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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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
- ------------------------------------ ----------
(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 April 24, 2002 there were 1,686,169 shares of the Registrant's common
stock issued and 859,863 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
March 31, 2002 (Unaudited) and December 31, 2001 3
Consolidated Statements of Earnings for the three
months ended March 31, 2002 and 2001 (unaudited) 4
Consolidated Statements of Changes in
Stockholders Equity, three months ended
March 31, 2002 (unaudited) 5
Consolidated Statements of Cash Flow for the
three months ended March 31, 2002 and 2001
(unaudited) 6
Notes to Unaudited Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-18
Part II. OTHER INFORMATION 19
Signatures 20
Index of Exhibits 21
Earnings Per Share Analysis (Exhibit 11) 22
2
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
March 31, December 31,
2002 2001
------------ ------------
unaudited
ASSETS
- ------
Cash and amounts due from depository institutions 3,242,416 2,552,568
Interest-bearing deposits 10,916,587 6,410,091
------------ ------------
Total cash and cash equivalents 14,159,003 8,962,659
Investment securities, available for sale, at fair value 5,414,515 3,483,478
Trading securities 541,755 583,246
Mortgage backed securities, available for sale, at fair value 2,629,637 3,022,898
Loans receivable (net of allowance for loan losses:
$926,878 at March 31, 2002 and
$766,465 at December 31, 2001) 113,817,058 114,513,114
Real estate owned 190,581
Investment in LTD Partnership 1,104,408 1,130,283
Stock in Federal Home Loan Bank of Indianapolis 1,624,400 1,624,400
Accrued interest receivable 715,009 688,090
Office properties and equipment- net 2,136,724 2,176,767
Prepaid expenses and other assets 5,880,817 5,272,733
------------ ------------
Total assets 148,023,326 141,648,249
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Deposits 103,989,397 102,210,145
Borrowed money 23,455,838 23,955,838
Notes Payable 1,082,893 1,086,150
Advance payments by borrowers for taxes and insurance 714,970 452,818
Other liabilities 1,906,089 2,225,858
------------ ------------
Total liabilities 131,149,187 129,930,809
------------ ------------
Guaranteed preferred beneficial interest in AMB Financial's
junior subordinated debentures 5,000,000 --
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 861,063 shares outstanding
at March 31, 2002 and December 31, 2001 16,862 16,862
Additional paid- in capital 10,873,971 10,864,371
Retained earnings, substantially restricted 9,298,994 9,110,986
Accumulated other comprehensive income, net of income taxes 87,530 128,439
Treasury stock, at cost (825,106 shares at March 31, 2002 and December 31, 2001) (8,043,498) (8,043,498)
Common stock acquired by Employee Stock Ownership Plan (359,720) (359,720)
------------ ------------
Total stockholders' equity 11,874,139 11,717,440
------------ ------------
Total liabilities and stockholders' equity 148,023,326 141,648,249
============ ============
3
AMB FINANCIAL CORP.
AND SUBIDIARIES
Consolidated Statements of Earnings
Three Months Three Months
Ended Ended
March 31, March 31,
---------- ----------
2002 2001
---------- ----------
unaudited unaudited
Interest income
Loans 2,116,899 2,260,655
Mortgage-backed securities 56,983 61,939
Investment securities 52,453 59,676
Interest-bearing deposits 25,985 45,708
Dividends on FHLB stock 24,032 32,043
---------- ----------
Total interest income 2,276,352 2,460,021
---------- ----------
Interest expense
Deposits 919,733 1,230,242
Borrowings 301,341 439,397
---------- ----------
Total interest expense 1,221,074 1,669,639
---------- ----------
Net interest income before
provision for loan losses 1,055,278 790,382
Provision for loan losses 152,957 35,602
---------- ----------
Net interest income after
provision for loan losses 902,321 754,780
---------- ----------
Non-interest income:
Loan fees and service charges 44,154 28,694
Commission income 7,361 37,717
Deposit related fees 112,069 97,960
Rental Income 74,518 72,191
Gain on sale of trading securities 21,562 --
Unrealized gain on trading
securities 11,947 47,696
Loss from investment
in limited partnership (25,875) (20,300)
Loss on sale of REO (28,114) --
Other income 42,753 44,159
---------- ----------
Total non-interest income 260,375 308,117
---------- ----------
Non-interest expense:
Staffing costs 410,780 392,062
Advertising 18,951 14,109
Occupancy and equipment expense 113,915 114,029
Data processing 113,525 114,861
Federal deposit insurance premiums 4,534 4,706
Other operating expenses 184,297 181,065
---------- ----------
Total non-interest expense 846,002 820,832
---------- ----------
Net income before income taxes 316,694 242,065
Provision for federal and state income taxes 80,260 49,697
---------- ----------
Net income 236,434 192,368
========== ==========
Earnings per share- basic $ 0.29 $ 0.23
Earnings per share- diluted $ 0.29 $ 0.23
See accompanying notes to consolidated financial statements.
4
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholder's Equity
(Unaudited)
Accumulated Common
Additional Other Stock
Common Paid-in Retained Comprehensive Treasury Acquired
Stock Capital Earnings Income Stock by ESOP Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 $ 16,862 10,864,371 9,110,986 128,439 (8,043,498) (359,720) 11,717,440
----------- ----------- ----------- ----------- ----------- ----------- -----------
Comprehensive income:
Net income -- -- 236,434 -- -- -- 236,434
Other comprehensive income,
net of income taxes:
Unrealized holding loss
during the period -- -- -- (40,909) -- -- (40,909)
----------- ----------- -----------
Total comprehensive income -- -- 236,434 (40,909) -- -- 195,525
ESOP compensation adjustment -- 9,600 -- -- -- -- 9,600
Dividends declared on
common stock ($.06 per share) -- -- (48,426) -- -- -- (48,426)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2002 $ 16,862 10,873,971 9,298,994 87,530 (8,043,498) (359,720) 11,874,139
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements
5
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Three Months Ending March 31,
-----------------------------------
2002 2001
------------ ------------
(unaudited)
Cash flows from operating activities:
Net income $ 236,434 192,368
Items not requiring (providing) cash:
Depreciation 44,665 49,570
Amortization of cost of stock benefit plans -- 28,946
Amoritization of premiums and accretion of discounts (5,917) 3,669
Provision for loan losses 152,957 35,602
Increase in deferred compensation 20,673 22,293
ESOP compensation 9,600 7,200
Gain on sale of trading securities (21,562) --
Unrealized gain on trading securities (11,947) (47,696)
Proceeds from sale of trading securities 75,000 --
Loss from limited partnership 25,875 20,300
Loss on sale of real estate owned 28,114 --
Increase (decrease) in deferred income on loans (275) 6,956
Increase in accrued interest receivable (26,919) (29,887)
Increase (decrease) in accrued interest payable (6,151) 21,154
Change in current and deferred income taxes 65,260 14,296
Other, net (980,364) (425,420)
------------ ------------
Net cash provided by (for) operating activities (394,557) (100,649)
------------ ------------
Cash flows from investing activities:
Proceeds from sales of investment securities 500,000 --
Purchase of investment securities (2,491,031) (2,033)
Proceeds from repayments of mortgage-backed
securities 390,992 123,480
Purchase of loans (2,081,461) (5,663,402)
Loan disbursements (8,458,872) (2,767,843)
Loan repayments 11,083,707 6,059,905
Proceeds from sale of real estate owned 162,467 --
Property and equipment expenditures, net (4,622) (16,620)
------------ ------------
Net cash provided by (for) investing activities (898,820) (2,266,513)
------------ ------------
Cash flows from financing activities:
Deposit account receipts 57,273,047 48,363,435
Deposit account withdrawals (56,293,443) (41,268,273)
Interest credited to deposits 799,648 1,031,838
Proceeds from borrowed money -- 2,500,000
Repayment of borrowed money (500,000) (5,000,000)
Reypayment of notes payable (3,257) (15,228)
Increase in advance payments by borrowers
for taxes and insurance 262,152 235,844
Proceeds from issuance of trust preferred securities 5,000,000 --
Purchase of teasury stock -- (700,606)
Dividends paid on common stock (48,426) (49,891)
------------ ------------
Net cash provided by financing activities 6,489,721 5,097,119
------------ ------------
Net change in cash and cash equivalents 5,196,344 2,729,957
Cash and cash equivalents at beginning of period 8,962,658 4,614,532
------------ ------------
Cash and cash equivalents at end of period $ 14,159,002 7,344,489
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,227,225 1,648,485
Income taxes 15,000 25,000
See accompanying notes to consolidated financial statements.
6
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- ------------------------------------------
1. Statement of Information Furnished
----------------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and Article 10 of
Regulation S-X, and in the opinion of management contains all adjustments
(all of which are normal and recurring in nature) necessary to present
fairly the financial position as of March 31, 2002, the results of
operations for the three months ended March 31, 2002 and 2001 and cash
flows for the three months ended March 31, 2002 and 2001. These results
have been determined on the basis of generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates. The attached consolidated statements are those of AMB
Financial Corp. (the "Holding Company") and its consolidated subsidiaries
American Savings, FSB (the "Bank"), 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 month period ended
March 31, 2002 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 bank to a federally chartered stock
savings bank with the concurrent formation of a holding company. The
Holding Company issued 1,124,125 shares of $.01 par value common stock at
$10.00 per share, for an aggregate purchase price of $11,241,250. The
Conversion and sale of 1,124,125 shares of common stock of the Holding
Company was completed on March 29, 1996. Net proceeds to the Company, after
conversion expenses, totaled approximately $10,658,000.
3. Earnings Per Share
------------------
Earnings per share for the three month periods ended March 31, 2002 and
2001 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
7
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
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 which 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.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement addresses the financial accounting
and reporting for obligations related to the retirement of tangible
long-lived assets and the related asset retirement costs. The statement is
effective for financial statements issued for fiscal years beginning after
June 15, 2002. Adoption of this statement is not expected to have a
material effect on the Company's consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment and Disposal of Long-Term Assets". This Statement supercedes
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," as well as the accounting and
reporting of the Accounting Principles Board (APB) Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions". This statement eliminates the
allocation of goodwill to long-lived assets to be tested for impairment and
details both a probability-weighted and "primary-asset" approach to
estimate cash flows in testing for impairment of long-lived assets. SFAS
No. 144 is effective for financial statements issued for fiscal years
beginning after December 15, 2001. As such, the Company will adopt the
provisions of SFAS No. 144 on January 1, 2002.
8
The Company does not expect these provisions to have a material impact on
its consolidated financial statements.
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 particular interest to financial institutions.
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, real estate values in the Company's primary
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
-------------------
MARCH 31, 2002 COMPARED TO DECEMBER 31, 2001
Total assets of the Company were $148.0 million at March 31, 2002, an increase
of $6.4 million, or 4.5% from $141.6 million at December 31, 2001. The increase
is primarily due to an increase in cash and interest-bearing deposits and
investment securities offset by a slight decline in loans receivable and
mortgage-backed securities funded primarily by the issuance of trust preferred
securities on March 28, 2002. Management expects additional modest balance sheet
growth during the balance of the year, as prepayments in loans receivable are
expected to slow, which should allow the Bank's loan portfolio to expand with
funding from either increased deposits or borrowings.
Cash and short term investments increased by $5.2 million to $14.2 million at
March 31, 2002 from a combined $9.0 million at December 31, 2001. The increase
is due to the recently completed issuance of $5.0 million of trust preferred
securities and to a lesser extent, deposit inflows experienced during the
period. The Company intends to use the proceeds from the offering for general
corporate purposes, including the payment of dividends on, and the repurchase,
of its common stock.
Investments securities available for sale increased by $1.9 million to $5.4
million at March 31, 2002. The increase is due to purchases of agency debt
securities. The increased investment securities purchase activity in the current
quarter is due to the additional liquidity available from higher levels of loan
prepayments. Gross unrealized gains in the available for sale portfolio were
$35,000 at March 31, 2002 compared to gross unrealized gains of $91,000 at
December 31, 2001.
Trading account securities declined to $41,000 to $542,000 at March 31, 2002.
The decrease is attributable to stock sales in the amount of $53,000 offset by a
decline in unrealized losses in the portfolio of $12,000.
Mortgage-backed securities available for sale decreased by $393,000 to $2.6
million at March 31, 2002. The decrease is due to prepayments and amortization
of $380,000 and a decrease in unrealized gains of $13,000. Gross unrealized
gains in the available for sale portfolio were $111,000 at March 31, 2002
compared to gross unrealized gains of $124,000 at December 31, 2001.
The balance of loans receivable at March 31, 2002 amounted to $113.8 million,
compared to $114.5 million at December 31, 2001, a decline of $696,000. The Bank
originated both residential and non-residential loans of $8.4 million and
purchased loans totaling $2.1 million during the three month period ended March
31, 2002, compared to $2.8 million of originations and $5.7 million of purchases
during the
10
prior year period. Offsetting originations and purchases were amortization and
prepayments totaling $11.1 million and $6.1 million for the three-month periods
ended March 31, 2002 and 2001. The Company continues to remain focused on an
aggressive lending efforts, however, the declines in long-term interest rates
have led to a higher level of mortgage prepayments resulting in flat loan
growth.
Liabilities, other than trust preferred securities, increased from $129.9
million at December 31, 2001, to $131.1 million at March 31, 2002, an increase
of $1.2 million, or .9%. The primary reason for the increase in total
liabilities was an increase in deposit accounts. Deposits increased by $1.8
million, to $104.0 million at March 31, 2002. The increase is primarily due to
the Company's aggressive competitive certificate rate pricing. Borrowed money,
which consists of FHLB of Indianapolis advances, decreased during the period by
$500,000 to $23.5 million at March 31, 2002. Currently, there are $4.0 million
of FHLB advances maturing over the next twelve month period at a weighted
average rate of 4.275%.
On March 28, 2002, the Company completed an issuance of $5.0 million of trust
preferred securities. The securities were issued by a special purpose business
trust owned by the Company and sold to a pooled investment vehicle. The
securities have a maturity of 30 years and the holders will be entitled to
receive cumulative cash distributions at a variable annual rate, reset
quarterly, equal to three month LIBOR plus 3.60%. In general, the securities
will not be redeemable for five years except in the event of certain special
redemption events.
Total stockholder's equity increased by $157,000 to $11.9 million at March 31,
2002 from the balance at December 31, 2001. This increase was due to net income
of $236,000, normal amortization of ESOP benefits of $10,000 offset by the
payment of dividends on common stock of $48,000 and a decline in net unrealized
gain on securities available for sale in the amount of $41,000. The Company is
no longer subject to regulatory limitations on stock repurchases and intends,
depending on prevailing market conditions, to continue modest repurchases of
stock.
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED MARCH 31, 2002 AND 2001
NET INCOME
The Company's net income for the three months ended March 31, 2002 was $236,000,
an increase of $44,000 compared to the three months ended March 31, 2001. This
increase was due to an increase in net interest income of $265,000 offset by an
increase in the provision for loan losses of $118,000, a decrease in
non-interest income of $48,000, an increase in non-interest expense of $25,000
and an increase in income taxes of $30,000.
11
INTEREST INCOME
Total interest income decreased $184,000 or 7.5%, for the three months ended
March 31, 2002 compared to the prior year as a result of a 68 basis point
decline in the average yield, offset by a $1.9 million increase in the average
volume of interest earning assets. For the three months ended March 31, 2002 and
2001 the Company's average yield on interest earning assets was 6.99% and 7.67%,
respectively, while the Company's average interest earning assets were $130.2
million and $128.3 million. The decrease in yield is primarily attributable to a
decline in the yield on loans receivable due to prepayments of high interest
rate loans and a high volume of refinancing at lower interest rates. The higher
volume is primarily due to interest-bearing deposits that remained higher than
normal due to high loan prepayments during the first quarter. Interest income
from loans decreased $143,000 as a result of a 49 basis point decline to 7.39%
in the average yield on loan receivable.
INTEREST EXPENSE
Total interest expense decreased $449,000 to $1.2 million for the first quarter
of 2002, due to a 149 basis point decrease in the average cost of
interest-bearing liabilities compared to the prior year quarter, offset by a
$1.7 million increase in average interest-bearing liabilities. For the three
months ended March 31, 2002 and 2001, the Company's average cost on
interest-bearing liabilities was 3.85% and 5.34%, respectively, while average
interest-bearing liabilities were $129.6 million and $125.2 million.
Interest on deposits decreased by $310,00 to $920,000, as a result of a 161
basis point decrease in average cost offset in part by an increase of $8.3
million in the average balance in deposits. The decrease in the average cost of
deposits is primarily due to the downward repricing of maturing certificates of
deposit during the last twelve months, as well as reductions in interest rates
paid on the Bank's core deposit products. The growth in average deposits is
attributable to an increase in certificate of deposit balances.
Interest on borrowings decreased $139,000 to $301,000, as a result of a 74 basis
point decrease in average cost and a $6.5 million decrease in the average
balance. The decrease in the average rates has been due to maturing higher rate
FHLB of Indianapolis advances that have been refinanced with lower coupons or
paid off. Slower growth in loans receivable balances due to higher prepayments,
as well as increased deposit balances has enabled the Bank to repay maturing
FHLB advances as they matured.
12
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
accrued 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 $153,000 was recorded during the three months
ended March 31, 2002 compared to $35,000 for the 2001 three month period. There
were no changes is estimation method or assumptions that impacted the provision
for loan loss during the quarter. The increase in the loan loss provision during
the current quarter relates to the possible impairment of approximately $920,000
in medical leases previously purchased by the Bank and serviced by a third
party. The Company has recently acquired information indicating that the
servicer of these medical leases may have diverted funds on early prepayments.
The Bank has attempted to contact the underlying debtors to verify balances and
request that future payments be sent directly to the Bank. Based upon the best
available information to date, the Board has estimated a possible loss from the
above of approximately $300,000. The Board will review all options in its
efforts to protect the Company's interest in these assets, and has authorized
the establishment of a specific valuation reserve against these loans in the
same amount. The Board believes that the total general loan loss allowance of
$557,000 on total net loans of $113.8 million at March 31, 2002, is adequate
given our local economic conditions, the level of impaired and non-performing
loans, and the composition of the loan portfolio. At March 31, 2002, 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 probable accrued 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 probable accrued losses, there can be no
assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods.
NON-INTEREST INCOME
The Company's non-interest income decreased during the quarter by $48,000 to
$260,000 compared to $308,000 recorded in the 2001 quarter. The decrease in
non-interest income is primarily attributable to a decline in commission income
of $31,000 on the sale of financial products as well as a loss on the sale of
real estate owned properties in the amount of $28,000. These declines were
offset by higher fee
13
income from deposit account products, primarily related to an increased volume
of transactions in the amount of $14,000 and higher loan related fees and
charges of $15,000. In addition, the Company also recorded reduced unrealized
gains on the trading portfolio of $36,000 which was offset by a $22,000 realized
gain on the sale of trading account securities during the current quarter. The
Company also recorded a loss of $26,000 during the first quarter of 2002 as
compared to a loss of $20,000 reported in the year ago period, related to an
investment in a low-income housing 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 $25,000 to $846,000 for the three
months ended March 31, 2002 compared to $821,000 for the three months ended
March 31, 2001. Compensation and benefits expense increased by $19,000 in the
current quarter due to normal compensation increases. In addition, advertising
costs increased by $5,000 primarily due to increased spending related to deposit
account promotions.
INCOME TAXES.
For the three months ended March 31, 2002, income tax expense totaled $80,000,
or an effective tax rate of 25.3%, compared to $50,000, or an effective tax rate
of 20.5%, for the three months ended March 31, 2001. 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.
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.
14
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.
15
CAPITAL REQUIREMENT
At March 31, 2002, the Bank was in compliance with all of its capital
requirements as follows:
March 31, 2002 December 31, 2001
----------------------------- -----------------------------
Percent of Percent of
Amount Assets Amount Assets
------------- ------------- ------------- -------------
Stockholders' equity of the Bank $ 10,147,141 6.96% $ 9,929,945 7.10%
------------- ------------- ------------- -------------
Tangible capital 10,059,610 6.90% 9,801,506 7.01%
Tangible capital requirement 2,187,000 1.50 2,097,000 1.50
------------- ------------- ------------- -------------
Exess $ 7,872,610 5.40% $ 7,704,506 5.51%
============= ============= ============= =============
Core capital 10,059,610 6.90% 9,802,506 7.01%
Core capital requirement 4,374,000 3.00 4,193,000 3.00
------------- ------------- ------------- -------------
Excess $ 5,685,610 3.90% $ 5,609,506 4.01%
============= ============= ============= =============
Core and supplementaray capital 10,601,488 12.52% 10,482,971 12.60%
Risk-based capital requirement 6,774,000 8.00 6,654,000 8.00
------------- ------------- ------------- -------------
Exess $ 3,827,488 4.52% $ 3,828,971 4.60%
============= ============= ============= =============
Total Bank assets $ 145,895,000 $ 139,903,000
Adjusted total Bank assets 145,807,000 139,774,000
Total risk-weighted assets 84,672,000 83,176,000
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:
March 31, 2002 December 31, 2001
-------------- -----------------
Stockholders' equity of the Bank $ 10,147,141 $ 9,929,945
Regulatory capital adjustment
for available for sale securities (87,531) (128,439)
-------------- --------------
Tangible and core capital $ 10,059,610 $ 9,801,506
General loan loss reserves 556,878 696,465
Direct equity investments (15,000) (15,000)
-------------- --------------
Core and supplementary capital $ 10,601,488 $ 10,482,971
============== ==============
16
NON-PERFORMING ASSETS
---------------------
The following table sets forth the amounts and categories of non-performing
assets in the Company's portfolio. Loans are reviewed monthly and loan whose
collectibility is doubtful is placed on non-accrual status. Loans are placed on
non-accrual status when principal and interest is 90 days or more past due,
unless, in the judgement of management, the loan is well collateralized and in
the process of collection. Interest accrued and unpaid at the time a loan is
placed on non-accrual status is charged against interest income. Subsequent
payments are either applied to the outstanding principal balance or recorded as
interest income, depending on the assessment of the ultimate collectibility of
the loan. Restructured loans include troubled debt restructuring (which involved
forgiving a portion of interest principal on any loans or making loans at a rate
materially less than the market).
March 31, December 31,
2002 2001
---------------------- ---------------------
(Dollars in thousands) (Dollars in thousands)
Non- accruing loans:
One to four family 621 714
Multi- family --- ---
Non- residential 464 463
Commercial Business *931 66
Construction --- ---
Consumer 30 13
--------- ---------
Total 2046 1256
--------- ---------
Foreclosed assets:
One to four family --- 191
Multi-family --- ---
Non-residential --- ---
Construction --- ---
Consumer --- ---
--------- ---------
Total 0 191
--------- ---------
Total non- performing assets 2046 1447
========= =========
Total as a percentage of total assets 1.38% 1.02%
*Includes commercial leases discussed under the heading "Provision for Loan
Losses."
17
For the three months period ended March 31, 2002, gross interest, which would
have been recorded, had the non-accruing loans been current in accordance with
their original terms amounted to $19,000.
In addition to the non-performing assets set forth in the table above, as of
March 31, 2002, 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 three months ended March 31,
2002, the Company did not repurchase any stock.
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 three months ended March 31, 2002, the Bank originated and purchased
loans totaling $11.0 million compared with $8.4 million during the same period a
year ago. The Bank has outstanding commitments to originate loans of $2.6
million and unused lines of credit issued to third parties totaling $4.2
million. At March 31, 2002, the Company believes it has sufficient cash to fund
its outstanding commitments or will be able to obtain the necessary funds from
outside sources to meet its cash requirements.
18
RECENT DEVELOPMENTS
-------------------
On April 24, 2002 the Company declared a cash dividend of $.06 per share,
payable on May 17, 2002 to shareholders of record on May 3, 2002.
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. OTHER INFORMATION
-----------------
Not applicable.
Item 5. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Computation of earnings per share (Exhibit 11 filed
herewith)
(b) The Company filed Form 8-K dated March 28, 2002
attaching it press release announcing the sale of
$5.0 million of Trust Preferred Securities.
19
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: April 24, 2002
By: Clement B. Knapp, Jr.
-----------------------------------------------
President and Chief Executive Officer
(DULY AUTHORIZED REPRESENTATIVE)
By: Daniel T. Poludniak
-----------------------------------------------
Vice President and Chief Financial Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
20
INDEX TO EXHIBIT
----------------
Exhibit No. Page No.
---------- -------
11 Statement re: Computation of Earnings Per Share 22
21