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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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
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(State or other jurisdiction of I.R.S. Employer
incorporation or organization) Identification 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 23, 2003 there were 1,686,169 shares of the Registrant's
common stock issued and 763,563 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 3
March 31, 2003 (Unaudited) and December 31, 2002
Consolidated Statements of Earnings for the three
months ended March 31, 2003 and 2002 (unaudited) 4
Consolidated Statement of Changes in Stockholders
Equity, three months ended March 31, 2003 (unaudited) 5
Consolidated Statements of Cash Flow for the three
months ended March 31, 2003 and 2002 (unaudited) 6
Notes to Unaudited Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-20
PART II. OTHER INFORMATION 21
Signatures 22
Rule 13a-14 Certifications 23
Index of Exhibits 25
Earnings Per Share Analysis (Exhibit 11)
Section 906 Certification (Exhibit 99)
2
AMB FINANCIAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, DECEMBER 31,
2003 2002
------------ ------------
ASSETS
- ------
Cash and amounts due from depository institutions 4,212,235 3,848,575
Interest-bearing deposits 10,482,770 8,503,927
------------ ------------
Total cash and cash equivalents 14,695,005 12,352,502
Investment securities, available for sale, at fair value 5,809,074 5,764,121
Trading securities 608,273 565,929
Mortgage backed securities, available for sale, at fair value 3,910,165 2,643,219
Loans receivable (net of allowance for loan losses:
$885,473 at March 31, 2003 and $837,859 at December 31, 2002) 115,750,525 114,318,331
Investment in LTD Partnership 1,020,600 1,042,600
Real Estate Owned 68,453 104,197
Stock in Federal Home Loan Bank of Indianapolis 1,624,400 1,624,400
Accrued interest receivable 699,593 703,927
Office properties and equipment- net 2,487,509 2,425,525
Prepaid expenses and other assets 8,242,896 8,126,784
------------ ------------
Total assets 154,916,493 149,671,535
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities
- -----------
Deposits 114,418,924 109,330,981
Borrowed money 19,296,899 20,296,899
Notes Payable 923,756 927,043
Advance payments by borrowers for taxes and insurance 703,976 406,372
Other liabilities 2,816,009 1,864,420
------------ ------------
Total liabilities 138,159,564 132,825,715
------------ ------------
Guraranateed preferred beneficial interest in junior
subordinated debentures (Capital trust securities) 5,000,000 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 765,063 shares outstanding at March
31, 2003 and 789,663 shares outstanding at December 31, 2002 16,862 16,862
Additional paid- in capital 10,957,208 10,932,458
Retained earnings, substantially restricted 10,207,336 9,922,705
Accumulated other comprehensive income, net of tax 123,593 149,543
Treasury stock, at cost (921,106 shares at March 31, 2003 and
896,506 shares at December 31, 2002) (9,278,280) (8,905,958)
Common stock acquired by Employee Stock Ownership Plan (269,790) (269,790)
------------ ------------
Total stockholders' equity 11,756,929 11,845,820
------------ ------------
Total liabilities and stockholders' equity 154,916,493 149,671,535
============ ============
See accompanying notes to consolidated financial statements.
3
AMB FINANCIAL CORP.
AND SUBIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, MARCH 31,
------------ ------------
2003 2002
------------ ------------
unaudited unaudited
Interest income
Loans 1,971,780 2,060,300
Mortgage-backed securities 46,842 56,983
Investment securities 63,817 52,453
Interest-bearing deposits 28,477 25,985
Dividends on FHLB stock 22,712 24,032
------------ ------------
Total interest income 2,133,628 2,219,753
------------ ------------
Interest expense
Deposits 739,696 919,733
Borrowings 257,304 301,341
------------ ------------
Total interest expense 997,000 1,221,074
------------ ------------
Net interest income before provision for loan losses 1,136,628 998,679
Provision for loan losses 48,494 152,957
------------ ------------
Net interest income after provision for loan losses 1,088,134 845,722
------------ ------------
Non-interest income:
Loan fees and service charges 65,635 44,154
Deposit related fees 140,393 112,069
Other fee income 90,005 56,599
Rental Income 20,553 74,518
Gain on sale of trading securities -- 21,562
Unrealized gain on trading securities 42,345 11,947
Loss from investment in limited partnership (22,000) (25,875)
Loss on sale of REO -- (28,114)
Increase in cash value of insurance 40,857 38,363
Other income 11,735 11,751
------------ ------------
Total non-interest income 389,523 316,974
------------ ------------
Non-interest expense:
Staffing costs 465,381 410,780
Advertising 22,093 18,951
Occupancy and equipment expense 116,996 113,915
Data processing 123,955 113,525
Professional fees 52,427 36,629
Federal deposit insurance premiums 4,528 4,534
Capital trusts securities 64,438 --
Other operating expenses 156,582 147,668
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Total non-interest expense 1,006,400 846,002
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Net income before income taxes 471,257 316,694
Provision for (benefit from) federal and state income taxes 143,624 80,260
------------ ------------
Net income 327,633 236,434
============ ============
Earnings per share- basic $ 0.45 $ 0.29
Earnings per share- diluted $ 0.41 $ 0.29
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, 2002 $ 16,862 10,932,458 9,922,705 149,543 (8,905,958) (269,790) 11,845,820
---------- ---------- ---------- ---------- ---------- ---------- ----------
Comprehensive income:
Net income 327,633 327,633
Other comprehensive income,
net of income taxes:
Unrealized holding loss
during the period (25,950) (25,950)
---------- ---------- ----------
Total comprehensive income 327,633 (25,950) 301,683
Purchase of treasury stock
(24,600 shares) (372,322) (372,322)
Contribution to fund ESOP loan 24,750 24,750
Dividends declared on common
stock ($.06 per share) (43,002) (43,002)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 2003 $ 16,862 10,957,208 10,207,336 123,593 (9,278,280) (269,790) 11,756,929
========== ========== ========== ========== ========== ========== ==========
See accompanying notes to consolidated financial statements
5
AMB FINANCIAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDING MARCH 31,
------------------------------
2003 2002
------------ ------------
(unaudited)
Cash flows from operating activities:
Net income $ 327,633 236,434
Items not requiring (providing) cash:
Depreciation 47,901 44,665
Amoritization of premiums and accretion of discounts 1,013 (5,917)
Provision for loan losses 48,494 152,957
Increase in deferred compensation 22,381 20,673
ESOP compensation 24,750 9,600
Gain on sale of trading securities -- (21,562)
Unrealized gain on trading securities (42,345) (11,947)
Proceeds from sale of trading securities -- 75,000
Loss from limited partnership 22,000 25,875
Loss on sale of real estate owned -- 28,114
Increase (decrease) in deferred income on loans 12,032 (275)
(Increase) decrease in accrued interest receivable 4,334 (26,919)
Increase (decrease) in accrued interest payable 6,816 (6,151)
Change in current and deferred income taxes 118,624 65,260
Other, net (727,239) (980,364)
------------ ------------
Net cash provided by (for) operating activities (133,606) (394,557)
------------ ------------
Cash flows from investing activities:
Proceeds from maturity of investment securities 1,700,000 500,000
Purchase of investment securities (1,767,864) (2,491,031)
Proceeds from repayments of mortgage-backed securities 483,704 390,992
Purchase of mortgage-backed securities (1,772,000) --
Purchase of loans (4,035,135) (2,081,461)
Loan disbursements (9,287,355) (8,458,872)
Loan repayments 13,261,964 11,083,707
Proceeds from sale of real estate owned 35,744 162,467
Property and equipment expenditures, net (109,885) (4,622)
------------ ------------
Net cash provided by (for) investing activities (1,490,827) (898,820)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 5,087,943 1,779,252
Repayment of borrowed money (1,000,000) (500,000)
Repayment of notes payable (3,287) (3,257)
Increase in advance payments by borrowers for taxes and insurance 297,604 262,152
Proceeds from issuance of trust preferred securities -- 5,000,000
Purchase of teasury stock (372,322) --
Dividends paid on common stock (43,002) (48,426)
------------ ------------
Net cash provided by financing activities 3,966,936 6,489,721
------------ ------------
Net change in cash and cash equivalents 2,342,503 5,196,344
Cash and cash equivalents at beginning of period 12,352,502 8,962,658
------------ ------------
Cash and cash equivalents at end of period $ 14,695,005 14,159,002
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 990,184 1,227,225
Income taxes 25,000 15,000
See accompanying notes to consolidated financial statements.
6
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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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, 2003, the results of
operations for the three months ended March 31, 2003 and 2002 and cash
flows for the three months ended March 31, 2003 and 2002. 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, 2003 is not necessarily indicative of the results to be expected
for the year ending December 31, 2003.
2. Earnings Per Share
------------------
Earnings per share for the three month periods ended March 31, 2003 and
2002 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.
3. 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.
7
4. 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 to a pool of Trust Preferred Securities 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 non-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.
5. Impact of New Accounting Standards
----------------------------------
In September 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 did not have a material effect on
the Company's consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections". This Statement rescinds SFAS No. 4, "Reporting Gains and
Losses from Extinguishment of Debt," and an amendment of that Statement,
SFAS No. 64, "Extinguishments of Debt Made to Satisfy Sinking-Fund
Requirements". This Statement also rescinds SFAS No. 44, "Accounting for
Intangible Assets of Motor Carriers". This Statement amends SFAS No. 13,
"Accounting for Leases," to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. This
Statement is effective for fiscal years beginning after May 15, 2002.
Adoption of this statement did not have a material effect on the Company's
consolidated financial statements.
8
In September 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". This Statement addresses
financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". This Statement is effective for exit or disposal
activities are initiated after December 31, 2002. Adoption of this
statement is not expected to have a material effect on the Company's
consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosure". This Statement amends FASB
Statement No. 123, "Accounting for Stock-Based Compensations", "to provide
alternative methods for transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In
addition, this Statement amends the disclosure requirements of Statement
123 to require prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results. This
Statement is effective for fiscal years ending after December 15, 2002.
Adoption of this statement did not have a material effect on the Company's
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.
6. Reclassification of Certain Line Items on Consolidated Statement of Earnings
----------------------------------------------------------------------------
Certain line item amounts on the consolidated statement of earnings have
been reclassified from the prior year periods to conform to current
presentation. The reclassification is the result of determining that
service fee income on the Company's purchased accounts receivable should be
classified as other income and not as interest on loans receivable. All
affected amounts and ratios, including loan yield, interest rate spreads
and net interest margin discussed in Form 10-Q have been properly restated
to reflect this reclassification. This change has no impact on current or
previously issued consolidated statements of financial condition or results
of operations, including net earnings and earnings per share.
9
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.
10
FINANCIAL CONDITION
-------------------
MARCH 31, 2003 COMPARED TO DECEMBER 31, 2002
Total assets of the Company were $154.9 million at March 31, 2003, an
increase of $5.2 million, or 3.5% from $149.7 million at December 31, 2002.
The increase was primarily due to increases in cash and interest-bearing
deposits, mortgage-backed securities and loans receivable, funded by an
increase in deposit balances.
Cash and short-term investments increased by $2.3 million to $14.7 million
at March 31, 2003 from a combined $12.4 million at December 31, 2002.
Short-term liquidity remained relatively higher than normal due to high
loan prepayments. The Company expects to redeploy this excess cash in loan
production or investment securities, as the opportunities arise, or to
repay matured borrowings as they come due.
At March 31, 2003, the balance of investment securities classified as
available for sale remained relatively constant at $5.8 million. Purchases
during the current period of $1.7 million were offset by a like amount of
maturities. The Company has been maintaining the amount of investment
securities as a means of reinvesting higher liquidity. The purchases during
the current period have been U.S. government agency securities. Gross
unrealized gains in the available for sale portfolio were $106,000 at March
31, 2003 compared to gross unrealized gains of $119,000 at December 31,
2002.
Trading account securities increased $42,000 to $608,000 at March 31, 2003.
The increase is attributable to an increase in unrealized gains in the
portfolio.
Mortgage-backed securities available for sale increased by $1.3 million to
$3.9 million at March 31, 2003. The increase is due to purchases of $1.8
million offset by prepayments and amortization of $475,000. Gross
unrealized gains in the available for sale portfolio were $100,000 at March
31, 2003 compared to gross unrealized gains of $130,000 at December 31,
2002.
The balance of loans receivable at March 31, 2003 amounted to $115.8
million, compared to $114.3 million at December 31, 2002, an increase of
$1.5 million. The Bank originated both residential and non-residential
loans of $9.3 million and purchased loans totaling $4.0 million during the
three months ended March 31, 2003, compared to $8.4 million of originations
and $2.1 million of purchases during the prior year period. The higher loan
origination volume was primarily due to continued mortgage refinance
activity as interest rates have decreased to historical lows. Offsetting
originations and purchases were amortization and prepayments totaling $13.3
million and $11.1 million for the three months ended March 31, 2003 and
2002.
The allowance for loan losses totaled $885,000, an increase of $47,000 from
the balance at December 31, 2002. The Bank's allowance for loan losses
total loans receivable was .74% at March 31, 2003, compared to .71% at
December 31, 2002. Non-performing loans increased to $1.35 million, or
1.08% of total loans receivable at March 31, 2003, compared to $1.1
million, or .91% of total loans receivable at December 31, 2002. The ratio
of allowance for loan losses to non-performing loans was 69.1% at March 31,
2003 compared to 78.2% at December 31, 2002.
11
Deposits increased $5.1 million, to $114.4 million at March 31, 2003. The
increase is due to an increase in core deposit accounts, primarily passbook
accounts of $2.3 million and certificates of deposit of $2.8 million. At
March 31, 2003, the Bank's core deposits (passbook, checking and money
market accounts) comprise $39.3 million, or 34.4% of deposits, compared to
$37.1 million, or 33.9% of deposits at December 31, 2002.
Borrowed money, which consists of FHLB of Indianapolis advances, decreased
by $1.0 million to $19.3 million at March 31, 2003. Currently, there is
$4.0 million of FHLB advances maturing over the next twelve month period at
a weighted average rate of 5.26%.
In March 2002, the Company completed an issuance of $5.0 million of capital
trust 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 of the Company decreased by $88,000 to $11.8
million, or 7.6% of total assets, at March 31, 2003 compared to $11.8
million, or 7.9% of total assets at December 31, 2002. The decrease was due
to the repurchase of common stock in the amount of $372,000 and cash
dividends paid of $43,000 offset by comprehension income of $302,000 and
normal amortization of ESOP benefits of $25,000. The Company is no longer
subject to regulatory limitations on stock repurchases and intends to
continue modest repurchases of stock, subject to market conditions.
12
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED MARCH 31, 2003
AND 2002
NET INCOME
The Company's net income for the three months ended March 31, 2003 was
$328,000, an increase of $92,000 compared to the three months ended March
31, 2002. This increase was due to an increase in net interest income of
$139,000, a decline in the provision for loan losses of $104,000 and an
increase in non-interest income of $73,000, offset by an increase in
non-interest expense of $160,000 and an increase in income taxes of
$63,000.
INTEREST INCOME
Total interest income decreased $85,000 or 3.8% for the three months ended
March 31, 2003 compared to the prior year as a result of a 64 basis point
decline in the average yield, offset by an $7.4 million increase in the
average volume of interest earning assets. For the three months ended March
31, 2003 and 2002, the Company's average yield on interest earning assets
was 6.36% and 7.00%, respectively, while the Company's average interest
earning assets were $134.3 million and $126.9 million. The decrease in
yield is primarily attributable to loans receivable resulting from both
current originations at lower interest rates and prepayments of high
interest rate loans due to declining interest rates. The higher volume was
funded by the trust preferred securities issuance that occurred at the end
of the first quarter of 2002 as well as strong deposit flows during the
last six months. Interest income on loans receivable decreased $89,000
despite a $3.4 million increase in average loans receivable. The decline in
interest rates has led to a high level of prepayments, which has led to a
53 basis point decline to 6.88% in the average yield on loans receivable.
INTEREST EXPENSE
Total interest expense decreased $224,000, or 18.3% to $1.0 million for the
first quarter of 2003, due to a 81 basis point decrease in the average cost
of interest-bearing liabilities compared to the prior year quarter, offset
by an $4.2 million increase in average interest-bearing liabilities. For
the three months ended March 31, 2003 and 2002, the Company's average cost
on interest-bearing liabilities was 3.04% and 3.85%, respectively, while
average interest-bearing liabilities were $131.1 million and $126.9
million.
Interest expense on deposit accounts decreased by $180,000 to $740,000 for
the first quarter of 2003, despite an $8.2 million increase in average
deposits compared to the prior year quarter as a result of an 81 basis
point decrease in average cost of deposits compared to the prior year's
three month period. The decrease in the average cost of deposits was
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.
13
Interest on borrowings decreased $43,000 to $257,000, as a result of a $4.0
million decrease in the average balance of borrowed funds offset by a 15
basis point increase in the average cost of borrowed funds. Higher than
normal liquidity due to increased deposit balances and the proceeds from
the issuance of trust preferred securities that occurred at the end of the
first quarter of 2002, has enabled the Bank to repay maturing FHLB advances
as they come due.
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 $48,000 was recorded during the three months
ended March 31, 2003 as compared to $153,000 for the 2002 three month
period. There were no changes in estimation method or assumptions that
impacted the provision for loan loss during the quarter. The decrease in
the loan loss provision during the current quarter relates primarily to the
absence of a $110,000 additional provision which was provided in the prior
year's quarter for the impairment of medical leases previously purchased by
the Bank and serviced by a third party. Management believes that the total
general loan loss allowance of $666,000 on total net loans of $115.8
million at March 31, 2003, is adequate given the area economic conditions,
the level of impaired and non-performing loans, and the composition of the
loan portfolio. At March 31, 2003, 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.
14
NON-INTEREST INCOME
Non-interest income increased to $390,000 in the current quarter, compared
to $317,000 reported in last year's first quarter. The increase in
non-interest income is primarily due to a $33,000 increase in service fee
income related to the Company's program to purchase and manage accounts
receivable, and increases of $28,000 in deposit related fees and $22,000 in
loan related fees and service charges. In the prior year period, the
Company incurred a loss on the sale of real estate owned in the amount of
$28,000 which did not occur during the current year's period. Offsetting
these increases in non-interest income was a $54,000 decline in rental
income at the Dyer branch office location which was previously leased to a
third party. The Company has begun to remodel this space for use, in part,
to expand office operations, and to lease the remaining space to an
unrelated tenant. In addition, the Company also incurred a loss of $22,000
in the current quarter compared to a loss of $26,000 in the prior year's
quarter, 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 $161,000 to $1.0 million for
the three months ended March 31, 2003 compared to $846,000 for the three
months ended March 31, 2002. Compensation and benefits expense increased by
$55,000 in the current quarter due to both normal compensation increases
and higher benefit costs and to trust preferred securities expense of
$65,000 which did not occur in the previous year. In addition, data
processing costs increased by $10,000 primarily due to increased
transaction activity, professional fees increased by $15,000 due to legal
fees related to public company matters and other operating expenses
increased by $13,000 from the prior year's quarter as a result of
comparable increases in office supplies and security expense.
INCOME TAXES.
For the three months ended March 31, 2003, income tax expense totaled
$143,000, or an effective tax rate of 30.5%, compared to $80,000, or an
effective tax rate of 25.3%, for the three months ended March 31, 2002.
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
15
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.
16
CAPITAL REQUIREMENT
At March 31, 2003, the Bank was in compliance with all of its capital
requirements as follows:
March 31, 2003 December 31, 2002
--------------------- ---------------------
Percent of Percent of
Amount Assets Amount Assets
----------- ----- ----------- -----
Stockholders' equity of the Bank $11,610,718 7.67% $11,248,329 7.66%
----------- ----- ----------- -----
Tangible capital 11,493,682 7.60% $11,109,183 7.58%
Tangible capital requirement 2,269,000 1.50 2,199,000 1.50
----------- ----- ----------- -----
Exess $ 9,224,682 6.10% $ 8,910,183 6.08%
=========== ===== =========== =====
Core capital 11,493,682 7.60% $11,109,183 7.58%
Core capital requirement 4,539,000 3.00 4,398,000 3.00
----------- ----- ----------- -----
Excess $ 6,954,682 4.60% $ 6,711,183 4.58%
=========== ===== =========== =====
Core and supplementary capital 12,145,155 13.80% $11,713,041 13.54%
Risk-based capital requirement 7,039,000 8.00 6,921,000 8.00
----------- ----- ----------- -----
Exess $ 5,106,155 5.80% $ 4,792,041 5.54%
=========== ===== =========== =====
Total Bank assets $151,408,000 $146,754,000
Adjusted total Bank assets 151,291,000 $146,615,000
Total risk-weighted assets 87,993,000 $ 86,571,000
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, 2003 December 31, 2002
----------- -----------
Stockholders' equity of the Bank $11,610,718 $11,248,329
Regulatory capital adjustment
for available for sale securities (117,036) (139,146)
----------- -----------
Tangible and core capital $11,493,682 $11,109,183
General loan loss reserves 666,473 618,858
Direct equity investments (15,000) (15,000)
----------- -----------
Core and supplementary capital $12,145,155 $11,713,041
=========== ===========
17
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 loans whose collectibility is doubtful are 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,
2003 2002
-------- --------
(Dollars in (Dollars in
thousands) thousands)
Non- accruing loans:
One to four family 292 534
Multi- family -- --
Non- residential 475 475
Commercial Business 453 66
Construction -- --
Consumer 60 62
-------- --------
Total 1,280 1,071
-------- --------
Foreclosed assets:
One to four family 69 104
Multi-family -- --
Non-residential -- --
Construction -- --
Consumer -- --
-------- --------
Total 69 104
-------- --------
Total non- performing assets 1,349 1,175
======== ========
Total as a percentage of total assets 0.87% 0.79%
18
For the three months period ended March 31, 2003, gross interest, which
would have been recorded, had the non-accruing loans been current in
accordance with their original terms amounted to $18,000.
In addition to the non-performing assets set forth in the table above, as
of March 31, 2003, 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 security purchases and stock repurchases. During the three
months ended March 31, 2003, the Company repurchased 24,600 shares of its
common stock at an average price of $15.14 per share, for a total of
$372,000.
The Bank's principal sources of funds are deposits, advances from the FHLB
of Indianapolis, principal repayments on loans and mortgage-backed
securities, proceeds from the sale or maturity of investment securities and
funds provided by operations. While scheduled loan and mortgage-backed
securities amortization and maturing investment securities are a relatively
predictable source of funds, deposit flows and loan and mortgage-backed
securities prepayments are greatly influenced by economic conditions, the
general level of interest rates and competition. The Bank utilizes
particular sources of funds based on comparative costs and availability.
The Bank generally manages the pricing of its deposits to maintain a steady
deposit balance, but has from time to time decided to increase rates on
deposits, and when necessary, to supplement deposits with longer term
and/or less expensive alternative sources of funds in order to achieve a
desired funding level.
During the three months ended March 31, 2003, the Bank originated and
purchased loans totaling $13.3 million compared with $10.5 million during
the same period a year ago. At March 31, 2003, the Bank had outstanding
commitments to originate loans of $2.4 million and unused lines of credit
issued to third parties totaling $4.2 million. At March 31, 2003, 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.
19
DISCLOSURE AND INTERNAL CONTROLS
--------------------------------
The Company has adopted interim disclosure controls and procedures designed
to facilitate the Company's financial reporting. The interim disclosure
controls currently consist of communications between the Chief Executive
Officer, the Chief Financial Officer and each department head to identify
any new transactions, events, trends or contingencies which may be material
to the Company's operations. The Company's disclosure controls also include
certain elements of the Company's internal controls adopted in connection
with applicable accounting guidelines. Finally, the Company's Chief
Executive Officer, Chief Financial Officer, Audit Committee and independent
accountants meet on a quarterly basis and discuss the Company's material
accounting policies. The Company's Chief Executive Officer and Chief
Financial Officer has evaluated the effectiveness of these interim
disclosure controls within the 90 days of the filing of this report and
found them to be adequate.
The Company maintains internal controls and has evaluated such controls
within 90 days of the filing of this report. There have not been any
significant changes in such internal controls subsequent to the date of
their evaluation.
20
RECENT DEVELOPMENTS
-------------------
On April 23, 2003 the Company declared a cash dividend of $.06 per share,
payable on May 16, 2003 to shareholders of record on May 2, 2003 as well as a
stock dividend of 5 shares for 4 shares (25%) by distributing a portion of its
treasury shares payable on May 29, 2003 to shareholders of record on May 14,
2003. Fractional shares created by stock dividend will be paid in cash.
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) Exhibit 11: Computation of earnings per share
(b) Exhibit 99.1 Certification of Clement B. Knapp pursuant to
section 906 of the Sarbanes Oxley Act of 2002. Exhibit 99.2
Certification of Daniel T. Poludniak pursuant to Section 906
of the Sarbanes Oxley Act of 2002.
(c) The Company filed Form 8-K dated January 22, 2003 attaching
it press release announcing the results of operations for
quarter ended December 31, 2002.
21
SIGNATURES
Pursuant to the requirements of Section 13 and 15 (d) of the Securities and
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMB FINANCIAL CORP.
------------------------
Registrant
Date: April 23, 2003
By: /s/ Clement B. Knapp, Jr.
-------------------------------------
President and Chief Executive Officer
(DULY AUTHORIZED REPRESENTATIVE)
By: /s/ Daniel T. Poludniak
-------------------------------------
Vice President and Chief Financial Officer
(PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER)
22
Certification for Quarterly Reports on Form 10-Q
------------------------------------------------
I, Clement B. Knapp Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMB FINANCIAL CORP.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 23, 2003 /s/ Clement B. Knapp, Jr.
-------------------------
Clement B. Knapp, Jr.
President and Chief
Executive Officer
23
Certification for Quarterly Reports on Form 10-Q
------------------------------------------------
I, Daniel T. Poludniak, certify that:
1. I have reviewed this quarterly report on Form 10-Q of AMB FINANCIAL CORP.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: April 23, 2003 /s/ Daniel T. Poludniak
-------------------------
Daniel T. Poludniak
Vice President and
Chief Financial Officer
24
INDEX TO EXHIBITS
=================
Exhibit No.
-----------
11 Statement re: Computation of Earnings Per Share
99.1 Section 906 Certification for CEO
99.2 Section 906 Certification for CFO
25