SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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 September 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
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Commission File Number 0-23182
AMB FINANCIAL CORP.
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(Exact name of registrant as specified in its charter)
Delaware 35-1903582
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(State or other jurisdiction I.R.S. Employer
of incorporation or Identification
organization) Number
8230 Hohman Avenue, Munster, Indiana 46321-1578
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(Address of Principal executive offices) (Zip Code)
Registrant telephone number, including area code: (219) 836-5870
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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 November 1, 1996 there were 1,124,125 shares of the Registrant's
common stock issued and 1,067,919 shares outstanding.,
Transitional Small Business Disclosure Format(check one): Yes No X
--- ---
1
AMB FINANCIAL CORP.
FORM 10-Q
TABLE OF CONTENTS
PAGE
Part I. FINANCIAL INFORMATION 3
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
September 30, 1996 (Unaudited) and December 31, 1995 4
Consolidated Statements of Earnings for the three
and nine months ended September 30, 1996 and 1995
(unaudited) 5
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1996 and 1995
(unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Part II. OTHER INFORMATION 14
Signatures 15
Index to Exhibits 16
Earnings Per Share Analysis(Exhibit 11) 17
2
PART I - FINANCIAL INFORMATION
3
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, December 31,
1996 1995
---- ----
unaudited
ASSETS
Cash and amounts due from depository
institutions 2,503,597 3,032,908
Interest-bearing deposits 2,290,694 1,003,909
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Total cash and cash equivalents 4,794,291 4,036,817
Investment securities, available for sale, at fair value 8,876,253 7,016,697
Investment securities held for trade 316,775 -
Mortgage backed securities, available for sale,
at fair value 4,106,774 1,478,841
Loans receivable (net of allowance for loan losses:
$352,079 at September 30, 1996 and
$359,535 at December 31, 1995) 62,552,720 54,638,741
Stock in Federal Home Loan Bank of Indianapolis 545,600 545,600
Accrued interest receivable 446,741 386,633
Office properties and equipment- net 537,830 608,944
Prepaid expenses and other assets 1,364,905 1,075,867
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Total assets 83,541,889 69,788,140
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits 64,433,549 59,588,157
Borrowed money 1,000,000 3,000,000
Advance payments by borrowers for taxes
and insurance 548,837 324,496
Other liabilities 1,375,654 561,984
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Total liabilities 67,358,040 63,474,637
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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 shares at
September 30, 1996 11,241 ---
Additional paid- in capital 10,649,834 ---
Retained earnings, substantially restricted 6,449,480 6,242,782
Unrealized gain (loss) on securities available for sale,
net of income taxes (27,406) 70,721
Common stock acquired by Employee Stock Ownership
Plan (899,300) ---
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Total stockholders' equity 16,183,849 6,313,503
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Total liabilities and stockholders' equity 83,541,889 69,788,140
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See accompanying notes to consolidated financial statements.
4
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, Septembe 30, September 30,
------------- ------------- ------------ -------------
1996 1995 1996 1995
---- ---- ---- ----
unaudited unaudited unaudited unaudited
Interest income:
Loans 1,258,701 1,118,109 3,603,109 3,367,177
Mortgage-backed securities 71,694 25,949 161,097 80,141
Investment securities 135,711 106,718 385,082 307,164
Interest-bearing deposits 61,087 39,533 184,837 69,693
Dividends on FHLB stock 10,766 11,002 31,928 31,970
------------ ------------ ------------ ------------
Total interest income 1,537,959 1,301,311 4,366,053 3,856,145
------------ ------------ ------------ ------------
Interest expense:
Deposits 705,857 663,019 2,059,413 1,914,321
Borrowings 26,090 36,395 114,712 50,944
------------ ------------ ------------ ------------
Total interest expense 731,947 699,414 2,174,125 1,965,265
------------ ------------ ------------ ------------
Net interest income before
provision for loan losses 806,012 601,897 2,191,928 1,890,880
Provision for loan losses -- 9,460 -- 39,384
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 806,012 592,437 2,191,928 1,851,496
------------ ------------ ------------ ------------
Non-interest income:
Loan fees and service charges 18,871 16,081 68,330 55,611
Commission income 10,078 17,540 51,275 42,481
Deposit related fees 40,995 32,744 121,362 93,212
Gain on sale of
Investment securities,
available for sale 51,376 --- 52,617 ---
Unrealized gain on securities
held for trade 19,531 --- 19,531 ---
Other income 17,104 19,352 57,940 62,445
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Total non-interest income 157,955 85,717 371,055 253,749
----------- ------------ ------------ ------------
Non-interest expense:
Staffing costs 271,327 228,008 792,848 678,758
Advertising 11,822 28,412 56,294 76,004
Occupancy and equipment expense 83,024 81,855 252,395 243,527
Data processing 78,106 62,118 218,767 182,835
Federal deposit insurance premiums 423,894 34,067 491,812 100,945
Other operating expenses 142,805 116,216 362,033 369,989
Total non-interest expense 1,010,978 550,676 2,174,149 1,652,058
------------ ------------ ------------ ------------
Net income(loss) before income taxes (47,011) 127,478 388,834 453,187
Provision for federal and state
income taxes (benefit) (35,116) 40,191 120,085 170,696
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Net income (loss) (11,895) 87,287 268,749 282,491
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Pro-forma earnings per share- primary ($0.01) n/a $0.26 n/a
Pro-forma earnings per share- fully diluted ($0.01) n/a $0.26 n/a
See accompanying notes to consolidated financial statements.
5
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ending Nine Months Ending
September 30, September 30,
1996 1995
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unaudited unaudited
Cash flows from operating activities:
Net income 268,749 282,491
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 105,458 98,280
Amortization of premiums and accretion
of discounts 1,371 (4,795)
Increase in deferred compensation 52,130 30,745
Provision for loan losses --- 39,384
Gain on sale of investment securities (52,617) ---
Unrealized gain on sale of trading account
securities (19,531) ---
Purchase of trading account securities (297,244) ---
Increase (decrease) in deferred income
on loans 15,064 (19,777)
Increase in accrued and deferred
income taxes 146,429 180,000
Increase in accrued interest receivable (60,108) (26,549)
Increase in accrued interest payable 49,566 22,835
Other, net 342,867 (90,579)
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Net cash provided by operating activities 552,134 512,035
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Cash flows from investing activities:
Proceeds from sale of investment securities 132,617 ---
Proceeds from maturities of investment
securities 1,000,000 500,000
Purchase of investment securities (3,038,857) (789,010)
Proceeds from repayments of mortgage-backed
securities 340,837 151,196
Purchase of mortgage-backed securities (3,034,419) ---
Property and equipment expenditures (34,344) (108,720)
Purchase of loans (1,000,000) (3,306,815)
Loan disbursements (17,918,539) (11,141,473)
Loan repayments 10,996,952 11,438,503
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Net cash provided for investing activities (12,555,753) (3,256,319)
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Cash flows from financing activities:
Net proceeds from sale of common stock 9,758,807 ---
Deposit receipts 91,339,367 82,769,570
Deposit withdrawals (88,163,226) (83,855,920)
Interest credited to deposits 1,669,251 1,580,348
Proceeds from borrowed money --- 3,000,000
Repayment of borrowed money (2,000,000) (1,000,000)
Increase in advance payments by borrowers
for taxes and insurance 224,341 237,531
Payment of dividends (67,447) ---
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Net cash provided by financing activities 12,761,093 2,731,529
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Net change in cash and cash equivalents 757,474 (12,755)
Cash and cash equivalents at beginning of period 4,036,817 2,914,465
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Cash and cash equivalents at end of period 4,794,291 2,901,710
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Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest 2,124,559 1,942,430
Income taxes 255,709 86,000
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 September 30, 1996, the results of operations for the three and
nine months ended September 30, 1996 and 1995 and cash flows for the nine
months ended September 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 "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 nine month periods ended September 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 Banks Board of Directors approved a Plan of
Conversion (the "Conversion"), providing for the Banks conversion from a
federally chartered mutual savings bank to a federally chartered stock savings
bank with the concurrent formation of a holding company. The 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 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 nine month periods ended
September 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 Companys 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 Companys 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 years financial statements, information about options granted in
1995. The Company has determined not to elect the fair-value based method of
expense recognition for stock-based compensation as contemplated by SFAS No.
123, but rather will adopt the pro forma disclosure alternative provided in SFAS
No. 123, and will account for stock-based compensation under APB No.25.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In June 1996, the FASB issued SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." This Statement, among other things, applies a
"financial-components approach" that focuses on control, whereby an entity
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, derecognizes assets when control has been surrendered, and
derecognizes liabilities when extinguished. SFAS No. 125 provides consistent
standards for distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings. SFAS No. 125 is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. The Company does not expect this pronouncement to have
a significant impact on its consolidated financial condition 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. SAIF RECAPITALIZATION
The deposits of savings associations, such as American Savings, are
presently insured by the Savings Association Insurance Fund (SAIF), which
together with the Bank Insurance Fund (BIF), are the two insurance funds
administered by the FDIC. Financial institutions which are members of the BIF
are experiencing substantially lower deposit insurance premiums because the BIF
has achieved its required level of reserves while the SAIF has not yet achieved
its required reserves. In order to help eliminate this disparity and any
competitive disadvantage due to disparate deposit insurance premium schedules,
legislation to recapitalize the SAIF was enacted in September 1996.
The legislation requires a special one-time assessment of approximately
65.7 cents per $100 of SAIF insured deposits held by the Bank at March 31, 1995.
Management currently anticipates that the one-time special assessment will
result in an after tax charge to earnings of approximately $234,000 during the
quarter ended September 30, 1996. The legislation is intended to fully
recapitalize the SAIF fund so that commercial bank and thrift deposits will be
charged the same FDIC premiums beginning October 1, 1996. As of such date,
deposit insurance premiums for highly rated institutions, such as the Bank, have
been nominal.
The Bank, however, will continue to be subject to an assessment to fund
repayment of the FICO obligations. It is anticipated that the FICO assessment
for SAIF insured institutions will be 6.4 cents per $100 of deposits while BIF
insured institutions will pay 1.3 cents per $100 of deposits until the year 2000
when the assessment will be imposed at the same rate on all FDIC insured
institutions.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
SEPTEMBER 30, 1996 COMPARED TO DECEMBER 31, 1995.
Total assets increased $13.7 million, or 19.7% to $83.5 million at September 30,
1996 compared to $69.8 million at December 31, 1995. The increase was due to
the $10.7 million in proceeds generated from the Banks mutual to stock
conversion completed on March 29, 1996, as well as growth in loans receivable,
which were partially funded with deposit growth.
Investment securities classified as available for sale increased $1.9 million to
$8.9 million at September 30, 1996, from $7.0 million at December 31, 1995 as
excess funds generated in the conversion were invested in medium term U.S.
Government securities. At September 30, 1996, net unrealized losses in the
available for sale portfolio were $7,000. Mortgage-backed securities classified
as available for sale increased $2.6 million to $4.1 million at September 30,
1996 from $1.5 million at December 31, 1995. The increase is primarily due to
purchases of additional securities to deploy excess liquidity into higher
yielding investments. At September 30, 1996, net unrealized losses in the
available for sale portfolio were $39,000.
Loans receivable increased 14.5%, or $7.9 million to $62.6 million at September
30, 1996. The increase was due to loan origination and purchase volume of $18.9
million offset by amortization and repayments of $11.0 million. During the
current period, the Bank purchased a $1.0 million interest in a commercial
building complex located in Merrillville IN and increased its loan originations
of fixed and adjustable rate one to four family residential loans due to more
agressive pricing, all of which helped fuel the increase in the outstanding
balance of loans receivable.
Total deposits increased $4.8 million to $64.4 million at September 30, 1996,
primarily due to increases in jumbo certificates of deposit received from local
municipalities. It is anticipated that $3.4 million of jumbo certificates will
mature and not be renewed during the next three month period. In the event this
occurs, the Company will borrow short term from the FHLB.
Borrowed funds, which consist of FHLB of Indianapolis advances, decreased $2.0
million to $1.0 million at September 30, 1996 as maturing short term advances
were repaid from excess liquidity at maturity. It is anticipated, as discussed
above, that the Company may borrow additional funds from the FHLB during the
next three months to fund deposit withdrawals.
Stockholders equity increased $9.9 million to $16.2 million at September 30,
1996 from $6.3 million at December 31, 1995. This increase was primarily due to
net proceeds from the sale of the Companys 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 nine months of $269,000 partially offset by a decrease in net unrealized
gains on investments available for sale of $98,000, net of taxes and payment of
the Companys first dividend.
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 SEPTEMBER 30, 1996 AND 1995.
NET INCOME. The Company's net loss for the three months ended September 30,
1996 was $12,000 as compared to an $87,000 net profit for the same period in
1995, a decrease of $99,000. This decrease was due primarily to an increase in
non-interest expense of $460,000, offset by an increase in net interest income
of $204,000, a decrease in the loan loss provision of $9,000, an increase in
non-interest income of $73,000 and a decrease in income taxes of $75,000.
9
INTEREST INCOME. Total interest income for the quarter ended September 30, 1996
increased $237,000, or 18.2%, as compared to the prior years quarter. The
increase in interest income was the result of an increase in average
interest-earning assets of $14.9 million. The increase in average
interest-earning assets was the result of a $7.5 million increase in the average
balance of loans receivable, a $2.7 million increase in the average balance of
mortgage-backed securities, a $2.3 million increase in the average balance of
investment securities and a $2.3 million increase in the average balance of
interest-bearing deposits. These increases reflect the Companys 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
September 30, 1996, the average yield on interest-earning assets declined to
7.81% from 8.14% during the three months ended September 30, 1995. The decline
in yield on average interest-earning assets was due primarily to a lower loan to
asset ratio as a result of investing the stock conversion proceeds.
INTEREST EXPENSE. Total interest expense for the quarter ended September 30,
1996 increased $33,000, or 4.7%, to $732,000 as compared to $699,000 in the
prior years quarter. The increase in interest expense was due primarily to the
increase of $4.1 million in the average balance of interest-bearing liabilities
from $61.2 million for the three months ended September 30, 1995 to $65.3
million for the three months ended September 30, 1996. The increase in interest
expense was partially offset by the slightly lower average rate paid on
interest-bearing liabilities of 4.48% for the three months ended September 30,
1996 from 4.57% for the three months ended September 30, 1995. The increase in
average interest-bearing liabilities was primarily due to an increase in jumbo
certificates of deposit from local municipalities as previously discussed.
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
September 30, 1996 while a $9,000 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 Companys non-interest income increased $73,000 to
$158,000 for the quarter ended September 30, 1996 compared to $85,000 for the
same quarter a year ago. The increase was due primarily from gains on the sale
of investment securities available for sale of $51,000 and an unrealized gain on
the Companys held for trading portfolio of $20,000, both of which did not occur
in the prior years quarter.
NON-INTEREST EXPENSE. The Companys non-interest expense increased $460,000 to
$1.0 million for the quarter ended September 30, 1996 compared to $551,000 for
the same quarter a year ago. The increase resulted primarily from a $389,000
charge in the quarter for the estimated amount of the special insurance
assessment to recapitalize the Savings Association Insurance Fund. Staffing
costs also increased $43,000 during the quarter due to salary and benefit
increases and the expense recognition of the ESOP. In addition, there was
approximately $45,000 of expenses relating to operatins as a public company
which did not occur in the prior years quarter.
PROVISION FOR INCOME TAXES. Income tax expense for the quarter ended September
30, 1996 decreased by $75,000 as a result of decreased earnings primarily due to
the SAIF special assessment discussed above.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1996 AND 1995.
NET INCOME. The Company's net income for the nine months ended September 30,
1996 was $269,000 as compared to $282,000 for the same period in 1995, a
decrease of $13,000. This decrease was due primarily to an increase in
non-interest expense of $522,000 offet by an increase in net interest income of
$301,000, a decrease in the loan loss provision of $39,000, an increase in
non-interest income of $118,000 and a decrease in income taxes of $51,000.
10
INTEREST INCOME. Total interest income for the nine months ended September 30,
1996 increased $510,000, or 13.2%, as compared to the prior years period. The
increase in interest income was the result of an increase in average
interest-earning assets of $11.4 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 $1.6 million increase in the average balance of
mortgage-backed securities, a $2.1 million increase in the average balance of
investment securities and a $2.9 million increase in the average balance of
interest-bearing deposits. These increases reflect the Companys investment of
net proceeds received from the stock conversion as well as an increase in the
average balance of interest-bearing liabilities. During the nine months ended
September 30, 1996, the average yield on interest earning assets declined to
7.81% from 8.14% during the nine months ended September 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 nine months ended September
30, 1996 increased $209,000, or 10.6%, to $2.2 million as compared to $2.0
million in the prior years period. The increase in interest expense was due in
part to the increase of $4.4 million in the average balance of interest-bearing
liabilities from $59.9 million for the nine months ended September 30, 1995 to
$64.3 million for the nine months ended September 30, 1996. The increase in
interest expense also reflects the higher interest rate environment, as the
average cost of interest-bearing liabilities increased 14 basis points from
4.37% for the nine months ended September 30, 1995 to 4.51% for the nine months
ended September 30, 1996. The increase in average interest-bearing liabilities
was due to an increase of $1.4 million in FHLB advances to fund the Banks
diversification of its loan portfolio and an increase of $2.9 million in the
average balance of deposit 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
4.34% for the nine months ended September 30, 1995 to 4.44% for the nine months
ended September 30, 1996.
PROVISION FOR LOAN LOSSES. No provision for loan losses was recorded during the
nine months ended September 30, 1996 while a $39,000 provision was recorded in
the comparable 1995 period. Management believes that the allowance for loan
losses of $352,000 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 $371,000 for the
nine months ended September 30, 1996 compared to $253,000 for the same period a
year ago. The increase was primarily due to an increase in loan fees of $13,000
resulting from higher loan volume, an increase in deposit related fees of
$28,000 due to general increases in many service fee categories, an increase of
$9,000 in commissions earned from the sale of various financial products by the
Banks wholly owned subsidiary, NIFCO, Inc., gains on the sale of investment
securities available for sale of $51,000, and an unrealized gain on securities
held for trade of $20,000, offset by a decrease in other operating income of
$5,000.
NON-INTEREST EXPENSE. The Company's non-interest expense increased $522,000 for
the nine months ended September 30, 1996 to $2.2 million from $1.7 million for
the same period of 1995 due primarily to the SAIF special assessment previously
discussed and to increases in compensation, ESOP expense recognition, and
related expenses reflecting operations as a public company.
PROVISION FOR INCOME TAXES. Tax expense for the nine months ended September 30,
1996 decreased $51,000 to $120,000 compared to $171,000 for the comparable
period in 1995. Income taxes decreased primarily as a result of decreased
income before income taxes and the SAIF special assessment.
11
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, borrowings and income from operations.
Other potential sources of funds available to the Company include borrowing from
the Federal Home Loan Bank of Indianapolis. 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 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 September 30,
1996, the Bank's liquidity ratio for regulatory purposes was 17.20%.
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
September 30, 1996 and December 31, 1995, cash and cash equivalents totaled $4.8
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 September 30, 1996 the Company has outstanding loan
commitments totaling $1.4 million and no outstanding commitments to purchase
investment securities.
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 September 30, 1996, the Bank had core capital equal to $10.9 million, or
13.4% of adjusted total assets which was $8.4 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 $352,000
in qualifying supplementary capital) and risk-weighted assets of $42.2 million
(including no converted off-balance sheet assets); or total risk-based capital
of 26.6% of risk-weighted assets at September 30, 1996. This amount was $7.9
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 September 30, 1996,
the Company had no restructured loans or foreclosed assets.
12
September 30 December 31,
1996 1995
------------ ------------
Non-accruing loans:
One to four family 356 365
Multi- family --- ---
Non- residential --- ---
Construction --- ---
Consumer 1 4
------------ ------------
Total 357 369
------------ ------------
Total non- performing assets 357 369
------------ ------------
------------ ------------
Total as a percentage of total assets 0.43% 0.53%
------------ ------------
------------ ------------
For the quarter ended September 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 $6,100.
In addition to the non-performing assets set forth in the table above, as of
September 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.
RECENT DEVELOPMENTS
On October 9, 1996, the Company announced its intention to repurchase up to
56,206 shares, or approximately 5% of its outstanding shares over the next
twelve months. This repurchase program is to be accomplished by purchasing
shares in open market transactions, from time to time, subject to availability.
As of November 1 , 1996 all shares have been purchased.
The Company held a special meeting of stockholders on October 23, 1996 at which
time the stockholders approved the Companys 1996 Stock Option and Incentive Plan
and the Companys Recognition and Retention Plan. As of November 1, 1996; all
shares, 44,965 shares, have been purchased for the Companys Recognition and
Retention Plan.
The Company declared a cash dividend of $0.06 per share, payable on November 28,
1996 to shareholders of record on November 15, 1996.
13
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
From time to time, the Bank is a party to legal proceedings in
the ordinary course of business, wherein it enforces its security
interest. The Company and the Bank are not engaged in any legal
proceedings of a material nature at the present time.
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) The Company filed a Form 8-K on September 5, 1996 to report
the declaration of a cash dividend of $0.06 per share,
payable on September 30, 1996, to shareholders of record on
September 16, 1996.
14
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: November 1, 1996
BY: /s/ CLEMENT B. KNAPP,JR.
--------------------
Clement B. Knapp, Jr.
President and Chief Executive Officer
(Duly Authorized Representative)
BY: /S/ DANIEL T. POLUDNIAK
-------------------
Daniel T. Poludniak
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
15
INDEX TO EXHIBITS
Exhibit No. Page No.
11 Statement re: Computation of Per Share Earnings 17
16