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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2001
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.
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(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
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(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 130 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 24, 2001 there were 1,686,169 shares of the Registrant's
common stock issued and 866,463 shares outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
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AMB FINANCIAL CORP.
FORM 10-Q
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
September 30, 2001 (Unaudited) and December 31, 2000 3
Consolidated Statements of Earnings for the three and
nine months ended September 30, 2001 and 2000 (unaudited) 4
Consolidated Statements of Changes in Stockholders
Equity, nine months ended September 30, 2001 (unaudited) 5
Consolidated Statements of Cash Flows for the Nine
months ended September 30, 2001 and 2000 (unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-20
Part II. OTHER INFORMATION 21
Signatures 22
Index of Exhibits 23
Earnings Per Share Analysis (Exhibit 11) 24
2
AMB FINANCIAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, DECEMBER 31,
2001 2000
------------ ------------
unaudited
ASSETS
------
Cash and amounts due from depository institutions 3,944,006 3,529,829
Interest-bearing deposits 3,703,910 1,084,703
------------ ------------
Total cash and cash equivalents 7,647,916 4,614,532
Investment securities, available for sale, at fair value 3,511,402 3,928,311
Trading securities 653,204 936,159
Mortgage backed securities, available for sale, at fair value 3,438,080 3,423,944
Loans receivable (net of allowance for loan losses:
$735,656 at September 30, 2001 and
$701,173 at December 31, 2000) 114,771,924 112,482,467
Investment in LTD Partnership 1,169,672 1,233,772
Stock in Federal Home Loan Bank of Indianapolis 1,624,400 1,624,400
Accrued interest receivable 686,433 720,970
Office properties and equipment- net 2,172,687 2,251,267
Prepaid expenses and other assets 4,970,135 4,483,022
------------ ------------
Total assets 140,645,853 135,698,844
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
-----------
Deposits 99,153,013 89,711,720
Borrowed money 26,506,190 31,108,134
Notes Payable 1,089,400 1,260,088
Advance payments by borrowers for taxes and insurance 681,943 468,264
Other liabilities 1,746,913 1,651,287
------------ ------------
Total liabilities 129,177,459 124,199,493
------------ ------------
Stockholders' Equity
--------------------
Preferred stock, $.01 par value; authorized 100,000 shares;
none outstanding -- --
Common Stock, $.01 par value; authorized 1,900,000 shares;
1,686,169 shares issued and 869,163 shares outstanding at
September 30, 2001 and 939,475 shares outstanding at December 31, 2000 16,862 16,862
Additional paid-in capital 10,852,844 10,822,244
Retained earnings, substantially restricted 8,840,129 8,404,133
Accumulated other comprehensive income, net of income taxes 184,676 68,462
Treasury stock, at cost (817,006 shares at September 30,2001 and 746,694
shares at December 31, 2000) (7,966,818) (7,266,212)
Common stock acquired by Employee Stock Ownership Plan (449,650) (449,650)
Common stock awarded by Recognition and Retention Plan (9,649) (96,488)
------------ ------------
Total stockholders' equity 11,468,394 11,499,351
------------ ------------
Total liabilities and stockholders' equity 140,645,853 135,698,844
============ ============
3
AMB FINANCIAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
THREE MONTHS THREE MONTHS NINE MONTHS NINE MONTHS
ENDED ENDED ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------ ------------ ------------ ------------
2001 2000 2001 2000
------------ ------------ ------------ ------------
unaudited unaudited unaudited unaudited
Interest income
Loans 2,162,006 2,196,046 6,701,518 6,252,164
Mortgage-backed securities 64,535 61,198 188,239 147,992
Investment securities 50,301 60,179 169,686 212,528
Interest-bearing deposits 35,429 32,581 123,664 111,223
Dividends on FHLB stock 29,685 29,560 93,114 84,598
------------ ------------ ------------ ------------
Total interest income 2,341,956 2,379,564 7,276,221 6,808,505
------------ ------------ ------------ ------------
Interest expense
Deposits 1,169,508 1,148,106 3,652,181 3,181,717
Borrowings 373,073 353,375 1,208,988 1,082,810
------------ ------------ ------------ ------------
Total interest expense 1,542,581 1,501,481 4,861,169 4,264,527
------------ ------------ ------------ ------------
Net interest income before
provision for loan losses 799,375 878,083 2,415,052 2,543,978
Provision for loan losses 51,209 58,231 112,809 108,810
------------ ------------ ------------ ------------
Net interest income after
provision for loan losses 748,166 819,852 2,302,243 2,435,168
------------ ------------ ------------ ------------
Non-interest income:
Loan fees and service charges 36,807 24,423 101,501 73,284
Commission income 7,580 14,716 58,785 30,502
Deposit related fees 110,594 91,787 322,873 264,829
Rental Income 80,706 -- 221,577 --
Gain (loss) on sale of investment
securities available for sale -- -- 17,781 (4,676)
Gain (loss) on sale of trading securities 4,612 -- 67,033 (75,014)
Unrealized gain (loss) on trading
securities (15,792) 66,072 69,725 116,448
Loss from investment in limited
partnership (9,000) (22,187) (64,100) (80,563)
Loss on disposition of fixed asset -- -- -- (7,822)
Other income 46,887 41,085 138,242 135,917
------------ ------------ ------------ ------------
Total non-interest income 262,394 215,896 933,417 452,905
------------ ------------ ------------ ------------
Non-interest expense:
Staffing costs 397,538 302,536 1,185,047 1,045,475
Advertising 9,808 19,551 40,895 54,436
Occupancy and equipment expense 117,698 88,622 351,938 273,262
Data processing 115,136 103,486 335,966 305,840
Federal deposit insurance premiums 4,601 4,667 13,590 13,651
Other operating expenses 170,541 157,729 570,832 450,817
------------ ------------ ------------ ------------
Total non-interest expense 815,322 676,591 2,498,268 2,143,481
------------ ------------ ------------ ------------
Net income before income taxes 195,238 359,157 737,392 744,592
Provision for federal and state
income taxes 31,367 93,272 155,299 160,076
------------ ------------ ------------ ------------
Net income 163,871 265,885 582,093 584,516
============ ============ ============ ============
Earnings per share- basic $ 0.20 $ 0.30 $ 0.72 $ 0.65
Earnings per share- diluted $ 0.20 $ 0.30 $ 0.70 $ 0.65
See accompanying notes to consolidated financial statements.
4
AMB FINANCIAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER'S EQUITY
(UNAUDITED)
Accumulated Common Common
Additional Other Stock Stock
Common Paid-in Retained Comprehensive Treasury Acquired Awarded
Stock Capital Earnings Income Stock by ESOP by RRP Total
---------- ----------- ---------- ----------- ----------- ---------- --------- ----------
Balance at December 31, 2000 $ 16,862 10,822,244 8,404,133 68,462 (7,266,212) (449,650) (96,488) 11,499,351
---------- ----------- ---------- ----------- ----------- ---------- --------- ----------
Comprehensive income:
Net income 582,093 582,093
Other comprehensive
income, net of income
taxes:
Unrealized holding
gain during the period 118,486 118,486
Less: Reclassification
adjustment of gains
included in net income (2,272) (2,272)
---------- ----------- ----------
Total comprehensive income 582,093 116,214 698,307
Purchase of treasury stock
(70,312 shares) (700,606) (700,606)
Amortization of award of RRP
stock 86,839 86,839
ESOP compensation adjustment 30,600 30,600
Dividends declared on common
stock ($.18 per share) (146,097) (146,097)
---------- ----------- ---------- ----------- ----------- ---------- --------- ----------
Balance at September 30, 2001 $ 16,862 10,852,844 8,840,129 184,676 (7,966,818) (449,650) (9,649) 11,468,394
========== =========== ========== =========== =========== ========== ========= ==========
See accompanying notes to consolidated financial statements
5
AMB FINANCIAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
2001 2000
------------ ------------
(unaudited)
Cash flows from operating activities:
Net income $ 582,093 584,516
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 150,573 115,261
Amortization of cost of stock benefit plans 86,839 86,839
Amortization of premiums and discounts on
investment and mortgage-backed securities - net 4,544 10,182
Provision for loan losses 112,809 108,810
Increase in deferred compensation 63,482 62,744
ESOP compensation 30,600 23,400
Increase in cash surrender value of life insurance (116,865) (101,021)
Gain (loss) on sale of investment securities
available for sale (17,781) 4,676
Gain (loss) on sale of trading account securities (67,033) 75,014
Unrealized (gain) loss on trading account securities (69,725) (116,448)
Proceeds from sales of trading account securities 419,713 974,636
Loss from limited partnership 64,100 80,563
Loss on disposal of fixed assets -- 7,822
Incease (decrease) in deferred income on loans 3,274 22,181
(Increase) decrease in accrued interest receivable 34,537 (100,911)
Increase (decrease) in accrued interest payable (9,096) 38,289
Change in current and deferred income tax 30,299 (162,924)
Other, net (436,783) 555,497
------------ ------------
Net cash provided by ( for) operating activities 865,580 2,269,126
------------ ------------
Cash flows from investing activities:
Proceeds from sale of investment securities 519,933 1,530,205
Purchase of investment securities (5,962) (5,841)
Proceeds from repayments of mortgage-backed securities 595,670 299,229
Proceeds from sales of mortgage-backed securities -- 361,625
Purchase of mortgage-backed securities (499,941) (2,162,287)
Purchase of loans (10,341,295) (4,603,563)
Disbursements for loans (18,469,033) (19,655,785)
Loan repayments 26,404,788 18,085,855
Property and equipment expenditures (71,993) (248,452)
------------ ------------
Net cash provided for investing activities (1,867,833) (6,399,014)
------------ ------------
Cash flows from financing activities:
Deposit account receipts 145,647,801 135,476,123
Deposit account withdrawals (139,353,420) (131,770,604)
Interest credited to deposit accounts 3,146,912 2,708,164
Proceeds from borrowed money 11,500,000 10,023,363
Repayment of borrowed money (16,101,944) (12,069,362)
Repayment of note payable (170,688) (118,788)
Increase in advance payments by borrowers
for taxes and insurance 213,679 226,073
Dividend paid on common stock (700,606) (149,496)
Purchase of treasury stock (146,097) (948,109)
------------ ------------
Net cash provided by financing activities 4,035,637 3,377,364
------------ ------------
Net change in cash and cash equivalents 3,033,384 (752,524)
Cash and cash equivalents at beginning of period 4,614,532 5,457,738
------------ ------------
Cash and cash equivalents at end of period $ 7,647,916 4,705,214
============ ============
Cash paid during the period for:
Interest $ 4,870,265 4,226,238
Income taxes 125,000 323,000
See 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, 2001, the results of
operations for the three and nine months ended September 30, 2001 and 2000
and cash flows for the nine months ended September 30, 2001 and 2000. 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, 2001 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,
2001 and 2000 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
7
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
----------------------------------
In July 2001, the FASB issued Statement of Financial Accounting Standards
No. 141, "Business Combinations" ("SFAS No. 141") and Statement of
Financial Accounting Standards No. 142, "Goodwill and Other Intangibles
Assets" (SFAS No.142). SFAS No. 141 requires that all business combinations
initiated after June 30, 2001 be accounted for under the purchase method
and addresses the initial recognition and measurement of goodwill and other
intangibles assets acquired in a business combination. SFAS No. 142
addresses the initial recognition and measurement of intangible assets
acquired outside of a business combination and the accounting for goodwill
and other intangible assets subsequent to their acquisition. SFAS No. 142
provides that intangible assets with finite useful lives be amortized and
that goodwill and intangible assets with indefinite lives will not be
amortized, but will rather be tested at least annually for impairment. SFAS
No. 142 is effective January 1, 2002 for calendar year companies, however,
any acquired goodwill or intangible assets recorded in transactions closed
subsequent to June 30, 2001 will be subject immediately to the
non-amortization and amortization provisions of SFAS No. 142. The Company
does not believe these statements will have a material impact on its
financial position or results of operations.
The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the 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.
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION
----------------------------------------------------------
This report, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and elsewhere, contains, and other periodic
reports and press releases of the Company may contain, certain
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1973, as amended, and Section 21E of the Securities
Exchanged Act of 1934, as amended. The Company intends such forward-looking
statements to be covered by the safe harbor provisions for forward-looking
statements contained in the Private Securities Litigation Reform Act of
1995, and is including this statement for purposes of invoking these safe
harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies and expectations of the
Company are generally identifiable by the words "believe, intend,
anticipate, estimate, project, plan", or similar expressions. The Company's
ability to predict results or the actual effect of future plans or
strategies is inherently uncertain and actual results may differ from those
predicted. Factors which could have a material adverse effect on the
operations and future prospects of the Company and the subsidiaries
include, but are not limited to changes in interest rates, general economic
conditions, legislative/regulatory changes, monetary and fiscal policies of
the U.S. Government, including policies of the U.S. Treasury and the
Federal Reserve Board, the quality or composition of the Company's loan or
investment portfolios, demand for loan products, deposit flows, cost and
availability of borrowings, competition, demand for financial services in
the Company's market area, the possible short-term dilutive effect of
potential acquisitions, and tax and financial accounting principles,
policies and guidelines. These risks and uncertainties should be considered
in evaluating forward-looking statements and undue reliance should not be
placed on such statements.
9
FINANCIAL CONDITION
-------------------
SEPTEMBER 30, 2001 COMPARED TO DECEMBER 31, 2000
Total assets of the Company increased $4.9 million, or 3.6% to $140.6
million at September 30, 2001, compared to $135.7 million at December 31,
2000, due primarily to an increase in cash and interest-bearing deposits
and loans receivable funded by an increase in deposit balances. Management
expects additional modest balance sheet growth during the balance of the
year, primarily due to recent declines in long-term interest rates.
Cash and short-term investments increased by $3.0 million to $7.6 million
at September 30, 2001 from a combined $4.6 million at December 31, 2000.
The increase is due to deposit inflows experienced during the period. The
excess cash is expected to be redeployed into loan production, investment
securities, or to repay maturing borrowings.
Investments securities available for sale decreased by $417,000 to $3.5
million at September 30, 2001. The decrease is primarily attributable to
the sale of a $500,000 U.S. Treasury security that was reinvested in a
mortgage-backed security in order to obtain a slightly better yield. Gross
unrealized gains in the available for sale portfolio were $111,000 at
September 30, 2001 compared to gross unrealized gains of $8,000 at December
31, 2000, reflecting the positive impact of lower interest rates.
Trading account securities declined by $283,000 to $653,000 at September
30, 2001. The decrease is attributable to stock sales in the amount of
$353,000 offset by a decline in unrealized losses in the portfolio of
$70,000.
Mortgage-backed securities available for sale increased by $14,000 to $3.4
million at September 30, 2001. The increase is primarily due to purchases
of $500,000 and an increase in unrealized gains of $91,000 offset by
prepayments and amortization of $577,000. Gross unrealized gains in the
available for sale portfolio were $197,000 at September 30, 2001 compared
to gross unrealized gains of $106,000 at December 31, 2000, again
reflecting the positive impact of lower interest rates.
Loans receivable increased to $114.8 million at September 30, 2001, a $2.3
million increase from December 31, 2000. The Bank originated both
residential and non-residential loans of $18.5 million primarily
residential and to a lesser extent non-residential, and purchased loans
totaling $10.3 million (including commercial leases and receivables
totaling $5.7 million) during the nine month period ended September 30,
2001, compared to $19.7 million of originations and $4.6 million of
purchases during the prior year period. Offsetting originations and
purchases were amortization
10
and prepayments totaling $26.4 million and $18.1 million for the nine month
periods ended September 30, 2001 and 2000. The Company continues to remain
focused on an aggressive lending effort, however, the recent declines in
long-term interest rates have led to a higher level of mortgage prepayments
resulting in modest loan growth.
Liabilities increased from $124.2 million at December 31, 2000, to $129.2
million at September 30, 2001, an increase of $5.0 million, or 4.0%. The
primary reason for the increase in total liabilities was an increase in
deposit accounts. Deposits increased by $9.5 million, to $99.2 million at
September 30, 2001. The increase is primarily due to the Company's
aggressive competitive certificate rate pricing, primarily on nine to
fifteen month terms. Borrowed money, which consists of FHLB of Indianapolis
advances, decreased during the period by $4.6 million to $26.5 at September
30, 2001. Currently, there is $6.0 million of FHLB maturing over the next
twelve month period at a weighted average rate of 4.60%.
Total stockholder's equity decreased by $31,000 to $11.5 million at
September 30, 2001 from the balance at December 31, 2000. This decrease was
due to the repurchase of common stock in the amount of $701,000 and the
payment of dividends on common stock of $146,000, which was offset by net
income of $582,000, an increase of $116,000 in the net unrealized gain on
securities available for sale and normal amortization of RRP and ESOP
benefits of $118,000. The Company is no longer subject to regulatory
limitations on stock repurchases and intends to continue modest repurchases
of stock.
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED SEPTEMBER 30, 2001
AND 2000
NET INCOME
The Company's net income for the three months ended September 30, 2001 was
$164,000, a decrease of $102,000 compared to the three months ended
September 30, 2000. This decrease was primarily due to a decrease in net
interest income of $79,000, and an increase in non-interest expense
$138,000 offset by an increase in non-interest income of $46,000 and a
decrease in income taxes of $62,000.
INTEREST INCOME
Total interest income decreased $38,000 or 1.6%, for the three months ended
September 30, 2001 compared to the prior year as a result of a 33 basis
point decline in the average yield, offset by a $3.5 million increase in
the average volume of interest earning assets. For the three months ended
September 30, 2001 and 2000, the Company's average yield on interest
earning assets was 7.39% and 7.72%, respectively, while the Company's
average interest earning assets were $126.8 million and $123.3 million. The
decrease in yield is primarily attributable to loans receivable due to
prepayments of high interest rate loans and a high volume of refinancing at
11
lower interest rates. The higher volume is primarily due to loans
receivable as a result of the Company's continued aggressive lending
efforts. Interest income from loans decreased $34,000 as a result of a 32
basis point decline to 7.56% in the average yield on loans receivable,
offset by a $2.9 million increase to $114.4 million in average loans
receivable.
INTEREST EXPENSE
Total interest expense increased $41,000 or 2.7% for the three months ended
September 30, 2001 compared to the prior year. This increase was due to a
$5.5 million increase in the average volume of interest bearing
liabilities, offset by a 10 basis point decline in average cost of interest
bearing liabilities. For the three months ended September 30, 2001 and
2000, the Company's average interest bearing liabilities were $123.5
million and $118.0 million, respectively, while the average cost on
interest bearing liabilities was 4.99% and 5.09%. Interest on deposits
increased by $21,000 or 1.9% for the third quarter of 2001, due to a $2.0
million increase to $97.4 million in average deposits compared to the prior
year's quarter, offset by a 1 basis point decrease to 4.80% in the average
cost of deposits compared to the prior year's three month period. The
growth in average deposits is attributable to an increase in certificate of
deposit balances.
Interest on borrowings increased $20,000 to $373,000, as a result of a $3.5
million increase to $26.2 million in the average balance of borrowed money,
primarily advances from the FHLB of Indianapolis offset by a decline of 55
basis points to 5.70% in the average cost of borrowings. The increase in
the average balance has been primarily for funding loan originations.
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 probable estimable 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.
A provision for loan losses of $51,000 was recorded during the three months
ended September 30, 2001 as compared to $58,000 for the 2000 three month
period. There were no changes in estimation method or assumptions that
impacted the provision for loan loss during the quarter. Net recoveries
during the 2001 quarter were $3,000 compared to loan charge-offs of $2,000
for the three months ended September 30, 2000. Management believes that the
total allowance of $736,000 on total net loans of $114.8 million at
September 30, 2001, is adequate given the area economic
12
conditions, the level of impaired and non-performing loans, and the
composition of the loan portfolio. At September 30, 2001, the Company was
aware of no regulatory directives or suggestions that the Company make
additional provisions for losses on 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 increased during the quarter by $46,000
to $262,000 compared to $216,000 recorded in the 2000 quarter. The increase
in non-interest income is primarily attributable to an increase in rental
income of $81,000 from leased property at the recently purchased Dyer,
Indiana office location, as well as increases in deposit related fee income
of $19,000 and loan related fees and charges of $12,000. The higher fee
income from deposit account products are due in part to increased volumes
of transactions and increased ATM fee charges. These increases in
non-interest income were offset by a decline in gains from the Company's
trading portfolio, which is comprised of holdings in community bank and
thrift stocks. For the three months ended September 30, 2001, the Company
recorded a net loss from both realized and unrealized gains and losses of
$11,000 in the trading portfolio as compared to recording a net gain in the
prior year quarter of $66,000. The Company also recorded a loss of $9,000
during the third quarter of 2001 as compared to a loss of $22,000 reported
in the year ago period, related to an investment in a low-income housing
joint venture. As a result of this investment, the Company recorded an
offsetting $35,000 in federal income tax credits during both periods which
resulted in the reduction of the Company's effective income tax rate.
NON-INTEREST EXPENSE.
The Company's non-interest expense increased $138,000 to $815,000 for the
three months ended September 30, 2001 compared to $677,000 for the three
months ended September 30, 2000. Compensation and benefits expense
increased by $95,000 in the current quarter due in part to a reduction in
the prior year's expense as a result of management's decision to
restructure the Company's ESOP program. That change resulted in reduced
benefit expense during the prior year's quarter of $67,000. The remaining
increase of $28,000 is due to both normal compensation increases and
increased benefit costs, primarily pension costs. Occupancy and equipment
expense increased during the quarter by $29,000 due to higher depreciation
and maintenance costs associated with the recent acquisition of the Dyer
office location. In addition,
13
data processing costs also increased by $12,000 due in part to an increased
number of accounts serviced as well as increased activity.
INCOME TAXES.
For the three months ended September 30, 2001, income tax expense totaled
$31,000, or an effective tax rate of 16.1%, compared to $93,000, or an
effective tax rate of 25.9%, for the three months ended September 30, 2000.
Both periods were positively impacted by the recognition of approximately
$35,000 in low-income housing tax credits provided through an investment in
a limited partnership organized to build, own and operate a 56 unit
low-income housing apartment complex.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2001 AND 2000
NET INCOME
The Company's net income for the nine months ended September 30, 2001 was
$582,000, a decrease of $3,000 compared to the nine months ended September
30, 2000. This decrease was primarily due to a decrease in net interest
income of $129,000, and an increase in non-interest expense of $355,000,
offset in part by an increase in non-interest income of $480,000.
INTEREST INCOME
Total interest income increased $467,000 or 6.9% for the nine months ended
September 30, 2001 compared to the prior nine-month period due to a
combination of higher rates and an increased volume of loans receivable.
For the nine months ended September 30, 2001 and 2000, the Company's
average interest earning assets were $127.7 million and $121.1 million,
respectively, while the average yield on interest earning assets was 7.60%
and 7.49%. The Company's average balance of loans receivable increased $6.4
million to $114.4 million during the current period, while the average
yield on loans receivable increased 9 basis points to 7.81%, resulting in a
$449,000 increase in interest income attributable to loans receivable. The
$40,000 increase in interest income on mortgage-backed securities is due to
a $400,000 increase in the average balance to $3.2 million, primarily from
purchases occurring during 2000, as well as a 74 basis point increase to
7.81% in the average yield. Interest income on investment securities
declined by $43,000 for the nine month period ended September 30, 2001, due
to a decrease of $1.7 million to $4.7 million in the average balance offset
by 42 basis point increase to 4.83% in the average yield. The decrease in
the average balance was used, in part, to fund the purchase of new
mortgage-backed securities and to a lesser extent, to repurchase the
Company's common stock.
14
INTEREST EXPENSE
Total interest expense increased $596,000 or 14.0% for the nine months
ended September 30, 2001 compared to the prior year period. For the nine
months ended September 30, 2001 and 2000, the Company's average interest
bearing liabilities were $124.5 million and $116.0 million, respectively,
while the average cost on interest bearing liabilities was 5.20% and 4.90%.
Interest expense on savings deposits increased $470,000, primarily due to
an increase in the average deposits of $4.5 million to $96.7 million and by
a 44 basis point increase to 5.04% in average cost. Interest on borrowings
increased $126,000 to $1.2 million, as a result of a $4.0 million increase
to $27.9 million in the average balance of borrowed money, primarily
advances from the FHLB of Indianapolis offset by a decline of 26 basis
points to 5.78% in the average cost of borrowings. The increase in the
average balance of both deposits and borrowed funds have been utilized to
fund the Company's loan origination activity.
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 probable estimable 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.
A provision for loan losses of $113,000 was recorded during the nine months
ended September 30, 2001 compared to $109,000 for the same period a year
ago. 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 was $933,000 for the nine months ended
September 30, 2001 compared to $453,000 for the same period a year ago. The
increase was due in part from both realized and unrealized gains on trading
securities. For the nine-month period ended September 30, 2001, the Company
recorded gains of $137,000 from trading securities as compared to gains of
$41,000 on trading securities recorded in the prior year's period. In
addition, the Company recorded increased rental income of $222,000 from the
recently purchased Dyer, Indiana office
15
location, and increased gains from the sale of investment securities
available for sale of $22,000. The Company also reported higher deposit
related fee income of $58,000 due to increased NOW account overdraft and
ATM fee charges as well as an increase in commission income of $29,000 from
the sale of annuity and mutual fund products. The Company also recorded a
loss of $64,000 during the nine month period ended September 30, 2001 as
compared to a loss of $80,000 reported in the year ago period, related to
an investment in a low-income housing joint venture. As a result of this
investment, the Company recorded an offsetting $105,000 in federal income
tax credits during both periods which resulted in the reduction of the
Company's effective income tax rate.
NON-INTEREST EXPENSE
The Company's non-interest expense increased $355,000 to $2.5 million for
the nine months ended September 30, 2001 compared to the same period a year
ago. The increase resulted primarily from increased staffing costs of
$140,000 due to in part to a reduction in the prior year's expense as a
result of management's decision to restructure the Company's ESOP program.
That change resulted in a reduction for the prior year's benefit expense of
$67,000. The remaining increase in staffing costs relate to normal salary
and benefit increases, primarily pension costs. Occupancy and equipment
expenses increased by $79,000, due primarily to increased depreciation and
maintenance charges associated with the recent acquisition of the Dyer
office location. In addition, data processing costs increased by $30,000,
professional fees by $21,000, insurance premiums by $31,000 and bad check
write-offs by $14,000.
INCOME TAXES
The Company recorded a provision for income taxes of $155,000 for the nine
months ended September 30, 2001, or an effective income tax rate of 21.1%,
compared to $160,000 for the nine months ended September 30, 2000, or an
effective income tax rate of 21.5%. Both periods were positively impacted
by the recognition of low-income housing tax credits of $105,000 provided
through an investment in a limited partnership organized to build, own and
operate a 56 unit low-income housing apartment complex.
16
REGULATION AND SUPERVISION
--------------------------
As a federally chartered savings bank, the Bank's deposits are insured up
to the applicable limits by the Federal Deposits Insurance Corporation
("FDIC"). The Bank is a member of the Federal Home Loan Bank ("FHLB") of
Indianapolis, which is one of the twelve regional banks for federally
insured savings institutions comprising the FHLB system. The Bank is
regulated by the Office of Thrift Supervision ("OTS") and the FDIC. The
Bank is further regulated by the Board of Governors of the Federal Reserve
System as to reserves required to be maintained against deposits and
certain other matters. Such regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage
and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities. Any change in such regulation, whether by the OTS, the FDIC or
Congress could have a material impact on the Company and its operations.
CAPITAL STANDARDS
Savings associations must meet three capital requirements: core and
tangible capital to total assets ratios as well as a regulatory capital to
total risk-weighted assets ratio.
CORE CAPITAL REQUIREMENT
The core capital requirement, or the required "leverage limit",
currently requires a savings institution to maintain core capital of not
less than 3% of adjusted total assets. For the Bank, core capital generally
includes common stockholders' equity (including retained earnings), and
minority interests in the equity accounts of fully consolidated
subsidiaries, less intangibles other than certain servicing rights.
Investments in and advances to subsidiaries engaged in activities not
permissible for national banks are also required to be deducted in
computing core total capital.
TANGIBLE CAPITAL REQUIREMENT
Under OTS regulation, savings institutions are required to meet a
tangible capital requirement of 1.5% of adjusted total assets. Tangible
capital is defined as core capital less any intangible assets, plus
purchased mortgage-servicing rights in an amount includable in core
capital.
RISK-BASED CAPITAL REQUIREMENT
The risk-based capital requirement provides that savings institutions
maintain total capital equal to not less than 8% of total risk-weighted
assets. For purposes of the risk-based capital computation, total capital
is defined as core capital, as defined above, plus supplementary capital,
primarily general loan loss reserves (limited to a maximum of 1.25% of
total risk-weighted assets.) Supplementary capital included in total
capital cannot exceed 100% of core capital.
17
CAPITAL REQUIREMENT
-------------------
At September 30, 2001, the Bank was in compliance with all of its capital
requirements as follows:
September 30, 2001 December 31, 2000
------------------------ ------------------------
Percent of Percent of
Amount Assets Amount Assets
------------ ------ ------------ ------
Stockholders' equity of the Bank $ 9,565,082 6.90% $ 8,929,576 6.70%
------------ ------ ------------ ------
Tangible capital $ 9,380,406 6.77% $ 8,861,114 6.66%
Tangible capital requirement 2,076,000 1.50 1,997,000 1.50
------------ ------ ------------ ------
Exess $ 7,304,406 5.27% $ 6,864,114 5.16%
============ ====== ============ ======
Core capital $ 9,380,406 6.77% $ 8,861,114 6.66%
Core capital requirement 4,152,000 3.00 3,994,000 3.00
------------ ------ ------------ ------
Excess $ 5,228,406 3.77% $ 4,867,114 3.66%
============ ====== ============ ======
Core and supplementaray capital $ 10,101,062 12.32% $ 9,397,287 12.01%
Risk-based capital requirement 6,561,000 8.00 6,261,000 8.00
------------ ------ ------------ ------
Exess $ 3,540,062 4.32% $ 3,136,287 4.01%
============ ====== ============ ======
Total Bank assets $138,610,000 $133,195,000
Adjusted total Bank assets $138,416,000 $133,127,000
Total risk-weighted assets $ 82,014,000 $ 78,265,000
A reconciliation of consolidated stockholders' equity of the bank for financial
reporting purposes to capital available to the Bank to meet regulatory capital
requirements is as follows:
September 30, 2001 December 31, 2000
------------ -----------
Stockholders' equity of the Bank $ 9,565,082 8,929,576
Regulatory capital adjustment
for available for sale securities (184,676) (68,462)
------------ -----------
Tangible and core capital 9,380,406 8,861,114
General loan loss reserves 735,656 551,173
Direct equity investments (15,000) (15,000)
------------ -----------
Core and supplementary capital $ 10,101,062 9,397,287
============ ===========
18
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 judgment 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,
2001 2000
------------ ------------
(Dollars in thousands)
Non- accruing loans:
One to four family 728 508
Multi-family -- --
Non-residential 455 --
Commercial Business 1 --
Construction -- 406
Consumer 7 24
------------ ------------
Total 1191 938
------------ ------------
Foreclosed assets:
One to four family -- --
Multi-family -- --
Non-residential -- --
Construction -- --
Consumer -- --
------------ ------------
Total 0 0
------------ ------------
Total non- performing assets 1191 938
============ ============
Total as a percentage of total assets 0.85% 0.69%
============ ============
19
For the nine months period ended September 30, 2001, gross interest, which
would have been recorded, had the non-accruing loans been current in
accordance with their original terms amounted to $45,700.
In addition to the non-performing assets set forth in the table above, as
of September 30, 2001, 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.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's principal sources of funds are cash dividends paid by the
Bank and liquidity generated by investments or borrowings. The Company's
principal uses of funds are cash dividends to shareholders as well as
investment purchases and stock repurchases with excess cash flow. During
the nine months ended September 30, 2001, the Company repurchased 70,312
shares of its common stock at an average price of $9.96 per share, for a
total of $701,000.
The Bank's principal sources of funds are deposits, advances from the FHLB
of Indianapolis, principal repayments on loans and mortgage-backed
securities, proceeds from the sale or maturity of investment securities and
funds provided by operations. While scheduled loan and mortgage-backed
securities amortization and maturing investment securities are a relatively
predictable source of funds, deposit flows and loan and mortgage-backed
securities prepayments are greatly influenced by economic conditions, the
general level of interest rates and competition. The Bank utilizes
particular sources of funds based on comparative costs and availability.
The Bank generally manages the pricing of its deposits to maintain a steady
deposit balance, but has from time to time decided to pay rates on deposits
as high as its competition, and when necessary, to supplement deposits with
longer term and/or less expensive alternative sources of funds.
During the nine months ended September 30, 2001, the Bank originated and
purchased loans totaling $28.8 million compared with $24.3 million during
the same period a year ago. At September 30, 2001, the Bank had outstanding
commitments to originate loans of $2.4 million and unused lines of credit
totaling $3.9 million. The Bank anticipates that it will have sufficient
funds available to meet its current loan commitments. Certificate of
deposit which are scheduled to mature in one year or less from September
30, 2001 totaled $30.2 million. Based on historical experience,
20
management believes that a significant portion of maturing deposits will
remain with the Bank.
RECENT DEVELOPMENTS
-------------------
On October 24, 2001 the Company declared a cash dividend of $.06 per share,
payable on November 23, 2001 to shareholders of record on November 9, 2001.
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) The Company filed a Form 8-K dated July 25, 2001 attaching its
press release announcing the results of operations for the quarter
ended June 30, 2001.
21
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 24, 2001
By: /s/ Clement B. Knapp, Jr.
--------------------------------------------
President and Chief Executive Officer
(DULY AUTHORIZED REPRESENTATIVE)
By: /s/ Daniel T. Poludniak
--------------------------------------------
Vice President and Chief Financial Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
22
INDEX TO EXHIBIT
----------------
Exhibit No. Page No.
----------- --------
11 Statement re: Computation of Earnings Per Share 24
23