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EXHIBIT 13
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TABLE OF CONTENTS
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Page
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Message to Shareholders i
Selected Consolidated Financial and Other Data 1
Management's Discussion and Analysis of Financial Condition and Results of Operations
Independent Auditors' Report
Consolidated Financial Statements
Notes to Consolidated Financial Statements
Supplementary Information
Common Stock Information
Corporate Information
</TABLE>
<PAGE>
Dear Shareholder:
In terms of impact on the Company and its future, 1999 will be recorded
second only to our founding year of 1934. In addition to successfully completing
a stock offering, we are pleased with our financial results in our first year as
a public company and the enhancement of our products and services.
At year end, June 30, 2000, Alamogordo Financial Corporation's total
assets were in excess of $148 million. Net income was up 22% to $829,000, and
stockholders' equity totaled $25.8 million or 17.40% of assets. Our net income
per share was $.67. Our goal remains to build shareholder value through capital
management strategies.
After 66 years in business as a mutual company, we completed our
minority public offering in May, 2000. Common stock in our company, Alamogordo
Financial Corporation, began trading on the OTC Bulletin Board under the symbol
"ALMG". As a public company, Alamogordo Financial Corporation, will have greater
access to capital for growth and profit opportunities.
Alamogordo Federal Savings and Loan Association remains the driving
force behind the Company. Dedicated to its principle of providing financing for
homeowners, Alamogordo Federal originated mortgage loans totaling $13.9 million
during the year. Consumer lending increased to $4.9 million and commercial
lending totaled $1.4 million. Our financing of single family residences remains
the mainstay of our loan portfolio with over $104 million in loans outstanding
at fiscal year end. As evidenced by our extremely low delinquency rates, the
portfolio of loans provides Alamo Fed with a very stable and consistent income
stream.
The Alamo Fed connection to the Internet became reality in May, 2000.
Our non-transactional web-site can be accessed at www.AlamoFed.com and contains
----------------
information about the Association, as well as current deposit and loan rates.
The installation of our 5/th/ ATM at Gerald Champion Regional Medical Center was
completed, and our branch operations at the Wal-Mart Supercenter continue to
improve.
We are grateful to all of our employees who worked so hard to complete
our minority stock offering and who are dedicated to creating shareholder value.
Most of them, like you, are shareholders. They are able to purchase stock
through their 401(k) and receive shares through their Employee Stock Ownership
Plan. As both employees and owners, they have a direct stake in our success. The
quality of our products and services sets us apart from our competitors, and
that quality arises from the talent and commitment of our employees.
We also owe a debt of gratitude to an involved and committed Board of
Directors and Executive Management team who provided valued advice and counsel
as we navigated through the minority stock offering. With their continued
support and guidance, we look forward to 2000 and beyond with great enthusiasm.
We appreciate your investment in Alamogordo Financial Corporation. We
are firmly committed to growing the business and achieving our long-term goals
with building shareholder value. On behalf of all of the employee owners and
directors of Alamogordo Financial Corporation, we appreciate your investment and
will continue to build on the trust you have placed in us.
Alamogordo Financial Corporation
Miles Ledgerwood
President
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth selected consolidated historical financial and
other data of Alamogordo Financial for the periods and at the dates indicated.
The information is derived in part from, and should be read together with, the
Consolidated Financial Statements and Notes thereto of Alamogordo Financial
contained elsewhere in this Annual Report.
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Selected Financial Condition Data: June 30, June 30, June 30,
2000 1999 1998
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(In thousands)
<S> <C> <C> <C>
Total assets $ 148,394 $ 156,158 $ 160,368
Loans receivable, net 116,782 115,949 109,766
Mortgage-backed securities:
Held to maturity 211 319 976
Available for sale 2,551 3,114 3,957
Securities:
Held to maturity 1,626 3,154 3,047
Available for sale 12,918 13,916 24,733
Deposits 116,298 122,469 126,659
Total borrowings 5,000 10,000 19,151
Equity 28,814 22,441 22,066
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Selected Operating Data: Years Ended June 30,
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2000 1999 1998
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(In thousands, except per share data)
<S> <C> <C> <C>
Total interest income $ 10,567 $ 11,016 $ 11,225
Total interest expense 6,668 7,279 7,176
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Net interest income 3,899 3,737 4,049
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Provision (credit) for loan losses (50) -- --
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Net interest income after provision
for loan losses 3,949 3,737 4,049
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Other income 384 260 213
Other expenses 3,076 3,022 2,611
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Income before income taxes 1,257 975 1,651
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Provision for income taxes 428 296 536
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Net income $ 829 $ 679 $ 1,115
============ ============ ============
Net income per share-basic $ 0.665 N/M N/M
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Net income per share-diluted $ 0.665 N/M N/M
============ ============ ============
Dividends per share $ 0.105 N/M N/M
============ ============ ============
Number of shares used in per share
calculation-basic and diluted 1,246,440 (1) 100 100
============ ============ ============
</TABLE>
N/M: Not meaningful; no public shareholders during the year.
(1) Number of shares outstanding at June 30, 2000 of 1,275,000 less 28,560
shares held in trust for the ESOP.
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<TABLE>
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At or for the Years Ended June 30,
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2000 1999 1998
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<S> <C> <C> <C>
Key Operating Ratios and Other Data:
Performance Ratios:
Return on assets (ratio of net income to average total assets) 0.53 0.42 0.72
Return on equity (ratio of net income to average equity) 3.67 3.03 5.18
Average interest rate spread 2.32 2.06 2.28
Interest rate spread at end of period 2.16 2.19 2.23
Net interest margin (1) 2.77 2.53 2.81
Ratio of operating expenses to average total assets 1.98 1.89 1.69
Ratio of average interest-earning assets to average interest-bearing liabilities 109.41 109.54 110.50
Efficiency ratio (2) 71.82 75.61 61.26
Dividend payout ratio 16.15 (3) -- --
Asset Quality Ratio:
Non-performing assets to total assets at end of period 0.52 0.33 0.51
Allowance for loan losses to non-performing loans 58.68 88.72 60.83
Allowance for loan losses to gross loans receivable 0.35 0.39 0.43
Capital Ratios:
Equity to total assets at end of period 17.40 14.37 13.76
Average equity to average assets 14.53 13.96 13.89
Other Data:
Number of full-service offices 2 2 1
</TABLE>
(1) Net interest income divided by average interest-earning assets.
(2) The efficiency ratio represents the ratio of operating expenses divided by
the sum of net interest income and non-interest income less gain on sales
of investments.
(3) Includes only one quarterly dividend declared.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis reflects Alamogordo Financial's consolidated
financial statements and other relevant statistical data and is intended to
enhance your understanding of our financial condition and results of operations.
You should read the information in this section in conjunction with Alamogordo
Financial's consolidated financial statements and their notes and the other
statistical data provided in this Annual Report. This Annual Report contains
certain "forward-looking statements" which may be identified by the use of such
words as "believe," "expect," "anticipate," "should," "planned," "estimated" and
"potential." Examples of forward-looking statements include, but are not
limited to, estimates with respect to our financial condition, results of
operations and business that are subject to various factors which could cause
actual results to differ materially from these estimates and most other
statements that are not historical in nature. These factors include, but are not
limited to, general and local economic conditions, changes in interest rates,
deposit flows, demand for mortgage and other loans, real estate values, and
competition; changes in accounting principles, policies, or guidelines; changes
in legislation or regulation; and other economic, competitive, governmental,
regulatory, and technological factors affecting our operations, pricing,
products and services.
General
Alamogordo Financial's results of operations depend primarily upon the
results of operations of its wholly-owned subsidiary, Alamogordo Federal,
Alamogordo Federal's results of operations depend primarily on net interest
income. Net interest income is the difference between the interest income we
earn on our interest-earning assets, consisting primarily of loans and
investment and mortgage-backed securities, and the interest we pay on our
interest-bearing liabilities, primarily savings accounts, time deposits and
other borrowings. Our results of operations are also affected by our provision
for loan losses, other income and other expense. Other expense consists
primarily of non-interest expenses, including salaries and employee benefits,
occupancy, data processing fees, deposit insurance premiums, advertising and
other expenses. Other income consists primarily of non-interest income,
including service charges and fees, gain (loss) on sale of real estate owned and
other income. Our results of operations may also be affected significantly by
general and local economic and competitive conditions, particularly those with
respect to changes in market interest rates, government policies and actions of
regulatory authorities.
Business Strategy
We have several strategies designed to enhance profitability consistent
with safety and soundness. These strategies are discussed below. You should be
aware, however, that we are subject to intense competition, and there can be no
assurances that we will successfully implement these strategies.
. Emphasizing Traditional One- to Four-Family Residential Real Estate
Lending. Historically, we have emphasized one- to four-family
residential lending within our market area. As of June 30, 2000,
$104.6 million, or 88.0% of our total loan portfolio consisted of one-
to four-family residential real estate loans. We believe that the
continued expansion of our residential lending portfolio will enhance
our reputation as a service-oriented institution that meets the needs
of its local community. Although the yields on residential mortgage
loans are often less than the yields on other loans, we intend to
continue to emphasize one- to four-family lending because of our
expertise with this type of lending, and the relatively low
delinquency rates on these loans compared to other loans.
. Increasing Other Lending. To complement our continued emphasis on one-
to four-family residential real estate lending, we intend to focus on
increasing our originations of loans that are not one- to four-family
loans by stressing customer relationships and customer service. We
intend to initially use our existing expertise, and we expect that any
growth in our portfolio of these other loans will be slow. We believe
that if we are able to expand our portfolio of these loans, we will be
able to increase the yield on our loan portfolio and diversify our
assets while continuing to meet the needs of our local community. As
of June 30, 2000, multifamily and nonresidential and consumer and
other loans totaled $14.4 million, or 12.0% of our total loan
portfolio. These types of loans generally expose us to greater credit
risk than loans secured by one- to four-family real estate because
repayment is dependent on income being generated in amounts sufficient
to cover operating expenses and debt service and on the successful
operation of the borrower's business.
<PAGE>
. Maintaining Asset Quality While Implementing our Diversification
Strategy. Through our commitment to conservative loan underwriting
guidelines and investment in high grade assets, we have consistently
experienced low levels of late payments and losses on loans. As of
June 30, 2000, we had $714,000 of nonperforming loans, which
represented 0.6% of total loans. Our allowance for loan losses as of
June 30, 2000 was $419,000, or 58.68% of nonperforming loans. During
the fiscal year ended June 30, 2000, we had net charge-offs of $3,000.
Our goal is to gradually increase our portfolio of multifamily and
nonresidential and consumer and other loans while applying prudent
underwriting standards. It may be necessary to increase the provision
for loan losses, which will have an adverse effect on our net income.
. Maintaining Capital Strength. As a nonpublic company our policy was to
maintain our financial strength through risk management, a sound
financial condition and relatively high capital levels, and consistent
earnings. At June 30, 2000, our ratio of equity to assets was 17.4%.
As a public company, we plan to use the capital we receive in the
offering to grow and diversify our assets, internally or through
acquisitions, and for other shareholder enhancements such as
dividends and, as permitted, stock repurchases. We intend to maintain
our commitment to financial strength, although as a public company we
intend to rely less on higher ratios of equity to assets than we had
as a nonpublic company.
. Attracting Transaction and Savings Accounts. As a nonpublic company we
maintained a relatively high proportion of certificates of deposit as
compared to transaction and savings accounts. The interest expense of
certificates of deposit is generally higher than the interest expense
of transaction and savings accounts, and we frequently paid relatively
high rates on our certificates of deposit. Our goal as a public
company is to decrease our cost of deposits by increasing our
transaction and savings accounts. We also believe that building
relationships with transaction and savings account customers is an
effective means of marketing and selling loan products and other
services. As of June 30, 2000, we had $18.8 million of transaction and
savings accounts, which represented 16.2% of our total deposits.
Management of Market Risk
General. As with other savings and loan holding companies, 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, Alamogordo
Federal's Board of Directors has established an Asset/Liability Management
Committee which is responsible for evaluating the interest rate risk inherent in
Alamogordo Federal's assets and liabilities, determining the level of risk that
is appropriate given its business strategy, operating environment, capital,
liquidity and performance objectives, and managing this risk consistent with the
guidelines approved by the Board of Directors. The Asset/Liability Management
Committee consists of senior management operating under a policy adopted by the
Board of Directors and meets at least quarterly to review Alamogordo Federal's
asset/liability policies and interest rate risk position.
Although we originate a significant amount of 30-year fixed rate loans, we
believe that the interest rate risk generally associated with these loans is
mitigated by the transient nature of the persons employed in our market area.
Because our local economy is heavily dependent on two U.S. Government military
installations located in Otero County, many of our borrowers are employed by the
federal government in positions that require frequent relocation. When these
borrowers relocate, they often sell the homes securing the loan, and prepay the
mortgage loan. As a result, we believe our one-to four-family residential real
estate loans, particularly if the borrower is employed by the United States
Government, remain outstanding for a shorter period of time than the national
average for 30-year fixed-rate one-to four-family residential real estate loans.
In addition, from time to time we have and may continue to purchase adjustable-
rate mortgage loans, and adjustable-rate and shorter-term securities. We do not
engage in trading activities or use derivative instruments to control interest
rate risk.
Alamogordo Financial's current investment strategy is to maintain a
securities portfolio that provides a source of liquidity and that contributes to
its overall profitability and asset mix within given quality and maturity
considerations. The securities portfolio consists primarily of federal
government and government sponsored corporation securities. A portion of
Alamogordo Financial's investment securities, other than FHLB stock, are
<PAGE>
classified as available for sale to provide management with the flexibility to
make adjustments to the portfolio in the event of changes in interest rates, to
fulfill unanticipated liquidity needs, or to take advantage of alternative
investment opportunities.
<PAGE>
Net Portfolio Value. In past years, many savings associations measured interest
rate sensitivity by computing the "gap" between the assets and liabilities
which were expected to mature or reprice within certain time periods, based on
assumptions regarding loan prepayment and deposit decay rates formerly
provided by the OTS. However, the OTS now requires the computation of amounts by
which the net present value of an institution's cash flow from assets,
liabilities and off balance sheet items (the institution's net portfolio value
or "NPV") would change in the event of a range of assumed changes in market
interest rates. These computations estimate the effect on an institution's NPV
from instantaneous and permanent 100 to 300 basis point increases and decreases
in market interest rates. A basis point equals one one-hundreth of one
percentage point, and 100 basis points equals one percentage point. A change in
interest rates to 8% from 7% would mean, for example, a 100 basis point increase
in the "Changes in Market Interest Rates" column below.
The following table presents Alamogordo Federal's NPV at June 30, 2000, as
calculated by the OTS, which is based upon quarterly information that Alamogordo
Federal provided to the OTS.
Percentage Change in Net Portfolio Value
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Changes
in Market Projected Estimated Amount of
Interest Rates Change(1) NPV Change
-------------- --------- --------- ---------
(basis points) (Dollars in Thousands)
300 (43)% $14,042 ($10,684)
200 (29) 17,479 (7,247)
100 (15) 21,119 (3,607)
-- -- 24,726 --
(100) 12 27,691 2,965
(200) 16 28,785 4,059
(300) 18 29,183 4,457
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(1) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in NPV requires making certain
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV table
presented assumes that the composition of Alamogordo Federal's interest
sensitive assets and liabilities existing at the beginning of a period remain
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 NPV table provides an indication of Alamogordo Federal's interest rate risk
exposure at a particular point in time, such measurements are not intended to
and do not provide a precise forecast of the effect of changes in market
interest rates on its net interest income, and will differ from actual results.
Additionally, the guidelines established by the Board of Directors are not
strict limitations. While a goal of the Asset/Liability Management Committee and
the Board of Directors is to limit projected NPV changes within the Board's
guidelines, Alamogordo Federal will not necessarily limit projected changes in
NPV if the required action would present disproportionate risk to Alamogordo
Federal's continued profitability.
<PAGE>
Average Balance Sheet
The following table presents for the periods indicated the total dollar
amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent
adjustments were made. All average balances are daily average balances. Non-
accruing loans have been included in the table as loans carrying a zero
yield. Interest income includes fees that are considered adjustments to
yields.
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Years Ended June 30,
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2000 1999
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Average Interest Average Interest
Outstanding Earned/ Outstanding Earned/
Balance Paid Yield/Rate Balance Paid Yield/Rate
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<S> <C> <C> <C> <C> <C> <C>
Interest-earning Assets:
Loans receivable (1) $117,055 $9,106 7.78% $112,294 $8,994 8.01%
Mortgage-backed securities (2) 3,058 171 5.59% 4,010 219 5.46%
Securities (2) 16,260 948 5.83% 22,606 1,295 5.73%
Other interest-earning assets (3) 4,595 342 7.44% 8,776 508 5.79%
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Total interest-earning assets 140,968 10,567 7.50% 147,686 11,016 7.46%
======= ========
Non-interest-earning assets 14,523 12,569
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Total assets $155,491 $160,255
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Interest-Bearing Liabilities:
Transaction and savings deposits $ 18,531 446 2.41% $ 18,181 430 2.37%
Certificate accounts 101,477 5,738 5.65% 106,572 6,354 5.96%
Borrowings 8,840 484 5.48% 10,075 495 4.91%
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Total interest-bearing
liabilities 128,848 6,668 5.18% 134,828 7,279 5.40%
======= ========
Noninterest bearing liabilities 4,049 3,049
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Total liabilities $132,897 $137,877
Equity $ 22,594 $ 22,378
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Total liabilities and equity $155,491 $160,255
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Net interest income $3,899 $3,737
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Net interest rate spread (4) 2.32% 2.06%
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Net interest-earning assets $ 12,120 $ 12,858
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Net yield on average
interest-earning assets (5) 2.77% 2.53%
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Average interest-earning assets
to average interest-bearing
liabilities 109.41% 109.54%
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(1) Amounts are net of allowance for loan losses but include non-accrual
loans. Interest is recognized on non-accrued loans only as and when
received.
(2) Securities are included at carrying value.
(3) Other interest-earning assets include Federal Home Loan Bank of Dallas
stock.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost
of interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
<PAGE>
Rate/Volume Analysis
The following table presents the dollar amount of changes in interest income
and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and that due to the changes in interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate), (ii) changes in rate (i.e., changes
in rate multiplied by old volume), and (iii) changes in rate/volume (change in
rate multiplied by change in volume).
<TABLE>
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Years Ended June 30,
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2000 vs. 1999 1999 vs. 1998
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Increase/(Decrease) Total Increase/(Decrease) Total
------------------------- -------------------------
Due to Rate/ Increase Due to Rate/ Increase
------------------------- -------------------------
Volume Rate Volume (Decrease) Volume Rate Volume (Decrease)
------ ---- ------ ---------- ------ ---- ------ ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable ($482) $ 8 $ 586 $ 112 $ 183 ($334) ($310) ($461)
Mortgage-backed securities (8) 6 (46) (48) 8 (22) (111) (125)
Investment securities (44) 30 (333) (347) 46 24 179 249
Other interest-earning assets (13) 73 (226) (166) 23 (123) 228 128
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Total interest-earning assets (547) 117 (19) (449) 260 (455) (14) (209)
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Interest-bearing liabilities:
Transactions and savings deposits (20) 40 (4) 16 16 (39) (39) (62)
Certificate accounts (296) (281) (39) (616) 202 (80) (184) (62)
Borrowings (21) 52 (42) (11) (2) 240 (11) 227
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Total interest-bearing liabilities (337) (189) (85) (611) 216 121 (234) 103
--------------------------------------------- ---------------------------------------
--------------------------------------------- ---------------------------------------
Net interest income ($210) $ 306 $ 66 $ 162 $ 44 ($576) $220 ($312)
============================================= =======================================
</TABLE>
<PAGE>
Financial Condition
Alamogordo Financial's total assets decreased by $47.8 million, or 5.0%, to
$148.4 million at June 30, 2000, from $156.2 million at June 30, 1999. The
decrease resulted primarily from a decrease in securities and cash and cash
equivalents, partially offset by an increase in loans receivable. Securities,
including mortgage-backed securities, decreased by $3.2 million, or 15.6%, to
$17.3 million from $20.5 million as a result of maturities and repayments. Cash
and cash equivalents decreased by $5.3 million, or 62.4%, to $3.2 million from
$8.5 million primarily due to the decrease in deposits and the paydown of
advances from Federal Home Loan Bank, partially offset by the proceeds from the
maturities and repayment of securities and the net proceeds from the stock
offering. Loans receivable increased by $833,000, or .7%, to $116.8 million from
$115.9 million as a result of new loan originations surpassing principal
repayments and loan payoffs.
Total deposits decreased by $6.2 million, or 5.1%, to $116.3 million at June 30,
2000. The decrease resulted from a $1.1 million, or 5.5%, decrease in
transaction and savings deposits to $18.8 million from $20.0 million, and a $5.0
million, or 4.9%, decrease in term certificates to $97.5 million from $102.5
million. Total borrowings decreased by $5.0 million, or 50.0%, to $5.0 million
from $10.0 million. The decrease resulted from the paydown of advances from
Federal Home Loan Bank.
Equity increased by $3.4 million, or 15.2%, to $25.8 million from $22.4 million
primarily due to capital raised by the stock offering, which resulted in net
proceeds of $3.0 million, and earnings over the period, partially offset by a
$151,000 decrease in accumulated other comprehensive income related to
unrealized losses on securities available for sale. As of June 30, 2000,
Alamogordo Federal had $23.4 million of tangible capital or 16.0% of tangible
assets, $23.4 million of core capital or 1?.0% of total adjusted assets, and
$24.2 million of risk-based capital or 32.5% of risk-weighted assets.
Comparison of Operating Results for the Years Ended June 30, 2000 and 1999
General. Net income increased by $150,000, or 22.1%, to $829,000 for the fiscal
year ended June 30, 2000, from $679,000 for the fiscal year ended June 30, 1999.
The increase resulted from an increase in net interest income after the
provision (credit) for loan losses and an increase in total other income,
partially offset by an increase in total other expenses and the provision for
income taxes.
Total Interest Income. Total interest income decreased by $449,000, or 4.1%, to
$10.6 million for the fiscal year ended June 30, 2000 from $11.0 million for the
fiscal year ended June 30, 1999. The decrease resulted from decreases in
interest on securities and other interest-earning assets partially offset by an
increase in interest and fees on loans receivable.
Interest and fees on loans receivable increased by $112,000, or 1.2%, to $9.1
million from $9.0 million. The increase resulted
<PAGE>
from a $4.8 million, or 4.3%, increase in the average balance of loans
receivable to $117.1 million from $112.3 million, partially offset by a 23
basis point decrease in the average yield on the loan portfolio to 7.78% from
8.01%. The increase in average balance of loans receivable resulted from a
decrease in the prepayment of loans and a decrease in loans sold, partially
offset by a decrease in loan originations and loans purchased.
Interest on securities (including mortgage-backed securities) and other
interest-earning assets decreased by $561,000, or 28.1%, to $1.5 million from
$2.0 million. This decrease resulted from a $7.3 million, or 27.4%, decrease in
the average balance of securities due to maturities and repayment of principal,
the effects of which were partially offset by a 10 basis point increase in the
average yield on securities. The average balance of other interest-earning
assets decreased by $4.2 million, the effects of which were partially offset by
an increase in the average yield of 165 basis points.
Interest Expense. Interest cost of deposits decreased by $600,000, or 8.8%, to
$6.2 million for the fiscal year ended June 30, 2000 from $6.8 million for the
fiscal year ended June 30, 1999. The cost of deposits decreased as a result
of the decrease in the average balance of deposits to $120.0 million from
$124.8 million as well as a decrease in the average cost of deposits to 5.15%
from 5.44%. Interest expense on transaction and savings accounts increased to
$466,000 from $430,000, as the average balance of transaction and savings
accounts increased to $18.5 million from &18.2 million, and the average cost
increased to 2.41% from 2.37%. Interest expense on certificate accounts
decreased by $616,000, as the average balance decreased to $101.5 million from
$106.6 million, and the average cost decreased to 5.65% from 5.96%. Interest
expense on borrowings decreased by $11,000 due to a $1.2 million decrease in
average borrowings partially offset by a 56 basis point increase in average cost
of borrowings due to a general increase in shorter-term market rates of
interest.
Net Increase Income. Net interest income increased by $162,000 or 4.4%, to
$3.9 million for the fiscal year ended June 30, 2000 from $3.7 million for the
fiscal year ended June 30, 1999. Net interest rate spread, the difference
between the yield on average total interest-earning assets and the cost of
average total interest-bearing liabilities, increased by 26 basis points to
2.32% from 2.06%, and net interest margin, or net interest income as a
percentage of average interest-earning assets, increased by 24 basis points to
2.77% from 2.53%.
Provision for Loan Losses. We establish provisions for loan losses, which are
charged to operations, in order to maintain the allowance for loan losses at a
level that we believe is appropriate to absorb future charge-offs of loans
deemed uncollectible. In determining the appropriate level of the allowance for
loan losses, management considers loss experience, evaluations of real estate
collateral, economic conditions, volume and type of lending and the levels of
nonperforming and other classified loans. The amount of the allowance is based
on estimates and the ultimate losses may vary from such estimates. Management
assesses the allowance for loan losses on a quarterly basis and makes provisions
for loan losses as necessary in order to maintain the adequacy of the allowance.
While management uses available information to recognize losses on loans, future
loan loss provisions may be necessary based on changes in economic conditions.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the allowance for loan losses and may
require us to recognize additional provisions based on their judgement of
information available to them at the time of their examination. Based on our
evaluation of
<PAGE>
these factors, and Alamogordo Federal's net loan charge-offs of $3,000 and
$14,000 for the years ended June 30, 2000 and 1999, respectively, Alamogordo
Federal made no provision for loan losses during these periods. Additionally,
and after consultation with our independent auditors, we recognized a credit for
loan losses of $50,000 for the year ended June 30, 2000. This resulted in the
allowance for loan losses decreasing to $419,000, or 58.7% of total
nonperforming loans at June 30, 2000 from $472,000, or 88.7% of total
nonperforming loans at June 30, 1999. Management believes that the allowance for
loan losses at June 30, 2000 and 1999 was adequate.
Other Income. Total other income increased by $124,000, or 47.7%, to $384,000
from $260,000. Service charges and fees increased by $90,000 primarily due to
ATM fee income and deposit account service charges. Gain on sale of premises and
equipment totaled $29,000 for the year ended June 30, 2000, as compared to no
gain for the previous period as a result of the sale of land.
Other Expense. Total other expense increased by $54,000, or 1.8%, to $3.1
million for the fiscal year ended June 30, 2000 from $3.0 million for the year
ended June 30, 1999. Salaries and benefits expense increased by $95,000,
primarily due to a $47,000 increase in compensation expense, $30,000 of which
was attributable to the release of ESOP shares, and a $39,000 decrease in the
deferral of loan origination costs, as new loan originations decreased during
the latter period. Occupancy expense increased $39,000 in part due to a
recognition of a full year of branch office expenses in the latter period. Data
processing fees decreased by $70,000 due to Alamogordo Federal's conversion of
its data processing system during the earlier period. Federal insurance premiums
and other insurance expense decreased $29,000, primarily due to the fact that
the Federal Deposit Insurance Corporation (FDIC) assessment rate for SAIF
(Savings Association Insurance Fund) insured institutions was lowered effective
January 1, 2000. Advertising expense increased by $29,000 primarily due to
additional marketing programs.
Provision for Income Taxes. The provision for income taxes increased to
$428,000, or 34.0% of net income before income taxes, from $296,000, or 30.4% of
net income before income taxes. The increase in the provision resulted from an
increase in net income before income taxes. The increase in effective tax rate
reflects a change in the mix of tax-exempt securities and other changes in
deferred tax items.
<PAGE>
Liquidity and Capital Resources
Alamogordo Federal's liquidity management objective is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
ability to meet deposit withdrawals on demand or at contractual maturity, to
repay borrowings as they mature, and to fund new loans and investments as
opportunities arise. Alamogordo Federal's primary sources of internally
generated funds are principal and interest payments on loans receivable, cash
flows generated from operations, and cash flows generated by investments.
External sources of funds include increases in deposits and advances from the
FHLB of Dallas.
Alamogordo Federal is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of United
States Government, federal agency and other investments having maturities of
five years or less. Current OTS regulations require that a savings association
maintain liquid assets of not less than 4% of its average daily balance of net
withdrawable deposit accounts and borrowings payable in one year or less.
Monetary penalties may be imposed for failure to meet applicable liquidity
requirements. At June 30, 2000, Alamogordo Federal's liquidity, as measured for
regulatory purposes, was 11.0%.
At June 30, 2000, Alamogordo Federal had loan commitments of $310,000 and
unused lines of credit of $211,000. Alamogordo Federal believes that it has
adequate resources to fund loan commitments as they arise. If Alamogordo Federal
requires funds beyond its internal funding capabilities, additional advances
from the FHLB of Dallas are available. At June 30, 2000, approximately $48.4
million of time deposits were scheduled to mature within a year, and we expect
that a portion of these time deposits will not be renewed upon maturity.
Alamogordo Financial has not engaged in any significant business activity
other than owning the common stock of Alamogordo Federal, and does not currently
intend to do so. In order to provide sufficient funds for its operations,
Alamogordo Financial retained and invested 50% of the net proceeds of the stock
offering remaining after making the loan to the ESOP. In the future, Alamogordo
Financial's primary source of funds, other than income from its investments and
principal and interest payments received with respect to the ESOP loan, is
expected to be dividends from Alamogordo Federal. As a stock savings and loan
association, Alamogordo Federal is subject to regulatory limitations on its
ability to pay cash dividends.
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of Alamogordo
Financial have been prepared in accordance with generally accepted accounting
principles ("GAAP"). GAAP generally requires the measurement of financial
position and operating results in terms of historical dollars without
consideration for 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. Unlike industrial companies, our assets and liabilities are
primarily monetary in nature. As a result, changes in market interest rates have
a greater impact on performance than the effects of inflation.
<PAGE>
Report of Independent Certified Public Accountants
--------------------------------------------------
The Board of Directors
ALAMOGORDO FINANCIAL CORPORATION
Alamogordo, New Mexico
We have audited the consolidated balance sheets of Alamogordo Financial
Corporation and subsidiary (the Company) as of June 30, 2000 and 1999, and the
related consolidated statements of income, changes in equity and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Alamogordo Financial
Corporation and subsidiary as of June 30, 2000 and 1999, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The consolidating information on Pages 26
and 27 is presented for purposes of additional analysis of the consolidated
financial statements rather than to present the financial position, results of
operations, and cash flows of the individual companies. The consolidating
information has been subjected to the auditing procedures applied in the audit
of the consolidated financial statements and, in our opinion, is fairly stated
in all material respects in relation to the consolidated financial taken as a
whole.
August 23, 2000
Alamogordo, New Mexico
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents (Note 1) $ 3,159,098 $ 8,471,573
Securities
Available for sale (Note 2) 15,468,333 17,029,781
Held to maturity (Note 2) 1,837,254 3,473,061
Loans, net (Note 3) 116,781,986 115,949,420
Real estate owned 52,471 -
Premises and equipment, net (Note 4) 8,491,526 8,745,204
Stock in Federal Home Loan Bank, at cost 1,435,400 1,332,100
Accrued interest 911,749 955,018
Deferred income taxes (Note 9) 26,942 -
Other assets 229,729 201,775
----------------- -----------------
TOTAL ASSETS $ 148,394,488 $ 156,157,932
================= =================
LIABILITIES AND EQUITY
LIABILITIES
Deposits (Note 5) $ 116,298,212 $ 122,468,333
Advance payments by borrowers for taxes and insurance 1,035,321 1,006,271
Accrued interest and other liabilities 226,472 172,890
Deferred income taxes (Note 9) - 69,350
Advances from Federal Home Loan Bank (Note 6) 5,000,000 10,000,000
Income taxes payable 20,163 -
----------------- -----------------
Total Liabilities 122,580,168 133,716,844
Contingent liabilities and commitments (Note 8)
EQUITY
Common Stock, $.10 par value, 10,000,000 shares authorized,
1,275,000 shares outstanding in 2000 and 100
shares issued in 1999 127,500 10
Additional paid in capital 2,857,154 -
Retained earnings, substantially restricted 23,506,374 22,710,161
Unearned ESOP Shares (257,040) -
Accumulated other comprehensive income (419,668) (269,083)
----------------- -----------------
Total Equity 25,814,320 22,441,088
----------------- ------------------
TOTAL LIABILITIES AND EQUITY $ 148,394,488 $ 156,157,932
================= ==================
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2,000 1,999
--------------- ---------------
<S> <C> <C>
Interest income
Interest and fees on loans $ 9,106,381 $ 8,993,713
Interest on securities 947,500 1,294,612
Interest on mortgage-backed securities 170,416 219,678
Interest on other interest-bearing assets 342,178 508,279
--------------- ---------------
Total interest income 10,566,475 11,016,282
Interest expense
Interest on deposits 6,183,890 6,783,713
Interest on FHLB and other borrowings 483,792 495,611
--------------- ---------------
Total interest expense 6,667,682 7,279,324
--------------- ---------------
Net interest income 3,898,793 3,736,958
Provision (credit) for loan losses (Note 3) (50,000) -
--------------- ---------------
Net interest income after provision for loan losses 3,948,793 3,736,958
Other income
Service charges and fees 223,704 134,010
Gain (loss) on sale of real estate owned (2,222) (10,429)
Gain on sale of premises and equipment 29,109 -
Other 133,093 135,850
--------------- ---------------
Total other income 383,684 259,431
--------------- ---------------
Other expenses
Salaries and benefits 1,363,944 1,269,169
Occupancy 688,500 650,785
Data processing fees 266,060 335,658
Federal insurance premiums and other insurance expense 91,690 120,846
Advertising 90,741 61,053
Other 575,114 584,095
--------------- ---------------
Total other expenses 3,076,049 3,021,606
--------------- ---------------
Income before income taxes 1,256,428 974,783
Provision for income taxes (Note 9) 427,517 296,299
--------------- ---------------
Net Income $ 828,911 $ 678,484
=============== ===============
Net income per common share-basic (Note 13) $ 0.665 $ N/A
=============== ===============
Cash dividends per common share (Note 13) $ 0.105 $ N/A
=============== ===============
Number of shares used in per-share calculation-basic (Note 13) 1,246,440 N/A
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Accumulated
Additional Unearned Other
Paid-In Retained ESOP Comprehensive Total
Stock Capital Earnings Shares Income Equity
--------- ------- -------- ------ ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at June 30, 1998 $ 10 $ - $ 22,131,677 - (65,950) $22,065,737
Dividends - - (100,000) - - (100,000)
Comprehensive income
Net income - - 678,484 - - 678,484
Other comprehensive income, net of tax:
Change in unrealized loss on securities
available-for-sale, net of deferred
income taxes of $(135.417) - - - - (203,133) (203,133)
-----------
Total comprehensive income 475,351
--------- ---------- ------------ ------- --------- -----------
Balances at June 30, 1999 10 - 22,710,161 - (269,083) 22,441,088
Net proceeds from stock offering 127,490 2,857,154 - - - 2,984,644
Sale of ESOP Stock - - - (285,600) - (285,600)
Payment on ESOP Stock note - - - 28,560 - 28,560
Release of ESOP Stock - - 1,788 - - 1,788
Dividends - - (34,486) - - (34,486)
Comprehensive income
Net income - - 828,911 - - 828,911
Other comprehensive income, net of tax:
Change in unrealized loss on securities
available-for-sale, net of deferred
income taxes of $100,393 - - - - (150,585) (150,585)
-----------
Total comprehensive income 678,326
--------- ---------- ------------ -------- --------- -----------
Balances at June 30, 2000 $ 127,500 $2,857,154 $ 23,506,374 (257,040) $(419,668) $25,814,320
========= ========== ============ ======== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 828,911 $ 678,484
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 361,602 346,224
Net amortization of premiums and discounts
on securities 17,552 15,842
(Gain) loss on sales of other real estate owned 2,222 10,429
Deferred income taxes (26,942) -
Gain on sales of premises and equipment (29,109) -
Decrease in provision for loan losses (50,000) -
(Increase) decrease in accrued interest 43,269 (188,076)
(Increase) decrease in other assets (27,954) (858)
Increase (decrease) in accrued interest and other liabilities (23,980) (260,709)
Increase (decrease) in income taxes payable 20,163 -
--------------- ---------------
Net cash provided by operating activities 1,115,734 601,336
Cash flows from investing activities:
Proceeds from maturities of securities available-for-sale 2,919,450 29,783,020
Proceeds from maturities of securities
held-to-maturity 109,668 949,002
Purchases of securities available-for-sale - (18,342,278)
Purchases of securities held-to-maturity - (399,299)
Purchases of FHLB stock (103,300) (72,200)
Net increase in loans (782,566) (6,183,909)
Proceeds from sales of premises and equipment 63,947 -
Purchases of premises and equipment (142,762) (447,204)
Net proceeds from sales of real estate owned (54,693) 14,571
--------------- ----------------
Net cash provided by (used in) investing activities 2,009,744 5,301,703
Cash flows from financing activities:
Net increase (decrease) in deposits (6,161,910) (4,198,896)
Net increase (decrease) in advances by borrowers for taxes
and insurance 29,051 24,825
Payments on note payable - (150,500)
Payments on advances from Federal Home Loan Bank (5,000,000) -
Cash dividends paid on common stock (34,486) (100,000)
Proceeds from stock offering 2,984,644 -
Release of ESOP shares 1,788 -
Unearned ESOP shares (285,600) -
Payments on unearned ESOP shares 28,560 -
--------------- ---------------
Net cash provided by (used in) financing activities (8,437,953) (4,424,571)
--------------- ----------------
</TABLE>
5
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
YEARS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<S> <C> <C>
Net increase in cash and cash equivalents (5,312,475) 1,478,468
Cash and equivalents, beginning of year 8,471,573 6,993,105
--------------- ---------------
Cash and equivalents, end of year $ 3,159,098 8,471,573
=============== ===============
Noncash investing and financing activities
Transfers of loans to real estate owned $ 143,665 $ 140,804
Supplemental disclosures of cash flow information
Income taxes paid $ 359,000 $ 278,000
Interest expense 6,667,330 7,272,584
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Alamogordo Financial Corporation is a stock holding company that owns
100% of Alamogordo Federal Savings and Loan Association (the
Association). The Association is a federally chartered stock savings
association and has a wholly owned subsidiary, Space Age City Service
Corporation. Space Age City Service Corporation was organized to hold,
purchase and sell real estate assets. Alamogordo Financial Corporation
was incorporated on April 30, 1997 and is a wholly owned subsidiary of
AF Mutual Holding Company.
The Company provides a variety of banking services to individuals and
businesses through their location in Alamogordo, New Mexico. Their
primary deposit products are demand deposits, certificates of deposit,
NOW and money market accounts. Their primary lending products are real
estate mortgages and commercial loans. The Company is subject to
competition from other financial institutions and to regulation by
certain federal agencies and undergoes periodic examinations by these
regulatory authorities.
Over 75% of the Company's loans are secured by real estate in Otero
County, New Mexico. Otero County's economy is heavily dependent on two
U.S. Government military installations located in the county.
Accordingly, the ultimate collectibility of the Company's loan
portfolio is susceptible to changes in market conditions in southern
New Mexico. In addition, the Company's investment portfolio is
directly impacted by fluctuations in market interest rates.
Rising and falling interest rate environments can have various impacts
on an association's net interest income, depending on the short term
interest rate gap that an association maintains, the relative changes
in interest rates that occur when an association's various assets and
liabilities reprice, unscheduled repayments of loans, early
withdrawals of deposits, and other factors.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany accounts and
transactions have been eliminated.
7
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES, Continued
BASIS OF FINANCIAL STATEMENT PRESENTATION
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from these estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on
loans and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the
determination of the allowances for losses on loans and foreclosed
real estate, management obtains independent appraisals for significant
properties.
CASH AND CASH EQUIVALENTS
For the purpose of reporting cash flows, the Company defines cash and
cash equivalents as cash on hand and investments in certificates of
deposits with original maturities of three months or less. Included in
cash and cash equivalents are interest bearing deposits with the
Federal Home Savings Bank of $807,798 and $4,303,229 at June 30, 2000
and 1999, respectively.
SECURITIES
The Company's investments in securities are classified in two
categories and accounted for as follows:
Securities Held-to Maturity: Bonds, notes and debentures for
---------------------------
which the Company has the positive intent and ability to hold to
maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts which are recognized in
interest income using the interest method over the period to
maturity.
8
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES, Continued
SECURITIES, continued
Securities Available-for-Sale: Securities available-for-sale
-----------------------------
consist of bonds, notes, debentures, and certain equity
securities not classified as securities to be held to maturity.
These securities are carried at estimated fair value. Discounts
and premiums are accreted or amortized using the interest method.
Unrealized holding gains and losses, net of tax, on securities
available for sale are reported as a net amount in a separate
component of equity until realized. Gains and losses on the sale of
securities available for sale are determined using the specific
identification method.
LOANS
Loans are stated net of loan participations sold, the allowance for
loan losses and deferred loan fees, net of deferred loan costs.
Interest on other loans is accrued based on the principal amounts
outstanding. Unearned interest on home improvement loans is amortized
into income by the interest method. The Company discontinues accruing
interest on loans when the loans become ninety days past due and when
management believes that the borrower's financial condition is such
that collection of interest is doubtful.
Because some loans may not be repaid in full, an allowance for loan
losses is maintained. Increases to the allowance are recorded by a
provision for loan losses charged to expense. Estimating the risk of
loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the valuation allowance is maintained at levels
considered adequate to cover losses based on delinquencies, property
appraisals, past loss experience, general economic conditions,
information about specific borrower situations including their
financial position, and other factors and estimates which are subject
to change over time. While management may periodically allocate
portions of the allowance for specific problem loan situations,
including impaired loans discussed below, the whole allowance is
available for any charge-offs that occur.
Loans considered to be impaired are reduced to the present value of
expected future cash flows or to the fair value of collateral, by
allocating a portion of the allowance for loan losses to such loans.
If these allocations cause the allowance for loan losses to require
increase, such increase is reported as a provision for loan losses.
9
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES, Continued
Smaller balance homogenous loans are defined as residential first
mortgage loans secured by one-to-four-family residences, residential
construction loans, and share loans and are evaluated collectively for
impairment. Commercial real estate loans are evaluated individually
for impairment. Normal loan evaluation procedures, as described in the
second preceding paragraph, are used to identify loans which must be
evaluated for impairment. Depending on the relative size of the credit
relationship, late or insufficient payments of 30 to 90 days will
cause management to reevaluate the credit under its normal loan
evaluation procedures. While the factors which identify a credit for
consideration for measurement of impairment or nonaccrual are similar,
the measurement considerations differ. A loan is impaired when
management believes it is probable they will be unable to collect all
amounts due according to the contractual terms of the loan agreement.
A loan is placed on nonaccrual when payments are more than 90 days
past due unless the loan is adequately collateralized and in the
process of collection.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation and amortization are
computed using the straight line method in amounts sufficient to
relate the cost of depreciable assets to operations over the estimated
useful lives of the assets which range from three to seven years for
equipment and fifteen to forty years for leasehold improvements and
buildings. Maintenance and repairs that do not extend the useful lives
of premises and equipment are charged to expense as incurred.
REAL ESTATE OWNED
Real estate properties acquired through, or in lieu of, loan
foreclosures are initially recorded at the lower of cost or fair
value, less estimated selling expenses, at the date of foreclosure.
Costs relating to improvement of property are capitalized, whereas
cost relating to the holding of property is expensed.
10
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES, Continued
INCOME TAXES
The Company records income tax expense based on the amount of taxes
due on its tax return, plus deferred taxes computed based on the
expected future tax consequences of temporary differences between the
carrying amounts and tax bases of assets and liabilities, using
enacted tax rates. A valuation allowance has been recorded to reduce
deferred tax assets to the amount expected to be realized.
LOAN ORIGINATION FEES AND COSTS
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield over the
contractual life of the related loan.
COMPREHENSIVE INCOME
Comprehensive income consists of net income and unrealized gains and
losses on securities available for sale.
RECLASSIFICATIONS
Some items in these financial statements have been reclassified for
comparability.
11
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 2 SECURITIES
The amortized cost and fair value were as follows:
<TABLE>
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Fair
June 30, 2000: Value Gains Losses Value
------------- -------------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S.Government agencies $ 13,498,793 $ - $ (580,980) $ 12,917,813
Mortgage-backed
securities
FHLMC 843,136 - (41,572) 801,564
GNMA 519,686 - (13,279) 506,407
FNMA 1,306,166 - (63,617) 1,242,549
-------------- ----------- ---------- ------------
$ 16,167,781 $ 5,493 $ (699,448) $ 15,468,333
============== =========== ========== ============
Securities held-to-maturity
Mortgage-backed
securities $ 211,484 - (3,160) $ 208,324
FHLMC
Securities issued by states
and political subdivisions 1,625,770 200 (11,965) 1,614,005
-------------- ----------- ---------- ------------
$ 1,837,254 $ 200 $ (15,125) $ 1,822,329
============== =========== ========== ============
<CAPTION>
Gross Gross
Carrying Unrealized Unrealized Fair
June 30, 1999: Value Gains Losses Value
-------------- -------------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Securities available-for-sale
U.S.Government agencies $ 14,249,715 $ - $ (334,011) $ 13,915,704
Mortgage-backed securities
FHLMC 1,020,535 - (45,722) 974,813
GNMA 631,244 - (4,912) 626,332
FNMA 1,576,754 - (63,822) 1,512,932
-------------- ---------- ---------- ------------
$ 17,478,248 $ - $ (448,467) $ 17,029,781
============== ========== ========== ============
Securities held-to-maturity
U.S.Government agencies $ 406,797 $ - $ (21) $ 406,776
Mortgage-backed securities
FHLMC 318,896 202 - 319,098
Securities issued by states
and political subdivisions 2,747,368 4,588 (251) 2,751,705
-------------- ---------- ---------- ------------
$ 3,473,061 $ 4,790 $ (272) $ 3,477,579
============== ========== ========== ============
</TABLE>
12
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 2 SECURITIES, Continued
Securities issued by states and political subdivisions are secured by
tax revenues (either property tax or gross receipts tax) assessed and
collected by such entities.
Securities, carried at approximately $3,350,000 and $3,800,000 at June
30, 2000 and 1999, respectively, were pledged to secure public
deposits. The public depositors include the local school and Otero
County.
At June 30, 2000 and 1999, there were no realized gains or losses on
sales of securities available-for-sale.
Amortized cost and fair value of debt securities by contractual
maturity are shown below. Expected maturities may differ from
contractual maturities because borrowers may call or prepay
obligations.
June 30, 2000
-------------
Carrying Fair
Value Value
------------- -------------
Due in one year or less $ 450,081 $ 450,120
Due in one year to five years 14,093,502 14,081,698
Mortgage-backed securities 2,762,004 2,758,844
------------- -------------
$ 17,305,587 $ 17,290,662
============= =============
13
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 3 LOANS AND THE ALLOWANCE FOR LOAN LOSSES
Loans reflected in the balance sheets consist of the following:
<TABLE>
<CAPTION>
June 30
2000 1999
---------------- ----------------
<S> <C> <C>
Mortgage Loans
One-to-four family $ 104,587,499 $ 106,285,878
Construction 259,556 807,148
Land 530,782 42,583
Multi-family and
nonresidential 7,410,258 8,109,055
---------------- ----------------
Total first mortgage loans 112,788,095 115,244,664
Consumer & other loans
Second mortgage 1,830,181 1,325,598
Consumer 1,347,353 1,270,507
Commercial 1,362,263 510,991
Deposit account 1,693,119 1,436,093
---------------- ----------------
Total non-mortgage loans 6,232,916 4,543,189
---------------- ----------------
Gross Loans 119,021,011 119,787,853
Less
Deferred loan fees &
discounts (527,828) (540,735)
Loans in process (1,291,502) (2,825,145)
Allowance for loan loss (419,695) (472,553)
---------------- ----------------
Net loans $ 116,781,986 $ 115,949,420
================ ================
</TABLE>
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
June 30
2000 1999
---------------- ----------------
<S> <C> <C>
Balance at beginning of year $ 472,553 $ 485,738
Provision (credit) for loan losses (50,000) -
Loans charged off, net of
recoveries (2,858) (13,185)
---------------- ----------------
Balance at end of year $ 419,695 $ 472,553
================ ================
</TABLE>
Certain loans within the Company's loan and real estate owned
portfolios are guaranteed by the Veterans Administration (VA). In the
event of default by the borrower, the VA can elect to pay the
guaranteed amount or take possession of the property. If the VA takes
possession of the property, the Company is entitled to be reimbursed
for the outstanding principal balance, accrued interest and certain
other expenses. There were no commitments from the VA to take title to
foreclosed VA
14
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 3 LOANS AND THE ALLOWANCE FOR LOAN LOSSES, Continued
properties at June 30, 2000. There was one commitment from the VA to
take title to foreclosed VA properties at June 30, 1999 in the amount
of $45,000
Included in net loans were loans on nonaccrual status. Such loans
approximated $714,000 and $532,000 at June 30, 2000 and 1999,
respectively. For the years ended June 30, 2000 and 1999, gross
interest income which would have been recorded had the non accruing
loans been current in accordance with their original terms amounted to
$46,600 and $34,000, respectively. No amounts were included in
interest income on such loans for the years ended June 30, 2000 and
1999, respectively.
As of or for the periods ended June 30, 2000 and 1999, there were no
loans considered to be impaired.
NOTE 4 PREMISES AND EQUIPMENT
Premises and equipment reflected in the balance sheets consist of the
following:
<TABLE>
<CAPTION>
June 30
2000 1999
------------ ------------
<S> <C> <C>
Land $ 895,330 $ 921,710
Buildings 7,464,195 7,434,813
Leasehold improvements 210,036 192,553
Furniture and equipment 1,157,502 1,071,182
------------ ------------
9,727,063 9,620,258
Less
Accumulated depreciation (1,235,537) (875,054)
------------ ------------
Balance at end of year $ 8,491,526 $ 8,745,204
============ ============
</TABLE>
15
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 5 DEPOSITS
Deposits include non-interest-bearing accounts of $1,999,825 and
$1,466,547 at June 30, 2000 and 1999, respectively.
Certificates of deposit are scheduled to mature as follows:
One year or less $ 48,449,357
Over one year to two years 19,175,204
Over two years to three years 18,156,013
Over three years 11,693,655
---------------
$ 97,474,229
===============
Interest expense by major category of deposits is as follows (dollars
in thousands):
June 30
---------------------------
2000 1999
----------- -----------
Transaction & saving deposits $ 446,064 $ 429,925
Certificate accounts 5,737,826 6,353,788
----------- -----------
$ 6,183,890 $ 6,783,713
=========== ===========
Deposits of $100,000 or more totaled $26,104,000 and $24,237,000 at
June 30, 2000 and 1999, respectively. Deposits greater than $100,000
are not federally insured. The Company held deposits of approximately
$2,120,000 and $2,063,000 for related parties at June 30, 2000 and
1999, respectively. The related parties consist of officers and
directors of the Company and are made on the same terms and conditions
as other non-related parties.
NOTE 6 ADVANCES FROM FEDERAL HOME LOAN BANK
The Company has the ability to borrow funds from the Federal Home Loan
Bank of Dallas (FHLB) of up to 50% of total assets. Advances are
secured by a blanket-floating lien on qualifying first mortgage loans.
Advances from FHLB were $5,000,000 and $10,000,000 at June 30, 2000
and 1999, respectively. These advances bear interest at 6.69% and
4.814% and mature on July 31, 2000 and December 31, 2007,
respectively.
16
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 7 EMPLOYEE RETIREMENT BENEFIT PLAN
The Company has established a profit-sharing 401(k) type salary
reduction plan for all employees that meet the necessary eligibility
requirements for participation in the plan. Participants fully vest
after six years of service. Annual contributions are at the discretion
of the Board of Directors of the Company. Contributions to the plan
were made by the Company of $17,152 and $13,950 for the period ended
June 30, 2000 and 1999, respectively.
The Company also participates in a multi-employer defined benefit
pension plan. The pension plan is available to all employees
completing one year of service. Segregated statements of plan assets
or separate actuarial valuations are not available. Total pension
expense was $3,204 and $2,792 for the period ended June 30, 2000 and
1999, respectively.
The Company adopted an employee stock ownership plan (ESOP) effective
January 1, 2000 for all employees meeting certain age and service
requirements. Participants begin vesting after three years of
employment and fully vest after seven years of service. The plan
acquired 28,560 shares of the Company's common stock at $10 per share
during the Company's initial public offering. The Company borrowed
$285,600 from the Association which is payable at $28,560 per year
with interest at 8% through June 30, 2009. The ESOP shares are held in
trust and released to the Plan pro rata as principal payments are
made. On June 30, 2000, the trust allocated 2,856 shares of stock to
participant accounts.
The Company recognized compensation expense of $30,345 for the year
ended June 30, 2000. The unallocated shares are accounted for as a
reduction of stockholders equity and amounted to $257,040 at June 30,
2000.
NOTE 8 CONTINGENT LIABILITIES AND COMMITMENTS
In the normal course of business, various commitments are outstanding,
such as commitments to extend credit. These financial instruments with
off-balance sheet risk are not reflected in the consolidated financial
statements. Management does not anticipate any significant losses as a
result of these transactions. The following summarizes these financial
instruments:
June 30,
2000 1999
----------- -----------
Commitments to extend credit $ 310,000 $ 804,000
Unused line of credit 211,000 43,000
17
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 8 CONTINGENT LIABILITIES AND COMMITMENTS, Continued
Since certain commitments to make loans and fund lines of credit
expire without being used, the amounts do not necessarily represent
future cash commitments. In addition, commitments used to extend
credit are agreements to lend to a customer as long as there is no
violation of any condition established in the contract. The Company's
exposure to credit loss in the event of nonperformance by the other
party to these financial instruments is represented by the contractual
amount of these instruments. The Company follows the same credit
policy to make such commitments as is followed for those loans
recorded on the consolidated balance sheet.
As of June 30, 2000, variable rate and fixed rate commitments to make
loans amounted to approximately $0 and $310,000. The interest rates on
fixed rate commitments ranged from 8.5% to 9.5%. As of June 30, 1999,
variable rate and fixed rate commitments to make loans amounted to
approximately $0 and $804,000. The interest rates on fixed rate
commitments ranged from 7.00% to 9.00.
The Company is required by regulatory authorities to maintain certain
daily cash balances. The Company's reserve requirements were met
through vault cash at June 30, 2000 and 1999.
NOTE 9 INCOME TAXES
The Company and subsidiaries file a consolidated income tax return.
The Company recognizes deferred tax assets and liabilities for future
tax consequences of events that have been previously recognized in the
Company's financial statements or tax returns. The measurement of
deferred tax assets and liabilities is based on provisions of the
currently enacted tax law. The effects of future changes in tax laws
or rates are not anticipated.
The provision for income taxes consists of the following:
June 30
2000 1999
----------- -----------
Current
Federal $ 371,900 $ 303,290
State 16,700 (10,390)
----------- -----------
388,600 292,900
Deferred
Federal 36,956 3,236
State 1,961 163
----------- -----------
38,917 3,399
----------- -----------
$ 427,517 $ 296,299
=========== ===========
Effective Tax Rate 34% 30%
=========== ===========
18
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 9 INCOME TAXES, Continued
The income tax differs from the amounts computed by applying the
statutory federal income tax rate of 34% to income before income taxes
as follows:
<TABLE>
<CAPTION>
June 30
2000 1999
------------ -----------
<S> <C> <C>
Expense at statutory rate $ 427,186 $ 331,426
State income taxes, net of federal tax benefit 11,022 (6,898)
Nontaxable municipal Interest income (21,921) (32,462)
Other, net 11,230 4,233
------------ -----------
$ 427,517 $ 296,299
============ ===========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
June 30
2000 1999
------------- ------------
<S> <C> <C>
Deferred tax assets
Unrealized loss on available for sale
securities $ 279,779 $ 179,384
Other than temporary loss on investment in
mutual fund 291,885 291,885
Bad debt reserve 148,831 110,560
Reorganization expenses 8,128 8,128
Non accrual loan interest 18,629 13,567
------------- ------------
Total gross deferred tax assets 747,252 603,524
Less valuation allowance (291,885) (291,885)
------------- ------------
Total deferred tax assets 455,367 311,639
Deferred tax liabilities
FHLB stock dividends 295,038 253,715
Loan origination costs 62,023 65,468
Book/tax depreciation 71,364 61,806
------------- ------------
Total deferred tax liabilities $ 428,425 $ 380,989
------------- ------------
------------- ------------
Net deferred tax assets (liabilities) 26,942 (69,350)
============= ============
</TABLE>
19
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 9 INCOME TAXES, Continued
A valuation allowance was established at June 30, 1996 for the portion
of the deferred tax asset created by the other than temporary loss on
investment securities in a mutual fund. Management believes that a tax
benefit will not be realized.
Equity of the Association at June 30, 2000 and 1999 includes
approximately $2,700,000 of bad debt deductions for tax years prior to
1987 for which no deferred federal income tax liability has been
recorded. Tax legislation passed in August 1996 now requires all
thrift institutions to deduct a provision for bad debts for tax
purposes based on the actual loss experience and recapture the excess
bad debt reserve accumulated in the tax years after 1987.
NOTE 10 CONCENTRATIONS OF CREDIT
All of the Company's loans, commitments, and standby letters of credit
have been granted to customers in the Company's market area.
Investments in state and municipal securities also involve
governmental entities within the Company's market area. The
concentrations of credit by type of loan are set forth in Note 3. The
distribution of commitments to extend credit approximates the
distribution of loans outstanding. Standby letters of credit were
granted primarily to commercial borrowers.
NOTE 11 REGULATORY CAPITAL
The Association is subject to various regulatory capital requirements
administered by the federal thrift agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
discretionary, actions by regulators that, if undertaken, could have a
direct material effect on the Association's financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Association must meet specific capital
guidelines that involve quantitative measures of the Association's
assets, liabilities, and certain off balance sheet items as calculated
under regulatory accounting practices. The Association's capital
amounts and classification are also subject to qualitative judgements
by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Association to maintain minimum amounts and
ratios (set forth below) of total and Tier I capital (as defined in
the regulations) to risk weighted assets (as defined)
20
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 11 REGULATORY CAPITAL, Continued
and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of June 30, 2000 and June 30, 1999, that the
Association meets all capital adequacy requirements to which it is
subject.
As of June 30, 2000, the most recent notification from the Office of
Thrift Supervision categorized the Association as well capitalized
under the regulatory framework for prompt corrective action. There are
no conditions or events since that notification that management
believes have changed the Association's category.
The following is a reconciliation of the Association's equity under
generally accepted accounting principles (GAAP) to regulatory capital:
<TABLE>
<CAPTION>
June 30
2000 1999
------------ ------------
<S> <C> <C>
GAAP equity $ 23,677,361 $ 22,417,935
Investment in subsidiary (299,246) -
Unrealized loss on securities available for sale 419,668 269,083
------------ ------------
Tier 1 (Core) capital 23,797,783 22,687,018
Equity investment in subsidiary (40,686) -
General allowance for loan losses 419,695 472,553
------------ ------------
Total Risk Based Capital $ 24,176,792 $ 23,159,571
============ ============
</TABLE>
The Association's OTS capital ratios were (dollars in thousands):
<TABLE>
<CAPTION>
Requirements to be well
Requirements to be capitalized under
Adequately prompt corrective
Actual Capitalized action provisions
------------------------ ------------------------- -------------------------
Amount Percentage Amount Percentage Amount Percentage
---------- ------------ ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 2000
-------------
Core capital $ 23,798 16.0% $ 3,350 3.0% $ 7,444 5.0%
Tier 1 (Core) capital 23,798 16.0% 3,350 3.0% 7,444 6.0%
Total Risk-based
capital 24,177 32.5% 5,950 8.0% 7,438 10.0%
June 30, 1999
-------------
Core capital $ 22,687 14.5% $ 6,264 4.0% $ 7,808 5.0%
Tier 1 (Core) capital 22,687 14.5% 6,264 4.0% 9,369 6.0%
Total Risk-based
capital 23,160 31.0% 5,968 8.0% 15,616 10.0%
</TABLE>
21
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 12 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about
---------------------------------------------------
Fair Value of Financial Instruments (FAS 107) requires that the
Company disclose estimated fair values for its financial instruments.
Fair value estimates, methods and assumptions are set forth below for
the Company's financial instruments.
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short
maturity of these instruments.
Securities
The fair value of securities is estimated based on market values
received from a securities broker.
Loans
The fair value of one to four family fixed and adjustable rate
mortgages is calculated by using the option based pricing approach
that makes use of the Monte Carlo simulation. The Monte Carlo model
uses an interest rate simulation program to generate numerous random
interest rate paths that, in conjunction with a prepayment model, are
used to estimate mortgage cash flows along each path.
The fair value of other loans in the portfolio is calculated by using
the static discounted cash flow approach. Under the static discounted
cash flow approach, the economic value of a financial instrument is
estimated by calculating the present value of the instrument's
expected cash flows. The present value is determined by discounting
the cash flows the instrument is expected to generate by the yield
currently available to investors from an instrument of comparable risk
and duration.
Deposits
The fair value of deposits with no stated maturity, such as
noninterest bearing demand deposits, NOW accounts, money market demand
and savings accounts, is equal to the amount payable on demand. The
fair value of certificate accounts is based on the static discounted
cash flow approach. The discount rate is estimated using the rates
currently offered for deposits of similar remaining maturities.
22
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 12 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
Note Payable
The fair value of the note payable is based on the static discounted
cash flow approach. The discount rate used is the rate currently
available to investors from an instrument of comparable risk and
duration.
Off Balance Sheet Financial Instruments
The fair value of financial instruments with off balance sheet risk is
based on the credit quality and relationship, probability of funding
and other requirements. Fair values of off balance sheet financial
instruments are not material to the consolidated financial statements.
Limitations
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount
that could result from offering for sale at one time the Company's
entire holdings of a particular financial instrument. Because no
market exists for a significant portion of the Company's financial
instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors.
These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined
with precision. Changes in assumptions could significantly affect the
estimates.
Fair value estimates are based on existing on and off balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. For example,
significant assets that are not considered financial instruments
include premises and equipment. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have
a significant effect on fair value estimates and have not been
considered in any of the estimates.
23
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 2000 AND 1999
NOTE 12 DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, Continued
The estimated fair values of the Company's financial instruments are
as follows:
<TABLE>
<CAPTION>
June 30, 2000 June 30, 1999
------------- -------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash
Equivalents $ 3,159,098 3,159,098 $ 8,471,573 $ 8,471,573
Securities 17,305,587 17,290,662 20,502,842 20,507,360
Loans 116,781,986 113,918,677 115,949,420 115,851,926
Accrued interest 911,749 911,749 955,018 955,018
Financial Liabilities
Deposits 116,298,212 116,298,237 122,468,333 122,334,527
Advance payments by
borrowers for taxes and
insurance 1,035,321 1,034,118 1,006,270 1,005,238
Accrued interest 77,340 77,340 76,988 76,988
Advances from FHLB 5,000,000 5,000,000 10,000,000 9,985,000
Off balance sheet
instruments
</TABLE>
NOTE 13 NET INCOME AND DIVIDENDS PER SHARE
The Company completed a public stock offering on May 16, 2000, issuing
an additional 1,274,900 shares of its $.10 par value common stock. Net
income per share of $.665 is calculated based on the net income for
the year ended June 30, 2000 divided by the shares outstanding at June
30, 2000 of 1,246,440 (1,275,000 less 28,560 shares held in trust for
the ESOP Plan).
Cash dividends per share of $.105 were paid on common stock
outstanding at June 30, 2000 of 357,000 shares. Cash dividends were
not paid on the shares held by AF Mutual Holding Company, which waived
its dividends.
Earnings per share and dividends per share have not been calculated
for the year ended June 30, 1999 because the presentation would not be
meaningful.
24
<PAGE>
SUPPLEMENTARY INFORMATION
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATION BALANCE SHEET
JUNE 30, 2000
<TABLE>
<CAPTION>
Alamogordo
Federal
Savings Space Alamogordo
and Loan Age City Consolidated Financial Consolidated
Association Corporation Eliminations Balance Corporation Eliminations Balance
----------- ----------- ------------ ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalent $ 3,159,098 $ 110,419 $ (110,419) $ 3,159,098 $ 1,886,763 $ (1,886,763) $ 3,159,098
Investment securities
Held to maturity 15,468,333 - - 15,468,333 - - 15,468,333
Available for sale 1,837,254 - - 1,837,254 - - 1,837,254
------------ ----------- ------------ ------------ ----------- ------------ ------------
Total investment securities 17,305,587 - - 17,305,587 - - 17,305,587
Loans, net 116,781,986 - - 116,781,986 - - 116,781,986
Real estate owned, net 52,471 - - 52,471 - - 52,471
Premises and equipment, net 8,302,909 188,617 - 8,491,526 - - 8,491,526
Stock in Federal Home Loan Bank,
at cost 1,435,400 - - 1,435,400 - - 1,435,400
Investment in affiliate 181,686 - (181,686) - 23,677,361 (23,677,361) -
Accrued interest 911,749 - - 911,749 - - 911,749
Note receivable from affiliate 117,227 - (117,227) - 257,040 (257,040) -
Federal income taxes refundable - 932 (932) - - - -
Deferred income taxes 26,942 - - 26,942 - - 26,942
Other assets 197,949 278 - 198,227 31,502 - 229,729
------------ ----------- ------------ ------------ ----------- ------------ ------------
TOTAL ASSETS $148,473,004 $ 300,246 $ (410,264) $148,362,986 $25,852,666 $(25,821,164) $148,394,488
============ =========== ============ ============ =========== ============ ============
LIABILITIES AND RETAINED
EARNINGS
LIABILITIES
Deposits $118,295,394 $ - $ (110,419) $118,184,975 $ - $ (1,886,763) $116,298,212
Advance payments by borrowers
for taxes and insurance 1,035,321 - - 1,035,321 - - 1,035,321
Accrued interest and other
liabilities 191,584 6,500 (6,159) 191,985 34,487 - 226,472
Advances from Federal Home
Loan Bank 5,000,000 - - 5,000,000 - - 5,000,000
Note payable 275,040 112,000 (112,000) 257,040 - (257,040) -
Income tax payable 16,304 - - 16,304 3,859 - -
Minority interest in Alamogordo
Financial Corporation - - - - - - -
------------ ----------- ------------ ------------ ------------ ------------ ------------
Total Liabilities 124,795,643 118,560 (228,578) 124,685,625 38,346 (2,143,803) 122,580,168
RETAINED EARNINGS
Common stock 100 29,000 (29,000) 100 127,500 100 127,500
Additional paid in capital 1,494,107 112,000 (112,000) 1,494,107 2,857,154 1,494,107 2,857,154
Retained earnings 22,859,862 40,686 (40,686) 22,859,862 23,086,706 (22,440,194 23,506,374
Unearned ESOP Shares (257,040) - - (257,040) (257,040) (257,040) (257,040)
Accumulated other comprehensive
income, net of tax of
$(179,387) (419,668) - - (419,668) - - (419,668)
------------ ----------- ------------ ------------ ------------ ------------ ------------
Total Retained Earnings 23,677,361 181,686 (181,686) 23,677,361 25,814,320 (23,677,361) 25,814,320
------------ ----------- ------------ ------------ ------------ ------------ ------------
TOTAL LIABILITIES AND
RETAINED EARNINGS $148,473,000 $ 300,246 $ (410,264) $148,362,986 $ 25,852,666 $(25,821,164) $148,394,488
============ =========== ============ ============ ============ ============ ============
</TABLE>
See accompanying report of independent certified public accountants.
26
<PAGE>
ALAMOGORDO FINANCIAL CORPORATION
CONSOLIDATING STATEMENT OF INCOME
YEAR ENDED JUNE 30, 2000
<TABLE>
<CAPTION>
Alamogordo
Federal
Savings Space Alamogordo
and Loan Age City Consolidated Financial
Association Corporation Eliminations Balance Corporation
----------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 9,106,381 $ - $ - $ 9,106,381 $ -
Interest on securities 947,500 - - 947,500 -
Interest on mortgage-backed securities 170,416 - - 170,416 -
Other 351,138 5,977 (14,937) 342,178 15,340
----------- ----------- ------------ ------------- -----------
Total interest income 10,575,435 5,977 (14,937) 10,566,475 15,340
Interest expense
Interest on deposits 6,202,265 - (5,977) 6,196,288 -
Interest on FHLB and other borrowings 486,734 8,960 (8,960) 486,734 -
----------- ----------- ------------ ------------- -----------
Total interest expense 6,688,999 8,960 (14,937) 6,683,022 -
----------- ----------- ------------ ------------- -----------
Net interest income 3,886,436 (2,983) - 3,883,453 15,340
Provision (credit) for loan losses (50,000) - - (50,000) -
----------- ----------- ------------ ------------- -----------
Net interest income after provision
for loan losses 3,936,436 (2,983) - 3,933,453 15,340
Other Income (loss)
Service charges and fees 223,704 - - 223,704 -
Gain (loss) on sale of real estate owned (2,222) - - (2,222) -
Gain on sale of premises and equipment - 29,109 - 29,109 -
Other 151,832 8,680 (27,419) 133,093 822,941
----------- ----------- ------------ ------------- -----------
Total other income 373,314 37,789 (27,419) 383,684 822,941
----------- ----------- ------------ ------------- -----------
Other expenses
Salaries and benefits 1,360,344 3,600 - 1,363,944 -
Occupancy 685,146 3,354 - 688,500 -
Data processing fees 266,060 - - 266,060 -
Federal insurance premiums and other insurance 91,690 - - 91,690 -
Advertising 90,741 - - 90,741 -
Other 568,161 1,413 - 569,574 5,540
----------- ----------- ------------ ------------- -----------
Total other expenses 3,062,142 8,367 - 3,070,628 5,540
----------- ----------- ------------ ------------- -----------
Income before income taxes 1,247,608 26,439 (27,419) 1,246,628 832,741
Provision for Income taxes 424,667 (980) - 423,687 3,830
----------- ----------- ------------ ------------- -----------
Net income $ 822,941 $ 27,419 $ (27,419) $ 822,941 $ 828,911
=========== =========== ============ ============= ===========
<CAPTION>
Consolidated
Eliminations Balance
------------ ------------
<S> <C> <C>
Interest Income
Interest and fees on loans $ - $ 9,106,381
Interest on securities - 947,500
Interest on mortgage-backed securities - 170,416
Other (15,340) 342,178
------------ ------------
Total interest income (15,340) 10,566,475
Interest expense
Interest on deposits (12,398) 6,183,890
Interest on FHLB and other borrowings (2,942) 483,792
------------ ------------
Total interest expense (15,340) 6,667,682
------------ ------------
Net interest income - 3,898,793
Provision (credit) for loan losses - (50,000)
------------ ------------
Net interest income after provision
for loan losses - 3,948,793
Other Income (loss)
Service charges and fees - 223,704
Gain (loss) on sale of real estate owned - (2,222)
Gain on sale of premises and equipment - 29,109
Other (822,941) 133,093
------------ ------------
Total other income (822,941) 383,684
------------ ------------
Other expenses
Salaries and benefits - 1,363,944
Occupancy - 688,500
Data processing fees - 266,060
Federal insurance premiums and other insurance - 91,690
Advertising - 90,741
Other - 575,114
------------ ------------
Total other expenses - 3,076,049
------------ ------------
Income before income taxes (822,941) 1,256,428
Provision for Income taxes - 427,517
------------ ------------
Net income $ (822,941) $ 828,911
============ ============
</TABLE>
See accompanying report of independent certified public accountants.
27
<PAGE>
COMMON STOCK INFORMATION
The common stock of Alamogordo Financial Corporation is traded on the over-the-
counter market with quotations available through the OTC Bulletin Board under
the symbol "ALMG". At June 30, 2000, Alamogordo Financial Corporation had
1,275,000 shares outstanding of which 357,000 shares were held by persons other
than our mutual holding company parent. On June 30, 2000, we had approximately
148 shareholders of record. From May 16, 2000, the date we went public, until
June 30, 2000, our high price per share was $10.625, our low price per share was
$10.00, and we declared dividends of $.105 per share.
<PAGE>
CORPORATE INFORMATION
Alamogordo Financial Corp.
DIRECTORS
Robert W. Hamilton S. Thomas Overstreet
Chairman Vice Chairman
Alamogordo Financial Corporation Alamogordo Financial Corporation
Retired Owner Attorney at Law
Hamilton Funeral Home Overstreet and Associates, P.C.
Earl E. Wallin Jimmie D. Randall
Retired President Retired Owner
Alamogordo Federal Savings and Loan Sacramento Motors
R. Miles Ledgerwood
President
Alamogordo Financial Corporation
OFFICERS
R. Miles Ledgerwood
President
Julia A. Eggleston
Vice President, Secretary
Norma J. Clute
Chief Financial Officer, Treasurer
EXECUTIVE OFFICES
Alamogordo Federal Savings & Loan Association
2/nd/ Floor
500 Tenth Street
Alamogordo, New Mexico 88310
(505) 437-9334
BANKING OFFICES
Main Office Branch Office
500 Tenth Street 233 S. New York
Alamogordo, New Mexico 88310 Alamogordo, New Mexico 88310
<PAGE>
CORPORATE INFORMATION
Alamogordo Financial Corp.
TRANSFER AGENT
Computershare
P. O. Box 1596
Denver, Colorado 80201-1596
STOCKHOLDER RELATIONS
Norma J. Clute
Chief Financial Officer & Treasurer
Alamogordo Federal Savings and Loan Association
500 Tenth Street
Alamogordo, New Mexico 88310
(505) 437-9334
AUDITORS
The Accounting & Consulting Group, L.L.P.
P. O. Box 898
Alamogordo, New Mexico 88311-9984
COUNSEL 10-KSB AVAILABILITY
Overstreet & Associates, P.C. Copies of the Alamogordo Financial Corp.
1011 New York Avenue Form 10-KSB for the year ended June 30, 2000
Alamogordo, New Mexico 88310 are available free of charge to stockholders
upon written request to:
Luse Lehman Gorman Pomerenk
& Schick, P.C.
5335 Wisconsin Avenue, N.W. Alamogordo Federal Savings & Loan Assoc.
Suite 400 500 Tenth Street
Washington, D. C. 20015 Alamogordo, New Mexico 88310
Attn: Norma J. Clute
