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, 1998
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.
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(Exact name of registrant as specified in its charter)
Delaware 35-1905382
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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
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 October 28, 1998 there were 1,124,125 shares of the Registrant's
common stock issued and 869,829 shares outstanding.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
FORM 10-Q
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
September 30, 1998 (Unaudited) and December 31, 1997
Consolidated Statements of Earnings for the three
and nine months ended September 30, 1998 and 1997
(unaudited)
Consolidated Statements of Changes in
Stockholders Equity, nine months ended
September 30, 1998 (unaudited)
Consolidated Statements of Cash Flow for the
nine months ended September 30, 1998 and 1997
(unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION
Signatures
Index of Exhibits
Earnings Per Share Analysis (Exhibit 11)
Financial Data Schedule (Exhibit 27)
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, December 31,
1998 1997
------------ ------------
unaudited
Assets
- ------
Cash and amounts due from depository institutions 1,952,783 2,510,527
Interest-bearing deposits 6,321,924 3,176,428
------------ ------------
Total cash and cash equivalents 8,274,707 5,686,955
Investment securities, available for sale, at fair value 6,617,853 8,213,614
Trading securities 2,426,101 2,412,967
Mortgage backed securities, available for sale, at fair value 2,913,095 3,494,035
Loans receivable (net of allowance for loan losses:
$489,158 at September 30, 1998 and
$410,383 at December 31, 1997) 91,745,150 77,093,229
Investment in LTD Partnership 1,384,676 --
Real Estate Owned -- 27,481
Stock in Federal Home Loan Bank of Indianapolis 1,384,200 725,400
Accrued interest receivable 585,395 533,509
Office properties and equipment- net 429,340 471,730
Prepaid expenses and other assets 2,907,414 1,136,860
------------ ------------
Total assets 118,667,931 99,795,780
============ ============
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, December 31,
1998 1997
------------ ------------
unaudited
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Deposits 76,837,882 71,700,126
Borrowed money 25,683,000 12,000,000
Notes Payable 1,391,454 --
Advance payments by borrowers for taxes and insurance 768,502 383,237
Other liabilities 710,623 942,134
------------ ------------
Total liabilities 105,391,461 85,025,497
------------ ------------
Stockholders' Equity
- --------------------
Preferred stock, $.01 par value; authorized
100,000 shares; none outstanding -- --
Common Stock, $.01 par value; authorized 1,900,000 shares;
1,124,125 shares issued and 869,829 shares outstanding
at September 30, 1998 and 963,798 shares outstanding at 11,241 11,241
December 31, 1997
Additional paid- in capital 10,769,773 10,717,068
Retained earnings, substantially restricted 7,241,315 7,357,250
Accumulated other comprehensive income, net of tax 174,603 71,061
Treasury stock, at cost (254,296 and 160,327 shares at
September 30, 1998 and December 31, 1997) (3,844,015) (2,223,051)
Common stock acquired by Employee Stock Ownership Plan (719,440) (719,440)
Common stock awarded by Recognition and Retention Plan (357,007) (443,846)
------------ ------------
Total stockholders' equity 13,276,470 14,770,283
------------ ------------
Total liabilities and stockholders' equity 118,667,931 99,795,780
============ ============
AMB FINANCIAL CORP.
AND SUBIDIARIES
Consolidated Statements of Earnings
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
unaudited unaudited unaudited unaudited
Interest income
Loans 1,835,864 1,545,014 5,195,554 4,437,100
Mortgage-backed securities 49,188 63,728 158,434 198,029
Investment securities 72,255 148,836 302,475 479,416
Interest-bearing deposits 48,497 76,146 167,745 144,115
Dividends on FHLB stock 21,469 15,080 54,305 38,072
---------- ---------- ---------- ----------
Total interest income 2,027,273 1,848,804 5,878,513 5,296,732
---------- ---------- ---------- ----------
Interest expense
Deposits 886,721 810,537 2,586,047 2,250,660
Borrowings 297,347 199,274 744,466 512,008
---------- ---------- ---------- ----------
Total interest expense 1,184,068 1,009,811 3,330,513 2,762,668
---------- ---------- ---------- ----------
Net interest income before
provision for loan losses 843,205 838,993 2,548,000 2,534,064
Provision for loan losses 31,816 15,000 84,671 46,425
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 811,389 823,993 2,463,329 2,487,639
---------- ---------- ---------- ----------
Non-interest income:
Loan fees and service charges 32,597 28,759 107,253 74,033
Commission income 13,516 29,389 31,621 71,674
Deposit related fees 76,591 70,822 231,147 174,763
Gain on sale of investment
securities available for sale 6,605 4,740 17,943 22,264
Gain on sale of trading securities -- 22,029 24,086 35,519
Gain on sale of deposits 27,033 -- 27,033 --
Unrealized gain (loss) on trading
securities (709,576) 171,841 (652,133) 337,655
Gain (loss) on sale
of real estate owned -- -- (1,697) 1,828
Loss from investment
in joint venture (6,778) -- (6,778) --
Other income 36,255 18,910 85,713 61,025
---------- ---------- ---------- ----------
Total non-interest income (523,757) 346,490 (135,812) 778,761
---------- ---------- ---------- ----------
AMB FINANCIAL CORP.
AND SUBIDIARIES
Consolidated Statements of Earnings
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 1997
---------- ---------- ---------- ----------
unaudited unaudited unaudited unaudited
Non-interest expense:
Staffing costs 325,845 330,278 1,054,866 947,682
Advertising 26,969 43,386 69,875 95,445
Occupancy and equipment expense 74,699 82,908 246,070 260,962
Data processing 91,815 81,179 272,806 253,541
Federal deposit insurance premiums 15,128 10,780 37,840 31,064
Other operating expenses 178,363 146,647 533,507 422,080
---------- ---------- ---------- ----------
Total non-interest expense 712,819 695,178 2,214,964 2,010,774
---------- ---------- ---------- ----------
Net income (loss) before income taxes (425,187) 475,305 112,553 1,255,626
Provision for (benefit from)
federal and state income taxes (170,579) 184,820 47,946 485,360
---------- ---------- ---------- ----------
Net income (loss) (254,608) 290,485 64,607 770,266
========== ========== ========== ==========
Earnings per share- basic ($ 0.30) $ 0.33 $ 0.08 $ 0.84
Earnings per share- diluted ($ 0.30) $ 0.32 $ 0.07 $ 0.82
See accompanying notes to consolidated financial statements.
AMB FINANCIAL CORP.
AND SUBIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Accumulated
Additional Other
Common Paid-in Retained Comprehensive
Stock Capital Earnings Income
----- ------- -------- ------
Balance at December 31, 1997 $11,241 10,717,068 7,357,250 71,061
------- ---------- --------- -------
Comprehensive income:
Net income 64,607
Other comprehensive income,
net of tax:
Unrealized holding gain
during the period 107,128
Less: reclassification
adjustment of gains
included in net income (3,586)
------- ---------- --------- -------
Total comprehensive income 0 0 64,607 103,542
Amortization of award of
RRP stock
ESOP compensation adjustment 52,705
Purchase of treasury stock
(93,969 shares)
Dividends declared on
common stock ($.21 per share) (180,542)
------- ---------- --------- -------
Balance at September 30, 1998 $11,241 10,769,773 7,241,315 174,603
======= ========== ========= =======
AMB FINANCIAL CORP.
AND SUBIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
(Unaudited)
Common Common
Stock Stock
Treasury Acquired Awarded
Stock by ESOP by RRP Total
----- ------- ------ -----
Balance at December 31, 1997 (2,223,051) (719,440) (443,846) 14,770,283
---------- -------- -------- ----------
Comprehensive income:
Net income 64,607
Other comprehensive income,
net of tax:
Unrealized holding gain
during the period 107,128
Less: reclassification
adjustment of gains
included in net income (3,586)
---------- -------- -------- ----------
Total comprehensive income 0 0 0 168,149
Amortization of award of
RRP stock 86,839 86,839
ESOP compensation adjustment 52,705
Purchase of treasury stock
(93,969 shares) (1,620,964) (1,620,964)
Dividends declared on
common stock ($.21 per share) (180,542)
---------- -------- -------- ----------
Balance at September 30, 1998 (3,844,015) (719,440) (357,007) 13,276,470
========== ======== ======== ==========
See accompanying notes to consolidated financial statements
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended Septembert 30,
--------------------------------
1998 1997
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(unaudited)
Cash flows from operating activities:
Net income $ 64,607 770,266
Adjustments to reconcile net income to
net cash from operating activities:
Depreciation 106,625 115,044
Amortization of premiums and discounts on
investment and mortgage-backed securities - net 7,816 687
Amortization of cost of stock benefit plans 86,839 86,840
Increase in deferred compensation 43,975 61,172
ESOP compensation 52,705 17,010
Provision for loan losses 84,671 46,425
Gain on sale of deposits (27,033) --
Gain on sale of investment securities (17,943) (22,264)
Gain on sale of trading account securities (24,086) (35,519)
Unrealized (gain) loss on trading account securities 652,133 (337,655)
Purchase of trading account securites (765,580) (1,335,227)
Proceeds from sales of trading account securities 124,399 230,896
Increase in deferred income on loans (49,569) 11,356
Increase in current and deferred income taxes (591,575) 203,113
Increase in accrued interest receivable (51,886) (101,845)
Increase in accrued interest payable 46,557 9,888
Change in prepaid and accrued items, net (20,791) (13,988)
------------- -------------
Net cash provided for operating activities (278,136) (293,801)
------------- -------------
Cash flows from investing activities:
Proceeds from maturities of investment securities 2,375,000 750,000
Proceeds from sale of investment securities 1,013,838 4,014,689
Purchase of investment securities (1,630,012) (3,994,341)
Proceeds from repayments of mortgage-backed
securities 600,572 405,693
Purchase of Federal Home Loan Bank stock (658,800) (179,800)
Purchase of life insurance policies (1,515,000) --
Purchase of loans (13,445,789) (5,222,283)
Disbursements for loans (19,445,278) (16,045,440)
Loan repayments 18,204,044 13,312,462
Property and equipment expenditures (64,235) (107,139)
------------- -------------
Net cash provided for investing activities (14,565,660) (7,066,159)
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AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended Septembert 30,
--------------------------------
1998 1997
------------- -------------
(unaudited)
Cash flows from financing activities:
Deposit account receipts 117,807,082 111,025,932
Deposit account withdrawals (112,121,915) (99,360,675)
Sale of deposit accounts (2,676,263) --
Interest credited to deposit accounts 2,155,885 1,668,632
Proceeds from borrowed money 13,683,000 7,000,000
Repayment of borrowed money -- (3,000,000)
Increase in advance payments by borrowers
for taxes and insurance 385,265 358,451
Payment of dividends (180,542) (168,206)
Purchase of treasury stock (1,620,964) (1,498,334)
------------- -------------
Net cash provided by financing activities 17,431,548 16,025,800
------------- -------------
Net change in cash and cash equivalents 2,587,752 8,665,840
Cash and cash equivalents at beginning of period 2,686,955 2,567,367
------------- -------------
Cash and cash equivalents at end of period $ 5,274,707 11,233,207
============= =============
Cash paid during the period for:
Interest $ 3,283,956 2,752,780
Income taxes 639,521 245,509
Non-cash investing activities:
Transfer of loans to real estate owned -- 113,496
See notes to consolidated financial statements.
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, 1998, the results of
operations for the three and nine months ended September 30, 1998 and 1997
and cash flows for the nine months ended September 30, 1998 and 1997. These
results have been determined on the basis of generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted 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 reported 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"), the Bank's wholly owned subsidiary NIFCO, Inc.,
and the wholly owned subsidiary of NIFCO, Inc., Ridge Management, Inc. The
results of operations for the three and nine month periods ended September
30, 1998 is 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 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 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
Earnings per share for the three and nine month periods ended
September 30, 1998 and 1997 were determined by dividing net income for the
periods by the weighted average number of both basic and diluted shares of
common stock and common stock equivalents outstanding (see Exhibit 11
attached). Stock options are regarded as common stock equivalents and are
considered in diluted earnings per share calculations. Common stock
equivalents are computed using the treasury stock method. ESOP shares not
committed to be released to participants are not considered outstanding for
purposes of computing earnings per share amounts. Earnings per share data
for the three and nine month period ended September 30, 1997 have been
restated for comparative purposes to reflect the implementation of
Statement of Financial Accounting Standards No. 128.
4. Impact of New Accounting Standards
Employers' Disclosure about Pension and Other Employee Benefits.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employer's Disclosures about Pension and Other
Postretirement Benefits" ("SFAS No. 132"). SFAS No. 132 alters current
disclosure requirements regarding pensions and other postretirement
benefits in the financial statements of employers who sponsor such benefit
plans. The revised disclosure requirements are designed to provide
additional information to assist readers in evaluating future costs related
to such plans. Additionally, the revised disclosures are designed to
provide changes in the components of pension and benefits costs in addition
to the year end components of those factors in the resulting asset or
liability related to such plans. The statement is effective for fiscal year
beginning after December 15, 1997 with earlier application available. The
Company has not yet determined the impact of adopting this statement.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which is effective for
fiscal years beginning after June 15, 1999. The statement requires all
derivatives to be recorded on the balance sheet at fair value. It also
establishes "specific accounting" for hedges of changes in the fair value
of assets, liabilities, or firm commitments (fair value hedges), hedges of
the variable cash flows of forecasted transactions (cash flow hedges), and
hedges of foreign currency exposures of net investments in foreign
operations. To the extent the hedge is considered highly effective, both
the change in the fair value of the derivative and the change in the fair
value of the hedged item are recognized (offset) in earnings in the same
period. Changes in fair value of derivatives that do not meet the criteria
of one of these three hedge categories are included in income. Management
of the Company does not expect that the adoption of SFAS No. 133 will have
a material effect on the consolidated statements of the Company.
The foregoing does not constitute a comprehensive summary of all
material changes or developments affecting the manner in which the Company
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.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION
September 30, 1998 compared to December 31, 1997
Total assets of the Company increased $18.9 million, or 18.91% to
$118.7 million at September 30, 1998 compared to $99.8 million at December 31,
1997. This increase was primarily attributable to the Company's loan growth
which was funded by an increase in both deposits and borrowed funds.
Cash and cash equivalents totaled a combined $8.3 million at September
30, 1998, an increase of $2.6 million from the combined balance of $5.7 million
at December 31, 1997.
Investment securities available for sale decreased $1.6 million to $6.6
million at September 30, 1998 as a result of proceeds from maturing U.S.
Treasury securities being utilized for lending purpose.
Loans receivable increased to $91.7 million at September 30, 1998, a
$14.7 million or 19.0% increase, as new loan originations of $19.4 million and
loan purchases of $13.4 million exceeded loan repayments of $18.2 million. Loan
purchases during the first nine months of 1998 were primarily in one to four
family residential first mortgage loans.
Total deposits at September 30, 1998 increased by $5.1 million or 7.2
%, as deposit receipts of $117.8 million and interest credited of $2.2 million
exceeded withdrawal activity of $112.1 million. This deposit gain was primarily
attributable to a special rate 13, 14, 17 month certificate of deposit program.
In addition, $2.7 million of deposits were sold to a local institution in
connection with the closing of the East Chicago branch.
Borrowed funds, which consist of FHLB of Indianapolis advances,
increased $13.7 million to $25.7 million at September 30, 1998. The increase in
borrowed funds was utilized to fund loan production during the period.
Stockholders' equity decreased $1.5 million to $13.3 million at
September 30, 1998 from $14.8 million at December 31, 1997. This decrease was
attributable to the purchase of treasury stock of $1.6 million, and the payment
of dividends on common stock of $181,000, which was offset by net income of
$65,000, an increase in net unrealized gain on securities available for sale of
$104,000, and normal amortization of RRP and ESOP benefits of $140,000.
Results of Operations
---------------------
The Company's results of operations depend primarily upon the level of net
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, 1998 and 1997
- ---------------------------------
Net Income. The Company's net income for the three months ended September 30,
1998 decreased $545,000 to a loss of $255,000 as compared to a profit of
$290,000 in the prior year's quarter. This decrease was due to a decrease in
non-interest income of $870,000, an increase in non-interest expense of $18,000,
and an increase in loan loss provision of $17,000, offset by an increase in net
interest income of $4,000 and a decrease in income taxes of $356,000.
Interest Income. Total interest income increased $178,000 or 9.65%, for the
three months ended September 30, 1998 compared to the prior year's quarter. This
increase is chiefly due to the higher volume of interest-earning assets of $13.4
million. This higher volume is due mostly to a higher volume of loans receivable
which reflects the Company's aggressive lending efforts. During the quarter
ended September 30, 1998, the average yield on interest-earning assets decreased
to 7.69% from 8.03% during the prior year's quarter. The decrease in yield on
average interest-earning assets was due primarily to reduced market interest
rates.
Interest Expense. Total interest expense increased $174,000 or 17.26%, for the
three months ended September 30, 1998 compared to the prior year's quarter. The
increase was due primarily to an increase of $14.1 million in the average
deposits and borrowed money outstanding and, to a lesser extent, by an increase
of 2 basis points in the average cost of funds.
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 judgement, 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.
A provision for loan losses of $32,000 was recorded during the three months
ended September 30, 1998 compared to $15,000 for the same quarter a year ago.
The increase in the provision for losses on loans was due to the continuing
growth in loans receivable. Non-performing loans at September 30, 1998 continue
to remain stable, as compared to December 31, 1997, and amounted to $328,000 or
.28% of net loans receivable. The allowance for loan losses at September 30,
1998 of $489,000 represents 149% of non-performing 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 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 decreased $870,000 to a
loss of $524,000 for the quarter ended September 30, 1998 compared to $346,000
of income for the same quarter a year ago. The decrease was due primarily to
financial market volatility which negatively impacted the Company's trading
portfolio consisting of local and regional banking and thrift equity securities.
Although the Company believes that its banking and thrift equity investments
have no exposure to foreign markets, its portfolio of equity securities has
experienced declines in value along with the rest of the market. The Company
reported an unrealized loss of $710,000 during the current quarter as compared
to a $172,000 unrealized gain recorded in the prior year's quarter. Non-interest
income also declined due to a decease of $16,000 in commissions from the sale of
various financial products by the Bank's wholly owned subsidiary NIFCO, offset
by an increase of $10,000 in loan and deposit related fees, and $27,000 profit
from the sale of the East Chicago deposit accounts.
Non-Interest Expense. The Company's non-interest expense increased $18,000 to
$713,000 for the quarter ended September 30, 1998 compared to $695,000 for the
same quarter a year ago. The increase was primarily the result of increased data
processing costs of $11,000 due to Y2K expenditures, and other operating
expenses of $32,000 due to expanded product offerings and the overall growth of
the Company's operations offset by a decrease in advertising costs of $16,000
and a decrease in occupancy and equipment expense of $8,000.
Provision for Income Taxes. The provision for income taxes decreased $355,000
for the three months ended September 30, 1998 as compared to the prior year
quarter due to a decrease in pre-tax income.
Comparison of Operating Results for the Nine Months
Ended September 30, 1998 and 1997
---------------------------------
Net Income. The Company's net income for the nine months ended September 30,
1998 decreased $705,000 to $65,000 as compared to $770,000 in the prior period.
This decrease was due to an increase in non-interest expense of $204,000, a
decrease in non-interest income of $914,000, and an increase in loan loss
provision of $39,000, offset by an increase in net interest income of $14,000
and a decrease in income taxes of $438,000.
Interest Income. Total interest income increased $582,000 or 10.99%, for the
nine months ended September 30, 1998 compared to the prior year. This increase
is chiefly due to the higher volume of interest-earning assets of $12.4 million.
This higher volume is due mostly to a higher volume of loans receivable which
reflects the Company's aggressive lending efforts. During the nine months ended
September 30, 1998, the average yield on interest-earning assets decreased to
7.73% from 7.93% during the prior year's period. The decrease in yield on
average interest-earning assets was due primarily to current market interest
rates.
Interest Expense. Total interest expense increased $568,000 or 20.55% for the
nine months ended September 30, 1998 compared to the prior year's period. The
increase was due primarily to an increase of $12.4 million in the average
deposits and borrowed money outstanding and, to a lesser extent, by an increase
of 12 basis points in the average cost of funds.
Provision of 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 judgement, 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.
A provision for loan losses of $85,000 was recorded during the nine months ended
September 30, 1998 compared to $46,000 for the same period a year ago. The
increase in the provision for losses was due to the continuing growth in loans
receivables. The Bank will continue to review its allowance for loan losses and
make future provision 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
the future periods.
Non-Interest Income. The Company's non-interest income decreased $914,000 for
the nine months ended September 30, 1998 compared to same period a year ago. The
decrease was primarily due to the recognition of $652,000 in unrealized losses
on the Company's trading portfolio, as previously discussed, compared with an
unrealized gain of $338,000 recorded in the prior year period, and a decrease of
$40,000 in commissions from the sale of various financial products by the Bank's
wholly owned subsidiary, NIFCO, offset in part by an increase in loan fees and
service charges of $33,000, an increase of $56,000 in deposit related fees due
in part to increases in ATM usage fees, and an increase of $25,000 in other
miscellaneous income including the profit of $27,000 on the sale of the East
Chicago deposits previously discussed.
Non-Interest Expense. The Company's non-interest expense increased $204,000 to
$2.2 million for the nine months ended September 30, 1998 compared to $2.0
million for the same period a year ago. The increase was primarily the result of
increased staffing costs of $107,000 due in part to bonuses of $44,000, normal
salary and benefit increases of $29,000, and the expense recognition of benefit
plans of $27,000, and an increase in other operating expenses of $111,000 due to
the expanded product offerings and growth in customer activity levels. Among the
increased expenses were bank correspondent and courier fees, telephone,
insurance and professional service expenses.
Provision for Income Taxes. The provision for income taxes decreased $437,000 to
$47,000 for the nine months ended September 30, 1998 as compared to the prior
year period due to a decrease in pre-tax income.
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, advances from the FHLB of Indianapolis 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.
Current Office of Thrift Supervision regulations require the Bank to maintain
cash and eligible investments in an amount equal to at least 4% of short term
customer accounts and borrowings to assure its ability to meet demands for
withdrawals and repayment of short term borrowings. 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, 1998, the Bank's liquidity ratio for regulatory purposes was
15.82%.
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 is dependent on the Company's operating,
financing and investing activities during any given period. At September 30,
1998 and December 31, 1997 cash and cash equivalents totaled $8.3 million and
$5.7 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, 1998 the Company has outstanding loan
commitments totaling $1.1 million and unused lines of credit granted totaling
$5.2 million.
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 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, 1998, the Bank had core capital equal to $8.2 million, or 7.16%
of adjusted total assets which was $3.6 million above the minimum leverage ratio
requirement of 4% in effect on that date. The Bank had total capital of $8.7
million (including $8.2 million in core capital and $500,000 in qualifying
supplementary capital) and risk-weighted assets of $64.3 million at September
30, 1998; or total risk-based capital of 13.47% of risk-weighted assets at
September 30, 1998. This amount was $3.5 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 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 principal on any loans or making loans at a rate
materially less than the market).
September 30, December 31,
1998 1997
------------- ------------
(Dollars in thousands)
Non-accruing loans:
One to four family 327 282
Multi- family -- 21
Non- residential -- --
Construction -- --
Consumer 1 5
--- ---
Total 328 308
--- ---
Foreclosed assets:
One to four family -- 27
Multi-family -- --
Non-residential -- --
Construction -- --
Consumer -- --
--- ---
Total 0 27
--- ---
Total non- performing assets 328 335
=== ===
Total as a percentage of total assets 0.28% 0.34%
=== ===
For the nine months period ended September 30, 1998, gross interest which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $6,500.
In addition to the non-performing assets set forth in the table above, as of
September 30, 1998, 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.
Year 2000 Compliance. The Company utilizes and is dependent upon data processing
systems and software to conduct its business. The data processing systems and
software include those developed and maintained by the Company's third-party
data processing vendor and purchased software which is run on in-house computer
networks. During the previous fiscal year, the Company initiated a review and
assessment of all hardware and software to confirm that it will function
properly in the year 2000. To date, those vendors which have been contacted have
indicated that their hardware or software is or will be Year 2000 compliant in
time frames that meet regulatory requirements. The costs associated with the
compliance efforts are not expected to have a significant impact on the
Company's ongoing results of operations.
Recent Developments
-------------------
The Company declared a cash dividend of $.08 per share, payable on November 27,
1998 to shareholders of record on November 13, 1998.
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) Financial Data Schedule (Exhibit 27 filed herewith)
(c) No reports on Form 8-K were filed this quarter
SIGNATURES
Pursuant to the requirements of Section 13 and 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: October 28, 1998
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)
INDEX TO EXHIBIT
Exhibit No.
- -----------
11 Statement re: Computation of Earnings Per Share
27 Financial Data Schedule