive plan
(4)
|
|
|
(0.04
|
)
|
|
(0.04
|
)
|
|
(0.04
|
)
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per share
|
|
$
|
0.26
|
|
$
|
0.23
|
|
$
|
0.20
|
|
$
|
0.19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering price as a multiple of pro forma net income per share
(annualized)
|
|
|
38.46
|
x
|
|
43.48
|
x
|
|
50.00
|
x
|
|
52.63
|
x
|
Number of shares used to calculate pro forma net income per share
(5)
|
|
|
485,446
|
|
|
571,112
|
|
|
656,779
|
|
|
755,296
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Stockholders Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma stockholders equity (book value):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
4,350
|
|
$
|
4,350
|
|
$
|
4,350
|
|
$
|
4,350
|
|
Estimated net proceeds
|
|
|
1,657
|
|
|
2,055
|
|
|
2,453
|
|
|
2,911
|
|
Capitalization of Auburn Bancorp, MHC
|
|
|
(25
|
)
|
|
(25
|
)
|
|
(25
|
)
|
|
(25
|
)
|
Common stock acquired by employee stock ownership plan (2)
|
|
|
(172
|
)
|
|
(202
|
)
|
|
(233
|
)
|
|
(268
|
)
|
Common stock to be acquired by equity incentive
plan (3)
|
|
|
(74
|
)
|
|
(87
|
)
|
|
(100
|
)
|
|
(115
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma stockholders equity
|
|
$
|
5,736
|
|
$
|
6,091
|
|
$
|
6,445
|
|
$
|
6,853
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma stockholders equity per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Historical
|
|
$
|
8.67
|
|
$
|
7.37
|
|
$
|
6.41
|
|
$
|
5.57
|
|
Estimated net proceeds
|
|
|
3.30
|
|
|
3.48
|
|
|
3.62
|
|
|
3.73
|
|
Capitalization of Auburn Bancorp, MHC
|
|
|
(0.05
|
)
|
|
(0.04
|
)
|
|
(0.04
|
)
|
|
(0.03
|
)
|
Common stock acquired by employee stock ownership
plan (2)
|
|
|
(0.34
|
)
|
|
(0.34
|
)
|
|
(0.34
|
)
|
|
(0.34
|
)
|
Common stock to be acquired by equity incentive
plan (3)
|
|
|
(0.15
|
)
|
|
(0.15
|
)
|
|
(0.15
|
)
|
|
(0.15
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma stockholders equity per
share
|
|
$
|
11.43
|
|
$
|
10.32
|
|
$
|
9.50
|
|
$
|
8.78
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering price as a percentage of pro forma stockholders
equity per
share
|
|
|
87.49
|
%
|
|
96.90
|
%
|
|
105.26
|
%
|
|
113.90
|
%
|
Number of shares used to calculate pro forma stockholders
equity per
share (5)
|
|
|
501,500
|
|
|
590,000
|
|
|
678,500
|
|
|
780,275
|
|
(Footnotes begin on page ___)
36
|
|
|
(1)
|
As adjusted to give effect
to a 15% increase in the number of shares outstanding after the stock
offering that could occur due to an increase in the maximum of the
independent valuation as a result of regulatory considerations, demand for
the shares or changes in market conditions or general financial and economic
conditions following the commencement of the stock offering.
|
|
|
(2)
|
Assumes that the employee
stock ownership plan will acquire 3.43% of the aggregate shares of common
stock to be outstanding after the reorganization and stock offering
(including shares issued to Auburn Bancorp, MHC), or 17,201, 20,237, 23,273
and 26,763 shares at the minimum, midpoint, maximum and adjusted maximum. The
employee stock ownership plan will borrow the funds used to acquire these
shares from the net proceeds of the stock offering retained by Auburn
Bancorp, Inc. The amount to be borrowed has been reflected as a reduction
from gross proceeds to determine estimated net proceeds available for
investment. Auburn Savings Bank intends to make contributions to the employee
stock ownership plan in amounts at least equal to the principal and interest
requirement of the debt. Interest income that Auburn Bancorp, Inc. will earn
on the loan will offset a portion of the compensation expense recorded by
Auburn Savings Bank as it contributes to the employee stock ownership plan.
As the debt is paid down, shares will be released for allocation to
participants accounts and stockholders equity will be increased.
|
|
|
|
The adjustment to pro forma
net income for the employee stock ownership plan reflects the after-tax
compensation expense associated with the plan. Applicable accounting principles require that compensation expense for the employee stock ownership plan
be based upon shares committed to be released and that unallocated shares be
excluded from earnings per share computations. An equal number of shares (1/15
of the total, based on a 15-year loan) will be released each year over the
term of the loan. The valuation of shares committed to be released would be
based upon the average market value of the shares during the year, which, for
purposes of this calculation, was assumed to be equal to the $10.00 per share
purchase price. If the average market value per share is greater than $10.00
per share, total employee stock ownership plan expense would be greater.
|
|
|
(3)
|
Gives effect to the equity
incentive plan expected to be adopted following the reorganization and stock
offering. Assumes that the equity incentive plan will acquire a number of
shares of common stock equal to 1.47% of the aggregate shares to be
outstanding after the reorganization and stock offering (including shares
issued to Auburn Bancorp, MHC), or 7,372, 8,673, 9,974 and 11,470 shares of
common stock at the minimum, midpoint, maximum and adjusted maximum of the
estimated offering range, respectively, either through open market
purchases or directly from Auburn Bancorp, Inc., and that the shares will be
reissued as restricted stock awards under the equity incentive plan.
Purchases will be funded with cash on hand at Auburn Bancorp, Inc. or with
dividends paid to Auburn Bancorp, Inc., by Auburn Savings Bank. The cost of
these shares has been reflected as a reduction from gross proceeds to
determine estimated proceeds available for investment. In calculating the pro
forma effect of restricted stock awards under the equity incentive plan, it is
assumed that the required stockholder approval has been received and that the
shares were acquired by the plan at the beginning of the period presented in
open market purchases at $10.00 per share. If shares are acquired by the plan
from authorized but unissued shares of our common stock instead of open
market purchases would dilute the ownership interests of existing
stockholders by approximately 1.4%.
|
|
|
|
The adjustment to pro forma
net income for the restricted stock awards reflects the after-tax compensation
expense associated with the awards. It is assumed that the fair market value
of a share of Auburn Bancorp, Inc. common stock was $10.00 at the time the
awards were made, that shares of restricted stock issued under the equity
incentive plan vest 20% per year, that compensation expense is recognized on
a straight-line basis over each vesting period so that 20% of the value of
the shares awarded was an amortized expense during each year and that the
combined federal and state income tax rate was 34%. If the fair market value
per share is greater than $10.00 per share on the date shares are awarded
under the equity incentive plan, total equity incentive plan expense would be
greater.
|
|
|
(4)
|
The adjustment to pro forma
net income for stock options reflects the after-tax compensation expense
associated with the stock options that may be granted under the equity
incentive plan expected to be adopted following the reorganization and stock
offering. If the equity incentive plan is approved by stockholders, a number
of shares equal to 4.9% of the aggregate shares of common stock to be
outstanding after the reorganization and stock offering (including shares
issued to Auburn Bancorp, MHC), or 24,574, 28,910, 33,247 and 38,233 shares
at the minimum, midpoint, maximum and adjusted maximum will be reserved for
future issuance upon the exercise of stock options that may be granted under
the plan. We will comply with Financial Accounting Standards Board Statement
No. 123 (revised 2004), Share-Based
Payment, to account for stock options issued. This standard
requires compensation cost relating to share-based payment transactions be
recognized in the financial statements over the period the employee is
required to provide services for the award. The cost will be measured based
on the fair value of the equity instruments issued. Applicable accounting
standards do not prescribe a specific valuation technique to be used to
estimate the fair value of employee stock options. Using the Black-Scholes
option-pricing formula, the options are assumed to have a value of $4.08 for
each option, based on the following assumptions: exercise price, $10.00;
trading price on date of grant, $10.00; dividend yield, 0%; expected life, 10
years; expected volatility, 21.1%; and risk-free interest rate, 3.74%.
Because there currently is no market for Auburn Bancorp, Inc. common stock,
the assumed expected volatility is based on the SNL MHC Index for all
publicly-traded mutual holding companies. The dividend yield is assumed to be
0% because there is no history of dividend payments and the board of
directors has not
|
37
|
|
|
expressed an intention to
commence dividend payments upon completion of the stock offering. It is
assumed that stock options granted under the equity incentive plan vest 20%
per year, that compensation expense is recognized on a straight-line basis
over each vesting period so that 20% of the value of the options awarded was
an amortized expense during each year, that 25% of the options awarded are
non-qualified options and that the combined federal and state income tax rate
is 34%. We plan to use the Black-Scholes option-pricing formula; however, if
the fair market value per share is different than $10.00 per share on the
date options are awarded under the equity incentive plan, or if the
assumptions used in the option-pricing formula are different from those used
in preparing this pro forma data, the value of the stock options and the
related expense would be different. The issuance of authorized but unissued
shares of common stock to satisfy option exercises instead of shares
repurchased in the open market would dilute the ownership interests of
existing stockholders by approximately 4.7%.
|
|
|
(5)
|
The number of shares used
to calculate pro forma net income per share is equal to the total number of
shares to be outstanding upon completion of the stock offering, less the
number of shares purchased by the employee stock ownership plan not committed
to be released within six months or one year, as applicable, following the
stock offering as adjusted to effect a weighted average over the period. The
number of shares used to calculate pro forma stockholders equity per share
is equal to the total number of shares to be outstanding upon completion of
the stock offering.
|
38
BUSINESS OF AUBURN BANCORP, INC.
Auburn
Bancorp, Inc. will be organized as a federal corporation upon completion of the
reorganization. As a result of the reorganization, we will own all of the
issued and outstanding common stock of Auburn Savings Bank, FSB. We will retain up to $600,000 of the net
proceeds from the stock offering. A
portion of the net proceeds we retain will be used for the purpose of making a
loan to fund the purchase of our shares of common stock by the Auburn Savings
Bank employee stock ownership plan. We will contribute the remaining net
proceeds to Auburn Savings Bank as additional capital. We intend to invest our
capital as discussed in Use of Proceeds.
In
the future, Auburn Bancorp, Inc., as the holding company of Auburn Savings
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 Auburn Bancorp, Inc. at
the present time.
Our
cash flow will depend on earnings from the investment of the net proceeds we
retain from the stock offering and any dividends received from Auburn Savings
Bank. Initially, Auburn Bancorp, Inc. will neither own nor lease any property,
but will instead use the premises, equipment and furniture of Auburn Savings
Bank. At the present time, we intend to employ only persons who are officers of
Auburn Savings Bank to serve as officers of Auburn Bancorp, Inc. We will,
however, use the support staff of Auburn Savings Bank from time to time. All of
these persons will be paid by Auburn Savings Bank under the terms of a management
agreement with Auburn Bancorp, Inc.
Auburn Bancorp, Inc. may hire additional employees, as appropriate, to
the extent it expands its business in the future.
BUSINESS OF AUBURN SAVINGS BANK, FSB
Auburn
Savings Bank, FSB 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.
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 prospectus.
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
39
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 Countys total population was approximately 110,000, a 5.9%
increase from the countys population in 2000.
Similarly, the total population in each of Lewiston and Auburn increased
4.1% from 2000 to 2007, with Auburns total population at approximately 24,000
in 2007 and Lewistons total population at approximately 37,000 in 2007. Auburn Savings Banks market area is
projected to continue to experience modest population growth through 2012. Based on census data, the population in
Lewiston and Auburn during this period is expected to increase by 3.6% and
3.2%, respectively, and the population in Androscoggin County during this
period is expected to increase by 4.2%.
The
largest industry in Androscoggin County is educational services, health care
and social assistance, which accounted for 25% of employment in the county,
followed by retail trade, accounting for 14% of employment in the county. The two largest employers in the area,
Central Maine Medical Center and St. Marys 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 December 2007, the unemployment rate
in Androscoggin County was 5.0%, equal to that of the United States and below
the Maine unemployment rate of 5.1%.
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 KeyBank, 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
40
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. The following
table sets forth the
composition of our loan portfolio by type of loan as of the dates
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
At June 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
Amount
|
|
Percent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
31,424
|
|
|
57.3
|
%
|
$
|
31,817
|
|
|
59.9
|
%
|
$
|
33,366
|
|
|
61.6
|
%
|
Commercial
|
|
|
8,901
|
|
|
16.2
|
|
|
7,553
|
|
|
14.2
|
|
|
6,211
|
|
|
11.5
|
|
Construction
|
|
|
2,359
|
|
|
4.3
|
|
|
1,041
|
|
|
1.9
|
|
|
3,245
|
|
|
6.0
|
|
Equity lines of credit
|
|
|
10,887
|
|
|
19.9
|
|
|
11,106
|
|
|
20.9
|
|
|
10,371
|
|
|
19.1
|
|
Undisbursed portion of construction loan
|
|
|
(707
|
)
|
|
(1.3
|
)
|
|
(123
|
)
|
|
(0.2
|
)
|
|
(902
|
)
|
|
(1.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total mortgage loans on real estate
|
|
$
|
52,864
|
|
|
96.4
|
%
|
$
|
51,394
|
|
|
96.7
|
%
|
$
|
52,291
|
|
|
96.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
1,443
|
|
|
2.6
|
|
|
1,257
|
|
|
2.4
|
|
|
1,374
|
|
|
2.5
|
|
Consumer loans
|
|
|
552
|
|
|
1.0
|
|
|
501
|
|
|
0.9
|
|
|
542
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
54,859
|
|
|
100.0
|
%
|
$
|
53,152
|
|
|
100.0
|
%
|
$
|
54,207
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan origination costs
|
|
$
|
139
|
|
|
|
|
$
|
135
|
|
|
|
|
$
|
125
|
|
|
|
|
Deferred loan origination fees
|
|
|
(214
|
)
|
|
|
|
|
(170
|
)
|
|
|
|
|
(193
|
)
|
|
|
|
Allowance for loan losses
|
|
|
(309
|
)
|
|
|
|
|
(318
|
)
|
|
|
|
|
(290
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans, net
|
|
$
|
54,475
|
|
|
|
|
$
|
52,799
|
|
|
|
|
$
|
53,849
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
One-
to Four-Family Residential Loans. 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
41
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
December 31, 2007, $31.4 million, or 57.3% of our loan portfolio, consisted of
one- to four-family residential mortgage loans. Of the one- to four-family residential mortgage loans outstanding
on December 31, 2007, $21.9 million were fixed-rate mortgage loans with an
average yield of 6.22%, and $9.5 million were adjustable-rate loans with an
average yield of 7.19%.
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 adjustablerate 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
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
December 31, 2007, our largest one- to four-family residential real estate loan
had a principal balance of $324,553 and was secured by a residence located in
Auburn. This loan was performing
according to its original repayment terms at December 31, 2007.
Home Equity Loans. We offer home equity
lines of credit and home equity loans. At December 31, 2007, we had $10.9 million
of home equity lines-of-credit and loans outstanding,
42
representing 19.9% of our
loan portfolio. At December 31, 2007,
the unadvanced amounts of home equity lines of credit totaled $2.7 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 applicants credit
history, an assessment of the applicants 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 $8.9 million at December 31, 2007. At December 31, 2007, commercial and
multi-family real estate loans represented 16.2% 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 propertys 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 borrowers
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
43
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 borrowers 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
December 31, 2007, our largest commercial real estate loan was for $460,995 and
was secured by real estate in Lisbon Falls, Maine. This loan was performing
according to its original repayment terms at December 31, 2007 and was paid in
full in January 2008. At December 31, 2007, our largest multi-family real
estate loan was for $222,989, was secured by real estate in Poland, Maine and
was performing according to its original repayment terms at December 31, 2007. For more information on our commercial and
multi-family real estate loans, see Risk FactorsOur 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 $2.4 million at December 31, 2007.
At December 31, 2007, residential construction loans represented 4.3% of
our loan portfolio. At December 31,
2007, the unadvanced portion of these construction loans totaled $707,000.
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
December 31, 2007, the largest outstanding residential construction loan
commitment was for $375,000 of which $176,898 was outstanding. This loan was
performing according to its terms at December 31, 2007. 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
44
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 $1.4 million
at December 31, 2007. At December 31,
2007, commercial business loans represented 2.6% 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 December 31, 2007 was
$718,000. 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, builders 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
borrowers 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
borrowers ability to repay the loan from the cash flow of the borrowers
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
December 31, 2007, our largest commercial business loan was a $150,000 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
December 31, 2007. For more information
on our commercial business loans, see Risk
FactorsOur 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
45
automobiles, loans secured
by deposit accounts and unsecured personal loans. As of December 31, 2007, these loans totaled $552,000, or 1.0% 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 form a current months issue of the NADA Used Car
Guide.
The
procedures for underwriting consumer loans include an assessment of the
applicants payment history on other debts and ability to meet existing
obligations and payments on the proposed loan. Although the applicants
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 borrowers 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 Managements Discussion and Analysis Management of
Market Risk. During the six
months ended December 31, 2007 and fiscal year 2007, we sold $0.3 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 December 31, 2007, we serviced $9.5 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.
46
The
following table shows our loan originations, sales and repayment activities for
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
December 31,
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Originations by type:
|
|
|
|
|
|
|
|
|
|
|
Adjustable rate:
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
$
|
590
|
|
$
|
1,498
|
|
$
|
1,333
|
|
Commercial
|
|
|
1,689
|
|
|
2,666
|
|
|
2,175
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
Equity Lines of Credit
|
|
|
345
|
|
|
586
|
|
|
1,489
|
|
Undisbursed portion of construction loan
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
238
|
|
|
566
|
|
|
1,190
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustable rate
|
|
$
|
2,862
|
|
$
|
5,316
|
|
$
|
6,187
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed rate:
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
One- to four-family residential
|
|
|
1,606
|
|
|
3,637
|
|
|
8,134
|
|
Commercial
|
|
|
|
|
|
150
|
|
|
|
|
Construction
|
|
|
1,874
|
|
|
1,406
|
|
|
4,352
|
|
Equity Lines of Credit
|
|
|
1,100
|
|
|
3,433
|
|
|
3,418
|
|
Undisbursed portion of construction loan
|
|
|
(584
|
)
|
|
778
|
|
|
(449
|
)
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
212
|
|
|
297
|
|
|
365
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed rate
|
|
$
|
4,208
|
|
$
|
9,701
|
|
$
|
15,820
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and repayments:
|
|
|
|
|
|
|
|
|
|
|
Sales and loan participations sold
|
|
|
324
|
|
|
2,464
|
|
|
1,499
|
|
Principal repayments
|
|
|
5,038
|
|
|
13,610
|
|
|
14,727
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reductions
|
|
|
5,362
|
|
|
16,074
|
|
|
16,226
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease)
|
|
$
|
1,708
|
|
$
|
(1,057
|
)
|
$
|
5,781
|
|
|
|
|
|
|
|
|
|
|
|
|
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 officers
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 borrowers related entities is limited by
regulation, generally to 15% of our unimpaired capital and reserves. At
December 31, 2007, our regulatory limit on loans to one borrower was $718,000.
At that date, our largest lending relationship was $661,064 and was secured by
multi-family real estate located in our primary market area. As a result of the
stock offering, we expect our regulatory loans to one borrower limit will
increase. At the midpoint of the offering range, our pro forma lending
limit on loans to one borrower will be increased to approximately $944,000.
47
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 tables set forth certain
information at June 30, 2007 regarding the dollar amount of loan principal
repayments becoming due during the periods indicated. The tables do 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.
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
12
|
|
|
7.71
|
%
|
$
|
|
|
|
|
%
|
$
|
1,041
|
|
|
8.55
|
%
|
$
|
2,969
|
|
|
8.71
|
%
|
$
|
(123
|
)
|
|
8.03
|
%
|
$
|
744
|
|
|
9.24
|
%
|
$
|
15
|
|
|
14.05
|
%
|
$
|
4,658
|
|
|
8.76
|
%
|
After 1 year through 3
years
|
|
|
37
|
|
|
7.65
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
181
|
|
|
5.88
|
%
|
|
|
|
|
|
%
|
|
44
|
|
|
7.48
|
%
|
|
89
|
|
|
9.65
|
%
|
|
351
|
|
|
7.22
|
%
|
After 3 years through 5
years
|
|
|
27
|
|
|
7.42
|
%
|
|
294
|
|
|
8.76
|
%
|
|
|
|
|
|
%
|
|
674
|
|
|
5.93
|
%
|
|
|
|
|
|
%
|
|
358
|
|
|
7.42
|
%
|
|
127
|
|
|
7.88
|
%
|
|
1,480
|
|
|
7.05
|
%
|
After 5 years through 10
years
|
|
|
571
|
|
|
7.68
|
%
|
|
4,796
|
|
|
8.06
|
%
|
|
|
|
|
|
%
|
|
3,024
|
|
|
5.34
|
%
|
|
|
|
|
|
%
|
|
111
|
|
|
7.71
|
%
|
|
129
|
|
|
8.73
|
%
|
|
8,631
|
|
|
7.09
|
%
|
After 10 years though 15
years
|
|
|
4,646
|
|
|
5.97
|
%
|
|
399
|
|
|
8.70
|
%
|
|
|
|
|
|
%
|
|
4,258
|
|
|
6.70
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
33
|
|
|
9.31
|
%
|
|
9,336
|
|
|
6.43
|
%
|
After 15 years
|
|
|
26,524
|
|
|
6.44
|
%
|
|
2,064
|
|
|
6.77
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
|
|
|
|
%
|
|
108
|
|
|
9.10
|
%
|
|
28,696
|
|
|
6.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
31,817
|
|
|
6.39
|
%
|
$
|
7,553
|
|
|
7.77
|
%
|
$
|
1,041
|
|
|
8.55
|
%
|
$
|
11,106
|
|
|
6.81
|
%
|
$
|
(123
|
)
|
|
8.03
|
%
|
$
|
1,257
|
|
|
8.52
|
%
|
$
|
501
|
|
|
8.97
|
%
|
$
|
53,152
|
|
|
6.79
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
49
The
following tables sets forth the scheduled repayments of fixed- and
adjustable-rate loans at June 30, 2007 that are contractually due after June
30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
Due after June 30, 2008
|
|
|
|
|
|
|
|
Fixed
|
|
Adjustable
|
|
Total
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
(Dollars in Thousands)
|
|
Mortgage
loans
|
|
$
|
30,776
|
|
$
|
16,719
|
|
$
|
47,495
|
|
Commercial
loans
|
|
|
381
|
|
|
132
|
|
|
513
|
|
Consumer
loans
|
|
|
485
|
|
|
0
|
|
|
486
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
31,643
|
|
$
|
16,851
|
|
$
|
48,494
|
|
|
|
|
|
|
|
|
|
|
|
|
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 91st 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.
50
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
At June 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Non-accrual
loans:
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans
|
|
$
|
|
|
$
|
|
|
$
|
95
|
|
Commercial loans
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
$
|
|
|
$
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
124
|
|
$
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-performing assets
|
|
$
|
124
|
|
$
|
|
|
$
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
Non-performing loans to total loans
|
|
|
0.00
|
%
|
|
0.00
|
%
|
|
0.18
|
%
|
Non-performing assets to total assets
|
|
|
0.20
|
%
|
|
0.00
|
%
|
|
0.15
|
%
|
There
was no interest income that would have been recorded for the six months ended
December 31, 2007 and fiscal 2007 had our non-accruing loans been current
in accordance with their original terms, nor was there any interest income
recognized on such loans for the six months ended December 31, 2007 and
fiscal 2007.
Delinquent
Loans. The following table sets forth our loan
delinquencies by type and amount at the dates indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
At June 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
30-59
days past
due
|
|
60-89
days past
due
|
|
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
|
|
$
|
95
|
|
$
|
|
|
$
|
215
|
|
$
|
102
|
|
$
|
364
|
|
$
|
|
|
Commercial
|
|
|
|
|
|
316
|
|
|
108
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity lines of credit
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
58
|
|
|
|
|
Undisbursed portion of construction loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
31
|
|
|
12
|
|
|
14
|
|
|
|
|
|
|
|
|
|
|
Consumer loans
|
|
|
|
|
|
|
|
|
2
|
|
|
5
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total:
|
|
$
|
126
|
|
$
|
328
|
|
$
|
352
|
|
$
|
107
|
|
$
|
429
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
51
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 December 31,
|
|
At June 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Special
Mention
|
|
$
|
137
|
|
$
|
139
|
|
$
|
103
|
|
Substandard
|
|
|
6
|
|
|
9
|
|
|
106
|
|
Doubtful
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Classified Assets
|
|
$
|
143
|
|
$
|
148
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
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 managements 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 managements 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 borrowers 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,
52
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 borrowers
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 loans effective interest rate, the loans 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 December 31, 2007, we had
no impaired loans 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
December 31, 2007, our allowance for loan losses represented 0.56% of total
gross loans. No portion of the allowance was allocated to problem loans at
December 31, 2007. The allowance for loan losses decreased by $8,366 from June
30, 2007 to December 31, 2007 due to charge-offs of $1,342 and a refund from
the provision for loan losses of $7,024. In September 2007, we revised our
methodology for estimating the allowance for loan losses under the guidelines
set forth in a recently-issued Interagency Policy Statement on the Allowance
for Loan and Lease Losses. The decision to decrease the allowance from June 30,
2007 to December 31, 2007 reflected management calculations using those
guidelines.
At
June 30, 2007, our allowance for loan losses represented 0.60 % of total gross
loans. The allowance for loan losses increased by $27,108 from June 30, 2006 to
June 30, 2007, due primarily to a provision for loan losses of $34,000, offset by
charge-offs of $1,276. The decision to increase the allowance reflected net
loan growth and the mixture of loans in our portfolio.
53
The following table sets forth activity in
our allowance for loan losses for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
Ended December 31,
|
|
For the Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Balance at beginning of period
|
|
$
|
318
|
|
$
|
290
|
|
$
|
238
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
Mortgage loans:
|
|
|
|
|
|
|
|
|
|
|
One- to four- family residential
|
|
|
|
|
|
|
|
|
(10
|
)
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
Construction
|
|
|
|
|
|
|
|
|
|
|
Equity Lines of Credit
|
|
|
|
|
|
|
|
|
|
|
Undisbursed portion of construction loan
|
|
|
|
|
|
|
|
|
|
|
Commercial loans
|
|
|
(2
|
)
|
|
|
|
|
|
|
Consumer loans
|
|
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Charge-offs
|
|
|
(2
|
)
|
|
(1
|
)
|
|
(10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(2
|
)
|
|
(1
|
)
|
|
(10
|
)
|
Provision for loan loss
|
|
|
(7
|
)
|
|
34
|
|
|
62
|
|
Reclassification
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
309
|
|
$
|
318
|
|
$
|
290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs to average loans outstanding
|
|
|
0.004
|
%
|
|
0.002
|
%
|
|
0.020
|
%
|
Allowance for loan losses to non-performing loans at end of
period
|
|
|
NM
|
|
|
NM
|
|
|
NM
|
|
Allowance for loan losses to total loans at end of period
|
|
|
0.56
|
%
|
|
0.60
|
%
|
|
0.54
|
%
|
54
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 December 31,
|
|
At June 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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
|
|
$
|
130
|
|
$
|
31,424
|
|
|
57.3
|
%
|
$
|
137
|
|
$
|
31,817
|
|
|
59.9
|
%
|
$
|
134
|
|
$
|
33,366
|
|
|
61.6
|
%
|
Commercial
|
|
|
90
|
|
|
8,901
|
|
|
16.2
|
|
|
77
|
|
|
7,553
|
|
|
14.2
|
|
|
58
|
|
|
6,211
|
|
|
11.5
|
|
Construction
|
|
|
10
|
|
|
2,359
|
|
|
4.3
|
|
|
6
|
|
|
1,041
|
|
|
1.9
|
|
|
14
|
|
|
3,245
|
|
|
6.0
|
|
Equity Lines of Credit
|
|
|
55
|
|
|
10,887
|
|
|
19.9
|
|
|
74
|
|
|
11,106
|
|
|
20.9
|
|
|
61
|
|
|
10,371
|
|
|
19.1
|
|
Undisbursed portion of construction loan
|
|
|
0
|
|
|
(707
|
)
|
|
(1.3
|
)
|
|
0
|
|
|
(123
|
)
|
|
(0.2
|
)
|
|
0
|
|
|
(902
|
)
|
|
(1.7
|
)
|
Commercial loans
|
|
|
20
|
|
|
1,443
|
|
|
2.6
|
|
|
19
|
|
|
1,257
|
|
|
2.4
|
|
|
21
|
|
|
1,374
|
|
|
2.5
|
|
Consumer loans
|
|
|
4
|
|
|
552
|
|
|
1.0
|
|
|
5
|
|
|
501
|
|
|
0.9
|
|
|
3
|
|
|
542
|
|
|
1.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
$
|
309
|
|
$
|
54,859
|
|
|
100.0
|
%
|
$
|
318
|
|
$
|
53,152
|
|
|
100.0
|
%
|
$
|
291
|
|
$
|
54,207
|
|
|
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 December 31, 2007,
our available for sale investment
portfolio totaled $1.7 million, or 2.7% of total assets.
We also held $1,965,000 in certificates of deposit and
$901,000 in Federal Home Loan Bank of Boston stock at
December 31, 2007. Our available for sale investment portfolio at
December 31, 2007, at amortized cost, consisted of $987,000 in corporate
debt obligations, $537,000 of mortgage-backed securities, $120,000
of two SBA pool securities and$90,000 in Fannie Mae and Freddie Mac common stock.
|
|
|
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.
|
55
|
|
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 December 31,
|
|
At June 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Fair Value
|
|
Amortized
Cost
|
|
Fair Value
|
|
Amortized
Cost
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored enterprise obligations
|
|
$
|
|
|
$
|
|
|
$
|
650
|
|
$
|
648
|
|
$
|
650
|
|
$
|
641
|
|
Corporate bonds and other obligations
|
|
|
987
|
|
|
979
|
|
|
999
|
|
|
992
|
|
|
1,000
|
|
|
977
|
|
SBA pool securities
|
|
|
120
|
|
|
116
|
|
|
123
|
|
|
122
|
|
|
182
|
|
|
180
|
|
Mortgage-backed securities
|
|
|
537
|
|
|
538
|
|
|
611
|
|
|
603
|
|
|
858
|
|
|
829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
|
1,644
|
|
|
1,633
|
|
|
2,383
|
|
|
2,365
|
|
|
2,690
|
|
|
2,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government-sponsored enterprise
securities
|
|
|
90
|
|
|
74
|
|
|
|
|
|
|
|
|
134
|
|
|
96
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
750
|
|
|
732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total marketable equity securities
|
|
|
90
|
|
|
74
|
|
|
|
|
|
|
|
|
884
|
|
|
828
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total securities available for sale
|
|
$
|
1,734
|
|
$
|
1,707
|
|
$
|
2,383
|
|
$
|
2,365
|
|
$
|
3,574
|
|
$
|
3,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
do not have any securities of one issuer the aggregate book value of which
exceeds 10% of stockholders equity.
|
56
The
table below sets forth certain information regarding the amortized cost,
weighted average yields and contractual maturities of the Banks debt
securities portfolio at December 31, 2007. 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
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Weighted
Average
Yield
|
|
Amortized
Cost
|
|
Weighted
Average
Yield
|
|
Amortized
Cost
|
|
Weighted
Average
Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
U.S. Government-sponsored
enterprise obligations
|
|
$
|
|
|
|
0.00
|
%
|
$
|
|
|
|
0.00
|
%
|
$
|
|
|
|
0.00
|
%
|
Corporate bonds and other
obligations
|
|
|
499
|
|
|
3.93
|
%
|
|
488
|
|
|
4.13
|
%
|
|
|
|
|
0.00
|
%
|
SBA pool securities
|
|
|
|
|
|
0.00
|
%
|
|
|
|
|
0.00
|
%
|
|
11
|
|
|
8.13
|
%
|
Mortgage-backed securities
|
|
|
|
|
|
0.00
|
%
|
|
400
|
|
|
5.10
|
%
|
|
|
|
|
0.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
499
|
|
|
|
|
$
|
888
|
|
|
|
|
$
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than Ten Years
|
|
Total Securities
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Weighted
Average
Yield
|
|
Amortized
Cost
|
|
Weighted
Average
Yield
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
U.S. Government-sponsored
enterprise obligations
|
|
$
|
|
|
|
0.00
|
%
|
$
|
|
|
|
0.00
|
%
|
Corporate bonds and other
obligations
|
|
|
|
|
|
0.00
|
%
|
|
987
|
|
|
4.03
|
%
|
SBA pool securities
|
|
|
109
|
|
|
7.63
|
%
|
|
120
|
|
|
7.67
|
%
|
Mortgage-backed securities
|
|
|
137
|
|
|
6.69
|
%
|
|
537
|
|
|
5.47
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt securities
|
|
$
|
246
|
|
|
|
|
$
|
1,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57
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 FHLB advance rates.
The
following tables set forth certain information relative to the composition of
our average deposit accounts and the weighted average interest rate on each
category of deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31,
|
|
|
|
|
|
2007
|
|
|
|
|
|
Average
Balance
|
|
Percent
|
|
Weighted
Average
Rate
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
Deposit type:
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
2,563
|
|
|
5.66
|
%
|
|
0.00
|
%
|
Savings deposits
|
|
|
2,539
|
|
|
5.61
|
%
|
|
0.84
|
%
|
Money Market
|
|
|
9,283
|
|
|
20.51
|
%
|
|
3.36
|
%
|
NOW accounts
|
|
|
1,942
|
|
|
4.28
|
%
|
|
0.89
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total transaction accounts
|
|
$
|
16,327
|
|
|
36.06
|
%
|
|
2.14
|
%
|
Certificates of deposit
|
|
|
28,944
|
|
|
63.94
|
%
|
|
4.78
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
45,271
|
|
|
100.00
|
%
|
|
3.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Average
Balance
|
|
Percent
|
|
Weighted
Average
Rate
|
|
Average
Balance
|
|
Percent
|
|
Weighted
Average
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
Deposit type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
2,840
|
|
|
6.40
|
%
|
|
0.00
|
%
|
$
|
3,105
|
|
|
7.28
|
%
|
|
0.00
|
%
|
Savings deposits
|
|
|
2,662
|
|
|
6.00
|
%
|
|
0.83
|
%
|
|
2,957
|
|
|
6.93
|
%
|
|
0.85
|
%
|
Money Market
|
|
|
9,505
|
|
|
21.43
|
%
|
|
3.43
|
%
|
|
10,342
|
|
|
24.23
|
%
|
|
2.50
|
%
|
NOW accounts
|
|
|
1,627
|
|
|
3.67
|
%
|
|
0.55
|
%
|
|
1,158
|
|
|
2.71
|
%
|
|
0.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transaction accounts
|
|
$
|
16,634
|
|
|
37.50
|
%
|
|
2.15
|
%
|
$
|
17,562
|
|
|
41.15
|
%
|
|
1.65
|
%
|
Certificates of deposit
|
|
|
27,726
|
|
|
62.50
|
%
|
|
4.55
|
%
|
|
25,116
|
|
|
58.85
|
%
|
|
3.60
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
44,360
|
|
|
100.00
|
%
|
|
3.65
|
%
|
$
|
42,678
|
|
|
100.0
|
%
|
|
2.80
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table sets forth the deposit activities for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended
December 31,
|
|
Fiscal Year Ended June 30,
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
Beginning balance
|
|
$
|
44,879
|
|
$
|
45,009
|
|
$
|
41,478
|
|
Net deposits (withdrawals)
before interest credited
|
|
|
(756
|
)
|
|
(1,749
|
)
|
|
2,338
|
|
Interest credited
|
|
|
867
|
|
|
1,619
|
|
|
1,193
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in
deposits
|
|
|
111
|
|
|
(130
|
)
|
|
3,531
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance
|
|
$
|
44,990
|
|
$
|
44,879
|
|
$
|
45,009
|
|
|
|
|
|
|
|
|
|
|
|
|
58
As
of December 31, 2007, the aggregate amount of outstanding certificates of
deposit in amounts greater than or equal to $100,000 was approximately $10.8
million. The following table sets forth the maturity of those certificates as
of December 31, 2007:
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Three months or less
|
|
$
|
3,311
|
|
Over three months through
six months
|
|
|
2,707
|
|
Over six months through one
year
|
|
|
3,749
|
|
Over one year through three
years
|
|
|
907
|
|
Over three years
|
|
|
100
|
|
|
|
|
|
|
Total
|
|
$
|
10,774
|
|
|
|
|
|
|
The
following table sets forth the time deposits of Auburn Savings Bank classified
by interest rate as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
At June 30,
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
Interest
Rate:
|
|
|
|
|
|
|
|
|
|
|
Less than 2%
|
|
$
|
|
|
$
|
|
|
$
|
|
|
2.00% - 2.99%
|
|
|
11
|
|
|
39
|
|
|
1,285
|
|
3.00% - 3.99%
|
|
|
4,541
|
|
|
5,805
|
|
|
10,006
|
|
4.00% - 4.99%
|
|
|
13,831
|
|
|
7,384
|
|
|
12,397
|
|
5.00% - 5.99%
|
|
|
11,332
|
|
|
14,624
|
|
|
1,962
|
|
6.00% and above
|
|
|
|
|
|
54
|
|
|
110
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
29,715
|
|
$
|
27,906
|
|
$
|
25,760
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table sets forth the amount and maturities of time deposits at
December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31, 2007
|
|
|
|
|
|
Period to Maturity
|
|
|
|
|
|
Less than
One Year
|
|
One to Two
Years
|
|
Two to
Three Years
|
|
More than
Three Years
|
|
Total
|
|
Percent of
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
Interest
Rate Range:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.00% and below
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
|
0.00
|
%
|
2.01% to 3.00%
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
0.04
|
|
3.01% to 4.00%
|
|
|
3,868
|
|
|
647
|
|
|
101
|
|
|
41
|
|
|
4,657
|
|
|
15.67
|
|
4.01% to 5.00%
|
|
|
12,052
|
|
|
246
|
|
|
1,112
|
|
|
305
|
|
|
13,715
|
|
|
46.15
|
|
5.01% to 6.00%
|
|
|
9,533
|
|
|
1,799
|
|
|
|
|
|
|
|
|
11,332
|
|
|
38.14
|
|
6.01% and above
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
25,464
|
|
$
|
2,692
|
|
$
|
1,213
|
|
$
|
346
|
|
$
|
29,715
|
|
|
100.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 institutions net worth or on the Federal Home Loan
Banks assessment of the institutions 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.
59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At or For the Six Months Ended
December 31,
|
|
At or For the Fiscal Years Ended June 30,
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term
Borrowings
|
|
Short-Term
Borrowings(1)
|
|
Long-Term
Borrowings
|
|
Short-Term
Borrowings(1)
|
|
Long-Term
Borrowings
|
|
Short-Term
Borrowings(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
Balance at end of period
|
|
$
|
13,650
|
|
$
|
|
|
$
|
12,900
|
|
$
|
|
|
$
|
12,750
|
|
$
|
2,000
|
|
Average balance during period
|
|
$
|
12,921
|
|
$
|
|
|
$
|
11,765
|
|
$
|
1,313
|
|
$
|
13,081
|
|
$
|
354
|
|
Maximum outstanding at any month end
|
|
$
|
13,650
|
|
$
|
|
|
$
|
13,650
|
|
$
|
2,500
|
|
$
|
13,400
|
|
$
|
1,500
|
|
Weighted average interest rate at end of
period
|
|
|
5.29
|
%
|
|
|
%
|
|
5.35
|
%
|
|
|
%
|
|
5.07
|
%
|
|
5.11
|
%
|
Average interest rate during
period
|
|
|
5.32
|
%
|
|
|
%
|
|
5.32
|
%
|
|
5.36
|
%
|
|
5.14
|
%
|
|
4.99
|
%
|
|
|
|
(1)
|
Represents short-term
borrowings of less than one year.
|
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
|
|
Net Book Value at
December 31, 2007
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
256 Court Street
Auburn, ME 04212
|
|
|
1957
|
|
$
|
569
|
|
|
|
|
|
|
|
|
|
325 Sabattus St.
Lewiston, ME 04240
|
|
|
2003
|
|
$
|
1,277
|
|
The
net book value of our land, buildings, furniture, fixtures and equipment was
$2.0 million as of December 31, 2007.
Personnel
As
of December 31, 2007, 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.
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.
Subsidiaries
Auburn
Savings Bank, FSB does not have any subsidiaries.
60
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This
section is intended to help potential investors understand our views on our
results of operations and financial condition. You should read this discussion
in conjunction with the financial statements and notes to the financial
statements that appear at the end of this prospectus.
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 has
negatively affected 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 possible 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. Following the
stock offering, 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. For an illustration of these expenses, see Pro Forma
Data.
Following
completion of the reorganization and 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:
61
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
managements 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 borrowers 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 borrowers
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 loans effective interest rate, the loans 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 as an adjustment of the related
loan yield using the interest method.
62
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 December
31, 2007, we did not have any nonperforming loans in our total loan portfolio
and had only one repossessed asset for $124,000. Although we intend to
continue our efforts to originate commercial and multi-family loans after the
stock offering, 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
63
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 $1.5 million, or 17.4%, from June 30, 2007 to December 31, 2007 and
at December 31, 2007 comprised approximately 18.9% 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 December 31, 2007, 57.3% 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 December 31, 2007 and
June 30, 2007
Total
Assets. Total
assets increased by $1.1 million, or 1.68%, from $62.4 million at June 30, 2007
to $63.5 million at December 31, 2007. This increase was largely the result of
an increase in the number and dollar value of total loans.
Cash
and Cash Equivalents. Cash and correspondent bank balances increased by $370,000, or 41.9%,
from $885,000 at June 30, 2007 to $1.3 million at December 31, 2007. This
increase was primarily the result of a temporary increase in deposit balances
in the Federal Reserve Bank of Boston clearing account of $439,000. Cash and
short-term investments decreased by $1.5 million, or 45.6%, from $3.4 million
at June 30, 2007 to $1.9 million at December 31, 2007.
Certificates
of deposit. Certificate of deposit balances at
other banks increased by $1.4 million, or 230.8%, from $600,000 at June 30,
2007 to $2.0 million at December 31, 2007.
Securities
Available for Sale. The
investment portfolio available for sale aggregated $1.7 million at December 31, 2007, a decrease
of $658,000, or 27.8%, from $2.4 million at June 30, 2007. Within the
securities portfolio, U.S. Government-sponsored enterprise obligations
decreased by $648,000, partially offset by the purchase of U.S.
Government-sponsored enterprise common stock securities with a fair value of
$74,000. The decrease in U.S. Government-sponsored enterprise obligations was
primarily related to maturity of agency bonds. Mortgage-backed securities
decreased $65,000, or 10.8%, from $603,000 at June 30, 2007 to $538,000 million
at December 31, 2007.
Net
Loans. Including
loans held for sale, net loans increased $1.7 million, or 3.2%, from $52.8
million at June 30, 2007 to $54.5 million at December 31, 2007. Residential
mortgage loans decreased
64
$393,000, or 1.2%,
commercial real estate loans increased $1.3 million, or 17.8%, home equity
loans decreased $219,000, or 2.0%, construction loans increased $734,000, or
80.0%, commercial loans increased $186,000, or 14.8%, consumer installment
loans increased $51,000, or 10.3%.
Deposits
and Borrowed Funds.
Deposits increased $111,000, from $44.9 million at June 30, 2007 to $45.0
million at December 31, 2007. Demand accounts decreased $593,000, or 21.2%, NOW
accounts decreased $260,000, or 11.6%, savings accounts increased $23,000, or
0.9%, money market accounts decreased $852,000, or 9.1%, and certificates of
deposits increased $1.8 million, or 6.5%. The decrease in demand accounts and
NOW accounts is primarily related to an increase in the investment in higher
rate certificates of deposit and the loss of a significant market deposit
account customer to a brokerage firm.
Total
borrowings from the Federal Home Loan Bank of Boston increased $750,000, or
5.8%, from $12.9 million as of June 30, 2007 to $13.7 million as of December
31, 2007, as increases were used to fund growth in loans.
Total
Capital. Retained
earnings increased by $137,000, comprised of net income of $84,000 and the
cumulative effect of capitalizing mortgage servicing rights of $53,000, and was
offset slightly by other comprehensive loss of $6,000 related to unrealized
depreciation in investment securities available for sale, which led to an
overall total capital increase of $131,000.
Comparison of Financial Condition at June 30, 2007 and June
30, 2006
Total
Assets. Total
assets decreased by $1.8 million, or 2.8%, from $64.2 million at June 30, 2006
to $62.4 million at June 30, 2007. This decrease in total assets resulted largely
from decreases in net loans and investment securities available for sale of
$2.1 million, partially offset by an increase in cash and cash equivalents of
$775,000.
Cash
and Cash Equivalents. Cash and correspondent bank balances decreased by $1.6 million, or
63.9%, from $2.5 million at June 30, 2006 to $885,000 at June 30, 2007,
primarily due to a decrease in deposit balances with Federal Reserve Bank of
Boston of $1.0 million. Cash and short-term investments increased by $775,000,
or 29.4%.
Certificates
of deposit. Certificate of deposit balances in
other banks decreased by $202,000, or 25.3%, from $796,000 at June 30, 2006 to
$594,000 at June 30, 2007.
Securities
Available for Sale. The investment
portfolio available for sale aggregated $2.4 million at June 30, 2007, a decrease of $1.1 million,
or 31.5%, from $3.5 million at June 30, 2006. The decrease was primarily
related to the sale of $750,000 in Freddie Mac Preferred Stock. Mortgage-backed
securities decreased $226,000, or 27.3%, from $829,000 at June 30, 2006 to
$603,000 at June 30, 2007 and SBA securities decreased $60,000, or 32.8%, from
$181,000 at June 30, 2006 to $121,000 at June 30, 2007. U.S.
Government-sponsored enterprise obligations increased by $7,000, or 1.1%.
Net
Loans. Including
loans held for sale, net loans decreased $1.1 million, or 2.0%, from $53.9
million at June 30, 2006 to $52.8 million at June 30, 2007. Residential
mortgage loans decreased $1.5 million, or 4.7%, commercial real estate loans
increased $1.3 million, or 21.6%, home equity loans increased $734,000, or
7.1%, construction loans decreased $1.4 million, or 60.8%, commercial loans
decreased $117,000, or 8.5% and consumer installment loans decreased $42,000,
or 7.7%.
Deposits
and Borrowed Funds.
Deposits decreased slightly from $45.0 million at June 30, 2006 to $44.9
million at June 30, 2007. Demand accounts decreased $1.2 million, or 30.2%, NOW
accounts
65
increased $1.1 million, or
81.4%, savings accounts decreased $245,000, or 8.7%, money market accounts
decreased $1.8 million, or 15.9%, and certificates of deposits increased $2.1
million, or 8.3%. The decrease in
demand accounts and savings accounts is primarily the result of customers
transferring money into certificates of deposit with higher rates of interest.
Total
borrowings from the Federal Home Loan Bank of Boston decreased $1.9 million, or
12.5%, from $14.8 million as of June 30, 2006 to $12.9 million as of June 30,
2007. This decrease was the result of
paying down Federal Home Loan Bank of Boston advances from the sale of $1.2
million in fixed rate mortgage loans and $670,000 in cash and due from bank
balances.
Total
Capital. Retained
earnings increased by $120,000, comprised solely of net income for the year
ended June 30, 2007. Accumulated other comprehensive loss decreased from
$(79,000) at June 30, 2006 to $(12,000) at June 30, 2007, a result of net
unrealized gains arising during the year, which led to an overall total capital
increase of $186,000.
Comparison of Operating Results For the Six Months Ended December
31, 2007 and December 31, 2006
Net
Income. Net
income increased $14,000, or 20.6%, to $84,000 for the six months ended
December 31, 2007 compared to $69,000 for the six months ended December 31,
2006. The increase was primarily the result of an increase in net interest
income, offset by an increase in non-interest expense.
Net
Interest Income.
The tables on pages [ ] set forth the components of our 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 $8,000 or 1.1%, from $792,000 in the six months ended December
31, 2006 to $800,000 in the six months ended December 31, 2007.
The
increase in volume of interest-earning assets increased interest income by
$10,000, while the increase in the volume of interest-bearing liabilities
increased interest expense by $10,000. The changes in volume had no effect on
net interest income. Changes in rate had the effect of increasing net interest
income by $8,000. The increase in net interest income attributable to higher
yields on interest-earning assets totaled $60,000 compared to a $52,000
increase in net interest income attributable to higher rates on interest-bearing
liabilities. Net interest margin was 2.68% for both the six months ended
December 31, 2006 and for the six months ended December 31, 2007. During much
of the six months ended December 31, 2007, short term interest rates remained
comparatively high relative to long term rates. Management expects to see
short-term interest rates decline faster than long-term rates as a result of
actions taken by the Federal Reserve.
Interest
Income. Interest
income increased from $1.9 million for the six months ended December 31, 2006
to $2.0 million for the six months ended December 31, 2007. This increase of
$70,000, or 3.6% was due principally to increases rates. Interest income on
loans increased by $49,000, or 2.7% and interest income on securities and
interest-bearing deposits increased by $21,000, or 15%.
Interest
Expense. Interest
expense increased by $62,000, or 5.3%, to $1.2 million for the six months ended
December 31, 2007. The increase was due to an increase in deposits and an
overall increase in interest rates on deposits. Average deposit balances
increased $646,000, while average rates increased from 3.54% to 3.83%. Average
borrowings balances decreased from $13.5 million to $13.0 million. The average
rate on borrowings remained unchanged at 5.48%.
Provision
for Loan Losses.
Our provision for loan losses decreased from $18,000 for the six months ended
December 31, 2006 to $(7,000) for the six months ended December 31, 2007. Net
loan
66
charge-offs for six months
ended December 31, 2006 and 2007 were $1,200 and $1,300,respectively. The allowance for loan losses of $309,000
at December 31,
2007 represented 0.56% of total loans, as compared to an allowance of $302,000,
representing 0.58% of total loans at December 31, 2006. Our analysis of
the adequacy of the allowance considers economic conditions, historical losses
and managements estimate of losses inherent in the portfolio. For further
discussion of our current methodology, please refer to Our Business.
Non-interest
Income. Total
non-interest income increased $25,000, or 48.1%, to $77,000 for the six months
ended December 31, 2007, as compared to $52,000 for the six months ended
December 31, 2006. There was a $2,000 decrease in gains realized on the sale of
fixed rate residential mortgage loans sold into the secondary market for the
six months ended December 31, 2007 as compared to the six months ended December
31, 2006. This decrease was offset partially by an increase in consumer and
commercial deposit fees of $8,000 and a $21,000 change in the value of our
hedges.
Non-interest
Expense. Non-interest
expense increased $38,000, or 5.3%, to $765,000 for the six months ended
December 31, 2007 as compared to $726,000 for the six months ended December 31,
2006. The increase was primarily
attributable to increases in salary and benefits, computer expense and
consulting expenses of $24,000, $9,000 and $10,000, respectively. These
increases were offset partially by decreases in occupancy and depreciation
expenses of $12,000.
Income
Taxes. Income tax
expense was $36,000 for the six months ended December 31, 2007, reflecting an
effective tax rate of 29.9% compared to $30,000 for the six months ended
December 31, 2006, reflecting an effective tax rate of 30.0%. The increase in
income taxes was due to higher pre-tax earnings.
Comparison of Operating Results For the Years Ended June 30,
2007 and June 30, 2006
Net
Income. Net
income decreased $6,000, or 4.9%, to $120,000 for the year ended June 30, 2007
compared to $126,000 for the year ended June 30, 2006. The decrease was
primarily the result of an increase in non-interest income of $29,000 and a
decrease in the provision for loan losses of $28,000, which were more than
offset by an increase in non-interest expenses of $63,000.
Net
Interest Income.
The tables on pages [ ] set forth the components of the Banks 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 $14,000, or 0.9%, from $1.55 million in the year
ended June 30, 2006 to $1.57 million in the year ended June 30, 2007. 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 both an increase in volume of interest-bearing
liabilities and increases in rates on interest-bearing liabilities.
The
increase in volume of interest-earning assets increased interest income by
$129,000, while the increase in the volume of interest-bearing liabilities
increased interest expense by $64,000. The changes in volume had the effect of
increasing net interest income by $65,000. The increase in net interest income
associated with volume was offset, however, by changes in rate, which had the
effect of decreasing net interest income by $51,000. The increase in net
interest income attributable to higher yields on interest-earning assets
totaled $314,000 compared to a $365,000 increase in net interest income
attributable to higher rates on interest-bearing liabilities. Net interest
margin decreased from 2.73% for the year ended June 30, 2006 to 2.67% for the
year ended June 30, 2007. During fiscal 2007, short-term market interest rates
increased at a faster rate than did longer-term market interest rates.
67
Interest
and Dividend Income.
Total interest and dividend income increased from $3.5 million for the year
ended June 30, 2006 to $3.9 million for the year ended June 30, 2007. This increase of $443,000, or 12.8%, 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 $414,000, or 12.9%, and interest income on securities and
interest-bearing deposits increased by $29,000, or 11.1%.
Interest
Expense. Interest
expense increased by $429,000, or 22.5%, from the year ended June 30, 2006 to
the year ended June 30, 2007, due primarily to rising interest rates on
deposits. Average deposit balances increased $1.7 million, while average rates
increased from 2.80% to 3.65%. Average borrowings decreased from $13.7 million
to $13.2 million. The average rate on borrowings increased from 5.22% to 5.44%.
Provision
for Loan Losses.
The Banks provision for loan losses decreased from $62,000 for the year ended
June 30, 2006 to $34,000 for the year ended June 30, 2007. Net loan charge-offs
for the years ended June 30, 2007 and 2006 were $2,000 and $10,000,
respectively. The allowance for loan losses of $318,000 at June 30, 2007
represented 0.60% of total loans, as compared to an allowance of $290,000,
representing 0.54% of total loans at June 30, 2006. Our analysis of the
adequacy of the allowance considers economic conditions, historical losses, and
managements 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 $83,000 for the year ended June 30, 2006 to
$112,000 for the year ended June 30, 2007. The increase was due to a $21,000
increase in gains realized on the sale of loans into the secondary market for
the year ended June 30, 2007, an increase of $4,000 in gains realized on the
sales of investments and an increase in other non-interest income of $4,000.
Non-interest
Expense. Non-interest
expense increased $63,000, or 4.5%, to $1.5 million for the year ended June 30,
2007 as compared to $1.4 million for the year ended June 30, 2006. The increase
was primarily attributable to increases in employee salaries and benefits of
$51,000, an increase in occupancy expense of $7,000, an increase in computer
charges of $13,000 and an increase in other operating expenses of $7,000. These
increases were offset partially by small decreases in depreciation, federal
insurance premiums, advertising expense and consulting expense.
Income
Taxes. Income tax
expense was $50,000 for the year ended June 30, 2007, reflecting an effective
tax rate of 29.4%, compared $36,000 for the year ended June 30, 2006,
reflecting an effective tax rate of 22.2%. The increase in income taxes was due
to higher pre-tax earnings and an increase in the effective tax rate. The
increase in the effective tax rate was due to the 2006 income on tax advantaged
investments being higher as a percentage of pre-tax income than in 2007.
68
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 tables set 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.
69
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|
|
|
|
|
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|
Six Months
Ended December 31,
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At
December 31, 2007
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|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
Balance
|
|
Weighted
Average
Rate
|
|
Average
Outstanding
Balance
|
|
Interest
|
|
Yield/Rate(1)
|
|
Average
Outstanding
Balance
|
|
Interest
|
|
Yield/Rate(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars
in Thousands)
|
|
Interest-earning
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
54,475
|
|
|
6.8
|
%
|
$
|
53,251
|
|
$
|
1,861
|
|
|
7.0
|
%
|
$
|
53,100
|
|
$
|
1,812
|
|
|
6.8
|
%
|
Investment securities(2)
|
|
|
2,608
|
|
|
5.5
|
%
|
|
2,837
|
|
|
77
|
|
|
5.4
|
%
|
|
4,333
|
|
|
97
|
|
|
4.5
|
%
|
Interest-earning deposits
|
|
|
2,568
|
|
|
4.7
|
%
|
|
3,563
|
|
|
85
|
|
|
4.8
|
%
|
|
1,667
|
|
|
44
|
|
|
5.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning
assets
|
|
|
59,651
|
|
|
6.7
|
%
|
|
59,651
|
|
$
|
2,023
|
|
|
6.8
|
%
|
|
59,100
|
|
$
|
1,953
|
|
|
6.6
|
%
|
Non-interest-earning assets
|
|
|
3,807
|
|
|
|
|
|
3,356
|
|
|
|
|
|
|
|
|
3,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
63,458
|
|
|
|
|
$
|
63,007
|
|
|
|
|
|
|
|
$
|
62,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
2,609
|
|
|
0.8
|
%
|
$
|
2,539
|
|
$
|
11
|
|
|
0.8
|
%
|
$
|
2,746
|
|
$
|
12
|
|
|
0.8
|
%
|
NOW accounts
|
|
|
1,980
|
|
|
0.7
|
%
|
|
1,941
|
|
|
9
|
|
|
0.9
|
%
|
|
1,512
|
|
|
4
|
|
|
0.5
|
%
|
Money market accounts
|
|
|
8,488
|
|
|
3.1
|
%
|
|
9,284
|
|
|
156
|
|
|
3.4
|
%
|
|
9,982
|
|
|
167
|
|
|
3.4
|
%
|
Certificates of deposit
|
|
|
29,715
|
|
|
4.7
|
%
|
|
28,944
|
|
|
692
|
|
|
4.8
|
%
|
|
27,464
|
|
|
608
|
|
|
4.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
deposits
|
|
|
42,792
|
|
|
4.0
|
%
|
|
42,708
|
|
|
868
|
|
|
4.1
|
%
|
|
41,704
|
|
|
791
|
|
|
3.8
|
%
|
FHLB advances
|
|
|
13,650
|
|
|
5.4
|
%
|
|
12,973
|
|
|
355
|
|
|
5.5
|
%
|
|
13,510
|
|
|
370
|
|
|
5.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities
|
|
$
|
56,442
|
|
|
4.3
|
%
|
$
|
55,681
|
|
$
|
1,223
|
|
|
4.4
|
%
|
$
|
55,214
|
|
$
|
1,161
|
|
|
4.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
2,199
|
|
|
|
|
$
|
2,563
|
|
|
|
|
|
|
|
$
|
2,921
|
|
|
|
|
|
|
|
Other non-interest-bearing liabilities
|
|
|
336
|
|
|
|
|
|
261
|
|
|
|
|
|
|
|
|
216
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
58,977
|
|
|
|
|
|
58,505
|
|
|
|
|
|
|
|
|
58,351
|
|
|
|
|
|
|
|
Total capital
|
|
|
4,481
|
|
|
|
|
|
4,502
|
|
|
|
|
|
|
|
|
4,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
capital
|
|
$
|
63,458
|
|
|
|
|
$
|
63,007
|
|
|
|
|
|
|
|
$
|
62,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
|
|
|
|
|
|
$
|
800
|
|
|
|
|
|
|
|
$
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread(3)
|
|
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
2.4
|
%
|
Net Interest-earning
assets(4)
|
|
$
|
3,209
|
|
|
|
|
$
|
3,970
|
|
|
|
|
|
|
|
$
|
3,886
|
|
|
|
|
|
|
|
Net interest margin(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
2.7
|
%
|
Average of interest-earning assets to
interest-bearing liabilities
|
|
|
105.7
|
%
|
|
|
|
|
107.1
|
%
|
|
|
|
|
|
|
|
107.0
|
%
|
|
|
|
|
|
|
|
|
(1)
|
Yield and
rate for the six month periods ended December 31, 2007 and December 31, 2006
are annualized.
|
|
|
(2)
|
Consists
entirely of taxable investment securities.
|
|
|
(3)
|
Net interest
rate spread represents the difference between the yield on average
interest-earning assets and the cost of average interest-bearing liabilities.
|
|
|
(4)
|
Net
interest-earning assets represents total interest-earning assets less total
interest-bearing liabilities.
|
|
|
(5)
|
Net interest
margin represents net interest income divided by average total
interest-earning assets.
|
70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Years Ended June 30,
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
Average
Outstanding
Balance
|
|
Interest
|
|
Yield/Rate
|
|
Average
Outstanding
Balance
|
|
Interest
|
|
Yield/ Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
52,773
|
|
$
|
3,616
|
|
|
6.9
|
%
|
$
|
50,545
|
|
$
|
3,202
|
|
|
6.3
|
%
|
Investment securities(1)
|
|
|
3,894
|
|
|
185
|
|
|
4.8
|
%
|
|
4,511
|
|
|
201
|
|
|
4.5
|
%
|
Interest-earning deposits
|
|
|
2,050
|
|
|
107
|
|
|
5.2
|
%
|
|
1,958
|
|
|
62
|
|
|
3.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning
assets
|
|
|
58,717
|
|
$
|
3,908
|
|
|
6.7
|
%
|
|
57,014
|
|
$
|
3,465
|
|
|
6.0
|
%
|
Non-interest-earning assets
|
|
|
3,439
|
|
|
|
|
|
|
|
|
3,782
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
62,156
|
|
|
|
|
|
|
|
$
|
60,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
2,662
|
|
$
|
22
|
|
|
0.8
|
%
|
$
|
2,957
|
|
$
|
25
|
|
|
0.9
|
%
|
NOW accounts
|
|
|
1,628
|
|
|
9
|
|
|
0.6
|
%
|
|
1,158
|
|
|
5
|
|
|
0.5
|
%
|
Money market accounts
|
|
|
9,504
|
|
|
326
|
|
|
3.4
|
%
|
|
10,342
|
|
|
259
|
|
|
2.5
|
%
|
Certificates of deposit
|
|
|
27,726
|
|
|
1,262
|
|
|
4.6
|
%
|
|
25,116
|
|
|
904
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
deposits
|
|
|
41,520
|
|
|
1,619
|
|
|
3.9
|
%
|
|
39,573
|
|
|
1,193
|
|
|
3.0
|
%
|
FHLB advances
|
|
|
13,234
|
|
|
720
|
|
|
5.4
|
%
|
|
13,735
|
|
|
717
|
|
|
5.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities
|
|
$
|
54,754
|
|
$
|
2,339
|
|
|
4.3
|
%
|
$
|
53,308
|
|
$
|
1,910
|
|
|
3.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits
|
|
$
|
2,840
|
|
|
|
|
|
|
|
$
|
3,105
|
|
|
|
|
|
|
|
Other non-interest-bearing liabilities
|
|
|
227
|
|
|
|
|
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
57,821
|
|
|
|
|
|
|
|
|
56,617
|
|
|
|
|
|
|
|
Total capital
|
|
|
4,335
|
|
|
|
|
|
|
|
|
4,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and
capital
|
|
$
|
62,156
|
|
|
|
|
|
|
|
$
|
60,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
|
|
$
|
1,569
|
|
|
|
|
|
|
|
$
|
1,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest rate spread(2)
|
|
|
|
|
|
|
|
|
2.4
|
%
|
|
|
|
|
|
|
|
2.5
|
%
|
Net interest-earning
assets(3)
|
|
$
|
3,963
|
|
|
|
|
|
|
|
$
|
3,706
|
|
|
|
|
|
|
|
Net interest margin(4)
|
|
|
|
|
|
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
2.7
|
%
|
Average of interest-earning assets to
interest-bearing liabilities
|
|
|
107.2
|
%
|
|
|
|
|
|
|
|
107.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
71
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).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
Ended December 31,
2007 vs. 2006
|
|
Fiscal
Years Ended June 30,
2007 vs. 2006
|
|
|
|
|
|
|
|
|
|
Increase
(Decrease)
Due to
|
|
Net
Increase
(Decrease)
|
|
Increase
(Decrease)
Due to
|
|
Net
Increase
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
Volume
|
|
Rate
|
|
|
Volume
|
|
Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
$
|
5
|
|
$
|
44
|
|
$
|
49
|
|
$
|
153
|
|
$
|
261
|
|
$
|
414
|
|
Investment securities
|
|
|
(40
|
)
|
|
20
|
|
|
(20
|
)
|
|
(29
|
)
|
|
13
|
|
|
(16
|
)
|
Interest-earning deposits
|
|
|
45
|
|
|
(4
|
)
|
|
41
|
|
|
5
|
|
|
40
|
|
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-earning
assets
|
|
$
|
10
|
|
$
|
60
|
|
$
|
70
|
|
$
|
129
|
|
$
|
314
|
|
$
|
443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings deposits
|
|
$
|
(1
|
)
|
$
|
|
|
$
|
(1
|
)
|
$
|
(2
|
)
|
$
|
(1
|
)
|
$
|
(3
|
)
|
NOW accounts
|
|
|
2
|
|
|
3
|
|
|
5
|
|
|
3
|
|
|
1
|
|
|
4
|
|
Money market accounts
|
|
|
(12
|
)
|
|
|
|
|
(12
|
)
|
|
(29
|
)
|
|
96
|
|
|
67
|
|
Certificates of deposit
|
|
|
36
|
|
|
49
|
|
|
85
|
|
|
119
|
|
|
239
|
|
|
358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
|
25
|
|
|
52
|
|
|
77
|
|
|
91
|
|
|
335
|
|
|
426
|
|
Federal Home Loan Bank of Boston
advances
|
|
|
(15
|
)
|
|
|
|
|
(15
|
)
|
|
(27
|
)
|
|
30
|
|
|
3
|
|
Repurchase agreements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest-bearing
liabilities
|
|
$
|
10
|
|
$
|
52
|
|
$
|
62
|
|
$
|
64
|
|
$
|
365
|
|
$
|
429
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in net interest income
|
|
$
|
|
|
$
|
8
|
|
$
|
8
|
|
$
|
65
|
|
$
|
(51
|
)
|
$
|
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
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 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:
72
|
|
|
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 Banks 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 December 31, 2007, the
fair value of the interest rate floor and cap is $12,147 and $41, 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
institutions cash flow from assets, liabilities and off balance sheet items
(the institutions 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 Banks
net portfolio value at December 31, 2007 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.
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Portfolio Value
|
|
NPV as a Percentage of
Present
Value of Assets(3)
|
|
|
|
|
|
|
|
Change in
Interest
Rates
(basis
points) (1)
|
|
Amount
|
|
Change
|
|
Percent
Change
|
|
NPV
Ratio
(4)
|
|
Increase
(Decrease)
(basis
points)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
+300
|
|
$
|
3,035
|
|
|
(2,590
|
)
|
|
(46
|
%)
|
|
4.92
|
%
|
$
|
(371
|
)
|
+200
|
|
|
4,061
|
|
|
(1,565
|
)
|
|
(28
|
%)
|
|
6.45
|
%
|
|
(218
|
)
|
+100
|
|
|
4,928
|
|
|
(697
|
)
|
|
(12
|
%)
|
|
7.69
|
%
|
|
(95
|
)
|
+50
|
|
|
5,301
|
|
|
(324
|
)
|
|
(6
|
%)
|
|
8.20
|
%
|
|
(43
|
)
|
0
|
|
|
5,625
|
|
|
0
|
|
|
0
|
%
|
|
8.63
|
%
|
|
0
|
|
-50
|
|
|
5,879
|
|
|
254
|
|
|
5
|
%
|
|
8.96
|
%
|
|
33
|
|
-100
|
|
|
6,069
|
|
|
444
|
|
|
8
|
%
|
|
9.20
|
%
|
|
56
|
|
-200
|
|
|
6,334
|
|
|
708
|
|
|
13
|
%
|
|
9.50
|
%
|
|
87
|
|
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 12%, 28% for a
200 basis point increase and 46% 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 8% and 13% for a
200 basis point decrease. 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 December 31, 2007,
cash and cash equivalents totaled $1.9 million, including interest-earning
deposits of $603,000. Securities classified as available-for-sale, which
provide additional sources of liquidity, totaled $1.7 million at
December 31, 2007. On December 31, 2007, we had $13.7 million of outstanding
borrowings from the Federal Home Loan Bank of Boston, and the ability to borrow
an additional $8.9 million from the Federal Home Loan Bank of Boston. However,
our internal policy limits Federal Home Loan Bank of Boston advances to 35.0%
of assets, which was equal to $22.2 million, or an additional $8.5 million, at
December 31, 2007.
74
At
December 31, 2007, we had $2.2 million in loan commitments outstanding. In
addition to commitments to originate loans, we also had $707,000 in unused
lines of credit. Certificates of deposit due within one year of
December 31, 2007 totaled $27.1 million, or 60% 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.
The
following table presents our primary investing and financing activities during
the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
December 31,
2007
|
|
|
|
|
|
|
Years Ended June 30,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars in Thousands)
|
|
Cash flows from investing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Loan originations, net of amortization and
repayments
|
|
$
|
(1,693
|
)
|
|
$
|
1,074
|
|
$
|
(5,787
|
)
|
Principal repayments and maturities from
securities
|
|
|
1,226
|
|
|
|
1,174
|
|
|
389
|
|
Purchases of securities
|
|
|
(577
|
)
|
|
|
0
|
|
|
(1,250
|
)
|
Cash flows from financing
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Increase in deposits
|
|
$
|
112
|
|
|
$
|
(130
|
)
|
$
|
3,531
|
|
Net increase (decrease) in borrowings
|
|
$
|
750
|
|
|
$
|
(1,850
|
)
|
$
|
1,350
|
|
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 December 31, 2007, we
exceeded all of our regulatory capital requirements. We are considered
well-capitalized under regulatory guidelines. See Supervision and RegulationFederal
Banking RegulationCapital
Requirements, Regulatory
Capital Compliance and note 11 of the notes to the financial
statements.
The
capital from the stock offering will increase our liquidity and capital
resources. Over time, the initial level of liquidity will be reduced as net
proceeds from the stock offering are used for general corporate purposes,
including repaying a portion of our borrowings. Our financial condition and
results of operations will be enhanced by the capital from the reorganization,
resulting in increased net interest-earning assets and net income. However, due
to the increase in equity resulting from the capital raised in the stock
offering, return on equity will be adversely affected following the
reorganization.
75
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 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 our 2009 fiscal year, with early
adoption permitted for our 2008 fiscal year, provided that we also adopt 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 us on July 1, 2008, with earlier adoption
permitted for fiscal year 2008, and is not expected to have a material impact
on our 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 enterprises 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
Auburn Savings Bank on July 1, 2007, and did not have a material impact on its
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 companys first fiscal year
after September 15, 2006. Earlier adoption is permitted as of the beginning of
an entitys fiscal year, provided the entity has not yet issued financial
statements, including interim financial statements. Auburn Savings 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.
76
MANAGEMENT
Board of Directors
The
initial board of directors of Auburn Bancorp, Inc. will consist of the seven
current directors of Auburn Savings Bank and Allen T. Sterling, Auburn Savings
Banks current President and Chief Executive Officer. The board of directors of
Auburn Bancorp, Inc. will be elected to terms of three years, approximately
one-third of whom will be elected annually. All of our directors are
independent as defined under the Nasdaq Marketplace Rules, except for Allen T.
Sterling, our President and Chief Executive Officer. Information regarding the
directors is provided below. Unless otherwise stated, each person has held his
or her current occupation for the last five years. Ages presented are as of
December 31, 2007.
The following
directors will have terms ending in 2008:
M.
Kelly Matzen is a Senior Partner at the law firm of
Trafton & Matzen, LLP, where he has worked since 1973. Mr. Matzen has
served as a director since 2001. Age 60.
Allen
T. Sterling has served as President and Chief
Executive Officer of Auburn Savings Bank since June 1996. Prior to joining
Auburn Savings Bank, Mr. Sterling was the Chief Financial Officer of Skowhegan
Savings Bank, in Skowhegan, Maine, from 1973 to 1994. Age 54.
Philip
R. St. Pierre has owned and operated Victor News
Company Inc., a convenience store located in Lewiston, Maine, since 1984. Mr.
St. Pierre has served as a director since 1995 and as Vice Chairperson since
2001. Age 52.
The following
directors will have terms ending in 2009:
August
M. Berta retired as Chief Executive Officer of Auburn
Savings Bank in 1996, after serving as Chief Executive Officer from 1981 to
1996. Mr. Berta has served as a director since 1981. Age 79.
Peter
E. Chalke is the President and Chief Executive Officer
of Central Maine Medical Center and Central Maine Healthcare. Mr. Chalke has
served as a director since 1998. Age 58.
Sharon
A. Millett is President of Millett Realty, Inc., a
commercial and residential real estate firm, where she has worked since 1989.
Ms. Millett has served as a director since 2004. Age 59.
The following
directors will have terms ending in 2010:
Bonnie
G. Adams retired as a small business owner in the
travel industry in 2003. Since then, she has served as Director of Major Gifts
and Annual Giving for Maine Public Broadcasting from 2003 to 2004 and as a
hotel manager from 2004 to 2007. Ms. Adams is currently the personal
representative for a commercial real estate developer. Ms. Adams has served as
a director since 1998. Age 59.
Claire
D. Thompson is a CPA and shareholder at Austin
Associates, PA, where she has worked since 1982. Ms. Thompson has served as a
director since 1984, and as Chairperson since 1998. Age 56.
Executive Officers
The
initial executive officers of Auburn Bancorp, Inc. will be the same as those of
Auburn Savings Bank. These executive officers are elected annually by the board
of directors and serve at the
77
boards
discretion. The executive officers of Auburn Savings Bank are, and the
executive officers of Auburn Bancorp, Inc. will be:
|
|
|
|
|
Name
|
|
Title
|
|
|
|
|
|
Allen T.
Sterling
|
|
President
and Chief Executive Officer
|
Bruce M. Ray
|
|
Senior Vice
President and Senior Loan Officer
|
Martha L.
Adams
|
|
Senior Vice
President and Operations Officer
|
Rachel A. Haines
|
|
Senior Vice
President and Treasurer
|
Jason M.
Longley
|
|
Vice
President and Commercial Loan Officer
|
Below
is information regarding our executive officers who will not also be directors
of Auburn Bancorp, Inc. Ages presented are as of December 31, 2007.
Bruce
M. Ray has served as Senior Vice President and Senior
Loan Officer since 1997. Prior to 1997, he served as Vice President and Lender
at Mechanics Savings Bank from 1980 to 1996 and as Mortgage Loan Officer at
Skowhegan Savings Bank from 1972 to 1980. Age 58.
Martha
L. Adams has served as Senior Vice President and
Operations Officer since 2005, and has been employed at Auburn Savings Bank
since December 2000. Age 44.
Rachel
A. Haines has served as Senior Vice President and
Treasurer since 2005, and has been employed at Auburn Savings Bank since April,
1986. Age 41.
Jason
M. Longley has served as Commercial Loan Officer since
2005 and as Vice President since 2007, and has been employed at Auburn Savings
Bank since 2005. Prior to joining Auburn Savings Bank, Mr. Longley was a
Commercial Loan Analyst at Mechanics Savings Bank in Auburn, Maine from 2003
to 2005. Age 27.
Meetings and Committees of the Board of
Directors
We
conduct business through meetings of our board of directors and its committees.
During the fiscal year ended June 30, 2007, the board of directors of Auburn
Savings Bank met 14 times.
In
connection with the formation of Auburn Bancorp, Inc., the board of directors
will establish an Audit Committee, a Compensation Committee and a Nominating
and Corporate Governance Committee prior to the closing of the stock offering.
The
Audit Committee will consist of Claire D. Thompson (Chairperson), Sharon A.
Millett and Philip R. St. Pierre. The Audit Committee will be responsible for
providing oversight relating to our financial statements and financial
reporting process, systems of internal accounting and financial controls,
internal audit function, annual independent audit and the compliance and ethics
programs established by management and the board. Each member of the Audit
Committee is independent in accordance with the listing standards of the Nasdaq
Global Market. The board of directors of Auburn Bancorp, Inc. will designate
Claire D. Thompson as an audit committee financial expert under the rules of
the Securities and Exchange Commission. Auburn Bancorp, Inc.s Audit Committee
will operate under a written charter, which will govern its composition,
responsibilities and operations.
The
Compensation Committee will consist of Peter E. Chalke (Chairperson), M. Kelly
Matzen and Sharon A. Millett. The Compensation Committee will be responsible
for determining the compensation of our Chief Executive Officer and our other
executive officers, or for recommending the compensation of such persons to the
full Board of Directors for approval. Each member of the
78
Compensation
Committee is independent in accordance with the listing standards of the Nasdaq
Global Market. The Compensation Committee will operate under a written charter,
which will govern its composition, responsibilities and operations.
The
Nominating and Corporate Governance Committee will consist of M. Kelly Matzen
(Chairperson), Bonnie G. Adams and August M. Berta. The Nominating and
Corporate Governance Committee will be responsible for selecting director
nominees, or recommending the selection of director nominees to the full Board
of Directors, and for developing and recommending corporate governance
principles for Auburn Bancorp, Inc. as a whole. Each member of the Nominating
and Corporate Governance Committee is independent in accordance with the
listing standards of the Nasdaq Global Market. The Nominating and Corporate
Governance Committee will operate under a written charter, which will govern
its composition, responsibilities and operations.
Initially,
all of the directors of Auburn Bancorp, Inc. will also serve on the board of
directors of Auburn Savings Bank. Auburn Savings Banks Board of Directors has
established five additional committeesthe Asset and Liability Committee, the
Community Reinvestment Committee, the Marketing Committee, the Compliance
Committee and the Loan Committee.
Corporate Governance Policies and Procedures
In
addition to establishing committees of the board of directors, Auburn Bancorp,
Inc. will also adopt several policies to govern the activities of Auburn
Bancorp, Inc. and cause Auburn Savings Bank to revise existing policies governing
the activities of Auburn Savings Bank including a code of business conduct and
ethics. The code of business conduct and ethics, which will apply to all
employees and directors, will address conflicts of interest, the treatment of
confidential information, general employee conduct and compliance with
applicable laws, rules and regulations. In addition, the code of business
conduct and ethics will be designed to deter wrongdoing and to promote honest
and ethical conduct, the avoidance of conflicts of interest, full and accurate
disclosure and compliance with all applicable laws, rules and regulations.
79
Directors Compensation
Upon
completion of the reorganization and stock offering, each non-employee director
of Auburn Auburn Bancorp, Inc. and Auburn Savings Bank will receive $350 per
meeting of the board of directors, except for the Chairperson, who will receive
$450 per meeting. In addition, each member of a committee of either Auburn
Bancorp, Inc. or Auburn Savings Bank will receive $175 per meeting. Directors
do not receive per meeting fees for any meeting that they do not attend. In the
event that the board of directors of Auburn Bancorp, Inc. meets immediately
before or after an Auburn Savings Bank board meeting the directors will not
receive compensation with respect to the Auburn Bancorp, Inc. meeting.
Directors do not receive annual retainers for their service on the board of
directors of Auburn Bancorp, Inc. or Auburn Savings Bank.
The
following table provides compensation information for each director of Auburn
Savings Bank for the fiscal year ended June 30, 2007. Allen T. Sterling, who
will serve as a director of Auburn Savings Bank, Auburn Bancorp, Inc. and
Auburn Bancorp, MHC after the reorganization and stock offering, did not serve
as a director of Auburn Savings Bank before the reorganization and stock
offering.
|
|
|
|
|
|
|
|
|
|
|
Name
|
|
Fees Earned or
Paid in Cash
|
|
All Other
Compensation (1)
|
|
Total
|
|
|
|
|
|
|
|
|
|
Bonnie G. Adams
|
|
$
|
5,425
|
|
$
|
|
|
$
|
5,425
|
|
August M. Berta
|
|
|
5,600
|
|
|
|
|
|
5,600
|
|
Peter E. Chalke
|
|
|
4,200
|
|
|
|
|
|
4,200
|
|
M. Kelly Matzen
|
|
|
4,200
|
|
|
|
|
|
4,200
|
|
Sharon A. Millett
|
|
|
4,550
|
|
|
|
|
|
4,550
|
|
Philip R. St. Pierre
|
|
|
6,475
|
|
|
|
|
|
6,475
|
|
Claire D. Thompson
|
|
|
7,875
|
|
|
|
|
|
7,875
|
|
|
|
|
(1)
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Auburn Savings Bank makes
payments for travel accident and felonious assault insurance coverage for
each director, which totaled $18 in fiscal 2007.
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80
Executive Compensation
Summary
Compensation Table. The following table sets forth for
the fiscal year ended June 30, 2007 certain information as to the total
remuneration paid by Auburn Savings Bank to its Chief Executive Officer, who is
the only executive officer to receive annual compensation in excess of
$100,000.
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Name and principal position
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Year
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Salary
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Bonus
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All Other
Compensation
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Total
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Allen T. Sterling
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President & Chief
Executive Officer
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2007
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$
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103,700
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$
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1,511
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$
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525
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(1)
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$
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105,736
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(1)
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Consists of employer
matching contributions under the Auburn Savings & Loan 401(k) Plan.
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Bonus Plan
Auburn
Savings Bank maintains an incentive program to reward employees when Auburn
Savings Bank meets or exceeds the performance criteria determined annually by
the board of directors. All employees who have satisfactorily completed one
year of employment and who were in the employ of Auburn Savings Bank as of
fiscal year-end are eligible to participate in the performance bonus system.
Incentive payments are paid at the discretion of the board of directors. The
board of directors may, at any time, vote to suspend or amend the incentive
program if they feel it is necessary for the prudent operation of Auburn
Savings Bank to do so. For fiscal 2007, each employee of Auburn Savings Bank
received a bonus between 0.50% and 1.5% of his or her salary, depending on his
or her level of responsibility. Mr. Sterling received a bonus equal to 1.5% of
his salary.
Proposed Employment Agreement
In
connection with the reorganization and stock offering, Auburn Savings Bank
intends to enter into an employment agreement with Allen T. Sterling. The
employment agreement will provide for a two-year initial term, subject to
annual renewal by the board of directors for an additional year beyond the
then-current expiration date. Mr. Sterlings initial base salary under the
employment agreement will be $103,700 per year. The agreement provides for Mr.
Sterlings participation in discretionary bonus and other incentive
compensation programs sponsored or awarded from time to time to senior
management employees. The agreement also provides for Mr. Sterlings participation
in employee benefit plans and programs maintained for the benefit of employees
generally, including retirement and stock-based compensation plans, life
insurance and medical and dental insurance plans.
Upon
termination of employment for cause, as defined in the agreement, Mr. Sterling
will receive no further compensation or benefits under the agreement. If we
terminate Mr. Sterling without cause, or if he resigns within 90 days after an
event constituting good reason under the agreement, Mr. Sterling will receive
a lump sum payment in an amount equal to his base salary for one year. We will
also continue to pay the costs of Mr. Sterlings medical, dental and life
insurance coverage for the remaining term of the agreement.
Good
reason exists under the agreement if, without Mr. Sterlings express written
consent, we materially breach any of our obligations under the Agreement, which
material breach includes, without limitation: (i) a material reduction in Mr.
Sterlings responsibilities or authority in connection with his employment with
Auburn Savings Bank; (ii) assignment of duties of a non-executive nature or
duties for which he is not reasonably equipped by his skills and experience;
(iii) failure to nominate or re-nominate Mr. Sterling to the Board; (iv) a
reduction in salary or benefits contrary to the terms of the agreement or, any
reduction in salary or material reduction in benefits following a change in
control; (v) a termination of incentive and benefit plans, programs or
arrangements that materially reduce their aggregate value, or
81
reduction of
Mr. Sterlings participation, that is not applicable to other executive
officers; (vi) a requirement that Mr. Sterling relocate his principal business
office or his principal place of residence outside of a thirty-five (35) mile
radius from the current main office and any branch of Auburn Savings Bank, or
the assignment of duties that would reasonably require such a relocation; or
(vii) liquidation or dissolution of Auburn Savings Bank. A reduction or
elimination of Mr. Sterlings benefits under one or more benefit plans,
programs or arrangements as part of a good faith, overall reduction or
elimination of such plans or benefits, applicable to all participants in a
manner that does not discriminate against Mr. Sterling, is not an event of good
reason or a material breach of the agreement, if benefits of the same type are
not available to other officers of Auburn Savings Bank or any affiliate under a
plan or plans in or under which Mr. Sterling is not entitled to participate.
If,
within one year following a change in control, we terminate Mr. Sterling
without cause, or if he resigns for good reason as defined above, he will
receive a lump sum payment in an amount equal to two times his average taxable
compensation (as reported on Form W-2) for the five preceding years. We will
also continue to pay the costs of Mr. Sterlings medical, dental and life
insurance coverage until the earlier of (i) Mr. Sterlings death, employment
with another employer or 24 months after his termination. If Mr. Sterling had
been terminated in connection with a change of control on December 31, 2007, he
would have been entitled to a severance payment of $190,685 under the terms of
his proposed employment agreement.
A
change in control means any of the following: (i) a merger of Auburn Bancorp,
Inc. into or consolidation with another entity, or the merger of another
corporation into Auburn Bancorp, Inc. if Auburn Bancorp, Inc. stockholders
before the merger or consolidation hold less than a majority of the combined
voting power of the resulting corporation immediately after the merger; (ii) a
Schedule 13D or another form or schedule discloses that the filing person or
persons acting in concert (other than Auburn Bancorp, MHC) is the beneficial
owner of 25% or more of a class of Auburn Bancorp, Inc.s voting securities;
(iii) during any two-year period, individuals who constitute the board of
directors at the beginning of the period and any directors elected by at least
2/3 of those directors no longer constitute at least a majority of board of
directors; or (iv) Auburn Bancorp, Inc. or Auburn Savings Bank sells to a third
party all or substantially all of its assets. The conversion Auburn Bancorp,
MHC from mutual to stock form, i.e., a second step conversion, is not a
change in control for purposes of the agreement.
The
agreement will provide for the reduction of change in control payments to Mr.
Sterling to the extent necessary to ensure that they will not constitute or
contribute to the creation of excess parachute payments under Section 280G of
the Internal Revenue Code, and therefore will not (i) result in a loss of our
deduction for compensation expense associated with such excess parachute
payments, or (ii) be subject to the 20% excise tax imposed on such payments
under Section 4999 of the Internal Revenue Code.
We
will agree to pay Mr. Sterling for reasonable costs and attorneys fees
associated with the successful legal enforcement of our obligations under the
employment agreement. The employment agreement also will provide for the
indemnification of the executives to the fullest extent legally permissible.
Upon termination of employment other than involuntary termination in connection
with a change in control, Mr. Sterling will be required to adhere to one-year
non-competition and non-solicitation provisions.
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Benefit Plans
401(k) Plan. Auburn Savings Bank maintains
the Auburn Savings & Loan 401(k) Plan, which is a tax-qualified profit
sharing plan (including a tax-exempt trust in which plan assets are held) with
a salary deferral feature under Section 401(k) of the Code (the 401(k) Plan).
All employees (excluding non-resident aliens and certain union employees) who
have attained age 21 and have completed three months of employment are eligible
to participate. Under the 401(k) Plan, participants are permitted to make
salary reduction contributions in any amount from a minimum of 2% to a maximum
of 15% of covered compensation. For these purposes, covered compensation
consists of wages reported on federal income tax form W-2, with all pre-tax
contributions added, subject to the annual limits imposed under the Internal
Revenue Code ($230,000 for 2008). Auburn Savings Bank may make matching
contributions with respect to a plan year in an amount determined by Auburn
Savings Bank in its discretion, subject to the annual limits imposed by the
Internal Revenue Code. Employer matching contributions vest at a rate of 20%
per year and are fully vested after five years. All employee contributions and
earnings thereon are fully and immediately vested. A participant may request
withdrawal of salary reduction contributions (and associated earnings) in the
event the participant suffers a financial hardship. The 401(k) Plan permits
loans to participants, subject to the limits and security requirements imposed
by the Internal Revenue Code. The 401(k) Plan permits employees to direct the
investment of their own accounts into the various investment options available
under the 401(k) Plan. Participants are entitled to benefit payments upon
termination of employment, including termination due to normal retirement,
disability or death. Benefits will be distributed in the form of lump sum.
Employee
Stock Ownership Plan. In connection with the
reorganization and stock offering, Auburn Savings Bank has authorized the adoption
of an employee stock ownership plan for eligible employees of Auburn Savings
Bank. Eligible employees who have attained age 21 and have been employed by us
for three months at the closing date of the conversion will be eligible to
participate in the plan. Thereafter, new employees of Auburn Savings Bank who
have attained age 21 and completed 1,000 hours of service during a
continuous 12-month period will be eligible to participate in the employee
stock ownership plan as of the first entry date following completion of the
plans eligibility requirements.
Auburn
Savings Banks Board of Directors will administer the employee stock ownership
plan and has appointed the independent directors of Auburn Savings Bank as
trustees of the employee stock ownership plan. It is anticipated that the
employee stock ownership plan will purchase that number of shares equal to
3.43% of the shares of common stock sold in the stock offering (17,201, 20,237,
23,237 and 26,763 shares at the minimum, midpoint, maximum and 15% above the
maximum of the offering range, respectively). It is anticipated that the
employee stock ownership plan will fund its purchase in the stock offering from
through a loan from Auburn Bancorp, Inc. The loan will equal 100% of the aggregate
purchase price of the common stock. The loan to the employee stock ownership
plan will be repaid principally from Auburn Savings Banks contributions to the
employee stock ownership plan and dividends payable, if any, on common stock
held by the employee stock ownership plan over the anticipated fifteen-year
term of the loan. The interest rate for the employee stock ownership plan loan
is expected to be the prime rate as published in The Wall Street Journal on the closing date of the stock
offering. See Pro Forma Data.
Shares
purchased by the employee stock ownership plan with the proceeds of the
employee stock ownership plan loan will be held in a suspense account and
released on a pro rata basis as the loan is repaid. Shares released from the
suspense account will be allocated among participants on the basis of each
participants proportional share of compensation.
Participants
will vest in the benefits allocated under the employee stock ownership plan at
a rate of 20% per year for each year of continuous service with Auburn Savings
Bank over a five-year period, with
83
credit given
to participants for years of service with Auburn Savings Bank prior to the
adoption of the plan. A participant will become fully vested at retirement,
upon death or disability or upon termination of the employee stock ownership
plan. Benefits are generally distributable upon a participants separation from
service. Any unvested shares that are forfeited upon a participants
termination of employment will be reallocated among the remaining plan
participants.
Plan
participants will be entitled to direct the plan trustees on how to vote common
stock credited to their accounts. The trustees will vote allocated shares held
in the employee stock ownership plan as instructed by the plan participants and
unallocated shares and allocated shares for which no instructions are received
will be voted in the same ratio on any matter as those shares for which
instructions are given, subject to the fiduciary responsibilities of the
trustees.
Under
applicable accounting requirements, compensation expenses for a leveraged
employee stock ownership plan is recorded at the fair market value of the
employee stock ownership plan shares when committed to be released to
participants accounts. See Pro Forma Data.
The
employee stock ownership plan is intended to meet the requirements of Section
401(a) of the Internal Revenue Code as an employee stock ownership plan within
the meaning of Section 4975(e) and to satisfy the applicable requirements of
the Employee Retirement Income Security Act of 1974, as amended. We intend to
request a favorable determination letter from the Internal Revenue Service
regarding the tax-qualified status of the employee stock ownership plan. We
expect, but cannot guarantee, that a favorable determination letter will be
received.
Future
Equity Incentive Plan. Following the stock offering, we plan to adopt an equity
incentive plan that will provide for grants of stock options and restricted
stock awards to our officers and directors. In accordance with applicable
regulations, the number of stock options granted under the plan may not exceed
4.90% of the total shares issued in the stock offering, including shares issued
to Auburn Bancorp, MHC, and the number of shares of restricted stock awarded
under the plan may not exceed 1.47% of the total shares issued in the stock
offering.
We
may fund the equity incentive plan through the purchase of common stock in the
open market by a trust established in connection with the plan or from
authorized, but unissued, shares of Auburn Bancorp, Inc. common stock. The
acquisition of additional authorized, but unissued, shares by the equity
incentive plan after the stock offering would dilute the interests of existing
stockholders. See Pro Forma Data.
We
will grant all stock options at an exercise price equal to 100% of the fair
market value of the stock on the date of grant. We will grant restricted stock
awards at no cost to recipients. Restricted stock awards and stock options
generally will vest ratably over a five-year period (or as otherwise permitted
by the Office of Thrift Supervision), but we may also make vesting contingent
upon the satisfaction of performance goals established by the board of
directors or the committee charged with administering the equity incentive
plan. All outstanding awards will accelerate and become fully vested upon a
change in control of Auburn Bancorp, Inc.
The
equity incentive plan will comply with all applicable Office of Thrift
Supervision regulations. The equity incentive plan cannot be established sooner
than six months after the stock offering. We will submit the equity incentive
plan to stockholders for their approval, at which time we will provide
stockholders with detailed information about the plan. Under current Office of
Thrift Supervision regulations, the equity incentive plan must be approved by a
majority of the total votes cast by our stockholders (excluding votes cast by
Auburn Bancorp, MHC).
84
Transactions with Auburn Savings Bank
Loans
and Extensions of Credit. The aggregate amount of loans by Auburn
Savings Bank to its executive officers and directors, and members of their
immediate families, was $626,000 at December 31, 2007. As of that date, these
loans were performing according to their original terms. The outstanding loans
made to our directors and executive officers, and members of their immediate
families, were made in the ordinary course of business, were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable loans with persons not related to Auburn
Savings Bank, and did not involve more than the normal risk of collectibility
or present other unfavorable features. For information about restrictions on
our ability to make loans to insiders, see Regulation
and SupervisionRegulation of Federal Savings AssociationsTransactions with
Related Parties.
Indemnification for Directors and Officers
Auburn
Bancorp, Inc.s bylaws provide that Auburn Bancorp, Inc. shall indemnify all
officers, directors and employees of Auburn Bancorp, Inc. to the fullest extent
permitted under federal law against all expenses and liabilities reasonably
incurred by them in connection with or arising out of any action, suit or
proceeding in which they may be involved by reason of their having been a
director or officer of Auburn Bancorp, Inc. Such indemnification may include
payment for expenses judgments, court costs and attorneys fees and the cost of
reasonable settlements. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers and
controlling persons of Auburn Bancorp, Inc. pursuant to its bylaws or
otherwise, Auburn Bancorp, Inc. has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
85
SUBSCRIPTIONS
BY EXECUTIVE OFFICERS AND DIRECTORS
The
following table presents certain information as to the approximate purchases of
common stock by our directors and executive officers, including their
associates, if any, as defined by applicable regulations. No individual has
entered into a binding agreement to purchase these shares and, therefore,
actual purchases could be more or less than indicated. Directors and executive
officers and their associates may not purchase more than 34% of the shares sold
in the stock offering. Like all of our depositors, our directors and officers
have subscription rights based on their deposits. For purposes of the following
table, sufficient shares are assumed to be available to satisfy subscriptions
in all categories. All directors and officers as a group would own [ ]% of our
outstanding shares at the minimum of the offering range and [ ]% of our
outstanding shares at the maximum of the offering range.
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Proposed Purchases of Stock in the Offering
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Name
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Number of Shares
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Dollar Amount
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Directors:
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Bonnie G. Adams
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August M. Berta
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Peter E. Chalke
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M. Kelly Matzen
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Sharon A. Millett
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Philip R. St. Pierre
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Allen T. Sterling
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Claire
D. Thompson
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Executive
Officers Who Are Not Directors:
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Martha L. Adams
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Rachel
A. Haines
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Jason M. Longley
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Bruce M. Ray
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All directors and
executive officers as a group (12 persons)
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REGULATION
AND SUPERVISION
General
Auburn
Savings 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. Auburn Savings
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. Auburn Savings 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 Auburn
Savings Banks 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
Auburn Bancorp, Inc., Auburn Bancorp, MHC and Auburn Savings Bank and their
operations. Auburn Bancorp, Inc. and Auburn Bancorp, MHC, as savings and loan
holding companies, will be required to file certain reports with, will be
subject to examination by, and otherwise must comply with the rules and
regulations
86
of the Office of Thrift
Supervision. Auburn Bancorp, Inc. will also be subject to the rules and
regulations of the Securities and Exchange Commission under the federal
securities laws.
Certain
of the regulatory requirements that are or will be applicable to Auburn Savings
Bank, Auburn Bancorp, Inc. and Auburn Bancorp, 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 Auburn
Savings Bank, Auburn Bancorp, Inc. and Auburn Bancorp, 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 Supervisions 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
institutions capital level is or may become inadequate in light of the
particular circumstances. At December 31, 2007, Auburn Savings 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 institutions 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
87
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. Auburn Savings 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 Auburn Savings Bank, it is a subsidiary of
a holding company. If Auburn Savings Banks 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 December 31, 2007, Auburn Savings Bank maintained 100.76% of its
portfolio assets in qualified thrift investments.
88
Asset Composition Limits.
Some of the types of loans and other
investments in which a federal savings institution, such as Auburn Savings
Bank, may invest, sell or otherwise deal are limited to a percentage of the
savings institutions assets or capital under federal law. For example, the
amount of commercial non-real estate loans in which Auburn Savings 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 institutions 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 institutions assets, including community development investments, and
construction loans without security, among others, in which Auburn Savings
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 Auburn Savings
Bank, which converted from a Maine-state 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 Auburn Savings Banks 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 Auburn Bancorp, Inc., Auburn Bancorp, 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 institutions 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 Auburn Bancorp, Inc. to its
executive officers and directors. However, the Sarbanes-Oxley Act contains a
specific exemption from such prohibition for loans by Auburn Savings 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. Auburn Savings 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 Auburn Savings Bank to make loans to executive
officers and directors at reduced interest rates if the loan is made under a
benefit program generally
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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 Auburn
Savings Banks 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. See ManagementTransactions
with Related Persons.
Insurance
of Deposit Accounts.
Deposits of Auburn Savings 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. Recent legislation eliminated
the minimum 1.25% reserve ratio for the insurance funds, the mandatory
assessments when the ratio fall below 1.25% and the prohibition on assessing
the highest quality banks when the ratio is above 1.25%. The FDIC has the
ability to adjust the new insurance funds 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 Auburn Savings Bank. Auburn
Savings 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, Auburn Savings Bank had credits that offset
all of its premiums in 2007 and will have credits that offset all of its
premiums in 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, Auburn Savings 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. Auburn Savings 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.
Auburn Savings 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. Auburn Savings Bank was in compliance with this requirement with an
investment in Federal Home Loan Bank stock at December 31, 2007 of $901,000.
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, Auburn Savings Banks 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,
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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 institutions 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 institutions 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 institutions
rating and requires the Office of Thrift Supervision to provide a written
evaluation of an associations Community Reinvestment Act performance utilizing
a four-tiered descriptive rating system. Auburn Savings 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 customers 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 Auburn Savings 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 Auburn Bancorp,
MHC, Auburn Bancorp, Inc. and Auburn Savings Bank are subject. Auburn Savings 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. Auburn Savings 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, Auburn Savings 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
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Funds Availability Act, Check Clearing for the 21st 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 Auburn Savings Bank are
subject to federal laws concerning interest rates and, as applicable, state
usury laws.
Holding Company Regulation
General.
Auburn Bancorp,
Inc. and Auburn Bancorp, MHC will be savings and loan holding companies within
the meaning of federal law. As such, they will be registered with the Office of
Thrift Supervision and will be 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 will have enforcement authority over Auburn Bancorp, Inc.
and Auburn Bancorp, MHC and their non-savings institution subsidiaries. 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
Auburn Savings Bank.
Restrictions
Applicable to Mutual Holding Companies. According to federal law and Office of Thrift
Supervision regulations, a mutual holding company, such as Auburn Bancorp, 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 Auburn Bancorp, 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 Auburn
Bancorp, 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 Auburn Bancorp, Inc. 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.
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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 institutions 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. Auburn Savings Bank has adopted this form of organization and it
will be in place after the proposed stock offering. Auburn Bancorp, Inc. will
be the stock holding company subsidiary of Auburn Bancorp, MHC. Auburn Bancorp,
Inc. will be permitted to engage in activities that are permitted for Auburn
Bancorp, MHC subject to the same restrictions and conditions.
Waivers
of Dividends by Auburn Bancorp, MHC. Office of Thrift Supervision regulations
require Auburn Bancorp, MHC to notify the Office of Thrift Supervision if it
proposes to waive receipt of dividends from Auburn Bancorp, Inc. 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 companys board of directors determines that such
waiver is consistent with such directors fiduciary duties to the mutual
holding companys members. The Office of Thrift Supervision has recently
included a new condition in its approval of dividend waivers which 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 Auburn Bancorp, MHC will waive its receipt of dividends that Auburn
Bancorp, Inc. may pay, if any.
Conversion
of Auburn Bancorp, MHC to Stock Form. Office of Thrift Supervision regulations
permit Auburn Bancorp, 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 Auburn Bancorp, Inc., Auburn Bancorp, MHCs corporate existence would end,
and certain depositors of Auburn Savings 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 Auburn
Bancorp, 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 Auburn Bancorp,
MHC own the same percentage of common stock in the new holding company as they
owned in Auburn Bancorp, Inc. immediately before conversion. The total number
of shares held by stockholders other than Auburn Bancorp, 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
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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 Auburn Savings Banking statutes and the operating environment of Auburn
Bancorp, MHC, Auburn Bancorp, Inc., Auburn Savings Bank and any future
subsidiaries in substantial and unpredictable ways. Auburn Bancorp, Inc. cannot
determine the ultimate effect that potential legislation, or implementing
regulations, if enacted, would have upon the financial condition or results of
operations of Auburn Bancorp, MHC, Auburn Bancorp, Inc., Auburn Savings Bank or
any future subsidiaries.
FEDERAL
AND STATE TAXATION
General.
We report our
income on a fiscal year basis using the accrual method of accounting. The federal
income tax laws apply to us in the same manner as to other corporations with
some exceptions, including particularly our reserve for bad debts discussed
below. The following discussion of tax matters is intended only as a summary
and does not purport to be a comprehensive description of the tax rules
applicable to us. Our federal income tax returns have been either audited or
closed under the statute of limitations through tax year 2004. For its 2007
fiscal year, Auburn Savings Banks maximum federal income tax rate was 35%.
Auburn
Bancorp, Inc. and Auburn Savings Bank will enter into a tax allocation
agreement. Because Auburn Bancorp, Inc. will own 100% of the issued and
outstanding capital stock of Auburn Savings Bank, Auburn Bancorp, Inc. and
Auburn Savings Bank will be members of an affiliated group within the meaning
of Section 1504(a) of the Internal Revenue Code, of which group Auburn Bancorp,
Inc. will be the common parent corporation. As a result of this affiliation,
Auburn Savings Bank may be included in the filing of a consolidated federal
income tax return with Auburn Bancorp, Inc. and, if a decision to file a
consolidated tax return is made, the parties agree to compensate each other for
their individual share of the consolidated tax liability and/or any tax
benefits provided by them in the filing of the consolidated federal income tax
return.
Bad
Debt Reserves. Prior
to 1996, thrift institutions that qualified under certain definitional tests
and other conditions of the Internal Revenue Code were permitted to use certain
favorable provisions to calculate their deductions from taxable income for
annual additions to their bad debt reserve. A reserve could be established for
bad debts on qualifying real property loans, generally secured by interests in
real property improved or to be improved, under the percentage of taxable
income method or the experience method. The reserve for nonqualifying loans was
computed using the experience method. Federal legislation enacted in 1996
repealed the reserve method of accounting for bad debts and the percentage of
taxable income method for tax years beginning after 1995 and require savings
institutions to recapture or take into income certain portions of their
accumulated bad debt reserves. Auburn Savings Bank has approximately $421,000
of accumulated bad debt reserves which would be recaptured into taxable income
only if Auburn Savings Bank makes non-dividend distributions to Auburn
Bancorp, Inc. as described below.
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Distributions.
If Auburn Savings
Bank makes non-dividend distributions to Auburn Bancorp, Inc., the
distributions will be considered, for tax purposes, to have been made from
Auburn Savings Banks unrecaptured bad debt reserves, including the balance of
its reserves as of December 31, 2007, to the extent of the unrecaptured bad
debt reserves and then from Auburn Savings Banks supplemental reserve for
losses on loans, to the extent of those reserves, and an amount based on the
amount distributed, but not more than the amount of those reserves, will be
included in Auburn Savings Banks taxable income. Non-dividend distributions
include distributions in excess of Auburn Savings Banks current and
accumulated earnings and profits, as calculated for federal income tax
purposes, distributions in redemption of stock, and distributions in partial or
complete liquidation. Dividends paid out of Auburn Savings Banks current or
accumulated earnings and profits will not be so included in Auburn Savings
Banks taxable income.
The
amount of additional taxable income triggered by a non-dividend is an amount
that, when reduced by the tax attributable to the income, is equal to the
amount of the distribution. Therefore, if Auburn Savings Bank makes a
non-dividend distribution to Auburn Bancorp, Inc., approximately one and
one-half times the amount of the distribution not in excess of the amount of
the reserves would be includable in income for federal income tax purposes,
assuming a 25% federal corporate income tax rate. Auburn Savings Bank does not
intend to make distributions that would result in a recapture of any portion of
its bad debt reserves.
State Taxation
Maine
Taxation. Financial Institutions in Maine are
subject to the Financial Institutions Franchise Tax under Maine Rev. Stat. Ann.
tit. 36 § 5206 rather than the general corporate income tax. The Maine
Financial Institutions Franchise Tax provides for two alternative methods of
computing the tax due: (1) the tax equals the sum of 1.0% of the institutions
Maine income plus 0.008% of the value of its Maine assets; or (2) a tax on
assets only equal to 0.039% of the value of the Institutions Maine assets. In
the event that option (1) is used, Maine income is the institutions net income
or loss on its books. Financial institutions in Maine that are part of an
affiliated group that operates in a unitary fashion must report their Maine
income on a combined basis. Under Maine law, an affiliated group means any
group of two or more financial institutions in which more than 50% of the
combined voting power of each institution is directly or indirectly owned by a
common parent. Auburn Savings Banks state tax returns are not currently under
audit.
THE
REORGANIZATION AND STOCK OFFERING
This
stock offering is being conducted pursuant to a plan of reorganization and
stock issuance plan approved by the board of directors of Auburn Savings Bank. The
plan of reorganization and stock issuance plan must be approved by members of Auburn
Savings Bank. A special meeting of members has been called for this purpose.
The Office of Thrift Supervision also conditionally approved the plan of
reorganization and stock issuance plan; however, such approval does not constitute a
recommendation or endorsement of the plan of reorganization and stock issuance plan
by such agency.
General
On
January 11, 2008, the board of directors of Auburn Savings Bank unanimously
adopted the plan of reorganization and stock issuance plan by which Auburn Savings
Bank will reorganize into a two-tiered mutual holding company. This structure
is called a two-tier structure because it will have two levels of holding
companies. After the reorganization, Auburn Bancorp, Inc. will be the mid-tier
stock holding company and Auburn Bancorp, MHC will be the top-tier mutual
holding company. After the stock offering, purchasers in the stock offering
will own 45% of Auburn Bancorp, Inc.s outstanding shares of
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common stock, and Auburn
Bancorp, MHC will own 55% of Auburn Bancorp, Inc.s outstanding shares of common
stock.
The
amount of capital being raised in the stock offering is based on an appraisal
of our estimated pro forma market value. The appraisal was prepared by Keller
& Company, a consulting firm experienced in valuation and appraisal of savings
institutions. Most of the terms of this stock offering are required by the
regulations of the Office of Thrift Supervision. The Office of Thrift
Supervision approved our plan of reorganization and stock issuance plan, subject to
the fulfillment of certain conditions, including, approval of the plan of
reorganization and stock issuance plan by Auburn Savings Banks members. The special
meeting of Auburn Savings Banks members has been called for this purpose on [
], 2008.
The
following is a brief summary of the pertinent aspects of the reorganization and
stock offering. A copy of the plan of reorganization and stock issuance plan is
available from Auburn Savings Bank upon request and is available for inspection
at the offices of Auburn Savings Bank and at the Office of Thrift Supervision.
The plan of reorganization and stock issuance plan is also filed as an exhibit to
the registration statement, of which this prospectus forms a part, that we have
filed with the Securities and Exchange Commission. See Where You Can Find More Information.
Reasons for the Reorganization and Offering
As
part of our business planning process, our board of directors concluded that
Auburn Savings Bank needed additional capital in order to increase
profitability and support asset growth. The proceeds from the sale of our
common stock in the stock offering will provide Auburn Savings Bank with
additional capital. The reorganization and stock offering will also enable
Auburn Bancorp, Inc. and Auburn Savings Bank to increase their capital in
response to any future regulatory capital requirements. Although Auburn Savings
Bank currently exceeds all regulatory capital requirements, the sale of common
stock will assist Auburn Savings Bank with the orderly preservation and
expansion of its capital base and will provide flexibility to respond to sudden
and unanticipated capital needs.
The
stock offering will increase capital at Auburn Savings Bank and, as a result,
increase the maximum amount that we may lend to one borrower. Although we
intend to continue to use conservative underwriting practices to maintain the
high quality of our loan portfolios, increased lending limits would provide
Auburn Savings Bank with flexibility to make larger loans and to grow our loan
portfolios in situations where we are comfortable with the quality of the
loans.
The
stock offering will afford our directors, officers and employees the
opportunity to become stockholders through various stock benefit plans, which
we believe to be an effective performance incentive and an effective means of
attracting and retaining qualified personnel. The stock offering also will
provide our customers and local community members with an opportunity to
acquire our stock.
The
board of directors determined that a minority stock issuance was preferable to
a full stock conversion because it permits us to control the amount of capital being
raised by selecting the percentage of shares to be sold in the stock offering.
The board of directors also preferred the mutual holding company structure
because it provides for the continued control of Auburn Bancorp, Inc. by Auburn
Bancorp, MHC through its majority ownership position We chose not to sell more
than 45% of our shares of common stock to the public so that we would have the
flexibility to issue authorized but unissued shares to fund future stock
benefit plans without exceeding the regulatory limit on the percentage of
shares that can be owned by persons other than Auburn Bancorp, MHC.
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Finally,
as a subsidiary of a mutual holding company with a mid-tier stock holding
company, Auburn Savings Bank will have greater flexibility in structuring
mergers and acquisitions, including the form of consideration paid in a
transaction. The current mutual structure, by its nature, limits any ability to
offer any common stock as consideration in a merger or acquisition. The new
mutual holding company structure will enhance Auburn Savings Banks ability to
compete with other bidders when acquisition opportunities arise by better
enabling it to offer stock or cash consideration, or a combination of the two.
Although there are no current plans, arrangements, understandings or agreements
regarding any such opportunities, Auburn Bancorp, Inc. will be in a position
after the stock offering to take advantage of any such favorable opportunities
that may arise. See Use of Proceeds.
The
disadvantages of the stock offering considered by the board of directors are
the additional expense and effort of operating as a public company, the
inability of stockholders other than Auburn Bancorp, MHC to obtain majority
ownership of Auburn Bancorp, Inc. and Auburn Savings Bank, which may result in
the perpetuation of our management and board of directors, and that new forms
of corporate ownership and regulatory policies relating to the mutual holding
company structure may be adopted from time to time which may have an adverse
impact on stockholders other than Auburn Bancorp, MHC.
Following
the reorganization and stock offering, a majority of our voting stock will
still be owned by Auburn Bancorp, MHC, which will be controlled by its board of
directors. While this structure will permit management to focus on our
long-term business strategy for growth and capital redeployment without undue
pressure from stockholders, it will also serve to perpetuate our existing
management and directors. Auburn Bancorp, MHC will be able to elect all of the
members of Auburn Bancorp, Inc.s board of directors, and will be able to
control the outcome of most matters presented to our stockholders for
resolution by vote. The matters as to which stockholders other than Auburn
Bancorp, MHC will be able to exercise voting control are limited and include
any proposal to implement a stock-based incentive plan. No assurance can be
given that Auburn Bancorp, MHC will not take action adverse to the interests of
other stockholders. For example, Auburn Bancorp, MHC could prevent the sale of
control of Auburn Bancorp, Inc. or defeat a candidate for the board of
directors of Auburn Bancorp, Inc. or other proposals put forth by stockholders.
This
stock offering does not preclude the conversion of Auburn Bancorp, MHC from the
mutual to stock form of organization in the future. No assurance can be given
when, if ever, Auburn Bancorp, MHC will convert to stock form or what
conditions the Office of Thrift Supervision or other regulatory agencies may
impose on such a transaction. See Risk
Factors Risks Related to this Offering.
After
considering the advantages and disadvantages of the stock offering, as well as
applicable fiduciary duties, the board of directors of Auburn Savings Bank
unanimously approved the stock offering as being in the best interests of
Auburn Savings Banks depositors and the communities we serve.
Description of the Plan of Reorganization and Stock Issuance Plan
Following
receipt of all required regulatory approvals and approval of the plan of
reorganization and stock issuance plan by Auburn Savings Banks members, the
reorganization will be effected as follows or in any other manner approved by
the Office of Thrift Supervision that is consistent with the purposes of the
plan of reorganization and stock issuance plan and applicable laws and regulations:
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(i)
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Auburn Savings Bank will
organize an interim stock savings bank as a wholly-owned subsidiary (Interim
One);
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(ii)
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Interim One will organize
an interim stock savings bank as a wholly-owned subsidiary (Interim Two);
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(iii)
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Interim One will organize
Auburn Bancorp, Inc. as a wholly-owned subsidiary;
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(iv)
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Auburn Savings Bank will
exchange its charter for a federal stock savings bank charter and Interim One
will exchange its charter for a federal mutual holding company charter to
become Auburn Bancorp, MHC;
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(v)
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simultaneously with step
(iv), Interim Two will merge with and into Auburn Savings Bank with Auburn
Savings Bank as the resulting institution;
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(vi)
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all of the initially
issued stock of Auburn Savings Bank will be transferred to Auburn Bancorp,
MHC in exchange for membership interests in Auburn Bancorp, MHC; and
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(vii)
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Auburn Bancorp, MHC will
contribute the capital stock of Auburn Savings Bank to Auburn Bancorp, Inc.
in, and Auburn Savings Bank will become a wholly-owned subsidiary of Auburn
Bancorp, Inc.
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Concurrently
with the reorganization, Auburn Bancorp, Inc. will sell up to 45% of its common
stock representing up to [ ]% of the pro forma market value of Auburn Savings
Bank on a fully converted basis. Auburn Savings Bank intends to capitalize
Auburn Bancorp, MHC with $25,000 in cash.
As
a result of the reorganization, Auburn Savings Bank will be organized in stock
form and will be wholly owned by Auburn Bancorp, Inc. The legal existence of
Auburn Savings Bank will not terminate as a result of the reorganization.
Instead, Auburn Savings Bank in stock form will be a continuation of Auburn
Savings Bank in mutual form. All property of Auburn Savings Bank, including its
right, title and interest in all property of any kind and nature, interest and
asset of every conceivable value or benefit then existing or pertaining to
Auburn Savings Bank, or which would inure to Auburn Savings Bank immediately by
operation of law and without the necessity of any conveyance or transfer and
without any further act or deed, will vest in Auburn Savings Bank in stock form.
Auburn Savings Bank in stock form will continue to have, succeed to and be
responsible for all the rights, liabilities and obligations of Auburn Savings
Bank in the mutual form and will maintain its headquarters and operations at
Auburn Savings Banks present locations.
Effects of Reorganization on Deposits, Borrowers and Members
Continuity. During the reorganization
process, the normal
business of Auburn Savings Bank will continue without interruption, including
continued regulation by the Office of Thrift Supervision and the Federal
Deposit Insurance Corporation. After reorganization, Auburn Savings Bank will
continue to provide services for depositors and borrowers under current
policies by its present management and staff.
The
current directors of Auburn Savings Bank plus Allen T. Sterling, the President
and Chief Executive Officer of Auburn Savings Bank will serve as directors of
Auburn Savings Bank after the reorganization. The board of directors of Auburn
Bancorp, Inc. and Auburn Bancorp, MHC will be composed of current directors of
Auburn Savings Bank plus Allen T. Sterling. All officers of Auburn Savings Bank
at the time of reorganization will retain their positions after the
reorganization.
Deposit
Accounts and Loans.
The reorganization will not affect any deposit accounts or borrower
relationships with Auburn Savings Bank. All deposit accounts in Auburn Savings
Bank after the reorganization will continue to be insured up to the legal
maximum by the Federal Deposit Insurance Corporation in the same manner as such
deposit accounts were insured immediately before the reorganization. The
reorganization will not change the interest rate or the maturity of deposits at
Auburn Savings Bank.
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After
the reorganization, each depositor of Auburn Savings Bank will have both a
deposit account in Auburn Savings Bank and a pro rata ownership interest in the
equity of Auburn Bancorp, MHC based upon the balance in the depositors
account. This ownership interest is tied to the depositors account, has no
tangible market value separate from the deposit account and may only be
realized in the event of a liquidation of Auburn Bancorp, MHC. Any depositor
who opens a deposit account obtains a pro rata ownership interest in the equity
of Auburn Bancorp, MHC without any additional payment beyond the amount of the
deposit. A depositor who reduces or closes his or her account receives the
balance in the account but receives nothing for his or her ownership interest
in the equity of Auburn Bancorp, MHC, which is lost to the extent that the
balance in the account is reduced. Consequently, depositors of Auburn Bancorp,
MHC have no way to realize the value of their ownership interest in Auburn
Bancorp, MHC, except in the unlikely event that Auburn Bancorp, MHC is
liquidated.
After
the reorganization, all loans of Auburn Savings Bank will retain the same
status that they had before the reorganization. The amount, interest rate,
maturity and security for each loan will remain as they were contractually
fixed prior to the reorganization.
Effect
on Voting Rights of Members. After the reorganization, Auburn Savings Bank will continue to be
supervised by its board of directors. Auburn Bancorp, Inc., as the holder of
all of the outstanding common stock of Auburn Savings Bank, will have exclusive
voting rights with respect to any matters concerning Auburn Savings Bank
requiring stockholder approval, including the election of directors.
After
the reorganization, stockholders of Auburn Bancorp, Inc. will have exclusive
voting rights with respect to any matters concerning Auburn Bancorp, Inc.
requiring stockholder approval. By virtue of its ownership of a majority of the
outstanding shares of common stock of Auburn Bancorp, Inc., Auburn Bancorp, MHC
will be able to control the outcome of most matters presented to the
stockholders for resolution by vote. However, Auburn Bancorp, MHC will not be
able to control the vote for second-step transactions and implementation of equity
incentive plans, each of which require, under current Office of Thrift
Supervision regulations and policies, approval by the stockholders other than
Auburn Bancorp, MHC.
As
a federally chartered mutual holding company, Auburn Bancorp, MHC will have no
authorized capital stock and, thus, no stockholders. Holders of deposit
accounts of Auburn Savings Bank will become members of Auburn Bancorp, MHC.
Such persons will be entitled to vote on all questions requiring action by the
members of Auburn Bancorp, MHC, including the election of directors of Auburn
Bancorp, MHC. In addition, all persons who become depositors of Auburn Savings
Bank following the reorganization will have membership rights with respect to
Auburn Bancorp, MHC. Borrowers of Auburn Savings Bank who were borrowers
members of Auburn Savings and Loan Association on July 1, 2006 at the time the
bank converted from a state-chartered savings and loan association to a federal
mutual savings bank will have membership rights in Auburn Bancorp, MHC.
Borrowers will not receive membership rights in connection with any borrowings
made after July 1, 2006.
Effect
on Liquidation Rights. In the unlikely event of a complete liquidation of Auburn Savings Bank
before the completion of the reorganization, each depositor would receive a pro
rata share of any assets of Auburn Savings Bank remaining after payment of
expenses and satisfaction of claims of all creditors. Each depositors pro rata
share of such liquidating distribution would be in the same proportion as the
value of such depositors deposit account was to the total value of all deposit
accounts in Auburn Savings Bank at the time of liquidation.
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In
the unlikely event of a complete liquidation of Auburn Savings Bank after the
reorganization, each depositor would have a claim as a creditor of the same
general priority as the claims of all other general creditors of Auburn Savings
Bank. Except as described below, a depositors claim would be solely for the
amount of the balance in such depositors deposit account plus accrued
interest. Such depositor would not have an interest in the value or assets of
Auburn Savings Bank above that amount. Instead, the holder of Auburn Savings
Banks common stock (i.e., Auburn
Bancorp, Inc.) would be entitled to any assets remaining upon a liquidation of
Auburn Savings Bank.
In
the unlikely event of a complete liquidation of Auburn Bancorp, Inc. after the
reorganization, the stockholders of Auburn Bancorp, Inc., including Auburn Bancorp,
MHC, would be entitled to receive the remaining assets of Auburn Bancorp, Inc.,
following payment of all debts, liabilities and claims of greater priority of
or against Auburn Bancorp, Inc.
In
the unlikely event of a complete liquidation of Auburn Bancorp, MHC after the
reorganization, all depositors of Auburn Savings Bank at that time will be
entitled, pro rata to the value of their deposit accounts, to a distribution of
any assets of Auburn Bancorp, MHC remaining after payment of all debts and
claims of creditors. Any second step conversion of Auburn Bancorp, MHC to
stock form would not be considered a liquidation.
There
are no plans to liquidate Auburn Savings Bank, Auburn Bancorp, Inc. or Auburn
Bancorp, MHC in the future.
Subscription Offering and Subscription Rights
Under
the plan of reorganization and stock issuance plan, we have granted rights to
subscribe for our common stock to the following persons in the following order
of priority:
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1.
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Persons with deposits in
Auburn Savings Bank with balances aggregating $50 or more (qualifying
deposits) as of September 30, 2006 (eligible account holders). For this
purpose, deposit accounts include all savings, time and demand accounts.
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2.
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Our employee stock ownership
plan.
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3.
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Persons with qualifying
deposits in Auburn Savings Bank as of March 31, 2008 (supplemental eligible
account holders), other than our officers, directors and their associates.
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4.
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Depositors of Auburn
Savings Bank as of [ ], 2008, who are not eligible or supplemental eligible
account holders and borrowers as of July 1, 2006 whose loans continue to be
outstanding at [ ] (other members).
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The
amount of common stock that any person may purchase will depend on the availability
of the common stock after satisfaction of all subscriptions having prior rights
in the subscription offering and to the maximum and minimum purchase
limitations set forth in the plan of reorganization and stock issuance plan. See Limitations on Purchases of
Shares. All
persons on a joint account will be counted as a single depositor for purposes
of determining the maximum amount that may be subscribed for by owners of a
joint account.
We
will strive to identify your ownership in all accounts, but cannot guarantee we
will identify all accounts in which you have an ownership interest.
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Priority
1: Eligible Account Holders. Subject to the purchase limitations as described below under Limitations on
Purchases of Shares, each
eligible account holder has the right to subscribe for up to the greater of:
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$100,000 of common stock
(which equals 10,000 shares);
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one-tenth of one percent
(0.1%) of the total stock offering of common stock to persons other than Auburn
Bancorp, MHC; or
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15 times the product,
rounded down to the next whole number, obtained by multiplying the total
number of shares of common stock to be sold by a fraction of which the
numerator is the amount of qualifying deposits of the eligible account holder
and the denominator is the total amount of qualifying deposits of all
eligible account holders. The balance of qualifying deposits of all eligible
account holders was $44.6 million.
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If
there are insufficient shares to satisfy all subscriptions by eligible account
holders, shares first will be allocated so as to permit each subscribing
eligible account holder, if possible, to purchase a number of shares sufficient
to make the persons total allocation equal to the lesser of 100 shares or the
number of shares actually subscribed for. After that, unallocated shares will
be allocated among the remaining subscribing eligible account holders whose
subscriptions remain unfilled in the proportion that the amounts of their
respective qualifying deposits bear to the total qualifying deposits of all
remaining eligible account holders whose subscriptions remain unfilled.
Subscription rights of eligible account holders who are also executive officers
or directors of Auburn Bancorp, Inc. or Auburn Savings Bank or their associates
will be subordinated to the subscription rights of other eligible account
holders to the extent attributable to increased deposits in Auburn Savings Bank
in the one year period preceding September 30, 2006.
To
ensure a proper allocation of stock, each eligible account holder must list on
his or her stock order form all deposit accounts in which such eligible account
holder had an ownership interest at September 30, 2006. Failure to list an
account, or providing incorrect information, could result in the loss of all or
part of a subscribers stock allocation.
Priority
2: Tax-Qualified Employee Benefit Plans. Subject to the purchase limitations as
described below under Limitations on
Purchases of Shares, our tax-qualified employee benefit plans have
the right to purchase up to 10% of the shares of common stock issued in the
stock offering, other than shares issued to Auburn Bancorp, MHC. As a
tax-qualified employee benefit plan, our employee stock ownership plan intends
to purchase 3.43% (17,201 shares at the minimum of the offering range) of
the shares issued in the stock offering, including shares issued to Auburn
Bancorp, MHC. Subscriptions by the employee stock ownership plan will not be
aggregated with shares of common stock purchased by any other participants in
the stock offering, including subscriptions by our officers and directors, for
the purpose of applying the purchase limitations in the plan of reorganization
and stock issuance plan. If eligible account holders subscribe for all of the shares
being sold, no shares will be available for our tax-qualified employee benefit
plans. However, if we increase the number of shares offered above the maximum
of the offering range, the employee stock ownership plan will have a
first priority right to purchase any shares exceeding that amount up to the
amount of its subscription. If the plans subscription is not filled in its
entirety, the employee stock ownership plan may purchase shares in the open
market or may purchase shares directly from us with the approval of the Office
of Thrift Supervision.
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Priority
3: Supplemental Eligible Account Holders. Subject to the purchase limitations as
described below under Limitations on Purchases
of Shares, each supplemental eligible account holder has the right
to subscribe for up to the greater of:
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$100,000 of common stock
(which equals 10,000 shares);
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one-tenth of one percent
(0.1%) of the total stock offering of common stock to persons other than
Auburn Bancorp, MHC; or
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15 times the product,
rounded down to the next whole number, obtained by multiplying the total
number of shares of common stock to be sold by a fraction of which the
numerator is the amount of qualifying deposits of the eligible account holder
and the denominator is the total amount of qualifying deposits of all
eligible account holders. The balance of qualifying deposits of all
supplemental eligible account holders was $[ ] million.
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If
eligible account holders and the employee stock ownership plan subscribe for
all of the shares being sold, no shares will be available for supplemental
eligible account holders. If shares are available for supplemental eligible
account holders but there are insufficient shares to satisfy all subscriptions
by supplemental eligible account holders, shares first will be allocated so as
to permit each subscribing supplemental eligible account holder, if possible,
to purchase a number of shares sufficient to make the persons total allocation
equal to the lesser of 100 shares or the number of shares actually subscribed
for. After that, unallocated shares will be allocated among the remaining
subscribing supplemental eligible account holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective qualifying
deposits bear to the total qualifying deposits of all remaining supplemental
eligible account holders whose subscriptions remain unfilled.
To
ensure a proper allocation of stock, each supplemental eligible account holder
must list on his or her stock order form all deposit accounts in which such
supplemental eligible account holder had an ownership interest at March 31,
2008. Failure to list an account, or providing incorrect information, could
result in the loss of all or part of a subscribers stock allocation.
Priority
4: Other Members. Subject
to the purchase limitations as described below under Limitations on
Purchases of Shares, each other member has the right to purchase up
to the greater of $100,000 of common stock (which equals 10,000 shares); provided that Auburn Savings Bank may
increase such maximum purchase limitation to 5% of the maximum number of shares
offered to persons other than Auburn Bancorp, MHC, or decrease such maximum
purchase limitation to 0.1% of the maximum number of shares total stock
offering of common stock to persons other than Auburn Bancorp, MHC. If shares
are available for other members but there are insufficient shares to satisfy
all subscriptions by other members, shares first will be allocated among
subscribing other members on a pro rata basis based on the size of such other
members orders.
To
ensure a proper allocation of stock, each other member must list on his or her
stock order form all deposit accounts in which such other member had an
ownership interest at [ ] or each loan for Auburn Savings Bank that was
outstanding on July 1, 2006 that continues to be outstanding on [ ]. Failure to
list an account or providing incorrect information could result in the loss of
all or part of a subscribers stock allocation.
Expiration
Date for the Subscription Offering. The subscription offering, and all
subscription rights under the plan of reorganization and stock issuance plan, will
terminate at 12:00 Noon, Eastern time, on [
], 2008. We will not accept orders
for common stock in the subscription offering received after that time.
We will make reasonable attempts to provide a prospectus and related
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stock offering materials to
holders of subscription rights; however, all subscription rights will expire on
the expiration date whether or not we have been able to locate each person
entitled to subscription rights.
Office
of Thrift Supervision regulations require that we complete the sale of common
stock within 45 days after the close of the subscription offering. If the
sale of the common stock is not completed within that period, all funds
received will be returned promptly with interest at our passbook savings rate
and without deduction of any fees and all withdrawal authorizations will be
canceled unless we receive approval of the Office of Thrift Supervision to
extend the time for completing the stock offering. If regulatory approval of an
extension of the time period has been granted, we will notify all subscribers
of the extension and of the duration of any extension that has been granted,
and subscribers will have the right to modify or rescind their purchase orders.
If we do not receive an affirmative response from a subscriber to any
resolicitation, the subscribers order will be rescinded and all funds received
will be returned promptly with interest, or withdrawal authorizations will be
canceled. No single extension can exceed 90 days.
Persons
in Non-Qualified States. We will make reasonable efforts to comply with the securities laws of
all states in the United States in which persons entitled to subscribe for
stock under the plan of reorganization and stock issuance plan reside. However, we
are not required to offer stock in the subscription offering to any
person who resides in a foreign country or who resides in a state of the United
States in which (1) only a small number of persons otherwise eligible to subscribe
for shares of common stock reside; (2) the granting of subscription rights
or the offer or sale of shares to such person would require that we or our
officers or directors register as a broker, dealer, salesman or selling agent
under the securities laws of the state, or register or otherwise qualify the
subscription rights or common stock for sale or qualify as a foreign
corporation or file a consent to service of process; or (3) we determine
that compliance with that states securities laws would be impracticable or
unduly burdensome for reasons of cost or otherwise.
Restrictions
on Transfer of Subscription Rights and Shares. Subscription rights are
nontransferable.
You may not transfer, or enter into any agreement or understanding to transfer,
the legal or beneficial ownership of your subscription rights issued under the
plan of reorganization and stock issuance plan or the shares of common stock to be
issued upon exercise of your subscription rights. Your subscription rights may
be exercised only by you and only for your own account. When registering your
stock purchase on the order form, you should not add the name(s) of persons who
have no subscription rights or who qualify in a lower purchase priority than
you do. Doing so may jeopardize your subscription rights. If you exercise your
subscription rights, you will be required to certify that you are purchasing
shares solely for your own account and that you have no agreement or
understanding regarding the sale or transfer of such shares. Federal regulations
also prohibit any person from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or
shares of common stock before the completion of the stock offering.
If
you sell or otherwise transfer your rights to subscribe for common stock in the
subscription offering or subscribe for common stock on behalf of another
person, you may forfeit those rights and face possible further sanctions and
penalties imposed by the Office of Thrift Supervision or another agency of the
U.S. Government. Illegal transfers of subscription rights, including agreements
made prior to completion of the stock offering to transfer shares after the
stock offering, have been subject to enforcement actions by the Securities and
Exchange Commission as violations of Rule 10b-5 of the Securities Exchange Act
of 1934.
We
intend to report to the Office of Thrift Supervision and the Securities and
Exchange Commission anyone who we believe sells or gives away their
subscription rights. We will pursue any and all legal and equitable remedies in
the event we become aware of the transfer of
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subscription rights, and we will not honor orders that we
believe involve the transfer of subscription rights.
Community Offering
To
the extent that shares remain available for purchase after satisfaction of all
subscriptions received in the subscription offering, we may, in our
discretion, offer shares to the general public in a direct community
offering. In the direct community offering, preference will be given to
natural persons and trusts of natural persons who are residents of Androscoggin
County, Maine.
We
will consider a person to be resident of Androscoggin County if he or she
occupies a dwelling in the county, has the intent to remain for a period of
time, and manifests the genuineness of that intent by establishing an ongoing
physical presence together with an indication that such presence is something
other than merely transitory in nature. We may utilize depositor or loan
records or other evidence provided to us to make a determination as to a
persons resident status. In all cases, the determination of residence status
will be made by us in our sole discretion.
Purchasers
in the community offering are eligible to purchase up to $100,000 of
common stock (which equals 10,000 shares). If shares are available for
preferred subscribers in the community offering but there are
insufficient shares to satisfy all orders, the available shares will be
allocated pro rata to cover orders of natural persons residing in Androscoggin
County, and thereafter pro rata to cover orders of other members of the general
public, so that each person in such category of the community offering
may receive 1,000 shares. In addition, orders received for common stock in the
community offering shall first be filled up to a maximum of two percent
(2%) of the shares sold and thereafter, remaining shares will be allocated on
an equal number of shares basis per order until all orders are filled.
The
community offering, if held, may commence concurrently with, during or
subsequent to the subscription offering and will terminate no later than
45 days after the close of the subscription offering unless extended by
us, with approval of the Office of Thrift Supervision. If we receive regulatory
approval for an extension, all subscribers will be notified of the extension
and of the duration of any extension that has been granted, and will have the
right to modify or rescind their orders. If we do not receive an affirmative
response from a subscriber to any resolicitation, the subscribers order will
be rescinded and all funds received will be promptly returned with interest.
The
opportunity to subscribe for shares of common stock in the community
offering is subject to our right to reject orders, in whole or part, either at
the time of receipt of an order or as soon as practicable following the
expiration date of the stock offering. If your order is rejected in part, you
will not have the right to cancel the remainder of your order.
Syndicated Community Offering
All
shares of common stock not purchased in the subscription offering and
community offering may be offered for sale to the general public in a
syndicated community offering to be managed by Keefe, Bruyette &
Woods, Inc., acting as our agent. In such capacity, Keefe, Bruyette &
Woods, Inc. may form a syndicate of other brokers-dealers who are NASD member
firms. Neither Keefe, Bruyette & Woods, Inc. nor any registered
broker-dealer will have any obligation to take or purchase any shares of the
common stock in the syndicated community offering; however, Keefe,
Bruyette & Woods, Inc. has agreed to use its best efforts in the sale
of shares in any syndicated community offering. We have not selected any
particular broker-dealers to participate in a syndicated community offering
and will not do so until prior to the commencement of the syndicated community
offering. The syndicated community
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offering would terminate no
later than 45 days after the expiration of the subscription offering,
unless extended by us, with approval of the Office of Thrift Supervision. See Community Offering above for a
discussion of rights of subscribers in the event an extension is granted.
The
opportunity to subscribe for shares of common stock in the syndicated community
offering is subject to our right in our sole discretion to accept or
reject orders, in whole or part, either at the time of receipt of an order or
as soon as practicable following the expiration date of the offering. If
your order is rejected in part, you will not have the right to cancel the
remainder of your order.
Common
stock sold in the syndicated community offering also will be sold at the
$10.00 per share purchase price. Purchasers in the syndicated community
offering are eligible to purchase up to $100,000 of common stock (which equals
10,000 shares). We may begin the syndicated community offering at any
time following the commencement of the subscription offering.
If
we are unable to find purchasers from the general public for all unsubscribed
shares, we will make other purchase arrangements, if feasible. Other purchase
arrangements must be approved by the Office of Thrift Supervision and may
provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the plan
of reorganization and stock issuance plan and in excess of the proposed director and
executive officer purchases discussed earlier, although no such purchases are
currently intended. If other purchase arrangements cannot be made, we may
either: terminate the stock offering and promptly return all funds with
interest; promptly return all funds with interest, set a new offering
range and give all subscribers the opportunity to place a new order for shares
of Auburn Bancorp, Inc. common stock; or take such other actions as may be
permitted by the Office of Thrift Supervision and the Securities and Exchange
Commission.
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Limitations on Purchases of Shares
In
addition to the purchase limitations described above under Subscription Offering and Subscription Rights,
Community Offering and Syndicated Community Offering, the plan
of reorganization and stock issuance plan provides for the following purchase
limitations:
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The aggregate amount of
our outstanding common stock owned or controlled by persons other than Auburn
Bancorp, MHC at the close of the stock offering must be less than 50% of our
total outstanding common stock.
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No individual (or
individuals on a single deposit account) may purchase more than $100,000 of
common stock (which equals 10,000 shares), subject to increase as described
below.
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No Person by himself, or
with an Associate or group of Persons acting in concert, may purchase more
than $150,000 common stock (which equals 15,000 shares), or 5% of the common
stock sold in the stock offering (which may be fewer than 15,000 shares under
certain circumstances), other than common stock held by or through a tax-qualified
employee plan, subject to increase as described below.
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All employee stock
ownership plans or other tax-qualified employee stock benefit plans
(collectively, ESOPs) may not purchase, in the aggregate, more than
4.9% of the common stock or
4.9% of Auburn Bancorp, Inc.s stockholders equity.
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All ESOPs
and management recognition plans (MRPs) may not purchase, in the aggregate,
more than either 4.9% of the outstanding shares of the Holding Companys
Common Stock or 4.9% of the Holding Companys stockholders equity at the
close of the stock offering, but if Auburn Bancorp, Inc.s tangible capital
equals at least 10% at the time the Plan is implemented, subject to the
approval of the OTS, such ESOPs and MRPs may encompass, in the aggregate, up
to 5.88% of the outstanding common stock or stockholders equity at the close
of this stock offering.
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All MRPs may
not purchase, in the aggregate, more than either 1.47% of the Common Stock of
the Holding Company or 1.47% of the Holding Companys stockholders equity at
the close of the stock offering, but if Auburn Bancorp, Inc.s tangible
capital equals at least 10% at the time the Plan is implemented, subject to
the approval of the OTS, the MRPs may encompass, in the aggregate, up to 1.96%
of the outstanding common stock or stockholders equity at the close of this
stock offering.
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All stock
option plans (Option Plans) may not purchase, in the aggregate, more than
either 4.9% of the Holding Companys outstanding Common Stock at the close of
the proposed issuance or 4.9% of the Holding Companys stockholders equity
at the close of the stock offering.
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All Option
Plans and MRPs may not purchase, in the aggregate, 25% or more of the
outstanding common stock held by persons other than the MHC at the close of
the stock offering.
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The aggregate amount of
common stock acquired in the stock offering by all non-tax-qualified employee
plans or management persons and their associates, exclusive of any common
stock acquired by such plans or persons in the secondary market, may not
exceed
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34% of (i) the
outstanding shares of common stock held by persons other than Auburn Bancorp,
MHC at the conclusion of the stock offering or (ii) the stockholders
equity of Auburn Bancorp, Inc. held by persons other than Auburn Bancorp, MHC
at the conclusion of the stock offering. In calculating the number of shares
held by management persons and their associates, shares held by any
tax-qualified or non-tax-qualified employee stock benefit plan that are
attributable to such persons will not be counted.
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Each subscriber must
subscribe for a minimum of the lesser of 25 shares or $500.
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We
may, in our sole discretion, increase the individual or aggregate purchase limitation
to up to 5% of the shares of common stock sold in the stock offering to persons
other than Auburn Bancorp, MHC. We do not intend to increase the maximum
purchase limitation unless market conditions warrant. If we decide to increase
the purchase limitations, persons who subscribed for the maximum number of
shares of common stock will be given the opportunity to increase their
subscriptions accordingly, subject to the rights and preferences of any person
who has priority subscription rights. We, in our discretion, also may give
other large subscribers the right to increase their subscriptions.
In
the event that the maximum purchase limitation represents more than 2% of the
shares sold in the stock offering, orders for common stock in the syndicated
community offering will be filled first to a maximum of 2% of the total
number of shares sold in the stock offering and thereafter any remaining shares
will be allocated on an equal number of shares basis per order until all
available shares have been allocated.
In
the event that we increase the maximum purchase limitation to 5% of the shares
of common stock sold in the stock offering, we may, subject to approval by the
OTS, further modify that limit to provide that any person, group of
associated persons, or persons otherwise acting in concert subscribing for 5%
of the shares of common stock sold in the stock offering may purchase up to 10% of the shares
of common stock sold in the stock offering; provided that purchases in excess of 5% of the shares of
common stock sold in the stock offering may not exceed 10% in the aggregate of
the total shares sold in the stock offering.
The
plan of reorganization and stock issuance plan defines acting in concert to mean
knowing participation in a joint activity or interdependent conscious parallel
action towards a common goal whether or not by an express agreement or
understanding; or a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose under any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise. In
general, a person who acts in concert with another party will also be deemed to
be acting in concert with any person who is also acting in concert with that
other party. We may presume that certain persons are acting in concert based
upon, among other things, joint account relationships and the fact that persons
may have filed joint Schedules 13D or 13G with the Securities and Exchange
Commission with respect to other companies. For purposes of the plan of
reorganization and stock issuance plan, our directors are not deemed to be acting in
concert solely by reason of their board membership.
The
plan of reorganization and stock issuance plan defines associate, with respect to
a particular person, to mean:
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(i)
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any corporation or
organization (other than Auburn Bancorp, MHC, Auburn Bancorp, Inc. or Auburn
Savings Bank or a majority-owned subsidiary of Auburn Bancorp, MHC, Auburn
Bancorp, Inc. or Auburn Savings Bank) of which a person is a senior officer
or partner or is, directly or indirectly, beneficial owner of 10% or more of
any class of equity securities of the corporation or organization;
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107
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(ii)
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any trust or other estate
in which a person has a substantial beneficial interest or serves as a
trustee or fiduciary; and
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(iii)
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any person who is related
by blood or marriage to such person and who lives in the same home as such
person or who is a director or senior officer of Auburn Bancorp, MHC, Auburn
Bancorp, Inc. or Auburn Savings Bank or any of their subsidiaries.
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For
example, a corporation of which a person serves as an officer would be an
associate of that person and, therefore, all shares purchased by the corporation
would be included with the number of shares that the person could purchase
individually under the purchase limitations described above. We have the right
in our sole discretion to reject any order submitted by a person whose
representations we believe to be false or who we otherwise believe, either
alone or acting in concert with others, is violating or circumventing, or
intends to violate or circumvent, the terms and conditions of the plan of
reorganization and stock issuance plan. Directors and officers are not treated as
associates of each other solely by virtue of holding such positions. We have
the sole discretion to determine whether prospective purchasers are
associates or acting in concert.
Marketing Arrangements
Offering
materials have been initially distributed through mailings to those eligible to
subscribe in the subscription offering. To assist in the marketing of our
common stock, we have retained Keefe, Bruyette & Woods, Inc. which is
a broker-dealer registered with the Financial Industry Regulatory Authority.
Keefe, Bruyette & Woods, Inc. will assist us in the stock offering by:
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Acting as our financial
advisor for the stock offering, providing administrative services and
managing the stock information center by assisting interested stock
subscribers and by keeping records of all stock orders;
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Educating our employees
about the stock offering;
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Targeting our sales
efforts, including assisting in the preparation of marketing materials; and
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Assisting in the
solicitation of proxies from Auburn Savings Banks members for use at the
special meeting.
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For
these services, Keefe, Bruyette & Woods, Inc. has received a
management fee of $25,000 and will receive a success fee of $85,000 upon completion
of the reorganization and stock offering. In the event that Keefe,
Bruyette & Woods, Inc. sells common stock through a group of
broker-dealers in a syndicated community offering, the total fees payable
to the selected dealers (which may include Keefe, Bruyette & Woods,
Inc. for the shares it sells) for the shares they sell shall not exceed 5.5% of
the aggregate dollar amount of shares sold in the syndicated offering.
Keefe, Bruyette & Woods, Inc. will also be reimbursed for its reasonable
out-of-pocket expenses in an amount not to exceed $10,000 and for its legal
fees and expenses in an amount not to exceed $35,000.
We
will indemnify Keefe, Bruyette & Woods, Inc. against liabilities and
expenses, including legal fees, incurred in connection with certain claims or
litigation arising out of or based upon untrue statements or omissions
contained in the offering materials for the common stock, including
liabilities under the Securities Act of 1933, as amended.
108
Description of Sales Activities
Auburn
Bancorp, Inc. will offer the common stock in the subscription offering
and community offering principally by the distribution of this prospectus
and through activities conducted at our stock information center. The stock
information center is expected to operate Monday through Friday from
9:00 a.m. to 5:00 p.m., Eastern time, throughout the subscription
offering. It is expected that at any particular time one or more Keefe,
Bruyette & Woods, Inc. employees will be working at the stock
information center. Employees of Keefe, Bruyette & Woods, Inc. will be
responsible for responding to questions regarding the stock offering and
processing stock orders.
Sales
of common stock will be made by registered representatives affiliated with
Keefe, Bruyette & Woods, Inc. or by the selected dealers managed by
Keefe, Bruyette & Woods, Inc. Auburn Savings Banks officers and
employees may participate in the stock offering in clerical capacities,
providing administrative support in effecting sales transactions or, when
permitted by state securities laws, answering questions of a mechanical nature
relating to the proper execution of the order form. Auburn Savings Banks
officers may answer questions regarding our business when permitted by state
securities laws. Other questions of prospective purchasers, including questions
as to the advisability or nature of the investment, will be directed to
registered representatives. Auburn Savings Banks officers and employees have
been instructed not to solicit offers to purchase common stock or provide
advice regarding the purchase of common stock.
None
of Auburn Savings Banks officers, directors or employees will be compensated,
directly or indirectly, for any activities in connection with the offer or sale
of securities issued in the reorganization.
None
of Auburn Savings Banks personnel participating in the stock offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
Auburn Savings Banks personnel will assist in the above-described sales
activities under an exemption from registration as a broker or dealer provided
by Rule 3a4-1 promulgated under the Securities Exchange Act of 1934. Rule 3a4-1
generally provides that an associated person of an issuer of securities will
not be deemed a broker solely by reason of participation in the sale of
securities of the issuer if the associated person meets certain conditions.
These conditions include, but are not limited to, that the associated person
participating in the sale of an issuers securities not be compensated in
connection with the stock offering at the time of participation, that the
person not be associated with a broker or dealer and that the person observe
certain limitations on his or her participation in the sale of securities. For
purposes of this exemption, associated person of an issuer is defined to
include any person who is a director, officer or employee of the issuer or a
company that controls, is controlled by or is under common control with the
issuer.
109
Procedure for Purchasing Shares in the Subscription and
Community Offerings
Prospectus
Delivery. To ensure that each purchaser receives a prospectus at
least 48 hours before the expiration date of the stock offering in accordance
with Rule 15c2-8 of the Securities Exchange Act of 1934, no prospectus
will be mailed any later than five days prior to the expiration date or hand
delivered any later than two days prior to that date. We are not obligated to
deliver a prospectus or order form by means other than U.S. Mail.
Execution of an order form will confirm receipt of delivery of a prospectus in
accordance with Rule 15c2-8. Order forms will be distributed only if
preceded or accompanied by a prospectus.
Termination
of Offering; Rejection of Orders. We reserve the right in our sole discretion
to terminate the stock offering at any time and for any reason, in which case
we will cancel any deposit account withdrawal holds and promptly return all
funds submitted, with interest calculated at Auburn Savings Banks applicable
passbook savings rate from the date of receipt.
We
have the right to reject any order submitted in the stock offering by a person
who we believe is making false representations or who we otherwise believe,
either alone or acting in concert with others, is violating, evading,
circumventing, or intends to violate, evade or circumvent the terms and
conditions of the plan of reorganization and stock issuance plan.
Use
of Order Forms.
In order to purchase shares of common stock in the subscription offering
and direct community offering, you must submit a properly completed and
signed original stock order form. We will not be required to accept orders
submitted on photocopied or facsimilied stock order forms. All order forms must be received by our stock
information center (not postmarked) prior to 12:00 Noon, Eastern time, on [ ],
2008. Your order form must be accompanied by full payment for all of
the shares subscribed for or include appropriate authorization in the space
provided on the order form for withdrawal of full payment from a deposit
account with Auburn Savings Bank. You may submit your order form and payment in
one of three ways: by mail using the reply envelope provided; by overnight
delivery to the indicated address noted on the form; or by hand delivery to
either of our offices or our stock information center. Our interpretation of
the terms and conditions of the plan of reorganization and stock issuance plan and
of the acceptability of the order forms will be final.
We
need not accept order forms that are received after the expiration of the
subscription offering or community offering, as the case may be, or
that are executed defectively or that are received without full payment or
without appropriate withdrawal instructions. We have the right to waive or
permit the correction of incomplete or improperly executed order forms, but do
not represent that we will do so. Once received, an executed order form may not
be modified, amended or rescinded without our consent unless the stock offering
has not been completed within 45 days after the end of the subscription
offering, unless extended.
To
ensure that your stock purchase eligibility and priority are properly
identified, you must list all accounts on the order form, giving all names in
each account and the account number. We will strive to identify your ownership
in all accounts, but cannot guarantee we will identify all accounts in which
you have an ownership interest. When entering the stock registration on your
stock order form, you should not add the name(s) of persons without
subscription rights, or who qualify only in a lower purchase priority than you.
Joint registration of shares purchased in the subscription offering will
be allowed only if the qualifying deposit account is so registered.
The
reverse side of the order form contains a regulatorily mandated certification
form. We will not accept order forms where the certification form is not
executed. By executing and returning the certification form, you will be
certifying that you received this prospectus and acknowledging that the
110
common stock is not a
deposit account and is not insured or guaranteed by the federal government. You
also will be acknowledging that you received disclosure concerning the risks
involved in this stock offering. The certification form could be used as
support to show that you understand the nature of this investment.
Payment
for Shares.
Payment for all shares of common stock will be required to accompany all
completed order forms for the purchase to be valid. Payment for shares may be
made only by:
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Personal check, bank draft
or money order made payable directly to Auburn Bancorp, Inc. (you may not
remit Auburn Savings Bank line of credit checks, and we will not accept third
party checks, including those payable to you and endorsed over to Auburn
Bancorp, Inc.); or
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Authorization of
withdrawal from the types of Auburn Savings Bank deposit account(s) provided
for on the stock order form.
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In
the case of payments made by check or money order, these funds must be
available in the account(s) when the order is received. Please do not overdraft
your Auburn Savings Bank account(s). No wire transfers will be accepted.
Checks
and money orders will be cashed immediately and the subscription funds will be
held by Auburn Savings Bank or, at our discretion, in an escrow account at an
independent insured depository institution.
Interest
will be paid on payments made by check, bank draft or money order at our
passbook savings rate from the date payment is received at the stock
information center until the completion or termination of the stock offering.
If payment is made by authorization of withdrawal from deposit accounts, the
funds authorized to be withdrawn from a deposit account will continue to accrue
interest at the contractual rates until completion or termination of the stock
offering, unless the certificate matures after the date of receipt of the order
form but before closing or termination of the stock offering, in which case
funds will earn interest at the passbook savings rate from the date of maturity
until the stock offering is completed or terminated, but a hold will be placed
on the funds, making them unavailable to the depositor until completion or
termination of the stock offering. When the stock offering is completed, the
funds received in the stock offering will be used to purchase the shares of
common stock ordered. The shares of common
stock issued in the stock offering cannot and will not be insured by the
Federal Deposit Insurance Corporation or any other government agency.
If the stock offering is not consummated for any reason, all funds submitted
will be promptly refunded with interest as described above.
If
a subscriber authorizes us to withdraw the amount of the purchase price from
his or her deposit account, we will do so as of the completion of the stock
offering, though the account must contain the full amount necessary for payment
at the time the subscription order is received. On your stock order form,
please do not designate a withdrawal from accounts with check-writing
privileges. Please submit a check instead. We will waive any applicable
penalties for early withdrawal from certificate accounts. If the remaining
balance in a certificate account is reduced below the applicable minimum
balance requirement at the time funds are actually transferred under the
authorization, the certificate will be canceled at the time of the withdrawal,
without penalty, and the remaining balance will earn interest at our passbook
savings rate. You may not authorize direct withdrawal from an Auburn Savings
Bank IRA. If you wish to use funds in your Auburn Savings Bank IRA to purchase
shares of our common stock, please refer to the following section.
111
The
employee stock ownership plan will not be required to pay for the shares
subscribed for at the time it subscribes, but rather may pay for shares of
common stock subscribed for upon the completion of the stock offering; provided
that there is in force from the time of its subscription until the completion
of the stock offering a loan commitment from an unrelated financial institution
or from us to lend to the employee stock ownership plan, at that time, the
aggregate purchase price of the shares for which it subscribed.
We
may, in our sole discretion, permit institutional investors to submit
irrevocable orders together with the legally binding commitment for payment and
to thereafter pay for such shares of common stock for which they subscribe in
the community offering at any time prior to the 48 hours before the
completion of the stock offering. This payment may be made by wire transfer.
Using
IRA Funds To Purchase Shares. Our individual retirement accounts (IRAs) do not permit investment in
common stock. A depositor interested in using his or her IRA funds to purchase
common stock must do so through a self-directed IRA. Since we do not offer
those accounts, we will allow a depositor to make a trustee-to-trustee transfer
of the IRA funds to a trustee offering a self-directed IRA program with
the agreement that the funds will be used to purchase our common stock in the
stock offering. There will be no early withdrawal or Internal Revenue Service
interest penalties for such transfers. The new trustee would hold the common
stock in a self-directed account in the same manner as we now hold the
depositors IRA funds. An annual administrative fee may be payable to the new
trustee. Depositors interested in using funds
in an IRA with us to purchase common stock should contact the stock information
center at least two weeks before the subscription offering because
processing such transactions takes additional time.
Interpretation, Amendment and Termination of Plan
To
the extent permitted by law, all interpretations by us of the plan of
reorganization and stock issuance plan will be final; however, such interpretations
have no binding effect on the Office of Thrift Supervision. The plan of
reorganization and stock issuance plan provides that, if deemed necessary or
desirable, we may substantively amend the plan of reorganization and stock
issuance plan as a result of comments from regulatory authorities or otherwise. If
we materially amend terms of the plan of reorganization and stock issuance plan
after the special meeting, however, we will be required to resolicit the
members of Auburn Savings Bank for approval.
We
may terminate the plan of reorganization and stock issuance plan at
any time prior to the earlier of [ ], 2008 and the approval of the of reorganization and stock issuance by the
Office of Thrift Supervision, and may terminate the plan thereafter with the
consent of the Office of Thrift Supervision. The plan of reorganization
and stock issuance plan will be terminated if the members of Auburn Savings Bank do
not approve the plan. Completion of the
stock offering requires the sale of all shares of the common stock within 90
days following approval of the plan of reorganization and stock issuance plan by the
Office of Thrift Supervision, unless an extension is granted by the Office of
Thrift Supervision. The plan of reorganization and stock issuance plan will be
terminated if the reorganization in not completed within 24 months after member
approval.
How We Determined the Offering Range and the $10.00 Purchase
Price
Federal
and state regulations require that the aggregate purchase price of the
securities sold in connection with the stock offering be based upon our
estimated pro forma value on a fully converted basis, as determined by an
independent appraisal. The term fully converted means that the appraiser
assumed that 100% of our stock had been sold to the public. We have retained
Keller & Company, Inc., which is experienced in the evaluation and
appraisal of business entities, to prepare the independent
112
appraisal.
Keller & Company will receive fees totaling $25,000 for the preparation and
delivery of the original appraisal report and the final updated appraisal
report, plus reimbursement of out-of-pocket expenses not to exceed $1,500, and
$1,500 for the preparation and delivery of each additional required updated
appraisal report. We have agreed to indemnify Keller & Company under
certain circumstances against liabilities and expenses, including legal fees,
arising out of, related to, or based upon the stock offering.
Keller
& Company prepared the appraisal taking into account the pro forma impact
of the stock offering. For its analysis, Keller & Company undertook
substantial investigations to learn about our business and operations. We
supplied financial information, including annual financial statements,
information on the composition of assets and liabilities, and other financial
schedules. In addition to this information, Keller & Company reviewed our
reorganization and stock issuance applications as filed with the Office of Thrift
Supervision and our registration statement as filed with the Securities and
Exchange Commission. Furthermore, Keller & Company visited our facilities
and had discussions with our management. Keller & Company did not perform a
detailed individual analysis of the separate components of our assets and
liabilities. We did not impose any limitations on Keller & Company in
connection with its appraisal.
In
connection with its appraisal, Keller & Company reviewed the following
factors, among others:
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the economic and
demographic conditions of our primary market area;
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our financial performance
and condition in relation to publicly traded subsidiaries of mutual holding
companies that Keller & Company deemed comparable to us;
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the specific terms of the
stock offering of our common stock;
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the pro forma impact of
the additional capital raised in the stock offering;
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our proposed dividend
policy;
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conditions of securities
markets in general; and
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the market for thrift
institution common stock in particular.
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Consistent
with Office of Thrift Supervision appraisal guidelines, Keller & Companys
analysis utilized five selected valuation procedures: the price/book method;
the price/tangible book method; the price/earnings method; the price/core
earnings method and the price/assets method, all of which are described in its
report. Keller & Companys appraisal report is filed as an exhibit to the
registration statement that we have filed with the Securities and Exchange
Commission. See Where You Can Find More
Information. Keller & Company placed the greatest emphasis on
the price/core earnings and price book methods in estimating pro forma market
value. Keller & Company compared the pro forma price/core earnings and
price/book ratios for Auburn Bancorp, Inc. to the same ratios for a peer group
of comparable companies. The peer group consisted of the 10 publicly traded
subsidiaries of mutual holding companies with assets of $450 million in the New
England, Mid-Atlantic or Midwest regions. The peer group constituted companies
with:
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average assets of $323.6
million;
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average non-performing
assets of 0.67% of total assets;
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113
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average net loans of
68.97% of total assets;
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average equity of 14.88%
of total assets; and
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average core income of
0.42% of average assets.
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On
the basis of the analysis in its report, Keller & Company has advised us
that, in its opinion, as of February 15, 2008, our estimated pro forma market
value on a fully converted basis was within the valuation range of $5.0 million
and $6.8 million with a midpoint of $5.9 million.
The
following table presents a summary of selected pricing ratios for the peer
group companies and pro forma pricing ratios for Auburn Bancorp, Inc. used by
Keller & Company in its appraisal. These ratios are based on earnings for
the 12 months ended December 31, 2007 and book value and tangible book value as
of December 31, 2007.
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Fully Converted Price to Core Earnings Multiple
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Fully Converted Price to Book Value Ratio
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Fully Converted Price to Tangible Book
Value Ratio
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Auburn
Bancorp, Inc. (pro forma):
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Minimum
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36.55x
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59.74%
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59.61%
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Midpoint
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42.53x
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64.19%
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64.07%
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Maximum
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48.39x
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67.93%
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67.81%
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Maximum, as adjusted
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54.97x
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71.56%
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71.44%
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Peer
Group (on a fully-converted basis):
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Average
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35.51x
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79.02%
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81.87%
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Median
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30.74x
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78.45%
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82.10%
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Compared
to the average pricing ratios of the peer group at the maximum of the
offering range, our stock would be priced at discount of 14.03% to the peer
group on a price-to-book basis and a premium of 36.27% on a price-to-core
earnings basis. This means that, at the maximum of the offering range, a
share of our common stock would be less expensive than the peer group based on
a book value per share basis and more expensive on a core earnings per share
basis. The disparity between the pricing ratios results from Auburn Bancorp, Inc.,
on a pro forma basis, generally having higher levels of equity but lower
earnings than the companies in the peer group. The appraisal concluded that
these ranges represented the appropriate balance of the two approaches to
valuing Auburn Bancorp, Inc., and the number of shares to be sold, in
comparison to the peer group institutions.
Our
board of directors reviewed Keller & Companys appraisal report, including
the methodology and the assumptions used by Keller & Company, and
determined that the valuation range was reasonable and adequate. Our board of
directors determined that 45% of the shares of our common stock should be sold
in the stock offering at a purchase price of $10.00 per share. Multiplying this
percentage by Keller & Companys valuation range yielded an offering
range of $2,256,750 to $3,053,250, with a midpoint of $2,655,000. Dividing
these dollar amounts by the purchase price resulted in an offering range
of between 225,675 and 305,325 shares, with a midpoint of 265,500 shares. The
purchase price of $10.00 per share was determined by us, taking into account,
among other factors, offering the common stock in a manner that will
achieve the widest distribution of the stock and desired liquidity in the
common stock after the stock offering.
Since
the outcome of the stock offering relates in large measure to market conditions
at the time of sale, it is not possible for us to determine the exact number of
shares that we will issue at this time. The offering range may be
amended, with the approval of the Office of Thrift Supervision, if necessitated
by developments following the date of the appraisal in, among other things,
market conditions, our financial condition or operating results, regulatory guidelines
or national or local economic conditions.
114
If,
upon completion of the subscription offering, at least the minimum number
of shares are subscribed for, Keller & Company, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of our pro forma market value as of the close of the subscription
offering. If, as a result of regulatory considerations, demand for the
shares or changes in market conditions, Keller & Company determines that
our pro forma market value has increased, we may sell up to 351,124 shares
without any further notice to you.
No
shares will be sold unless Keller & Company confirms that, to the best of
its knowledge and judgment, nothing of a material nature has occurred that
would cause it to conclude that the actual total purchase price of the shares
on an aggregate basis was materially incompatible with its appraisal. If,
however, the facts do not justify that statement, the stock offering may be
canceled, a new offering range and price per share set and new
subscription, community and syndicated community offerings held. Under those
circumstances, all funds would be promptly returned and all subscribers would
be given the opportunity to place a new order. If the stock offering is
terminated all subscriptions will be cancelled and subscription funds will be
returned promptly with interest, and holds on funds authorized for withdrawal
from deposit accounts will be released. If Keller & Company establishes a
new valuation range, it must be approved by the Office of Thrift Supervision.
In
formulating its appraisal, Keller & Company relied upon the truthfulness,
accuracy and completeness of all documents we furnished to it. Keller &
Company also considered financial and other information from regulatory
agencies, other financial institutions, and other public sources, as
appropriate. While Keller & Company believes this information to be
reliable, Keller & Company does not guarantee the accuracy or completeness
of the information and did not independently verify the financial statements
and other data provided by us or independently value our assets or liabilities.
The appraisal is not intended to be, and must
not be interpreted as, a recommendation of any kind as to the advisability of
purchasing shares of common stock. Moreover, because the appraisal must be
based on many factors that change periodically, there is no assurance that
purchasers of shares in the stock offering will be able to sell shares after
the stock offering at prices at or above the purchase price.
Copies
of the appraisal report of Keller & Company, including any amendments to
the report, and the detailed memorandum of the appraiser setting forth the
method and assumptions for such appraisal are available for inspection at our
Lewiston, Maine office and the other locations specified under Where You Can Find More Information.
Mutual Holding Company Data
The
following table presents a summary of selected pricing ratios for publicly
traded mutual holding companies and the pricing ratios for us, without the
ratios being adjusted to the hypothetical case of being fully converted. These
ratios are based on earnings for the 12 months ended December 31, 2007 and book
value and price to tangible book value as of December 31, 2007.
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Non-Fully
Converted Price to
Core Earnings
Multiple
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Non-Fully
Converted Price
to Book Value
Ratio
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Non-Fully
Converted Price to
Tangible Book Value
Ratio
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Auburn Bancorp, Inc. (pro forma):
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Minimum
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38.64x
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85.48
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%
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85.22
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%
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Midpoint
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45.08x
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94.83
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%
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94.55
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%
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Maximum
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51.43x
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103.17
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%
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102.88
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%
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Maximum, as adjusted
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58.60x
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111.71
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%
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111.42
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%
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Publicly traded mutual holding companies as of
February 15, 2008:(1)
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Average
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64.75x
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138.92
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%
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147.59
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%
|
|
Median
|
|
|
|
46.94x
|
|
|
|
|
131.52
|
%
|
|
|
|
143.43
|
%
|
|
|
|
|
(1)
|
The information for
publicly traded mutual holding companies may not be meaningful for investors
because it presents average and median information for mutual holding
companies that issued a different percentage of their stock in their
offerings than the 45% that we are offering to the public. In addition,
the effect of stock repurchases also affects the ratios to a greater or
lesser degree depending upon repurchase activity.
|
115
Possible Termination of the Offering
We
must sell a minimum of 225,675 shares to complete the stock offering. If we
terminate the stock offering because we fail to sell the minimum number of
shares or for any other reason, we will promptly return your funds with
interest at our passbook savings rate and without deduction of any fees, and
holds on funds authorized for withdrawal from deposit accounts will be
released.
After-Market Performance of First-Step
Mutual Holding Company Offerings
The
following table provides information regarding the after-market performance of
all first-step mutual holding company offerings completed from January 1,
2007 through February 15, 2008. First-step mutual holding company offerings
are initial public offerings by companies in the mutual holding company form of
organization.
116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Appreciation From Initial Offering Price
|
|
|
|
|
|
|
|
Issuer
(Market/Symbol)
|
|
Date of
IPO
|
|
After
1 Day
|
|
After
1 Week
|
|
After
4 Weeks
|
|
Through
February
15, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oritani Financial Corp. (NasdaqGS:ORIT)
|
|
1/24/07
|
|
59.7
|
%
|
54.3
|
%
|
55.0
|
%
|
13.4
|
%
|
Delanco Bancorp Inc. (OTCBB: DLNO)
|
|
4/02/07
|
|
0.0
|
%
|
0.0
|
%
|
(5.0
|
)%
|
(25.0
|
)%
|
Sugar Creek Financial Corp (OTCBB: SUGR)
|
|
4/04/07
|
|
0.0
|
%
|
0.0
|
%
|
6.0
|
%
|
(9.0
|
)%
|
TFS Financial Corp (NasdaqGS:TFSL)
|
|
4/23/07
|
|
17.9
|
%
|
18.0
|
%
|
23.4
|
%
|
23.0
|
%
|
Hometown Bancorp Inc. (OTCBB: HTWC)
|
|
06/29/07
|
|
0.0
|
%
|
0.0
|
%
|
(5.0
|
)%
|
(28.0
|
)%
|
Beneficial Mutual Bancorp (NasdaqGS:BNCL)
|
|
07/16/07
|
|
(7.9
|
)%
|
(6.8
|
)%
|
(11.5
|
)%
|
(6.3
|
)%
|
FSB Community Bankshares Inc. (NasdaqGM:FSBC)
|
|
08/15/07
|
|
0.0
|
%
|
0.0
|
%
|
(5.0
|
)%
|
(14.3
|
)%
|
LaPorte
Bancorp Inc. (NasdaqCM:LPSB)
|
|
10/15/07
|
|
(8.1
|
)%
|
(13.8
|
)%
|
(21.0
|
)%
|
(29.0
|
)%
|
Northfield Bancorp Inc. (NasdaqGS:NFBK)
|
|
11/08/07
|
|
4.5
|
%
|
13.0
|
%
|
4.9
|
%
|
3.8
|
%
|
Sound Financial Inc. (OTCBB: SNFL)
|
|
01/09/08
|
|
(10.0
|
)%
|
(10.0
|
)%
|
(8.5
|
)%
|
(7.0
|
)%
|
Meridian Interstate Bancorp (NasdaqGS:EBSB)
|
|
01/23/08
|
|
(4.0
|
)%
|
(5.2
|
)%
|
NA
|
%
|
(5.0
|
)%
|
This table is not intended to be indicative of how our
stock may perform. Furthermore, this table presents only short-term price
performance with respect to several companies that only recently completed
their initial public offerings and may not be indicative of the longer-term
stock price performance of these companies. Stock
price appreciation is affected by many factors, including, but not limited to:
general market and economic conditions; the interest rate environment; the
amount of proceeds a company raises in its stock offering; and numerous factors
relating to the specific company, including the experience and ability
of management, historical and anticipated operating results, the nature and
quality of Auburn Bancorp, Inc.s
assets, Auburn Bancorp, Inc.s market area, the quality of management and
managements ability to deploy proceeds (such as through loans and investments,
the acquisition of other financial institutions or other businesses, the
payment of dividends and common stock repurchases), the presence of
professional and other investors who purchase stock on speculation, as well as
other unforeseeable events not in the control of management. In addition, the
companies listed in the table above may not be similar to Auburn Bancorp, Inc.,
with regard to market capitalization, offering size, earnings quality and
growth potential, among other factors. Further, the pricing ratios for their
stock offerings were in some cases different from the pricing ratios for Auburn
Bancorp Inc.s common stock and the market conditions in which these offerings
were completed were, in some cases, different from current market conditions.
Any or all of these differences may cause our stock to perform differently from
these other offerings. Before you make an investment decision, we urge you to
carefully read this prospectus, including, but not limited to, the Risk Factors section of this prospectus.
You
should be aware that, in certain market conditions, stock prices of thrift
initial public offerings have decreased. For example, as the above table
illustrates, the stock of eight companies traded at or below the initial
offering price at various times through February 15, 2008. We can give you no
assurance that our stock will not trade below the $10.00 purchase price or that
our stock will perform similarly to other recent mutual to stock conversions.
Delivery of Certificates
Certificates
representing the common stock sold in the stock offering will be mailed by our
transfer agent to the persons whose subscriptions or orders are filled at the
addresses of such persons appearing on the stock order form as soon as
practicable following completion of the stock offering. We will hold
certificates returned as undeliverable until claimed by the persons legally
entitled to the certificates or otherwise disposed of in accordance with
applicable law. Until certificates for common stock are
117
available and delivered to subscribers,
subscribers may not be able to sell their shares, even though trading of the
common stock may have commenced.
Restrictions on Repurchase of Stock
Under
Office of Thrift Supervision regulations, for a period of one year from the
date of the completion of the stock offering we may not repurchase any of our
common stock from any person, except (1) in an offer made to all stockholders
to repurchase the common stock on a pro rata basis, approved by the Office of
Thrift Supervision, (2) the repurchase of qualifying shares of a director, (3)
repurchases to fund tax-qualified employee stock benefit plans, or (4)
repurchases to fund management recognition plans that have been ratified by
stockholders, with prior written notice to the Office of Thrift Supervision.
Where extraordinary circumstances exist, the Office of Thrift Supervision may
approve the open market repurchase of up to 5% of our common stock during the
first year following the stock offering. To receive such approval, we must establish
compelling and valid business purposes for the repurchase to the satisfaction
of the Office of Thrift Supervision. Furthermore, repurchases of any common
stock are prohibited if they would cause Auburn Savings Banks regulatory
capital to be reduced below the amount required under the regulatory capital
requirements imposed by the Office of Thrift Supervision.
Restrictions on Transfer of Shares After the Reorganization
Applicable to Officers and Directors
Common
stock purchased in the stock offering will be freely transferable, except for
shares purchased by our directors and executive officers.
Shares
of common stock purchased by our directors and executive officers and their
associates may not be sold for a period of one year following the stock
offering, except upon the death of the stockholder or unless approved by the
Office of Thrift Supervision. Shares purchased by these persons in the open
market after the stock offering will be free of this restriction. Shares of
common stock issued to directors and executive officers will bear a legend
giving appropriate notice of the restriction and, in addition, we will give
appropriate instructions to our transfer agent with respect to the restriction
on transfers. Any shares issued to directors and executive officers as a stock
dividend, stock split or otherwise with respect to restricted common stock will
be similarly restricted.
Persons
affiliated with us, including our directors and executive officers, received
subscription rights based only on their deposits with Auburn Savings Bank as
account holders. While this aspect of the stock offering makes it difficult, if
not impossible, for insiders to purchase stock for the explicit purpose of
meeting the minimum of the offering, any purchases made by persons
affiliated with us for the explicit purpose of meeting the minimum of the
offering must be made for investment purposes only, and not with a view towards
redistribution. Furthermore, as set forth above, Office of Thrift Supervision
regulations restrict sales of common stock purchased in the stock offering by
directors and executive officers for a period of one year following the stock
offering.
Purchases
of outstanding shares of our common stock by directors, officers, or any person
who becomes an executive officer or director after adoption of the plan of
reorganization and stock issuance plan, and their associates, during the three-year
period following the stock offering may be made only through a broker or dealer
registered with the Securities and Exchange Commission, except with the prior
written approval of the Office of Thrift Supervision. This restriction does not
apply, however, to negotiated transactions involving more than 1% of our
outstanding common stock or to the purchase of stock under management or
employee stock benefit plans.
118
We
have filed with the Securities and Exchange Commission a registration statement
under the Securities Act of 1933 for the registration of the common stock to be
issued in the stock offering. This registration does not cover the resale of
the shares. Shares of common stock purchased by persons who are not affiliates
of us may be resold without registration. Shares purchased by an affiliate of
us will have resale restrictions under Rule 144 of the Securities Act. If we
meet the current public information requirements of Rule 144, each affiliate of
ours who complies with the other conditions of Rule 144, including those that
require the affiliates sale to be aggregated with those of certain other
persons, would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of 1% of
our outstanding shares or the average weekly volume of trading in the shares
during the preceding four calendar weeks. We may make future provision to
permit affiliates to have their shares registered for sale under the Securities
Act under certain circumstances.
RESTRICTIONS
ON ACQUISITION OF AUBURN BANCORP, INC.
General
The
plan of reorganization and stock issuance plan provides that Auburn Savings Bank
will reorganize into the two-tier federal mutual holding company structure
and includes the adoption of a federal stock charter and bylaws of Auburn Bancorp,
Inc. Certain provisions in the charter and bylaws of Auburn Bancorp, Inc. may
have antitakeover effects. In addition, regulatory restrictions may make it
more difficult for persons or companies to acquire control of us.
Mutual Holding Company Structure
Auburn
Bancorp, MHC will own a majority of the outstanding common stock of Auburn
Bancorp, Inc. after the stock offering and, through its board of directors,
will be able to exercise voting control over most matters put to a vote of
stockholders. For example, Auburn Bancorp, MHC may exercise its voting control
to prevent a sale or merger transaction or to defeat a stockholder nominee for
election to the board of directors of Auburn Bancorp, Inc. It will not be
possible for another entity to acquire Auburn Bancorp, Inc. without the consent
of Auburn Bancorp, MHC. Auburn Bancorp, MHC, as long as it remains in the
mutual form of organization, will control a majority of the voting stock of
Auburn Bancorp, Inc.
Charter and Bylaws of Auburn Bancorp, Inc.
Although
our board of directors is not aware of any effort that might be made to obtain
control of us after the stock offering, the board of directors believed it
appropriate to adopt certain provisions permitted by federal regulations that
may have the effect of deterring a future takeover attempt that is not approved
by our board of directors. The following description of these provisions is
only a summary and does not provide all of the information contained in
our charter and bylaws. See Where You Can
Find More Information as to where to obtain a copy of these
documents.
Beneficial Ownership Limitation. Our
charter provides that for a period of five years from the date of the
consummation of the initial stock offering of Auburn Bancorp, Inc., no person
other than Auburn Bancorp, MHC may acquire directly or indirectly the
beneficial ownership of more than 10% of any class of an equity security of
Auburn Bancorp, Inc. In the event a person acquires shares in violation of this
provision, all shares beneficially owned by such person in excess of 10% will
be considered excess shares and will not be counted as shares entitled to
vote or counted as voting shares in connection with any matters submitted to
the stockholders for a vote. This provision does not apply to a transaction in
which Auburn Bancorp, Inc. fully converts from the mutual holding company form
of organization.
Board of Directors.
Classified Board. Our board of directors
is divided into three classes as nearly as equal in number as possible. The
stockholders elect one class of directors each year for a term of three years.
The classified
119
board makes it more
difficult and time consuming for a stockholder group to fully use its voting
power to gain control of the board of directors without the consent of the
incumbent board of directors of Auburn Bancorp, Inc.
Filling of Vacancies; Removal. The bylaws
provide that any vacancy occurring in the board of directors, including a
vacancy created by an increase in the number of directors, may be filled by a
vote of a majority of the remaining directors although less than a quorum of
the board of directors then in office. A person elected to fill a vacancy on
the board of directors will serve until the next election of directors by the
stockholders. Our bylaws provide that a director may be removed from the board
of directors prior to the expiration of his or her term only for cause and only
upon the vote of a majority of the outstanding shares of voting stock. These
provisions make it more difficult for stockholders to remove directors and
replace them with their own nominees.
Elimination of Cumulative Voting. The
charter of Auburn Bancorp, Inc. provides that no shares will be entitled to
cumulative voting. The elimination of cumulative voting makes it more difficult
for a stockholder group to elect a director nominee.
Qualification. The bylaws provide that no
person will be eligible to serve on the board of directors who (1) is under
indictment for, or has ever been convicted of, a criminal offense involving
dishonesty or breach of trust and the penalty for such offense could be
imprisonment for more than one year, (2) is a person against who a banking
agency has, within the past ten years, issued a cease and desist order for
conduct involving dishonesty or breach of trust and that order is final and not
subject to appeal, or (3) has been found either by a regulatory agency whose
decision is final and not subject to appeal or by a court to have (i) breached
a fiduciary duty involving personal profit or (ii) committed a willful
violation of any law, rule or regulation governing banking, securities,
commodities or insurance, or any final cease and desist order issued by a banking,
securities, commodities or insurance regulatory agency.
Stockholder Action by Written
Consent; Special Meetings of Stockholders. Our stockholders must
act only through an annual or special meeting or by unanimous written consent.
The bylaws provide that the chairman of the board of directors, the president
or a majority of the board of directors or holders of 10% or more of our
outstanding shares may request the calling of a special meeting. The provisions
of our charter and bylaws limiting stockholder action by written consent and
calling of special meetings of stockholders may have the effect of delaying
consideration of a stockholder proposal until the next annual meeting, unless a
special meeting is called in accordance with the provisions of the bylaws.
These provisions also would prevent the holders of a majority of common stock
from unilaterally using the written consent procedure to take stockholder
action.
Advance Notice Provisions for
Stockholder Nominations and Proposals. Our bylaws establish an
advance notice procedure for stockholders to nominate directors or bring other
business before an annual meeting of stockholders. Advance notice of
nominations or proposed business by stockholders gives the board of directors
time to consider the qualifications of the proposed nominees, the merits of the
proposals and, to the extent deemed necessary or desirable by the board of
directors, to inform stockholders and make recommendations about those matters.
Stockholder Nominations. A person may not be
nominated for
election as a director unless that person is nominated by or at the direction
of the board of directors or by a stockholder who has given appropriate notice
to Auburn Bancorp, Inc. before the meeting. Stockholder nominations must be in
writing and delivered to the Secretary of Auburn Bancorp, Inc. at least 30 days
prior to the date of the annual meeting, provided however, that in the event
that less than 40 days notice or prior public disclosure of the date of the
meeting is given or made, notice by a stockholder of his or her intention to
nominate a director must be received not later than the close of business on
the 10th day following the day on which notice of the
date of the annual meeting was mailed or such public disclosure of the annual
meeting was made.
120
Stockholder Proposals. A stockholder may not
bring new business
before an annual meeting unless the stockholder has given Auburn Bancorp, Inc.
appropriate notice of its intention to bring that business before the meeting.
A stockholder may propose new business at an annual meeting; however, such
business must be stated in writing and filed with Auburn Bancorp, Inc.s
Secretary at least 30 days before the date of the annual meeting, provided
however, that when public notice of the date of the annual meeting is less than
40 days, notice by the stockholder of a proposal must not be received later
than the close of business on the 10th day following
the day on which notice of the date of the annual meeting was made to the
public. Additionally, if such proposal is not presented, in writing, to Auburn
Bancorp, Inc.s Secretary at least 30 days prior to such meeting, such
nomination or proposal shall be laid over for action at an adjourned, special or
annual meeting taking place 30 days or more thereafter. A stockholder who
desires to raise new business must provide certain information to Auburn
Bancorp, Inc. concerning the nature of the new business, the stockholder and
the stockholders interest in the business matter.
Authorized but Unissued Shares of
Capital Stock. Following the stock offering, we will have
authorized but unissued shares of common and preferred stock. Our charter
authorizes the board of directors to establish one or more series of preferred
stock and, for any series of preferred stock, to determine the terms and rights
of the series, including voting rights, conversion rates, and liquidation
preferences. Although such shares of common and preferred stock could be issued
by the board of directors to render more difficult or to discourage an attempt
to obtain control of us by means of a merger, tender offer, proxy contest or
otherwise, it is anticipated that such uses will be unlikely given that Auburn
Bancorp, MHC must always own a majority of our common stock.
Regulatory Restrictions
Office of Thrift Supervision
Regulations. The Office of Thrift Supervision regulations
provide that for a period of three years following the date of the completion
of the stock offering, no person, acting singly or together with associates in
a group of persons acting in concert, may directly or indirectly offer to
acquire or acquire the beneficial ownership of more than 10% of a class of our
equity securities without the prior written approval of the Office of Thrift
Supervision. Where any person acquires beneficial ownership of more than 10% of
a class of our equity securities without the prior written approval of the
Office of Thrift Supervision, the securities beneficially owned by such person
in excess of 10% may not be voted by any person or counted as voting shares in
connection with any matter submitted to the stockholders for a vote, and will
not be counted as outstanding for purposes of determining the affirmative vote
necessary to approve any matter submitted to the stockholders for a vote.
Restrictions on Remutualization
Transactions. Current Office of Thrift Supervision regulations
permit a mutual holding company to be acquired by a mutual institution in a
remutualization transaction. However, in June 2003 the Office of Thrift
Supervision issued a policy statement indicating that it views remutualization
transactions as raising significant issues concerning disparate treatment of
minority stockholders and mutual members of the target entity and raising
issues concerning the effect on the mutual members of the acquiring entity.
Under certain circumstances, the Office of Thrift Supervision intends to give
these issues special scrutiny and reject applications providing for the
remutualization of a mutual holding company unless the applicant can clearly
demonstrate that the Office of Thrift Supervisions concerns are not warranted
in the particular case. The Office of Thrift Supervision will require empirical
data that demonstrates that the minority stockholders are receiving a
reasonable value in proportion to their interest in Auburn Bancorp, Inc. If any
of the pricing parameters specified by the Office of Thrift Supervision are
exceeded, the Office of Thrift Supervision will consider requiring that the
transaction be approved by a majority of the votes eligible to be cast by the
members of the acquiring mutual and the target mutual holding company without
the use of running proxies.
Since
the Office of Thrift Supervision policy on remutualization transactions was
issued, there has been only two such transactions announced. It is likely that
the pricing parameters imposed by the Office
121
of Thrift Supervision policy
will make remutualization transactions less attractive to mutual holding
companies.
Change in Bank Control Act. The
acquisition of 10% or more of our outstanding common stock may trigger the
provisions of the Change in Bank Control Act. The Office of Thrift Supervision
has also adopted a regulation under the Change in Bank Control Act which
generally requires persons who at any time intend to acquire control of a
federally chartered savings association or its holding company to provide 60
days prior written notice and certain financial and other information to the
Office of Thrift Supervision.
The
60-day notice period does not commence until the information is deemed to be
substantially complete. Control for these purposes exists in situations in
which the acquiring party has voting control of at least 25% of any class of
our voting stock or the power to direct our management or policies. However,
under Office of Thrift Supervision regulations, control is presumed to exist
where the acquiring party has voting control of at least 10% of any class of
our voting securities if specified control factors are present. The statute
and underlying regulations authorize the Office of Thrift Supervision to
disapprove a proposed acquisition on certain specified grounds.
DESCRIPTION
OF AUBURN BANCORP, INC. CAPITAL STOCK
The
common stock of Auburn Bancorp, Inc. will represent nonwithdrawable capital,
will not be an account of any type, and will not be insured by the Federal
Deposit Insurance Corporation or any other government agency.
General
Auburn
Bancorp, Inc. is authorized to issue 10,000,000 shares of common stock having a
par value of $0.01 per share and 1,000,000 shares of preferred stock having a
par value of $0.01 per share. Each share of Auburn Bancorp, Inc.s common stock
will have the same relative rights as, and will be identical in all respects
with, each other share of common stock. Upon payment of the purchase price for
the common stock, as required by the plan of reorganization and stock issuance plan,
all stock will be duly authorized, fully paid and nonassessable. Auburn
Bancorp, Inc. will not issue any shares of preferred stock in the stock
offering.
122
Common Stock
Dividends. Auburn
Bancorp, Inc. can pay dividends if, as and when declared by its board of
directors. The payment of dividends by Auburn Bancorp, Inc. is limited by law
and applicable regulation. See Dividend
Policy. The holders of common stock of Auburn Bancorp, Inc. will be
entitled to receive and share equally in dividends declared by the board of
directors of Auburn Bancorp, Inc. If Auburn Bancorp, Inc. issues preferred
stock, the holders of the preferred stock may have a priority over the holders
of the common stock with respect to dividends.
Voting Rights. After the
reorganization, the holders of common stock of Auburn Bancorp, Inc. will
possess exclusive voting rights in Auburn Bancorp, Inc. They will elect Auburn
Bancorp, Inc.s board of directors and act on other matters as are required to
be presented to them under federal law or as are otherwise presented to them by
the board of directors. Except as discussed in Restrictions
on Acquisition of Auburn Bancorp, Inc., each holder of common stock
will be entitled to one vote per share and will not have any right to cumulate
votes in the election of directors. If Auburn Bancorp, Inc. issues preferred
stock, holders of Auburn Bancorp, Inc. preferred stock may also possess voting
rights.
Liquidation. If there
is any liquidation, dissolution or winding up of Auburn Savings Bank, Auburn
Bancorp, Inc., as the sole holder of Auburn Savings Banks capital stock, would
be entitled to receive all of Auburn Savings Banks assets available for
distribution after payment or provision for payment of all debts and liabilities
of Auburn Savings Bank, including all deposit accounts and accrued interest.
Upon liquidation, dissolution or winding up of Auburn Bancorp, Inc., the
holders of its common stock would be entitled to receive all of the assets of
Auburn Bancorp, Inc. available for distribution after payment or provision for
payment of all its debts and liabilities. If Auburn Bancorp, Inc. issues
preferred stock, the preferred stock holders may have a priority over the
holders of the common stock upon liquidation or dissolution.
Preemptive Rights; Redemption. Holders
of the common stock of Auburn Bancorp, Inc. will not be entitled to preemptive
rights with respect to any shares that may be issued. The common stock cannot
be redeemed.
Preferred Stock
Auburn
Bancorp, Inc. will not issue any preferred stock in the stock offering and it
has no current plans to issue any preferred stock after the stock offering.
Preferred stock may be issued with designations, powers, preferences and rights
as the board of directors may from time to time determine. The board of
directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
Any
issuance of preferred stock could have an adverse effect on the voting and
other rights of holders of common stock. Each series of preferred stock issued
after the conversion may rank senior to shares of common stock with respect to
dividend rights and liquidation preferences, may have full, limited or no
voting rights and may be convertible into shares of common stock.
TRANSFER
AGENT AND REGISTRAR
The
transfer agent and registrar for our common stock will be Registrar and
Transfer Company.
123
REGISTRATION
REQUIREMENTS
We
have registered our common stock with the Securities and Exchange Commission
under Section 12(g) of the Securities Exchange Act of 1934, as amended, and
will not deregister our common stock for a period of at least three years
following the stock offering. As a result of registration, the proxy and tender
offer rules, insider trading reporting and restrictions, annual and periodic
reporting and other requirements of that statute will apply.
LEGAL
AND TAX OPINIONS
The
legality of our common stock has been passed upon for us by Nutter McClennen
& Fish LLP, Boston, Massachusetts. The federal tax consequences of the
reorganization and stock offering have been opined upon by Nutter McClennen
& Fish LLP and the state tax consequences of the reorganization and stock
offering have been opined upon by Berry, Dunn, McNeil & Parker. Nutter
McClennen & Fish LLP and Berry, Dunn, McNeil & Parker have consented to
the references to their opinions in this prospectus. Certain legal matters will
be passed upon for Keefe, Bruyette & Woods, Inc. by Luse Gorman Pomerenk
& Schick, PC, Washington, DC.
EXPERTS
The
financial statements of Auburn Savings Bank as of June 30, 2007 and for the
fiscal year ended June 30, 2007 included in this prospectus and in the
registration statement have been audited by Berry, Dunn, McNeil & Parker,
Portland, Maine, an independent registered public accounting firm, as stated in
their report appearing herein and elsewhere in the registration statement
(which report expresses an unqualified opinion), and has been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The
financial statements of Auburn Savings Bank as of June 30, 2006 and for the
fiscal year ended June 30, 2006 included in this prospectus and in the
registration statement have been audited by Baker Newman Noyes, LLC, Portland,
Maine, an independent registered public accounting firm, as stated in their
report appearing herein and elsewhere in the registration statement (which
report expresses an unqualified opinion), and has been so included in reliance
upon the report of such firm given upon their authority as experts in accounting
and auditing.
On September 19, 2006, we 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, LLCs 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.
Auburn Bancorp, Inc. requested that Baker
Newman Noyes, LLC furnish it with a letter addressed to the Securities and
Exchange Commission stating whether or not it agrees with the above
124
statements. A copy of such
letter, dated March [ ], 2008 is filed as an exhibit to our Registration
Statement under the Securities Act of 1933.
Keller
& Company, Inc. has consented to the summary in this prospectus of its
report to us setting forth its opinion as to our estimated pro forma market
value and to the use of its name and statements with respect to it appearing in
this prospectus.
WHERE
YOU CAN FIND MORE INFORMATION
We
have filed with the Securities and Exchange Commission a registration statement
under the Securities Act of 1933, as amended, that registers the common stock
offered in the stock offering. This prospectus forms a part of the registration
statement. The registration statement, including the exhibits, contains
additional relevant information about us and our common stock. The rules and
regulations of the Securities and Exchange Commission allow us to omit certain
information included in the registration statement from this prospectus. You
may read and copy the registration statement at the Securities and Exchange
Commissions public reference room at 100 F Street, N.E., Room 1580,
Washington, D.C. 20549. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the Securities and Exchange
Commissions public reference rooms. The registration statement also is
available to the public from commercial document retrieval services and at the
Internet World Wide Website maintained by the Securities and Exchange
Commission at http://www.sec.gov.
Auburn
Bancorp, Inc. has filed an application for approval of the plan of
reorganization and stock issuance plan with the Office of Thrift Supervision. This
prospectus omits certain information contained in the application. The
application may be inspected, without charge, at the offices of the Office of
Thrift Supervision, 1700 G Street, NW, Washington, D.C. 20552 and at the
offices of the Regional Director of the Office of Thrift Supervision at the
Northeast Regional Office of the Office of Thrift Supervision, Harborside
Financial Center Plaza Five, Suite 1600, Jersey City, New Jersey 07311.
A
copy of the plan of reorganization and stock issuance plan and Auburn Bancorp,
Inc.s charter and bylaws are available without charge from Auburn Savings
Bank.
The
appraisal report of Keller & Company, Inc. has been filed as an exhibit to
our registration statement and to our application to the Office of Thrift
Supervision. Portions of the appraisal report were filed electronically with
the Securities and Exchange Commission and are available on its website as
described above. The entire appraisal report is available at the public
reference room of the Securities and Exchange Commission and the offices of the
Office of Thrift Supervision as described above.
125
INDEX
TO FINANCIAL STATEMENTS OF AUBURN SAVINGS BANK
126
AUBURN SAVINGS BANK, FSB
FINANCIAL STATEMENTS
June 30, 2007 and 2006
With Independent Auditors Report
REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Board of
Directors
Auburn Savings Bank, FSB
We have
audited the accompanying balance sheet of Auburn Savings Bank, FSB as of June
30, 2007, and the related statements of income, changes in capital and cash
flows for the year then ended. These financial statements are the
responsibility of the Banks management. Our responsibility is to express an opinion
on these financial statements based on our audit.
We conducted
our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audit provides a reasonable
basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Auburn Savings Bank, FSB as of
June 30, 2007, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
/s/ Berry, Dunn, McNeil & Parker
Portland,
Maine
September 10, 2007
(except for Note 15, for which the report date is March 12, 2008)
F-1
INDEPENDENT AUDITORS REPORT
The Board of
Directors
Auburn Savings Bank, F.S.B.
Auburn, Maine
We have
audited the accompanying balance sheet of Auburn Savings Bank, F.S.B. (the
Bank) as of June 30, 2006, and the related statements of income, changes in
capital and cash flows for the year then ended. These financial statements are
the responsibility of the Banks management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted
our audit in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Auburn Savings Bank, F.S.B. as of
June 30, 2006, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
|
|
Portland,
Maine
|
/s/ Baker Newman & Noyes
|
August 10,
2006
|
Limited Liability Company
|
F-2
AUBURN SAVINGS BANK, FSB
Balance Sheets
December 31, 2007 (Unaudited),
June 30, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2007
|
|
June 30,
|
|
|
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
1,255,439
|
|
$
|
884,546
|
|
$
|
2,450,887
|
|
Interest-bearing deposits
|
|
|
602,753
|
|
|
2,528,784
|
|
|
187,078
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents
|
|
|
1,858,192
|
|
|
3,413,330
|
|
|
2,637,965
|
|
|
|
|
|
|
|
|
|
|
|
|
Certificates of deposit
|
|
|
1,965,150
|
|
|
594,000
|
|
|
795,501
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment securities
available for sale
|
|
|
1,706,658
|
|
|
2,364,564
|
|
|
3,454,822
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal Home Loan Bank
stock, at cost
|
|
|
901,100
|
|
|
901,100
|
|
|
1,016,700
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
54,784,446
|
|
|
53,116,112
|
|
|
54,139,864
|
|
Less allowance for loan losses
|
|
|
309,214
|
|
|
317,580
|
|
|
290,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans
|
|
|
54,475,232
|
|
|
52,798,532
|
|
|
53,849,392
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment,
net
|
|
|
1,968,795
|
|
|
2,001,115
|
|
|
2,100,498
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreclosed real estate
|
|
|
124,404
|
|
|
|
|
|
|
|
Accrued interest
receivable
|
|
|
275,326
|
|
|
277,533
|
|
|
247,695
|
|
Prepaid expenses and other
assets
|
|
|
183,325
|
|
|
54,270
|
|
|
66,954
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
583,055
|
|
|
331,803
|
|
|
314,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,458,182
|
|
$
|
62,404,444
|
|
$
|
64,169,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND CAPITAL
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
$
|
44,990,765
|
|
$
|
44,878,926
|
|
$
|
45,009,342
|
|
Federal Home Loan Bank advances
|
|
|
13,650,000
|
|
|
12,900,000
|
|
|
14,750,000
|
|
Accrued interest and other liabilities
|
|
|
225,032
|
|
|
127,207
|
|
|
183,218
|
|
Deferred income taxes
|
|
|
111,240
|
|
|
148,510
|
|
|
63,552
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
58,977,037
|
|
|
58,054,643
|
|
|
60,006,112
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and
contingencies (Notes 6, 8 through 12)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
|
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
4,499,427
|
|
|
4,362,193
|
|
|
4,242,211
|
|
Accumulated other comprehensive loss
|
|
|
(18,282
|
)
|
|
(12,392
|
)
|
|
(78,796
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital
|
|
|
4,481,145
|
|
|
4,349,801
|
|
|
4,163,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,458,182
|
|
$
|
62,404,444
|
|
$
|
64,169,527
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are
an integral part of these financial statements.
F-3
AUBURN SAVINGS BANK, FSB
Statements of Income
Six Months Ended December 31, 2007 and 2006
(Unaudited) and
Years Ended June 30, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended December 31,
|
|
Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on loans
|
|
$
|
1,860,600
|
|
$
|
1,811,738
|
|
$
|
3,615,936
|
|
$
|
3,202,011
|
|
Interest on investments and other interest-bearing
deposits
|
|
|
132,829
|
|
|
107,856
|
|
|
227,223
|
|
|
214,724
|
|
Dividends on Federal Home Loan Bank stock
|
|
|
29,366
|
|
|
33,174
|
|
|
64,588
|
|
|
47,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest and dividend income
|
|
|
2,022,795
|
|
|
1,952,768
|
|
|
3,907,747
|
|
|
3,464,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest on deposits and escrow accounts
|
|
|
867,358
|
|
|
790,640
|
|
|
1,619,026
|
|
|
1,193,004
|
|
Interest on Federal Home Loan Bank
advances
|
|
|
355,248
|
|
|
370,382
|
|
|
720,320
|
|
|
717,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total interest expense
|
|
|
1,222,606
|
|
|
1,161,022
|
|
|
2,339,346
|
|
|
1,910,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
|
800,189
|
|
|
791,746
|
|
|
1,568,401
|
|
|
1,554,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for (recovery of) loan losses
|
|
|
(7,024
|
)
|
|
18,000
|
|
|
34,000
|
|
|
61,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for (recovery
of) loan losses
|
|
|
807,213
|
|
|
773,746
|
|
|
1,534,401
|
|
|
1,493,082
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net gain (loss) on sales of loans
|
|
|
9,325
|
|
|
11,646
|
|
|
18,872
|
|
|
(2,604
|
)
|
Net gain (loss) on sales of investments
|
|
|
|
|
|
4,096
|
|
|
3,186
|
|
|
(772
|
)
|
Other noninterest income
|
|
|
67,644
|
|
|
36,226
|
|
|
89,976
|
|
|
85,955
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income
|
|
|
76,969
|
|
|
51,968
|
|
|
112,034
|
|
|
82,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits
|
|
|
429,715
|
|
|
405,540
|
|
|
814,900
|
|
|
763,815
|
|
Occupancy expense
|
|
|
52,066
|
|
|
55,274
|
|
|
104,602
|
|
|
97,594
|
|
Depreciation
|
|
|
51,931
|
|
|
60,387
|
|
|
116,550
|
|
|
121,378
|
|
Federal insurance premiums
|
|
|
2,559
|
|
|
2,265
|
|
|
5,386
|
|
|
5,458
|
|
Computer charges
|
|
|
73,319
|
|
|
64,806
|
|
|
134,828
|
|
|
122,081
|
|
Advertising expense
|
|
|
23,225
|
|
|
16,249
|
|
|
35,543
|
|
|
36,082
|
|
Consulting expense
|
|
|
18,975
|
|
|
8,850
|
|
|
26,378
|
|
|
35,654
|
|
Other operating expenses
|
|
|
112,899
|
|
|
113,050
|
|
|
238,311
|
|
|
231,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expenses
|
|
|
764,689
|
|
|
726,421
|
|
|
1,476,498
|
|
|
1,413,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
119,493
|
|
|
99,293
|
|
|
169,937
|
|
|
162,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense
|
|
|
35,700
|
|
|
29,800
|
|
|
49,955
|
|
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
83,793
|
|
$
|
69,493
|
|
$
|
119,982
|
|
$
|
126,199
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are
an integral part of these financial statements.
F-4
AUBURN SAVINGS BANK, FSB
Statements of Changes in Capital
Six Months Ended December 31, 2007
(Unaudited) and
Years Ended June 30, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2005
|
|
$
|
4,116,012
|
|
$
|
(21,317
|
)
|
$
|
4,094,695
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
126,199
|
|
|
|
|
|
126,199
|
|
Other comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on securities, net of
taxes of $(36,720)
|
|
|
|
|
|
(71,279
|
)
|
|
(71,279
|
)
|
Less reclassification adjustment for items included
in net income, net
of taxes of $7,109
|
|
|
|
|
|
13,800
|
|
|
13,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
126,199
|
|
|
(57,479
|
)
|
|
68,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2006
|
|
|
4,242,211
|
|
|
(78,796
|
)
|
|
4,163,415
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
119,982
|
|
|
|
|
|
119,982
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains on securities, net of taxes
of $31,406
|
|
|
|
|
|
60,961
|
|
|
60,961
|
|
Less reclassification adjustment for items included
in net income, net
of taxes of $2,804
|
|
|
|
|
|
5,443
|
|
|
5,443
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
119,982
|
|
|
66,404
|
|
|
186,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2007
|
|
|
4,362,193
|
|
|
(12,392
|
)
|
|
4,349,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
83,793
|
|
|
|
|
|
83,793
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on securities, net of
taxes of $(3,034)
|
|
|
|
|
|
(5,890
|
)
|
|
(5,890
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
83,793
|
|
|
(5,890
|
)
|
|
77,903
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of adoption of SFAS No. 156, net of tax effect of
$17,812
|
|
|
53,441
|
|
|
|
|
|
53,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 (unaudited)
|
|
$
|
4,499,427
|
|
$
|
(18,282
|
)
|
$
|
4,481,145
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are
an integral part of these financial statements.
F-5
AUBURN SAVINGS BANK, FSB
Statements of Cash Flows
Six Months Ended December 31, 2007 and 2006
(Unaudited) and
Years Ended June 30, 2007 and 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
December 31,
|
|
Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
83,794
|
|
$
|
69,493
|
|
$
|
119,982
|
|
$
|
126,199
|
|
Adjustments to reconcile net income to net cash
provided by operating
activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
51,931
|
|
|
60,387
|
|
|
116,550
|
|
|
121,378
|
|
Net amortization of premiums on investment
securities available for
sale
|
|
|
(76
|
)
|
|
12,160
|
|
|
11,433
|
|
|
20,137
|
|
Provision for (recovery of) loan losses
|
|
|
(7,024
|
)
|
|
18,000
|
|
|
34,000
|
|
|
61,500
|
|
Deferred income tax expense (benefit)
|
|
|
(61,706
|
)
|
|
32,700
|
|
|
50,748
|
|
|
65,407
|
|
(Gain) loss on investments
|
|
|
|
|
|
(4,096
|
)
|
|
(3,186
|
)
|
|
772
|
|
(Gain) loss on sales of loans
|
|
|
(9,325
|
)
|
|
(11,646
|
)
|
|
(18,872
|
)
|
|
2,604
|
|
Loss on disposal of property and
equipment
|
|
|
|
|
|
|
|
|
864
|
|
|
|
|
Net (increase) decrease in prepaid expenses and
other assets
|
|
|
(167,201
|
)
|
|
2,153
|
|
|
(17,260
|
)
|
|
(339
|
)
|
Net (increase) decrease in accrued interest
receivable
|
|
|
2,207
|
|
|
(23,922
|
)
|
|
(29,838
|
)
|
|
(35,328
|
)
|
Net increase (decrease) in accrued interest and
other liabilities
|
|
|
125,298
|
|
|
(44,827
|
)
|
|
(56,011
|
)
|
|
(11,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
17,898
|
|
|
110,402
|
|
|
208,410
|
|
|
350,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of investment securities available for
sale
|
|
|
(576,519
|
)
|
|
|
|
|
|
|
|
(1,250,000
|
)
|
Proceeds from sales, maturities and principal
paydowns on investment
securities available for sale
|
|
|
1,225,574
|
|
|
897,122
|
|
|
1,174,133
|
|
|
389,134
|
|
Net proceeds from maturities of (investments in)
certificates of
deposit
|
|
|
(1,371,150
|
)
|
|
(99,744
|
)
|
|
201,501
|
|
|
788,499
|
|
Net decrease (increase) in loans to
customers
|
|
|
(1,693,170
|
)
|
|
1,777,125
|
|
|
1,074,168
|
|
|
(5,787,472
|
)
|
Proceeds from redemption of Federal Home Loan Bank
stock
|
|
|
|
|
|
92,800
|
|
|
115,600
|
|
|
42,200
|
|
Purchases of property and equipment
|
|
|
(19,611
|
)
|
|
(10,229
|
)
|
|
(18,031
|
)
|
|
(65,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by investing
activities
|
|
|
(2,434,876
|
)
|
|
2,657,075
|
|
|
2,547,371
|
|
|
(5,883,049
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advances from Federal Home Loan Bank
|
|
|
1,521,000
|
|
|
7,300,000
|
|
|
4,000,000
|
|
|
4,000,000
|
|
Repayment of advances from the Federal Home Loan
Bank
|
|
|
(771,000
|
)
|
|
(9,850,000
|
)
|
|
(5,850,000
|
)
|
|
(2,650,000
|
)
|
Net increase (decrease) in deposits
|
|
|
111,840
|
|
|
226,760
|
|
|
(130,416
|
)
|
|
3,531,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by financing
activities
|
|
|
861,840
|
|
|
(2,323,240
|
)
|
|
(1,980,416
|
)
|
|
4,881,190
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
|
(1,555,138
|
)
|
|
444,237
|
|
|
775,365
|
|
|
(651,323
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
3,413,330
|
|
|
2,637,964
|
|
|
2,637,965
|
|
|
3,289,288
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
1,858,192
|
|
$
|
3,082,201
|
|
$
|
3,413,330
|
|
$
|
2,637,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
1,227,932
|
|
$
|
1,152,258
|
|
$
|
2,338,110
|
|
$
|
1,901,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes
|
|
$
|
10,000
|
|
$
|
21,876
|
|
$
|
46,076
|
|
$
|
38,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are
an integral part of these financial statements.
F-6
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
Six Months Ended December 31, 2007 and 2006
(Unaudited) and the
Years Ended June 30, 2007 and 2006
Nature of Business
Effective July
1, 2006, the Bank converted from a state to a federal charter and changed its
name from Auburn Savings and Loan Association to Auburn Savings Bank, FSB (the
Bank). The Bank grants residential, consumer and commercial loans to
customers primarily throughout the Lewiston/Auburn, Maine area. The Bank is
subject to competition from other financial institutions. The Bank is subject
to the regulations of certain federal agencies and undergoes periodic
examinations by those regulatory authorities.
|
|
1.
|
Summary of Significant Accounting Policies
|
|
|
|
The
accounting policies of the Bank are in conformity with accounting principles
generally accepted in the United States of America and general practices
within the banking industry. The following is a description of the
significant accounting policies.
|
|
|
|
Basis of Presentation
|
|
|
|
The
financial information included herein as of December 31, 2007, and for the
interim periods ended December 31, 2007 and 2006, is unaudited; however, in
the opinion of management, the information reflects all adjustments,
consisting of normal recurring adjustments, that are necessary for a fair
presentation. The results shown for the six months ended December 31, 2007
and 2006 are not necessarily indicative of the results to be obtained for a
full year.
|
|
|
|
Use of Estimates
|
|
|
|
In preparing
financial statements in conformity with accounting principles generally
accepted in the United States of America, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
|
|
|
|
Material
estimates that are particularly susceptible to significant change in the near
term relate to the determination of the allowance for loan losses. In
connection with the determination of the allowance for loan losses,
management obtains independent appraisals for significant properties.
|
F-7
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
Significant Group Concentrations of Credit Risk
|
|
|
|
A
substantial portion of loans are secured by real estate in the
Lewiston/Auburn, Maine area. Accordingly, the ultimate collectability of a
substantial portion of the Banks loan portfolio is susceptible to changes in
market conditions in the Lewiston/Auburn, Maine area.
|
|
|
|
The Banks
policy for requiring collateral is to obtain security in excess of the amount
borrowed. The amount of collateral obtained is based on managements credit
evaluation of the borrower. The Bank requires appraisals of real property
held as collateral. For consumer loans, collateral varies depending on the
purpose of the loan. Collateral held for commercial loans consists primarily
of real estate.
|
|
|
|
Cash and Cash Equivalents
|
|
|
|
For purposes
of the statements of cash flows, cash and cash equivalents include cash and
due from banks and interest-bearing deposits.
|
|
|
|
The Banks
due from bank accounts, at times, may exceed federally insured limits. The
Bank has not experienced any losses in such accounts. The Bank believes it is
not exposed to any significant risk on cash and cash equivalents.
|
|
|
|
Securities
|
|
|
|
The Bank
classifies its 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) the intent and ability of the Bank to retain its 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.
|
|
|
|
Federal Home Loan Bank Stock
|
|
|
|
Federal Home
Loan Bank (FHLB) stock is a non-marketable equity security carried at cost
and evaluated for impairment.
|
F-8
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
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 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 no later 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.
|
|
|
|
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
uncollectability 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 upon managements periodic review of the collectability of the loans
in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrowers ability to
repay, estimated value of any 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.
|
F-9
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
A loan is
considered impaired when, based on current information and events, it is
probable that the Bank will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. Factors considered by management in determining impairment include
payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. 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 borrowers 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
loans effective interest rate, the loans 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, the Bank does not separately identify individual
consumer and residential loans for impairment disclosures.
|
|
|
|
Credit Related Financial Instruments
|
|
|
|
In the
ordinary course of business, the Bank has entered into commitments to extend
credit. Such financial instruments are recorded in the financial statements
when they are funded.
|
|
|
|
Loan Servicing
|
|
|
|
The Bank
adopted Statement of Financial Accounting Standards (SFAS) No. 156, Accounting for Servicing of Financial Assets an
amendment to FASB Statement No. 140, on July 1, 2007. In
accordance with SFAS No. 156, the Bank capitalizes mortgage servicing rights
at their fair value upon sale of the related loans. Capitalized servicing
rights are reported in other assets and are amortized into noninterest income
in proportion to, and over the period of, the estimated future net servicing
income of the underlying financial assets. Servicing assets are evaluated for
impairment based upon the fair value of the rights as compared to amortized
cost. The effect of capitalizing loan servicing rights for loans sold and
serviced was recorded as a cumulative effect adjustment at July 1, 2007.
|
|
|
|
Premises and Equipment
|
|
|
|
Land is
carried at cost. Buildings, furniture and fixtures, and land improvements are
carried at cost, less accumulated depreciation computed on the declining
balance and straight-line methods over the estimated useful lives of the
assets.
|
F-10
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
Foreclosed Real Estate
|
|
|
|
Real estate
properties acquired through, or in lieu of, loan foreclosure are held for
sale and are initially recorded at fair value at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower
of carrying amount or fair value less cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in net
expenses from foreclosed real estate.
|
|
|
|
Income Taxes
|
|
|
|
Deferred
income tax assets and liabilities are determined using the liability (or
balance sheet) method. Under this method, the net deferred tax asset or
liability is determined based on the tax effects of the temporary differences
between the book and tax bases of the various balance sheet assets and
liabilities and gives current recognition to changes in tax rates and laws.
|
|
|
|
Derivative Financial Instruments
|
|
|
|
The Bank has
limited exposure to derivative financial instruments. In 2006, the Bank
entered into an interest rate floor and an interest rate cap agreement to
manage its interest rate risk for movement in interest rates. The Bank does
not enter into derivative financial instruments for trading or speculative
purposes.
|
|
|
|
The Bank
accounts for the interest rate floor and cap at fair value in accordance with
SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities, as amended. The Bank does not
use hedge accounting for the cap and floor and, therefore, changes in fair
value of the agreements are reported in the statements of income. At December
31, 2007 (unaudited), June 30, 2007 and 2006, the fair value of the interest
rate floor and cap is $12,188, $2,624 and $15,473, respectively, and is
included on the balance sheet in prepaid expenses and other assets.
|
|
|
|
Comprehensive Income
|
|
|
|
Accounting principles
generally require that recognized revenue, expenses, gains and losses be
included in net income. Although certain changes in assets and liabilities,
such as unrealized gains and losses on investment securities available for
sale, are reported as a separate component of the equity section of the
balance sheet, such items, along with net income, are components of
comprehensive income.
|
|
|
|
Advertising
|
|
|
|
Advertising
costs are expensed as incurred.
|
F-11
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
Reclassifications
|
|
|
|
Certain
amounts in the 2006 financial statements have been reclassified to conform to
the 2007 presentation.
|
|
|
|
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 Banks 2009 fiscal year, with early adoption
permitted for the Banks 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 Banks 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 enterprises 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 Banks
financial statements.
|
F-12
AUBURN SAVINGS BANK, FSB
Notes to 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 companys first fiscal
year after September 15, 2006. Earlier adoption is permitted as of the
beginning of an entitys 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.
|
|
|
2.
|
Cash and Due from Banks
|
|
|
|
The Bank is
required to maintain certain reserves of vault cash or deposits with the
Federal Reserve Bank. The amount of this reserve requirement, included in
cash and due from banks, was approximately $250,000, $250,000 and $400,000 as
of December 31, 2007 (unaudited), June 30, 2007 and 2006, respectively.
|
|
|
3.
|
Securities
|
|
|
|
The
amortized cost and fair value of investment securities available for sale,
with gross unrealized gains and losses, are as follows:
|
|
|
|
December 31,
2007 (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
986,887
|
|
$
|
|
|
$
|
(8,187
|
)
|
$
|
978,700
|
|
|
Mortgage-backed securities
|
|
|
536,785
|
|
|
863
|
|
|
|
|
|
537,648
|
|
|
Asset-backed securities
|
|
|
120,630
|
|
|
|
|
|
(4,370
|
)
|
|
116,260
|
|
|
U.S. government sponsored enterprise common
stock securities
|
|
|
90,058
|
|
|
|
|
|
(16,008
|
)
|
|
74,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available for
sale
|
|
$
|
1,734,360
|
|
$
|
863
|
|
$
|
(28,565
|
)
|
$
|
1,706,658
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-13
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored enterprise
obligations
|
|
$
|
650,000
|
|
$
|
|
|
$
|
(1,816
|
)
|
$
|
648,184
|
|
|
Corporate obligations
|
|
|
998,876
|
|
|
|
|
|
(6,694
|
)
|
|
992,182
|
|
|
Mortgage-backed securities
|
|
|
610,967
|
|
|
411
|
|
|
(8,534
|
)
|
|
602,844
|
|
|
Asset-backed securities
|
|
|
123,496
|
|
|
286
|
|
|
(2,428
|
)
|
|
121,354
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available for
sale
|
|
$
|
2,383,339
|
|
$
|
697
|
|
$
|
(19,472
|
)
|
$
|
2,364,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored enterprise
obligations
|
|
$
|
650,000
|
|
$
|
|
|
$
|
(8,895
|
)
|
$
|
641,105
|
|
|
Corporate obligations
|
|
|
999,839
|
|
|
|
|
|
(23,049
|
)
|
|
976,790
|
|
|
Mortgage-backed securities
|
|
|
858,628
|
|
|
|
|
|
(30,012
|
)
|
|
828,616
|
|
|
Asset-backed securities
|
|
|
182,034
|
|
|
|
|
|
(1,423
|
)
|
|
180,611
|
|
|
FHLMC preferred stock
|
|
|
750,000
|
|
|
|
|
|
(18,500
|
)
|
|
731,500
|
|
|
FHLMC common stock
|
|
|
133,710
|
|
|
|
|
|
(37,510
|
)
|
|
96,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment securities available for
sale
|
|
$
|
3,574,211
|
|
$
|
|
|
$
|
(119,389
|
)
|
$
|
3,454,822
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
Investments
with a fair value of approximately $1,632,608 and $2,364,564 at December 31,
2007 (unaudited) and June 30, 2007, respectively, are held in a custody account
to secure certain deposits.
The amortized
cost and fair value of debt securities by contractual maturity follow. Actual
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
|
|
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
Cost
|
|
Fair
Value
|
|
Amortized
Cost
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
One year or less
|
|
$
|
499,299
|
|
$
|
496,715
|
|
$
|
|
|
$
|
|
|
|
Over 1 year through 5 years
|
|
|
487,588
|
|
|
481,985
|
|
|
123,496
|
|
|
121,353
|
|
|
After 5 years through 10 years
|
|
|
11,146
|
|
|
11,250
|
|
|
1,648,876
|
|
|
1,640,367
|
|
|
More than 10 years
|
|
|
109,484
|
|
|
105,010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,107,517
|
|
|
1,094,960
|
|
|
1,772,372
|
|
|
1,761,720
|
|
|
Mortgage-backed securities
|
|
|
536,785
|
|
|
537,648
|
|
|
610,967
|
|
|
602,844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,644,302
|
|
$
|
1,632,608
|
|
$
|
2,383,339
|
|
$
|
2,364,564
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-15
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
Information
pertaining to securities with gross unrealized losses at December 31, 2007
(unaudited), June 30, 2007 and 2006, aggregated by investment category and
length of time that individual securities have been in a continuous loss
position, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or Greater
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
|
Gross
Unrealized
Losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2007
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
$
|
|
|
$
|
|
|
$
|
978,700
|
|
$
|
8,187
|
|
$
|
978,700
|
|
$
|
8,187
|
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
116,260
|
|
|
4,370
|
|
|
116,260
|
|
|
4,370
|
|
|
U.S. Government sponsored enterprise common stock
securities
|
|
|
74,050
|
|
|
16,008
|
|
|
|
|
|
|
|
|
74,050
|
|
|
16,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
74,050
|
|
$
|
16,008
|
|
$
|
1,094,960
|
|
$
|
12,557
|
|
$
|
1,169,010
|
|
$
|
28,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored enterprise
obligations
|
|
$
|
|
|
$
|
|
|
$
|
648,184
|
|
$
|
1,816
|
|
$
|
648,184
|
|
$
|
1,816
|
|
|
Corporate obligations
|
|
|
|
|
|
|
|
|
992,182
|
|
|
6,694
|
|
|
992,182
|
|
|
6,694
|
|
|
Mortgage-backed securities
|
|
|
21,092
|
|
|
76
|
|
|
486,115
|
|
|
8,458
|
|
|
507,207
|
|
|
8,534
|
|
|
Asset-backed securities
|
|
|
|
|
|
|
|
|
109,220
|
|
|
2,428
|
|
|
109,220
|
|
|
2,428
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
21,092
|
|
$
|
76
|
|
$
|
2,235,701
|
|
$
|
19,396
|
|
$
|
2,256,793
|
|
$
|
19,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Government sponsored enterprise
obligations
|
|
$
|
641,105
|
|
$
|
8,895
|
|
$
|
|
|
$
|
|
|
$
|
641,105
|
|
$
|
8,895
|
|
|
Corporate obligations
|
|
|
976,790
|
|
|
23,049
|
|
|
|
|
|
|
|
|
976,790
|
|
|
23,049
|
|
|
Mortgage-backed securities
|
|
|
127,479
|
|
|
3,248
|
|
|
691,137
|
|
|
26,764
|
|
|
818,616
|
|
|
30,012
|
|
|
Asset-backed securities
|
|
|
19,858
|
|
|
14
|
|
|
160,753
|
|
|
1,409
|
|
|
180,611
|
|
|
1,423
|
|
|
FHLMC preferred stock
|
|
|
|
|
|
|
|
|
731,500
|
|
|
18,500
|
|
|
731,500
|
|
|
18,500
|
|
|
FHLMC common stock
|
|
|
|
|
|
|
|
|
96,200
|
|
|
37,510
|
|
|
96,200
|
|
|
37,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,765,232
|
|
$
|
35,206
|
|
$
|
1,679,590
|
|
$
|
84,183
|
|
$
|
3,444,822
|
|
$
|
119,389
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-16
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
Management
evaluates securities for other-than-temporary impairment at least on a
quarterly basis, and more frequently when economic or market concerns warrant
such evaluation. Consideration is given to (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) the intent and ability
of the Bank to retain its investment in the issuer for a period of time
sufficient to allow for any anticipated recovery in fair value.
At December
31, 2007, (unaudited), nine debt securities with unrealized losses have
depreciated 1% in total from the amortized cost basis. These unrealized losses
related principally to current interest rates for similar types of securities
compared to the underlying yields on these securities. In addition, the Bank
had two U.S. Government sponsored enterprise common stock securities with
unrealized losses of $16,008, which is attributed to normal market
fluctuations. At June 30, 2007, the fifteen debt securities with unrealized
losses have depreciated 1% in total from the amortized cost basis. These
unrealized losses related principally to current interest rates for similar
types of securities compared to the underlying yields on these securities. At
June 30, 2006, unrealized losses in the debt securities portfolio were also a
result of changes in market interest rates. In addition, the Bank had three
preferred stock securities and two common stock securities with unrealized
losses of $18,500 and $37,510, respectively, which is attributed to normal
market fluctuations. In analyzing an issuers financial condition, management
considers whether the securities are issued by the federal government or its
agencies, whether downgrades by bond rating agencies have occurred, and the
results of reviews of the issuers financial condition and its ability to hold
such securities. Management does not believe any of the Banks available for
sale securities are other-than-temporarily impaired at December 31, 2007
(unaudited) and June 30, 2007 and 2006. here were no
sales of securities available for sale during the six months ended December 31,
2007.
For the years
ended June 30, 2007 and 2006, proceeds from sales of securities available for
sale amounted to $886,896 and $0, respectively. Gross realized gains amounted
to $4,096 and $391, respectively. Gross realized losses amounted to $910 and
$1,163, respectively.
F-17
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
A summary of
the balances of loans follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
June 30,
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
mortgage loans on real estate
|
|
|
|
|
|
|
|
|
|
|
Residential 1-4 family
|
|
$
|
31,424,198
|
|
$
|
31,817,309
|
|
$
|
33,366,259
|
|
Commercial
|
|
|
1,580,594
|
|
|
1,608,310
|
|
|
1,166,667
|
|
Construction
|
|
|
1,980,100
|
|
|
442,000
|
|
|
1,677,600
|
|
Undisbursed portion of construction loans
|
|
|
(705,757
|
)
|
|
(89,555
|
)
|
|
(695,255
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
34,279,135
|
|
|
33,778,064
|
|
|
35,515,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
loans and commercial construction
|
|
|
9,140,449
|
|
|
7,766,583
|
|
|
7,778,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and
other loans
|
|
|
|
|
|
|
|
|
|
|
Automobile
|
|
|
292,791
|
|
|
252,943
|
|
|
240,135
|
|
Equity lines of credit and home improvement
loans
|
|
|
10,909,323
|
|
|
11,123,037
|
|
|
10,402,450
|
|
Secured by deposits
|
|
|
51,849
|
|
|
59,116
|
|
|
147,261
|
|
Personal
|
|
|
42,341
|
|
|
26,041
|
|
|
15,296
|
|
Other
|
|
|
143,398
|
|
|
145,022
|
|
|
108,305
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
|
11,439,702
|
|
|
11,606,159
|
|
|
10,913,447
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,859,286
|
|
|
53,150,806
|
|
|
54,207,377
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Allowance
for loans losses
|
|
|
309,214
|
|
|
317,580
|
|
|
290,472
|
|
Net deferred
loan fees
|
|
|
74,840
|
|
|
34,694
|
|
|
67,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans, net
|
|
$
|
54,475,232
|
|
$
|
52,798,532
|
|
$
|
53,849,392
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonaccrual
loans amounted to $0, $0 and $95,015 at December 31, 2007 (unaudited) and June
30, 2007 and 2006, respectively. Interest income, which would have been
recognized on these loans if interest had been accrued, was not significant at
June 30, 2006. There were no loans 90 days past due and still accruing interest
at December 31, 2007 (unaudited) and June 30, 2007 and 2006.
F-18
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
An analysis
of the allowance for loan losses follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
beginning of year
|
|
$
|
317,580
|
|
$
|
290,472
|
|
$
|
238,356
|
|
|
Provision
for (recovery of) loan losses
|
|
|
(7,024
|
)
|
|
34,000
|
|
|
61,500
|
|
|
Loans
charged off
|
|
|
(1,342
|
)
|
|
(1,276
|
)
|
|
(9,384
|
)
|
|
Reclassification
|
|
|
|
|
|
(5,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
end of year
|
|
$
|
309,214
|
|
$
|
317,580
|
|
$
|
290,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were
no impaired loans at December 31, 2007 (unaudited), June 30, 2007 and 2006,
respectively.
|
|
|
|
The Bank was
servicing for others mortgage loans of approximately $9,500,000, $9,500,000,
and $8,300,000 at December 31, 2007 (unaudited), June 30, 2007 and 2006,
respectively.
|
|
|
|
Mortgage
servicing rights for mortgage loans sold are not material to the financial
statements and, therefore, have not been capitalized as of June 30, 2007 and
2006. Mortgage servicing rights capitalized during the six months ended
December 31, 2007 was $2,430 (unaudited) and the balance of mortgage
servicing rights at December 31, 2007 was $72,803 (unaudited). Fair value
approximates book value at December 31, 2007 (unaudited).
|
|
|
|
There were
no loans held for sale at December 31, 2007 (unaudited), June 30, 2007 and
2006.
|
|
|
5.
|
Property and Equipment
|
|
|
|
A summary of
the cost and accumulated depreciation of property and equipment is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land and
land improvements
|
|
$
|
407,780
|
|
$
|
404,436
|
|
$
|
399,056
|
|
|
Buildings
|
|
|
1,933,379
|
|
|
1,924,374
|
|
|
1,922,441
|
|
|
Furniture and
fixtures
|
|
|
512,641
|
|
|
505,379
|
|
|
507,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,853,800
|
|
|
2,834,189
|
|
|
2,829,411
|
|
|
Less accumulated depreciation
|
|
|
885,005
|
|
|
833,074
|
|
|
728,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
|
$
|
1,968,795
|
|
$
|
2,001,115
|
|
$
|
2,100,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
6.
|
Deposits
|
|
|
|
A summary of
deposit balances, by type, follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Demand
accounts
|
|
$
|
2,198,816
|
|
$
|
2,791,567
|
|
$
|
4,002,049
|
|
|
Money market
accounts
|
|
|
8,487,452
|
|
|
9,339,445
|
|
|
11,104,959
|
|
|
NOW accounts
|
|
|
1,980,216
|
|
|
2,240,626
|
|
|
1,293,842
|
|
|
Savings accounts
|
|
|
2,609,371
|
|
|
2,601,241
|
|
|
2,848,800
|
|
|
Certificates
of deposit
|
|
|
18,940,973
|
|
|
20,779,185
|
|
|
18,507,055
|
|
|
Certificates
of deposit, $100,000 and over
|
|
|
10,773,937
|
|
|
7,126,862
|
|
|
7,252,637
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
44,990,765
|
|
$
|
44,878,926
|
|
$
|
45,009,342
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
scheduled maturities of time deposits as of December 31, 2007 and June 30,
2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
June 30,
|
|
|
|
2007
|
|
2007
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
2008
|
|
$
|
15,216,461
|
|
$
|
23,444,447
|
|
2009
|
|
|
12,705,658
|
|
|
4,024,775
|
|
2010
|
|
|
1,369,698
|
|
|
372,979
|
|
2011
|
|
|
77,903
|
|
|
53,436
|
|
2012
|
|
|
22,372
|
|
|
10,410
|
|
2013
|
|
|
322,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
29,714,910
|
|
$
|
27,906,047
|
|
|
|
|
|
|
|
|
|
F-20
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
The Bank
maintains collateralization agreements with certain depositors whereby those
deposits in excess of the $100,000 federally insured limit are secured by an
interest in the Banks investment instruments maintained in a custodial
account held by one of the Banks custodians. As part of the
collateralization agreement, the Bank agrees to maintain the value of the
collateral in the custodial account at a minimum level at least equal to 100%
of the uninsured portion of these deposits. At December 31, 2007 (unaudited)
and June 30, 2007 and 2006, the value of the collateral in the custodial
account was approximately $3,876,000, $3,860,000, and $5,338,000,
respectively, and the uninsured portion of the deposits was approximately
$4,030,000, $3,294,000, and $5,405,000, respectively. Subsequent to December
31, 2007, the Bank purchased $297,000 in certificates of deposit that
provided additional collateral.
|
|
|
7.
|
Federal Home Loan Bank Advances
|
|
|
|
Pursuant to
collateral agreements with the FHLB, advances are collateralized by all stock
in the FHLB and qualifying first mortgages.
|
|
|
|
The Banks
fixed-rate advances of $13,650,00, $12,900,000 and $14,750,000 at December
31, 2007 (unaudited), June 30, 2007 and 2006, respectively, mature through
2015. At December 31, 2007 (unaudited) and June 30, 2007 and 2006, the
interest rates on fixed-rate advances ranged from 3.72 percent to 6.56
percent, 3.33 percent to 6.56 percent, and from 2.85 percent to 6.56 percent,
respectively.
|
|
|
|
The Banks
callable advance of $1,000,000 at December 31, 2007 (unaudited) and June 30,
2007 matures in 2012. The rate is based on the three-month London Interbank
Offer Rate (LIBOR). At December 31, 2007 (unaudited) and June 30, 2007, the
interest rate on this advance was 4.99 percent. The advance is callable on
February 17, 2009 if LIBOR reaches 5.75 percent and quarterly thereafter
through its maturity date.
|
|
|
|
At December
31, 2007 (unaudited), June 30, 2007 and 2006, the Bank also had $661,000 available
under a long-term line of credit from the FHLB. There were no amounts drawn
under this line at December 31, 2007 (unaudited) and June 30, 2007 and 2006.
|
F-21
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
The
contractual maturities of advances are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
$
|
|
|
$
|
|
|
$
|
5,850,000
|
|
2008
|
|
|
2,000,000
|
|
|
1,750,000
|
|
|
1,750,000
|
|
2009
|
|
|
5,250,000
|
|
|
3,500,000
|
|
|
1,500,000
|
|
2010
|
|
|
3,500,000
|
|
|
5,500,000
|
|
|
4,500,000
|
|
2011
|
|
|
1,150,000
|
|
|
650,000
|
|
|
650,000
|
|
2012
|
|
|
1,250,000
|
|
|
1,000,000
|
|
|
|
|
Thereafter
|
|
|
500,000
|
|
|
500,000
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
13,650,000
|
|
$
|
12,900,000
|
|
$
|
14,750,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8.
|
Income Taxes
|
|
|
|
Allocation
of federal and state income taxes between current and deferred portions is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
December 31,
|
|
Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
Current tax provision
(benefit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
91,506
|
|
$
|
(8,550
|
)
|
$
|
(6,993
|
)
|
$
|
(35,407
|
)
|
|
State
|
|
|
5,900
|
|
|
5,650
|
|
|
6,200
|
|
|
6,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
97,406
|
|
|
(2,900
|
)
|
|
(793
|
)
|
|
(29,407
|
)
|
|
Deferred federal tax
provision (benefit)
|
|
|
(61,706
|
)
|
|
32,700
|
|
|
50,748
|
|
|
65,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,700
|
|
$
|
29,800
|
|
$
|
49,955
|
|
$
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
The income
tax provision differs from the expense that would result from applying
federal statutory rates to income before income taxes, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
December 31,
|
|
Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected income tax expense at federal tax rate (34%)
|
|
$
|
40,628
|
|
$
|
33,759
|
|
$
|
57,779
|
|
$
|
55,148
|
|
|
Increase (reduction) in income taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends received deduction
|
|
|
(116
|
)
|
|
(3,134
|
)
|
|
(6,268
|
)
|
|
(8,705
|
)
|
|
State tax, net of federal tax benefit
|
|
|
3,894
|
|
|
3,729
|
|
|
4,092
|
|
|
3,960
|
|
|
Other
|
|
|
(8,706
|
)
|
|
(4,554
|
)
|
|
(5,648
|
)
|
|
(14,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,700
|
|
$
|
29,800
|
|
$
|
49,955
|
|
$
|
36,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
components of the net deferred tax liability, included in other assets, are
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses
|
|
$
|
105,133
|
|
$
|
107,977
|
|
$
|
98,760
|
|
|
Expense accruals
|
|
|
5,573
|
|
|
9,548
|
|
|
1,828
|
|
|
Unrealized losses on available for sale
securities
|
|
|
6,170
|
|
|
6,384
|
|
|
40,593
|
|
|
Other
|
|
|
7,761
|
|
|
7,276
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
124,637
|
|
|
131,185
|
|
|
141,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Difference between tax and book bases of property
and equipment
|
|
|
(146,914
|
)
|
|
(214,102
|
)
|
|
(166,261
|
)
|
|
Deferred loan fees
|
|
|
(64,738
|
)
|
|
(65,593
|
)
|
|
(25,350
|
)
|
|
Mortgage servicing rights
|
|
|
(24,225
|
)
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
(13,122
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(235,877
|
)
|
|
(279,695
|
)
|
|
(204,733
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(111,240
|
)
|
$
|
(148,510
|
)
|
$
|
(63,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
F-23
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
The Bank has
sufficient refundable taxes paid in available carryback years to fully
realize its recorded deferred tax assets.
|
|
|
|
The Bank
used the percentage of taxable income bad debt deduction to calculate its bad
debt expense for tax purposes as was permitted by the Internal Revenue Code.
The cumulative effect of this deduction of approximately $421,000 is subject
to recapture, if used for purposes other than to absorb loan losses. Deferred
taxes of $143,000 have not been provided on this amount because the Bank does
not intend to use the tax reserve other than to absorb loan losses.
|
|
|
9.
|
Financial Instruments with Off-Balance-Sheet Risk
|
|
|
|
The Bank is
a party to credit related financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit
and lines of credit. Such commitments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the
balance sheets.
|
|
|
|
The Banks
exposure to credit loss is represented by the contractual amount of these
commitments. The Bank follows the same credit policies in making commitments
as it does for on-balance-sheet instruments.
|
|
|
|
At December
31, 2007 (unaudited) and June 30, 2007 and 2006, the following financial
instruments were outstanding whose contract amounts represent credit risk:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
|
December 31,
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Commitments to originate loans
|
|
$
|
2,180,000
|
|
$
|
854,000
|
|
$
|
1,490,000
|
|
Unadvanced portions of construction loans
|
|
|
707,000
|
|
|
90,000
|
|
|
695,000
|
|
Unadvanced portions of home equity loans
|
|
|
2,664,000
|
|
|
2,682,000
|
|
|
2,820,000
|
|
Unadvanced portions of commercial lines of
credit
|
|
|
588,000
|
|
|
608,000
|
|
|
410,000
|
|
|
|
|
Commitments
to extend credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may require
payment of a fee. The commitments for equity lines of credit may expire
without being drawn upon. Unfunded commitments under commercial lines of
credit are commitments for possible future extensions of credit to existing
customers. These lines of credit are uncollateralized and usually do not
contain a specified maturity date and may not be drawn upon to the total
extent to which the Bank is committed. Therefore, the total commitment
amounts do not necessarily represent future cash requirements. The amount of
collateral obtained, if it is deemed necessary by the Bank, is based on
managements credit evaluation of the customer.
|
F-24
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
The Bank has
sold mortgage loans to the FHLB with a total outstanding balance of
$9,519,000 and $9,500,000 at December 31, 2007 (unaudited) and June 30, 2007,
respectively. Under the terms of the agreement with the FHLB, the Bank has a
limited recourse obligation to the FHLB in the event the borrower defaults.
At December 31, 2007 (unaudited) and June 30, 2007, the maximum recourse
obligation totaled approximately $259,000 and $229,000, respectively.
|
|
|
10.
|
Legal Contingencies
|
|
|
|
Various
legal claims arise from time to time in the normal course of business which,
in the opinion of management, will have no material effect on the Banks
financial statements.
|
|
|
11.
|
Minimum Regulatory Capital Requirements
|
|
|
|
The Bank is
subject to various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital requirements can initiate
certain mandatory and possible additional discretionary actions by regulators
that, if undertaken, could have a direct material effect on the Banks
financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities,
and certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
|
|
|
|
Quantitative
measures established by regulation to ensure capital adequacy requires the
Bank to maintain minimum amounts and ratios (set forth in the following
table) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and of Tier 1 capital (as defined) to total
assets (as defined). Management believes, as of December 31, 2007 (unaudited)
and June 30, 2007 and 2006, that the Bank met all capital adequacy
requirements to which they are subject.
|
|
|
|
As of
December 31, 2007 (unaudited) and June 30, 2007, the most recent notification
from the Office of Thrift Supervision categorized the Bank as well
capitalized under the regulatory framework for prompt corrective action. To
be categorized as well capitalized, an institution must maintain minimum
total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth
in the following tables. There are no conditions or events since the
notification that management believes have changed the Banks category. The
Banks actual capital amounts and ratios as of December 31, 2007 (unaudited)
and June 30, 2007 and 2006 are also presented in the table.
|
F-25
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actual
|
|
Minimum
Capital
Requirement
|
|
Minimum
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
Amount
|
|
Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
$
|
4,554,000
|
|
|
11.97
|
%
|
$
|
3,044,800
|
|
|
8.00
|
%
|
$
|
3,806,000
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to risk weighted assets
|
|
$
|
4,504,000
|
|
|
11.15
|
%
|
$
|
1,522,400
|
|
|
4.00
|
%
|
$
|
2,283,600
|
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to total assets
|
|
$
|
4,504,000
|
|
|
7.09
|
%
|
$
|
2,540,000
|
|
|
4.00
|
%
|
$
|
3,175,000
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
$
|
4,421,000
|
|
|
12.17
|
%
|
$
|
2,872,480
|
|
|
8.00
|
%
|
$
|
3,590,600
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to risk weighted assets
|
|
$
|
4,360,000
|
|
|
11.29
|
%
|
$
|
1,436,240
|
|
|
4.00
|
%
|
$
|
2,154,360
|
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to total assets
|
|
$
|
4,360,000
|
|
|
6.98
|
%
|
$
|
2,497,400
|
|
|
4.00
|
%
|
$
|
3,121,750
|
|
|
5.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk weighted assets
|
|
$
|
4,118,000
|
|
|
11.20
|
%
|
$
|
2,952,800
|
|
|
8.00
|
%
|
$
|
3,691,000
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to risk weighted assets
|
|
$
|
4,205,000
|
|
|
10.40
|
%
|
$
|
1,476,400
|
|
|
4.00
|
%
|
$
|
2,214,600
|
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 capital to total assets
|
|
$
|
4,205,000
|
|
|
6.50
|
%
|
$
|
2,571,040
|
|
|
4.00
|
%
|
$
|
3,213,800
|
|
|
5.00
|
%
|
F-26
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
12.
|
Employee Benefit Plans
|
|
|
|
The Bank has
a 401(k) Plan whereby substantially all employees participate in the Plan. Employees
may contribute up to 15 percent of their compensation subject to certain
limits based on federal tax laws. The Bank makes matching contributions equal
to 50 percent of the employees contribution, up to a maximum of 3 percent of
an employees compensation contributed to the Plan. Matching contributions
vest to the employee equally over a five-year period. For the six months
ended December 31, 2007 and 2006 (unaudited) and years ended June 30, 2007
and 2006, expense attributable to the Plan amounted to $7,308, $7,927,
$15,652, and $15,073, respectively.
|
|
|
13.
|
Related Party Transactions
|
|
|
|
In the
ordinary course of business, the Bank has granted loans to principal officers
and directors and their affiliates amounting to $626,500 at December 31, 2007
(unaudited), $656,400 at June 30, 2007 and $699,000 at June 30, 2006. During
the years ended June 30, 2007 and 2006, total principal additions were
$98,400 and $127,500, respectively, and total principal payments and
deletions were $141,000 and $158,200, respectively. During the six months
ended December 31, 2007, total principal additions were $27,800 and total
principal payments were $57,700 (unaudited).
|
|
|
|
Deposits
from related parties held by the Bank at December 31, 2007 (unaudited), June
30, 2007 and 2006 amounted to $1,351,985, $929,200 and $2,349,000,
respectively.
|
|
|
14.
|
Fair Value of Financial Instruments
|
|
|
|
The fair
value of a financial instrument is the current amount that would be exchanged
between willing parties, other than in a forced liquidation. Fair value is
best determined based upon quoted market prices. However, in many instances,
there are no quoted market prices for the Banks various financial
instruments. In cases where quoted market prices are not available, fair
values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows.
Accordingly, the fair value estimates may not be realized in an immediate
settlement of the instrument. SFAS No. 107 excludes certain financial
instruments and all nonfinancial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented may not
necessarily represent the underlying fair value of the Bank.
|
|
|
|
The
following methods and assumptions were used by the Bank in estimating fair
value disclosures for financial instruments:
|
|
|
|
Cash and cash equivalents and certificates of deposit:
The carrying amounts of cash, due from banks, deposits with the FHLB, federal
funds sold and certificates of deposit approximate fair values as these
financial instruments have short maturities.
|
F-27
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
Securities: Fair values for securities,
excluding Federal Home Loan Bank stock, are based on quoted market prices.
The carrying value of Federal Home Loan Bank stock approximates fair value
based on the redemption provisions of the FHLB.
|
|
|
|
Loans receivable: For variable-rate loans
that reprice frequently and with no significant change in credit risk, fair
values are based on carrying values. Fair values for other loans are
estimated using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms to borrowers of similar credit
quality. Fair values for nonperforming loans are estimated using discounted
cash flow analyses or underlying collateral values, where applicable.
|
|
|
|
Deposit liabilities: The fair values disclosed
for demand deposits (e.g., interest and non-interest checking, savings, and
certain types of money market accounts) are, by definition, equal to the
amount payable on demand at the reporting date (i.e., their carrying
amounts). Fair values for certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates currently being
offered on certificates of similar remaining maturity.
|
|
|
|
Federal Home Loan Bank advances: The fair
values of these borrowings are estimated using discounted cash flow analyses
based on the Banks current incremental borrowing rates for similar types of
borrowing arrangements.
|
|
|
|
Accrued interest: The carrying amounts of
accrued interest approximate fair value.
|
|
|
|
Derivative financial instruments: The fair
value of the interest rate cap and floor is based on quotations from dealers.
|
|
|
|
Off-balance-sheet instruments: The Banks
off-balance-sheet instruments consist of loan commitments. Fair values for
loan commitments have not been presented as the future revenue derived from
such financial instruments is not significant.
|
F-28
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
The
estimated fair values, and related carrying or notional amounts, of the
Banks financial instruments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30
|
|
|
|
December 31,
|
|
|
|
|
|
2007
|
|
2007
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,858
|
|
$
|
1,858
|
|
$
|
3,413
|
|
$
|
3,413
|
|
$
|
2,638
|
|
$
|
2,638
|
|
Certificates of deposit
|
|
|
1,965
|
|
|
1,965
|
|
|
594
|
|
|
594
|
|
|
796
|
|
|
796
|
|
Securities available-for-sale
|
|
|
1,707
|
|
|
1,707
|
|
|
2,365
|
|
|
2,365
|
|
|
3,455
|
|
|
3,455
|
|
Federal Home Loan Bank stock
|
|
|
901
|
|
|
901
|
|
|
901
|
|
|
901
|
|
|
1,017
|
|
|
1,017
|
|
Loans and loans held for sale, net
|
|
|
54,475
|
|
|
55,094
|
|
|
52,799
|
|
|
51,992
|
|
|
53,849
|
|
|
53,783
|
|
Accrued interest receivable
|
|
|
275
|
|
|
275
|
|
|
278
|
|
|
278
|
|
|
248
|
|
|
248
|
|
Interest rate floor and cap
|
|
|
12
|
|
|
12
|
|
|
3
|
|
|
3
|
|
|
15
|
|
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
44,991
|
|
|
43,944
|
|
|
44,879
|
|
|
43,124
|
|
|
45,009
|
|
|
45,092
|
|
Federal Home Loan Bank advances
|
|
|
13,650
|
|
|
13,973
|
|
|
12,900
|
|
|
12,951
|
|
|
14,750
|
|
|
14,521
|
|
|
|
15.
|
Plan of Reorganization
|
|
|
|
On January
11, 2008, the Board of Directors of the Bank adopted a Plan of Reorganization
From a Mutual Savings Bank to a Mutual Holding Company and Stock Issuance
Plan (the Plan) under which the Bank will reorganize into a mutual holding
company structure (the Reorganization). As part of the Reorganization, the
Bank will convert to a federal stock savings bank, the Bank will become a
wholly-owned subsidiary of Auburn Bancorp, Inc. (the Stock Holding
Company), and the Stock Holding Company will become a majority-owned
subsidiary of Auburn Mutual Holding Company (the MHC). In addition, the
Stock Holding Company will conduct a stock offering of up to 49.9% of the
aggregate total voting stock of the Stock Holding Company, pursuant to the
laws of the United States of America and the rules and regulations of the
Office of Thrift Supervision (OTS). The Stock Holding Company stock will be
offered on a first priority basis in a subscription offering to eligible
account holders, tax-qualified employee plans, and other members. Any shares
remaining after the conclusion of the subscription offering may be offered
for sale in a community offering or syndicated offering. So long as the MHC
is in existence, the MHC will be required to own at least a majority of the
voting stock of the Stock Holding Company.
|
|
|
|
The costs
associated with the reorganization are deferred and will be deducted from the
proceeds upon the sale and issuance of the stock. In the event the
reorganization is not consummated, costs incurred will be charged to expense.
As of June 30, 2007, there were no such reorganization costs.
|
F-29
AUBURN SAVINGS BANK, FSB
Notes to Financial Statements
|
|
|
The Plan is
subject to the approval of the OTS and a majority of the total votes eligible
to be cast by voting members of the Bank.
|
|
|
|
After
reorganization, the Stock Holding Company will not be able to declare or pay
a cash dividend on, or repurchase any of its common stock, if the effect
thereof would cause the regulatory capital of the Bank to be reduced below
the amount required under OTS rules and regulations.
|
F-30
You should rely only on the information contained in this
prospectus. Neither Auburn Savings Bank nor Auburn Bancorp, Inc. has authorized
anyone to provide you with different information. This prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered by this prospectus to any person or in any jurisdiction in
which an offer or solicitation is not authorized or in which the person making
an offer or solicitation is not qualified to do so, or to any person to whom it
is unlawful to make an offer or solicitation in those jurisdictions. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of
any sale of common stock.
(Holding Company for Auburn Savings Bank)
305,325 Shares
(Anticipated Maximum, Subject to Increase)
COMMON STOCK
|
|
Prospectus
|
|
|
KEEFE, BRUYETTE & WOODS
|
|
|
[
], 2008
|
Until [ ], 2008, or 90 days
after commencement of the syndicated community offering, if any,
whichever is later, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a prospectus when acting as underwriters and with respect to their
unsold allotments of subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and
Distribution.
|
|
|
|
|
|
|
Filing Fees (OTS, SEC and NASD)(1)
|
|
$
|
15,400
|
|
|
Blue Sky
Fees and Expenses
|
|
|
15,000
|
|
|
Edgar,
printing, postage and mailing
|
|
|
70,000
|
|
|
Legal fees
and expenses (including marketing firms counsel fees)
|
|
|
290,000
|
|
|
Accounting
fees and expenses
|
|
|
30,000
|
|
|
Appraisers
fees and expenses
|
|
|
25,000
|
|
|
Business
Plan fees and expenses
|
|
|
30,000
|
|
|
Marketing
firm expenses
|
|
|
120,000
|
|
|
Transfer
agent and registrar fees and expenses
|
|
|
2,000
|
|
|
Certificate
printing
|
|
|
1,750
|
|
|
Miscellaneous
|
|
|
1,850
|
|
|
TOTAL
|
|
$
|
600,000
|
|
|
|
(1)
|
Estimated
expenses based on the registration of 351,124 shares at $10.00 per share.
|
Item 14. Indemnification of Directors and
Officers.
Article XII of
Auburn Bancorp, Inc.s bylaws provides:
|
|
|
The Holding
Company shall indemnify all officers, directors and employees of the Holding
Company, and their heirs, executors and administrators, to the fullest extent
permitted under federal law, rules, and regulations against all expenses and
liabilities reasonably incurred by them in connection with or arising out of
any action, suit or proceeding in which they may be involved by reason of
their having been a director or officer of the Holding Company, whether or
not they continue to be a director or officer at the time of incurring such
expenses or liabilities, such expenses and liabilities to include, but not be
limited to, judgments, court costs and attorneys fees and the cost of
reasonable settlements.
|
|
|
|
Generally,
federal law provides indemnity coverage for:
|
(a)
Any person against whom any action is brought or threatened because that person
is or was a director or officer of the association, for:
(i) Any
amount for which that person becomes liable under a judgment in such action;
and
(ii) Reasonable
costs and expenses, including reasonable attorneys fees, actually paid or
incurred by that person in defending or settling such action, or in enforcing
his or her rights under this section if he or she attains a favorable judgment
in such enforcement action.
(b)
Indemnification shall be made to such person only if:
127
|
|
|
|
|
(i)
|
Final
judgment on the merits is in his or her favor; or
|
|
|
|
|
|
(ii)
|
In case of:
|
|
|
|
|
|
|
a.
|
Settlement;
|
|
|
|
|
|
|
b.
|
Final
judgment against him or her; or
|
c. Final
judgment in his or her favor, other than on the merits, if a majority of the
disinterested directors of the savings association determine that he or she was
acting in good faith within the scope of his or her employment or authority as
he or she could reasonably have perceived it under the circumstances and for a
purpose he or she could reasonably have believed under the circumstances was in
the best interests of the savings association or its members.
However,
no indemnification shall be made unless the association gives the Office of
Thrift Supervision at least 60 days notice of its intention to make such
indemnification. No such indemnification shall be made if the Office of Thrift
Supervision advises the association in writing, within such notice period, of
its objection thereto.
(c)
As used in this paragraph:
(i) Action
means any judicial or administrative proceeding, or threatened proceeding,
whether civil, criminal, or otherwise, including any appeal or other proceeding
for review.
(ii) Court
includes, without limitation, any court to which or in which any appeal or any
proceeding for review is brought.
(iii) Final
judgment means a judgment, decree or order which is not appealable or as to
which the period for appeal has expired with no appeal taken.
(iv) Settlement
includes the entry of a judgment by consent or confession or a plea of guilty
or of nolo contendere.
Item 15. Recent Sales of Unregistered
Securities.
None.
Item 16. Exhibits and Financial Statement
Schedules
(a) The
exhibits filed as a part of this Registration Statement are as follows (filed
herewith unless otherwise noted):
|
|
|
|
1.1
|
Engagement
Letter between Auburn Savings Bank and Keefe Bruyette & Woods, Inc.
|
|
1.2
|
Form of
Agency Agreement*
|
|
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.
|
|
5.0
|
Opinion of Nutter
McClennen & Fish LLP
|
|
8.1
|
Form of
Federal Tax Opinion of Nutter McClennen & Fish LLP
|
128
|
|
|
|
8.2
|
Form of
State Tax Opinion of Berry, Dunn, McNeil & Parker
|
|
10.1
|
Form of
Auburn Savings Bank Employee Stock Ownership Plan and Trust
|
|
10.2
|
Form of ESOP
Loan Commitment Letter and ESOP Loan Documents
|
|
10.3
|
Form of
Employment Agreement between Auburn Savings Bank and Allen T. Sterling*
|
|
16.0
|
Letter from Baker
Newman Noyes LLC
|
|
23.1
|
Consent of
Nutter McClennen & Fish LLP (included in Exhibit 5.0)
|
|
23.2
|
Consent of
Keller & Company, Inc.
|
|
23.3
|
Consent of Berry,
Dunn, McNeil & Parker
|
|
23.4
|
Consent of
Baker Newman Noyes LLC
|
|
24.0
|
Powers of
Attorney (included in signature page)
|
|
99.1
|
Appraisal
Report of Keller & Company, Inc. (P)
|
|
99.2
|
Marketing
Materials
|
|
99.3
|
Subscription
Order Form and Instructions
|
|
|
*
|
To be filed
by amendment. |
|
|
(P)
|
Application has been made to file the supporting financial schedules in paper format
pursuant to Rule 202 and Rule 311 of Regulation S-T.
|
|
|
(b)
|
The
Financial Statement schedules have been omitted as not applicable or not
required under the rules of Regulation S-X.
|
Item 17. Undertakings.
The
undersigned registrant hereby undertakes:
To
file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
|
|
|
|
|
|
a.
|
To include any prospectus
required by Section 10(a)(3) of the Securities Act of 1933;
|
|
|
|
|
|
|
b.
|
To reflect in the
prospectus any facts or events arising after the effective date of the
registration statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in
the information set forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes
in volume and price represent no more than 20% change in the maximum
aggregate offering price set forth in the Calculation of Registration
Fee table in the effective registration statement.
|
|
|
|
|
|
|
c.
|
To include any material
information with respect to the plan of distribution not previously disclosed
in the registration statement or any material change to such information in
the registration statement;
|
That,
for the purpose of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities
129
offered therein, and the
offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
To
remove from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of the stock
offering.
That,
for the purpose of determining liability under the Securities Act of 1933 to
any purchaser:
a. If
the registrant is relying on Rule 430B (§230.430B of this chapter):
|
|
|
|
(i)
|
Each prospectus filed by
the registrant pursuant to Rule 424(b)(3)shall be deemed to be part of the
registration statement as of the date the filed prospectus was deemed part of
and included in the registration statement; and
|
|
|
|
|
(ii)
|
Each prospectus required to
be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a
registration statement in reliance on Rule 430B relating to an offering
made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of
providing the information required by section 10(a) of the Securities Act of
1933 shall be deemed to be part of and included in the registration statement
as of the earlier of the date such form of prospectus is first used after
effectiveness or the date of the first contract of sale of securities in the
offering described in the prospectus. As provided in Rule 430B, for
liability purposes of the issuer and any person that is at that date an
underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration
statement to which that prospectus relates, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof. Provided, however, that no statement made in a registration
statement or prospectus that is part of the registration statement or made in
a document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as
to a purchaser with a time of contract of sale prior to such effective date,
supersede or modify any statement that was made in the registration statement
or prospectus that was part of the registration statement or made in any such
document immediately prior to such effective date; or
|
|
|
|
|
b.
|
If the registrant is
subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part
of a registration statement relating to an offering, other than
registration statements relying on Rule 430B or other than prospectuses filed
in reliance on Rule 430A, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness. Provided,
however, that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document incorporated
or deemed incorporated by reference into the registration statement or
prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify
any statement
|
130
|
|
|
that was made in the
registration statement or prospectus that was part of the registration
statement or made in any such document immediately prior to such date of
first use.
|
That,
for the purpose of determining liability of the registrant under the Securities
Act of 1933 to any purchaser in the initial distribution of the securities: The
undersigned registrant undertakes that in a primary offering of
securities of the undersigned registrant pursuant to this registration
statement, regardless of the underwriting method used to sell the securities to
the purchaser, if the securities are offered or sold to such purchaser by means
of any of the following communications, the undersigned registrant will be a
seller to the purchaser and will be considered to offer or sell such securities
to such purchaser:
|
|
|
|
a.
|
Any preliminary prospectus
or prospectus of the undersigned registrant relating to the offering
required to be filed pursuant to Rule 424;
|
|
|
|
|
b.
|
Any free writing prospectus
relating to the offering prepared by or on behalf of the undersigned
registrant or used or referred to by the undersigned registrant;
|
|
|
|
|
c.
|
The portion of any other
free writing prospectus relating to the offering containing material
information about the undersigned registrant or its securities provided by or
on behalf of the undersigned registrant; and
|
|
|
|
|
d.
|
Any other communication
that is an offer in the offering made by the undersigned registrant to
the purchaser.
|
The
undersigned registrant hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrants
annual report pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plans annual report pursuant to section 15(d) of the Securities Exchange Act
of 1934) that is incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
The
undersigned registrant hereby undertakes to provide to the underwriter at the
closing specified in the underwriting agreements certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
The
undersigned registrant hereby undertakes that:
|
|
|
|
a.
|
For purposes of determining
any liability under the Securities Act of 1933, the information omitted from
the form of prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b) (1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as of the time
it was declared effective.
|
|
|
|
|
b.
|
For the
purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
|
131
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
132
SIGNATURES
Pursuant to the requirements of the
Securities Act of 1933, the registrant has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Auburn, State of Maine on March 14, 2008.
|
|
|
AUBURN BANCORP, INC.
|
|
|
|
|
By:
|
/s/ Allen T. Sterling
|
|
|
|
|
|
Allen T. Sterling,
President and
|
|
|
Chief Executive Officer
|
|
|
(duly authorized
representative)
|
|
Pursuant to the requirements
of the Securities Act of 1933, this registration statement has been signed by
the following persons in the capacities and on the dates stated. Each person
whose signature appears below hereby makes, constitutes and appoints Allen T.
Sterling and Michelle L. Basil, and each of them acting individually, his true
and lawful attorneys, with full power to sign for such person and in such
persons name and capacity indicated below any and all amendments to this Form
S-1, hereby ratifying and confirming such persons signature as it may be
signed by said attorneys to any and all amendments.
|
|
|
|
|
|
|
Name
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
/s/ Allen T. Sterling
|
|
President and Chief
|
|
March 14, 2008
|
|
|
|
Executive Officer
|
|
|
|
|
Allen T. Sterling
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Rachel A. Haines
|
|
Principal Financial
Officer
|
|
March 14, 2008
|
|
|
|
|
|
|
|
|
Rachel A. Haines
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Claire D. Thompson
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
|
|
|
Claire D. Thompson
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Philip R. St. Pierre
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
|
|
|
Philip R. St. Pierre
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Bonnie G. Adams
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
|
|
|
Bonnie G. Adams
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ August M. Berta
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
|
|
|
August M. Berta
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Peter E. Chalke
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
|
|
|
Peter E. Chalke
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ M. Kelly Matzen
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
|
|
|
M. Kelly Matzen
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Sharon A. Millett
|
|
Director
|
|
March 14, 2008
|
|
|
|
|
|
|
|
|
Sharon A. Millett
|
|
|
|
|
|
|
|
|
|
|
|
|
|
133
TABLE OF CONTENTS
List of Exhibits (filed herewith unless otherwise noted)
|
|
|
|
1.1
|
Engagement Letter between
Auburn Savings Bank and Keefe Bruyette & Woods, Inc.
|
|
1.2
|
Form of Agency Agreement*
|
|
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.
|
|
5.0
|
Opinion of Nutter
McClennen & Fish LLP
|
|
8.1
|
Form of Federal Tax
Opinion of Nutter McClennen & Fish LLP
|
|
8.2
|
Form of State Tax Opinion
of Berry, Dunn, McNeil & Parker
|
|
10.1
|
Form of Auburn Savings
Bank Employee Stock Ownership Plan and Trust
|
|
10.2
|
Form of ESOP Loan
Commitment Letter and ESOP Loan Documents
|
|
10.3
|
Form of Employment
Agreement between Auburn Savings Bank and Allen T. Sterling*
|
|
16.0
|
Letter from Baker Newman
Noyes LLC
|
|
23.1
|
Consent of Nutter
McClennen & Fish LLP (included in Exhibit 5.0)
|
|
23.2
|
Consent of Keller &
Company, Inc.
|
|
23.3
|
Consent of Berry, Dunn,
McNeil & Parker
|
|
23.4
|
Consent of Baker Newman
Noyes LLC
|
|
24.0
|
Powers of Attorney
(included in signature page)
|
|
99.1
|
Appraisal Report of Keller
& Company, Inc. (P)
|
|
99.2
|
Marketing Materials
|
|
99.3
|
Subscription Order Form
and Instructions
|
|
|
*
|
To be filed by amendment.
|
|
|
(P)
|
Supporting exhibits and
financial schedules are filed in paper format pursuant to Rule 202 and Rule 311
of Regulation S-T.
|
134
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