SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 10-Q
Amendment No. 1
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSACTION 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 35-1905382
-------- ----------
(State or other jurisdiction I.R.S. Employer
of incorporation or Identification
organization) Number
8230 Hohman Avenue, Munster, Indiana 46321-1578
- ------------------------------------ ----------
(Address of Principle executive offices) (Zip Code)
Registrant telephone number, include are 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 30, 1999 there were 1,124,125 shares of the Registrant's
common stock issued and 769,329 shares outstanding.
Transitional Small Business Disclosure Format (check one) : Yes ____ No_X_
AMB FINANCIAL CORP.
FORM 10-Q
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements Page
Consolidated Statements of Financial Condition at 3
June 30, 1999 (Unaudited) and December 31, 1998
Consolidated Statements of Earnings for the three 4
and six months ended June 30, 1999 and 1998
(unaudited)
Consolidated Statements of Changes in 5
Stockholders Equity, six months ended
June 30, 1999 (unaudited)
Consolidated Statements of Cash Flow for the 6
six months ended June 30, 1999 and 1998
(unaudited)
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial 9-18
Condition and Results of Operations
Part II. OTHER INFORMATION 19
Signatures 20
Index of Exhibits 21
Earnings Per Share Analysis (Exhibit 11) 22
Financial Data Schedule (Exhibit 27) 23
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, December 31,
1999 1998
---- ----
unaudited
Assets
Cash and amounts due from depository institutions 1,953,074 3,210,234
Interest-bearing deposits 2,525,931 5,887,182
------------ ------------
Total cash and cash equivalents 4,479,005 9,097,416
Investment securities, available for sale, at fair value 5,912,605 6,137,219
Trading securities 2,117,948 2,394,130
Mortgage backed securities, available for sale, at fair value 2,303,481 2,649,380
Loans receivable (net of allowance for loan losses:
$554,418 at June 30, 1999 and
$506,534 at December 31, 1998) 95,211,724 89,762,417
Investment in LTD Partnership 1,380,030 1,380,925
Real Estate Owned -- 23,369
Stock in Federal Home Loan Bank of Indianapolis 1,334,200 1,334,200
Accrued interest receivable 631,973 594,942
Office properties and equipment- net 414,709 427,823
Prepaid expenses and other assets 3,647,271 3,111,101
------------ ------------
Total assets 117,432,946 116,912,922
============ ============
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, December 31,
1999 1998
---- ----
unaudited
Liabilities and Stockholders' Equity
Liabilities
Deposits 80,627,445 78,997,215
Borrowed money 21,683,000 21,683,000
Notes Payable 1,391,454 1,391,454
Advance payments by borrowers for taxes and insurance 424,868 567,098
Other liabilities 1,095,135 861,325
------------ ------------
Total liabilities 105,221,902 103,500,092
============ ============
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 771,329 shares outstanding
at June 30, 1999 and 869,829 shares outstanding at 11,241 11,241
December 31, 1998
Additional paid- in capital 10,783,799 10,771,799
Retained earnings, substantially restricted 7,593,504 7,317,519
Accumulated other comprehensive income, net of income taxes (38,852) 113,856
Treasury stock, at cost (352,796 and 254,296 shares at
June 30, 1999 and December 31, 1998) (5,238,971) (3,844,015)
Common stock acquired by Employee Stock Ownership Plan (629,510) (629,510)
Common stock awarded by Recognition and Retention Plan (270,167) (328,060)
------------ ------------
Total stockholders' equity 12,211,044 13,412,830
------------ ------------
Total liabilities and stockholders' equity 117,432,946 116,912,922
============ ============
AMB FINANCIAL CORP.
AND SUBIDIARIES
Consolidated Statements of Earnings
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
unaudited unaudited unaudited unaudited
Interest income
Loans 1,813,141 1,708,971 3,576,127 3,359,690
Mortgage-backed securities 37,997 51,679 80,311 109,246
Investment securities 94,428 104,783 186,668 230,220
Interest-bearing deposits 67,973 57,109 139,668 119,248
Dividends on FHLB stock 26,611 17,425 52,929 32,836
---------- ---------- ---------- ----------
Total interest income 2,040,150 1,939,967 4,035,703 3,851,240
---------- ---------- ---------- ----------
Interest expense
Deposits 897,188 861,508 1,769,965 1,699,326
Borrowings 311,397 244,543 615,985 447,119
---------- ---------- ---------- ----------
Total interest expense 1,208,585 1,106,051 2,385,950 2,146,445
---------- ---------- ---------- ----------
Net interest income before
provision for loan losses 831,565 833,916 1,649,753 1,704,795
Provision for loan losses 34,146 29,923 66,049 52,855
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 797,419 803,993 1,583,704 1,651,940
---------- ---------- ---------- ----------
Non-interest income:
Loan fees and service charges 60,329 37,864 93,360 74,656
Commission income 20,945 13,225 29,370 18,105
Deposit related fees 72,946 81,047 144,538 154,556
Gain on sale of investment
securities available for sale 15,981 11,338 15,981 11,338
Gain on sale of trading securities 92,981 -- 92,981 24,086
Unrealized gain (loss) on trading
securities (10,543) (71,435) (14,908) 57,443
Gain (loss) on sale
of real estate owned -- (1,697) 9,904 (1,697)
Loss from investment
in joint venture -- (3,154)
Other income 42,529 29,490 85,172 49,458
---------- ---------- ---------- ----------
Total non-interest income 295,168 99,832 453,244 387,945
---------- ---------- ---------- ----------
AMB FINANCIAL CORP.
AND SUBIDIARIES
Consolidated Statements of Earnings
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
unaudited unaudited unaudited unaudited
Non-interest expense:
Staffing costs 334,771 361,109 685,659 751,944
Advertising 30,518 17,685 47,618 48,330
Occupancy and equipment expense 71,978 84,048 147,022 171,371
Data processing 97,746 90,427 199,430 180,991
Federal deposit insurance premiums 11,624 11,123 23,377 22,712
Other operating expenses 148,998 163,973 295,729 326,797
---------- ---------- ---------- ----------
Total non-interest expense 695,635 728,365 1,398,835 1,502,145
---------- ---------- ---------- ----------
Net income before income taxes 396,952 175,460 638,113 537,740
Provision for federal and state
income taxes 149,114 80,884 237,043 218,525
---------- ---------- ---------- ----------
Net income 247,838 94,576 401,070 319,215
========== ========== ========== ==========
Earnings per share- basic $ 0.33 $ 0.11 $ 0.52 $ 0.36
Earnings per share- diluted $ 0.33 $ 0.11 $ 0.52 $ 0.35
See accompanying notes to consolidated financial statements.
AMB FINANCIAL CORP.
AND SUBIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income Stock
----- ------- -------- ------ -----
Balance at December 31, 1998 $11,241 10,771,799 7,317,519 113,856 (3,844,015)
Comprehensive income:
Net income 401,070
Other comprehensive income,
net of income taxes:
Unrealized holding loss
during the period (152,708)
------- ---------- --------- ------- ----------
Total Comprehensive income 0 0 401,070 (152,708) 0
Amortization of award of
RRP stock
ESOP compensation adjustment 12,000
Purchase of treasury stock
(98,500 shares) (1,394,956)
Dividends declared on
common stock($.16 per share) (125,085)
------- ---------- --------- ------- ----------
Balance at June 30, 1999 11,241 10,783,799 7,593,504 (38,852) (5,238,971)
======= ========== ========= ======= ==========
Common Common
Stock Stock
Acquired Awarded
by ESOP by RRP Total
------- ------ -----
Balance at December 31, 1998 (629,510) (328,060) 13,412,830
Comprehensive income:
Net income 401,070
Other comprehensive income,
net of income taxes:
Unrealized holding loss
during the period (152,708)
-------- -------- ----------
Total Comprehensive income 0 0 248,362
Amortization of award of
RRP stock 57,893 57,893
ESOP compensation adjustment 12,000
Purchase of treasury stock
(98,500 shares) (1,394,956)
Dividends declared on
common stock($.16 per share) (125,085)
-------- -------- ----------
Balance at June 30, 1999 (629,510) (270,167) 12,211,044
======== ======== ==========
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30,
------------------------------
1999 1998
------------ ------------
(unaudited)
Cash flows from operating activities:
Net income $ 401,070 319,215
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 63,624 75,585
Amortization of premiums and discounts on
investment and mortgage-backed securities - net 17,335 3,910
Amortization of cost of stock benefit plans 57,893 57,893
Increase in deferred compensation 37,812 26,998
ESOP compensation 12,000 34,300
Provision for loan losses 66,049 52,855
Gain on sale of investment securities (15,981) (11,338)
Gain on sale of trading account securities (92,981) (24,086)
Unrealized (gain) loss on trading account securities 14,908 (57,443)
Purchase of trading account securities (93,750) (550,054)
Proceeds from sales of trading account securities 448,005 124,399
Gain on sale of real estate owned (9,904) --
Decrease in deferred income on loans (3,337) (51,109)
Increase in accrued interest receivable (37,031) (44,692)
Increase (decrease) in accrued interest payable (1,663) 38,317
Change in current and deferred income tax (30,496) (160,996)
Other, net (94,624) (162,359)
------------ ------------
Net cash provided by (for) operating activities 738,929 (328,605)
------------ ------------
Cash flows from investing activities:
Proceeds from maturities of investment securities 2,375,000
Proceeds from sale of investment securities 15,981 11,338
Purchase of investment securities (2,976) (617,299)
Proceeds from repayments of mortgage-backed
securities 301,638 473,894
Purchase of Federal Home Loan Bank stock -- (309,100)
Purchase of life insurance policies -- (1,515,000)
Purchase of loans (10,789,500) (8,969,935)
Loan disbursements (13,943,395) (12,908,140)
Loan repayments 19,110,190 11,620,082
Proceeds from sale of real estate owned 33,273 --
Property and equipment expenditures (50,510) (63,200)
------------ ------------
Net cash provided for investing activities (5,325,299) (9,902,360)
------------ ------------
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30,
------------------------------
1999 1998
------------ ------------
(unaudited)
Cash flows from financing activities:
Deposit account receipts 72,988,313 71,133,861
Deposit account withdrawals (72,772,391) (68,506,231)
Interest credited to deposit accounts 1,414,308 1,371,786
Proceeds from borrowed money -- 6,683,000
Increase (decrease) in advance payments by borrowers
for taxes and insurance (142,230) 113,721
Payment of dividends (125,085) (121,486)
Purchase of treasury stock (1,394,956) (945,709)
------------ ------------
Net cash provided by financing activities (32,041) 9,728,942
------------ ------------
Net change in cash and cash equivalents (4,618,411) (502,023)
Cash and cash equivalents at beginning of period 9,097,416 5,686,955
------------ ------------
Cash and cash equivalents at end of period $ 4,479,005 5,184,932
============ ============
Cash paid during the period for:
Interest $ 2,387,613 2,108,128
Income taxes 267,539 379,521
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 June 30, 1999, the results of
operations for the three and six months ended June 30, 1999 and 1998 and
cash flows for the six months ended June 30, 1999 and 1998. 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 six month periods ended June 30,
1999 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 six month periods ended June
30, 1999 and 1998 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.
4. Industry Segments
The Company operates principally in the banking industry through
its subsidiary bank. As such, substantially all of the Company's revenues,
net income, identifiable assets and capital expenditures are related to
banking operations.
5. Impact of New Accounting Standards
Accounting for Derivative Instruments and for Hedging Activities.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS No. 133"), entitled "Accounting for Derivative Instruments
and for Hedging Activities." SFAS No. 133 provides a comprehensive and
consistent standard for the recognition and measurement of derivatives and
hedging activities. The statement requires all derivatives to be recorded
on the balance sheet at fair value and establishes special accounting for
the following three different types of hedges: hedges of changes in the
fair value of assets, liabilities or firm commitments (referred to as 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. Though the accounting treatment and
criteria for each of the three types of hedges is unique, they all result
in recognizing offsetting changes in value or cash flow of both the hedge
and the hedged item in earnings in the same period. Changes in the fair
value of derivatives that do not meet the criteria of one of these three
categories of hedges are included in earnings in the period of the change.
SFAS No. 133 is effective for years beginning after June 15, 1999, but
companies can early adopt as of the beginning of any fiscal quarter that
begins after June 1998. Management does not believe that adoption of SFAS
No. 133 will have a material impact on the Company's 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
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
June 30, 1999 compared to December 31, 1998
Total assets of the Company increased $520,000 to $117.4 million
at June 30, 1999 compared to $116.9 million at December 31, 1998. The
increase is primarily due to an increase in deposits which was used to fund
mortgage loans.
Cash and cash equivalents totaled a combined $4.5 million at June
30, 1999, a decrease of $4.6 million from the combined balance of $9.1
million at December 31, 1998. The Company used $1.4 million to purchase
98,500 shares of common stock into treasury during the quarter.
Mortgage backed securities available for sale decreased $346,000
to $2.3 million at June 30, 1999 as a result of normal amortization
prepayments.
Loans receivable increased to $95.2 million at June 30, 1999, a
$5.4 million or 6.07% increase from December 31, 1998, as new loan
originations of $13.9 million and loan purchases of $10.8 million exceeded
loan repayments of $19.1 million. Loan purchases during the first six
months of 1999 were primarily in one to four family residential first
mortgage loans.
Total deposits at June 30, 1999 increased by $1.6 million or 2.6%
as deposit receipts of $73.0 million and interest credited of $1.4 million
exceeded withdrawal activity of $72.8 million. This deposit gain was
primarily attributable to a special rate 18 month certificate of deposit
program.
Stockholders' equity decreased $1.2 million to $12.2 million at
June 30, 1999 from $13.4 million at December 31, 1998. This decrease was
attributable to the purchase of treasury stock of $1.4 million, the payment
of dividends on common stock of $125,000, and a decrease in net unrealized
gains on securities available for sale of $153,000, which was offset net
income of $401,000 and normal amortization of RRP and ESOP benefits of
$70,000.
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 June 30, 1999 and 1998
Net Income. The Company's net income for the three months ended June 30,
1999 increased $153,000 to $248,000 as compared to $95,000 in the prior
year's quarter. This increase was due to an increase in non-interest income
of $195,000, and a decrease in non-interest expenses of $33,000, offset by
a decrease in net interest income before provision for loan losses of
$3,000, an increase in loan loss provision of $4,000 and an increase in
income taxes of $68,000.
Interest Income. Total interest income increased $100,000 or 5.16%, for the
three months ended June 30, 1999 compared to the prior year's quarter. This
increase is chiefly due to the higher volume of interest-earning assets of
$11.2 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 June 30, 1999, the average yield on interest-earning
assets decreased to 7.29% from 7.71% during the prior year's quarter. The
decrease in yield on average interest-earning assets was due to a 41 basis
point reduction in the yield on average loans which reflects the effects of
the lower long term interest rate environment over the last twelve months.
Interest Expense. Total interest expense increased $103,000 or 9.27%, for
the three months ended June 30, 1999 compared to the prior year's quarter.
The increase was due primarily to an increase of $13.3 million in the
average deposits and borrowed money outstanding, partially offset by a
decrease in the average interest rate to 4.62% from 4.84%.
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 $34,000 was recorded during the three months
ended June 30, 1999 compared to $30,000 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 June 30, 1999 increased
to $916,000, or .96% of net loans receivable, compared to $506,000 or .56%
of net loans receivable as of December 31, 1998. The increase in
non-performing loans is attributable to a $500,000 first mortgage
participation construction loan on a strip center which became more than 90
days delinquent at June 30, 1999. Base on appraisal value, location and
personal guarantees of the partners in the project, no anticipated loss of
principal is expected. The allowance for loan losses at June 30, 1999 of
$554,000 represents 60.48% 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 of that additional
provisions for loan losses will not be required in future periods.
Non-Interest Income. The Company's non-interest income increased $195,000
to $295,000 for the quarter ended June 30, 1999 compared to $100,000 for
the same quarter a year ago. The increase was due primarily as a result of
an increase in gains on sale of trading securities of $93,000, a decrease
in unrealized losses on the Company's trading portfolio of $61,000
reflecting stability and a slight firming in value of holdings in community
bank and thrift stocks which comprise the Company's trading portfolio, an
increase of $22,000 in commission and fee income, an increase in gain on
sale of investments available for sale of $5,000, and an increase in other
operating income of $14,000 of which $10,000 was in increased cash
surrender value from insurance policies.
Non-Interest Expense. The Company's non-interest expense decreased $33,000
to $695,000 for the quarter ended June 30, 1999 compared to $728,000 for
the same quarter a year ago. The decrease was primarily the result of
decreased staffing costs of $26,000, a decrease in occupancy and equipment
expense of $12,000, primarily in reduced depreciation, and a decrease in
other operating expenses of $15,000, offset by an increase in advertising
of $13,000 for promotion of Certificate solicitation and help wanted ads,
and an increase in data processing of $7,000 due to the overall growth of
the Company's operation, new remote banking system, and Y2K programming
/testing.
Provision for Income Taxes. The provision for income taxes increased
$68,000 to $149,000 for the three months ended June 30, 1999 as compared to
the prior year quarter due to an increase in pre-tax income.
Comparison of Operating Results for the Six Months
Ended June 30, 1999 and 1998
Net Income. The Company's net income for the six months ended June 30, 1999
increased $82,000 to $401,000 as compared to $319,000 in the prior period.
This increase was due to an increase in non-interest income of $65,000, and
a decrease in non-interest expense of $103,000, offset by a decrease in net
interest income before provision for loan losses of $55,000, an increase in
loan loss provision of $13,000, and an increase in income taxes of $18,000.
Interest Income. Total interest income increased $185,000 or 4.79%, for the
six months ended June 30, 1999 compared to the prior year. This increase is
chiefly due to the higher volume of interest-earning assets of $11.2
million. This higher volume is due mostly to a higher volume of loans
receivable which reflects the Company's aggressive lending efforts. During
the six months ended June 30, 1999, the average yield on interest-earning
assets decreased to 7.30% from 7.75% during the prior year's period. The
decrease in yield on average interest-earning assets was due primarily to a
44 basis point reduction in the yield on average loans which is
attributable to the high level of refinance and modification activity
experienced by the Bank over the past twelve months due to declining long
term interest rates.
Interest Expense. Total interest expense increased $240,000 or 11.16% for
the six months ended June 30, 1999 compared to the prior year's period. The
increase was due primarily to an increase of $13.5 million in the average
deposits and borrowed money outstanding, partially offset by a 16 basis
point decrease in the average cost of funds to 4.64% from 4.80%.
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 $66,000 was recorded during the six months
ended June 30, 1999 compared to $53,000 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 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 increased $65,000 to
$453,000 for the six months ended June 30, 1999 compared to $388,000 for
the same period a year ago. The increase was primarily due as a result of
an increase in gains on sale of trading securities of $69,000, an increase
of $20,000 in commission and fee income, an increase in gain on sale of
real estate owned of $12,000, and an increase in other operating income of
$36,000 of which $29,000 was in increased cash surrender value from
insurance policies, offset by a decline in income from unrealized gains on
trading securities of $72,000.
Non-Interest Expense. The Company's non-interest expense decreased $103,000
to $1.4 million for the six months ended June 30, 1999 compared to $1.5
million for the same period a year ago. The decrease was the result of
decreased staffing costs of $66,000, due primarily to reduced staffing and
a $44,000 bonus paid and expensed during the first quarter of 1998 that did
not occur during the 1999 period, a decrease in occupancy and equipment
expense of $24,000 primarily in reduced depreciation, and a decrease in
other operating expenses of $31,000 due to increased efficiencies, offset
by an increase in data processing costs of $18,000 due to the overall
growth of the Company's operations, remote banking, and Y2K expenditures.
Provision for Income Taxes. The provision for income taxes increased
$82,000 to $237,000 for the six months ended June 30, 1999 as compared to
the prior year period due to an increase 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 June 30, 1999, the
Bank's liquidity ratio for regulatory purposes was 11.81%.
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 June 30, 1999 and December 31, 1998 cash and
cash equivalents totaled $4.5 million and $9.1 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, 1999 the Company has outstanding loan
commitments totaling $2.2 million and unused lines of credit granted
totaling $4.9 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 June 30, 1999, the Bank had core capital equal to $8.9 million, or 7.84%
of adjusted total assets which was $5.5 million above the minimum leverage
ratio requirement of 3% in effect on that date. The Bank had total capital
of $9.4 million (including $8.9 million in core capital and $500,000 in
qualifying supplementary capital) and risk-weighted assets of $64.4 million
at June 30, 1999; or total risk-based capital of 14.64% of risk-weighted
assets at June 30, 1999. This amount was $4.3 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 a loan whose collectability 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).
June 30, December 31,
1999 1998
-------- ------------
(Dollars in thousands)
Non- accruing loans:
One to four family 399 397
Multi- family -- --
Non- residential -- --
Construction 500 --
Consumer 17 86
--- ---
Total 916 473
--- ---
Foreclosed assets:
One to four family -- 23
Multi-family -- --
Non-residential -- --
Construction -- --
Consumer -- --
--- ---
Total 0 23
--- ---
Total non- performing assets 916 506
=== ===
Total as a percentage of total assets 0.78% 0.43%
==== ====
For the six months period ended June 30, 1999, gross interest which would
have been recorded had the non-accruing loans been current in accordance
with their original terms amounted to $21,300.
In addition to the non-performing assets set forth in the table above, as
of June 30, 1999, 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 Readiness Disclosure
General. The year 2000 ("Y2K") issues confronting the Company and its
suppliers, customers, customers' suppliers and competitors centers on the
inability of computer systems to recognize the year 2000. Many existing
computer programs and systems originally were programmed with six digit
dates that provided only two digits to identify the calendar year 1900
rather than the year 2000.
Financial institution regulators recently have increased their focus upon
Y2K compliance issues and have issued guidance concerning the
responsibilities of senior management and directors. The Federal Financial
Institutions Examination Council ("FFIEC") has issued several interagency
statements on Y2K Project Management Awareness. These statements require
financial institutions to, among other things, examine the Y2K implications
of their reliance on vendors and with respect to data exchange and the
potential impact of the Y2K issue on their customers, suppliers and
borrowers. These statements also require each federally regulated financial
institution to survey its exposure, measure its risk and prepare a plan to
address the Y2K issue. In addition, the federal banking regulators have
issued safety and soundness guidelines to be followed by insured depository
institutions, such as the Bank, to assure resolution of any Y2K problems.
The federal banking agencies have asserted that Y2K testing and
certification is a key safety and soundness issue in conjunction with
regulatory exams and, thus, that an institution's failure to address
appropriately the Y2K issue could result in supervisory action, including
the reduction of the institution's supervisory ratings, the denial of
applications for approval of mergers or acquisitions or the imposition of
civil money penalties.
American Savings, FSB understands the importance of the Y2K issue, and the
Bank is currently taking steps to insure a smooth transition into the next
millenium. The Senior Management Team of the Bank has decided to follow the
guidelines established by the Federal Financial Institutions Examination
Council (FFIEC) for Y2K preparation. The Bank has intended to meet all
deadlines established by the FFIEC, and to-date the Bank has satisfied all
requirements.
A Steering Committee comprised of the Bank's department heads was
established in 1998 to oversee and report all the events pertaining to the
Y2K project. These individuals are under the direct supervision of the
Bank's CEO and prepare regular reports to the Board of Directors.
Risks. Like most financial service providers, the Y2K issue due to its
dependence on technology and date-sensitive data may significantly affect
the Company and its operations. Computer software and hardware and other
equipment, both within and outside the Company's direct control, and third
parties with whom the Company electronically or operationally interfaces
(including without limitation its customers and third party vendors) are
likely to be affected. If computer systems are not modified in order to be
able to identify the year 2000, many computer applications could fail or
create erroneous results. As a result, many calculations which rely on date
field information, such as interest, payment or due dates and other
operating functions, could generate results which are significantly
misstated, and the Company could experience an inability to process
transactions, prepare statements or engage in similar normal business
activities. Likewise, under certain circumstances, a failure to adequately
address the Y2K issue could adversely affect the viability of the Company's
suppliers and creditors and the creditworthiness of its borrowers. Thus, if
not adequately addressed, the Y2K issue could result in a significant
adverse impact on the Company's operations and, in turn, its financial
condition and results of operations.
The Bank has adopted a five-phase plan to insure Y2K processing success.
Many aspects required for the plan's success have been completed, and are
currently undergoing minor improvement adjustments. The main categories of
the five-phase plan are as follows:
1. Awareness During this phase of the American Savings Y2K
program the senior management members attempted to gather
information relevant to the Bank's Y2K scenario. Information
was gathered from a variety of sources including seminars,
numerous publications and external consultants.
2. Assessment During the assessment phase of the Bank's Y2K
program each department of the Bank submitted information on
areas that presented a potential risk to the institution.
Members of the Y2K Steering Committee identified the "date
sensitive" systems and assigned a risk rating to the
individual items. The areas classified as "mission critical"
receive a higher priority rating from the committee.
3. Renovation Through out the renovation phase of Bank's Y2K
program systems were replaced or upgraded to insure Y2K
compliance. The cost associated with this phase were not
material during 1998 and a substantial change in 1999 is not
expected.
4. Testing American Savings performed internal testing on all
in-house systems and some systems under the control of service
providers. Proxy tests were used to test the integrity of the
Bank's core application system. The senior management of the
Bank is currently satisfied with the progress of the test
results.
5. Contingency American Savings contingency plan is designed to
address the areas deemed by the Y2K committee as mission
critical. The Bank followed the guidelines of the FFIEC for
the preparation of its Y2K contingency plan. In the event of a
mission critical failure the contingency plan will assist
management in implementing short and long term solutions to
the system failures.
The Company is expensing all cost associated with training and software as
those costs are incurred, and such costs are being funded through operating
cash flows. Hardware cost will be capitalized and expensed under our fixed
asset guidelines. The updated total cost of the Y2K conversion project for
the Company is estimated to be $67,000. Expenses of $62,000 were incurred
and expensed by the Company through June 30, 1999. The Company does not
expect significant increases in future data processing costs related to Y2K
compliance. While we believe this amount will be sufficient to complete the
requirements of becoming Y2K compliant, it is an estimate. As such we will
review our budget monthly to help ensure that we have allocated sufficient
resources to this project. Any deviations to the budget will be reported to
the Board of Directors.
Recent Developments
The Company declared a cash dividend of $.08 per share, payable on August
20, 1999 to shareholders of record on August 6, 1999.
The Company repurchased an additional 2,000 shares of stock at an average
price of $13.13 per share. After this transaction, a total of 7,000 shares
have been repurchased of the announced stock repurchase program of 50,000
of its outstanding shares. As of July 30, 1999 there were 1,124,125 shares
issued, 769,329 shares outstanding, and 354,796 Treasury shares.
PART 11 - 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: August 4, 1999
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