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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 35-1905382
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) Number)
8230 Hohman Avenue, Munster, Indiana 46321-1578
- ------------------------------------ ----------
(Address of Principle executive offices) (Zip Code)
Registrant telephone number, include are code: (219) 836-5870
--------------
Check whether the issuer (1) has filed all reports required to be filed by
Section 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, 2003 there were 1,686,169 shares of the Registrant's common
stock issued and 949,379 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, 2003 (Unaudited) and December 31, 2002 3
Consolidated Statements of Earnings for the three
and six months ended June 30, 2003 and 2002
(unaudited) 4
Consolidated Statements of Changes in
Stockholders Equity, six months ended
June 30, 2003 (unaudited) 5
Consolidated Statements of Cash Flows for the
six months ended June 30, 2003 and 2002
(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 23-24
Signatures 25
Index of Exhibits 26
Earnings Per Share Analysis (Exhibit 11) 27
Rule 13a-14 Certifications (Exhibits 31.1 and 31.2) 28-29
Section 906 Certification (Exhibits 32.1 and 32.2) 30-31
2
AMB FINANCIAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, December 31,
2003 2002
------------ ------------
ASSETS
- ------
Cash and amounts due from depository institutions 3,908,072 3,848,575
Interest-bearing deposits 11,244,973 8,503,927
------------ ------------
Total cash and cash equivalents 15,153,045 12,352,502
Investment securities, available for sale, at fair value 4,790,841 5,764,121
Trading securities 534,506 565,929
Mortgage backed securities, available for sale, at fair value 3,506,514 2,643,219
Loans receivable (net of allowance for loan losses:
$945,590 at June 30, 2003 and
$837,859 at December 31, 2002) 115,385,865 114,318,331
Investment in LTD Partnership 1,002,300 1,042,600
Real Estate Owned 62,811 104,197
Stock in Federal Home Loan Bank of Indianapolis 1,645,900 1,624,400
Accrued interest receivable 647,339 703,927
Office properties and equipment- net 2,532,064 2,425,525
Prepaid expenses and other assets 8,967,235 8,126,784
------------ ------------
Total assets 154,228,420 149,671,535
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
LIABILITIES
- -----------
Deposits 113,233,232 109,330,981
Borrowed money 19,196,763 20,296,899
Notes Payable 776,203 927,043
Advance payments by borrowers for taxes and insurance 914,244 406,372
Other liabilities 3,145,334 1,864,420
------------ ------------
Total liabilities 137,265,776 132,825,715
------------ ------------
Guaranteed 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 949,379 shares outstanding
at June 30, 2003 and 987,004 shares outstanding at
December 31, 2002 16,862 16,862
Additional paid- in capital 10,989,107 10,932,458
Retained earnings, substantially restricted 8,540,536 9,922,705
Accumulated other comprehensive income, net of tax 131,061 149,543
Treasury stock, at cost (736,790 shares at June 30. 2003
and 699,165 shares at December 31, 2002) (7,445,132) (8,905,958)
Common stock acquired by Employee Stock Ownership Plan (269,790) (269,790)
------------ ------------
Total stockholders' equity 11,962,644 11,845,820
------------ ------------
Total liabilities and stockholders' equity 154,228,420 149,671,535
============ ============
3
AMB FINANCIAL CORP.
AND SUBIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Three Months Six Months Six Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
---------- ---------- ---------- ----------
2003 2002 2003 2002
---------- ---------- ---------- ----------
unaudited unaudited unaudited unaudited
Interest income
Loans 1,950,541 2,036,048 3,922,321 4,096,348
Mortgage-backed securities 47,704 48,106 94,546 105,089
Investment securities 58,628 74,889 122,445 127,342
Interest-bearing deposits 27,854 44,116 56,331 70,101
Dividends on FHLB stock 19,140 25,312 41,852 49,344
---------- ---------- ---------- ----------
Total interest income 2,103,867 2,228,471 4,237,495 4,448,224
---------- ---------- ---------- ----------
Interest expense
Deposits 693,762 844,073 1,433,458 1,763,806
Borrowings 266,270 306,229 523,574 607,570
---------- ---------- ---------- ----------
Total interest expense 960,032 1,150,302 1,957,032 2,371,376
---------- ---------- ---------- ----------
Net interest income before
provision for loan losses 1,143,835 1,078,169 2,280,463 2,076,848
Provision for loan losses 60,918 121,880 109,412 274,837
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,082,917 956,289 2,171,051 1,802,011
---------- ---------- ---------- ----------
Non-interest income:
Loan fees and service charges 58,135 32,996 123,770 77,150
Deposit related fees 144,851 117,607 285,244 229,676
Other fee income 91,056 74,818 181,061 131,417
Rental Income 18,903 54,880 39,456 129,398
Gain on sale of trading securities 21,082 -- 21,082 21,563
Unrealized gain on trading
securities 24,495 3,243 66,840 15,190
Gain on sale of investment
securities available for sale 10,179 -- 10,179 --
Loss from investment
in limited partnership (18,300) (21,875) (40,300) (47,750)
Gain (loss) on sale of REO 15,831 -- 15,831 (28,114)
Increase in cash value of insurance 39,286 39,706 80,143 80,563
Other income 22,796 27,291 34,531 36,547
---------- ---------- ---------- ----------
Total non-interest income 428,314 328,666 817,837 645,640
---------- ---------- ---------- ----------
Non-interest expense:
Staffing costs 478,489 433,174 943,870 843,954
Advertising 29,136 21,326 51,229 40,277
Occupancy and equipment expense 126,932 104,423 243,928 218,338
Data processing 142,854 126,644 266,809 252,108
Professional fees 75,904 58,096 128,331 94,725
Federal deposit insurance premiums 4,523 4,530 9,051 9,064
Capital trust securities 64,420 73,642 128,858 73,642
Other operating expenses 141,763 126,598 298,345 262,327
---------- ---------- ---------- ----------
Total non-interest expense 1,064,021 948,433 2,070,421 1,794,435
---------- ---------- ---------- ----------
Net income before income taxes 447,210 336,522 918,467 653,216
Provision for federal and state
income taxes 148,798 82,789 292,422 163,049
---------- ---------- ---------- ----------
Net income 298,412 253,733 626,045 490,167
========== ========== ========== ==========
Earnings per share- basic $ 0.33 $ 0.25 $ 0.69 $ 0.49
Earnings per share- diluted $ 0.30 $ 0.24 $ 0.62 $ 0.47
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, 2002 $ 16,862 10,932,458 9,922,705 149,543 (8,905,958) (269,790) 11,845,820
----------- ----------- ----------- ----------- ----------- ----------- -----------
Comprehensive income:
Net income 626,045 626,045
Other comprehensive income,
net of income taxes:
Unrealized holding loss
during the period (13,956) (13,956)
Less: Reclassification adjustment
of gains included in net income (4,526) (4,526)
----------- ----------- -----------
Total comprehensive income 626,045 (18,482) 607,563
Purchase treasury stock (37,625 shares) (457,240) (457,240)
Contribution to fund ESOP loan 54,750 54,750
Dividends declared on
common stock ($.096 per share) (87,197) (87,197)
25% stock dividend, including
impact of fractional shares 1,899 (1,921,017) 1,918,066 (1,052)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at June 30, 2003 $ 16,862 10,989,107 8,540,536 131,061 (7,445,132) (269,790) 11,962,644
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements
5
AMB FINANCIAL CORP.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30,
----------------------------
2003 2002
------------ ------------
(unaudited)
Cash flows from operating activities:
Net income $ 626,045 $ 490,167
Adjustments to reconcile net income to net cash:
Depreciation 98,492 89,650
Amortization of premiums and accretion of discounts 5,778 (6,623)
Federal Home Loan Bank stock dividend (21,500) --
Provision for loan losses 109,412 274,837
Increase in deferred compensation 46,359 42,959
ESOP compensation 54,750 25,200
Gain on sale of investment securities (10,179) --
Gain on sale of trading account securities (21,082) (21,562)
Unrealized gain on trading account securities (66,840) (15,190)
Proceeds from sales of trading account securities 119,958 75,000
Loss from limited partnership 40,300 47,750
(Gain) loss on sale of real estate owned (15,831) 28,114
Increase in cash surrender value of life insurance (80,143) (80,563)
Increase (decrease) in deferred income on loans 23,438 (13,522)
Decrease in accrued interest receivable 56,588 46,639
Increase (decrease) in accrued interest payable 2,363 (13,214)
Change in current and deferred income tax 103,214 65,549
Other, net 380,378 (552,408)
------------ ------------
Net cash provided by operating activities 1,451,500 482,783
------------ ------------
Cash flows from investing activities:
Proceeds from sale of investment securities 109,906 --
Proceeds fom maturity and early redemption of
investment securities 2,800,000 2,500,000
Purchase of investment securities (1,969,509) (4,401,848)
Proceeds from repayments of mortgage-backed securities 1,414,248 641,256
Purchase of mortgaged-back securities (2,271,062) (498,157)
Purchase of loans (6,104,265) (4,756,580)
Loan disbursements (18,724,246) (15,527,463)
Loan repayments 23,565,316 23,323,094
Proceeds from sale of real estate owned 120,028 162,467
Property and equipment expenditures (205,031) (66,571)
------------ ------------
Net cash provided for investing activities (1,264,615) 1,376,198
------------ ------------
Cash flows from financing activities:
Net increase in deposits 3,902,251 1,574,818
Repayment of borrowed money (1,100,136) (1,596,130)
Repayment of note payable (150,840) (152,556)
Increase (decrease) in advance payments by borrowers
for taxes and insurance 507,872 (57,075)
Proceeds from issuance of trust preferred securities 0 5,000,000
Purchase of treasury stock (457,240) (49,980)
Dividend paid on common stock (88,249) (96,980)
------------ ------------
Net cash provided by financing activities 2,613,658 4,622,097
------------ ------------
Net change in cash and cash equivalents 2,800,543 6,481,078
Cash and cash equivalents at beginning of period 12,352,502 8,962,659
------------ ------------
Cash and cash equivalents at end of period $ 15,153,045 15,443,737
============ ============
Cash paid during the period for:
Interest $ 1,954,669 $ 2,458,232
Income taxes 189,208 97,500
Non-cash investing activities:
Transfer of loans to real estate owned 62,811 --
See notes to consolidated financial statements.
6
ITEM 1. FINANCIAL STATEMENTS
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
- ------------------------------------------
1. Statement of Information Furnished
----------------------------------
The accompanying unaudited consolidated financial statements have been
prepared in accordance with Form 10-Q instructions and Article 10 of
Regulation S-X, and in the opinion of management contains all adjustments
(all of which are normal and recurring in nature) necessary to present fairly
the financial position as of June 30, 2003, the results of operations for the
three and six months ended June 30, 2003 and 2002 and cash flows for the six
months ended June 30, 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
and six month period ended June 30, 2003 is not necessarily indicative of the
results to be expected for the full year.
2. Earnings Per Share
------------------
Earnings per share for the three and six month periods ended June 30, 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 after completion of the 5 for 4 stock
split completed on May 29, 2003 (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. Stockholders' Equity
--------------------
On April 23, 2003, the Board of Directors of AMB Financial Corp. approved a 5
for 4 stock split, effected in the form of a stock dividend which was payable
on May 29, 2003 to stockholders of record on May 14, 2003. Accordingly,
stockholders of record received one additional share for every four shares
owned as of May 14, 2003. All prior share related information has been
restated to reflect the stock split effect, including earnings per share
data.
6. Impact of New Accounting Standards
----------------------------------
Consolidation of Variable Interest Entities: In January 2003, the FASB issued
FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities. The objective of this interpretation is to provide guidance on how
to identify a variable interest entity (VIE) and determine when the assets,
liabilities, non-controlling interest, and results of operations of a VIE
need to be included in a company's consolidated financial statements. Because
the Company does not have interest in any VIE's, the adoption of FIN 46 did
not have a material impact on the Company's results of operations, financial
position, or liquidity.
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.
8
7. 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.
ITEM 2. 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, 2003 COMPARED TO DECEMBER 31, 2002
Total assets of the Company were $154.2 million at June 30, 2003, an increase of
$4.5 million, or 3.0% from $149.7 million at December 31, 2002. The increase is
primarily due to higher cash and interest-bearing deposits, mortgage-backed
securities and loans receivable, a decrease in investment securities which was
funded by an increase in deposit balances, offset in part by a reduction in
borrowed money.
Cash and short-term investments increased by $2.8 million to $15.2 million at
June 30, 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 intends, subject to market conditions, to re-deploy this excess cash
in loan production or investment securities, as the opportunities arise, or to
repay matured borrowings as they come due.
Investment securities available for sale decreased by $1.0 million to $4.8
million at June 30, 2003. The decrease reflects maturities and calls of $2.8
million and sales of $110,000, offset by $2.0 million in purchases. The
purchases during the current period have been primarily U.S. government agency
securities. Gross unrealized gains in the available for sale portfolio were
$93,000 at June 30, 2003 compared to gross unrealized gains of $119,000 at
December 31, 2002.
Trading account securities decreased by $32,000 to $534,000 at June 30, 2003.
The decline is attributable to security sales in the amount of $120,000 offset
by both realized and unrealized gains from the portfolio in the amount of
$88,000.
Mortgage-backed securities available for sale increased by $863,000 to $3.5
million at June 30, 2003. The increase is due to purchases of $2.3 million
offset by prepayments and amortization of $1.4 million. Gross unrealized gains
in the available for sale portfolio were $125,000 at June 30, 2003 compared to
gross unrealized gains of $130,000 at December 31, 2002.
The balance of loans receivable at June 30, 2003 amounted to $115.4 million,
compared to $114.3 million at December 31, 2002, an increase of $1.1 million.
The Bank originated both residential and non-residential loans of $18.7 million
and purchased loans totaling $6.1 million during the six months ended June 30,
2003, compared to $15.5 million of originations and $4.8 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 $23.6 million and $23.3 million for the six months ended
June 30, 2003 and 2002.
10
The allowance for loan losses totaled $946,000, an increase of $108,000 from the
balance at December 31, 2002. The Company's allowance at June 30, 2003, for loan
losses to total loans receivable was .80% at June 30, 2003, compared to .71% at
December 31, 2002. Non-performing loans increased to $1.38 million, or 1.17% of
total loans receivable at June 30, 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 68.5% at June 30, 2003 compared to 78.2% at
December 31, 2002.
Deposits increased $3.9 million, to $113.2 million at June 30, 2003. The
increase is due to an increase in core deposit accounts, primarily money market
accounts, of $5.9 million offset by a decline in certificates of deposit of $2.0
million. At June 30, 2003, the Bank's core deposits (passbook, checking and
money market accounts) comprised $43.0 million, or 38.0% of deposits, compared
to $37.1 million, or 33.9% of deposits at December 31, 2002.
Borrowed money, which consisted of FHLB of Indianapolis advances, decreased by
$1.1 million to $19.2 million at June 30, 2003. At June 30, 2003, there were
$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 increased by $117,000 to $12.0
million, or 7.8% of total assets, at June 30, 2003 compared to $11.8 million, or
7.9% of total assets at December 31, 2002. The increase was due to comprehensive
income of $607,000 and normal amortization of ESOP benefits of $55,000 offset by
the repurchase of common stock in the amount of $457,000 and cash dividends paid
of $88,000. The Company is no longer subject to regulatory limitations on stock
repurchases and intends to continue, subject to market conditions, modest
repurchases of stock.
11
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED JUNE 30, 2003 AND 2002
NET INCOME
The Company's net income for the three months ended June 30, 2003 was $298,000,
or $.30 per diluted share, compared to net income of $254,000, or $.24 per
diluted share for the three months ended June 30, 2002. The 25% increase in
earnings per share is primarily due to higher net interest income, deposit
account service fees and purchased accounts receivable service fees, offset by
higher non-interest expense and taxes. Earnings per share amount for both
current and prior year period have been adjusted to reflect the effect of the
Company's 5 for 4 stock split paid on May 29, 2003.
INTEREST INCOME
Total interest income decreased $124,000 or 5.6% for the three months ended June
30, 2003 compared to the prior year as a result of a 49 basis point decline in
the average yield, partially offset by an $2.6 million increase in the average
volume of interest earning assets. For the three months ended June 30, 2003 and
2002, the Company's average yield on interest earning assets was 6.20% and
6.69%, respectively, while the Company's average interest earning assets were
$135.8 million and $133.2 million.
Interest income on loans receivable decreased $86,000 despite a $4.2 million
increase in average loans receivable. The general decline in interest rates
resulted in a high level of prepayments, which caused a 56 basis point decline
in the average yield on loans receivable. The decrease in yield is primarily
attributable to both current originations and purchases at lower interest rates
and prepayments of high interest rate loans due to declining interest rates. The
higher volume is attributable to both aggressive lending efforts, continued loan
purchases and record low interest rates.
Interest income on investment securities decreased $16,000 due to a $1.4 million
decrease in average balance as well as a 19 basis point decline in average
yield, while interest income on interest-bearing deposits also declined by
$16,000 due to a $1.2 million decrease in average balance and a 46 basis point
decline in average yield.
INTEREST EXPENSE
Total interest expense decreased $190,000, or 16.5% to $960,000 for the second
quarter of 2003, due to a 70 basis point decrease in the average cost of
interest-bearing liabilities compared to the prior year quarter, offset by an
$4.4 million increase in average interest-bearing liabilities. For the three
months ended June 30,
12
2003 and 2002, the Company's average cost on interest-bearing liabilities was
2.89% and 3.59%, respectively, while average interest-bearing liabilities were
$133.0 million and $128.5 million.
Interest expense on deposit accounts decreased by $150,000 to $694,000 for the
second quarter of 2003, despite an $8.2 million increase in average deposits
compared to the prior year quarter. The 76 basis point decrease in the average
cost of deposits for the second quarter of 2003 compared to the prior year's
three month period is primarily due to the downward repricing of maturing
certificates of deposit, as well as the lower interest rate paid on core
deposits due to the decline in short-term rates.
Interest on borrowings decreased $50,000 to $266,000, as a result of a $3.7
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 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 $61,000 was recorded during the three months
ended June 30, 2003 as compared to $122,000 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 to the absence of a $70,000
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
$688,000 on total net loans of $115.4 million at June 30, 2003, 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, 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
13
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
Non-interest income increased to $428,000 in the current quarter, compared to
$329,000 reported in last year's second quarter. The increase in non-interest
income is primarily due to a $27,000 increase in deposit related fees, primarily
ATM surcharge fees, $25,000 in loan related fees and a $16,000 increase in
service fee income related to the Company's program to purchase and manage
accounts receivable. Results for the current quarter include both $21,000 in
realized gains and $24,000 in unrealized gains on the Company's trading account
securities as compared to $3,000 in unrealized gains in the prior year's
quarter. The Company also reported a profit on the sale of real estate owned in
the amount of $16,000, which did not occur during the prior year's quarter.
Offsetting these increases in non-interest income was a $36,000 decline in
rental income at the Dyer branch office location, which was previously leased to
a third party. The Company is remodeling this space to 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 $18,000 in the current quarter
compared to a loss of $22,000 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 $116,000 to $1.06 million for the
three months ended June 30, 2003 compared to $948,000 for the three months ended
June 30, 2002. Compensation and benefits expense increased by $45,000 in the
current quarter due to both normal compensation increases and higher benefit
costs and to increased occupancy and equipment costs of $23,000 primarily due
to, including the effect on ESOP expense resulting from the increase in the
Company's stock price, increased depreciation and tax expense. In addition, data
processing costs increased by $16,000 primarily due to increased transaction
activity, professional fees increased by $18,000 due to fees related to public
company matters, including the impact of new corporate reform legislation and
rules, and other operating expenses increased by $24,000 from the prior year's
quarter as a result of comparable increases in advertising, office supplies and
security expense.
14
INCOME TAXES
For the three months ended June 30, 2003, income tax expense totaled $149,000,
or an effective tax rate of 33.3%, compared to $83,000, or an effective tax rate
of 24.6%, for the three months ended June 30, 2002. Both periods were positively
impacted by the recognition of approximately $35,000 in low-income housing tax
credits which have a greater impact on the effective tax rate in a lower
earnings period compared to a higher earnings period.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
NET INCOME
Net income for the six months ended June 30, 2003 totaled $626,000, or $.62 per
diluted share compared to $490,000, or $.47 per diluted share for the six months
ended June 30, 2002, an increase of $136,000, or 27.8%. The increase is
primarily due to higher net interest income and fee income, offset by higher
non-interest expense and income taxes. The return on average stockholders'
equity improved to 10.63% during the six months ended June 30,2003, compared to
8.22% for the six months ended June 30, 2002.
INTEREST INCOME
Total interest income decreased $211,000 for the six months ended June 30, 2003
compared to the six months ended June 30, 2002. Of this decrease, $174,000 is
attributable to interest earned on loans receivable. While the Bank's average
balance of loans receivable increased $3.8 million to $115.1 million for the
first six months of 2003, the average yield on loans receivable decreased by 55
basis points compared to the prior year period. The decline in the average rate
is due to the impact of declining interest rates and the downward repricing of
the Company's loan portfolio since last year, as lower rates have increased loan
prepayments, and driven down new origination interest rates. Interest income on
mortgage-backed securities decreased by $10,000 due to a decline of 186 basis
points in average yield offset by a $400,000 increase in the average balance.
The $14,000 decrease in interest income on interest-bearing deposits for the six
months ended June 30, 2003 compared to the prior year period was due to a
decline in the average yield of 41 basis points as short term interest rates
continued to decline between the periods, offset by a $726,000 increase in the
average balance.
15
INTEREST EXPENSE
Total interest expense on interest-bearing liabilities decreased $414,000, or
17.4% for the six months ended on June 30, 2003 compared to the prior year.
Interest expense on deposits decreased $330,000, due to an 84 basis point
decrease in the average cost of deposits offset by an $8.2 million increase in
balance of average deposits. The decrease in deposit costs were primarily due to
the downward repricing of certificates of deposit and an increase in lower cost
core deposits. Interest on borrowings decreased $84,000, reflecting a $3.9
million decrease in the average balance of borrowed funds, primarily advances
from the FHLB of Indianapolis, offset by a 16 basis point rise in average cost.
PROVISION FOR LOAN LOSSES
Based on management's assessment of the adequacy of the loan loss reserve as of
June 30, 2003 and 2002, the Bank provided $109,000 for loan loss provision in
2003 compared to $275,000 for the first six months of 2002. Net charge-offs were
$1,000 and $366,000 for the six months ended June 30, 2003 and 2002,
respectively. The increased provision in the prior year period relates to the
Bank's charge-off of medical lease loans during the second quarter of 2002.
Included in non-performing loans at June 30, 2003 is a $475,000 participation in
a non-residential loan that is currently in the process of foreclosure.
Management has authorized the establishment of a specific valuation reserve
against this loan in the amount of $258,000. The $258,000 valuation allowance is
included in the above loan loss allowance. Although the Bank believes it
maintains its allowance for loan losses at a level that it considers to be
adequate, there can be no assurance that future losses will not exceed estimated
amounts of that additional provisions for loan losses will not be required in
future periods.
NON-INTEREST INCOME
Non-interest income increased $172,000 to $818,000 for the six months ended June
30, 2003 compared to $646,000 for the six months ended June 30, 2002 primarily
due to increased fee income and service charges of $152,000, an increase in
unrealized gains on the Company's trading portfolio of $52,000 and an increased
profit from the sale of real estate owned of $44,000, offset by a decline in
rental income from the Dyer office location of $90,000
Deposit related fee income increased by $56,000 to $285,000 for the six months
ended June 30, 2003, due to increased minimum balance and ATM fee charges while
service fee income from the purchase and management of accounts receivable
increased by $50,000. Loan related fees also increased by $57,000 due in part to
the volume of loan origination activity.
16
In addition, the Company also recorded a loss of $40,000 during the six months
ended June 30, 2003 as compared to a loss of $48,000 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.
NON-INTEREST EXPENSE
The Company's non-interest expense increased $276,000 to $2.1 million for the
six months ended June 30, 2003 compared to $1.8 million for the six months ended
June 30, 2002. The increase resulted, in part, from increased staffing costs of
$100,000, due to normal salary and benefit increases (primarily pension benefit
costs) and capital trust securities expenses of $55,000, which did not occur
until the second quarter in the previous year. Professional fees increased by
$33,000 due to legal costs incurred relating to public company matters. In
addition, occupancy and equipment expense increased by $26,000 while data
processing costs rose by $15,000. Other operating expenses increased by $47,000,
most notably in advertising, office supplies and security costs.
INCOME TAXES
The Company recorded a provision for income taxes of $292,000 for the six months
ended June 30, 2003, or an effective income tax rate of 31.8%, compared to
$163,000 for the six months ended June 30, 2002, or an effective tax rate of
25.0%. Both periods were positively impacted by the recognition of low-income
housing tax credits mentioned above provided through an investment in a limited
partnership organized to build, own and operate a 56 until low-income housing
apartment complex.
REGULATION AND SUPERVISION
As a federally chartered savings bank, the Bank's deposits are insured up to the
applicable limits by the Federal Deposits Insurance Corporation ("FDIC"). The
Bank is a member of the Federal Home Loan Bank ("FHLB") of Indianapolis, which
is one of the twelve regional banks for federally insured savings institutions
comprising the FHLB system. The Bank is regulated by the Office of Thrift
Supervision ("OTS") and the FDIC. The Bank is further regulated by the Board of
Governors of the Federal Reserve System as to reserves required to be maintained
against deposits and
17
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
At June 30, 2003, the Bank was in compliance with all of its capital
requirements as follows:
June 30, 2003 December 31, 2002
--------------------------- ---------------------------
Percent of Percent of
Amount Assets Amount Assets
------------- ---------- ------------- ----------
Stockholders' equity of the Bank $ 11,989,508 7.94% $ 11,248,329 7.66%
------------- ---------- ------------- ----------
Tangible capital 11,863,957 7.86% $ 11,109,183 7.58%
Tangible capital requirement 2,263,000 1.50 2,199,000 1.50
------------- ---------- ------------- ----------
Exess $ 9,600,957 6.36% $ 8,910,183 6.08%
============= ========== ============= ==========
Core capital 11,863,957 7.86% $ 11,109,183 7.58%
Core capital requirement 4,526,000 3.00 4,398,000 3.00
------------- ---------- ------------- ----------
Excess $ 7,337,957 4.86% $ 6,711,183 4.58%
============= ========== ============= ==========
Core and supplementary capital 12,536,547 14.26% $ 11,713,041 13.54%
Risk-based capital requirement 7,035,000 8.00 6,921,000 8.00
------------- ---------- ------------- ----------
Exess $ 5,501,547 6.26% $ 4,792,041 5.54%
============= ========== ============= ==========
Total Bank assets $ 151,002,000 $ 146,754,000
Adjusted total Bank assets $ 150,876,000 $ 146,615,000
Total risk-weighted assets $ 87,939,000 $ 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:
June 30, December 31,
2003 2002
------------ ------------
Stockholders' equity of the Bank $ 11,989,508 $ 11,248,329
Regulatory capital adjustment
for available for sale securities (125,551) (139,146)
------------ ------------
Tangible and core capital $ 11,863,957 $ 11,109,183
General loan loss reserves 687,590 618,858
Direct equity investments (15,000) (15,000)
------------ ------------
Core and supplementary capital $ 12,536,547 $ 11,713,041
============ ============
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,
2003 2002
------------ ------------
(Dollars in thousands)
Non- accruing loans:
One to four family 728 534
Multi- family -- --
Non- residential 475 475
Commercial Business 134 --
Construction -- --
Consumer 44 62
------------ ------------
Total 1381 1071
------------ ------------
Foreclosed assets:
One to four family 63 104
Multi-family -- --
Non-residential -- --
Construction -- --
Consumer -- --
------------ ------------
Total 63 104
------------ ------------
Other Assets:
Accounts receivables serviced by bank 10 --
Accounts receivables serviced by third party 7 --
------------ ------------
Total 17 0
Total non- performing assets 1,461 1,175
============ ============
Total as a percentage of total assets 0.95% 0.79%
============ ============
20
For the six months period ended June 30, 2003, gross interest, which would
have been recorded, had the non-accruing loans been current in accordance with
their original terms amounted to $35,000.
In addition to the non-performing assets set forth in the table above, as of
June 30, 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 purchases and
stock repurchases. During the six months ended June 30, 2003, the Company
repurchased 37,625 shares of its common stock at an average price of $12.15 per
share, for a total of $457,240.
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 and 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, 2003, the Bank originated and purchased
loans totaling $24.8 million compared with $20.3 million during the same period
a year ago. At June 30, 2003, the Bank had outstanding commitments to originate
loans of $4.6 million and unused lines of credit totaling $5.8 million.
Certificate of deposit scheduled to mature in one year or less at June 30, 2003
total $45.9 million. Based on historical experience, management believes that a
significant portion of the maturing deposits will remain with the Bank. At June
30, 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.
21
RECENT DEVELOPMENTS
-------------------
On July 23, 2003 the Company declared a cash dividend of $.05 per share,
payable on August 22, 2003 to shareholders of record on August 8, 2003.
Item 3. CONTROL AND PROCEDURES
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 and regulatory 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 as
of the end of the period covered by this report and found them to be adequate.
The Company maintains internal control over financial reporting. There have not
been any significant changes in such internal control over financial reporting
in the last quarter that has materially affected, or is reasonably likely to
materially affect, the Company's internal financial reporting.
22
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 23, 2003.
(b) The names of each director elected at the Annual Meeting for three-year term
Are as follows:
FOR WITHHELD
Clement B. Knapp, Jr. 716,407 18,880
Donald L. Harle 716,407 18,880
The names of the other directors whose term of office continued after the
Annual Meeting, are as follows:
Ronald W. Borto
John C. McLaughlin
John G. Pastrick
Robert E. Tolley
(c) In addition to the election of directors, the following matter was voted
upon.
23
(i) Ratification of the appointment of Cobitz, VandenBerg & Fennessy as
the Company's independent auditors for the year ending December 31, 2003.
For Against Abstain
Number of Votes 733,210 150 1,600
Percentage of Votes
Eligible to cast 73.21% .00% .00%
Actually cast 99.70% .00% .30%
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
Exhibit 11 Computation of earnings per share
Exhibit 31.1 Rule 13a-14 Certification.
Exhibit 31.2 Rule 13a-14 Certification.
Exhibit 32.1 Certification of Clement B. Knapp pursuant to section 906 of
the Sarbanes Oxley Act of 2002.
Exhibit 32.2 Certification of Daniel T. Poludniak pursuant to Section 906
of the Sarbanes Oxley Act of 2002.
(b) Reports on Form 8-K:
The Company filed Form 8-K dated April 23, 2003 attaching it
press release announcing the results of operations for quarter
ended March 31, 2003.
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: August 6, 2003
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.
- -----------
11 Statement re: Computation of Earnings Per Share
31.1 Rule 13a-14 Certification
31.2 Rule 13a-14 Certification
32.1 Section 906 Certification for CEO
32.2 Section 906 Certification for CFO
26