SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-23182
AMB FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 35-1903582
(State or other jurisdiction I.R.S. Employer
of incorporation or Identification
organization) Number
8230 HOHMAN AVENUE, MUNSTER, INDIANA 46321-1578
(Address of Principal executive offices) (Zip Code)
Registrant telephone number, including area code: (219) 836-5870
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of July 29, 1996 there were 1,124,125 shares of the Registrant's
common stock issued and outstanding.
Transitional Small Business Disclosure Format(check one): Yes No X
--- ---
1
AMB FINANCIAL CORP.
FORM 10-Q
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
June 30, 1996 (Unaudited) and December 31, 1995 4
Consolidated Statements of Earnings for the three
and six months ended June 30, 1996 and 1995
(unaudited) 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 1996 and 1995
(unaudited) 6
Notes to Unaudited Consolidated Financial
Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Part II. OTHER INFORMATION 15
Signatures 16
Index to Exhibits 17
Earnings Per Share Analysis(Exhibit 11) 18
2
PART I - FINANCIAL INFORMATION
3
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, December 31,
1996 1995
---- ----
unaudited
ASSETS
Cash and amounts due from depository institutions 1,831,575 3,032,908
Interest-bearing deposits 2,467,100 1,003,909
---------- ----------
Total cash and cash equivalents 4,298,675 4,036,817
Investment securities, available for sale, at market 8,853,022 7,016,697
Mortgage backed securities, available for sale, at market 4,252,430 1,478,841
Loans receivable (net of allowance for loan losses:
$359,010 at June 30, 1996 and
$359,535 at December 31, 1995) 59,170,995 54,638,741
Stock in Federal Home Loan Bank of Indianapolis 545,600 545,600
Accrued interest receivable 475,942 386,633
Office properties and equipment- net 571,735 608,944
Prepaid expenses and other assets 1,239,947 1,075,867
---------- ----------
Total assets 79,408,346 69,788,140
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 59,988,886 59,588,157
Borrowed money 2,000,000 3,000,000
Advance payments by borrowers for taxes and insurance 734,162 324,496
Other liabilities 476,637 561,984
---------- ----------
Total liabilities 63,199,685 63,474,637
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; authorized
100,000 shares; none outstanding - -
Common Stock, $.01 par value; authorized
1,900,000 shares; issued and outstanding
1,124,125 at June 30, 1996 11,241 -
Additional paid- in capital 10,646,866 -
Retained earnings, substantially restricted 6,523,426 6,242,782
Unrealized gain (loss) on securities available for sale,
net of income taxes (73,572) 70,721
Common stock acquired by Employee Stock Ownership
Plan (899,300) -
---------- ----------
Total stockholders' equity 16,208,661 6,313,503
---------- ----------
Total liabilities and stockholders' equity 79,408,346 69,788,140
========== ==========
See accompanying notes to consolidated financial statements.
4
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
------------ ------------ ---------- ----------
1996 1995 1996 1995
---- ---- ---- ----
unaudited unaudited unaudited unaudited
Interest income
Loans 1,198,798 1,125,635 2,344,408 2,249,068
Mortgage-backed securities 63,395 27,024 89,403 54,192
Investment securities 138,641 99,360 249,371 200,446
Interest-bearing deposits 83,974 22,570 123,750 30,160
Dividends on FHLB stock 10,310 10,542 21,162 20,968
--------- --------- --------- ---------
Total interest income 1,495,118 1,285,131 2,828,094 2,554,834
--------- --------- --------- ---------
Interest expense
Deposits 657,419 643,872 1,353,556 1,251,302
Borrowings 42,498 13,025 88,622 14,549
--------- --------- --------- ---------
Total interest expense 699,917 656,897 1,442,178 1,265,851
--------- --------- --------- ---------
Net interest income before
provision for loan losses 795,201 628,234 1,385,916 1,288,983
Provision for loan losses --- 15,830 --- 29,924
--------- --------- --------- ---------
Net interest income after
provision for loan losses 795,201 612,404 1,385,916 1,259,059
--------- --------- --------- ---------
Non-interest income:
Loan fees and service charges 29,797 16,504 49,459 39,530
Commission income 15,339 16,341 41,197 24,941
Deposit related fees 39,029 33,688 80,367 60,468
Other income 16,897 16,140 42,077 43,093
--------- --------- --------- ---------
Total non-interest income 101,062 82,673 213,100 168,032
--------- --------- --------- ---------
Non-interest expense:
Staffing costs 264,278 219,940 521,521 450,750
Advertising 23,939 27,864 44,472 47,592
Occupancy and equipment expense 85,792 79,407 169,371 161,672
Data processing 72,681 56,256 140,661 120,717
Federal deposit insurance premiums 34,155 33,439 67,918 66,878
Other operating expenses 109,216 137,720 219,228 253,773
--------- --------- --------- ---------
Total non-interest expense 590,061 554,626 1,163,171 1,101,382
--------- --------- --------- ---------
Net income before income taxes 306,202 140,451 435,845 325,709
Provision for federal and state income taxes 111,381 55,881 155,201 130,505
--------- --------- --------- ---------
Net income 194,821 84,570 280,644 195,204
========= ========= ========= =========
Pro-forma earnings per share-primary $0.19 n/a $0.27 n/a
Pro-forma earnings per share-fully diluted $0.19 n/a $0.27 n/a
See accompanying notes to consolidated financial statements.
5
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ending Six Months Ending
June 30, June 30,
1996 1995
----------------- -----------------
unaudited unaudited
Cash flows from operating activities:
Net income 280,644 195,204
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 70,585 64,875
Amortization of premiums and accretion of discounts 1,478 644
Increase in deferred compensation 34,650 30,745
Provision for loan losses --- 29,924
Increase (decrease) in deferred income on loans 4,248 (6,521)
Increase in accrued and deferred income taxes 2,962 183,577
Increase in accrued interest receivable (89,309) (582)
Increase (decrease) in accrued interest payable (1,924) 15,435
Other, net (158,864) (167,946)
----------- -----------
Net cash provided by operating activities 144,470 345,355
----------- -----------
Cash flows from investing activities:
Proceeds from maturities of investment securities 1,000,000 500,000
Purchase of investment securities (3,030,232) (22,990)
Proceeds from repayments of mortgage-backed securities 182,715 57,065
Purchase of mortgage-backed securities (3,034,419) ---
Property and equipment expenditures (33,376) (77,386)
Loan disbursements (11,395,000) (7,983,911)
Loan repayments 6,858,498 7,828,171
----------- -----------
Net cash provided by (for) investing activities (9,451,814) 300,949
----------- -----------
Cash flows from financing activities:
Net proceeds from sale of common stock 9,758,807 ---
Deposit receipts 58,685,770 55,359,876
Deposit withdrawals (59,421,458) (56,311,700)
Interest credited to deposits 1,136,417 1,025,091
Proceeds from borrowed money --- 2,000,000
Repayment of borrowed money (1,000,000) (1,000,000)
Increase in advance payments by borrowers
for taxes and insurance 409,666 7,351
----------- -----------
Net cash provided by financing activities 9,569,202 1,080,618
----------- -----------
Net change in cash and cash equivalents 261,858 1,726,922
Cash and cash equivalents at beginning of period 4,036,817 2,914,465
----------- -----------
Cash and cash equivalents at end of period 4,298,675 4,641,387
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest 1,444,102 1,281,286
Income taxes 170,559 51,000
See accompanying notes to consolidated financial statements.
6
AMB FINANCIAL CORP.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. STATEMENT OF INFORMATION FURNISHED
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and Article 10 of
Regulation S-X, and in the opinion of management contains all adjustments
(all of which are normal and recurring in nature) necessary to present fairly
the financial position as of June 30, 1996, the results of operations for the
three and six months ended June 30, 1996 and 1995 and cash flows for the six
months ended June 30, 1996 and 1995. These results have been determined on
the basis of generally accepted accounting principles. 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 disclosures 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 those estimates. The attached consolidated
statements are those of AMB Financial Corp. (the "Holding Company") and its
consolidated subsidiaries American Savings, FSB (the "Bank"); its wholly
owned subsidiary NIFCO, Inc.; and its wholly owned subsidiary Ridge
Management, Inc. The results of operations for the three and six month
periods ended June 30, 1996 are not necessarily indicative of the results to
be expected for the full year.
2. MUTUAL TO STOCK CONVERSION
In December 1995, the Bank's Board of Directors approved a Plan of
Conversion (the "Conversion"), providing for the Bank's conversion from a
federally chartered mutual savings bank to a federally chartered stock
savings bank with the concurrent formation of a holding company. The Holding
Company issued 1,124,125 shares of $.01 par value common stock at $10.00 per
share, for an aggregate purchase price of $11,241,250. The Conversion and
sale of 1,124,125 shares of common stock of the Holding Company was completed
on March 29, 1996. Net proceeds to the Company, after conversion expenses,
totaled approximately $10,658,000.
3. EARNINGS PER SHARE
Pro-forma earnings per share for the three and six month periods ended
June 30, 1996 were determined by dividing net income for the periods by the
weighted average number of both primary and fully diluted shares of common
stock and common stock equivalents outstanding (see Exhibit 11 attached).
Stock options are regarded as common stock equivalents and are therefore
considered in both primary and fully diluted earnings per share calculations.
Common stock equivalents are computed using the treasury stock method.
Earnings per share information for the prior year periods is not meaningful
because the Company was not a public company until March 29, 1996.
4. IMPACT OF NEW ACCOUNTING STANDARDS
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS. Statement of
Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of," is
effective for fiscal years beginning after December 15, 1995. The statement
requires that long-lived assets and certain identifiable intangibles to be
held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. An impairment loss is recognized if the sum of the
expected future cash flows is less than the carrying amount of the asset.
The adoption of SFAS 121in 1996 did not have a material effect on the
Company's consolidated financial position or results of operations.
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS. In May 1995, the FASB issued
Statement of Financial Accounting Standards No. 122 ("SFAS 122"), "Accounting
for Mortgage Servicing Rights." This statement amends Statement of Financial
Accounting Standards No. 65 ("SFAS 65"), "Accounting for Certain Mortgage
Banking Activities," to require that a mortgage banking enterprise recognize
as separate assets rights to service mortgage loans for others, however those
services rights are acquired. SFAS 122 requires that a mortgage banking
enterprise assess its capitalized mortgage servicing rights for impairment
based on the fair value of those rights. SFAS 122 is effective for fiscal
years beginning after December 15, 1995. The adoption of SFAS 122 currently
has no effect on the Company's consolidated financial position or results of
operations since the Bank does not service loans for others.
7
ACCOUNTING FOR STOCK-BASED COMPENSATION. In October, 1995 the FASB
issued Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation." This statement establishes a
value-based method of accounting for stock options which encourages employers
to account for stock compensation awards based on their fair value at the
date the awards are granted. The resulting compensation award would be shown
as an expense on the income statement.
SFAS 123 also permits entities to continue to use the intrinsic value
method, allowing them to continue to apply current accounting requirements,
which generally result in no compensation cost for most fixed stock-option
plans. If the intrinsic value method is retained, SFAS 123 requires
significantly expanded disclosures, including disclosure of the pro forma
amount of net income and earnings per share as if the fair value-based method
were used to account for stock based compensation. SFAS 123 is effective for
fiscal years beginning after December 15, 1995, however, employers will be
required to include in that year's financial statements, information about
options granted in 1995. Management has yet to determine the impact that the
adoption of this accounting standard will have on the Company's consolidated
financial position or results of operations.
EMPLOYER'S ACCOUNTING FOR EMPLOYEE STOCK OWNERSHIP PLANS. The
Accounting Standards Division of the American Institute of Certified Public
Accountants issued Statement of Position 93-6 ("SOP" 93-6) on "Employer's
Accounting of Employee Stock Ownership Plans" ("ESOP") which was effective
for fiscal years beginning January 1, 1995. SOP 93-6, among other things,
changed the measure of compensation recorded by employers from the cost of
ESOP shares to the fair value of ESOP shares. To the extent that fair value
of the ESOP shares, committed to be released directly to compensate
employees, differs from the cost of such shares, compensation expenses and a
related charge or credit to additional paid-in capital would be reflected in
the ESOP sponsor's financial statements. Management has yet to determine the
impact that its accounting treatment of the Company's ESOP shares under SOP
93-6 will have on the Company's consolidated financial position or results of
operations.
The foregoing does not constitute a comprehensive summary of all
material changes or developments affecting the manner in which the Bank keeps
its books and records and performs its financial accounting responsibilities.
It is intended only as a summary of some of the recent pronouncements made
by the FASB which are of particular interest to financial institutions.
5. DISPARITY IN INSURANCE AND SPECIAL ASSESSMENT
Federal law requires that the Federal Deposit Insurance Corporation
("FDIC") maintain the reserve level of each of the Savings Association
Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF") at 1.25% of
insured deposits. Reserves are funded through payments by insured
institutions of insurance premiums. On November 14, 1995, due to the BIF
reaching the required reserve level, the FDIC reduced the insurance premiums
for members of BIF to a range of between 0.00% and 0.27% of deposits, subject
to the statutory requirement that all institutions pay at least $2,000
annually for FDIC insurance, while maintaining the current range of between
0.23% and 0.31% of deposits for members of SAIF. The FDIC is required to set
insurance premiums independently for members of BIF and SAIF.
A disparity in insurance premiums between those required for SAIF
members, such as the Bank, and BIF members could allow BIF members to attract
and retain deposits at a lower effective cost than that of SAIF members. In
the event BIF members in the Bank's market area, as a result of the reduction
in insurance premiums, increase the interest rates paid on deposits, this
could put competitive pressure on the Bank to raise the interest rates paid
on deposits thus increasing its cost of funds and possibly reducing net
interest income. An increase in interest expense would also impair the
Bank's ability to maintain low operating costs. The resultant competitive
disadvantage could result in the Bank losing deposits to BIF members which
have a lower cost of funds and are therefore able to pay higher rates of
interest on deposits. Although the Bank has other sources of funds, these
other sources may have higher costs than those of deposits, resulting in
lower net yields on loans originated using such funds. However, because of
possible regulatory or policy changes, there can be no assurance that upon
SAIF reaching its required reserve level that deposit insurance premiums for
SAIF members will be reduced or, if reduced, to what extent such premiums
will be reduced.
8
Several alternatives to mitigate the effect of the BIF/SAIF insurance
premium disparity are currently under consideration by the U.S. Congress.
One plan that has gained the support of several sponsors would require all
SAIF member institutions, including the Bank, to pay a one-time fee of
approximately 0.80% to 0.90% of insured deposits ($0.80 to $0.90 for every
$100 of deposits) on the amount of deposits held by the member institution to
recapitalize the SAIF. If this proposal is enacted by Congress, the effect
would be to immediately reduce the capital of SAIF-member institutions by the
amount of the fee, and such amount would be immediately charged to earnings,
unless the institutions are permitted to, and chose to, amortize the expense
of the fee over a period of years. If an 80 basis point (0.80%) assessment
was effected, based on deposits as of March 31, 1995 (as proposed), the
Bank's pro rata share would amount to approximately $475,000, before taxes.
If the Bank is required to pay the proposed special assessment, future
deposit insurance premiums may be reduced from 0.23% to as low as 0.00%
(subject to the statutory requirement that all institutions pay at least
$2,000 annually for FDIC insurance). Based upon the Bank's deposits as of
June 30, 1996, the Bank's annual deposit insurance expense would decrease by
approximately $80,000 per year after taxes. Management of the Bank is unable
to predict whether this proposal or any similar proposal will be enacted or
whether ongoing SAIF premiums will be reduced to a level comparable to that
of BIF premiums.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
JUNE 30, 1996 COMPARED TO DECEMBER 31, 1995.
Total assets increased $9.6 million to $79.4 million as of June 30, 1996 from
$69.8 million as of December 31, 1995. This increase of 13.8% was primarily
reflective of the $10.7 million in proceeds generated from the Bank's mutual
to stock conversion at March 29, 1996. Investment securities available for
sale increased by $1.8 million to $8.8 million as of June 30, 1996 from $7.0
million at December 31, 1995 as excess funds were invested in medium term
U.S. Government securities. The Company's mortgage-backed securities
available for sale increased by $2.8 million to $4.3 million as of June 30,
1996 from $1.5 million as of December 31, 1995 due to the purchases of $3.0
million less repayments of $200,000. Loans receivable increased by $4.6
million to $59.2 million at June 30, 1996 from $54.6 million at December 31,
1995 due to loan originations of $11.4 million exceeding repayments of $6.8
million.
Total deposits increased $401,000 to $60.0 million at June 30, 1996 from
$59.6 million at December 31, 1995 primarily due to increases in certificates
of deposit. FHLB advances decreased by $1.0 million as funds from the stock
conversion were used to repay a maturing advance.
Stockholders' equity increased $9.9 million to $16.2 million at June 30, 1996
from $6.3 million at December 31, 1995. This increase was primarily due to
net proceeds from the sale of the Company's stock of $10.7 million less
$899,000 of stock acquired by the ESOP. In addition, the increase was due to
net income for the six months of $281,000 partially offset by a decrease in
net unrealized gains on investments available for sale of $144,000, net of
taxes.
RESULTS OF OPERATIONS
The Company's results of operations depend primarily upon the level of net
interest income, which is the difference between the interest income earned
on its interest-earning assets such as loans and investments, and the costs
of the Company's interest-bearing liabilities, primarily deposits and
borrowings. Net interest income depends upon the volume of interest-earning
assets and interest-bearing liabilities and the interest rate earned or paid
on them, respectively. Results of operations are also dependent upon the
level of the Company's non-interest income, including fee income and service
charges, and affected by the level of its non-interest expenses, including
its general and administrative expenses.
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS
ENDED JUNE 30, 1996 AND 1995.
NET INCOME. The Company's net income for the three months ended June 30,
1996 was $195,000 as compared to $84,000 for the same period in 1995 or an
increase of $111,000. This increase was due primarily to an increase in net
interest income of $167,000, a decrease in the loan loss provision of $16,000
and an increase in non-interest income of $18,000 partially offset by an
increase in non-interest expense of $35,000, and an increase in income taxes
of $55,000.
INTEREST INCOME. Total interest income for the quarter ended June 30, 1996
increased $210,000, or 16.3%, as compared to the prior year's quarter. The
increase in interest income was the result of an increase in average
interest-earning assets of $14.2 million. The increase in average
interest-earning assets was the result of a $4.8 million increase in the
average balance of loans receivable, a $2.2 million increase in the average
balance of mortgage-backed securities, a $3.0 million increase in the average
balance of investment securities and a $4.3 million increase in the average
balance of interest-bearing deposits. These increases reflect the Company's
investment of net proceeds received from the stock conversion as well as from
an increase in the average balance of interest-bearing liabilities. During
the quarter ended June 30, 1996, the average yield on interest-earning
assets declined to 7.84% from 8.28% during the three months ended June 30,
1995. The decline in yield on average interest-earning assets was due
primarily to a higher proportion of lower yielding investments acquired as a
result of investing the stock conversion proceeds.
INTEREST EXPENSE. Total interest expense for the quarter ended June 30, 1996
increased $43,000, or 6.5%, to $700,000 as compared to $657,000 in the prior
year's quarter. The increase in interest expense was due in part to the
increase of $3.5 million in the average balance of interest-bearing
liabilities from $59.5 million for the three months ended June 30, 1995 to
$63.0 million for the three months ended June 30, 1996. The increase in
interest expense also reflects the slightly higher average rate paid on
interest-bearing liabilities of 4.45% for the three months ended June 30, 1996
from 4.41% for the three months ended June 30, 1995. The increase in average
10
interest-bearing liabilities was primarily due to an increase in FHLB
advances to fund the Bank's diversification of its loan portfolio.
PROVISION FOR LOAN LOSSES. The determination of the allowance for loan
losses involves material estimates that are susceptible to significant change
in the near term. The allowance for loan losses is maintained at a level
deemed adequate to provide for losses through charges to operating expense.
The allowance is based upon past loss experience and other factors which, in
management's judgment, deserve current recognition in estimating losses.
Such other factors considered by management include growth and composition of
the loan portfolio, the relationship of the allowance for losses to
outstanding loans, and economic conditions.
No provision for loan losses was recorded during the three months ended June
30, 1996 while a $16,000 provision was recorded in the comparable 1995
period. The decrease in the provision for losses on loans was due to the
continued low level of past due and problem loans. The Bank will continue to
review its allowance for loan losses and make future provisions as economic
and regulatory conditions dictate. Although the Bank maintains its allowance
for loan losses at a level that it considers to be adequate to provide for
losses, there can be no assurance that future losses will not exceed
estimated amounts or that additional provisions for loan losses will not be
required in future periods.
NON-INTEREST INCOME. The Company's non-interst income was $101,000 for the
quarter ended June 30, 1996 compared to $83,000 for the same quarter a year
ago. The increase was due to an increase of $13,000 in loan fees earned due
to higher loan volumes and an increase in deposit related fees of $5,000 due
to general increases in many service fee categories.
NON-INTEREST EXPENSE. The Company's non-interest expense increased $35,000,
or 6.4%, for the quarter ended June 30, 1996 to $590,000 from $555,000 for
the same quarter of 1995 due primarily to increases in compensation and
related expenses and data processing costs partially offset by decreases in
other operating expenses. The ratio of non-interest expense to average
assets was 2.93% for the three months ended June 30, 1996 compared to 3.34%
for the three months ended June 30, 1995.
PROVISION FOR INCOME TAXES. Tax expense for the quarter ended June 30, 1996
increased to $55,000 to $111,000 compared to $56,000 for the comparable
quarter in 1995. Income taxes increased primarily as a result of increased
income before income taxes.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS
ENDED JUNE 30, 1996 AND 1995.
NET INCOME. The Company's net income for the six months ended June 30, 1996
was $281,000 as compared to $195,000 for the same period in 1995 or an
increase of $86,000. This increase was due primarily to an increase in net
interest income of $97,000, a decrease in the loan loss provision of $30,000,
and an increase in non-interest income of $45,000 partially offset by an
increase in non-interest expense of $62,000, and an increase in income taxes
of $24,000.
INTEREST INCOME. Total interest income for the six months ended June 30,
1996 increased $273,000, or 10.7%, as compared to the prior year's period.
The increase in interest income was the result of an increase in average
interest-earning assets of $10.0 million. The increase in average
interest-earning assets was the result of a $3.5 million increase in the
average balance of loans receivable, a $1.0 million increase in the average
balance of mortgage-backed securities, a $1.9 million increase in the average
balance of investment securities and a $3.6 million increase in the average
balance of interest-bearing deposits. These increases reflect the Company's
investment of net proceeds received from the stock conversion as well as from
an increase in the average balance of interest-bearing liabilities. During
the six months ended June 30, 1996, the average yield on interest earning
assets declined to 7.89% from 8.28% during the six months ended June 30,
1995. The decline in yield on average interest-earning assets was due
primarily to a higher proportion of lower yielding investment acquired as a
result of investing the stock conversion proceeds.
INTEREST EXPENSE. Total interest expense for the six months ended June 30,
1996 increased $176,000, or 13.9%, to $1.44 million as compared to $1.27 million
in the prior year's period. The increase in interest expense was due in part
to the increase of $4.5 million in the average balance of interest-bearing
liabilities from $59.3 million for the six months ended June 30, 1995 to
$63.8 million for the six months ended June 30, 1996. The increase in interest
expense also reflects the higher interest rate environment, as the average cost
of interest-bearing liabilities increased 25 basis points from 4.27% for the
six months ended June 30, 1995 to 4.52% for the six months ended June 30, 1996.
The increase in average interest-bearing liabilities was due to an increase
of $2.4 million in FHLB advances to fund the Bank's diversification of its
loan portfolio and an increase of 2.1 million in the average balance of deposit
11
accounts reflecting the increased customer demand arising from higher
interest rates paid by the Bank, in response to higher market rates. The
average cost of funds for deposit accounts increased from 4.25% for the six
months ended June 30, 1995 to 4.44% for the six months ended June 30, 1996.
PROVISION FOR LOAN LOSSES. No provision for loan losses was recorded during
the six months ended June 30, 1996 while a $30,000 provision was recorded in
the comparable 1995 period. Management believes that the allowance for loan
losses of $359,000 is adequate given the local economic conditions and the
Bank's loan portfolio. The Bank will continue to review its allowance for
loan losses and make future provisions as economic and regulatory conditions
dictate. Although the Bank maintains its allowance for loan losses at a
level that it considers to be adequate to provide for losses, there can be no
assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods.
NON-INTEREST INCOME. The Company's non-interest income was $213,000 for the
six months ended June 30, 1996 compared to $168,000 for the same period a
year ago. The increase was primarily due to an increase in deposit related
fees of $20,000 due to general increases in many service fee categories, and
an increase of $16,000 in commissions earned from the sale of various
financial products by the Bank's wholly owned subsidiary, NIFCO, Inc.
NON-INTEREST EXPENSE. The Company's non-interest expense increased $62,000,
or 5.6%, for the six month ended June 30, 1996 to $1.2 million from $1.1
million for the same period of 1995 due primarily to increases in
compensation and related expenses reflecting operations as a public company
and data processing costs partially offset by decreases in other operating
expenses.
PROVISION FOR INCOME TAXES. Tax expense for the six months ended June 30,
1996 increased $24,000 to $155,000 compared to $131,000 for the comparable
period in 1995. Income taxes increased primarily as a result of increased
income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds are deposits, proceeds from
principal and interest payments on loans (including mortgage-backed
securities), sales or maturities of investment securities and income from
operations. While scheduled loan repayments and maturing investments are
relatively predictable, deposit flows and early loan repayments are more
influenced by interest rates, floors and caps on loan rates, general economic
conditions and competition. The primary business activity of the Company,
that of making conventional mortgage loans on residential housing, is
likewise affected by economic conditions.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon
economic conditions and savings flows and is currently 5% of net withdrawable
savings deposits and borrowings payable on demand or in one year or less
during the preceding calendar month. Liquid assets for purposes of this
ratio include cash, certain time deposits, U.S. Government, government agency
and corporate securities and other obligations generally having remaining
maturities of less than five years. The Bank has historically maintained its
liquidity ratio for regulatory purposes at levels in excess of those
required. At June 30, 1996, the Bank's liquidity ratio for regulatory
purposes was 17.49%.
The Company's most liquid assets are cash and cash equivalents, which consist
of interest bearing deposits and short term highly liquid investments with
original maturities of less than three months that are readily convertible to
known amounts of cash. The level of these assets is dependent on the
Company's operating, financing and investing activities during any given
period. At June 30, 1996 and December 31, 1995, cash and cash equivalents
totaled $4.3 million and $4.0 million respectively.
Liquidity management for the Company is both a daily and long-term function
of the Company's management strategy. Excess funds are generally invested in
short-term investments, such as overnight deposits. If the Company requires
funds beyond its ability to generate them internally, additional funds are
available through FHLB advances.
The Company anticipates that it will have sufficient funds available to meet
current commitments. At June 30, 1996 the Company has outstanding loan
commitments totaling $3,528,000 and no outstanding commitments to purchase
investment securities.
12
Federally insured savings associations, such as the Bank, are required to
maintain a minimum level of regulatory capital. The OTS has established
capital standards, including a tangible capital requirement, a leverage ratio
(or core capital) requirement and a risk-based capital requirement applicable
to such savings associations. These capital requirements must be generally
as stringent as the comparable capital requirements for national banks. The
OTS is also authorized to impose capital requirements in excess of these
standards on individual associations on a case-by-case basis.
At June 30, 1996, the Bank had tangible capital of $10.9 million, or 14.1% of
adjusted total assets, which is approximately $9.7 million above the minimum
requirement of 1.5% of adjusted total assets in effect on that date. The
Bank had core capital equal to $10.9 million, or 14.1% of adjusted total
assets at June 30, 1996, which was $8.6 million above the minimum leverage
ratio requirement of 3% in effect on that date. The Bank had total capital
of $11.2 million (including $10.9 million in core capital and $360,000 in
qualifying supplementary capital) and risk-weighted assets of $39.7 million
(including no converted off-balance sheet assets); or total risk-based
capital of 28.2% of risk-weighted assets at June 30, 1996. This amount was
$8.0 million above the 8% requirement in effect on that date.
NON-PERFORMING ASSETS
The following table sets forth the amounts and categories of
non-performing assets in the Company's portfolio. Loans are reviewed monthly
and any loan whose collectibility is doubtful is placed on non-accrual
status. Loans are placed on non-accrual status when principal and interest
is 90 days or more past due, unless, in the judgement of management, the loan
is well collateralized and in the process of collection. Interest accrued
and unpaid at the time a loan is placed on non-accrual status is charged
against interest income. Subsequent payments are either applied to the
outstanding principal balance or recorded as interest income, depending on
the assessment of the ultimate collectibility of the loan. Restructured
loans include troubled debt restructuring (which involved forgiving a portion
of interest or principal on any loans or making loans at a rate materially
less than the market rate). At June 30, 1996, the Company had no
restructured loans or foreclosed assets.
June 30 December 31,
1996 1995
------- ------------
Non- accruing loans:
One to four family 339 365
Multi- family --- ---
Non- residential --- ---
Construction 65 ---
Consumer 4 4
---- ----
Total 408 369
---- ----
Total non- performing assets 408 369
==== ====
Total as a percentage of total assets 0.51% 0.53%
==== ====
For the quarter ended June 30, 1996, gross interest income which would have
been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $8,800.
In addition to the non-performing assets set forth in the table above, as of
June 30, 1996, there were no loans with respect to which known information
about the possible credit problems of the borrowers or the cash flows of the
security properties have caused management to have concerns as to the ability
of the borrowers to comply with present loan repayment terms and which may
result in the future inclusion of such items in the non- performing asset
categories.
Management has considered the Company's non-performing and "of concern"
assets in establishing its allowance for loan losses.
13
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented herein have
been prepared in accordance with generally accepted accounting principles
which require the measurement of financial position and operating results in
terms of historical dollars without considering changes in the relative
purchasing power of money over time due to inflation. The primary impact of
inflation on the operations of the Company is reflected in increased
operating costs. Unlike most industrial companies, virtually all of the
assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates, generally, have a more significant impact on a
financial institution's performance than does inflation. Interest rates do
not necessarily move in the same direction or to the same extent as the
prices of goods and services.
14
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Computation of earnings per share (Exhibit 11 filed herewith)
(b) No reports on Form 8-K were filed this quarter
15
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMB FINANCIAL CORP.
-------------------
Registrant
DATE: July 29, 1996
BY:
Clement B. Knapp, Jr.
President and Chief Executive Officer
(DULY AUTHORIZED REPRESENTATIVE)
BY: Daniel T. Poludniak
Vice President and Chief Financial Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
16
INDEX TO EXHIBITS
Exhibit No. Page No.
- ----------- --------
11 Statement re: Computation of Per Share Earnings 18
17