SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _______ to _______
Commission file number 0-23182
AMB FINANCIAL CORP.
(Exact Name of Small Business Issuer as Specified in its Charter)
Delaware 35-1905382
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8230 Hohman Avenue, Munster, Indiana 46321-1578
(Address of principal executive offices (Zip Code)
Issuer's telephone number, including area code: (219) 836-5870
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, par value $.01 per share
(Title of Class)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past twelve months (or for
such shorter period that the Issuer was required to file such reports), and (2)
has been subject to such requirements for the past 90 days. YES [X] NO [ ]
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of Issuer's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The Issuer had $6.5 million in gross income for the year ended December
31, 1996.
As of March 15, 1997, there were issued and outstanding 1,067,919
shares of the Issuer's Common Stock. The Issuer's voting stock is not regularly
and actively traded, and there are no regularly quoted bid and asked prices for
the Issuer's voting stock. Accordingly, the Issuer is unable to determine the
aggregate market value of the voting stock held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
PARTS II and IV of Form 10-KSB--1997 Annual Report to Stockholders.
PART III of Form 10-KSB--Proxy Statement for the 1997 Annual Meeting of
Stockholders.
<PAGE>
PART I
Item 1. Description of Business
General
AMB Financial Corp. (the "Company"), was formed in 1993 by American
Savings, FSB ("American Savings" or the "Bank") under the laws of Delaware for
the purpose of becoming a savings and loan holding company. American Savings,
headquartered in Munster, Indiana, was founded in 1957 as a federally chartered
institution. Its deposits are insured up to applicable limits by the FDIC. In
March 1996, the Bank converted to the stock form of organization through the
sale and issuance of 1,124,125 shares of its common stock to the Company. The
principal asset of the Company is the outstanding stock of the Bank, its wholly
owned subsidiary. The Company presently has no separate operations and its
business consists only of the business of the Bank. All references to the
Company, unless otherwise indicated, at or before March 29, 1996 refer to the
Bank.
American Savings has been, and intends to continue to be, a
community-based financial institution that offers a variety of selected
financial services to meet the needs of the community it serves. The Bank
attracts deposits from the general public and using such deposits to originate
one- to four-family residential mortgage and, to a lesser extent, multi-family,
non-residential real estate, land, commercial business and consumer loans in its
primary market area. The Bank also invests in mortgage-backed securities,
investment securities consisting primarily of U.S. government obligations and
various types of short-term liquid assets. See "--Lending Activities" and
"--Investment Activities."
American Savings serves the financial needs of families and local
businesses in its primary market area, northwest Lake County, Indiana, through
its main office located in Munster, Indiana and three branch offices located in
the communities of Dyer, East Chicago and Hammond, Indiana. Its deposits are
insured up to applicable limits by the Federal Deposit Insurance Corporation
("FDIC"). At December 31, 1996, the Company had total assets of $86.1 million,
deposits of $60.4 million and stockholders' equity of $15.2 million (or 17.62%
of total assets).
The executive office of the Company is located at 8230 Hohman Avenue,
Munster, Indiana 46321-1578 and its telephone number at that address is (219)
836-5870.
Lending Activities
General. The principal lending activity of the Bank is originating for
its portfolio first mortgage loans secured by owner-occupied one- to four-family
residential properties located in its primary market areas. In addition, in
order to increase the yield and/or the interest rate sensitivity of its
portfolio and in order to provide more comprehensive financial services to
families and community businesses in the Bank's primary market area, American
Savings also originates and purchases non-residential real estate, multi-family,
commercial business, consumer and land loans.
<PAGE>
Loan Portfolio Composition
The following table sets forth information concerning the composition
of the Bank's loan portfolio in dollar amounts and in percentages (before
deductions for loans in process, deferred fees and discounts and allowances for
losses) as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1996 1995 1994
----------------------- ---------------------- ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family........................ $43,669 63.41% $38,056 68.60% $37,050 69.02%
Multi-family............................... 3,259 4.73 3,419 6.16 3,445 6.42
Non-residential............................ 8,806 12.79 4,146 7.47 3,971 7.40
Construction............................... 4,406 6.40 3,194 5.76 3,580 6.67
Land....................................... 217 .32 223 .40 736 1.37
-------- ------ ------- ------ ------- -------
Total real estate loans................ 60,357 87.65 49,038 88.39 48,782 90.88
-------- ------ ------- ------ ------- -------
Other Loans:
Consumer Loans:
Deposit account........................... 185 .27 223 .40 263 .49
Student................................... 3 .01 4 .01 5 .01
Home improvement.......................... 15 .01 12 .01 21 .04
Line of credit............................ 2,968 4.31 2,745 4.96 2,873 5.35
Other .................................... 1,818 2.64 1,037 1.87 824 1.54
-------- ------ -------- ------- ------- -------
Total consumer loans................... 4,989 7.24 4,021 7.25 3,986 7.43
-------- ------ -------- ------- ------- -------
Commercial business loans.................. 3,519 5.11 2,420 4.36 905 1.69
-------- ------ -------- ------- ------- -------
Total loans receivable................. 68,865 100.00% 55,479 100.00% 53,673 100.00%
====== ====== ======
Less:
Loans in process........................... 910 268 1,245
Deferred fees and discounts................ 234 213 248
Allowance for losses....................... 355 359 331
-------- ------- -------
Total loans receivable, net................ $67,366 $54,639 $51,849
======= ======= =======
<PAGE>
<CAPTION>
1993 1992
------------------------ --------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family........................ $35,202 71.64% $35,144 74.59%
Multi-family............................... 2,877 5.85 2,957 6.28
Non-residential............................ 3,726 7.58 2,625 5.57
Construction............................... 1,161 2.36 ,151 2.44
Land....................................... 493 1.00 415 .88
-------- ------ ------- ------
Total real estate loans................ 43,459 88.43 42,292 89.76
-------- ------ ------- ------
Other Loans:
Consumer Loans:
Deposit account........................... 111 .23 121 .26
Student................................... 16 .03 33 .07
Home improvement.......................... 62 .13 67 .14
Line of credit............................ 2,642 5.38 2,285 4.85
Other .................................... 639 1.30 442 .94
------- ------ -------- ------
Total consumer loans................... 3,470 7.07 2,948 6.26
------- ------ -------- ------
Commercial business loans.................. 2,211 4.50 1,873 3.98
------- ------ -------- ------
Total loans receivable................. 49,140 100.00% 47,113 100.00%
====== ======
Less:
Loans in process........................... 14 11
Deferred fees and discounts................ 233 248
Allowance for losses....................... 291 439
--------- --------
Total loans receivable, net................ $ 48,602 $46,415
======== =======
</TABLE>
<PAGE>
The following table shows the composition of the Bank's loan portfolios
by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
---------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family............... $33,248 48.28% $30,512 55.00% $30,657 57.12%
Multi-family...................... 1,999 2.90 2,102 3.79 2,220 4.14
Non-residential................... 2,917 4.24 2,021 3.64 2,168 4.04
Construction...................... --- --- --- --- --- ---
Land.............................. --- --- --- --- --- ---
------- ------- ------- ----- ---------- ------
Total real estate loans........ 38,164 55.42 34,635 62.43 35,045 65.30
------- ------ ------- ------ -------- ------
Consumer........................... 1,588 2.31 1,272 2.29 1,108 2.06
Commercial business................ 3,252 4.72 2,089 3.76 644 1.20
------- ------- ------- ------ -------- ------
Total fixed-rate loans......... 43,004 62.45 37,996 68.48 36,797 68.56
------- ------ ------- ------ ------- ------
Adjustable-Rate Loans:
Real estate:
One- to four-family............... 10,421 15.13 7,544 13.60 6,393 11.91
Multi-family...................... 1,260 1.83 1,317 2.37 1,225 2.28
Non-residential................... 5,889 8.55 2,125 3.83 1,803 3.36
Construction...................... 4,406 6.40 3,194 5.76 3,580 6.67
Land ............................. 217 .32 223 .40 736 1.37
-------- ------- ------- ------- --------- ------
Total real estate loans........ 22,193 32.23 14,403 25.96 13,737 25.59
------- ------ ------- ------- -------- ------
Consumer........................... 3,401 4.93 2,749 4.96 2,878 5.36
Commercial business................ 267 .39 331 .60 261 .49
-------- ------- -------- ------ --------- ------
Total adjustable-rate loans.... 25,861 37.55 17,483 31.52 16,876 31.44
------- -------- ------- ------- -------
Total loans receivable......... 68,865 100.00% $ 55,479 100.00% 53,673 100.00%
======= ====== ======
Less:
Loans in process................... 910 268 1,245
Deferred fees and discounts........ 234 213 248
Allowance for loan losses.......... 355 359 331
-------- --------- -------
Total loans receivable, net..... $67,366 $54,639 $51,849
======= ======= =======
<PAGE>
<CAPTION>
1993 1992
------------------------ -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family............... $26,563 54.06% $25,528 54.18%
Multi-family...................... 2,284 4.65 2,371 5.03
Non-residential................... 2,177 4.43 1,560 3.31
Construction...................... --- --- --- ---
Land.............................. --- --- --- ---
------- ------- ------- ------
Total real estate loans........ 31,024 63.14 29,459 62.52
------- ------- ------- ------
Consumer........................... 812 1.65 509 1.09
Commercial business................ 959 1.95 146 .31
-------- ------- -------- ------
Total fixed-rate loans......... 32,795 66.74 30,114 63.92
------- ------ ------- ------
Adjustable-Rate Loans:
Real estate:
One- to four-family............... 8,639 17.58 9,616 20.41
Multi-family...................... 593 1.21 586 1.24
Non-residential................... 1,549 3.15 1,065 2.26
Construction...................... 1,161 2.36 1,151 2.44
Land ............................. 493 1.00 415 .88
--------- ------- ------- ------
Total real estate loans........ 12,435 25.30 12,833 27.23
-------- ------- ------- ------
Consumer........................... 2,658 5.41 2,439 5.18
Commercial business................ 1,252 2.55 1,727 3.67
-------- ------- ------- ------
Total adjustable-rate loans.... 16,345 33.26 16,999 36.08
-------- ------ ------- ------
Total loans receivable......... 49,140 100.00% 47,113 100.00%
====== ======
Less:
Loans in process................... 14 11
Deferred fees and discounts........ 233 248
Allowance for loan losses.......... 291 439
------- -------
Total loans receivable, net..... $48,602 $46,415
======= =======
</TABLE>
<PAGE>
The following table illustrates the interest rate sensitivity of the
Bank's loan portfolio at December 31, 1996. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract requires the final payment to be made, without regard to interest rate
adjustments. The table does not reflect the effects of possible prepayments or
enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
Multi-family and
One- to Four-Family Non-residential Construction Land Consumer
--------------------- ------------------- --------------------- ------------------- ---------------
Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
-------------------------------- ---------- -------------------- ---------- -------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Due During
Period Ending December 31,
1997....................... $ 729 8.65 $ 1,400 9.34% $2,317 9.41% $148 9.49% $ 665 7.52%
1998 to 1999............... 1,092 7.87 1,118 9.09 1,568 9.33 17 9.17 793 7.94
2000 and 2001.............. 2,446 7.91 793 9.32 --- --- 52 8.18 546 8.03
2002 to 2006............... 13,679 7.61 2,393 8.90 --- --- --- --- ------ ---
2007 to 2016............... 15,179 7.87 5,066 8.67 521 8.31 --- --- 3 9.00
2017 and following......... 10,544 7.38 1,295 8.66 --- --- --- --- 2,982 9.83
------- ---- ------- ---- ------ ------ ----
Total................... $43,669 7.69% $12,065 8.87% $4,406 9.25% $217 9.15% $4,989 9.02%
======= ======= ====== ==== ======
<CAPTION>
Commercial
Business Total
-------------------- ---------------------
Weighted Weighted
Average Average
Amount Rate Amount Rate
------ ---- ------ ----
<S> <C> <C> <C> <C>
Due During
Period Ending December 31,
1997....................... $ 623 9.51% $ 5,882 9.10%
1998 to 1999............... 2,896 7.44 7,484 8.20
2000 and 2001.............. --- --- 3,837 8.22
2002 to 2006............... --- --- 16,072 7.80
2007 to 2016............... --- --- 20,769 8.08
2017 and following......... --- --- 14,821 7.98
-------
Total................... $3,519 7.81% $68,865 8.10%
====== =======
</TABLE>
<PAGE>
The total amount of loans due after December 31, 1997 which have
predetermined interest rates is $40.6 million, while the total amount of loans
due after such dates which have floating or adjustable interest rates is $22.4
million.
Under federal law, the aggregate amount of loans that the Bank is
permitted to make to any one borrower is generally limited to 15% of unimpaired
capital and surplus (25% if the security for such loan has a "readily
ascertainable" value or 30% for certain residential development loans). At
December 31, 1996, based on the above, the Bank's regulatory loan-to- one
borrower limit was approximately $1.7 million. On the same date, the Bank had no
borrowers with outstanding balances in excess of this amount. As of December 31,
1996, the largest dollar amount of indebtedness to one borrower or group of
related borrowers was $1.05 million in loans secured by multi-family residential
property. Such loans are performing in accordance with their terms.
Loan applications are initially considered and approved by Bank
officers with various levels of lending authority depending on the collateral
type and loan amount. Loans that exceed individual or combined loan officer
authority are referred to the Loan Committee. Loans greater than $500,000 must
be approved by the Board of Directors after review and preliminary approval by
the Loan Committee.
All of the Bank's lending is subject to its written underwriting
standards and to loan origination procedures. The Bank is an equal opportunity
lender. Decisions on loan applications are made on the basis of detailed
applications and property valuations (consistent with the Bank's written
appraisal policy) by qualified independent appraisers. The loan applications are
designed primarily to determine the borrower's ability to repay and the more
significant items on the application are verified through use of credit reports,
financial statements, tax returns and/or confirmations.
Generally, the Bank requires title insurance on its mortgage loans as
well as fire and extended coverage casualty insurance in amounts at least equal
to the principal amount of the loan or the value of improvements on the
property, depending on the type of loan. The Bank also requires flood insurance
to protect the property securing its interest when the property is located in a
flood plain or otherwise deemed prudent by management.
One- to Four-Family Residential Real Estate Lending
The cornerstone of the Bank's lending program has long been the
origination of long-term permanent loans secured by mortgages on owner-occupied
one- to four-family residences. At December 31, 1996, $43.7 million, or 63.41%
of the Bank's loan portfolio consisted of permanent loans on one- to four-family
residences. At that date, the average outstanding residential loan balance was
$54,700 and the largest outstanding residential loan had a principal balance of
$346,000. Virtually all of the residential loans originated by American Savings
are secured by properties located in the Bank's market area. See "-
Originations, Sales and Purchases of Loans."
Historically, American Savings originated for retention in its own
portfolio 30-year fixed-rate loans secured by one- to four-family residential
real estate. Beginning in 1982, in order to reduce its exposure to changes in
interest rates, American Savings began to originate ARMs and balloon loans,
subject to market conditions and consumer preference. As a result of continued
consumer demand, particularly during periods of relatively low interest rates,
for fixed-rate loans, American Savings has continued to originate for retention
<PAGE>
in its portfolio fixed-rate residential loans in amounts and at rates which are
monitored for compliance with the Bank's asset/liability management policy.
Currently, the Bank originates fixed-rate loans with maturities of up to 15
years for retention in it own portfolio. All ARMs and balloon loans originated
by the Bank are retained and serviced by it. At December 31, 1996, the Bank had
$17.6 million of fixed-rate residential loans with less than 10 years to
maturity, $13.9 million of fixed-rate residential loans with maturities between
10 and 20 years and $1.7 million of fixed-rate residential loans with maturities
in excess of 21 years in its portfolio. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset/Liability
Management" in the Company's Annual Report to Stockholders filed as Exhibit 13
hereto (the "Annual Report").
The Bank has offered ARM loans at rates, terms and points determined in
accordance with market and competitive factors. The Bank's current one- to
four-family residential ARMs are fully amortizing loans with contractual
maturities of up to 30 years. The interest rates on the ARMs originated by
American Savings are generally subject to adjustment at three-year intervals
based on a margin over the Three Year Treasury Securities Constant Maturity
Index. Decreases or increases in the interest rate of the Bank's ARMs are
generally limited to 5% above or below the initial interest rate over the life
of the loan. The Bank's ARMs are not convertible into fixed-rate loans, do not
contain prepayment penalties and do not produce negative amortization. ARM loans
may be assumed provided home buyers meet the Bank's underwriting standards and
the applicable fees are paid. At December 31, 1996, the total balance of one- to
four-family ARMs was $10.4 million.
The Bank evaluates both the borrower's ability to make principal,
interest and escrow payments and the value of the property that will secure the
loan. American Savings originates residential mortgage loans with loan-to-value
ratios up to 95%. On mortgage loans exceeding an 80% loan-to-value ratio at the
time of origination, American Savings will generally require private mortgage
insurance in an amount intended to reduce the Bank's exposure to 80% or less of
the appraised value of the underlying property.
As of December 31, 1996, the Bank had 18 one- to four-family
residential mortgage loans having an aggregate balance of $4.6 million with
current balances in excess of the current FHLMC maximum, $207,000 ("jumbo
loans"). The Bank's delinquency experience on its jumbo residential loans has
been similar to its experience on its other residential loans.
The Bank's residential mortgage loans customarily include due-on-sale
clauses giving the Bank the right to declare the loan immediately due and
payable in the event that, among other things, the borrower sells or otherwise
disposes of the property subject to the mortgage and the loan is not repaid.
Multi-Family and Non-Residential Real Estate Lending
The Bank has long made permanent multi-family and non-residential real
estate loans in its primary market area. However, the Bank has increased these
portfolios in recent years in accordance with its asset/liability management
policy. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Asset/Liability Management" in the Annual Report. At
December 31, 1996, the Bank had $12.1 million in multi-family and
non-residential real estate loans, representing 17.52% of the Bank's gross loan
portfolio.
<PAGE>
The Bank's multi-family loan portfolio includes loans secured by five
or more unit residential buildings located primarily in the Bank's primary
market area. The Bank's non-residential real estate loan portfolio consists of
loans on a variety of non-residential properties including retail facilities,
small office buildings and motel/hotels.
The Bank has originated both adjustable- and fixed-rate multi-family
and non-residential real estate loans, although most current originations have
adjustable rates. Rates on the Bank's adjustable-rate multi-family and
non-residential real estate loans generally adjust in a manner consistent with
the Bank's one- to four-family residential ARMs. Multi-family and
non-residential real estate loans are generally underwritten in amounts of up to
80% of the appraised value of the underlying property.
Appraisals on properties securing multi-family and non-residential real
estate loans originated by the Bank are performed by a qualified independent
appraiser at the time the loan is made. In addition, the Bank's underwriting
procedures generally require verification of the borrower's credit history,
income and financial statements, banking relationships, references and income
projections for the property. Personal guarantees are generally obtained for the
Bank's multi-family and non-residential real estate loans.
Substantially all of the multi-family residential and non-residential
real estate loans originated by the Bank are secured by properties located
within 25 miles of one or more of the Bank's offices.
The table below sets forth by type of security property the estimated
number, loan amount and outstanding balance of American Savings' multi-family
and non-residential real estate loans at December 31, 1996.
<TABLE>
<CAPTION>
Outstanding
Number of Original Principal
Loans Loan Amount Balance
----- ----------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Multi-family................................... 16 $ 4,308 $ 3,259
Office......................................... 10 2,179 1,861
Retail......................................... 3 465 398
Commercial building............................ 2 1,350 1,219
Auto service/repair............................ 1 290 257
Restaurants.................................... 2 295 246
Hotel.......................................... 4 3,500 3,437
Other.......................................... 11 1,459 1,388
--- -------- --------
Total....................................... 49 $13,846 $12,065
=== ======= =======
</TABLE>
At December 31, 1996, the Bank's largest multi-family and largest
non-residential real estate loans totalled $523,000 and $1.1 million,
respectively. As of December 31, 1996 none of these loans were 60 days or more
delinquent and were otherwise performing in accordance with their terms.
<PAGE>
Multi-family and non-residential real estate loans generally present a
higher level of risk than loans secured by one- to four-family residences. This
greater risk is due to several factors, including the concentration of principal
in a limited number of loans and borrowers, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multi-family residential and non-residential real estate is
typically dependent upon the successful operation of the related real estate
project. If the cash flow from the project is reduced (for example, if leases
are not obtained or renewed), the borrower's ability to repay the loan may be
impaired. At December 31, 1996, the Bank had no multi-family loans which were 90
days or more delinquent.
Construction Lending
The Bank makes construction loans to individuals for the construction
of their primary or secondary residences and loans to builders or developers for
the construction of single-family and multi-family properties. Loans to
individuals for the construction of their residences typically run for six
months. The borrower pays interest only during the construction period.
Residential construction loans are generally underwritten pursuant to the same
guidelines used for originating permanent residential loans. At December 31,
1996, the Bank had seven construction loans with outstanding aggregate balances
of $2.3 million (including an additional $586,000 in undisbursed loan proceeds)
secured by one- to four- family residential property to borrowers intending to
live in the properties upon completion of construction. Subject to future market
conditions, the Bank intends to continue its construction lending activities to
persons intending to be owner occupants.
The Bank makes loans to builders and developers to finance the
construction of residential property. Such loans generally have adjustable
interest rates based upon prime with terms of from six months to one year. The
proceeds of the loan are advanced during construction based upon the percentage
of completion as determined by an independent inspector. The loan amount
normally does not exceed 80% of projected completed value for homes that have
been pre-sold to the ultimate occupant. For loans to builders for the
construction of homes not yet pre-sold, which may carry a higher risk, the
loan-to value ratio is generally limited to 75%. Whether the Bank is willing to
provide permanent takeout financing to the purchaser of the home is determined
independently of the construction loan by separate underwriting.
At, December 31, 1996, the Bank had 16 construction loans with
outstanding aggregate balances of $2.1 million (including an additional $312,000
in undisbursed loan proceeds) secured by one- to four-family residential
property built on speculation.
The Bank also provides construction financing on multi-family housing.
However, there were no loans of this type outstanding as of December 31, 1996.
Additionally, while the Bank does on occasion participate with other lenders in
loans to developers and builders to finance multi-family housing construction,
there were no loans of this type outstanding as of December 31, 1996.
<PAGE>
Construction lending generally affords the Bank an opportunity to
receive interest at rates higher than those obtainable from residential lending
and to receive higher origination and other loan fees. In addition, such loans
are generally made for relatively short terms. Nevertheless, construction
lending to persons other than owner-occupants is generally considered to involve
a higher level of credit risk than one- to four-family residential lending due
to the concentration of principal in a limited number of loans and borrowers and
the effects of general economic conditions on construction projects, real estate
developers and managers. In addition, the nature of these loans is such that
they are more difficult to evaluate and monitor. The Bank's risk of loss on a
construction loan is dependent largely upon the accuracy of the initial estimate
of the property's value upon completion of the project and the estimated cost
(including interest) of the project. If the estimate of value proves to be
inaccurate, the Bank may be confronted, at or prior to the maturity of the loan,
with a project with a value which is insufficient to assure full repayment
and/or the possibility of having to make substantial investments to complete and
sell the project. Because defaults in repayment may not occur during the
construction period, it may be difficult to identify problem loans at an early
stage. When loan payments become due, the cash flow from the property may not be
adequate to service the debt. In such cases, the Bank may be required to modify
the terms of the loan. The Bank had no non-performing construction loans
outstanding as of December 31, 1996.
Land Lending
Land loans, which include vacant land and developed lots, are made to
various builders and developers with whom the Bank has had long-standing
relationships. All of such loans are secured by land zoned for residential
developments and located within the Bank's market area. Disbursements related to
acquisition and development land loans are typically based on the construction
cost estimate of an independent architect or engineer who inspects the project
in connection with significant disbursement requests. At December 31, 1996, the
Bank had $217,000 in loans secured by land, or .32% of its entire gross loan
portfolio.
Land lending generally affords the Bank an opportunity to receive
interest at rates higher than those obtainable from residential lending. In
addition, land loans are limited to a maximum 75% loan-to-value and are made
with adjustable rates of interest and for relatively short terms. Nevertheless,
land lending is generally considered to involve a higher level of credit risk
due to the fact that funds are advanced upon the security of the land, which is
of uncertain value prior to its development. Because of the uncertainties
inherent in estimating land development costs as well as the market value on the
completed project and the effects of governmental regulation of real property,
it is relatively difficult to evaluate accurately the total funds required to
complete a development project and the related loan-to-value ratio.
As of December 31, 1996, the Bank has not experienced significant
losses in connection with its land lending. See "Delinquencies and
Non-Performing Assets."
Consumer Lending
Management believes that offering consumer loan products helps to
expand the Bank's customer base and to create stronger ties to its existing
customer base. In addition, because consumer loans generally have shorter terms
to maturity and carry higher rates of interest than do residential mortgage
<PAGE>
loans, they can be valuable asset/liability management tools. The Bank currently
originates substantially all of its consumer loans in its market area. At
December 31, 1996, the Bank's consumer loans totalled $5.0 million or 7.24% of
the Bank's gross loan portfolio.
American Savings offers a variety of secured consumer loans, including
home equity lines of credit, home improvement loans, loans secured by savings
deposits and automobile loans. Although the Bank primarily originates consumer
loans secured by real estate, deposits or other collateral, the Bank also, on
occasion, makes unsecured personal loans.
The Bank's home equity loans are generally limited to $100,000. The
Bank uses the same underwriting standards for home equity lines of credit as it
uses for one- to four-family residential mortgage loans. The Bank's home equity
lines of credit are originated in amounts which, together with the amount of the
first mortgage, generally do not exceed 80% of the appraised value of the
property securing the loan. The interest rate for all home equity loans floats
at a stated margin over the prime rate. At December 31, 1996, the Bank had $3.0
million of home equity lines of credit and an additional $5.4 million of
additional funds committed, but undrawn, under such lines.
The Bank also offers a Visa/Mastercard credit card program. At December
31, 1996, approximately 370 credit cards had been issued, with an aggregate
outstanding loan balance of $430,000 and unused credit available of $618,000.
The Bank presently charges no annual membership fee and a fixed annual rate of
interest on these credit cards.
The terms of other types of consumer loans vary according to the type
of collateral, length of contract, and creditworthiness of the borrower. The
underwriting standards employed by the Bank for consumer loans include a
determination of the applicant's payment history on other debts and an
assessment of the borrower's ability to meet payments on the proposed loan along
with his existing obligations. In addition to the creditworthiness of the
applicant, the underwriting process also includes a comparison of the value of
the security, if any, in relation to the proposed loan amount. Unsecured
personal loans are made to borrowers for a variety of personal needs and are
usually limited to 20% of the borrower's net worth not to exceed $15,000, with a
minimum loan amount of $2,500.
In April 1996, the Bank purchased 151 individual consumer orthodontist
loans for a purchase price of $503,000. As of December 31, 1996, the outstanding
balance on those loans was $348,000.
Consumer loans may entail greater risk than residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciable assets such as automobiles. In such cases, any repossessed
collateral for defaulted consumer loans may not provide adequate sources of
repayment for the outstanding loan balances as a result of the greater
likelihood of damage, loss or depreciation. In addition, consumer loan
collections are dependent on the borrower's continuing financial stability, and
thus are more likely to be affected by adverse personal circumstances.
Furthermore, the application of various federal and state laws, including
federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans. At December 31, 1996, $45,000, or approximately .90%
of the consumer loan portfolio, was 60 days or more delinquent. There can be no
assurance that delinquencies will not continue to increase in the future.
<PAGE>
Commercial Business Lending
In order to increase the yield and interest rate sensitivity of its
loan portfolio and in order to satisfy the demand for financial services
available to individuals and businesses in its primary market area, the Bank
maintains a portfolio of commercial business loans. Unlike residential mortgage
loans, which generally are made on the basis of the borrower's ability to make
repayment from his or her employment and other income, and which are secured by
real property whose value tends to be more easily ascertainable, commercial
business loans are generally of higher risk and typically are made on the basis
of the borrower's ability to make repayment from the cash flow of the borrower's
business. As a result, the availability of funds for the repayment of commercial
business loans may be substantially dependent on the success of the business
itself (which, in turn, may be dependent upon the general economic environment).
During the past five years, the Bank has made commercial business loans to
businesses such as small retail operations, small manufacturing concerns and
professional firms. The Bank's commercial business loans almost always include
personal guarantees and are usually, but not always, secured by business assets,
such as accounts receivable, equipment, inventory and real estate. However, the
collateral securing the loans may depreciate over time, may be difficult to
appraise and may fluctuate in value based on the success of the business.
Most of the Bank's commercial business loans have terms ranging from
six months to five years and carry adjustable interest rates. The underwriting
process for commercial business loans generally includes consideration of the
borrower's financial statements, tax returns, projections of future business
operations and inspection of the subject collateral, if any.
In August 1995, the Bank purchased seasoned commercial leases for a
purchase price of $2.0 million covering manufacturing equipment for the
embroidery of garments. As of December 31, 1996, the outstanding balance on
these leases was $1.2 million. In November 1996, the Bank purchased a second
package of similar type leases for a purchase price of $2.1 million covering
similar equipment. In general, the leases are full-payout finance leases in
which the lease payments effectively repay the lessor for the purchase price of
the equipment, plus an acceptable yield. The leases were purchased from another
financial institution with expertise in originating and acquiring such leases.
The other institution continues to service the leases for American Savings and
provides limited recourse in the event of a default by the lessor. The Bank
purchased these leases because they were available at relatively high yields at
a time when investment alternatives were generating much lower yields and
because they had relatively short terms, consistent with the Bank's
asset/liability management strategy. Although, like other commercial business
financings, commercial leases involve higher risk than residential mortgage
loans, management believes that these purchases are prudent in furtherance of
the Bank's lending strategy and in light of the higher yields, personal
guarantees on most of the leases and the limited additional credit recourse
provided by the seller. These leases are classified as loans for financial
statement purposes. As of December 31, 1996, all of such leases were performing
in accordance with their terms.
Originations, Purchases and Sales of Loans
The Bank originates real estate and other loans through employees
located at each of the Bank's offices. Walk-in customers and referrals from real
estate brokers and builders are also important sources of loan originations. The
Bank occasionally utilizes the services of mortgage brokers.
<PAGE>
In order to supplement its loan production, the Bank may purchase loans
from third parties. In general, the Bank uses the same underwriting standards in
evaluating loan purchases as it does in originating loans. The Bank will
continue to evaluate loan purchase opportunities as they arise and make
purchases in the future depending on market conditions.
From time to time the Bank sells long-term fixed-rate loans pursuant to
forward commitments. To date, most of the Bank's loan sales have been made on a
servicing released basis. At December 31, 1996, approximately $8.5 million of
American Savings' loan portfolio was serviced by others and American Savings
serviced no loans for others.
In periods of rising interest rates, the Bank's ability to originate
large dollar volumes of real estate loans may be substantially reduced or
restricted, with a resultant decrease in related fee income and operating
earnings. In addition, the Bank's ability to sell loans may substantially
decrease if potential buyers reduce their purchasing activities.
The following table shows the loan origination, purchase, sale and
repayment activities of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1996 1995 1994 1993
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate - one- to four-family.................. $ 4,027 $ 3,899 $ 1,312 $ 3,990
- multi-family....................... --- --- 170 ---
- non-residential.................... 2,880 1,359 555 625
- construction....................... 2,778 1,400 3,248 321
- land............................... --- 136 432 130
Non-real estate - consumer......................... 4,485 2,944 3,409 979
- commercial business........... 158 103 301 1,530
-------- -------- -------- -------
Total adjustable-rate....................... 14,328 9,841 9,427 7,575
------- -------- ------- -------
Fixed rate:
Real estate - one- to four-family.................. 8,219 2,588 7,070 5,500
- multi-family....................... 101 377 --- 383
- non-residential.................... 17 96 783 ---
- construction....................... --- --- --- ---
- land............................... --- --- --- ---
Non-real estate - consumer......................... 793 1,041 1,196 537
- commercial business........... 85 --- 40 14
--------- --------- -------- ---------
Total fixed-rate............................ 9,215 4,102 9,089 6,434
-------- ------- ------- --------
Total loans originated...................... 23,543 13,943 18,516 14,009
-------- ------- ------- --------
<PAGE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1996 1995 1994 1993
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Purchases:
Real estate - one- to four-family.................. --- 524 60 ---
- multi-family....................... --- 653 497 ---
- non-residential.................... 2,079 --- --- ---
- construction....................... --- 250 1,000 ---
Non-real estate - consumer......................... 503 --- --- ---
- commercial business........... 2,066 2,013 --- 1,049
------- ------- --------- --------
Total loans purchased....................... 4,648 3,440 1,557 1,049
------- ------- ------- --------
Sales and Repayments:
Real estate - one- to four-family.................. --- --- 112 320
- multi-family....................... --- --- --- ---
- non-residential.................... --- --- --- ---
- construction....................... --- --- --- ---
Non-real estate - consumer......................... --- --- --- ---
- commercial business............ --- --- --- ---
--------- --------- ---------- ----------
Total loans sold............................ --- --- 112 320
Principal repayments............................... 14,801 15,518 15,428 12,711
------- ------- -------- -------
Total reductions............................ 14,801 15,518 15,540 13,031
Increase (decrease) in other items, net.............. (663) 925 (1,286) 160
-------- -------- -------- --------
Net increase (decrease)..................... $12,727 $ 2,790 $ 3,247 $ 2,187
======= ======= ======== =======
</TABLE>
<PAGE>
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, the Bank attempts to cause the delinquency to be cured by
contacting the borrower. In the case of loans, a late notice is sent on all
loans over 30 days delinquent. Another late notice is sent 60 days after the due
date. Additional written and verbal contacts are made with the borrower between
45 and 90 days after the due date.
If the delinquency is not cured by the 90th day, the customer is
provided 10 days written notice that the account will be referred to counsel for
collection and foreclosure, if necessary. A drive-by appraisal is normally
obtained at this time and a title search is ordered. A good faith effort by the
borrower at this time will defer foreclosure for a reasonable length of time
depending on individual circumstances. The Bank may agree to accept a deed in
lieu of foreclosure. If it becomes necessary to foreclose, the property is sold
at public sale and the Bank may bid on the property to protect its interest. The
decision to foreclose is made by the Senior Loan Officer after discussion with
the members of the Loan Committee.
Consumer loans are charged off if they remain delinquent for 120 days
unless the borrower and lender agree on a payment plan. If terms of the plan are
not met, they are then subject to charge off. The Bank's procedures for
repossession and sale of consumer collateral are subject to various requirements
under Indiana consumer protection laws.
Real estate acquired by American Savings as a result of foreclosure or
by deed in lieu of foreclosure is classified as real estate owned until it is
sold. When property is acquired by foreclosure or deed in lieu of foreclosure,
it is recorded at the lower of cost or estimated fair value, less estimated
selling costs, at the date of acquisition, and any write-down resulting
therefrom is charged to the allowance for loan losses. Subsequent decreases in
the value of the property are charged to operations through the creation of a
valuation allowance. After acquisition, all costs incurred in maintaining the
property are expensed. Costs relating to the development and improvement of the
property, however, are capitalized to the extent of estimated fair value less
estimated costs to sell.
<PAGE>
Loan Delinquencies. The following table sets forth the Bank's loan
delinquencies by type, by amount and by percentage of type at December 31, 1996.
<TABLE>
<CAPTION>
Loans Delinquent For:
60-89 Days 90 Days and Over Total Delinquent Loans
------------------------------- ------------------------------- -----------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family...... 6 $341 .78% 5 $269 .62% 11 $ 610 1.40%
Multi-family............. --- --- --- --- --- --- --- --- ---
Non-residential.......... --- --- --- --- --- --- --- --- ---
Construction............. --- --- --- --- --- --- --- --- ---
Land..................... --- --- --- --- --- --- --- --- ---
Consumer................... 1 9 .18 3 36 .72 4 45 .90
Commercial business........ --- --- --- --- --- --- --- --- ---
--- ------ --- ----- --- ----
Total................. 7 $350 .15% 8 $305 .44% 15 $655 .95%
=== ==== === ==== == ====
</TABLE>
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the savings institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of Substandard assets, with the additional characteristics that
the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified Loss is considered uncollectible and of
such little value that continuance as an asset on the balance sheet of the
institution is not warranted. The regulations have also created a Special
Mention category, consisting of assets which do not currently expose a savings
institution to a sufficient degree of risk to warrant classification, but do
which possess credit deficiencies or potential weaknesses deserving management's
close attention. As of December 31, 1996, the Bank had not designated any assets
as special mention. Assets classified as Substandard or Doubtful require the
institution to establish prudent general allowances for loan losses. If an asset
or portion thereof is classified as Loss, the institution must either establish
specific allowances for loan losses in the amount of 100% of the portion of the
asset classified Loss, or charge off such amount. If an institution does not
agree with an examiner's classification of an asset, it may appeal this
determination to the District Director of the OTS. On the basis of management's
review of its assets, at December 31, 1996, had classified a total of $305,000
of its loans, as follows:
<PAGE>
<TABLE>
<CAPTION>
One- to Four-
Family Construction Consumer Total
------ ------------ -------- -----
(In Thousands)
<S> <C> <C> <C> <C>
Substandard......................... $269 $--- $36 $305
Doubtful............................ --- --- --- ---
Loss................................ --- --- --- ---
---- ---- ---- ------
$269 $--- $36 $305
==== ==== === ====
</TABLE>
American Savings' classified assets consist of the (i) non-performing
loans and (ii) loans and other assets of concern discussed herein. As of the
date hereof, these asset classifications are consistent with those of the OTS
and FDIC.
Non-Performing Assets. The following table sets forth the amounts and
categories of non-performing assets in the Bank's loan portfolio. Loans are
reviewed quarterly and any loan whose collectibility is doubtful is placed on
non-accrual status. Loans are placed on non-accrual status when either principal
or 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 collectibility of the loan. For all years presented,
the Bank has had no troubled debt restructurings (which involved forgiving a
portion of interest or principal on any loans or making loans at a rate
materially less than that of market rates). Foreclosed assets include assets
acquired in settlement of loans. Except as noted, the loans and foreclosed asset
amounts shown are stated without giving effect to the specific reserves which
have been established against such assets. See "- Loan Loss Reserve Analysis."
<PAGE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------------------ ------------------------------------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family............................ $269 $318 $ 344 $ 206 $ 142 $ 237
Multi-family................................... --- --- --- --- --- ---
Non-residential................................ --- --- --- 60 282 272
Construction................................... --- --- 109 242 --- ---
Consumer....................................... 36 51 47 40 10 58
Commercial business............................ --- --- --- 10 --- 51
------ ------ --------- ------- -------- --------
Total....................................... 305 369 500 550 434 618
----- ----- -------- ------ ------ -------
Non-accruing mortgage-backed securities.......... --- --- --- --- --- 155
------ ------ --------- ------- -------- --------
Accruing loans delinquent more than 90 days...... --- --- --- --- --- ---
------ ------ --------- ------- -------- ---------
Foreclosed assets:
One- to four-family............................ --- --- --- 12 199 289
Multi-family................................... --- --- --- --- --- ---
Non-residential................................ --- --- --- --- --- ---
Construction................................... --- --- --- --- --- ---
Consumer....................................... --- --- --- --- --- ---
Commercial business............................ --- --- --- --- --- ---
------ ------ --------- -------- -------- --------
Total....................................... -- --- --- 12 199 289
------ ------ --------- ------- ------ ------
Total non-performing assets...................... $305 $369 $ 500 $ 570 $ 633 $1,062
==== ==== ======= ====== ===== ======
Total as a percentage of total assets............ .35% .53% .76% .88% .99% 1.68%
==== ===== === === === ====
</TABLE>
For the year ended December 31, 1996, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $23,000.
At December 31, 1996, there were no other loans not included on the
table or discussed above where known information about the possible credit
problems of borrowers caused management to have serious doubts as to the ability
of the borrower to comply with present loan repayment terms and which may result
in disclosure of such loans in the future.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses charged to earnings based on management's
evaluation of the risk inherent in its entire loan portfolio and changes in the
nature and volume of its loan activity. Such evaluation, which includes a review
of all loans of which full collectibility may not be reasonably assured,
considers the estimated net realizable value of the underlying collateral,
<PAGE>
economic conditions, historical loan loss experience and other factors that
warrant recognition in providing for an adequate allowance for loan losses. In
determining the general reserves under these policies, historical charge-offs
and recoveries, changes in the mix and levels of the various types of loans, net
realizable values, the current loan portfolio and current economic conditions
are considered. Management also considers the Bank's non-performing and "of
concern" assets in establishing its allowance for loan losses. The Bank's
policies have had the effect of increasing the Bank's allowance for loan losses.
As of December 31, 1996, the Bank's allowance for loan losses as a
percentage of loans and as a percentage of non-performing loans amounted to .52%
and 116.27%, respectively. In light of the level of non-performing assets to
total assets and the nature of these assets, management believes that the
allowance for loan losses is adequate. While management believes that it uses
the best information available to determine the allowance for loan losses,
unforeseen market conditions could result in adjustments to the allowance for
loan losses, and net earnings could be significantly affected, if circumstances
differ substantially from the assumptions used in making the final
determination.
<PAGE>
The following table sets forth an analysis of the Bank's allowance for
loan losses.
<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period........... $360 $331 $ 291 $ 439 $ 406 $ 239
Charge-offs:
One- to four-family.................... --- --- 2 --- 14 15
Multi-family........................... --- --- --- 131 --- ---
Non-residential........................ --- --- --- 264 --- 4
Construction........................... --- --- --- --- --- ---
Consumer............................... 5 10 5 13 2 16
Commercial business.................... --- --- 15 69 8 ---
----- ----- ----- ------- -------- --------
Total charge-offs............... 5 10 22 477 24 35
----- ---- ----- ------ ------- -------
Recoveries:
One- to four-family.................... --- --- --- --- --- ---
Multi-family........................... --- --- --- --- --- ---
Non-residential........................ --- --- --- 154 --- ---
Construction........................... --- --- --- --- --- ---
Consumer............................... --- --- --- 5 --- ---
Commercial business.................... --- --- --- --- --- ---
----- ----- ------- -------- -------- --------
Total recoveries................. --- --- --- 159 --- ---
----- ----- ------- ------ -------- --------
Net charge-offs.......................... 5 10 22 318 24 35
Additions charged to operations.......... --- 39 62 170 57 202
----- ----- ------- ------ ------- ------
Balance at end of period................. $355 $360 $ 331 $ 291 $ 439 $ 406
==== ==== ====== ====== ====== ======
Ratio of net charge-offs during the
period to average loans outstanding
during the period........................ .01% .02% .06% .66% .05% .07%
=== === ==== === === ====
Ratio of net charge-offs during the 1.48% 2.30% 3.96% 60.80% 4.76% .28%
==== ==== ===== ===== ==== ====
period to average non-performing
assets..................................
</TABLE>
<PAGE>
The distribution of the Bank's allowance for losses on loans at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------ ------------------------------ --------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Loan in Each Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
---------- ---------- -------- ------------------------------ -------------------------------
(Dollars In Thousands)
One- to four-family . $ 89 $43,669 63.41% $ 93 $38,056 68.60% $ 89 $37,050 69.02%
Multi-family ........ 10 3,259 4.73 10 3,419 6.16 10 3,445 6.42
Non-residential ..... 26 8,806 12.79 13 4,146 7.47 72 3,971 7.40
Construction and land 23 4,623 6.72 17 3,417 6.16 38 4,316 8.04
Consumer ............ 45 4,989 7.24 23 4,021 7.25 29 3,986 7.43
Commercial business . 35 3,519 5.11 24 2,420 4.36 9 905 1.69
Unallocated ......... 127 -- -- 180 -- -- 84 -- --
Total .......... $ 355 $68,865 100.00% $360 $55,479 100.00 $ 331 $53,673 100.00%
======= ======= ====== ==== ======= ====== ===== ======= ======
<CAPTION>
-------------------------------------------------------------
1993 1992
----------------------------- ------------------------------
Percent Percent
of Loans of Loans
Loan in Each Loan in Each
Amount of Amounts Category Amount of Amounts Category
Loan Loss by to Total Loan Loss by to Total
Allowance Category Loans Allowance Category Loans
--------- ---------- -----------------------------------------
<S> <C> <C> <C> <C> <C> <C>
One- to four-family . $ 66 $35,202 71.64% $ 56 $35,144 74.59%
Multi-family ........ 9 2,877 5.85 9 2,957 6.28
Non-residential ..... 71 3,726 7.58 290 2,625 5.57
Construction and land 45 1,654 3.36 8 1,566 3.32
Consumer ............ 25 3,470 7.07 16 2,948 6.26
Commercial business . 23 2,211 4.50 19 1,873 3.98
Unallocated ......... 52 -- -- 41 -- --
Total .......... $291 $49,140 100.00% $439 $47,113 100.00%
==== ======= ====== ==== ======= ======
</TABLE>
<PAGE>
Investment Activities
As part of its asset/liability management strategy, the Company invests
in U.S. government and agency obligations to supplement its lending activities.
The Company regularly uses Piper Capital Management, Inc. as non-commissioned
investment adviser. The Company has not made any investments in municipal
securities although it is authorized by its general investment policy to
purchase investment grade municipal securities and, depending on market
conditions, may purchase such securities in the future. The Company also
invests, to a limited degree, in equity securities of other financial companies.
At December 31, 1996, the Company did not own any securities of a single issuer
which exceeded 10% of the Bank's retained earnings, other than U.S. government
or federal agency obligations. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation" in the Annual Report.
The Bank is required by federal regulations to maintain a minimum
amount of liquid assets that may be invested in specified securities and is also
permitted to make certain other securities investments. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital" in the Annual Report. Cash flow projections are regularly
reviewed and updated to assure that adequate liquidity is provided. As of
December 31, 1996, the Bank's liquidity ratio (liquid assets as a percentage of
net withdrawable savings and current borrowings) was 15.43% as compared to the
OTS requirement of 5.0%.
All of the Company's investment and mortgage-backed securities, except
for those held for trade securities noted above, are classified as available for
sale in accordance with SFAS 115. This was done in order for the Company to
maintain maximum flexibility when making investment decisions. Unrealized gains
and losses in available for sale securities, net of tax effect, are reported as
a separate component of stockholders' equity. The Company may elect to classify
investment securities acquired in the future as held to maturity, instead of as
available for sale, but there are no current plans to do so.
<PAGE>
The following table sets forth the composition of the Company's
investment securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities held to maturity:
FHLB Stock......................................... $ 546 5.45% $ 546 7.22% $ 546 7.96%
------- ------ ------- ------ ------ -----
Investment securities available for sale:
U.S. government securities......................... 8,283 82.62 6,384 84.41 5,758 83.92
Government securities mutual fund.................. 656 6.54 633 8.37 557 8.12
-------- ------- ------- ------ ------ -----
8,939 89.16 7,017 92.78 6,315 92.04
-------- ------ ------- ----- ------ ------
Investment securities held for trade:
Marketable equity securities....................... 540 5.39 --- --- --- ---
-------- ------ ------- ------ ------ ------
Common stock of other financial institutions....... 540 5.39 --- --- --- ---
-------- ------ ------- ------ ------ ------
Total investment securities..................... $10,025 100.00% $ 7,563 100.00% $ 6,861 100.00%
======= ====== ======= ====== ======= ======
Average remaining life of debt investment 2.3 years 2.7 years 2.9 years
securities..........................................
Other interest-earning assets:
Interest-bearing deposits with banks............... $ 1,093 100.00% $ 1,004 100.00% $ 307 100.00%
Federal funds sold................................. --- --- --- --- --- ---
------- ------ ------- ------ ------- ------
Total........................................... $ 1,093 100.00% $ 1,004 100.00% $ 307 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
<PAGE>
The composition and maturities of the investment securities portfolio,
excluding FHLB stock and equity securities are indicated in the following table.
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------------------------------------------------------
Less Than 1 to 5 5 to 10 Over
1 Year Years Years 10 Years Total Investment Securities
Book Value Book Value Book Value Book Value Book Value Fair Value
---------- ---------- ---------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. government securities.................. $751 $7,306 $226 $--- $8,283 $8,283
---- ------ ---- ---- ------ ------
Total investment securities (excluding
FHLB stock and equity securities)........... $751 $7,306 $226 $--- $8,283 $8,283
==== ====== ==== ==== ====== ======
Weighted average yield...................... 6.09% 6.08% 6.36% ---% 6.09%
</TABLE>
At December 31, 1996, the Company's marketable equity securities held
for trade were as follows:
<TABLE>
<CAPTION>
Name of Issuer Number of Shares Fair Value
-------------- ---------------- ----------
<S> <C> <C>
Home Financial Bancorp 9,400 $119,850
Sobieski Bancorp 8,000 114,000
Community Bancshares of 7,500 97,500
Indiana
Park Bancorp 8,600 111,800
PS Financial, Inc. 8,200 96,350
</TABLE>
Mortgage-Backed Securities. The Company purchases mortgage-backed
securities from time to time to supplement residential loan production. The type
of securities purchased is based upon the Bank's asset/liability management
strategy and balance sheet objectives. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Asset/Liability Management"
in the Annual Report. In connection with the adoption of SFAS 115 in 1994, the
Bank's mortgage-backed securities were moved to its available for sale portfolio
in order to retain investment flexibility and accordingly are included in its
financial statements at fair value.
All of the Company's mortgage-backed securities at December 31, 1996,
are backed by federal agencies or government corporations. Accordingly,
management believes that the Company's mortgage-backed securities are generally
resistant to credit problems.
<PAGE>
The following table sets forth the composition of the Company's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1996 1995 1994
---------------------------------------------- ----------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Mortgage-backed securities available
for sale:
GNMA................................... $ 762 18.96% $ 932 63.02% $ 986 61.89%
FNMA................................... 82 2.04 98 6.63 100 6.28
FHLMC.................................. 3,175 79.00 449 30.35 507 31.83
------ ------ ------- ------ ------ ------
Total mortgage-backed
securities........................ $4,019 100.00% $1,479 100.00% $1,593 100.00%
====== ====== ====== ====== ====== ======
</TABLE>
The following table shows mortgage-backed and related securities
purchase, sale and repayment activities of the Company for the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Purchases:
Adjustable-rate................................ $ --- $ --- $ ---
Fixed-rate..................................... 3,034 --- ---
------ ----- -------
Total purchases......................... 3,034 --- ---
------ ----- -------
Sales and Repayments:
Total sales............................. --- --- ---
--------- ----- -------
Principal repayments........................... 482 208 682
------- ---- -----
Total reductions........................ 482 208 682
Increase (decrease) in other items, net........ (12) 94 (87)
--------- ---- ------
Net increase (decrease)................. $2,540 $(114) $(769)
====== ====== =====
</TABLE>
<PAGE>
The following table sets forth the contractual maturities of the
Company's mortgage-backed securities at December 31, 1996. These securities are
anticipated to be repaid in advance of their contractual maturities as a result
of mortgage loan payments. The amounts set forth below represent principal
balances only and do not include premiums, discounts and fair value adjustments.
<TABLE>
<CAPTION>
December 31,
1996
1 to 3 to 5 5 to 10 10 to 20 Over 20 Balance
3 Years Years Years Years Years Outstanding
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal Home Loan Mortgage Corporation............ $46 $ --- $519 $2,628 $ --- $3,193
Federal National Mortgage Association............. --- --- --- --- 82 82
Government National Mortgage Association.......... --- --- --- --- 746 746
----- ----- ----- -------- ---- -------
Total........................................ $ 46 $ --- $519 $2,628 $828 $4,021
==== ===== ==== ====== ==== ======
</TABLE>
Sources of Funds
General. The Bank's primary sources of funds are deposits, borrowings,
amortization and prepayment of loan principal, maturities of investment
securities, short-term investments and funds provided from operations.
Deposits. American Savings offers a variety of deposit accounts having
a wide range of interest rates and terms. The Bank's deposits consist of
passbook accounts, demand and NOW accounts, and money market and certificate
accounts. The Bank relies primarily on advertising, competitive pricing policies
and customer service to attract and retain these deposits.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates and
competition.
The variety of deposit accounts offered by the Bank has allowed it to
be competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. The Bank has become more susceptible to short-term fluctuations
in deposit flows, as customers have become more interest rate conscious. The
Bank manages the pricing of its deposits in keeping with its asset/liability
management, profitability and growth objectives. Based on its experience, the
Bank believes that its passbook, demand and NOW accounts are relatively stable
sources of deposits as compared to certificate deposits. However, the ability of
the Bank to attract and maintain all deposits, and the rates paid on these
deposits, has been and will continue to be significantly affected by market
conditions.
<PAGE>
The following table sets forth the savings flows at the Bank during the
periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance............................. $ 59,588 $ 58,281 $ 59,086
Deposits.................................... 122,369 108,637 102,605
Withdrawals................................. (123,874) (109,462) (105,070)
Interest credited........................... 2,328 2,132 1,660
-------- --------- ---------
Ending balance.............................. $ 60,411 $ 59,588 $ 58,281
======== ======== ========
Net increase (decrease)..................... $ 823 $ 1,307 $ (805)
========= ========= =========
Percent increase (decrease)................. 1.38% 2.24% (1.36)%
===== ===== =====
</TABLE>
<PAGE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs offered by the Bank as of the dates
indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------
1996 1995 1994
---------------------------------------------------------------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transactions and Savings Deposits:
Commercial Demand 0.00%(1).................. $ 731 1.21% $ 821 1.38% $ 722 1.24%
Passbook Accounts 3.00%(1).................. 16,311 27.00 16,798 28.19 17,935 30.77
NOW Accounts 2.25%(1)....................... 5,981 9.90 5,801 9.74 5,476 9.40
Money Market Accounts 3.25%(1).............. 2,454 4.06 2,678 4.49 2,719 4.66
------- ------- -------- ------ ------- ------
Total Non-Certificates...................... 25,477 42.17 26,098 43.80 26,852 46.07
------- ------- ------ ------ ------- ------
Certificates:
2.00 - 3.99%.............................. 416 .69 1,399 2.35 5,415 9.29
4.00 - 5.99%.............................. 29,691 49.15 21,952 36.83 24,218 41.55
6.00 - 7.99%.............................. 4,822 7.98 10,094 16.94 1,734 2.98
8.00 - 9.99%.............................. 5 .01 45 .08 62 .11
--------- -------- --------- ------- ------- ------
Total Certificates.......................... 34,934 57.83 33,490 56.20 31,429 53.93
------- ------- -------- ------ ------- ------
Total Deposits.............................. $60,411 100.00% $59,588 100.00% $58,281 100.00%
======= ====== ======= ====== ======= ======
- ------------------------
(1) Rates in effect at December 31, 1996.
</TABLE>
<PAGE>
The following table shows rate and maturity information for the Bank's
certificates of deposit as of December 31, 1996
<TABLE>
<CAPTION>
2.00- 4.00- 6.00- 8.00- Percent
3.99% 5.99% 7.99% 9.99% Total of Total
----- ----- ----- ----- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Certificate account maturing
in quarter ending:
March 31, 1997................. $ 52 $10,138 $ 785 $ --- $10,975 31.42%
June 30, 1997.................. 85 6,592 165 --- 6,842 19.59
September 30, 1997............. 4 3,563 694 --- 4,261 12.20
December 31, 1997.............. 105 3,253 257 --- 3,615 10.35
March 31, 1998................. 170 1,673 362 --- 2,205 6.31
June 30, 1998.................. --- 1,838 164 --- 2,002 5.73
September 30, 1998............. --- 824 805 --- 1,629 4.66
December 31, 1998.............. --- 586 235 --- 821 2.35
March 31, 1999................. --- 452 163 --- 615 1.76
June 30, 1999.................. --- 315 84 --- 399 1.14
September 30, 1999............. --- 59 478 --- 537 1.54
December 31, 1999.............. --- 165 310 --- 475 1.36
Thereafter..................... --- 233 320 5 558 1.59
------ -------- ------ ---- ------- ------
Total....................... $416 $29,691 $4,822 $ 5 $34,934 100.00%
==== ======= ====== ==== ======= ======
Percent of total............ 1.19% 85.00% 13.80% .01%
===== ===== ===== ===
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of December 31,
1996.
<TABLE>
<CAPTION>
Maturity
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 months Total
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit less than $100,000....... $ 8,026 $6,132 $6,479 $8,600 $29,237
Certificates of deposit of $100,000 or more...... 2,949 710 1,397 641 5,697
-------- ------- ------ ------- --------
Total certificates of deposit.................... $10,975 $6,842 $7,876 $9,241 $34,934
======= ====== ====== ====== =======
</TABLE>
<PAGE>
Borrowings. American Savings' other available sources of funds include
advances from the FHLB of Indianapolis and other borrowings. As a member of the
FHLB of Indianapolis, the Bank is required to own capital stock in the FHLB of
Indianapolis and is authorized to apply for advances from the FHLB of
Indianapolis. Each FHLB credit program has its own interest rate, which may be
fixed or variable, and range of maturities. The FHLB of Indianapolis may
prescribe the acceptable uses for these advances, as well as limitations on the
size of the advances and repayment provisions. During 1996, the Bank
substantially increased short-term borrowings in order to fund loan demand.
The following table sets forth the maximum month-end balance and
average balance of FHLB advances, securities sold under agreements to repurchase
and other borrowings for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C>
Maximum Balance:
FHLB advances........................................... $9,500 $3,000 $ 1,000 $ ---
Securities sold under agreements to repurchase.......... --- --- --- ---
Other borrowings........................................ --- --- --- ---
Average Balance:
FHLB advances........................................... $3,186 $1,567 $ 13 $ ---
Securities sold under agreements to repurchase.......... --- --- --- ---
Other borrowings........................................ --- --- --- ---
</TABLE>
The following table sets forth certain information as to the Bank's
borrowings at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------
1996 1995 1994 1993
-------- -------- ---------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FHLB advances............................................. $9,500 $3,000 $ 1,000 $ ---
Securities sold under agreements to repurchase............ --- --- ---
Other borrowings.......................................... --- --- --- ---
-------- -------- ---------- --------
Total borrowings..................................... $9,500 $3,000 $ 1,000 $ ---
====== ====== ======= ========
Weighted average interest rate of FHLB advances........... 5.91% 6.16% 6.26% ---%
Weighted average interest rate of securities sold
under agreements to repurchase........................... ---% ---% ---% ---%
Weighted average interest rate of other borrowings........ ---% ---% ---% ---%
</TABLE>
<PAGE>
Service Corporations
As a federally chartered savings association, American Savings is
permitted by OTS regulations to invest up to 2% of its assets, or $1.7 million
at December 31, 1996, in the stock of, or loans to, service corporation
subsidiaries. As of such date, the net book value of American Savings'
investment in its service corporations was approximately $43,000. American
Savings may invest an additional 1% of its assets in service corporations where
such additional funds are used for inner-city or community development purposes.
In addition to investments in service corporations, federal institutions are
permitted to invest an unlimited amount in operating subsidiaries engaged solely
in activities which a federal association may engage in directly.
American Savings has one wholly owned subsidiary service corporation,
NIFCO, Inc. ("NIFCO"), and one second tier subsidiary service corporation, Ridge
Management, Inc. ("Ridge Management") which is owned by NIFCO. NIFCO sells
annuities and securities to the Bank's customers and to the general public. At
December 31, 1996, the Bank had an equity investment in NIFCO of $43,000. For
the year ended December 31, 1996, NIFCO recorded net income of $2,000. In the
past, Ridge Management engaged in lending and investment activity, although it
is currently essentially inactive. For the year ended December 31, 1996, Ridge
Management had no activity.
Competition
American Savings faces strong competition both in originating real
estate loans and in attracting deposits. Competition in originating loans comes
primarily from other savings institutions, credit unions, commercial banks and
mortgage bankers who also make loans secured by real estate located in the
Bank's primary market area. The Bank competes for loans principally on the basis
of the interest rates and loan fees it charges, the types of loans it originates
and the quality of services it provides to borrowers.
The Bank attracts all of its deposits through its branch offices,
primarily from the communities in which those branch offices are located;
therefore, competition for those deposits is principally from other savings
institutions, commercial banks, securities firms, money market and mutual funds
and credit unions located in the same communities. The ability of the Bank to
attract and retain deposits depends on its ability to provide an investment
opportunity that satisfies the requirements of investors as to rate of return,
liquidity, risk, convenient locations and other factors. The Bank competes for
these deposits by offering a variety of deposit accounts at competitive rates,
convenient business hours and a customer oriented staff. The Bank estimates its
market share of savings deposits in the Lake County market area to be
approximately 1.2%.
The authority to offer money market deposits, and expanded lending and
other powers authorized for savings institutions by federal legislation has
resulted in increased competition for both deposits and loans between savings
institutions and other financial institutions such as commercial banks.
<PAGE>
Regulation
General. American Savings is a federally chartered savings association,
the deposits of which are insured by the FDIC, which insurance is backed by the
full faith and credit of the United States Government. Accordingly, American
Savings is subject to broad federal regulation and oversight extending to all
its operations. American Savings is a member of the FHLB of Indianapolis and is
subject to certain limited regulation by the Board of Governors of the Federal
Reserve System ("Federal Reserve Board"). As the savings and loan holding
company of American Savings, the Company also is subject to federal regulation
and oversight. The purpose of the regulation of the Company and other holding
companies is to protect subsidiary savings associations. American Savings is a
member of the Savings Association Insurance Fund ("SAIF"), which together with
the Bank Insurance Fund (the "BIF") are the two deposit insurance funds
administered by the FDIC, and the deposits of American Savings are insured by
the FDIC. As a result, the FDIC has certain regulatory and examination authority
over American Savings.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings
associations. As part of this authority, American Savings is required to file
periodic reports with the OTS and is subject to periodic examinations by the OTS
and the FDIC. The last regular OTS and FDIC examinations of the Bank were as of
August, 1996 and November, 1991, respectively. When these examinations are
conducted by the OTS and the FDIC, the examiners may require the Bank to provide
for higher general or specific loan loss reserves. All savings associations are
subject to semi-annual assessments, based upon the savings association's total
assets, to fund the operations of the OTS. American Savings' OTS assessment for
the fiscal year ended December 31, 1996, was $25,000.
The OTS also has extensive enforcement authority over all savings
associations and their holding companies, including American Savings and the
Company. This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of
American Savings is prescribed by federal laws and it is prohibited from
engaging in any activities not permitted by such laws. For instance, no savings
institution may invest in non-investment grade corporate debt securities. In
addition, the permissible level of investment by federal associations in loans
secured by non-residential real property may not exceed 400% of total capital,
except with approval of the OTS. Federal savings associations are also generally
authorized to branch nationwide. American Savings is in compliance with the
noted restrictions.
<PAGE>
The Bank's general permissible lending limit for loans-to-one-borrower
is equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1996, the Bank's lending limit under this restriction was $1.7
million. American Savings is in compliance with the loans-to-one-borrower
limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an approved plan will subject the institution to further enforcement
action.
Insurance of Accounts and Regulation by the FDIC
American Savings is a member of the SAIF, which is administered by the
FDIC. Deposits are insured up to applicable limits by the FDIC and such
insurance is backed by the full faith and credit of the United States
Government. As insurer, the FDIC imposes deposit insurance premiums and is
authorized to conduct examinations of and to require reporting by FDIC-insured
institutions. It also may prohibit any FDIC-insured institution from engaging in
any activity the FDIC determines by regulation or order to pose a serious risk
to the SAIF or the BIF. The FDIC also has the authority to initiate enforcement
actions against savings associations, after giving the OTS an opportunity to
take such action, and may terminate the deposit insurance if it determines that
the institution has engaged in unsafe or unsound practices or is in an unsafe or
unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
<PAGE>
For the first six months of 1995, the assessment schedule for BIF
members and SAIF members ranged from .23% to .31% of deposits. As is the case
with the SAIF, the FDIC is authorized to adjust the insurance premium rates for
banks that are insured by the BIF of the FDIC in order to maintain the reserve
ratio of the BIF at 1.25% of BIF insured deposits. As a result of the BIF
reaching its statutory reserve ratio the FDIC revised the premium schedule for
BIF insured institutions to provide a range of .04% to .31% of deposits. The
revisions became effective in the third quarter of 1995. In addition, the BIF
rates were further revised, effective January 1996, to provide a range of 0% to
.27%. The SAIF rates, however, were not adjusted.
At the time the FDIC revised the BIF premium schedule, it noted that, absent
legislative action (as discussed below), the SAIF would not attain its
designated reserve ratio until the year 2002. As a result, SAIF insured members
would continue to be generally subject to higher deposit insurance premiums than
BIF insured institutions until, all things being equal, the SAIF attained its
required reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provides for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provides for the merger of the BIF and the SAIF on January 1, 1999
if no savings associations then exist. The special assessment rate has been
established at .657% of deposits by the FDIC and the resulting assessment of
$389,000 was paid in November 1996. This special assessment significantly
increased noninterest expense and adversely affected the Bank's results of
operations for the year ended December 31, 1996.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions will continue to be subject to a FICO assessment
as a result of this continuing obligation. Although the legislation also now
requires assessments to be made on BIF-assessable deposits for this purpose,
effective January 1, 1997, that assessment will be limited to 20% of the rate
imposed on SAIF assessable deposits until the earlier of December 31, 1999 or
when no savings association continues to exist, thereby imposing a greater
burden on SAIF member institutions such as the Bank. Thereafter, however,
assessments on BIF-member institutions will be made on the same basis as
SAIF-member institutions. The rates established by the FDIC to implement this
requirement for all FDIC- insured institutions are a 6.5% basis points
assessment on SAIF deposits and 1.3 basis points on BIF deposits until BIF
insured institutions participate fully in the assessment.
Regulatory Capital Requirements
Federally insured savings associations, such as the Bank, are required
to maintain a minimum level of regulatory capital. The OTS has established
capital standards, including a tangible capital requirement, a leverage ratio
(or core capital) requirement and a risk-based capital requirement applicable to
such savings associations. These capital requirements must be generally as
stringent as the comparable capital requirements for national banks. The OTS is
also authorized to impose capital requirements in excess of these standards on
individual associations on a case-by-case basis.
<PAGE>
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.
At December 31, 1996, American Savings had tangible capital of $11.2
million, or 13.08% of adjusted total assets, which is approximately $9.9 million
above the minimum requirement of 1.5% of adjusted total assets in effect on that
date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio.
At December 31, 1996, American Savings had core capital equal to $11.2
million, or 13.08% of adjusted total assets, which is $8.6 million above the
minimum leverage ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At December 31, 1996, American
Savings had no capital instruments that qualify as supplementary capital and
$355,000 of general valuation loan loss allowances, which was less than 1.25% of
risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. American Savings had
$15,000 of such exclusions from capital and assets at December 31, 1996.
<PAGE>
In determining the amount of risk-weighted assets, all assets,
including certain off-balance sheet items, will be multiplied by a risk weight,
ranging from 0% to 100%, based on the risk inherent in the type of asset. For
example, the OTS has assigned a risk weight of 50% for prudently underwritten
permanent one- to four-family first lien mortgage loans not more than 90 days
delinquent and having a loan to value ratio of not more than 80% at origination
unless insured to such ratio by an insurer approved by the FNMA or FHLMC.
OTS regulations also require that every savings association with more
than normal interest rate risk exposure to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings association, greater than 2% of the present value of its
assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule will not become effective until the OTS
evaluates the process by which savings associations may appeal an interest rate
risk deduction determination. It is uncertain as to when this evaluation may be
completed. Any savings association, such as American Savings, with less than
$300 million in assets and a total capital ratio in excess of 12% is exempt from
this requirement unless the OTS determines otherwise.
On December 31, 1996, American Savings had total capital of $11.5
million (including $11.2 million in core capital and $355,000 in qualifying
supplementary capital) and risk- weighted assets of $46.3 million or total
capital of 24.86% of risk-weighted assets. This amount was $7.8 million above
the 8% requirement in effect on that date.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1 risked-
based capital ratio or an 8% risk-based capital ratio). Any such association
must submit a capital restoration plan and until such plan is approved by the
OTS may not increase its assets, acquire another institution, establish a branch
or engage in any new activities, and generally may not make capital
distributions. The OTS is authorized to impose the additional restrictions that
are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or
is "significantly undercapitalized" (i.e., Tier 1 risk-based or core capital
ratios of less than 3% or a risk-based capital ratio of less than 6%) must be
made subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
<PAGE>
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into
a lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the
Bank may have a substantial adverse effect on American Savings' operations and
profitability. Company shareholders do not have preemptive rights, and
therefore, if the Company is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution in the
percentage of ownership of the Company.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations
with respect to their ability to make distributions of capital, including
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.
Generally, savings associations, such as the Bank, that before and
after the proposed distribution meet their capital requirements, may make
capital distributions during any calendar year equal to the greater of 100% of
net income for the year-to-date plus 50% of the amount by which the lesser of
the association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS.
Savings associations proposing to make any capital distribution need
only submit written notice to the OTS 30 days prior to such distribution.
Savings associations that do not, or would not meet their current minimum
capital requirements following a proposed capital distribution, however, must
obtain OTS approval prior to making such distribution. The OTS may object to the
distribution during that 30-day notice period based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association may make a
capital distribution without notice to the OTS (unless it is a subsidiary of a
holding company) provided that it has a CAMEL 1 or 2 rating, is not of
supervisory concern, and would remain adequately capitalized (as defined in the
OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
<PAGE>
the OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity
All savings associations, including American Savings, are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. For a discussion of what the Bank
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital" in the
Annual Report. This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time
deposits, certain bankers acceptances and short-term United States Treasury
obligations) currently must constitute at least 1% of the association's average
daily balance of net withdrawable deposit accounts and current borrowings.
Penalties may be imposed upon associations for violations of either liquid asset
ratio requirement. At December 31, 1996, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 15.4% and a short-term
liquid assets ratio of 4.7%.
Qualified Thrift Lender Test
All savings associations, including American Savings, are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. This test requires a savings association to have at least 65%
of its portfolio assets (as defined by regulation) in qualified thrift
investments on a monthly average for nine out of every 12 months on a rolling
basis. As an alternative, the savings association may maintain 60% of its assets
in those assets specified in Section 7701(a)(19) of the Internal Revenue Code.
Under either test, such assets primarily consist of residential housing related
loans and investments. At December 31, 1996, the Bank met the test and has
always met the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to
a national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest itself of all investments and cease all activities not
<PAGE>
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of
American Savings, to assess the institution's record of meeting the credit needs
of its community and to take such record into account in its evaluation of
certain applications, such as a merger or the establishment of a branch, by the
Bank. An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, the Bank may be required to devote additional funds for
investment and lending in its local community. The Bank was examined for CRA
compliance in December 1995 and received a rating of satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association or its
subsidiaries and its affiliates are required to be on terms as favorable to the
association as transactions with non-affiliates. In addition, certain of these
transactions, such as loans to an affiliate, are restricted to a percentage of
the association's capital. Affiliates of American Savings include the Holding
Company and any company which is under common control with the Bank. In
addition, a savings association may not lend to any affiliate engaged in
activities not permissible for a bank holding company or acquire the securities
of most affiliates. The Bank's subsidiaries are not deemed affiliates, however;
the OTS has the discretion to treat subsidiaries of savings associations as
affiliates on a case by case basis.
Certain transactions with directors, officers or controlling persons
are also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
<PAGE>
Holding Company Regulation
The Holding Company is a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Holding Company is
required to register and file reports with the OTS and is subject to regulation
and examination by the OTS. In addition, the OTS has enforcement authority over
the Holding Company and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than American Savings or
any other SAIF-insured savings association) would be subject to such
restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If American Savings fails the QTL test, the Holding Company must obtain
the approval of the OTS prior to continuing after such failure, directly or
through its other subsidiaries, any business activity other than those approved
for multiple savings and loan holding companies or their subsidiaries. In
addition, within one year of such failure the Holding Company must register as,
and will become subject to, the restrictions applicable to bank holding
companies. The activities authorized for a bank holding company are more limited
than are the activities authorized for a unitary or multiple savings and loan
holding company. See "- Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Holding Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Holding
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
restrictions. If the Holding Company meets specified current public information
requirements, each affiliate of the Holding Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
<PAGE>
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At December 31, 1996, American Savings was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
American Savings is a member of the FHLB of Indianapolis, which is one
of 12 regional FHLBs, that administers the home financing credit function of
savings associations. Each FHLB serves as a reserve or central bank for its
members within its assigned region. It is funded primarily from proceeds derived
from the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures, established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to provide funds for residential home
financing.
As a member, American Savings is required to purchase and maintain
stock in the FHLB of Indianapolis. At December 31, 1996, American Savings had
$546,000 in FHLB stock, which was in compliance with this requirement. In past
years, American Savings has received substantial dividends on its FHLB stock.
Over the past five calendar years such dividends have averaged 8.24% and were
7.83% for calendar year 1996.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of American Savings' FHLB stock may result in a corresponding
reduction in its capital.
For the year ended December 31, 1996, dividends paid by the FHLB of
Indianapolis to American Savings totaled $42,700, which constitutes a $300
decrease from the amount of dividends received in calendar year 1995. The
$10,800 dividend received for the year ended December 31, 1996 reflects an
annualized rate of 7.85%, or .02% above the average rate for calendar 1996.
<PAGE>
Federal and State Taxation
Savings associations such as the Bank that meet certain conditions
prescribed by the Internal Revenue Code of 1986, as amended (the "Code"), are
permitted to establish reserves for bad debts and to make annual additions
thereto which may, within specified formula limits, be taken as a deduction in
computing taxable income for federal income tax purposes. The amount of the bad
debt reserve deduction is computed under the experience method. Under the
experience method, the bad debt reserve deduction is an amount determined under
a formula based generally upon the bad debts actually sustained by the savings
association over a period of years.
In August 1996, legislation was enacted that repealed the percentage of
taxable income method used by many thrifts, including the Bank, to calculate
their bad debt reserve for federal income tax purposes. As a result, small
thrifts such as the Bank must recapture that portion of the reserve that exceeds
the amount that could have been taken under the experience method for tax years
beginning after December 31, 1987. The recapture will occur over a six-year
period, the commencement of which will be delayed until the first taxable year
beginning after December 31, 1997, provided the institution meets certain
residential lending requirements. At December 31, 1996, the Bank had
approximately $315,000 in bad debt reserves subject to recapture for federal
income tax purposes. The deferred tax liability related to the recapture has
been previously established so there will be no effect on future net income.
In addition to the regular income tax, corporations, including savings
banks such as American Savings, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income.
A portion of the Bank's reserves for losses on loans may not, without
adverse tax consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of December 31, 1996, the portion of American Savings' reserves
subject to this treatment for tax purposes totaled approximately $2.2 million.
The Bank and its subsidiaries file consolidated federal income tax
returns on a fiscal year basis using the accrual method of accounting. The
Holding Company intends to file consolidated federal income tax returns with the
Bank and its subsidiaries. Savings associations, such as the Bank, that file
federal income tax returns as part of a consolidated group are required by
applicable Treasury regulations to reduce their taxable income for purposes of
computing the percentage bad debt deduction for losses attributable to
activities of the non-savings association members of the consolidated group that
are functionally related to the activities of the savings association member.
The Bank and its consolidated subsidiaries have been audited by the IRS
with respect to consolidated federal income tax returns for the years ended
December 31, 1995 and 1994.
<PAGE>
Indiana Taxation. The State of Indiana imposes an 8.5% franchise tax on
the net income of financial (including thrift) institutions. Taxable income for
franchise tax purposes will constitute federal taxable income before net
operating loss deductions and special deductions, adjusted for certain items,
including the addition of Indiana income taxes, property taxes, tax exempt
interest and bad debts. Other applicable Indiana taxes include sales, use and
property taxes.
Delaware Taxation. As a Delaware holding company, the Holding Company
is exempt from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
Executive Officers
The following information as to the business experience during the past
five years is supplied with respect to executive officers of the Company. Except
as otherwise indicated, the persons named have served as officers of the Company
since it became the holding company of the Association and all positions
described below are with the Association. There are no arrangements or
understandings between the persons named and any other person pursuant to which
such officers were selected.
Clement B. Knapp, Jr. Mr. Knapp, age 54, has served as Chairman of the
Board, President and Chief Executive Officer of the Bank since 1977 and has
acted in all of such capacities with the Holding Company since its incorporation
in 1993. Since joining the Bank in 1968 he has served in various capacities and
attended many banking schools and seminars. He is a graduate of Georgetown
University and Indiana University Indianapolis Law School. Mr. Knapp is also
active in several community organizations. Mr. Knapp is the husband of Denise L.
Knapp, Secretary of the Bank.
Louis A. Green. Mr. Green, age 53, joined the Bank in 1967. He has had
various positions including Controller and Vice President. Mr. Green was
appointed as Senior Vice President of the Bank in 1985 and of the Holding
Company in 1993 and is responsible for coordinating the Bank's loan activities.
Prior to joining the Bank, Mr. Green was an accountant in the Chicago Office of
Ernst and Ernst. He is also an active member in several trade and community
organizations.
Daniel T. Poludniak. Mr. Poludniak, age 55, has been Vice President,
Treasurer and Chief Financial Officer of the Bank since 1983 and the Holding
Company since 1993. As Chief Financial Officer of the Bank, Mr. Poludniak is
responsible for the establishment and supervision of the accounting and data
processing activities of the Bank. Prior to joining American Savings in 1983,
Mr. Poludniak had twenty years experience in both local and Chicago banks.
Denise L. Knapp. Mrs. Knapp, age 49, was appointed as the Secretary of
the Bank in 1987 and of the Holding Company in 1993. She has also served as a
loan officer since 1985 and as the Dyer branch manager since 1989. Since joining
the Bank in 1975, Mrs. Knapp has served in various capacities and is a member of
several executive committees of the Bank. Mrs. Knapp is also active in several
charitable organizations in the area. Mrs. Knapp is the wife of President Knapp.
<PAGE>
Employees
At December 31, 1996, the Company had a total of 31 employees,
including six part-time employee. The Company's employees are not represented by
any collective bargaining group.
Management considers its employee relations to be good.
Item 2. Description of Property
The Company conducts its business at its main office located in
Munster, Indiana. The following table sets forth information relating to each of
the Company's properties as of December 31, 1996.
<TABLE>
<CAPTION>
Total
Owned Approximate December 31,
Year or Square 1996 Book
Location Acquired Leased Footage Value
- -------- -------- ------ ------- -----
(In Thousands)
<S> <C> <C> <C> <C>
Main Office:
8230 Hohman Avenue 1963 Owned 8,400 $ 83,000
Munster, Indiana
Branch Offices:
1001 Main Street 1990 Leased 2,800 101,000
Dyer, Indiana
3801 Main Street 1994 Owned 2,900 33,000
East Chicago, Indiana
4521 Hohman Avenue 1983 Owned 1,600 70,000
Hammond, Indiana
</TABLE>
The Company believes that its current facilities are adequate to meet
the present and foreseeable needs of the Association and the Company, subject to
possible future expansion.
The Company maintains an on-line data base with a service bureau
servicing financial institutions. The net book value of the data processing and
computer equipment utilized by the Company at December 31, 1996 was $111,000.
Item 3. Legal Proceedings
The Company is involved from time to time as plaintiff or defendant in
various legal actions arising in the normal course of business. While the
ultimate outcome of these proceedings cannot be predicted with certainty, it is
the opinion of management, after consultation with counsel representing the
Company in the proceedings, that the resolution of these proceedings should not
have a material effect on the Company's results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 1996, the Company submitted
matters to a vote of security holders, through the solicitation of proxies.
These matters were the ratification of the adoption of the 1996 Stock Option and
Incentive Plan and the Recognition and Retention Plan.
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Page 42 of the Company's 1996 Annual Report to Stockholders is herein
incorporated by reference.
Item 6. Management's Discussion and Analysis or Plan of Operation
Pages 5 through 15 of the Company's 1996 Annual Report to Stockholders
is herein incorporated by reference.
Item 7. Financial Statements
Pages 17 through 41 of the Company's 1996 Annual Report to Stockholders
are herein incorporated by reference.
Item 8. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure
There has been no Current Report on Form 8-K filed within 24 months
prior to the date of the most recent financial statements reporting a change in
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
<PAGE>
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act
Information concerning directors of the Registrant is incorporated
herein by reference from the Company's definitive Proxy Statement for the 1997
Annual Meeting of Stockholders, a copy of which will be filed not later than 120
days after the close of the fiscal year.
Item 10. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the Company's definitive Proxy Statement for the 1997 Annual
Meeting of Stockholders, a copy of which will be filed not later than 120 days
after the close of the fiscal year.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners
and management is incorporated herein by reference from the Company's definitive
Proxy Statement for the 1997 Annual Meeting of Stockholders, a copy of which
will be filed not later than 120 days after the close of the fiscal year.
Item 12. Certain Relationships and Related Transactions
Information concerning certain relationships and transactions is
incorporated herein by reference from the Company's definitive Proxy Statement
for the 1997 Annual Meeting of Stockholders, a copy of which will be filed not
later than 120 days after the close of the fiscal year.
<PAGE>
PART IV
Item 13. Exhibits and Reports on 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Reference to
Prior Filing
Regulation or Exhibit
S-K Exhibit Number Attached
Number Document Hereto
<S> <C> <C>
3 Articles of Incorporation and Bylaws.............................. *
4 Instruments defining the rights of security holders,
including indentures:
Common Stock Certificate......................................... *
10 Material contracts:
1996 Stock Option and Incentive Plan.............................. ***
Recognition and Retention Plan.................................... ***
Employee Stock Ownership Plan..................................... *
Employee Severance Compensation Plan.............................. *
Employment Agreements............................................. **
11 Statement re computation of per share earnings.................... None
13 Annual Report to Security Holders for the last fiscal year, Form
10-Q or 10QSB or quarterly report to security holders............. 13
16 Letter on change in certifying accountant......................... *
21 Subsidiaries of Registrant........................................ 21
23 Consent of Experts and Counsel.................................... 23
24 Power of Attorney................................................. Not required
27 Financial Data Schedule........................................... 27
99 Additional Exhibits............................................... None
- --------------------
* Filed on December 29, 1995 as exhibits to the Registrant's Registration
Statement No. 33-80991 on Form S-1. All of such previously filed
documents are hereby incorporated herein by reference in accordance
with Item 601 of Regulation S-B.
** Filed on December 29, 1995 as Exhibits 10.2 and 10.3 to the
Registrant's Registration Statement No. 33- 80991 on Form S-1. All of
such previously filed documents are hereby incorporated by reference in
accordance with Item 601 of Regulation S-B.
*** Filed on September 12, 1996, under Schedule 14A, as appendicies to
definitive proxy materials. All of such previously filed documents are
hereby incorporated herein by reference in accordance with Item 601 of
Regulation S-B.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the three-month period
ended December 31, 1996.
</TABLE>
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
AMB FINANCIAL CORPORATION
Date: March 31, 1997
By: /s/Clement B. Knapp, Jr.,
-------------------------
Clement B. Knapp, Jr.,
Chairman of the Board
President and Chief Executive
Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/Clement B. Knapp /s/Ronald W. Borto
- ------------------- ----------------------------
Clement B. Knapp Ronald W. Borto
President and Chief Executive Officer Director
(Principal Executive and Operating Officer)
Date: March 31, 1997 Date: March 31, 1997
/s/Donald L. Harle /s/John C. McLaughlin
- ------------------ ---------------------
Donald L. Harle John C. McLaughlin
Director Director
Date: March 31, 1997 Date: March 31, 1997
/s/John G. Pastrick /s/Robert E. Tolley
- ------------------- --------------------
John G. Pastrick John G. Pastrick
Director Director
Date: March 31, 1997 Date: March 31, 1997
/s/Daniel T. Poludniak
- ----------------------
Daniel T. Poludniak
Vice President, Treasurer
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 31, 1997
<PAGE>
Exhibit Index
Exhibit No. Document
13 Annual Report
21 Subsidiaries of the Registrant
23 Consent of Cobitz, VandenBerg & Fennessy
27 Financial Data Schedule
Exhibit 13
Annual Report
<PAGE>
Table of Contents
President's Message
Selected Consolidated Financial Information
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Independent Auditors' Report
Consolidated Financial Statements
Stockholder Information
Corporate Information
<PAGE>
President's Message
to Our Stockholders
On behalf of the Board of Directors, Officers and Employees of AMB Financial
Corp., and its wholly owned subsidiary, American Savings, FSB., I am pleased to
present our first Annual report as a public corporation.
AMB Financial Corp. successfully completed its initial stock offering on March
31, 1996, and started trading on the NASDAQ (Small Cap) Stock Market on April 1,
1996 under the symbol "AMFC". Initially offered at $10.00 per share the stock
closed at $13.25 on December 31, 1996. Earnings for the year ended December 31,
were $442,153 or $.43 per share. Our return on average assets for the year was
0.55% with a return on average equity of 3.28%. These figures include the
one-time SAIF special assessment of $389,000. Without the one-time special
assessment earnings for the year ended December 31, 1996 would have been
$676,000 or $.65 per share, the return on assets 0.84% and the return on equity
5.02%.
The Bank experienced strong loan growth of $12.7 million in 1996 as a result of
increased loan originations as well as purchases of non-residential loans and
equipment leases.
Since the completion of our stock offering, we are continually working to
develop goals and long-term strategies to increase profitability, minimize risk,
control expenses and enhance shareholder value. Our primary focus continues to
be directed towards enhancing shareholders value while remaining a viable,
independent banking concern, serving the needs of the residents and businesses
in Northwest Indiana.
The entire staff of AMB Financial Corp. appreciates your commitment and support,
and we look forward to a long and profitable relationship.
Sincerely,
/s/Clement B. Knapp, Jr.
- -----------------------
Clement B. Knapp, Jr.
President
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
At December 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Data:
Total Assets ..................................... $86,102 $69,788 $65,536 $65,130 $64,197
Loans receivable, net ............................ 67,366 54,639 51,849 48,602 46,415
Investment securities ............................ 8,939 7,017 6,316 7,281 7,187
Mortgage-backed securities ....................... 4,019 1,479 1,593 2,362 2,963
Trading account securities ....................... 539 -- -- -- --
Deposits ......................................... 60,411 59,588 58,281 59,08 58,458
Borrowed Funds ................................... 9,500 3,000 1,000 -- --
Stockholders' equity ............................. 15,170 6,314 5,633 5,393 5,043
<CAPTION>
Year Ended December 31,
(in thousands)
-------------------------------------------------------
Selected Operating Data:
Total interest income ............................ $ 5,957 $ 5,222 $ 4,837 $ 4,915 $ 5,318
Total interest expense ........................... 2,955 2,686 2,209 2,240 2,786
------- ------- ------- ------- -------
Net interest income .......................... 3,002 2,536 2,628 2,675 2,532
Provision for loan losses ........................ -- 39 62 169 58
------- ------- ------- ------- -------
Net interest income after provision
for loan losses ................................ 3,002 2,497 2,566 2,506 2,474
------- ------- ------- ------- -------
Non-interest income:
Fees and service charges ......................... 263 203 224 199 202
Commission income ................................ 57 59 23 69 58
Gain on sale of securities ....................... 99 -- 59 19 29
Gain on sale of real estate owned ................ 28 2 178 -- 1
Other ............................................ 64 76 89 93 94
------- ------- ------- ------- -------
Total non-interest income .................... 511 340 573 380 384
------- ------- ------- ------- -------
Non-interest expense:
Compensation and benefits ........................ 1,129 909 886 880 813
Office occupancy and equipment expense ........... 334 328 347 340 319
Data processing .................................. 295 248 210 207 170
Federal deposit insurance ........................ 130 134 134 116 124
SAIF special assessment .......................... 389 -- -- -- --
Write-off stock conversion expenses .............. -- -- 332 -- --
Provision for loss on REO ........................ -- -- -- 147 --
Other ............................................ 580 595 608 588 509
------- ------- ------- ------- -------
Total non-interest expense ................... 2,857 2,214 2,517 2,278 1,935
------- ------- ------- ------- -------
<PAGE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION (continued)
Year Ended December 31,
(in thousands)
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Income before income taxes and
extraordinary items ............................ 656 623 622 608 923
Income tax provision ............................. 214 236 239 228 340
------- ------- ------- ------- -------
Income before extraordinary items ................ 442 387 383 380 583
Prepayment fee incurred from early
extinguishment of debt-net ..................... -- -- -- --
-- -- -- -- 84
Net income ....................................... 442 387 383 380 499
------- ------- ------- ------- -------
<CAPTION>
At or For the Year Ended December 31,
-------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Selected Financial Ratios and Other Data:
Return on average assets (1) ..................... .55% .57% .58% .59% .79%
Return on average stockholders' equity(2) 3.28 6.40 6.74 7.24 10.53
Average stockholders' equity to
average assets ................................ 16.78 8.76 8.61 8.20 7.54
Stockholders' equity to total assets ............. 17.62 9.05 8.60 8.28 7.86
Interest rate spread during period ............... 3.37 3.84 4.11 4.30 4.07
Net interest margin (3) .......................... 3.97 4.03 4.25 4.45 4.26
Operating expenses to average assets (4) 3.56 3.29 3.31 3.33 3.09
Efficiency ratio (5) ............................. 70.23 76.99 73.72 70.19 67.02
Non-performing assets to total assets ............ .35 .53 .76 .88 .99
Allowance for loan losses to non-
performing loans .............................. 116.27 97.43 66.00 52.15 101.15
Allowance for loan losses to loans
receivable, net ............................... .53 .66 .62 .59 .93
Ratio of average interest-earning assets to
average interest-bearing liabilities ............. 1.16x 1.04x 1.04x 1.04x 1.04x
Number of full-service offices ................... 4 4 4 4 4
</TABLE>
<PAGE>
(1) Return on average assets for 1996 would have been .84% without the SAIF
special assessment.
(2) Return on average stockholders' equity for 1996 would have been 5.02%
without the SAIF special assessment.
(3) Calculation is based upon net interest income before provision for loan
losses divided by interest- earning assets.
(4) For purposes of calculating this ratio, operating expenses for 1993 exclude
the provision for losses on real estate owned and for 1994 exclude the
write-off of stock conversion expenses. The 1996 ratio would have been
3.07% without the SAIF special assessment.
(5) Non-interest expense, excluding the provision for loss on real estate owned
in 1993, the write-off of stock conversion expenses in 1994 and the SAIF
special assessment in 1996, divided by net interest income plus other
income except for gains and losses on securities available for sale.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
AMB Financial Corp. (the "Company") is the unitary savings bank holding
company for American Savings FSB, (the "Bank"), a federally chartered savings
bank and a wholly-owned subsidiary of the Holding Company. Collectively, the
Holding Company and the Bank are referred to herein as the "Company." On March
29, 1996, the Bank converted from a mutual savings bank to a stock savings bank
(the "Conversion"). Concurrent with the Conversion, the Holding Company sold
1,124,125 shares of its common stock in a subscription and community offering at
a price of $10.00 per share.
The Company's primary market area consists of the northwest portion of
Lake County, Indiana. Business is conducted from its main office at 8230 Hohman
Avenue, Munster, Indiana, as well as three full-service banking offices located
in Dyer, East Chicago and Hammond, Indiana. The Bank is a community-oriented
savings institution whose business primarily consists of accepting deposits from
customers within its market area and investing those funds in mortgage loans
secured by one-to four-family residences. To a lesser extent, funds are invested
in multi-family and commercial real estate, construction, land, consumer and
commercial business loans. The Company also invests in mortgage-backed and other
securities. The Company's business activities have been limited to its ownership
of the Bank and certain short-term and other investments.
The Company's results of operations are primarily dependent on net
interest income, which is the difference between the interest income on its
interest-earning assets, such as loans and securities, and the interest expense
on its interest-bearing liabilities, such as deposits and borrowings. Net
interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities and the interest rate earned or paid on them,
respectively. Non-interest income primarily consists of service charges and fees
on deposit and loan products. The Company's non-interest expenses primarily
consist of employee compensation and benefits, occupancy and equipment expenses,
federal deposit insurance costs, data processing service fees and other
operating expenses.
The Company's results of operations are significantly affected by
general economic and competitive conditions (particularly changes in market
interest rates), government policies, changes in accounting standards and
actions of regulatory agencies. Future changes in applicable laws, regulations
or government policies may have a material impact on the Company. Lending
activities are influenced by the demand for and supply of housing, competition
among lenders, the level of interest rates and the availability of funds.
Deposit flows and costs of funds are influenced by prevailing market interest
rates (including rates on non-deposit investment alternatives), account
maturities, and the levels of personal income and savings in the Company's
market area.
<PAGE>
Operating Strategy
The Company's basic mission is to maintain its focus as an independent,
community-oriented financial institution serving customers in its primary market
area. The Board of Directors has sought to accomplish this mission through an
operating strategy designed to maintain capital in excess of regulatory
requirements and manage, to the extent practical, the Company's loan
delinquencies and vulnerability to changes in interest rates. The key components
of the Company's operating strategy are to: (i) focus its lending operations on
the origination of loans secured by one-to-four-family residential real estate;
(ii) supplement its one-to-four-family residential lending activities with
multi-family, commercial real estate, consumer, construction and land loans;
(iii) augment its lending activities with investments in mortgage-backed and
other securities; (iv) emphasize adjustable rate and/or short and medium
duration assets; (v) build and maintain its regular savings, transaction, money
market and club accounts; and (vi) increase, at a managed pace, the volume of
the Company's assets and liabilities.
Comparison of Financial Condition at December 31, 1996 and 1995.
Total consolidated assets of the Company increased $16.3 million, or
23.4% to $86.1 million at December 31, 1996 compared to $69.8 million at
December 31, 1995. This increase was primarily due to the $10.7 million in
proceeds from the Bank's mutual to stock conversion completed on March 29, 1996,
as well as growth in loans receivable, which was partially funded with
additional advances from FHLB of Indianapolis in the amount of $6.5 million.
Investment securities classified as available for sale increased $1.9
million to $8.9 million at December 31, 1996, from $7.0 million at December 31,
1995 as excess funds generated in the conversion were invested in medium term
U.S. Government securities. At December 31, 1996, net unrealized gains in the
available for sale portfolio were $47,000. Mortgage-backed securities classified
as available for sale increase $2.5 million to $4.0 million at December 31, 1996
from $1.5 million at December 31, 1995. The increase is primarily due to
purchases of additional securities to deploy excess liquidity into higher
yielding investments. At December 31, 1996, net unrealized gains in the
available for sale portfolio were $4,000.
Loan receivable increased by 23.3%, or $12.7 million to $67.4 million
at December 31, 1996 primarily due to increased loan originations and the
purchase of $4.6 million of commercial mortgage participation and equipment
lease financing loans. The overall increase in net loans reflects increases of
$5.6 million in one-to-four-family mortgage loans, $4.7 million in
non-residential loans, $1.1 million in commercial business loans, and $1.0
million in consumer loans. The loan portfolio represents 78.2% of total assets
at December 31, 1996.
Total deposits increased $800,000 to $60.4 million at December 31, 1996
due to interest credited exceeding net withdrawals of $1.5 million. Total
borrowings of $9.5 million at December 31, 1996 reflected a $6.5 million
increase in FHLB advances, compared to $3.0 million at December 31, 1995. The
additional borrowings were used to fund increased loan demand.
<PAGE>
Stockholders' equity increased $8.9 million to $15.2 million at
December 31, 1996 from $6.3 million at December 31, 1995. This increase was
primarily due to net proceeds from the sale of the Company's stock of $10.7
million less $899,000 of stock acquired by the Employee Stock Ownership Plan,
("ESOP") the acquisition of stock for the Recognition and Retention Plan ("RRP")
which was implemented in the first quarter, at a cost of $579,000 and the
purchase of treasury stock of $725,000. In addition, the increase was due to net
income for the year of $442,000 partially offset by a decrease in net unrealized
gains on investments available for sale of $40,000, net of taxes, and the
payment of Company dividends in the amount of $132,000. The ratio of
stockholders' equity to total assets at December 31, 1996 was 17.62%, as
compared to 9.05% at December 31, 1995. The book value per share of the
Company's common stock on December 31, 1996 was $14.21.
Analysis of Net Interest Income
Net interest income represents the difference between interest earned
on interest-earning assets and interest paid on interest-bearing liabilities.
Net interest income is affected by the relative amounts of interest-earning
assets and interest-bearing liabilities, and the interest rates earned or paid
on them.
The following table presents, for the periods indicated, the total
dollar amounts of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent adjustments
were made. All average balances are monthly average balances and include
non-accruing loans. Management does not believe that the use of month-end
balances instead of daily average balances has caused any material differences
in the information presented.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- ------------------------------- --------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate Balance Paid Rate
------- ---- ---- ------- ---- ---- ------- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans receivable(1)....... 59,165 4,949 8.36 53,107 4,570 8.61 50,009 4,128 8.25
Mortgage-backed securities 3,396 230 6.77 1,587 106 6.68 1,939 117 6.03
Investment securities .... 8,565 521 6.08 6,383 418 6.55 7,330 484 6.60
Interest-bearing deposits 3,876 214 5.52 1,369 85 6.21 1,964 77 3.92
FHLB stock ............... 546 43 7.88 546 43 7.88 546 31 5.68
------ ----- ---- ------ ----- ---- ------ ----- ----
Total interest-earning
assets.................... 75,548 5,957 7.89 62,992 5,222 8.29 61,788 4,837 7.83
------ ----- ---- ------ ----- ---- ------ ----- ----
Interest-Bearing Liabilities
Passbook accounts ......... 16,490 510 3.09 16,597 544 3.28 18,244 613 3.36
Demand and NOW accounts ... 9,258 226 2.44 8,969 245 2.73 9,198 228 2.48
Certificate accounts ...... 36,389 2,025 5.56 33,240 1,799 5.41 31,920 1,367 4.28
Borrowings ................ 3,186 194 6.09 1,567 98 6.25 13 1 7.69
------ ----- ---- ------ ----- ---- ------ ----- ----
Total interest-bearing
liabilities................ 65,323 2,955 4.52 60,373 2,686 4.45 59,375 2,209 3.72
----- ----- ---- ------ ----- ---- ------ ----- ----
Net interest income ......... 3,002 2,536 2,628
===== ===== =====
Net interest rate spread .... 3.37 3.84 4.11
==== ==== ====
Net earning assets .......... 10,225 2,619 2,413
====== ===== =====
Net yield on average
interest-earning assets ... 3.97 4.03 4.25
==== ==== ====
Average interest-earning
assets to averaage
interest-bearing
liabilities.............. 1.16 1.04 1.04
==== ==== ====
(1) Calculated net of deferred loan fees, loan discounts, loans in process and
allowance for losses.
</TABLE>
<PAGE>
The table below presents the extent to which changes in interest rates
and changes in the volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and interest expense
during the period indicated. Information is provided in each category with
respect to (i) changes attributable to changes in rate (changes in rate
multiplied by prior volume), (ii) changes attributable to changes in volume
(changes in volume multiplied by prior rate), (iii) changes attributable to the
combined impact of volume and rate (changes in the rate multiplied by the
changes in the volume), and (iv) the net change. The changes attributable to the
combined impact of volume and rate have been allocated proportionately to the
changes due to volume and the changes due to rate.
<TABLE>
<CAPTION>
` Year Ended December 31,
----------------------------------------------------------------------------
1996 Compared to 1995 1995 Compared to 1994
Increase (Decrease) Due to Increase (Decrease) Due to
----------------------------------- -----------------------------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ --- ---- ------ ------ ---
Dollars in Thousands
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans Receivable, net ....... (128) 522 (15) 379 175 256 11 442
Mortgage-backed
securities ............... 1 121 2 124 12 (21) (2) (11)
Investment securities ....... (30) 143 (10) 103 (4) (62) -- (66)
Interest-bearing deposits ... (10) 156 (17) 129 45 (23) (14) 8
FHLB Stock .................. 0 12 12
---- ---- ---- ---- ---- ---- ---- ----
Totals .................. (167) 942 (40) 735 240 150 (5) 385
---- ---- ---- ---- ---- ---- ---- ----
Interest-bearing liabilities:
Passbook accounts ........... (31) (3) (34) (15) (55) 1 (69)
Demand and Now
accounts ................. (26) 8 (1) (19) 23 (6) 17
Certificate accounts ........ 51 170 5 226 361 56 15 432
Borrowed funds .............. (2) 101 (3) 96 119 (22) 97
---- ---- ---- ---- ---- ---- ---- ----
Totals .................. (8) 276 1 269 396 114 (6) 477
---- ---- ---- ---- ---- ---- ---- ----
Net change in net
interest income .......... 466 (92)
---- ----
</TABLE>
Comparison of Operating Results for the Years Ended December 31, 1996 and 1995.
Net Income. The Company's net income for the year ended December 31, 1996 was
$442,000 as compared to $387,000 for the same period in 1995, an increase of
$55,000. This increase was due primarily to an increase in net interest income
of $465,000, and an increase in non-interest income of $171,000, offset in part
by an increase in non-interest expense of $642,000. Net income for the year
ended December 31, 1996 was reduced by a one-time special assessment of $389,000
($234,000 after taxes) imposed by federal legislation to recapitalize the
Savings Association Insurance Fund ("SAIF").
<PAGE>
Interest Income. Total interest income for the year ended December 31, 1996
increased $735,000, or 14.1%, as compared to the prior year. The increase in
interest income was the result of an increase in average interest-earning assets
of $12.6 million. The increase in average interest-earning assets was the result
of a $6.1 million increase in the average balance of loans receivable, a $1.8
million increase in the average balance of mortgage-backed securities, a $2.2
million increase in the average balance of investment securities and a $2.5
million increase in the average balance of interest-bearing deposits. These
increases reflect the Company's investment of net proceeds received from the
stock conversion as well as from an increase in the average balance of
interest-bearing liabilities. During the year ended December 31, 1996, the
average yield on interest-earning assets declined to 7.89% from 8.29% during the
year ended December 31, 1995. The decline in yield on average interest-earning
assets was due primarily to a higher proportion of lower yielding investments
acquired as a result of investing the stock conversion proceeds.
Interest Expense. Total interest expense for the year ended December 31, 1996
increased $270,000, or 10% to $3.0 million as compared to $2.7 million in the
prior year. Deposit interest increased by $173,000, primarily as a result of the
$3.3 million increase in the average balance of deposit accounts and the .04%
increase in the cost of savings. The average certificate deposit base increased
by $3.1 million in 1996 as the Bank offered limited special premium rates and
solicited new public funds. Interest expense on borrowed funds increased
$97,000, or double to $194,000 for the year ended December 31, 1996. The average
balance of borrowed funds increased $1.6 million to $3.2 million for the year
ended December 31, 1996. This increase was due to funding requirements for new
mortgage loans and to a lesser extent for normal operating liquidity.
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 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.
No provision for loan losses was recorded during the year ended December 31,
1996 while a $39,000 provision was recorded in the comparable 1995 period. The
decrease in the provision for losses on loans was due to the continued low level
of past due and problem loans. The Bank will continue to review its allowance
for 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 to be adequate to provide for losses, there can be no
assurance that future losses will not exceed estimated amounts or that
additional provisions for loan losses will not be required in future periods.
Non-Interest Income. The Company's non-interest income increased $173,000 to
$511,000 for the year ended December 31, 1996 compared to $340,000 for the
previous year. The increase was due primarily to an increase in loan fees of
$29,000 resulting from higher loan volume, an increase in deposit related fees
of $30,000 due to general increases in many service fee categories, gains on the
sale of investment securities available for sale of $53,000, an unrealized gain
on securities held for trade of $46,000, and gain on sale of real estate owned
of $26,000, offset by a decrease in other operating income of $12,000.
<PAGE>
Non-Interest Expense. The Company's non-interest expense increased $642,000 to
$2.8 million for the year ended December 31, 1996 compared to $2.2 million for
the previous year. The increase primarily resulted from a $389,000 charge for
the amount of the special insurance assessment to recapitalize the SAIF.
Staffing costs also increased $220,000 during the year due to salary and benefit
increases of $103,000, the expense recognition of the ESOP of $101,000 and the
RRP of $16,000. In addition, there was approximately $94,000 of expenses
relating to operations as a public company which did not occur in the previous
year.
Provision for Income Taxes. Tax expense for the year ended December 31, 1996
decreased $22,000 to $214,000 compared to $236,000 for the comparable year in
1995. Income taxes decreased by $32,000 primarily as a result of a decrease in
the effective tax rates between the periods.
Comparison of Operating Results for the Years Ended December 31, 1995 and 1994.
Net Income. The Bank's net income for the year ended December 31, 1995 was
$387,000 as compared to $383,000 for the same period in 1994, an increase of
$4,000. The increase was the result of a decrease in the provision for loan
losses of $23,000 and a decrease in non-interest expense of $303,000, partially
offset by a decrease in net interest income of $92,000 and a decrease in
non-interest income of $233,000.
Interest Income. Total interest income increased by $385,000 for the year ended
December 31, 1995, as compared to the previous year ended December 31, 1994 due
primarily to increases in the average balances of interest earning assets of
$1.2 million for the year ended December 31, 1995, and increases in yields on
average interest-earning assets from 7.83% for the year ending December 31, 1994
to 8.29% for the year ended December 31, 1995. The increase in interest-earning
assets and average yields during the year ended December 31, 1995 was primarily
caused by an increase in loans receivable due to the Bank's diversification of
its loan portfolio and purchases of commercial business leases and loan
participations coupled with generally higher market interest rates in 1995.
Interest Expense. The Bank's interest expense increased $477,000 for the year
ended December 31, 1995 from the same period in 1994. This increase was the
result of increases in average interest-bearing liabilities, as well as
increases in the average cost of funds. Average interest-bearing liabilities
increased to $60.4 million during the year ended December 31, 1995 from $59.4
million during the year ended December 31, 1994 primarily due to an increase in
FHLB advances to fund the Bank's diversification of its loan portfolio and to
purchase commercial business leases and loan participations. The average rate
paid on interest-bearing liabilities increase to 4.45% for the year ended
December 31, 1995 from 3.72% for the year ended December 31, 1994. The increase
in rates was primarily the result of an increase in short and intermediate term
market rates on deposits and to increases in the Bank's outstanding amount of
certificates of deposit and borrowings.
Provision for Loan Losses. The provision for loan losses amounted to $39,000 for
the year ended December 31, 1995 as compared to $62,000 provision during the
year ended December 31, 1994. Management believes that the allowance for loan
losses of $360,000 is adequate given the state of the local economy and the
Bank's loan portfolio. The Bank will continue to review its allowance for loan
losses and make further provisions as economic and regulatory conditions
dictate.
<PAGE>
Non-Interest Income. The Bank's non-interest income decreased $233,000 for the
year ended December 31, 1995. The decrease was primarily the result of a
decrease in gains on the sale of real estate owned of $176,000 and a decrease in
gains on the sale of investment securities of $59,000. Loan related fees and
service charges also decreased during the year ended December 31, 1995 primarily
due to a reduction in loan origination's and reduced recognition of deferred
loan fees on loan pay-offs, resulting from an increase in rates.
Non-Interest Expense. Non-interest expense decreased $303,000 for the year ended
December 31, 1995 primarily as a result of the Bank's write off of $332,000 of
previously incurred stock conversion expenses in the 1994 period which did not
recur during the 1995 period.
Provision for Income Taxes. The change in income taxes for the year ended
December 31, 1995 and 1994 was insignificant. The effective tax rate for the
1995 and 1994 periods were 37.9% and 38.4% respectively.
Interest Rate Risk Management
The principal objectives of the Company's interest rate risk management
activities are to: (i) define an acceptable level of risk based on the Company's
business focus, operating environment, capital and liquidity requirements, and
performance objectives; (ii) quantify and monitor the amount of interest rate
risk inherent in the asset/liability structure; and (iii) modify the Company's
asset/liability structure, as necessary, to manage interest rate risk and
maintain net interest margins in changing rate environments. Management seeks to
reduce the vulnerability of the Company's operating results to changes in
interest rates and to manage the ratio of interest rate sensitive assets to
interest rate sensitive liabilities within specified maturities or repricing
periods. The Company does not currently engage in the use of off-balance sheet
derivative instruments to control interest rate risk. Even though such
activities may be permitted with the approval of the Board of Directors,
management does not intend to engage in such activities in the immediate future.
Notwithstanding the Company's interest rate risk management activities,
the potential for changing interest rates is an uncertainty that could have an
adverse effect on the earnings and net asset value of the Company. When
interest-bearing liabilities mature or reprice more quickly than
interest-earning assets in a given period, a significant increase in market
interest rates could adversely affect net interest income. Similarly, when
interest-earning assets mature or reprice more quickly than interest-bearing
liabilities, and net asset value, falling interest rates could result in a
decrease in net interest income and net asset value. Finally, a flattening of
the "yield curve" (i.e., a narrowing of the spread between long- and short-term
interest rates), could adversely impact net interest income to the extent that
the Company's assets have a longer average term than its liabilities.
In managing the Company's asset/liability position, the Board and
management attempt to manage the Company's interest rate risk while enhancing
net interest margins. However, the Board of Directors continues to believe that
the increased net interest income resulting from a mismatch in the maturity of
the Company's asset and liability portfolios can, during periods of declining or
stable interest rates and periods in which there is a substantial positive
difference between long- and short-term interest rates (ie., a "positively
sloped yield curve"), provide high enough returns to justify the increased
exposure to sudden and unexpected increases in interest rates. As a result, the
Company's results of operations and net portfolio values remain significantly
vulnerable to increases in interest rates and to fluctuations in the difference
between long- and short-term interest rates.
<PAGE>
Consistent with its asset/liability management philosophy, the Company
has taken several steps to manage its interest rate risk. First, the Company
maintains a portfolio of interest rate sensitive adjustable-rate loans. At
December 31, 1996, adjustable-rate loans represented $25.9 million, or 37.6% of
the total loan portfolio. Second, most of the increase in non-residential loans
of $4.7 million is the result of a small number of large loans primarily with
adjustable rates. Third, most of the mortgage-backed securities purchased by the
Company in recent years had adjustable interest rates and/or short or
intermediate effective terms to maturity, At December 31, 1996, the Company had
$4.0 million of adjustable-rate mortgage-backed pass-through securities. Fourth,
a significant portion of the Company's other debt securities (primarily U.S.
Government and agency securities) are short- or intermediate-term instruments
with $8.1 million of such securities contractually maturing within five years of
December 31, 1996. Fifth, the Company has a substantial amount of regular
savings, transaction, money market and club accounts which may be less sensitive
to changes in interest rates than certificate accounts. At December 31, 1996,
the Company had $16.3 million of regular savings accounts, $2.5 million of money
market accounts and $6.7 million of NOW, checking and club accounts. Overall,
these accounts comprised 42.2% of the Company's total deposit base.
One approach used by management to quantify interest rate risk is the
net portfolio value ("NPV") analysis. In essence, this approach calculates the
difference between the present value of liabilities and the present value of
expected cash flows from assets and off-balance sheet contracts. Under OTS
regulations, an institution's "normal" level of interest rate risk (in the event
of an assumed change in interest rates) is a decrease in the institution's NPV
in an amount not exceeding 2% of the present value of its assets. Thrift
institutions with greater than "normal" interest rate exposure must make a
deduction from total capital available to meet risk-based capital requirements.
The amount of that deduction is one half of the difference between (i) the
institution's actual calculated exposure to a 200 basis point interest rate
increase or decrease (whichever results in the greater pro forma decrease in
NPV) and (ii) its "normal" level of exposure which is 2% of the present value of
its assets. The rule will not become effective until the OTS evaluates the
process by which savings associations may appeal an interest rate risk deduction
determination. It is uncertain as to when this evaluation may be completed.
Savings institutions, however, with less than $300 million in assets and a total
risk-based capital ratio in excess of 12%, such as the Bank, are generally not
subject to this requirement. If the Bank had been subject to this requirement at
December 31, 1996, its interest rate risk would have been considered "normal"
and no adjustment to its risk-based capital would have been required.
<PAGE>
The following table sets forth, at December 31, 1996, an analysis of
the Bank's interest rate risk as measured by the estimated changes in NPV
resulting from instantaneous and sustained parallel shifts in the yield curve
(+/-400 basis points, measured in 100 basis point increments).
<TABLE>
<CAPTION>
Change in Interest Rates Estimated NPV Estimated Increase (Decrease) in NPV
(Basis Points) Amount Amount Percent
-------------- ------ ------ -------
(Dollars in thousands)
<S> <C> <C> <C>
+400 $ 8,679 $( 4,156) (32)
+300 9,790 (3,046) (24)
+200 10,901 (1,934) (15)
+100 11,949 (886) ( 7)
--- 12,835 --- ---
-100 13,438 603 5
-200 13,796 961 7
-300 14,128 1,293 10
-400 14,695 1,860 14
</TABLE>
Certain assumptions utilized by the OTS in assessing the interest rate
risk of thrift institutions were employed in preparing the preceding table.
These assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above. In addition, a change in U.S. Treasury rates in the designated
amounts accompanied by a change in the shape of the Treasury yield curve would
cause significantly different changes to the NPV than indicated above.
Liquidity and Capital Resources
The Company's primary sources of funds are deposits, principal and
interest payments on loans and securities and, to a lesser extent, borrowings
and proceeds from the sale of loans and securities. While maturities and
scheduled amortization of loans and securities provide an indication of the
timing of the receipt of funds, other sources of funds such as loan prepayments
and deposit inflows are less predictable due to the effects of changes in
interest rates, economic conditions and competition.
The primary investing activities of the Company are the origination of
real estate and other loans, and the purchase of mortgage-backed and other
securities. During the years ended December 31, 1996, and 1995, the Company's
disbursements for loan originations totaled $22.9 million, and $14.9 million
respectively. For the years ended December 31, 1996, and 1995, purchases of
mortgage-backed securities totaled $3.0 million, and $0, respectively, and
purchases of other securities totaled $3.1 million and $800,000, respectively.
These activities were funded primarily by net deposit inflows, borrowings and
principal repayments on loans and securities.
<PAGE>
For the years ended December 31, 1996, and 1995, the Company
experienced net increases in deposits (including the effect of interest
credited) of $800,000, and $1.3 million respectively. The nominal increase in
fiscal 1996 reflects relatively flat market interest rates, customer preference
for alternative investments, and deposits withdrawn to purchase stock in the
Conversion. The increase in fiscal 1995 reflects the general increase in market
interest rates which made deposit products (particularly shorter term
certificates of deposit) a more attractive investment alternative for the
Company's customers. Proceeds from FHLB advances were $8.5 million in fiscal
1996, and $3.0 million in fiscal 1995. FHLB advances of $2.0 million and $1.0
million were repaid in fiscal 1996 and 1995 respectively. Financing cash flows
for fiscal 1996 also include $10.7 million in net proceeds from the sale of
common stock in the offering (other than ESOP shares).
The Company may borrow funds from the FHLB of Indianapolis subject to
certain limitations. Based on the level of qualifying collateral available to
secure advances at December 31, 1996, the Company's borrowing limit from the
FHLB of Indianapolis was approximately $29.8 million, with unused borrowing
capacity of $20.3 million at that date.
The Company is required to maintain an average daily balance of liquid
assets and short-term liquid assets as a percentage of net withdrawable deposit
accounts plus short-term borrowings as defined by OTS regulations. The minimum
required liquidity and short-term liquidity ratios are currently 5.0% and 1.0%,
respectively. At December 31, 1996, the Company's liquidity ratio was 15.4% and
its short- term liquidity ratio was 4.7%.
The Company's most liquid assets are cash and cash equivalents, which
include highly liquid short-term investments (such as money market mutual funds)
that are readily convertible to known amounts of cash. The level of these assets
is dependent on the Company's operating, financing and investing activities
during any given period. At December 31, 1996 and 1995, cash and cash
equivalents totaled $2.6 million and $4.0 million, respectively.
At December 31, 1996, the Company had outstanding loan origination
commitments of $726,000, undisbursed construction loans in process of $910,000,
and unadvanced lines of credit extended to customers of $6.6 million. The
Company anticipates that it will have sufficient funds available to meet its
current loan origination and other commitments. Certificates of deposit
scheduled to mature in one year or less from December 31, 1996 totaled $25.7
million. Based on the Company's most recent experience and pricing strategy,
management believes that a significant portion of such deposits will remain with
the Company.
The main sources of liquidity for the Company are net proceeds from the
sale of stock and dividends received from the Bank, if any. The main cash
outflows are payments of dividends to shareholders and any repurchases of the
Company's common stock. In November 1996, the Company completed the repurchase
of 5% of its shares under a repurchase program and 4% of its shares for awards
under its recognition and retention plan. A total of 101,171 shares were
repurchased at a cost of $1.3 million.
<PAGE>
The Bank may not declare or pay cash dividends on or repurchase any of
its shares of common stock if the effect thereof would cause equity to be
reduced below applicable regulatory capital requirements or the amount required
to be maintained for the liquidation account established in connection with the
Conversion. Unlike the Bank, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its shareholders; however, it is
subject to the requirements of Delaware law. Delaware law generally limits
dividends to an amount equal to the excess of the net assets of the Company (the
amount by which total assets exceed total liabilities) over its statutory
capital, or if there is no such excess, to its profits for the current and/or
immediately preceding fiscal year.
The OTS regulations require savings associations, such as the Bank, to
meet three minimum capital standards: a tangible capital ratio requirement of
1.5% of total assets as adjusted under the OTS regulations; a leverage ratio
requirement of 3% of core capital to such adjusted total assets; and a
risk-based capital ratio requirement of 8% of core and supplementary capital to
total risk-based assets. The Bank satisfied these minimum capital standards at
December 31, 1996 with tangible and leverage capital ratios of 13.08% and a
total risk-based capital ratio of 24.86%. In determining the amount of
risk-weighted assets for purposes of the risk-based capital requirement, a
savings bank must compute its risk-based assets by multiplying its assets and
certain off-balance sheet items by risk-weights, which range from 0% for cash
and obligations issued by the United States Government or its agencies to 100%
for consumer and commercial loans, as assigned by the OTS capital regulations.
These capital requirements, which are applicable to the Bank only, do not
consider additional capital held at the Company level, and require certain
adjustments to stockholder's equity to arrive at the various regulatory capital
amounts.
Impact of Inflation and Changing Prices
The Consolidated Financial Statements and Notes thereto presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars
without considering the changes in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Company's operations. Unlike industrial companies, nearly all of the
assets and liabilities of the Company are monetary in nature. As a result,
interest rates have a greater impact on the Company's performance than do the
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the price of goods and services.
Impact of New Accounting Standards
In December 1996, the FASB issued Statement of Financial Accounting
Standards No. 127 "Deferral of the Effective Date of Certain Provisions of the
FASB Statement No. 125" ("SFAS No. 127"). The statement delays for one year the
implementation of SFAS No. 125, as it relates to (1) secured borrowings and
collateral, and (2) for the transfers of financial assets that are part of
repurchase agreement, dollar-roll, securities lending and similar transactions.
The Company has adopted portions of SFAS No. 125 (those not deferred by
SFAS No. 127) effective January 1, 1997. Adoption of these portions did not have
a significant effect on the Company's financial condition or results of
operations. Based on its review of SFAS No. 125, management does not believe
that adoption of the portions of SFAS No. 125 which have been deferred by SFAS
No. 127 will have material effect on the Company.
<PAGE>
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.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
AMB Financial Corp
We have audited the consolidated statements of financial condition of
AMB Financial Corp. and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for each of the three years in the period ending December 31, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatements. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of AMB
Financial Corp. and subsidiaries at December 31, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ending December 31, 1996, in conformity with generally accepted
accounting principles.
February 14, 1997
Hickory Hills, Illinois
<PAGE>
<TABLE>
<CAPTION>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Assets
Cash and amounts due from
depository institutions ......................... $ 1,473,962 3,032,908
Interest-bearing deposits ......................... 1,093,405 1,003,909
----------- -----------
Total cash and cash equivalents ................. 2,567,367 4,036,817
Investment securities, available for sale,
at fair value (note 2) .......................... 8,938,937 7,016,697
Investment securities held for trade (note 3) ..... 539,500 --
Mortgage-backed securities, available for sale,
at fair value (note 4) .......................... 4,018,835 1,478,841
Loans receivable (net of allowance for loan losses:
1996 - $354,631; 1995 - $359,535) (note 5) ...... 67,365,632 54,638,741
Stock in Federal Home Loan Bank of Indianapolis ... 545,600 545,600
Office properties and equipment - net (note 6) .... 510,603 608,944
Accrued interest receivable (note 7) .............. 452,955 386,633
Prepaid expenses and other assets (note 8) ........ 1,162,631 1,075,867
----------- -----------
Total assets ................................... 86,102,060 69,788,140
=========== ===========
Liabilities and Stockholders' Equity
Liabilities:
Deposits (note 9) ................................. 60,410,997 59,588,157
Borrowed money (note 10) .......................... 9,500,000 3,000,000
Advance payments by borrowers
for taxes and insurance ......................... 312,213 324,496
Other liabilities (note 11) ...................... 708,993 561,984
----------- -----------
Total liabilities ............................... 70,932,203 63,474,637
----------- -----------
<PAGE>
<CAPTION>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31,
----------------------------
1996 1995
----------- ----------
<S> <C> <C>
Stockholders' Equity:
Preferred stock, $.01 par value: authorized
100,000 shares; none outstanding ......................... -- --
Common stock, $.01 par value: authorized 1,900,000 shares;
1,124,125 shares issued and 1,067,919 shares outstanding
at December 31, 1996 ..................................... 11,241 --
Additional paid-in capital ................................. 10,657,746 --
Retained earnings, substantially restricted ................ 6,564,204 6,242,782
Unrealized gain on securities available
for sale, net of income taxes ............................ 30,386 70,721
Treasury stock, at cost (56,206 shares at December 31, 1996) (724,718) --
Common stock acquired by Employee Stock Ownership Plan ..... (809,370) --
Common stock awarded by Recognition and Retention Plan ..... (559,632) --
------------ ------------
Total stockholders' equity (notes 15 and 16) ............. 15,169,857 6,313,503
------------ ------------
Commitments and contingencies (notes 18 and 19)
Total liabilities and stockholders' equity .............. $ 86,102,060 69,788,140
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest on loans ....................... $4,949,491 4,569,803 4,127,635
Interest on mortgage-backed securities .. 230,175 106,224 117,428
Interest on investment securities ....... 520,663 417,849 483,691
Interest on interest-bearing deposits ... 214,295 85,422 77,207
Dividends on Federal Home Loan Bank stock 42,694 42,972 31,402
---------- ---------- ----------
Total interest income ................ 5,957,318 5,222,270 4,837,363
---------- ---------- ----------
Interest expense:
Interest on deposits .................... 2,760,774 2,587,591 2,208,619
Interest on borrowings .................. 194,431 97,925 1,174
---------- ---------- ----------
Total interest expense ............... 2,955,205 2,685,516 2,209,793
---------- ---------- ----------
Net interest income before provision
for loan losses ..................... 3,002,113 2,536,754 2,627,570
Provision for loan losses (note 5) ........ -- 39,384 61,613
---------- ---------- ----------
Net interest income after provision
for loan losses ..................... 3,002,113 2,497,370 2,565,957
---------- ---------- ----------
Non-interest income:
Loan fees and service charges ........... 97,576 68,700 123,963
Commission income ....................... 57,491 58,699 23,258
Unrealized gain on trading securities-net 46,484 -- --
Gain on sale of securities .............. 52,617 -- 59,091
Gain on sale of real estate owned ....... 27,821 1,960 178,342
Deposit related fees .................... 165,114 134,653 99,602
Other income ............................ 63,700 75,587 88,705
---------- ---------- ----------
Total non-interest income ............ 510,803 339,599 572,961
---------- ---------- ----------
<PAGE>
<CAPTION>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Income (continued)
Years Ended December 31,
--------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Non-interest expense:
Staffing costs (notes 12 and 13) ............... 1,128,341 908,837 885,799
Advertising .................................... 79,967 104,100 77,960
Occupancy and equipment expenses (note 6) ...... 334,286 328,432 346,406
Data processing ................................ 295,258 247,764 209,894
Federal deposit insurance premiums ............. 129,639 134,316 134,273
SAIF special assessment (note 17) .............. 389,255 -- --
Write-off of stock conversion expenses (note 22) -- -- 331,795
Other .......................................... 499,731 491,137 530,443
---------- ---------- ----------
Total non-interest expense .................. 2,856,477 2,214,586 2,516,570
---------- ---------- ----------
Income before income taxes ....................... 656,439 622,383 622,348
Income taxes (note 14) ......................... 214,286 235,700 239,069
---------- ---------- ----------
Net income .................................. $ 442,153 386,683 383,279
========== ========== ==========
Earnings per share -
Primary ..................................... $ .43 N/A N/A
Fully diluted ............................... $ .43 N/A N/A
Dividends declared on common stock ............... $ .12 N/A N/A
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Three Years Ended December 31, 1996
Unrealized
Gain (Loss)
on Common Common
Additional Securities Stock Stock
Common Paid-in Retained Available Treasury Acquired Awarded
Stock Capital Earnings For Sale Stock by ESOP by RRP Total
----- ------- -------- -------- ----- ------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ - - 5,472,820 (80,000) - - - 5,392,820
Net income 383,279 383,279
Adjustment of securities
available for sale to fair
value, net of tax effect (143,557) (143,557)
------ ---------- --------- ------- ------- ------- ------- ---------
Balance at December 31, 1994 - - 5,856,099 (223,557) - - - 5,632,542
Net income 386,683 386,683
Adjustment of securities
available for sale to fair
value, net of tax effect 294,278 294,278
------ ---------- --------- ------- ------- ------- ------- ---------
Balance at December 31, 1995 - - 6,242,782 70,721 - - - 6,313,503
Net income 442,153 442,153
Adjustment of securities
available for sale to fair
value, net of tax effect (40,335) (40,335)
Net proceeds of common stock
issued in stock conversion 11,241 10,646,866 (899,300) 9,758,807
Purchase of treasury stock
(56,206 shares) (724,718) (724,718)
Purchase of stock for RRP (578,929) (578,929)
Amortization of award of
RRP stock 19,297 19,297
Contribution to fund ESOP loan 10,880 89,930 100,810
Dividends declared on
common stock (120,731) (120,731)
------ ---------- --------- ------- ------- ------- ------- ----------
Balance at December 31, 1996 $ 11,241 10,657,746 6,564,204 30,386 (724,718) (809,370) (559,632) 15,169,857
====== ========== ========= ======= ======= ======= ======= ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31,
----------------------------------------------------
1996 1995 1994
------------- ------------- --------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................... $ 442,153 386,683 383,279
Items not requiring (providing) cash:
Depreciation ...................................... 139,808 132,848 130,493
Amortization of cost of stock benefit plans ....... 120,107 -- --
Amortization of premiums and accretion of discounts (434) (5,778) 472
Net gain on sale of securities .................... (52,617) -- (59,091)
Net gain on sale of real estate owned ............. (27,821) (1,960) (178,342)
Loss on disposal of fixed assets .................. -- -- 930
Provision for loan losses ......................... -- 39,384 61,613
Unrealized gain on securities held for trade ...... (46,484) -- --
Purchase of trading account securities ............ (493,016) -- --
Increase (decrease) in deferred income on loans ... 23,507 (34,771) 14,806
Increase (decrease) in accrued and deferred
income taxes ..................................... (50,221) 204,700 (171,400)
(Increase) decrease in accrued interest receivable (66,322) (49,731) 14,621
Increase in accrued interest payable .............. 24,739 28,784 8,056
Increase in deferred compensation ................. 71,069 63,068 56,535
Other, net ........................................ 41,548 2,572 189,617
------------- ------------- -------------
Net cash provided by operating activities .............. 126,016 765,799 451,589
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sales of investment securities ...... 132,617 -- 3,832,813
Proceeds from maturities of investment securities . 1,000,000 500,000 500,000
Purchase of investment securities ................. (3,056,153) (798,004) (3,515,796)
Proceeds from repayments of mortgage-backed
securities ....................................... 481,548 207,673 682,335
Purchase of mortgage-backed securities ............ (3,034,420) -- --
Property and equipment expenditures, net .......... (41,467) (120,181) (118,487)
Purchase of loans ................................. (4,647,821) (3,439,588) (893,590)
Proceeds from sale of loans ....................... -- -- 112,200
Loan disbursements ................................ (22,901,235) (14,920,478) (17,947,552)
Loan repayments ................................... 14,800,656 15,517,663 15,355,180
Proceeds from sale of real estate owned ........... 25,823 49,183 241,618
------------- ------------- -------------
Net cash provided for investing activities ............. (17,240,452) (3,003,732) (1,751,279)
------------- ------------- -------------
<PAGE>
<CAPTION>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows (continued)
Years Ended December 31,
----------------------------------------------------
1996 1995 1994
------------- ------------- --------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net proceeds from sale of common stock ............ 9,758,807 -- --
Deposit receipts .................................. 122,368,827 108,637,226 102,605,184
Deposit withdrawals ............................... (123,874,056) (109,461,879) (105,070,201)
Interest credited to deposits ..................... 2,328,069 2,132,233 1,659,464
Proceeds from borrowed money ...................... 8,500,000 3,000,000 1,000,000
Repayment of borrowed money ....................... (2,000,000) (1,000,000) --
Increase (decrease) in advance payments by
borrowers for taxes and insurance ............... (12,283) 52,705 (78,147)
Purchase of treasury stock ........................ (724,718) -- --
Purchase of RRP stock ............................. (578,929) -- --
Dividends paid on common stock .................... (120,731) -- --
------------- ------------- -------------
Net cash provided by financing activities .............. 15,644,986 3,360,285 116,300
------------- ------------- -------------
Net change in cash and cash equivalents ................ (1,469,450) 1,122,352 (1,183,390)
Cash and cash equivalents at beginning of year ......... 4,036,817 2,914,465 4,097,855
------------- ------------- -------------
Cash and cash equivalents at end of year ............... $ 2,567,367 4,036,817 2,914,465
============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest ............................................ $ 2,930,466 2,656,732 2,201,737
Income taxes ........................................ 265,709 131,000 346,097
Non-cash investing activities:
Transfer of loans to foreclosed real estate ......... $ -- 48,463 49,617
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1) Summary of Significant Accounting Policies
AMB Financial Corp. (the "Company") is a Delaware corporation
incorporated on November 23, 1993 for the purpose of becoming the
savings and loan holding company for American Savings, FSB (the
"Bank"). On March 29, 1996, the Bank converted from a mutual to a stock
form of ownership, and the Company completed its initial public
offering, and, with a portion of the net proceeds acquired all of the
issued and outstanding capital stock of the Bank (the "Conversion").
The accounting and reporting policies of the Company and its
subsidiaries conform to generally accepted accounting principles and to
general practice within the thrift industry. 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 disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates. The
following is a description of the more significant policies which the
Bank follows in preparing and presenting its consolidated financial
statements.
Principles of Consolidation
The accompanying consolidated financial statements consist of the
accounts of the Company, and its wholly owned subsidiary, American
Savings FSB, the Bank's wholly owned subsidiary, NIFCO, Inc. and the
wholly owned subsidiary of NIFCO, Inc., Ridge Management, Inc.
Significant intercompany balances and transactions have been eliminated
in consolidation.
Investment Securities and Mortgage-Backed Securities, Available for
Sale
Investment securities and mortgage-backed securities available for sale
are recorded in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 115 "Accounting for Certain Investments in Debt
and Equity Securities". SFAS 115 requires the use of fair value
accounting for securities available for sale or trading and retains the
use of the amortized cost method for investments the Company has the
positive intent and ability to hold to maturity.
SFAS 115 requires the classification of debt and equity securities into
one of three categories: held to maturity, available for sale, or
trading. Held to maturity securities are measured at amortized cost.
Unrealized gains and losses on trading securities are included in
income. Unrealized gains and losses on available for sale securities
are excluded from income and reported net of taxes as a separate
component of stockholders' equity.
<PAGE>
1) Summary of Significant Accounting Policies (continued)
The Company has currently designated all of its investment securities
and mortgage-backed securities as available for sale, and has recorded
these investments at their current fair values. Unrealized gains and
losses are recorded in a valuation account which is included, net of
income taxes, as a separate component of stockholders' equity. Gains
and losses on the sale of securities are determined using the specific
identification method and are reflected in earnings when realized.
Investment Securities Held For Trade
Trading account securities are carried at fair value, and net
unrealized gains and losses are reflected in the consolidated
statements of income.
Loans Receivable and Related Fees
Loans are stated at the principal amount outstanding, net of loans in
process, deferred fees and the allowance for losses. Interest on loans
is credited to income as earned and accrued only if deemed collectible.
Loans are placed on nonaccrual status when, in the opinion of
management, the full timely collection of principal or interest is in
doubt. As a general rule, the accrual of interest is discontinued when
principal or interest payments become 90 days past due or earlier if
conditions warrant. When a loan is placed on nonaccrual status,
previously accrued but unpaid interest is charged against current
income.
Loan origination fees are being deferred in accordance with SFAS No. 91
"Accounting for Nonrefundable Fees and Costs Associated with
Originating or Acquiring Loans and Initial Direct Costs of Leases".
This statement requires that loan origination fees and direct loan
origination costs for a completed loan be netted and then deferred and
amortized into interest income as an adjustment of yield.
On January 1, 1995, the Company adopted SFAS No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures" which impose certain requirements on the measurement of
impaired loans. These statements apply to all loans that are identified
for evaluation except for large groups of smaller-balance homogeneous
loans that are collectively evaluated for impairment. These loans
include, but are not limited to, credit card, residential mortgage and
consumer installment loans. Substantially all of the Company's lending
is excluded from the provisions of SFAS 114 and SFAS 118.
Under these statements, of the remaining loans which are evaluated for
impairment (a loan is considered impaired when, based on current
information and events, it is probable that a creditor will be unable
to collect all amounts due according to the contractual terms of the
loan agreement), there were no material amounts of loans which met the
definition of an impaired loan during the year ended December 31, 1996
and no loans to be evaluated for impairment at December 31, 1996.
<PAGE>
1) Summary of Significant Accounting Policies (continued)
Allowance 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 adequate to
provide for losses through charges to operating expense. The allowance
is based upon past loss experience and other factors which, in
management's judgement, deserve current recognition in estimating
losses. Such other factors considered by management include growth and
composition of the loan portfolio, the relationship of the allowance
for losses to outstanding loans and economic conditions.
Management believes that the allowance is adequate. While management
uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in
economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the
Bank's allowance for losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgements about
information available to them at the time of their examination.
Real Estate Owned
Real estate acquired through foreclosure or deed in lieu of foreclosure
is carried at the lower of fair value minus estimated costs to sell or
the related loan balance at the date of foreclosure. Valuations are
periodically performed by management and an allowance for loss is
established by a charge to operations if the carrying value of a
property exceeds its fair value minus estimated costs to sell.
Depreciation and Amortization
Depreciation of office properties and equipment is accumulated on the
straight line basis over estimated lives of the various assets. The
cost of leasehold improvements is amortized using the straight line
method over the term of the lease.
Income Taxes
The Company files a consolidated federal income tax return with the
Bank. The provision for federal and state taxes on income is based on
earnings reported in the financial statements. Deferred income taxes
arise from the recognition of certain items of income and expense for
tax purposes in years different from those in which they are recognized
in the consolidated financial statements. Deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amount of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using tax rates
in effect for the year in which those temporary differences are
expected to be recovered or settled. The effect of deferred tax assets
and liabilities of a change in tax rates is recognized in income for
the period that includes the enactment date.
<PAGE>
1) Summary of Significant Accounting Policies (continued)
Consolidated Statements of Cash Flows
For the purposes of reporting cash flows, the Company has defined cash
and cash equivalents to include cash on hand, amounts due from
depository institutions, interest-bearing deposits in other financial
institutions and Federal funds sold.
Earnings per Share
Earnings per share for the year ended December 31, 1996 was determined
by dividing net income for the year by 1,027,090 and 1,031,035, the
weighted average number of both primary and fully diluted shares of
common stock and common stock equivalents outstanding. Stock options
are regarded as common stock equivalents and are therefore considered
in both primary and fully diluted earnings per share calculations.
Common stock equivalents are computed using the treasury stock method.
Earnings per share information for the prior year periods is not
meaningful because the Company was not a public company until March 29,
1996.
Reclassification
Certain 1994 and 1995 amounts have been reclassified to conform with
the 1996 presentation.
2) Investment Securities, Available for Sale
Investment securities available for sale are recorded at fair value in
accordance with SFAS 115. This portfolio is summarized as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1996
United States Government
securities ................ $8,260,086 54,019 30,752 8,283,353
Marketable equity securities 632,085 23,499 -- 655,584
---------- ---------- ---------- ----------
$8,892,171 77,518 30,752 8,938,937
========== ========== ========== ==========
December 31, 1995
United States Government
securities ................ $6,235,825 149,026 1,066 6,383,785
Marketable equity securities 677,651 35,261 80,000 632,912
---------- ---------- ---------- ----------
$6,913,476 184,287 81,066 7,016,697
========== ========== ========== ==========
</TABLE>
<PAGE>
The contractual maturity of the above investments is summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------------- -------------------------
Amortized Fair Amortized Fair
Term to Maturity Cost Value Cost Value
---------------- ---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less .... $ 749,722 750,920 1,000,058 1,005,525
Due after one year through
five years ................ 7,284,914 7,306,020 4,851,563 4,976,680
Due after five years through
ten years ................. 225,450 226,413 384,204 401,580
Marketable equity securities 632,085 655,584 677,651 632,912
---------- ---------- ---------- ----------
$8,892,171 8,938,937 6,913,476 7,016,697
========== ========== ========== ==========
</TABLE>
Proceeds from sales of investment securities available for sale during
the year ended December 31, 1996 were $132,617 with gross gains of
$52,617 realized on those sales. There were no sales of investment
securities available for sale during the year ended December 31, 1995.
Proceeds from sales of investment securities available for sale during
the year ended December 31, 1994 were $2,532,813 with gross gains of
$37,130 and gross losses of $11,001 realized on those sales. The change
in net unrealized gains and losses during the current year of $56,455,
net of the tax effect of $22,582, resulted in a $33,873 charge to
stockholders' equity.
3) Investment Securities Held for Trade
Investment securities held for trade are accounted for at their current
fair values. Investment securities held for trade at December 31, 1996,
consists of common stock equity securities. The adjustment of these
securities to their current fair values has resulted in a net
unrealized gain of $46,484 as of December 31, 1996. There were no sales
of investment securities held for trade during the year ended December
31, 1996.
<PAGE>
4) Mortgage-Backed Securities, Available for Sale
Mortgage-backed securities available for sale are recorded at fair
value in accordance with SFAS 115. This portfolio is summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1996
Participation Certificates:
FHLMC - Fixed rate .......... $3,177,901 2,743 5,293 3,175,351
FNMA - Adjustable rate ..... 81,640 231 -- 81,871
GNMA - Adjustable rate ..... 755,414 7,053 854 761,613
---------- ---------- ---------- ----------
$4,014,955 10,027 6,147 4,018,835
========== ========== ========== ==========
Weighted average interest rate 6.87%
====
December 31, 1995
Participation Certificates:
FHLMC - Fixed rate .......... $ 444,125 5,692 531 449,286
FNMA - Adjustable rate ..... 95,390 1,945 -- 97,335
GNMA - Adjustable rate ..... 924,676 8,428 884 932,220
---------- ---------- ---------- ----------
$1,464,191 16,065 1,415 1,478,841
========== ========== ========== ==========
Weighted average interest rate 7.22%
====
</TABLE>
There were no sales of mortgage-backed securities available for sale
during the years ended December 31, 1996, 1995 and 1994. The change in
net unrealized gains and losses during the current year of $10,770, net
of the tax effect of $4,308, resulted in a $6,462 charge to
stockholders' equity.
<PAGE>
5) Loans Receivable
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Mortgage loans:
One - to Four - family ....................... $43,668,728 38,056,084
Multi - family ............................... 3,259,173 3,418,760
Nonresidential ............................... 8,806,316 4,146,252
Construction ................................. 4,405,490 3,194,225
Land ......................................... 216,899 222,910
----------- -----------
Total mortgage loans .......................... 60,356,606 49,038,231
----------- -----------
Other loans:
Loans on deposit accounts .................... 185,224 222,464
Equity lines of credit ....................... 2,968,265 2,745,249
Other consumer ............................... 1,835,654 1,053,155
----------- -----------
Total other loans ................................ 4,989,143 4,020,868
----------- -----------
Commercial business loans ......................... 3,519,034 2,420,231
----------- -----------
Total loans receivable ........................ 68,864,783 55,479,330
----------- -----------
Less:
Loans in process ............................. 910,045 268,088
Deferred loan fees, premiums and discounts-net 234,475 212,966
Allowance for loan losses .................... 354,631 359,535
----------- -----------
Loans receivable, net .......................... $67,365,632 54,638,741
=========== ===========
Weighted average interest rate ................. 8.10% 8.19%
=========== ===========
</TABLE>
<PAGE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year ..... $ 359,535 330,458 290,595
Provision for loan losses ...... -- 39,384 61,613
Charge-offs .................... (4,954) (10,457) (22,311)
Recoveries ..................... 50 150 561
--------- --------- ---------
Balance, end of year ........... $ 354,631 359,535 330,458
========= ========= =========
</TABLE>
Delinquent loans (loans having monthly payments past due ninety days or
more and non-accruing) at December 31, 1996 and 1995 amounted to
approximately $305,000 and $369,000 respectively.
For the years ended December 31, 1996 and 1995, gross interest income
which would have been recorded had the non-accruing loans been current
in accordance with their original terms amounted to approximately
$23,000 and $17,000 respectively.
Loans to directors and executive officers aggregated approximately
$220,000 and $602,000 at December 31, 1996 and 1995 respectively. Such
loans are made on substantially the same terms as those for other loan
customers.
<PAGE>
6) Office Properties and Equipment
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cost:
Land - Munster $ 40,669 40,669
Hammond 33,300 33,300
East Chicago 5,000 5,000
Building - Munster 408,360 408,360
Hammond 241,890 241,890
East Chicago 36,637 36,637
Leasehold improvements - Dyer 148,096 148,096
Furniture and equipment 682,881 641,414
--------- ---------
1,596,833 1,555,366
--------- ---------
Less accumulated depreciation:
Building - Munster 366,494 357,048
Hammond 204,640 187,733
East Chicago 8,839 5,208
Leasehold improvements - Dyer 46,587 38,944
Furniture and equipment 459,670 357,489
--------- ---------
1,086,230 946,422
--------- ---------
Net book value $ 510,603 608,944
========= =========
</TABLE>
Depreciation of office properties and equipment for the years ended
December 31, 1996, 1995 and 1994 amounted to $139,808, $132,848 and
$130,493 respectively.
The Bank has entered into a lease agreement for its office location in
Dyer, Indiana. The lease, which expires in 2000, carries an option to
extend for three successive renewals of five years each. Rent is
payable monthly and adjusted annually based on the consumer price
index. Monthly rent at December 31, 1996 amounted to $2,919 including
utilities. The Bank is responsible for its proportionate share of real
estate taxes and assessments and for maintaining public liability
insurance covering the premises. Rent expense for the years ended
December 31, 1996, 1995 and 1994 amounted to $35,028, $34,552 and
$38,667 respectively. Rent expense for 1994 includes $5,078 on the East
Chicago, Indiana location which was being leased prior to the Bank's
purchase of this facility in December, 1994.
<PAGE>
7) Accrued Interest Receivable
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
--------- ---------
<S> <C> <C>
Investment securities ...................... $ 114,069 106,976
Mortgage-backed securities ................. 23,297 9,496
Loans receivable ........................... 354,680 292,649
Allowance for uncollected interest ......... (39,091) (22,488)
--------- ---------
$ 452,955 386,633
========= =========
</TABLE>
8) Prepaid Expenses and Other Assets
Prepaid expenses and other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
---------- ----------
<S> <C> <C>
Prepaid insurance premiums ................. $ 54,783 26,912
Prepaid conversion costs ................... -- 9,807
Other prepaid expenses ..................... 28,244 71,066
Cash surrender value of life
insurance policies (a) ................ 930,353 888,191
Deferred federal and state income
tax benefit - net (b) ................. 124,150 61,850
Miscellaneous .............................. 25,101 18,041
---------- ----------
$1,162,631 1,075,867
========== ==========
</TABLE>
(a) The Board of Directors has approved a non-qualified retirement
income plan which will provide pre-retirement death benefits,
post-retirement death benefits, and retirement benefits to
senior management and the Board of Directors. The Bank has
purchased life insurance policies on all individuals covered
under the plan. The Bank is the owner and beneficiary of each
policy.
(b) The approximate tax effect of temporary differences that give
rise to the Company's net deferred tax asset at December 31,
1996 and 1995 under SFAS 109 is as follows:
<PAGE>
<TABLE>
<CAPTION>
Assets Liabilities Net
--------- --------- ---------
<S> <C> <C> <C>
December 31, 1996
Loan fees deferred for
financial reporting purposes ........... $ 41,700 -- 41,700
Accelerated book depreciation ........... 1,500 -- 1,500
Deferred compensation ................... 96,200 -- 96,200
Nondeductible incentive plan expense .... 7,710 -- 7,710
Bad debt reserves established
for financial reporting purposes ....... 141,850 -- 141,850
Increases to tax bad debt reserves
since January 1, 1988 .................. -- (125,950) (125,950)
Unrealized gain on securities
available for sale ..................... -- (20,260) (20,260)
Unrealized gain on trading
account securities ..................... -- (18,600) (18,600)
--------- --------- ---------
$ 288,960 (164,810) 124,150
========= ========= =========
<CAPTION>
Assets Liabilities Net
--------- --------- ---------
<S> <C> <C> <C>
December 31, 1995
Loan fees deferred for
financial reporting purposes ........... $ 71,200 -- 71,200
Accelerated depreciation
for tax purposes ....................... -- (6,400) (6,400)
Deferred compensation ................... 67,800 -- 67,800
Bad debt reserves established
for financial reporting purposes ....... 143,800 -- 143,800
Increases to tax bad debt reserves
since January 1, 1988 .................. -- (126,400) (126,400)
Unrealized gain on securities
available for sale ..................... -- (47,150) (47,150)
Other ................................... -- (41,000) (41,000)
--------- --------- ---------
$ 282,800 (220,950) 61,850
========= ========= =========
</TABLE>
<PAGE>
9) Deposits
Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Passbook accounts $ 16,311,084 16,797,882
Demand deposits and NOW accounts 6,712,053 6,622,175
Money market accounts 2,454,249 2,678,138
Certificates of deposit:
Jumbo 5,696,748 3,823,128
7-91 days 1,115,737 1,129,616
6-11 months 7,100,476 6,966,397
12-29 months 11,153,781 11,963,497
30 months and over 8,142,683 7,906,979
IRA and Keogh 1,724,186 1,700,345
---------- ----------
$ 60,410,997 59,588,157
========== ==========
</TABLE>
The weighted average rate on deposit accounts at December 31, 1996 and
1995 was 4.38% and 4.55% respectively.
A summary of certificates of deposit by maturity is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
Within 12 months $ 25,692,560 21,582,204
12 months to 24 months 6,657,443 6,467,052
24 months to 36 months 2,025,883 3,756,952
36 months to 48 months 541,980 1,281,568
Over 48 months 15,745 402,186
---------- ----------
Total $ 34,933,611 33,489,962
========== ==========
</TABLE>
<PAGE>
Interest expense on deposits consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Passbook accounts $ 509,836 543,561 613,645
NOW accounts 137,192 143,032 128,695
Money market accounts 88,853 101,801 99,316
Certificates of deposit 2,024,893 1,799,197 1,366,963
--------- --------- ---------
Total $ 2,760,774 2,587,591 2,208,619
=========== ========= =========
</TABLE>
The aggregate amount of deposit accounts with a balance of $100,000 or
greater was approximately $7,200,000 and $6,900,000 at December 31,
1996 and 1995, respectively. Deposits in excess of $100,000 are not
insured by the Federal Deposit Insurance Corporation.
10) Borrowed Money
Borrowed money consists of advances from the Federal Home Loan Bank of
Indianapolis and is summarized as follows:
<TABLE>
<CAPTION>
Interest December 31,
Maturity Date Rate 1996 1995
------------- ---- ---- ----
<S> <C> <C> <C>
June 5, 1996 6.26% $ - 1,000,000
September 3, 1996 5.71 - 1,000,000
June 5, 1997 6.50 1,000,000 1,000,000
October 20, 1997 5.79 1,500,000 -
November 3, 1998 5.87 3,000,000 -
December 7, 1998 5.80 3,000,000 -
December 6, 1999 5.94 1,000,000 -
--------- ------
$ 9,500,000 3,000,000
========== =========
Weighted average interest rate 5.91% 6.16%
==== ====
</TABLE>
<PAGE>
The Bank is required to maintain qualifying collateral for the Federal
Home Loan Bank of Indianapolis representing approximately 170 percent
of current Bank credit. At December 31, 1996, the Bank met this
requirement. Assets which are eligible collateral for meeting the 170%
coverage requirement include one-to-four family whole mortgage loans,
government and agency securities including mortgage-backed securities
insured or guaranteed by FHLMC, FNMA and GNMA, and high rated private
mortgage-backed securities. The mortgage loans must not include
participations, construction loans, loans which are not in the clear
title of the institution, conventional mortgages with more than 30
years remaining to maturity, loans for more than 90% of the appraised
value unless there is private or federal insurance, mortgages which are
more than 60 days delinquent, or loans upon which any employee of the
institution or the FHLB is personally liable.
In connection with the Company's initial public offering, the Bank
established an Employee Stock Ownership Plan (ESOP). The ESOP was
funded by the proceeds from a loan from the Company. The loan carries
an interest rate of 6.07% and matures in the year 2006. The loan is
secured by the shares of the Company purchased with the loan proceeds.
The Bank has committed to make contributions to the ESOP sufficient to
allow the ESOP to fund the debt service requirements of the loan.
11) Other Liabilities
Other liabilities include the following:
<TABLE>
<CAPTION>
December 31,
------------------------
1996 1995
------- -------
<S> <C> <C>
Accrued interest on deposits $ 76,018 68,019
Accrued interest on borrowings 24,950 8,210
Accrued bonus 25,000 51,566
Accrued audit and accounting fees 16,775 11,225
Accrued real estate and personal
property taxes 52,500 50,500
Accrued federal and state income tax 48,489 63,300
Accrued pension 27,500 -
Deferred compensation (see note 12) 240,519 169,450
Miscellaneous accounts payable 197,242 139,714
------- -------
$ 708,993 561,984
======= =======
</TABLE>
<PAGE>
12) Benefit Plans
The Bank participates in a non-contributory qualified defined benefit
pension plan which covers all full-time employees having a minimum of
twelve months of service, and who are at least twenty-one years of age.
The present funding policy is to make the minimum annual contribution
as required by applicable regulations.
The following table sets forth the plan's funded status and amounts
recognized in the Bank's consolidated financial statements at December
31.
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Projected benefit obligation (actuarial present value
of projected benefits attributed to employee service
to date based on future compensation levels) ........ $ 895,838 860,123
Plan assets at fair value ........................... 804,260 714,509
--------- ---------
Plan assets less than projected benefit obligation .. (91,578) (145,614)
Unrecognized prior service cost ..................... 89,023 --
Unrecognized net (gain) loss ........................ (121,723) 72,000
Unrecognized net obligation, being recognized
over 18 years ....................................... 96,778 102,472
--------- ---------
(Accrued) prepaid pension costs ..................... $ (27,500) 28,858
========= =========
</TABLE>
Included in the projected benefit obligation is an amount called the
accumulated benefit obligation. The accumulated benefit obligation
represents the actuarial present value of benefits attributed to
employee service and compensation levels to date. At December 31, 1996,
the accumulated benefit obligation was $709,074. The vested portion was
$706,057.
Net pension expense for the years ended December 31, 1996, 1995 and
1994 is being accounted for per Financial Accounting Standards Board
Statement No. 87, "Employers' Accounting for Pensions" and includes the
following components:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost ...................... $ 42,713 37,924 37,841
Interest cost ..................... 63,953 45,828 41,063
Actual return on assets ........... (87,097) (121,520) 11,320
Net amortization and deferral ..... 33,052 78,492 (52,833)
-------- -------- --------
Net pension expense ............... $ 52,621 40,724 37,391
======== ======== ========
</TABLE>
<PAGE>
The discount rate used in determining the actuarial present value of
the projected benefit obligation at the beginning of the year to
determine the net periodic pension cost and at the end of the year for
the present value of the benefit obligation during 1996 was 7.5% and
during 1995 and 1994 was 6.0%. The expected long-term rate of return on
assets was 9.0% during 1996 and 7.0% during 1995 and 1994, and the rate
of increase in future compensation was 3.5% in 1996, 1995 and 1994.
The Bank has established a non-qualified 401(k) Plan for officers of
the Bank. The Plan provides participating officers the opportunity to
defer up to 6% of their salary over the next five years into a tax
deferred accumulation for future retirement. The Bank will match up to
50% (3% of salary) of this deferral. In addition, the Bank established
a Director Deferral Plan which provides participating directors with
the opportunity to defer all or a portion of their fees over the next
five years. Deferred amounts are credited with interest from the Bank
at the rate of 10% per year.
Contributions by the Bank to the 401(k) Plan, including interest on
accumulated funds was $29,178, $22,253 and $16,089 for the years ended
December 31, 1996, 1995 and 1994 respectively.
13) Director, Officer and Employee Plans
Stock Option Plan. On October 23, 1996, the stockholders of the Company
approved the AMB Financial Corp. 1996 Stock Option and Incentive Plan.
This is an incentive stock option plan for the benefit of the
directors, officers and employees of the Company and its affiliates.
The number of shares authorized under the Plan is 112,412, equal to
10.0% of the total number of shares issued in the Conversion. As of
October 23, 1996, 100,042 options were granted at $12.75 per share,
exercisable at a rate of 20% per year commencing October 23, 1997, and
expiring ten years from the date of grant, while 12,370 options were
reserved for future grants. No options were exercisable as of December
31, 1996.
The Company has elected to follow Accounting Principles Board Opinion
No. 25 "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. Under APB
25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant,
no compensation expense is recognized.
The Company implemented SFAS No. 123 "Accounting for Stock-Based
Compensation" during 1996. The Company will retain its current
accounting method for its stock-based compensation plans. This
statement will only result in additional disclosures for the Company,
and as such, its adoption did not, nor is it expected to have, a
material impact on the Company's financial condition or its results of
operations.
<PAGE>
The following summarizes the pro forma net income as if the fair value
method of accounting for stock-based compensation plans had been
utilized for the year ended December 31, 1996:
Net income (as reported) $ 442,153
Pro forma net income 431,117
Earnings per share (as reported) .43
Pro forma earnings per share .42
The pro forma results presented above may not be representative of the
effects reported in pro forma net income for future years.
The fair value of the option grants for the year ended December 31,
1996 was estimated using the Black Scholes Method, using the following
assumptions: dividend yield of approximately 2.00%, expected volatility
of 20%, risk free interest rate of 6.10% and an expected life of
approximately 10 years.
Employee Stock Ownership Plan. In conjunction with the Conversion, the
Bank formed an Employee Stock Ownership Plan ("ESOP"). The ESOP covers
substantially all employees with more than one year of employment and
who have attained the age of 18. The ESOP borrowed $899,300 from the
Company and purchased 89,930 common shares issued in the Conversion.
The Bank will make scheduled discretionary cash contributions to the
ESOP sufficient to service the amount borrowed. In accordance with
generally accepted accounting principles, the unpaid balance of the
ESOP loan, which is comparable to unearned compensation, is reported as
a reduction of stockholders' equity. Total contributions by the Bank to
the ESOP which were used to fund principal and interest payments on the
ESOP debt totaled $132,084 for the year ended December 31, 1996.
On November 22, 1993, the AICPA issued Statement of Position No. 93-6,
"Employers' Accounting for Employee Stock Ownership Plans" ("SOP
93-6"). SOP 93-6 provides guidance for accounting for all ESOPs. SOP
93-6 requires that the issuance or sale of treasury shares to the ESOP
be reported when the issuance or sale occurs and that compensation
expense be recognized for shares committed to be released to directly
compensate employees equal to the fair value of the shares committed.
In addition, SOP 93-6 requires that leveraged ESOP debt and related
interest expense be reflected in the employer's financial statements.
Prior practice was to recognize compensation expense based on the
amount of the employer's contributions to the ESOP. SOP 93-6 is
effective for fiscal years beginning after December 31, 1992. The
application of SOP 93-6 results in fluctuations in compensation expense
as a result of changes in the fair value of the Company's common stock;
however, any such compensation expense fluctuations will result in an
offsetting adjustment to additional paid-in capital. For the year ended
December 31, 1996, additional compensation expense of $10,880 was
recognized as a result of implementation of this accounting principle.
<PAGE>
13) Director, Officer and Employee Plans (continued)
Recognition and Retention Plan. On October 23, 1996, the stockholders
of the Company approved the AMB Financial Corp. 1996 Recognition and
Retention Plan ("RRP"). This plan was established to award shares to
directors and to employees in key management positions in order to
provide them with a proprietary interest in the Company in a manner
designed to encourage such employees to remain with the Company. The
number of shares authorized under the Plan is 44,965, equal to 4.0% of
the total number of shares issued in the Conversion. These shares were
purchased in the open market during the quarter ended December 31, 1996
at a total cost of $578,929. As of October 23, 1996, 43,616 shares were
awarded and will vest at a rate of 20% per year commencing October 23,
1997, while 1,349 shares were reserved for future awards.
The $578,929 contributed to the RRP is being amortized to compensation
expense as the plan participants become vested in those shares. For the
year ended December 31, 1996, $19,297 had been amortized to expense.
The unamortized cost, which is comparable to deferred compensation, is
reflected as a reduction of stockholders' equity.
14) Income Taxes
The Company has adopted Statement of Financial Accounting Standards No.
109 (SFAS 109) which requires a change from the deferred method to the
liability method of accounting for income taxes. Under the liability
method, deferred income taxes are recognized for the tax consequences
of "temporary differences" by applying statutory tax rates applicable
to future years to differences between the financial statement carrying
amounts and tax bases of existing assets and liabilities.
Among the provisions of SFAS 109 which will impact the Bank is the tax
treatment of bad debt reserves. SFAS 109 provides that a deferred tax
asset is to be recognized for the bad debt reserve established for
financial reporting purposes and requires a deferred tax liability to
be recorded for increase in the tax bad debt reserve since January 1,
1988, to effective date of certain changes made by the Tax Reform Act
of 1986 to the calculation of savings institutions' bad debt deduction.
Accordingly, retained earnings at December 31, 1996 includes
approximately $1,950,000 for which no deferred federal income tax
liability has been recognized.
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current $ 249,696 249,650 198,957
Deferred (benefit) (35,410) (13,950) 40,112
------- ------- -------
$ 214,286 235,700 239,069
======= ======= =======
</TABLE>
<PAGE>
A reconciliation of the statutory federal income tax rate to effective
income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes 5.0 5.8 5.7
Other (6.4) (1.9) (1.3)
---- ---- ----
Effective income tax rate 32.6% 37.9% 38.4%
==== ==== ====
</TABLE>
Deferred income tax expense (benefit) consists of the following tax
effects of timing differences:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Loan fees $ 29,500 12,200 (8,000)
Depreciation (7,900) (2,300) 1,800
Deferred compensation (28,400) (25,300) (22,700)
Statutory bad debt deduction in excess of
(less than) book provision 1,500 6,400 (1,100)
Other, net (30,110) (4,950) 70,112
------ ------ ------
$ (35,410) (13,950) 40,112
========= ======= =======
</TABLE>
15) Regulatory Capital Requirements
On August 9, 1989, the Financial Institution Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA") was signed into law. FIRREA mandated
that the OTS adopt new capital standards which requires savings
associations to satisfy three different capital requirements. Under the
new standards, savings associations must maintain "tangible" capital
equal to 1.5% of adjusted total assets, "core" capital equal to 3.0% of
adjusted total assets and a combination of core and "supplementary"
capital equal to 8.0% of "risk-weighted" assets.
For purposes of the regulation, the core and tangible capital of
American Savings, FSB is defined as stockholders' equity, adjusted for
unrealized gains and losses on securities available for sale (other
than unrealized losses in equity securities), net of taxes. Adjusted
total assets are the Bank's total assets as determined under generally
accepted accounting principles, adjusted for unrealized gains and
losses on securities available for sale, net of taxes.
<PAGE>
In determining compliance with the risk-based capital requirement, the
Bank is allowed to use both core capital and supplementary capital
provided the amount of supplementary capital used does not exceed the
Bank's core capital. Supplementary capital of American Savings, FSB is
defined to include all of the Bank's general loss allowances. In
addition, certain exclusions from capital and assets are required to be
made for the purpose of calculating total capital, in addition to the
adjustments required for calculating core capital. Such exclusions
consist of equity investments as defined by regulation. The risk-based
capital requirement is measured against risk-weighted assets which
equals the sum of each asset and the credit-equivalent amount of each
off-balance sheet item after being multiplied by an assigned risk
weight.
At December 31, 1996, the Bank's regulatory equity capital was as
follows:
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
---------- ---------- ----------
<S> <C> <C> <C>
Stockholders' equity $ 11,192,355 11,192,355 11,192,355
Unrealized gain on securities
available for sale, net of taxes (30,386) (30,386) (30,386)
General loss allowances - - 354,631
Direct equity investments - - (15,000)
---------- ---------- ----------
Regulatory capital computed 11,161,969 11,161,969 11,501,600
Minimum capital requirement 1,280,000 2,561,000 3,701,000
---------- ---------- ----------
Regulatory capital excess $ 9,881,969 8,600,969 7,800,600
========== ========== ==========
Computed capital ratio 13.08% 13.08% 24.86%
Minimum capital ratio 1.50 3.00 8.00
----- ----- -----
Regulatory capital excess 11.58% 10.08% 16.86%
===== ===== =====
</TABLE>
A reconciliation of the Bank's equity capital at December 31, 1996 is
as follows:
<TABLE>
<CAPTION>
<S> <C>
Stockholders' equity $ 15,169,857
Less Company stockholders' equity not available
for regulatory capital (3,977,502)
------------
Stockholders' equity of the Bank $ 11,192,355
==========
</TABLE>
<PAGE>
16) Stockholders' Equity
As part of the Conversion, the Bank established a liquidation account
for the benefit of all eligible depositors who continue to maintain
their deposit accounts in the Bank after conversion. In the unlikely
event of a complete liquidation of the Bank, each eligible depositor
will be entitled to receive a liquidation distribution from the
liquidation account, in the proportionate amount of the then current
adjusted balance for deposit accounts held, before distribution may be
made with respect to the Bank's capital stock. The Bank may not declare
or pay a cash dividend to the Company on, or repurchase any of, its
capital stock if the effect thereof would cause the retained earnings
of the Bank to be reduced below the amount required for the liquidation
account. Except for such restrictions, the existence of the liquidation
account does not restrict the use or application of retained earnings.
The Bank's capital exceeds all of the fully phased-in capital
requirements imposed by FIRREA. OTS regulations generally provide that
an institution that exceeds all fully phased-in capital requirements
before and after a proposed capital distribution could, after prior
notice but without the approval by the OTS, make capital distributions
during the fiscal year of up to 100% of its net income to date during
the fiscal year plus the amount that would reduce by one-half its
"surplus capital ratio" (the excess capital over its fully phased-in
capital requirements) at the beginning of the calendar year. Any
additional capital distributions would require prior regulatory
approval.
Unlike the Bank, the Company is not subject to these regulatory
restrictions on the payment of dividends to its stockholders. However,
the Company's source of funds for future dividends may depend upon
dividends received by the Company from the Bank.
17) SAIF Special Assessment and its Impact on SAIF Insurance Premiums
The deposits of savings associations, such as American Savings, FSB,
are presently insured by the Savings Association Insurance Fund
("SAIF"), which together with the Bank Insurance Fund ("BIF"), are the
two insurance funds administered by the Federal Deposit Insurance
Corporation ("FDIC"). Financial institutions which are members of the
BIF are experiencing substantially lower deposit insurance premiums
because the BIF has achieved its required level of reserves while the
SAIF has not yet achieved its required reserves. In order to help
eliminate this disparity and any competitive disadvantage due to
disparate deposit insurance premium schedules, legislation to
recapitalize the SAIF was enacted in September 1996.
The legislation requires a special one-time assessment of 65.7 cents
per $100 of SAIF insured deposits held by the Bank at March 31, 1995.
The one-time special assessment has resulted in a charge to earnings of
approximately $390,000 during the year ended December 31, 1996. The
after-tax effect of this one-time charge to earnings totaled $234,000.
The legislation is intended to fully recapitalize the SAIF fund so that
commercial bank and thrift deposits will be charged the same FDIC
premiums beginning January 1, 1997. As of such date, deposit insurance
premiums for highly rated institutions, such as the Bank, will be
substantially reduced.
<PAGE>
The Bank, however, will continue to be subject to an assessment to fund
repayment of the Financing Corporation's ("FICO") obligations. The FICO
assessment for SAIF insured institutions will be 6.48 cents per $100 of
deposits while BIF insured institutions will pay 1.30 cents per $100 of
deposits until the year 2000 when the assessment will be imposed at the
same rate on all FDIC insured institutions. Accordingly, as a result of
the reduction of the SAIF assessment and the resulting FICO assessment,
the annual after-tax decrease in assessment costs is expected to be
approximately $60,000 based upon a December 31, 1996 assessment base.
18) Financial Instruments with Off-Balance Sheet Risk
The Bank is a party to various transactions with off-balance sheet risk
in the normal course of business. These transactions are primarily
commitments to originate loans and to extend credit on previously
approved unused lines of credit. These financial instruments carry
varying degrees of credit and interest-rate risk in excess of amounts
recorded in the consolidated financial statements.
Commitments to originate mortgage loans of $725,600 at December 31,
1996 represent amounts which the Bank plans to fund within the normal
commitment period of 60 to 90 days. Of this amount, $255,000 are in
fixed rate commitments with rates ranging from 7.13% to 7.75%, and
$470,600 are in adjustable rate commitments. Because the credit
worthiness of each customer is reviewed prior to extension of the
commitment, the Bank adequately controls its credit risk on these
commitments, as it does for loans recorded on the balance sheet. The
Bank conducts all of its lending activities in the Northwest Indiana
area which it serves. Management believes the Bank has a diversified
loan portfolio and the concentration of lending activities in these
local communities does not result in an acute dependency upon economic
conditions of the lending region.
The Bank has approved, but unused, home equity lines of credit of
approximately $5,382,000 at December 31, 1996. Approval of lines of
credit is based upon underwriting standards that generally do not allow
total borrowings, including the line of credit, to exceed 75% of the
estimated fair value of the customer's home. In addition, the Bank has
approved but unused equity lines of credit on various construction and
commercial projects of approximately $580,000 at December 31, 1996. The
Bank also has approved but unused credit card lines of credit of
approximately $618,000.
19) Contingencies
The Bank is, from time to time, a party to certain lawsuits in the
ordinary course of its business, wherein it enforces its security
interest. Management, based upon discussions with legal counsel,
believes that the Company and the Bank are not engaged in any legal
proceedings of a material nature at the present time.
20) Subsequent Event
On February 1, 1997, the Company declared a quarterly cash dividend of
$.06 per share, totaling $64,075, payable February 28, 1997 to
shareholders of record as of February 14, 1997.
<PAGE>
21) Disclosures About the Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Cash and cash equivalents: For cash and interest-bearing deposits, the
carrying amount is a reasonable estimate of fair value.
Investment securities: Fair values for securities held to maturity,
available for sale or held for trade are based on quoted market prices
as published in financial publications or on quotes from third-party
brokers.
Mortgage-backed securities: Fair values for mortgage-backed securities
are based on the lower of quotes received from various third-party
brokers.
Loans receivable: The fair values of fixed-rate one-to-four family
residential mortgage loans are based on quoted market prices of similar
loans sold in conjunction with securitization transactions. The fair
values for other fixed and adjustable rate mortgage loans are estimated
using discounted cash flow analyses, using interest rates currently
being offered for loans with similar terms and collateral to borrowers
of similar credit quality.
Deposit liabilities: The fair value of demand deposits, savings
accounts and money market deposits is the amount payable on demand at
the reporting date. The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the
rates currently offered for deposits of similar original maturities.
Borrowed money: Rates currently available to the Company for debt with
similar terms and remaining maturities are used to estimate fair value
of existing debt.
<PAGE>
The estimated fair value of the Company's financial instruments as of
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------
Carrying Fair
Amount Value
------ -----
<C> <C> <C>
Financial assets:
Cash and cash equivalents $ 2,567,367 2,567,367
Investment securities, available for sale 8,938,937 8,938,937
Investment securities held for trade 539,500 539,500
Mortgage-backed securities, available for sale 4,018,835 4,018,835
Loans receivable 67,365,632 66,956,000
Financial liabilities:
Deposits $ 60,410,997 60,514,400
Borrowed money 9,500,000 9,390,630
<CAPTION>
December 31, 1995
--------------------------
Carrying Fair
Amount Value
------ -----
<C> <C> <C>
Financial assets:
Cash and cash equivalents $ 4,036,817 4,036,817
Investment securities, available for sale 7,016,697 7,016,697
Mortgage-backed securities, available for sale 1,478,841 1,478,841
Loans receivable 54,638,741 55,574,000
Financial liabilities:
Deposits $ 59,588,157 59,992,000
Borrowed money 3,000,000 3,015,000
</TABLE>
22) Prior Plan of Conversion
On August 18, 1993, the Board of Directors of the Bank, subject to
regulatory approval and approval by the members of the Bank, adopted a
Plan of Conversion to convert from a federally chartered mutual savings
bank to a federally chartered stock savings bank with the concurrent
formation of a holding company. The conversion was expected to be
accomplished through amendment of the Bank's federal charter and the
sale of the holding company's common stock in an amount equal to the
consolidated pro forma market value of the holding company and the Bank
after giving effect to the conversion. In early 1994, the Plan of
Conversion was approved by the regulators and members of the Bank.
<PAGE>
Subsequent to the Bank's special meeting of members, but prior to the
completion of the Bank's conversion to stock form, the Bank was
informed by the Office of Thrift Supervision that its rating under the
Community Reinvestment Act ("CRA") was being changed to "substantial
noncompliance" and that it recommended that the stock offering be
postponed until this rating was improved. After due consideration, the
board determined to postpone the completion of the stock offering
pending the satisfactory resolution of the CRA concerns, Accordingly,
in March 1994, all subscription funds were refunded to subscribers with
interest.
As of December 31, 1994, the Bank elected to charge off all conversion
expenses incurred to date totaling approximating $332,000. This amount
is reflected in non-interest expense in the consolidated statements of
income.
During the period from the termination of the stock offering until
November 1995, the Bank embarked on a comprehensive program to enhance
its community reinvestment activities. By the end of that period, the
Bank was informed by the OTS that it would upgrade the Bank's CRA
rating to "satisfactory".
On November 15, 1995, the Board of Directors of the Bank terminated the
aforementioned Plan of Conversion and in December, 1995 adopted a new
Plan of Conversion.
23) Condensed Parent Company Only Financial Statements
The following condensed statement of financial condition, as of
December 31, 1996 and condensed statements of income and cash flows for
the period from March 29, 1996 to December 31, 1996 for AMB Financial
Corp. should be read in conjunction with the consolidated financial
statements and the notes thereto.
<PAGE>
23) Condensed Parent Company Only Financial Statements (continued)
<TABLE>
<CAPTION>
Statement of Cash Flows
Period from March 29, 1996 to December 31, 1996
<S> <C>
Operating activities:
Net income .............................................. $ 356,330
Equity in earnings of the Bank .......................... (302,801)
Unrealized gain on securities held for trade ............ (46,484)
Amortization of cost of stock benefit plan .............. 19,297
Purchase of trading account securities .................. (493,016)
Increase in accrued taxes and other liabilities ......... 43,546
------------
Net cash provided for operating activities ................ (423,128)
------------
Investing activities:
Purchase of capital stock of the Bank ................... (5,329,053)
Loan disbursements ...................................... (3,733,530)
Loan repayments ......................................... 803,353
------------
Net cash provided for investing activities ................ (8,259,230)
------------
Financing activities:
Net proceeds from sale of common stock .................. 10,658,107
Purchase of treasury stock .............................. (724,718)
Purchase of RRP stock ................................... (578,929)
Dividends paid on common stock .......................... (120,731)
------------
Net cash provided by financing activities ................. 9,233,729
------------
Net increase in cash and cash equivalents ................. 551,371
Cash and cash equivalents at beginning of period .......... --
------------
Cash and cash equivalents at end of period ................ $ 551,371
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Statement of Financial Condition
December 31, 1996
Assets
Cash and cash equivalents ................................ $ 551,371
Investment securities held for trade ..................... 539,500
Loans receivable ......................................... 2,930,177
Equity investment in the Bank ............................ 11,960,459
------------
15,981,507
============
Liabilities and Stockholders' Equity
Liabilities:
Accrued taxes and other liabilities ...................... 43,546
------------
Stockholders' Equity:
Common stock ............................................. 11,241
Additional paid-in capital ............................... 10,646,866
Retained earnings ........................................ 6,564,204
Treasury stock ........................................... (724,718)
Common stock awarded by RRP .............................. (559,632)
------------
Total stockholders' equity ............................. 15,937,961
------------
$ 15,981,507
============
<CAPTION>
Statement of Income
Period from March 29, 1996 to December 31, 1996
<S> <C>
Interest income .......................................... $ 207,053
Unrealized gain on securities held for trade ............. 46,484
Non-interest expense ..................................... (159,960)
------------
Net income before income taxes
and equity in earnings of subsidiaries ................. 93,577
Provision for income taxes ............................... 40,048
------------
Net income before equity in earnings of
subsidiaries ........................................... 53,529
Equity in earnings of subsidiaries ....................... 302,801
------------
Net income ............................................. $ 356,330
============
</TABLE>
<PAGE>
AMB Financial Corp.
Stockholder Information
Annual Meeting
The annual meeting of stockholders will be held at 10:30 a.m., on April 23,
1997, at the Company's corporate office, located at 8230 Hohman Avenue,
Munster, Indiana.
Stock Listing
The Company's stock is trading over the counter, on the NASDAQ Small Cap
Market under the symbol "AMFC".
Price Range of Common Stock and Dividends
The table below shows the range of high and low bid prices and dividends
paid in fiscal 1996. These prices do not represent actual transactions and
do not include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
Quarter Ended High Low Dividends
------------- ---- --- ---------
<S> <C> <C> <C>
June 30, 1996 . . . . . . . 11 9 3/4 -----
September 30, 1996 . . . 11 3/4 10 3/8 $0.06
December 31, 1996 . . . 13 1/4 11 $0.06
</TABLE>
The Company paid a six cents per share dividend to holders of record on
September 16, 1996 and November 15, 1996. The Board of Directors will
consider the payment of future cash dividends based on the results of
operations and financial condition of the Company, tax considerations,
industry standards, economic conditions, regulatory restrictions, general
business practices and other factors. See Note 16 of the Notes to the
Consolidated Financial Statements for information regarding limitations of
the Bank's ability to pay dividends to the Company.
<PAGE>
As of December 31, 1996, the Company had 203 stockholders of record and
1,067,919 outstanding shares of common stock.
Shareholder General Inquiries Transfer Agent
Clement B. Knapp, Jr., President Registrar & Transfer Co.
AMB Financial Corp. 10 Commerce Drive
8230 Hohman Ave. Cranford, New Jersey 07016
Munster, Indiana 46321 (800) 456-0596
(219) 836-5870
AMB Financial Corp.
Corporate Information
Corporate Office
AMB Financial Corp.
8230 Hohman Avenue Telephone (219) 836-5870
Munster, IN 46321 Fax (219) 836-5883
Directors of the Board AMB Financial Corp.
Officers
Clement B. Knapp, Jr. Clement B. Knapp, Jr.
President since 1977. Chairman of the Board, President
and Chief Executive Officer
Ronald W. Borto Louis A. Green
Director since 1986. Senior Vice-President
Donald L. Harle Daniel T. Poludniak
Director since 1995. Vice-President, Treasurer and
Chief Financial Officer
John C. McLaughlin
Director since 1979. Denise L. Knapp
Corporate Secretary
John G. Pastrick
Director since 1979.
Robert E. Tolley
Director since 1987.
Independent Auditors Corporate Counsel/Local
Cobitz, VandenBerg & Fennessy Abrahamson, Reed & Adley
7800 W. 95th Street Attorneys at Law
Hickory Hills, IL 60457 200 Russell Street
Hammond, IN 46320
Corporate Counsel/Washington DC
Silver, Freedman & Taff, L.L.P.
1100 New York Ave., N.W.
Washington, DC 20005-3934
<PAGE>
Annual And Other Report
The Company is required to file an annual report on Form 10-KSB with the
Securities and Exchange Commission. Copies of the Form 10-KSB, annual report and
the Company's quarterly reports may be obtained without charge by contacting:
Leslie Mullins
AMB Financial Corp.
8230 Hohman Avenue
Munster, Indiana 46321
(219) 836-5870
SUBSIDIARY OF THE REGISTRANT
<TABLE>
<CAPTION>
Percentage of State of Incorporation
Parent Subsidiary Ownership or Organization
<C> <C> <C> <C>
AMB Financial Corp. American Savings, FSB 100% Federal
American Savings, FSB NIFCO, Inc. 100% Indiana
NIFCO, Inc. Ridge Management, Inc. 100% Indiana
</TABLE>
Consent of Cobitz, VandenBerg & Fennessy
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the incorporation by reference and use of our
report, dated February 14, 1997 on the consolidated financial statements of AMB
Financial Corp. Which appears in AMB Financial Corp.'s Annual Report of
Shareholders and Form 10-KSB for the year ended December 31, 1996.
/s/ Cobitz, VandenBerg & Fennessy
---------------------------------
COBITZ, VANDENBERG & FENNESSY
March 31, 1997
Hickory Hills, Illinois
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ANNUAL
REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,473,962
<INT-BEARING-DEPOSITS> 1,093,405
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 539,500
<INVESTMENTS-HELD-FOR-SALE> 12,957,772
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 67,720,263
<ALLOWANCE> 354,631
<TOTAL-ASSETS> 86,102,060
<DEPOSITS> 60,410,997
<SHORT-TERM> 9,500,000
<LIABILITIES-OTHER> 1,021,206
<LONG-TERM> 0
11,241
0
<COMMON> 0
<OTHER-SE> 15,158,616
<TOTAL-LIABILITIES-AND-EQUITY> 86,102,060
<INTEREST-LOAN> 4,949,491
<INTEREST-INVEST> 1,007,827
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,957,318
<INTEREST-DEPOSIT> 2,760,774
<INTEREST-EXPENSE> 2,955,205
<INTEREST-INCOME-NET> 3,002,113
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 126,922
<EXPENSE-OTHER> 2,856,477
<INCOME-PRETAX> 656,439
<INCOME-PRE-EXTRAORDINARY> 656,439
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 442,153
<EPS-PRIMARY> 0.43
<EPS-DILUTED> 0.43
<YIELD-ACTUAL> 3.97
<LOANS-NON> 305,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 359,535
<CHARGE-OFFS> (4,954)
<RECOVERIES> 50
<ALLOWANCE-CLOSE> 354,631
<ALLOWANCE-DOMESTIC> 354,631
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
