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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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 October 29, 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
September 30, 2003 (Unaudited) and December 31, 2002 3
Consolidated Statements of Earnings for the three
and nine months ended September 30, 2003 and 2002
(unaudited) 4
Consolidated Statements of Changes in
Stockholders Equity, nine months ended
September 30, 2003 (unaudited) 5
Consolidated Statements of Cash Flows for the
nine months ended September 30, 2003 and 2002
(unaudited) 6
Notes to Consolidated Financial Statements 7-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-22
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 (Exhibit 32.1 and 32.2) 30-31
2
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, December 31,
2003 2002
------------ ------------
ASSETS
- ------
Cash and amounts due from depository institutions 4,173,800 3,848,575
Interest-bearing deposits 4,991,604 8,503,927
------------ ------------
Total cash and cash equivalents 9,165,404 12,352,502
Investment securities, available for sale, at fair value 4,455,575 5,764,121
Trading securities 579,951 565,929
Mortgage backed securities, available for sale, at fair value 3,444,676 2,643,219
Loans receivable (net of allowance for loan losses:
$999,748 at September 30, 2003 and
$837,859 at December 31, 2002) 117,363,375 114,318,331
Investment in LTD Partnership 979,900 1,042,600
Real Estate Owned 62,811 104,197
Stock in Federal Home Loan Bank of Indianapolis 1,666,300 1,624,400
Accrued interest receivable 653,331 703,927
Office properties and equipment- net 2,586,686 2,425,525
Bank owned life insurance 4,259,298 4,964,063
Prepaid expenses and other assets 3,282,172 3,162,721
------------ ------------
Total assets 148,499,479 149,671,535
============ ============
Liabilities and Stockholders' Equity Liabilities
- ------------------------------------------------
Deposits 111,376,001 109,330,981
Borrowed money 15,187,050 20,296,899
Guaranteed preferred beneficial interest in the
Company's subordinated debentures 5,000,000 5,000,000
Notes Payable 772,902 927,043
Advance payments by borrowers for taxes and insurance 669,860 406,372
Other liabilities 3,308,479 1,864,420
------------ ------------
Total liabilities 136,314,292 137,825,715
------------ ------------
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 September 30, 2003 and 987,004 shares outstanding at 16,862 16,862
December 31, 2002
Additional paid- in capital 11,022,107 10,932,458
Retained earnings, substantially restricted 8,780,694 9,922,705
Accumulated other comprehensive income, net of tax 80,446 149,543
Treasury stock, at cost (736,790 shares at September 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 12,185,187 11,845,820
------------ ------------
Total liabilities and stockholders' equity 148,499,479 149,671,535
============ ============
3
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statement of Earnings
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
---------- ---------- ---------- ----------
2003 2002 2003 2002
---------- ---------- ---------- ----------
unaudited unaudited unaudited unaudited
Interest income
Loans 1,922,581 2,033,925 5,844,902 6,130,273
Mortgage-backed securities 40,434 49,580 134,980 154,669
Investment securities 48,601 70,578 171,046 197,920
Interest-bearing deposits 22,537 41,315 78,868 111,416
Dividends on FHLB stock 20,455 25,590 62,307 74,934
---------- ---------- ---------- ----------
Total interest income 2,054,608 2,220,988 6,292,103 6,669,212
---------- ---------- ---------- ----------
Interest expense
Deposits 640,374 772,578 2,073,832 2,536,384
Borrowings 315,872 367,083 968,304 1,048,295
---------- ---------- ---------- ----------
Total interest expense 956,246 1,139,661 3,042,136 3,584,679
---------- ---------- ---------- ----------
Net interest income before
provision for loan losses 1,098,362 1,081,327 3,249,967 3,084,533
Provision for loan losses 61,377 56,203 170,789 331,040
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,036,985 1,025,124 3,079,178 2,753,493
---------- ---------- ---------- ----------
Non-interest income:
Loan fees and service charges 64,080 45,796 187,850 122,946
Deposit related fees 149,660 123,729 434,904 353,405
Other fee income 97,647 103,244 290,942 252,847
Rental Income 16,370 20,553 55,826 149,951
Gain on sale of trading securities -- -- 21,082 21,563
Unrealized gain on trading
securities 44,892 (5,164) 111,732 10,026
Gain on sale of investment
securities available for sale -- -- 10,179 --
Loss from investment
in limited partnership (22,400) (18,000) (62,700) (65,750)
Gain (loss) on sale of REO -- -- 15,831 (28,114)
Increase in cash value of insurance 39,308 40,370 119,451 120,933
Other income 9,140 17,451 31,437 35,812
---------- ---------- ---------- ----------
Total non-interest income 398,697 327,979 1,216,534 973,619
---------- ---------- ---------- ----------
Non-interest expense:
Staffing costs 494,229 468,529 1,438,099 1,312,483
Advertising 38,754 30,662 89,983 70,939
Occupancy and equipment expense 114,902 98,712 358,830 317,050
Data processing 146,602 132,597 413,411 364,224
Professional fees 60,077 61,352 188,408 156,077
Federal deposit insurance premiums 4,660 4,695 13,711 13,759
Other operating expenses 175,375 171,089 473,720 453,897
---------- ---------- ---------- ----------
Total non-interest expense 1,034,599 967,636 2,976,162 2,688,429
---------- ---------- ---------- ----------
Net income before income taxes 401,083 385,467 1,319,550 1,038,683
Provision for federal and state
income taxes 115,947 109,455 408,369 272,504
---------- ---------- ---------- ----------
Net income 285,136 276,012 911,181 766,179
========== ========== ========== ==========
Earnings per share- basic $ 0.31 $ 0.28 $ 1.01 $ 0.77
Earnings per share- diluted $ 0.28 $ 0.27 $ 0.91 $ 0.74
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 911,181 911,181
Other comprehensive income,
net of income taxes:
Unrealized holding loss
during the period (64,571) (64,571)
Less: Reclassification
adjustment of gains
included in net income (4,526) (4,526)
----------- ----------- -----------
Total comprehensive income 911,181 (69,097) 842,084
Purchase treasury stock
(37,625 shares) (457,240) (457,240)
Contribution to fund
ESOP loan 87,750 87,750
Dividends declared on common
stock ($.146 per share) (132,175) (132,175)
25% stock dividend, including
impact of fractional shares 1,899 (1,921,017) 1,918,066 (1,052)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at September 30, 2003 $ 16,862 11,022,107 8,780,694 80,446 (7,445,132) (269,790) 12,185,187
=========== =========== =========== =========== =========== =========== ===========
See accompanying notes to consolidated financial statements
5
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30,
---------------------------------
2003 2002
------------ ------------
(unaudited)
Cash flows from operating activities:
Net income $ 911,181 766,179
Adjustments to reconcile net income to net cash:
Depreciation 153,444 134,782
Amortization of premiums and accretion of discounts 17,142 8,683
Federal Home Loan Bank stock dividend (41,900) --
Provision for loan losses 170,789 331,040
Increase in deferred compensation 69,910 65,796
ESOP compensation 87,750 43,800
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 (111,732) (10,026)
Proceeds from sales of trading account securities 119,958 75,000
Loss from limited partnership 62,700 65,750
(Gain) loss on sale of real estate owned (15,831) 28,114
Increase in cash surrender value of life insurance (119,451) (120,933)
Increase (decrease) in deferred income on loans 14,517 (9,482)
Decrease (increase) in accrued interest receivable 50,596 (8,168)
Decease (increase) in purchased receivables 917,603 (663,549)
Decrease in accrued interest payable (7,053) (10,443)
Change in current and deferred income tax 134,161 132,504
Other, net 1,079,103 (318,569)
------------ ------------
Net cash provided by operating activities 3,461,626 488,916
------------ ------------
Cash flows from investing activities:
Proceeds fom maturity and early redemption of
investment securities 3,300,000 2,750,000
Proceeds from sale of investment securities 109,906 --
Purchase of investment securities (2,183,538) (5,409,332)
Proceeds from repayments of mortgage-backed securities 1,959,246 929,099
Purchase of mortgaged-back securities (2,800,651) (498,157)
Purchase of loans (9,255,345) (10,565,283)
Loan disbursements (31,771,955) (24,413,481)
Loan repayments 37,734,139 34,001,998
Proceeds from sale of real estate owned 120,028 162,467
Property and equipment expenditures (314,605) (183,559)
------------ ------------
Net cash provided for investing activities (3,102,775) (3,226,248)
------------ ------------
Cash flows from financing activities:
Net increase in deposits 2,045,020 3,353,044
Repayment of borrowed money (5,109,849) (3,605,208)
Repayment of note payable (154,141) (155,828)
Increase in advance payments by borrowers
for taxes and insurance 263,488 186,959
Proceeds from issuance of trust preferred securities -- 5,000,000
Purchase of treasury stock (457,240) (674,113)
Dividend paid on common stock (133,227) (144,942)
------------ ------------
Net cash provided (for) by financing activities (3,545,949) 3,959,912
------------ ------------
Net change in cash and cash equivalents (3,187,098) 1,222,580
Cash and cash equivalents at beginning of period 12,352,502 8,962,659
------------ ------------
Cash and cash equivalents at end of period $ 9,165,404 10,185,239
============ ============
Cash paid during the period for:
Interest $ 3,049,189 3,595,122
Income taxes 274,208 140,000
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 September 30, 2003, the results of
operations for the three and nine months ended September 30, 2003 and 2002
and cash flows for the nine months ended September 30, 2003 and 2002. These
results have been determined on the basis of accounting principles
generally accepted in the United States of America. The preparation of
financial statements in conformity with accounting principles generally
accepted in the United States of America 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 nine month
period ended September 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 nine month periods ended September 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
----------------------------------
In September 2002, the FASB issued SFAS No. 146, "Accounting for Cost
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 that are initiated after December 31, 2002. Adoption of this
statement did not have a material effect on the Company's consolidated
financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" which provides new accounting guidance on when
to consolidate a variable interest entity. A variable interest entity
exists when either the total equity
8
investment at risk is not sufficient to permit the entity to finance its
activities by itself, or the equity investors lack one of three
characteristics associated with owning a controlling financial interest.
Those characteristics include the direct or indirect ability to make
decisions about an entity's activities through voting rights or similar
rights, the obligation to absorb the expected loss of an entity if they
occur, and the right to receive the expected residual return of the entity
if they occur. The Company does not expect that the adoption of this
Interpretation will have a material impact on its consolidated financial
statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities". The Statement amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities". In general, this Statement should be applied prospectively.
The Company does not expect that the application of this Statement will
materially impact its consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity".
This Statement established standards for how an issuer classifies and
measures certain financial instruments with characteristics of both
liabilities and equity. This Statement is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at the beginning of the first interim period beginning after June
15, 2003. The Company adopted SFAS No. 150 on July 1, 2003 and has
reclassified its "Guaranteed Preferred Beneficial Interest in Subordinated
Debentures" as long-term debt and the corresponding expense as interest on
borrowings. As a result, interest expense, net interest income and other
expenses have been reclassified from prior year periods to conform to
current presentation. 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.
The foregoing does not constitute a comprehensive summary of all material
changes or developments affecting the manner in which the Company keeps its
books and records and performs its financial accounting responsibilities.
It is intended only as a summary of some of the recent pronouncements made
by the FASB which are of particular interest to financial institutions.
9
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.
10
FINANCIAL CONDITION
-------------------
Total assets of the Company decreased $1.2 million to $148.5 million at
September 30, 2003, from $149.5 million at December 31, 2002. The primary
reason for the decrease in total assets was the decrease in cash and cash
equivalents. Interest-bearing cash deposits decreased $3.5 million to $5.0
million at September 30, 2003, from $8.5 million at December 31, 2002. The
higher level of liquidity at December 31, 2002 reflected the increased cash
flows from loan and mortgage-backed security repayments and deposit growth,
which were used, in part, to both help fund mortgage originations and to
repay a portion of borrowings which matured, primarily during the third
quarter of 2003.
Cash and short-term investments totaled a combined $9.2 million at
September 30, 2003, a decrease of $3.2 million, from the combined balance
of $12.4 million at December 31, 2002. The Company intends, subject to
market conditions, to re-deploy excess liquidity in loan production or
investment securities as opportunities arise.
Investment securities, available for sale, decreased by $1.3 million to
$4.5 million at September 30, 2003. The decrease is due to $3.3 million in
securities which were called or matured, offset by $2.2 million in
purchases. The purchases during the period have been both U.S. government
agency and corporate debt obligations. Net unrealized gains in the
available for sale portfolio have declined to $51,000 at September 30, 2003
from $119,000 at December 31, 2002.
Trading account securities increased by $14,000 to $580,000 at September
30, 2003. The increase is attributable to both realized and unrealized
gains from the portfolio of $133,000 offset by net sales activity of
$119,000. The increase in unrealized gain during the period of $112,000
relates to the strong performance of the Company's trading portfolio,
consisting primarily of holdings in community bank and thrift stocks.
Mortgage-backed securities, available for sale, increased by $800,000 to
$3.4 million at September 30, 2003. The increase is due to purchases of
$2.8 million offset by prepayments and amortization of $2.0 million. Net
unrealized gains in the available for sale portfolio have declined to
$83,000 at September 30, 2003 from $130,000 at December 31, 2002.
Loans receivable increased $3.1 million, or 2.7% to $117.4 million at
September 30, 2003 from $114.3 million at December 31, 2002. The Bank
originated loans of $31.8 million and purchased loans totaling $9.3 million
during the nine months ended September 30, 2003, compared to $24.4 million
of originations and $10.5 million of purchases during the prior year
period. The higher loan origination volume was primarily due to continued
mortgage refinance activity due to the prevailing low interest rate
environment. Offsetting the originations for the year was amortization
11
and prepayments of loans totaling $37.7 million and $34.2 million for the
nine months ended September 30, 2003 and 2002.
The allowance for loan losses totaled $1.0 million and $838,000 at
September 30, 2003 and December 31, 2002 respectively. The Bank's allowance
for loan losses to total loans outstanding was .85% at September 30, 2003,
compared to .73% at December 31, 2002. Non-performing loans increased
$219,000 to $1.29 million, or 1.10% of total loans receivable at September
30, 2003, compared to $1.07 million, or .91% of total loans receivable at
December 31, 2002. The ratio of allowance for loan losses to non-performing
loans was 77.5% at September 30, 2003 compared to 78.2% at December 31,
2002.
Deposits increased $2.0 million, to $111.4 million at September 30, 2003.
The increase is due to an increase in core deposit accounts, primarily
money market accounts, of $9.4 million offset by a decline in certificates
of deposit of $7.4 million. At September 30, 2003, the Bank's core deposits
(passbook, checking and money market accounts) comprised $46.5 million, or
41.8% 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 $5.1 million to $15.2 million at September 30, 2003. During the most
recent three month period, the Company repaid a $4.0 million advance at a
5.26% interest rate. At September 30, 2003, there were $2.0 million of FHLB
advances maturing over the next twelve-month period at a weighted average
rate of 4.80%.
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 months LIBOR plus 3.60%. In general, the
securities will not be redeemable for five years except in the event of
certain special redemption events.
Total stockholders' equity of the Company increased by $339,000 to $12.2
million, or 8.2% of total assets, at September 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 $842,000 and normal amortization of ESOP
benefits of $87,000 offset by the repurchase of common stock in the amount
of $457,000 and cash dividends paid of $133,000.
12
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED SEPEMBER 30, 2003
AND 2002
GENERAL
Net income for the three months ended September 30, 2003 was $285,000, or
$.28 per diluted share, compared to net income of $276,000, or $.27 per
diluted share for the three months ended September 30, 2002. The increase
in earnings is primarily due to higher net interest income, loan and
deposit account service fees, as well as an increase in unrealized gains on
trading account securities offset by an increased loan loss provision and
higher non-interest expense and income taxes.
NET INTEREST INCOME
Net interest income was $1.098 million for the current quarter, compared to
$1.081 million for the quarter ended September 30, 2002, an increase of
$17,000 or 1.6%. The Company's average interest-earning assets increased to
$135.3 million for the three months ended September 30, 2003 compared to
$133.2 million for the three months ended September 30, 2002, while the
Company's net interest margin remained unchanged during both periods at
3.25%. Over the period, the yield on total interest earning assets declined
60 basis points and the cost of interest bearing liabilities decreased 64
basis points due to the declining rate environment.
Interest income on loans receivable decreased $111,000 despite a $2.4
million increase in average loans receivable. The general decline in
interest rates resulted in a high level of prepayments, which caused a 54
basis point decline in the average yield on loans receivable. Interest
income on mortgage-backed securities decreased $9,000 to $41,000 for the
current quarter, due to a 291 basis point decrease in average yield offset
by an $880,000 increase in average balances. Interest income on investment
securities decreased $22,000 to $49,000 due to a 41 basis point decline in
average yield and a $1.6 million decrease in average balance. Both
portfolios experienced a decrease in average yield due to the dramatic
decrease in interest rates. Interest income on interest-bearing deposits
also declined by $19,000 due to an 83 basis point decline in the average
yield offset by a $368,000 increase in average balances.
Interest expense on deposit accounts decreased by $132,000 to $640,000 for
the third quarter of 2003, despite a $7.6 million increase in average
deposits compared to the prior year quarter. The 66 basis point decrease in
the average cost of deposits for the third quarter of 2003 compared to the
prior year's three month period is primarily due to the downward repricing
of maturing certificate of deposit accounts, as well as the lower interest
rate paid on core deposits due to the decline in short-term rates.
Interest expense on borrowings decreased $51,000 to $316,000, as a result
of a $3.5 million decrease in the average balance of borrowed funds as well
as a 10 basis point decrease in the average cost of borrowed funds. Higher
than normal liquidity due to
13
increased deposit balances and prepayments of loans and securities has
enabled the Bank to repay maturing FHLB advances as they come due.
PROVISION FOR LOAN LOSSES.
Based on management's assessment of the adequacy of the loan reserve, the
Company recorded a provision for loan losses of $61,000 during the three
month period ended September 30, 2003 as compared to a $56,000 provision in
the prior year period. There were no changes in estimation method or
assumptions that impacted the provision for loan losses during the quarter.
Management believes that the total general loan loss allowance of $742,000
on total net loans of $117.4 million at September 30, 2003 is adequate to
cover probable accrued losses given the area economic conditions, the level
of impaired and non-performing loans, and the composition of the loan
portfolio. At September 30, 2003, the Company was aware of no regulatory
directives or suggestions that the Company make additional provisions for
losses on loans.
NON-INTEREST INCOME
Non-interest income increased to $399,000 in the current quarter, compared
to $328,000 reported in last year's third quarter. The increase in
non-interest income is primarily attributable to a $50,000 increase in
unrealized gains on the Company's trading portfolio, consisting of equity
investments in community banks and thrifts. In addition, deposit related
fees increased by $26,000, primarily in ATM surcharge fees while loan
related fees and charges increased by $18,000, due to increased loan
volumes. Offsetting these increases in non-interest income was a $4,000
decline in rental income at the Dyer office location, a $6,000 decrease in
service fee income related to the Company's purchase and managing of
accounts receivable and an $8,000 decrease in other miscellaneous income.
In addition, the Company also reported a loss of $22,000 in the current
quarter compared to a loss of $18,000 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.
Non-interest expense increased by $67,000 to $1.03 million in the current
quarter, compared to $968,000 reported in last year's third quarter. The
increase resulted primarily from increased staffing costs during the
quarter of $26,000 due to increased compensation, and increased occupancy
and equipment costs of $16,000 due to increases in real estate taxes and
depreciation charges. In addition, data processing costs increased by
$14,000 due to increased transaction activity while advertising increased
by $8,000 in an attempt to promote the Bank's products and services.
14
INCOME TAXES.
For the three months ended September 30, 2003, income tax expense totaled
$116,000, or an effective tax rate of 28.9%, compared to $109,000, or an
effective tax rate of 28.3% for the three months ended September 30, 2002.
Both periods were positively impacted by the recognition of approximately
$35,000 in low-income housing tax credits.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30,
2003 AND 2002
GENERAL
Net income for the nine months ended September 30, 2003 was $911,000, or
$.91 per diluted share, compared to net income of $766,000, or $.74 per
diluted share for the nine months ended September 30, 2002. The increase in
earnings is primarily due to higher net interest income and service fee
income, as well as an increase in unrealized gains on trading account
securities and a reduced loan loss provision offset by a decline in rental
income and higher non-interest expense and income taxes.
NET INTEREST INCOME
Net interest income was $3.25 million for the nine months ended September
30, 2003, compared to $3.08 million for the nine months ended September 30,
2002, an increase of $165,000 or 5.4%. The Company's average
interest-earning assets increased to $135.1 million for the nine months
ended September 30, 2003 compared to $132.0 million for the nine months
ended September 30, 2002, while the Company's net interest margin increased
to 3.21% compared to 3.12%, for the same periods. The improved margin is
attributable to a greater decline in the Bank's average cost of funds
compared to the decline in the yield on interest earning assets, due to the
shorter-term nature of the Bank's deposit accounts.
Interest income on loans receivable decreased $285,000 as a result of a 48
basis point decrease in the average yield offset by a $2.4 million increase
in average loans receivable. The decline in the average 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 loan origination interest rates.
Interest income on mortgage-backed securities decreased $20,000 to $135,000
for the current nine month period, due to a 231 basis point decrease in
average yield offset by a $582,000 increase in average balances, while
interest income on investment securities decreased $27,000 to $171,000 due
to a 25 basis point decline in average yield and a $500,000 decrease in
average balance. Interest income on interest-bearing deposits also declined
by $33,000 due to a decline in the average yield of 56 basis points offset
by a $607,000 increase in average balances.
15
Interest expense on deposit accounts decreased by $463,000 to $2.1 million
for the nine months ended on September 30, 2003, due to a 78 basis point
decrease in the average cost of deposits, offset by an $8.0 million
increase in average deposits compared to the prior year period. The
decrease in average costs of deposits is primarily due to the downward
repricing of maturing certificates of deposit accounts, an increase in
low-cost core deposits balances and the lower rates paid on these deposits
as short-term rates have declined.
Interest expense on borrowings decreased by $80,000 to $968,000, as a
result of a $2.1 million decrease in the average balance of borrowed funds
offset by a 2 basis point increase in the average cost of borrowed funds.
PROVISION FOR LOAN LOSSES.
Based on management's assessment of the adequacy of the loan loss reserve,
the Company recorded a provision for loan losses of $171,000 during the
nine month period ended September 30, 2003 as compared to a $331,000
provision in the prior year period. Net loan charge-offs were $9,000 and
$376,000 for the nine months ended September 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 September 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 total loan loss allowance. Although
the Bank believes it maintains its allowance for loan losses at a level
that it considers to be adequate to cover 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 the
future.
NON-INTEREST INCOME
Non-interest income increased to $243,000, or 24.9%, to $1.2 million for
the nine months ended September 30, 2003, compared to $974,000 for the nine
months ended September 30, 2002. The increase is due to increased gains
reported on the Company's trading account portfolio, increased gains on the
sale of real estate owned and higher fee income offset by a decline in
rental income from the Dyer office location.
During the current nine month period, the strong move experienced by the
stock market has translated in a positive increase in the Company's trading
portfolio of local community banks and thrifts. The Company reported an
unrealized gain on the trading portfolio of $112,000 for the nine months
ended September 30, 2003
16
compared to an unrealized gain of $10,000 recorded in the prior year
period. Gain on the sale of real estate owned increased during the current
period to $16,000 compared to a loss of $28,000 reported in the year ago
period. Deposit related fee income increased by $81,000 to $435,000 for the
nine months ended September 30, 2003 due in part to growth in the number of
checking accounts, as well as fee increases and continued increases in ATM
surcharge usage fees.
Offsetting these increases was a $94,000 decline in rental income from the
Dyer 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.
Effective October 1, 2003, the Company is leasing, to a third party, a
portion of the Dyer office location at an initial base rent of $32,000.
In addition, the Company also recorded a loss of $63,000 during the nine
months ended September 30, 2003 as compared to a loss of $66,000 recorded
in the year ago period, related to an investment in a low-income housing
joint venture. As a result of this investment, the Company recorded an
offsetting $105,000 in federal income tax credits during both periods which
resulted in the reduction of the Company's effective income tax rate.
NON-INTEREST EXPENSE.
Non-interest expense increased $288,000, or 10.7% compared to the prior
year period, to $3.0 million for the nine months ended September 30, 2003.
The increase resulted primarily from increased staffing costs of $126,000,
due to increased compensation and bonus accruals, to $1.4 million for the
nine months ended September 30, 2003. Occupancy and equipment expense
increased by $42,000 due to increases in real estate taxes and in addition,
data processing costs increased by $49,000 due to increased transaction
activity while professional fees increased by $32,000 due to legal costs
incurred related to public company matters. Other operating expenses
increased by $39,000, most notably in advertising, office supplies and
security costs.
INCOME TAXES.
For the nine months ended September 30, 2003, income tax expense totaled
$408,000, or an effective tax rate of 30.9% compared to $273,000, or an
effective tax rate of 26.2% for the nine months ended September 30, 2002.
Both periods were positively impacted by the recognition of approximately
$105,000 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.
17
REGULATION AND SUPERVISION
--------------------------
As a federally chartered savings bank, the Bank's deposits are insured up
to the applicable limits by the Federal Deposits Insurance Corporation
("FDIC"). The Bank is a member of the Federal Home Loan Bank ("FHLB") of
Indianapolis, which is one of the twelve regional banks for federally
insured savings institutions comprising the FHLB system. The Bank is
regulated by the Office of Thrift Supervision ("OTS") and the FDIC. The
Bank is further regulated by the Board of Governors of the Federal Reserve
System as to reserves required to be maintained against deposits and
certain other matters. Such regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage
and is intended primarily for the protection of the insurance fund and
depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities. Any change in such regulation, whether by the OTS, the FDIC or
Congress could have a material impact on the Company and its operations.
CAPITAL STANDARDS
Savings associations must meet three capital requirements: core and
tangible capital to total assets ratios as well as a regulatory capital to
total risk-weighted assets ratio.
CORE CAPITAL REQUIREMENT
The core capital requirement, or the required "leverage limit",
currently requires a savings institution to maintain core capital of not
less than 3% of adjusted total assets. For the Bank, core capital generally
includes common stockholders' equity (including retained earnings), and
minority interests in the equity accounts of fully consolidated
subsidiaries, less intangibles other than certain servicing rights.
Investments in and advances to subsidiaries engaged in activities not
permissible for national banks are also required to be deducted in
computing core total capital.
TANGIBLE CAPITAL REQUIREMENT
Under OTS regulation, savings institutions are required to meet a
tangible capital requirement of 1.5% of adjusted total assets. Tangible
capital is defined as core capital less any intangible assets, plus
purchased mortgage-servicing rights in an amount includable in core
capital.
RISK-BASED CAPITAL REQUIREMENT
The risk-based capital requirement provides that savings institutions
maintain total capital equal to not less than 8% of total risk-weighted
assets. For purposes of the risk-based capital computation, total capital
is defined as core capital, as defined above, plus supplementary capital,
primarily general loan loss reserves (limited to a maximum of 1.25% of
total risk-weighted assets.) Supplementary capital included in total
capital cannot exceed 100% of core capital.
18
CAPITAL REQUIREMENT
-------------------
At September 30, 2003, the Bank was in compliance with all of its capital
requirements as follows:
September 30, 2003 December 31, 2002
----------------------------- -----------------------------
Percent of Percent of
Amount Assets Amount Assets
------------ --------- ------------ ---------
Stockholders' equity of the Bank $ 12,296,043 8.45% $ 11,248,329 7.66%
------------ --------- ------------ ---------
Tangible capital 12,220,653 8.40% $ 11,109,183 7.58%
Tangible capital requirement 2,181,000 1.50 2,199,000 1.50
------------ --------- ------------ ---------
Exess $ 10,039,653 6.90% $ 8,910,183 6.08%
============ ========= ============ =========
Core capital 12,220,653 8.40% $ 11,109,183 7.58%
Core capital requirement 4,632,000 3.00 4,398,000 3.00
------------ --------- ------------ ---------
Excess $ 7,588,653 5.40% $ 6,711,183 4.58%
============ ========= ============ =========
Core and supplementary capital 12,947,401 15.01% $ 11,713,041 13.54%
Risk-based capital requirement 6,901,000 8.00 6,921,000 8.00
------------ --------- ------------ ---------
Exess $ 6,046,401 7.01% $ 4,792,041 5.54%
============ ========= ============ =========
Total Bank assets $145,482,000 146,754,000
Adjusted total Bank assets 145,407,000 146,615,000
Total risk-weighted assets 86,264,000 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:
September 30, 2003 December 31, 2002
------------------ ------------------
Stockholders' equity of the Bank $ 12,296,043 $ 11,248,329
Regulatory capital adjustment
for available for sale securities (75,390) (139,146)
------------------ ------------------
Tangible and core capital $ 12,220,653 $ 11,109,183
General loan loss reserves 741,748 618,858
Direct equity investments (15,000) (15,000)
------------------ ------------------
Core and supplementary capital $ 12,947,401 $ 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). The other assets, listed
in the table below, are classified as non-performing assets due to the
insolvency of the merchant from whom the Company's purchased the accounts
receivable. These receivables are the obligation of the customer of the
merchant. Management believes that these accounts receivable due from the
customer of the merchant are collectible, however, there can be no
assurance that full collectibility is guaranteed or that a future loss may
occur.
September 30, December 31,
2003 2002
------------------ ------------------
(Dollars in thousands) (Dollars in thousands)
Non- accruing loans:
One to four family 682 534
Multi- family -- --
Non- residential 475 475
Commericial Business 98 --
Construction -- --
Consumer 35 62
------------------ ------------------
Total 1290 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 84 --
------------------ ------------------
Total 84 0
Total non- performing assets 1,437 1,175
================== ==================
Total as a percentage of total assets 0.97% 0.79%
================== ==================
20
For the nine months period ended September 30, 2003, gross interest, which
would have been recorded, had the non-accruing loans been current in
accordance with their original terms amounted to $46,000.
At September 30, 2003, all of the Bank's non-performing loans were
classified as substandard in accordance with applicable regulations. In
addition to the non-performing assets set forth in the table above, the
Bank has classified, on its internal watch list, seven commercial real
estate and land development loans to one related borrower/entity
aggregating $l.0 million of loans and four unsecured loans to the same
borrower/entity totaling $90,000. Although these loans are performing in
accordance with the terms of the loan agreements and are adequately secured
based on the current value of the underlying collateral, a foreclosure
action brought about by an unrelated party against a property owned by the
Bank's borrower on which the Bank has a $60,000 second lien mortgage, has
caused management to closely monitor these loans.
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 nine months ended
September 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 nine months ended September 30, 2003, the Bank originated and
purchased loans totaling $41.0 million compared with $35.0 million during
the same period a year ago. At September 30, 2003, the Bank had outstanding
commitments to originate loans of $4.9 million and unused lines of credit
totaling $7.7 million.
21
Certificate of deposit scheduled to mature in one year or less at September
30, 2003 total $49.3 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.
RECENT DEVELOPMENTS
-------------------
On October 29, 2003 the Company declared a cash dividend of $.05 per
share, payable on November 21, 2003 to shareholders of record on November
7, 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 control over
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
-----------------
None
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.
23
(b) Reports on Form 8-K:
The Company filed Form 8-K dated July 23, 2003 attaching its
press release announcing the results of operations for quarter
ended June 30, 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: October 29, 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
Exhibits 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