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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 June 30, 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.
-------------------
(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 July 25, 2002 there were 1,686,169 shares of the Registrant's
common stock issued and 856,663 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
June 30, 2002 (Unaudited) and December 31, 2001 3
Consolidated Statements of Earnings for the three
and six months ended June 30, 2002 and 2001
(unaudited) 4
Consolidated Statements of Changes in
Stockholders Equity, six months ended
June 30, 2002 (unaudited) 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 2002 and 2001
(unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-22
Part II. OTHER INFORMATION 23
Signatures 25
Index of Exhibits 26
Earnings Per Share Analysis (Exhibit 11) 27
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, December 31,
2002 2001
------------ ------------
unaudited
Assets
- ------
Cash and amounts due from depository institutions 3,991,011 2,552,568
Interest-bearing deposits 11,452,926 6,410,091
------------ ------------
Total cash and cash equivalents 15,443,937 8,962,659
Investment securities, available for sale, at fair value 5,383,073 3,483,478
Trading securities 544,998 583,246
Mortgage backed securities, available for sale, at fair value 2,920,028 3,022,898
Loans receivable (net of allowance for loan losses:
$675,592 at June 30, 2002 and
$766,465 at December 31, 2001) 111,212,748 114,513,114
Real estate owned -- 190,581
Investment in LTD Partnership 1,082,533 1,130,283
Stock in Federal Home Loan Bank of Indianapolis 1,624,400 1,624,400
Accrued interest receivable 641,451 688,090
Office properties and equipment- net 2,153,688 2,176,767
Prepaid expenses and other assets 6,270,535 5,272,733
------------ ------------
Total assets 147,277,391 141,648,249
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Deposits 103,784,963 102,210,145
Borrowed money 22,359,708 23,955,838
Notes Payable 933,594 1,086,150
Advance payments by borrowers for taxes and insurance 395,743 452,818
Other liabilities 2,698,525 2,225,858
------------ ------------
Total liabilities 130,172,533 129,930,809
------------ ------------
Guaranteed preferred beneficial interest in AMB Financial's
junior subordianted 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 856,663 shares outstanding
at June 30, 2002 and 861,063 shares outstanding at December 31, 2001 16,862 16,862
Additional paid- in capital 10,889,571 10,864,371
Retained earnings, substantially restricted 9,504,373 9,110,986
Accumulated other comprehensive income, net of income taxes 147,250 128,439
Treasury stock, at cost (829,506 shares at June 30, 2002 and 825,106 shares
at December 31, 2001) (8,093,478) (8,043,498)
Common stock acquired by Employee Stock Ownership Plan (359,720) (359,720)
------------ ------------
Total stockholders' equity 12,104,858 11,717,440
------------ ------------
Total liabilities and stockholders' equity 147,277,391 141,648,249
============ ============
3
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statement of Earnings
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
---------- ---------- ---------- ----------
2002 2001 2002 2001
---- ---- ---- ----
unaudited unaudited unaudited unaudited
Interest income
Loans 2,110,866 2,278,857 4,227,765 4,539,512
Mortgage-backed securities 48,106 61,765 105,089 123,704
Investment securities 74,889 59,709 127,342 119,385
Interest-bearing deposits 44,116 42,527 70,101 88,235
Dividends on FHLB stock 25,312 31,386 49,344 63,429
---------- ---------- ---------- ----------
Total interest income 2,303,289 2,474,244 4,579,641 4,934,265
---------- ---------- ---------- ----------
Interest expense
Deposits 844,073 1,252,431 1,763,806 2,482,673
Borrowings 379,871 396,518 681,212 835,915
---------- ---------- ---------- ----------
Total interest expense 1,223,944 1,648,949 2,445,018 3,318,588
---------- ---------- ---------- ----------
Net interest income before
provision for loan losses 1,079,345 825,295 2,134,623 1,615,677
Provision for loan losses 121,880 25,998 274,837 61,600
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 957,465 799,297 1,859,786 1,554,077
---------- ---------- ---------- ----------
Non-interest income:
Loan fees and service charges 32,996 36,000 77,150 64,694
Commission income 10,825 13,488 18,186 51,205
Deposit related fees 117,607 114,319 229,676 212,279
Rental Income 54,880 70,135 129,398 140,871
Gain on sale of investment
securities available for sale -- 17,781 -- 17,781
Gain on sale of trading securities -- 62,421 21,563 62,421
Unrealized gain on trading
securities 3,243 37,821 15,190 85,517
Loss from investment
in limited partnership (21,875) (34,800) (47,750) (55,100)
Loss on sale of REO -- -- (28,114) --
Other income 56,172 45,741 98,924 91,355
---------- ---------- ---------- ----------
Total non-interest income 253,848 362,906 514,223 671,023
---------- ---------- ---------- ----------
Non-interest expense:
Staffing costs 433,174 395,447 843,954 787,509
Advertising 21,326 16,978 40,277 31,087
Occupancy and equipment expense 104,423 120,211 218,338 234,240
Data processing 118,102 105,969 231,627 220,830
Federal deposit insurance premiums 4,530 4,283 9,064 8,989
Other operating expenses 193,236 219,226 377,533 400,291
---------- ---------- ---------- ----------
Total non-interest expense 874,791 862,114 1,720,793 1,682,946
---------- ---------- ---------- ----------
Net income before income taxes 336,522 300,089 653,216 542,154
Provision for federal and state
income taxes 82,789 74,235 163,049 123,932
---------- ---------- ---------- ----------
Net income 253,733 225,854 490,167 418,222
========== ========== ========== ==========
Earnings per share- basic $ 0.31 $ 0.28 $ 0.61 $ 0.51
Earnings per share- diluted $ 0.30 $ 0.28 $ 0.59 $ 0.50
See accompanying notes to consolidated financial statements.
4
AMB FINANCIAL CORP.
AND SUBIDIARIES
Consolidated Statements of Changes in Stockholders' 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 -- -- 490,167 -- -- -- 490,167
Other comprehensive income,
net of income taxes:
Unrealized holding gain
during the period -- -- -- 18,811 -- -- 18,811
---------- ------- -----------
Total comprehensive income -- -- 490,167 18,811 -- -- 508,978
Purchase treasury stock (4,400 shares) -- -- -- -- (49,980) -- (49,980)
ESOP compensation adjustment -- 25,200 -- -- -- -- 25,200
Dividends declared on
common stock ($.12 per share) -- -- (96,780) -- -- -- (96,780)
-------- ---------- ---------- ------- ---------- -------- -----------
Balance at June 30, 2002 $ 16,862 10,889,571 9,504,373 147,250 (8,093,478) (359,720) 12,104,858
======== ========== ========== ======= ========== ======== ===========
See accompanying notes to consolidated financial statements
5
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30,
-----------------------------------
2002 2001
------------- -------------
(unaudited)
Cash flows from operating activities:
Net income $ 490,167 418,222
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 89,650 100,144
Amortization of cost of stock benefit plans -- 57,893
Amortization of premiums and accretion of discounts (6,623) 4,249
Provision for loan losses 274,837 61,600
Increase in deferred compensation 42,959 43,685
ESOP compensation 25,200 19,500
Gain on sale of investment securities available for sale -- (17,781)
Gain on sale of trading account securities (21,562) (62,421)
Unrealized gain on trading account securities (15,190) (85,517)
Proceeds from sales of trading account securities 75,000 315,717
Loss from limited partnership 47,750 55,100
(Decrease) increase in deferred income on loans (13,522) 18
Decrease in accrued interest receivable 46,639 32,086
Decrease in accrued interest payable (13,214) (4,073)
Change in current and deferred income tax 65,549 13,932
Other, net (604,857) 2,412,070
------------- -------------
Net cash provided by operating activities 482,783 3,364,424
------------- -------------
Cash flows from investing activities:
Proceeds fom maturity and early redemption of
investment securities 2,500,000 --
Proceeds from sale of investment securities -- 519,933
Purchase of investment securities (4,401,848) (4,011)
Proceeds from repayments of mortgage-backed securities 641,256 353,819
Purchase of mortgaged-back securities (498,157) --
Purchase of loans (4,756,580) (6,982,043)
Loan disbursements (15,527,463) (9,044,747)
Loan repayments 23,323,094 15,606,403
Proceeds from sale of real estate owned 162,467 --
Property and equipment expenditures (66,571) (38,673)
------------- -------------
Net cash provided for investing activities 1,376,198 410,681
------------- -------------
Cash flows from financing activities:
Deposit account receipts 116,686,771 94,739,505
Deposit account withdrawals (116,664,349) (89,432,404)
Interest credited to deposit accounts 1,552,396 2,135,122
Proceeds from borrowed money 0 3,500,000
Repayment of borrowed money (1,596,130) (8,093,460)
Repayment of note payable (152,556) (167,446)
Decrease in advance payments by borrowers
for taxes and insurance (57,075) (53,625)
Proceeds from issuance of trust preferred securities 5,000,000 --
Dividend paid on common stock (96,980) (97,995)
Purchase of treasury stock (49,980) (700,606)
------------- -------------
Net cash provided by financing activities 4,622,097 1,829,091
------------- -------------
Net change in cash and cash equivalents 6,481,078 5,604,196
Cash and cash equivalents at beginning of period 8,962,659 4,614,532
------------- -------------
Cash and cash equivalents at end of period $ 15,443,737 10,218,728
============= =============
Cash paid during the period for:
Interest $ 2,458,232 3,322,661
Income taxes 97,500 110,000
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 June 30, 2002, the results of
operations for the three and six months ended June 30, 2002 and 2001 and
cash flows for the six months ended June 30, 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 and six month
period ended June 30, 2002 is not necessarily indicative of the results to
be expected for the full year.
2. Mutual to Stock Conversion
--------------------------
On March 29, 1996, 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 in connection with the Bank's mutual to stock conversion (the
"Conversion"). Net proceeds to the Company, after conversion expenses,
totaled approximately $10,658,000.
3. Earnings Per Share
------------------
Earnings per share for the three and six month periods ended June 30, 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 committed to be
released to participants are not considered outstanding for purposes of
computing earnings per share amounts.
7
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. Trust Preferred Capital Securities
----------------------------------
In March of 2002, the Company formed AMB Financial Statutory Trust I (the
"Trust"). The Trust is a statutory business trust and is wholly owned by
the Company. The Trust issued $5.0 million of Trust Preferred Capital
Securities as a participant in a pooled Trust Preferred Securities
offering and $155,000 of Common Securities to the Company. The Company
issued subordinated debentures aggregating $5.155 million to the Trust.
The junior subordinated debentures are the sole assets of the Trust. The
junior subordinated debentures and the Trust Preferred Capital Securities
pay interest and dividends, respectively, on a quarterly basis. The junior
subordinated debentures and the Trust Preferred Capital Securities bear
interest at a rate of 3-month LIBOR plus 3.60%, mature on March 26, 2032
and are non-callable for five years and, after that period, the Trust
Preferred Securities may be called at any quarterly interest payment date
at par. Dividends on the Trust Preferred Capital Securities are recorded
as interest expense. Costs associated with the issuance of the securities
totaling $192,000 were capitalized and are being amortized over the
estimated life of the securities.
6. Impact of New Accounting Standards
----------------------------------
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. The
Company adopted SFAS No. 144 on January 1, 2002 and upon adoption, this
pronouncement did not have a material impact on the Company's consolidated
financial statements.
8
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
-------------------
JUNE 30, 2002 COMPARED TO DECEMBER 31, 2001
Total assets of the Company were $147.3 million at June 30, 2002 an
increase of $5.7 million, or 4.0% 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 decline in
loans receivable, funded primarily by the issuance of Trust Preferred
Capital Securities. Management expects a continued moderate growth rate
for the balance of the year, as interest rates are not expected to change
significantly.
Cash and short-term investments increased by $6.4 million to $15.4 million
at June 30, 2002 from a combined $9.0 million at December 31, 2001. The
increase is due to the recent issuance of $5.0 million of Trust Preferred
Securities and to a lesser extent, loan prepayments 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,
depending on economic conditions, the repurchase of its common stock.
Investment securities available for sale increased by $1.9 million to $5.4
million at June 30, 2002. The increase is due to purchases of agency and
corporate debt securities. The increased investment securities purchase
activity in the current period is due, in part, to the additional
liquidity available from higher levels of loan prepayments. Gross
unrealized gains in the available for sale portfolio were $99,000 at June
30, 2002 compared to gross unrealized gains of $91,000 at December 31,
2001.
Trading securities declined by $38,000 to $545,000 at June 30, 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 $15,000.
Mortgage-backed securities available for sale decreased by $103,000 to
$2.9 million at June 30, 2002. The decrease is due to prepayments and
amortization of $624,000 offset by purchases of $498,000 and an increase
in unrealized gains of $23,000. Gross unrealized gains in the available
for sale portfolio were $147,000 at June 30, 2002 compared to gross
unrealized gains of $124,000 at December 31, 2001.
The balance of loans receivable at June 30, 2002 amounted to $111.2
million, compared to $114.5 million at December 31, 2001, a decline of
$3.3 million. The Bank originated both residential and non-residential
loans of $15.5 million and purchased loans totaling $4.8 million during
the six month period ended June 30, 2002, compared to $9.0 million of
originations and $7.0 million of purchases during the prior year period.
The higher loan origination volume was primarily due to an increase in
mortgage refinance activity as interest rates have decreased compared to
the prior year period. Offsetting originations and purchases were
amortization and
10
prepayments totaling $23.3 million and $15.6 million for the six month
period ended June 30, 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.
The allowance for loan losses totaled $676,000, a decrease of $91,000 from
the balance at December 31, 2001, due to net charge-offs for the period.
The Bank's allowance for loan losses to net loans receivable was .54% at
June 30, 2002, compared to .61% at December 31, 2001. Non-performing loans
increased to $1.7 million, or 1.18% of total assets at June 30, 2002,
compared to $1.4 million, or 1.02% of total assets at December 31, 2001
due to three loans to the same commercial borrower totaling $667,000.
These loans were brought current during July 2002. The ratio of allowance
for loan losses to non-performing loans was 36.5% at June 30, 2002
compared to 58.7% at December 31, 2001.
Liabilities increased from $129.9 million at December 31, 2001, to $130.2
million at June 30, 2002, an increase of $242,000. The primary reason for
the increase in total liabilities was an increase in deposit accounts.
Deposits increased by $1.6 million, to $103.8 million at June 30, 2002.
The increase is primarily due to the Company's competitive certificate
rate pricing. Borrowed money, which consists of FHLB of Indianapolis
advances, decreased during the period by $1.6 million to $22.4 million at
June 30, 2002. Currently, there are $3.0 million of FHLB advances maturing
over the next twelve month period at a weighted average rate of 4.22%.
In March 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 stockholders' equity increased by $387,000 to $12.1 million at June
30, 2002 from the balance at December 31, 2001. This increase was due to
net income of $490,000, an increase in net unrealized gain on securities
available for sale in the amount of $19,000 and normal amortization of
ESOP benefits of $25,000 offset by the payment of dividends on common
stock of $97,000 and repurchase of 4,400 shares of common stock totaling
$50,000. The Company is no longer subject to regulatory limitations on
stock repurchases and, subject to future market conditions, intends to
continue modest repurchases of stock.
11
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED JUNE 30, 2002 AND
2001
NET INCOME
The Company's net income for the three months ended June 30, 2002 was
$254,000, an increase of $28,000 compared to the three months ended June
30, 2001. This increase was due to an increase in net interest income of
$254,000 offset by an increase in the provision for loan losses of
$96,000, a decrease in non-interest income of $109,000, an increase in
non-interest expense of $12,000 and an increase in income taxes of $9,000.
INTEREST INCOME
Total interest income decreased $171,000 or 6.9%, for the three months
ended June 30, 2002 compared to the prior year as a result of a 99 basis
point decline in the average yield, offset by a $8.7 million increase in
the average volume of interest earning assets. For the three months ended
June 30, 2002 and 2001, the Company's average yield on interest earning
assets was 6.74% and 7.73%, respectively, while the Company's average
interest earning assets were $136.7 million and $128.0 million. The
decrease in yield is primarily attributable to prepayments of high
interest rates 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 the Trust Preferred Securities
issuance that occurred at the end of the first quarter as well as strong
deposit flows during the second half of 2001. Interest income from loans
decreased $168,000 as a result of a 64 basis point decline to 7.35% in the
average yield on loans receivable.
INTEREST EXPENSE.
Total interest expense decreased $425,000, or 25.8% to $1.2 million for
the second quarter of 2002, due to a 161 basis point decrease in the
average cost of interest-bearing liabilities compared to the prior year
quarter, offset by a $8.1 million increase in average interest-bearing
liabilities. For the three months ended June 30, 2002 and 2001, the
Company's average cost on interest-bearing liabilities was 3.67% and
5.28%, respectively, while average interest-bearing liabilities were
$133.5 million and $124.9 million.
Interest on deposits decreased by $409,000 to $844,000, as a result of a
194 basis point decrease in average cost offset in part by an increase of
$8.0 million in the average balance of deposits. The decrease in the
average cost of deposits is primarily due
12
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, including the recently issued Trust Preferred
Securities, decreased $16,000 to $380,000, as a result of a 36 basis point
decrease in average cost and offset by a $643,000 increase 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. While the average balance of the recently issued
Trust Preferred Securities is at $5.0 million, the average balances of
FHLB of Indianapolis advances declined by $4.4 million. 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.
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 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 $122,000 was recorded during the three
months ended June 30, 2002 compared to $26,000 for the 2001 three month
period. There were no changes in the estimation method or assumptions that
impacted the provision for loan loss during the quarter. The increased
provision during the current quarter includes $70,000 as a result of
delinquent medical lease loans previously purchased by the Bank and
serviced by a third party. The Company has acquired information indicating
that the servicer may have diverted funds due to the Company, including
prepayments. The Bank has contacted the underlying debtors on the loans to
confirm balances due and to recast those loans as new individual
commercial business loans. The balance of loans which could not be
verified or confirmed with the underlying debtors has been charged-off and
amounted to $370,000 during the quarter. The individual loans which had
been recast totaled $550,000 and were current in accordance with their
terms as of June 30, 2002.
Management believes that the total general loan loss allowance of $606,000
on total net loans of $111.2 million at June 30, 2002, is adequate given
the area economic conditions, the level of impaired and non-performing
loans, and the composition of the loan portfolio. At June 30, 2002, the
Company was aware of no regulatory directives or suggestions that the
Company make additional provisions for losses on loans.
13
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 $109,000
to $254,000 compared to $363,000 recorded in the 2001 quarter. The
decrease in non-interest income is primarily attributable to reduced gains
on trading account securities of $97,000 as well as a decrease in rental
income of $15,000 due to the relocation of a major tenant at the Dyer
branch office. The Company also recorded a loss of $22,000 during the
second quarter of 2002 as compared to a loss of $35,000 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 $12,000 to $875,000 for the
three months ended June 30, 2002 compared to $862,000 for the three months
period ended June 30, 2001. Compensation and benefits expense which
increased by $38,000 in the current quarter due to normal compensation
increases, while data processing costs increased by $12,000 due to
increased transaction activity. These increases were offset by a decline
of $16,000 in occupancy and equipment costs, primarily reduced
depreciation charges, as well as minor decreases totaling $25,000 in
several operating expense categories.
INCOME TAXES.
For the three months ended June 30, 2002, income tax expense totaled
$83,000, or an effective tax rate of 24.6 %, compared to $74,000, or an
effective tax rate of 24.7%, for the three months ended June 30, 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.
14
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
NET INCOME
The Company's net income for the six months ended June 30, 2002 was
$490,000, an increase of $72,000 compared to the six months ended June 30,
2001. This increase was due to an increase in net interest income of
$520,000, offset in part by a increase in provision for loan losses of
$214,000, a decrease in non-interest income $157,000, an increase in
non-interest expense of $38,000, and an increase in income taxes of
$39,000.
INTEREST INCOME
Total interest income decreased $354,000 or 7.2%, for the six months ended
June 30, 2002 compared to the six months ended June 30, 2001. Of this
decrease, $312,000 is attributable to interest earned on loans receivable.
The Bank's average yield on loans receivable declined by 57 basis points
over the prior year period while the average balance of loans receivable
increased by $300,000. The decline in the average rate is a function of
current originations being at lower interest rates and prepayments of
higher-rate loans due to declining interest rates. Interest income on
mortgage-backed securities decreased by $19,000 due to a decline of
$600,000 in the average balance primarily due to normal prepayments offset
by a 41 basis point increase in average yield. The $9,000 increase in
interest income on investment securities is due to a $900,000 increase in
the average balance to $5.8 million, primarily from purchases occurring
during 2002, offset by a 41 basis point decline in average yield. The
$18,000 decrease in interest income on interest-bearing deposits for the
six months ended June 30, 2002 was due to a decline in the average yield
of 283 basis points as short term interest rates declined significantly
between periods.
INTEREST EXPENSE.
Total interest expense on interest-bearing liabilities decreased $900,000,
or 26.3% for the six months ended June 30, 2002 compared to the prior year
period. For the six months ended June 30, 2002 and 2001, the Company's
average interest bearing liabilities were $130.2 million and $125.0
million, respectively, while the average cost on interest bearing
liabilities was 3.76% and 5.31%. Interest expense on deposits decreased
$800,000, primarily due to a 178 basis point decrease in the average cost
of deposits offset by an $8.0 million increase in balance of average
deposits. Lower interest rates positively impacted the cost of maturing
certificates of deposits in the latter half of 2001 and early 2002.
Interest on borrowings, including the recently issued Trust Preferred
Securities, decreased $155,000, reflecting a $2.9 million decrease in the
average balance of borrowed funds, primarily advances from the FHLB of
Indianapolis, and a 54 basis point decline in average cost.
15
PROVISION FOR LOAN LOSSES.
The Bank provided $275,000 for the loan loss provision for the six months
ended June 30, 2002 compared to $61,000 for the six months ended June 30,
2001. The increased provision relates to the medical lease loans in the
current three month period as discussed above.
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 $157,000 to $514,000 for the
six months ended June 30, 2002 compared to $671,000 for the six months
ended June 30, 2001, primarily reflecting decreased gains on trading
account securities. Both realized and unrealized gains on trading account
securities was $37,000 for the six months ended June 30, 2002, compared to
$148,000 for the six months ended June 30, 2001, a decrease of $111,000.
Trading account securities sales were $75,000 during the current period
resulting in realized gains of $22,000, compared to $316,000 in sales
during the prior six month period, resulting in realized gains of $62,000.
In addition, unrealized gains on market adjustments of these securities
was $15,000 for the six months ended June 30, 2002 compared to $86,000 in
the prior year period.
During the current six month period, the Company incurred a loss on the
sale of real estate owned properties in the amount of $28,000, which did
not occur in the prior year period. The Company also recorded reduced
commission income on the sale of financial products of $33,000 and reduced
rental income of $11,000 due to the relocation of a major tenant at the
Dyer branch office. These declines were offset by increased deposit
related fee income of $18,000 due to increased overdraft and ATM fee
charges. In addition, the Company also recorded a loss of $48,000 during
the six month period ended June 30, 2002 as compared to a loss of $55,000
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 $70,000 in federal income tax credits during both
periods which resulted in the reduction of the Company's effective income
tax rate.
16
NON-INTEREST EXPENSE.
The Company's non-interest expense increased $38,000 to $1.7 million for
the six months ended June 30, 2002 compared to the same period a year ago.
The increase resulted primarily from increased staffing costs of $57,000,
primarily due to normal salary and benefit increases. In addition,
advertising costs increased by $9,000 due to increased spending related to
deposit promotion while data processing costs increased by $11,000 due to
increased transaction activity. These increases were offset by a reduction
in occupancy and equipment expenses of $16,000, primarily in depreciation
charges and a decrease of $22,000 in other operating expenses spread over
several operating expense categories.
INCOME TAXES.
The Company recorded a provision for income taxes of $163,000 for the six
months ended June 30, 2002, or an effective income tax rate of 25.0%,
compared to $124,000 for the six months ended June 30, 2001, or an
effective income tax rate of 22.9%. Both periods were positively impacted
by the recognition of low-income housing tax credits of $70,000 provided
through an investment in a limited partnership organized to build, own and
operate a 56 until low-income housing apartment complex.
17
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.
18
Capital Requirement
-------------------
At June 30, 2002, the Bank was in compliance with all of its capital
requirements as follows:
June 30, 2002 December 31, 2001
----------------------------- -----------------------------
Percent of Percent of
Amount Assets Amount Assets
------------ ------- ------------ -------
Stockholder's equity of the Bank $ 10,523,218 7.34% $ 9,929,945 7.10%
------------ ------- ------------ -------
Tangible capital $ 10,380,268 7.25% $ 9,801,506 7.01%
Tangible capital requirement 2,147,000 1.50 2,097,000 1.50
------------ ------- ------------ -------
Exess $ 8,233,268 5.75% $ 7,704,506 5.51%
============ ======= ============ =======
Core capital $ 10,380,268 7.25% $ 9,802,506 7.01%
Core capital requirement 4,295,000 3.00 4,193,000 3.00
------------ ------- ------------ -------
Excess $ 6,085,268 4.25% $ 5,609,506 4.01%
============ ======= ============ =======
Core and supplementary capital $ 10,970,860 13.22% $ 10,482,971 12.60%
Risk-based capital requirement 6,641,000 8.00 6,654,000 8.00
------------ ------- ------------ -------
Exess $ 4,329,860 5.22% $ 3,828,971 4.60%
============ ======= ============ =======
Total Bank assets $143,302,000 $139,903,000
Adjusted total Bank assets $143,159,000 $139,774,000
Total risk-weighted assets $ 83,007,000 $ 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:
June 30, 2002 December 31, 2001
------------ -------------
Stockholder's equity of the Bank $ 10,523,218 9,929,945
Regulatory capital adjustment
for available for sale securities (142,950) (128,439)
------------ -------------
Tangible and core capital 10,380,268 9,801,506
General loan loss reserves 605,592 696,465
Direct equity investments (15,000) (15,000)
------------ -------------
Core and supplementary capital $ 10,970,860 10,482,971
============ =============
19
NON-PERFORMING ASSETS
---------------------
The following table sets forth the amounts and categories of
non-performing assets in the Company's portfolio. Loans are reviewed
monthly and any loan whose collectivity 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 collectivity
of the loan. Restructured loans include troubled debt restructuring (which
involved forgiving a portion of interest principal on any loans or making
loans at a rate materially less than the market).
June 30, December 31,
2002 2001
------- -------
(Dollars (Dollars
in thousands) in thousands)
Non- accruing loans:
One to four family 554 714
Multi- family -- --
Non- residential 469 463
Commercial Business 667 66
Construction -- --
Consumer 42 13
------- -------
Total 1732 1256
------- -------
Foreclosed assets:
One to four family -- 191
Multi-family -- --
Non-residential -- --
Construction -- --
Consumer -- --
------- -------
Total 0 191
------- -------
Total non- performing assets 1732 1447
======= =======
Total as a percentage of total assets 1.18% 1.02%
20
For the six months period ended June 30, 2002, gross interest, which would
have been recorded, had the non-accruing loans been current in accordance
with their original terms amounted to $44,000.
In addition to the non-performing assets set forth in the table above, as
of June 30, 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.
21
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 six months ended June 30, 2002, the Company repurchased 4,400 share of
its common stock at an average price of $11.30 per share, for a total of
$50,000.
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 not
to pay rates on deposits as high as its competition and to supplement
deposits with longer term and/or less expensive alternative sources of
funds.
During the six months ended June 30, 2002, the Bank originated and
purchased loans totaling $20.3 million compared with $16.0 million during
the same period a year ago. At June 30, 2002, the Bank had outstanding
commitments to originate loans of $2.2 million and unused lines of credit
totaling $4.5 million. At June 30, 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.
22
RECENT DEVELOPMENTS
-------------------
On July 24, 2002 the Company declared a cash dividend of $.06 per share,
payable on August 23, 2002 to shareholders of record on August 9, 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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
Item 5. OTHER INFORMATION
(a) The Company held its Annual Meeting of Shareholders on April
24, 2002.
(b) The names of each director elected at the Annual Meeting for
three-year term
Are as follows:
FOR WITHHELD
John G. Pastrick 683,326 9,145
Robert E. Tolley 683,326 9,145
The names of the other directors whose term of office
continued after the Annual Meeting, are as follows:
Clement B.Knapp, Jr.
Donald L. Harle
Ronald W. Borto
John C. McLaughlin
23
(c) In addition to the election of directors, the following matter
was voted upon.
(i) Ratification of the appointment of Cobitz, VandenBerg &
Fennessy as the Company's independent auditors for the
year ending December 312, 2002.
For Against Abstain
Number of Votes 683,819 965 7,687
Percentage of Votes
Eligible to cast 79.42% .11% .89%
Actually cast 98.75% .14% 1.11%
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 April 24, 2002
attaching its press release announcing the results of
operations for the quarter ended March 31, 2002.
24
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: July 25, 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)
25
INDEX TO EXHIBITS
-----------------
Exhibit No. Page No.
----------- --------
11 Statement re: Computation of Earnings Per Share 27
26