SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
( ) TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-23182
AMB Financial Corp.
-------------------
(Exact name of registrant as specified in its charter)
Delaware 35-1905382
-------- ----------
(State or other jurisdiction I.R.S. Employer
of incorporation or Identification
organization) Number
8230 Hohman Avenue, Munster, Indiana 46321-1578
- ------------------------------------ ----------
(Address of Principle executive offices) (Zip Code)
Registrant telephone number, include are code: (219) 836-5870
--------------
Check whether the issuer (1) has filed all reports required to be filed
by Section 130 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
--- ---
As of October 28, 1999 there were 1,124,125 shares of the Registrant's
common stock issued and 726,329 shares outstanding.
Transitional Small Business Disclosure Format (check one): Yes No X
--- ---
<PAGE>
AMB FINANCIAL CORP.
FORM 10-Q
TABLE OF CONTENTS
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
September 30, 1999 (Unaudited) and December 31, 1998
Consolidated Statements of Earnings for the three
and nine months ended September 30, 1999 and 1998
(unaudited)
Consolidated Statements of Changes in
Stockholders Equity, nine months ended
September 30, 1999 (unaudited)
Consolidated Statements of Cash Flow for the
nine months ended September 30, 1999 and 1998
(unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. OTHER INFORMATION
Signatures
Index of Exhibits
Earnings Per Share Analysis (Exhibit 11)
Financial Data Schedule (Exhibit 27)
<PAGE>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
unaudited
Assets
<S> <C> <C>
Cash and amounts due from depository institutions 2,610,227 3,210,234
Interest-bearing deposits 1,181,613 5,887,182
--------------------- ---------------------
Total cash and cash equivalents 3,791,840 9,097,416
Investment securities, available for sale, at fair value 5,923,990 6,137,219
Trading securities 1,953,999 2,394,130
Mortgage backed securities, available for sale, at fair value 2,049,022 2,649,380
Loans receivable (net of allowance for loan losses:
$579,694 at September 30, 1999 and
$506,534 at December 31, 1998) 101,193,811 89,762,417
Investment in LTD Partnership 1,380,030 1,380,925
Real Estate Owned - 23,369
Stock in Federal Home Loan Bank of Indianapolis 1,334,200 1,334,200
Accrued interest receivable 683,146 594,942
Office properties and equipment- net 398,890 427,823
Prepaid expenses and other assets 3,717,454 3,111,101
--------------------- ---------------------
Total assets 122,426,382 116,912,922
===================== =====================
Liabilities and Stockholders' Equity
Liabilities
Deposits 81,910,804 78,997,215
Borrowed money 25,675,589 21,683,000
Notes Payable 1,391,454 1,391,454
Advance payments by borrowers for taxes and insurance 674,558 567,098
Other liabilities 1,139,938 861,325
--------------------- ---------------------
Total liabilities 110,792,343 103,500,092
--------------------- ---------------------
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 726,329 shares outstanding
at September 30, 1999 and 869,829 shares outstanding at 11,241 11,241
December 31, 1998
Additional paid- in capital 10,790,549 10,771,799
Retained earnings, substantially restricted 7,642,945 7,317,519
Accumulated other comprehensive income, net of income taxes (30,248) 113,856
Treasury stock, at cost (397,796 and 254,296 shares at
September 30, 1999 and December 31, 1998) (5,909,717) (3,844,015)
Common stock acquired by Employee Stock Ownership Plan (629,510) (629,510)
Common stock awarded by Recognition and Retention Plan (241,221) (328,060)
--------------------- ---------------------
Total stockholders' equity 11,634,039 13,412,830
--------------------- ---------------------
Total liabilities and stockholders' equity 122,426,382 116,912,922
===================== =====================
</TABLE>
3
<PAGE>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statement of Earnings
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
------------- -------------- ------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
unaudited unaudited unaudited unaudited
<S> <C> <C> <C> <C>
Interest income
Loans 1,895,457 1,835,864 5,471,584 5,195,554
Mortgage-backed securities 38,631 49,188 118,942 158,434
Investment securities 92,636 72,255 279,304 302,475
Interest-bearing deposits 32,102 48,497 171,770 167,745
Dividends on FHLB stock 26,904 21,469 79,833 54,305
--------- --------- --------- ---------
Total interest income 2,085,730 2,027,273 6,121,433 5,878,513
--------- --------- --------- ---------
Interest expense
Deposits 884,144 886,721 2,654,109 2,586,047
Borrowings 344,678 297,347 960,663 744,466
--------- --------- --------- ---------
Total interest expense 1,228,822 1,184,068 3,614,772 3,330,513
--------- --------- --------- ---------
Net interest income before
provision for loan losses 856,908 843,205 2,506,661 2,548,000
Provision for loan losses 37,577 31,816 103,626 84,671
--------- --------- --------- ---------
Net interest income after
provision for loan losses 819,331 811,389 2,403,035 2,463,329
--------- --------- --------- ---------
Non-interest income:
Loan fees and service charges 24,723 32,597 118,083 107,253
Commission income 6,620 13,516 35,990 31,621
Deposit related fees 77,349 76,591 221,887 231,147
Gain on sale of investment
securities available for sale - 6,605 15,981 17,943
Gain on sale of trading securities - - 92,981 24,086
Unrealized gain (loss) on trading
securities (163,949) (709,576) (178,857) (652,133)
Gain (loss) on sale
of real estate owned - - 9,904 (1,697)
Gain on sale of deposit accounts 27,033 27,033
Loss from investment
in joint venture - (6,778) (3,154) (6,778)
Other income 43,574 36,255 128,746 85,713
--------- --------- --------- ---------
Total non-interest income (11,683) (523,757) 441,561 (135,812)
--------- --------- --------- ---------
Non-interest expense:
Staffing costs 335,421 338,651 1,021,080 1,090,595
Advertising 29,882 31,083 77,500 79,413
Occupancy and equipment expense 72,175 74,699 219,197 246,070
Data processing 97,297 91,815 296,727 272,806
Federal deposit insurance premiums 11,894 15,128 35,271 37,840
Other operating expenses 140,901 161,443 436,630 488,240
--------- --------- --------- ---------
Total non-interest expense 687,570 712,819 2,086,405 2,214,964
--------- --------- --------- ---------
Net income before income taxes 120,078 (425,187) 758,191 112,553
Provision for federal and state
income taxes 14,127 (170,579) 251,170 47,946
--------- --------- --------- ---------
Net income 105,951 (254,608) 507,021 64,607
========= ========= ========= =========
Earnings per share- basic $0.15 ($0.30) $0.68 $0.08
Earnings per share- diluted $0.15 ($0.30) $0.68 $0.07
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
AMB FINANCIAL CORP.
AND SUBIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Accumulated Common Common
Additional Other Stock Stock
Common Paid-in Retained Comprehensive Treasury Acquired Awarded
Stock Capital Earnings Income Stock by ESOP by RRP Total
------ ---------- --------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 11,241 10,771,799 7,317,519 113,856 (3,844,015) (629,510) (328,060) 13,412,830
Comprehensive income:
Net income 507,021 507,021
Other comprehensive income,
net of income taxes:
Unrealized holding loss
during the period (144,104) (144,104)
------ ---------- --------- -------- ---------- -------- -------- ----------
Total Comprehensive income 0 0 507,021 (144,104) 0 0 0 362,917
Amortization of award of
RRP stock 86,839 86,839
ESOP compensation adjustment 18,750 18,750
Purchase of treasury stock
(143,500 shares) (2,065,702) (2,065,702)
Dividends declared on
common stock($.24 per share) (181,595) (181,595)
------ ---------- --------- -------- ---------- -------- -------- ----------
Balance at September 30, 1999 11,241 10,790,549 7,642,945 (30,248) (5,909,717) (629,510) (241,221) 11,634,039
====== ========== ========= ======== ========== ======== ======== ==========
</TABLE>
5
<PAGE>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
------------- -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 507,021 64,607
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 92,023 106,625
Amortization of premiums and discounts on
investment and mortgage-backed securities - net 23,164 7,816
Amortization of cost of stock benefit plans 86,839 86,839
Increase in deferred compensation 57,866 43,975
ESOP compensation 18,750 52,705
Provision for loan losses 103,626 84,671
Gain on sale of investment securities (15,981) (17,943)
Gain on sale of trading account securities (92,981) (24,086)
Gain on sale of deposit accounts - (27,033)
Unrealized (gain) loss on trading account securities 178,857 652,133
Purchase of trading account securities (93,750) (765,580)
Proceeds from sales of trading account securities 448,005 124,399
Gain on sale of real estate owned (9,904) -
Decrease in deferred income on loans (13,450) (49,569)
Increase in accrued interest receivable (88,204) (51,886)
Increase (decrease) in accrued interest payable 16,565 46,557
Change in current and deferred income tax (146,369) (591,575)
Change in prepaid and accrued items, net (189,302) (20,791)
------------- -------------
Net cash provided by ( for) operating activities 882,775 (278,136)
------------- -------------
Cash flows from investing activities:
Proceeds from maturities of investment securities - 2,375,000
Proceeds from sale of investment securities 15,981 1,013,838
Purchase of investment securities (4,590) (1,630,012)
Proceeds from repayments of mortgage-backed
securities 554,838 600,572
Purchase of Federal Home Loan Bank stock - (658,800)
Purchase of life insurance policies - (1,515,000)
Purchase of loans (17,442,567) (13,445,789)
Disbursements for loans (20,515,622) (19,445,278)
Loan repayments 26,467,085 18,204,044
Proceeds from sale of real estate owned 33,273 -
Property and equipment expenditures (63,090) (64,235)
------------- -------------
Net cash provided for investing activities (10,954,692) (14,565,660)
------------- -------------
Cash flows from financing activities:
Deposit account receipts 123,546,643 117,807,082
Deposit account withdrawals (122,788,039) (112,121,915)
Sale of deposit accounts - (2,676,263)
Interest credited to deposit accounts 2,154,985 2,155,885
Proceeds from borrowed money 4,000,000 13,683,000
Repayment of borrowed money (7,411) -
Increase (decrease) in advance payments by borrowers
for taxes and insurance 107,460 385,265
Payment of dividends (181,595) (180,542)
Purchase of treasury stock (2,065,702) (1,620,964)
------------- -------------
Net cash provided by financing activities 4,766,341 17,431,548
------------- -------------
Net change in cash and cash equivalents (5,305,576) 2,587,752
Cash and cash equivalents at beginning of period 9,097,416 2,686,955
------------- -------------
Cash and cash equivalents at end of period $ 3,791,840 5,274,707
Cash paid during the period for:
Interest $ 3,598,207 3,283,956
============= =============
Income taxes 427,539 639,521
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
AMB Financial Corp.
And Subsidiaries
Notes to Consolidated Financial Statements
1. Statement of Information Furnished
The accompanying unaudited consolidated financial statements have
been prepared in accordance with Form 10-Q instructions and Article 10 of
Regulation S-X, and in the opinion of management contains all adjustments
(all of which are normal and recurring in nature) necessary to present
fairly the financial position as of September 30, 1999, the results of
operations for the three and nine months ended September 30, 1999 and 1998
and cash flows for the nine months ended September 30, 1999 and 1998. These
results have been determined on the basis of generally accepted accounting
principles. The preparation of financial statements in conformity with
generally accepted principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates. The attached consolidated statements are those of AMB Financial
Corp. (the "Holding Company") and its consolidated subsidiaries American
Savings, FSB (the "Bank"), the Bank's wholly owned subsidiary NIFCO, Inc.,
and the wholly owned subsidiary of NIFCO, Inc., Ridge Management, Inc. The
results of operations for the three and nine month periods ended September
30, 1999 is not necessarily indicative of the results to be expected for
the full year.
2. Mutual to Stock Conversion
In December 1995, the Bank's Board of Directors approved a Plan of
Conversion (the "Conversion"), providing for the Bank's conversion from a
federally chartered mutual savings to a federally chartered stock savings
bank with the concurrent formation of a holding company. The Holding
Company issued 1,124,125 shares of $.01 par value common stock at $10.00
per share, for an aggregate price of $11,241,250. The Conversion and sale
of 1,124,125 shares of common stock of the Holding Company was completed on
March 29, 1996. Net proceeds to the Company, after conversion expenses,
totaled approximately $10,658,000.
3. Earnings Per Share
Earnings per share for the three and nine month periods ended
September 30, 1999 and 1998 were determined by dividing net income for the
periods by the weighted average number of both basic and diluted shares of
common stock and common stock equivalents outstanding (see Exhibit 11
attached). Stock options are regarded as common stock equivalents and are
considered in diluted earnings per share calculations. Common stock
equivalents are computed using the treasury stock
7
<PAGE>
method. ESOP shares not committed to be released to participants are not
considered outstanding for purposes of computing earnings per share
amounts.
4. Industry Segments
The Company operates principally in the banking industry through its
subsidiary bank. As such, substantially all of the Company's revenues, net
income, identifiable assets and capital expenditures are related to banking
operations.
5. Impact of New Accounting Standards
Accounting for Derivative Instruments and for Hedging Activities.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and for Hedging Activities" ("SFAS
No. 133") which is effective for fiscal years beginning after June 15, 1999. The
statement requires all derivatives to be recorded on the balance sheet at fair
value. It also establishes "special accounting" for hedges of the variable cash
flows of forecasted transaction (cash flow hedges,) and hedges of foreign
currency exposures of net investments in foreign operations. To the extent the
hedge is considered highly effective, both the change in the fair value of the
derivative and the change in the fair value of the hedged item are recognized
(offset) in earnings in the same period. Changes in fair value of derivatives
that do not meet the criteria of one of these hedge categories are included in
income.
In September 1999, the FASB issued Statement of Financial Accounting Standards
No. 137 ("SFAS No. 137"), entitled "Accounting for Derivative Instruments in
Hedging Activities--effective date of SFAS No. 133 from years beginning after
June 15, 1999 to all fiscal quarters of all fiscal years beginning after June
15, 2000. Management does not believe that adoption of SFAS No. 133 will have a
material impact on the Company's consolidation financial condition or results of
operations.
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.
8
<PAGE>
Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION
September 30, 1999 compared to December 31, 1998
Total assets of the Company at September 30, 1999 increased $5.5 million to
$122.4 million from $116.9 million at December 31, 1998. The increase is due to
an increase in deposits and borrowed money which was used primarily to fund
mortgage loans.
Cash and cash equivalents amounted to $3.8 million at September 30, 1999 as
compared to $9.1 million at December 31, 1998. The Company used $2.1 million to
purchase 143,500 shares of common stock into treasury during the period. The
Bank used the remaining available cash to fund increased loan origination
volume.
Mortgage-backed securities available for sale decreased $600,000 to $2.0 million
at December 31, 1998. Gross unrealized gains in the available for sale portfolio
were $4,000 at September 30, 1999, compared to $51,000 at December 31, 1998.
Investment securities available for sale decreased by $213,000 to $5.9 million
at September 30, 1999 primarily due to amortization and a decline in the market
value of these securities. Gross unrealized losses in the available for sale
portfolio were $54,000 at September 30, 1999, compared to gross unrealized gains
of $138,000 at December 31, 1998.
Trading securities decreased by $440,000 at September 30, 1999 to $2.0 million
as a result of sales activity of $355,000 exceeding purchase activity of $94,000
and unrealized loss on trading securities of $179,000 recorded during the
current period.
Loans receivable increased $11.4 million, or 12.7%, to $101.2 million at
September 30, 1999. The Bank originated $20.5 million and purchased an
additional $17.4 million during the nine month period ended September 30, 1999.
Offsetting this increase was amortization and prepayments totaling $26.5
million. Loan purchased during the first nine months of 1999 were primarily in
one to four family residential first mortgage loans.
Deposits increased 3.7%, or $2.9 million to $81.9 million at September 30, 1999,
compared to $79.0 million at December 31, 1998. After consideration of interest
of $2.2 million credited to accounts during the nine months ended September 30,
1999, actual cash inflows were $700,000. This overall increase in deposits was
primarily attributable to a special rate 15, 18, and 30 month certificate of
deposit program.
9
<PAGE>
FHLB advances remain a cost effective source of funding for the Bank's increased
loan activity at September 30, 1999, the Bank has $25.7 million of FHLB advances
as compared to $21.7 million at December 31, 1998. The Bank has continued to
utilize advances to supply funds for loan originations and purchases.
Stockholders' equity decreased by $1.8 million to $11.6 million at September 30,
1999 from $13.4 million at December 31, 1998. Common stock repurchases of $2.1
million combined with a decline in net unrealized gains on securities available
for sale of $144,000, the amortization of $106,000 of the Company's benefit
plans and $182,000 in dividends to stockholders contributed to an overall
decrease given that the Company earned $507,000 during the nine months ended
September 30, 1999.
RESULTS OF OPERATION
The Company's results of operations depend primarily upon the level of net
income, which is the difference between the interest income earned on its
interest-earning assets such as loans and investments, and the cost of the
Company's interest-bearing liabilities, primarily 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. Results of operations are also dependent upon the level of the
Company's non-interest expenses, including its general and administrative
expenses.
Comparisons of Operating Results for the Three Months Ended September 30, 1999
and 1998
General. The Company's net income increased to $106,000, or $.15 per diluted
share for the three months ended September 30, 1999, from a loss of $255,000, or
$(.30) per diluted share for the three months ended September 30, 1998. The
Company's prior year's quarter was affected by an unrealized loss on trading
securities of $710,000 as compared to the current year's quarter unrealized loss
on trading securities of $165,000. Exclusive of the unrealized loss on trading
securities, net of the tax benefit, diluted earnings per share for the three
months ended September 30, 1999 and 1998 would have been $.29 and $.20
respectively.
Interest Income. Interest income amounted to $2.1 million, an increase of
$58,000 over the prior year's quarter. Although the average interest rate
decreased to 7.42% from 7.69% during the prior year's quarter, the average
volume of interest earning assets grew by $7.0 million. This higher volume is
due mostly to a higher volume of loans receivable which reflects the Company's
aggressive lending efforts. The decrease in the average yield on loans
receivable of 51 basis points is attributable to the high level of refinance and
modification activity experienced by the Bank over the past twelve months due to
lower long-term interest rates.
10
<PAGE>
Interest Expense. Interest expense increased $45,000, or 3.78%, for the three
months ended September 30, 1999 compared to the prior year's quarter. The
increase was due primarily to an increase $5.2 million in average deposits and
$3.4 million in average borrowed money, partially offset by a decrease in the
average interest rate to 4.64% from 4.87%.
Provisions for Loan Losses. The Bank provided $38,000 in provision for loan
losses during the current three month period, compared to $32,000 for the prior
three month period. The increase in the provision for losses on loans was due to
the continuing growth in loans receivable. Non-performing loans at September 30,
1999 increased to $933,000, or 4.92% of net loans receivable, compared to
$506,000 or .56% of net loans receivable at December 31, 1998 and $328,000, or
.36% of net loans receivable at September 30, 1998. The increase in
non-performing loans is attributable to a $500,000 non-residential participation
construction loan which became delinquent during the second quarter of 1999 and
is currently in the process of foreclosure. The Bank has established a $40,000
specific reserve against this loan and has classified this loan as substandard.
The Bank's allowance for loan losses was $580,000 at September 30, 1999, which
is equal to 62.17% of total non-performing loans and .57% of net loans
receivable.
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 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. Non-interest income, exclusive of unrealized losses on
trading securities, declined during the quarter by $34,000 to $152,000 from
$186,000 in the same quarter last year. During the third quarter of 1998, the
Company sold the deposits of its East Chicago branch to a local institution and
recorded the gain from the sale of $27,000. In addition, decreases in loan fee
related income of $8,000 in commission of $7,000 were offset by increased other
operating income of $7,000, primarily from an increase in cash surrender value
from insurance policies.
Non-Interest Expense. Non-interest expense for the three months ended September
30, 1999 decreased $26,000, or 3.65%, to $687,000 compared to $713,000 for the
three months ended September 30, 1998. Most major expense categories declined
slightly with the exception of data processing which increased by $5,000 due
primarily to a new remote banking system and additional Y2K programming and
testing expense.
Income Taxes. The Company recorded a provision for income taxes of $14,000 for
the three months ended September 30, 1999 as compared to an income tax benefit
of $171,000 for the three months ended September 30, 1998. The Company's
effective tax rate declined during the current quarter due to the recognition of
$26,000 in low income housing tax credit provided through an investment in a
limited partnership organized to build, own and operate a 56 unit low income
housing apartment complex.
11
<PAGE>
Comparison of Operating Results for the Nine Months Ended September 30, 1999
and 1998
General. The Company's net income increased to $507,000, or $.68 per diluted
share for the nine months ended September 30, 1999, from $65,000, or $.07 per
diluted share for the nine months ended September 30, 1998. The Company's prior
year's period was affected by an unrealized loss on trading securities of
$652,000 as compared to the current year's period unrealized loss on trading
securities of $179,000.
Interest Income. Interest income amounted to $6.1 million, an increase of
$243,000 over the prior year's period. Although the average interest rate
decreased to 7.34% from 7.73% during the prior year's period, the average volume
of interest earning assets grew by $9.8 million. This higher volume is due
mostly to a higher volume of loans receivable which reflects the Company's
aggressive lending efforts. The decrease in the average yield on loans
receivable of 46 basis point is attributable to a higher level of refinance
activity in the Bank's loan portfolio.
Interest Expense. Interest expense increased $284,000, or 8.54%, for the nine
months ended September 30, 1999 compared to the prior year's period. The
increase was due primarily to an increase of $6.5 million in average deposits
and $5.3 million in average borrowed money, partially offset by a decrease in
the average interest rate to 4.64% from 4.82%. The Bank has been utilizing fixed
rate FHLB of Indianapolis advances to fund its increase in loans receivable.
Provisions for Loan Losses. The Bank provided $104,000 in provision for loan
losses during the current nine month period, compared to $85,000 for the prior
nine month period. The increase in the provision for losses on loans was due to
the continuing growth in loans receivable. The Bank will continue to review its
allowance for loan losses and make future provisions as economic and regulatory
conditions 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. Non-interest income, exclusive of unrealized losses on
trading securities, increased $103,000 to $620,000 for the nine months ended
September 30, 1999, compared to $517,000 for the nine months ended September 30,
1998. Gain on the sale of trading securities and securities available for sale
were a combined $109,000 for the nine months ended September 30, 1999 compared
to a gain of $42,000 increased by $43,000 for the nine months ended September
30, 1999, primarily due to income from bank-owned life insurance.
Non-Interest Expense. Non-interest expense for the nine months ended September
30, 1999 decreased $129,000, or 5.82%, to $2.1 million compared to $2.2 million
for the nine months ended September 30, 1998. Staffing costs declined by $70,000
for the nine
12
<PAGE>
months ended September 30, 1999 primarily due to decreased benefit expense and a
$44,000 paid and expensed during the first quarter of 1998 that did not occur
the 1999 period. In addition, decreases in occupancy and equipment expenses of
$27,000 were offset by an increase in data processing costs of $24,000. Other
non-interest expense also decreased by $52,000 due to decreases in professional
service fees and increased efficiencies in operations.
Income Taxes. The Company recorded a provision for income taxes of $251,000 for
the nine months ended September 30, 1999 as compared to $48,000 for the nine
months ended September 30, 1998. The increased tax provision is a result of an
increase in pre-tax income.
Liquidity and Capital Resources
The Company's principal sources of funds are deposits, proceeds from
principal and interest payments on loans (including mortgage-backed
securities), sales or maturities of investment securities, advances from
the FHLB of Indianapolis and income from operations. While scheduled loan
repayments and maturing investments are relatively predictable, deposit
flows and early loan repayments are more influenced by interest rates,
floors and caps on loan rates, general economic conditions and competition.
The primary business activity of the Company, that of making conventional
mortgage loans on residential housing, is likewise affected by economic
conditions.
Current Office of Thrift Supervision regulations require the Bank to
maintain cash and eligible investments in an amount equal to at least 4% of
short-term customer accounts and borrowings to assure its ability to meet
demands for withdrawals and repayment of short-term borrowings. Liquid
assets for purposes of this ratio include cash, certain time deposits, U.S.
Government, government agency and corporate securities and other
obligations generally having remaining maturities of less than five years.
The Bank has historically maintained its liquidity ratio for regulatory
purposes at levels in excess of those required. At September 30, 1999, the
Bank's liquidity ratio for regulatory purposes was 10.35%.
The Company's most liquid assets are cash and cash equivalents, which
consist of interest-bearing deposits and short-term highly liquid
investments with original maturities of less than three months that are
readily convertible to known amounts of cash. The level of these is
dependent on the Company's operating, financing and investing activities
during any given period. At September 30, 1999 and December 31, 1998 cash
and cash equivalents totaled $3.8 million and $9.1 million respectively.
Liquidity management for the Company is both a daily and long-term function
of the Company's management strategy. Excess funds are generally invested
in short-term investments, such as overnight deposits. If the Company
requires funds beyond its ability to generate them internally, additional
funds are available through FHLB advances.
13
<PAGE>
The Company anticipates that it will have sufficient funds available to
meet current commitments. At September 30, 1999 the Company has outstanding
loan commitments totaling $716,000 and unused lines of credit granted
totaling $4.6 million.
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 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.
At September 30, 1999, the Bank had core capital equal to $7.8 million, or
6.61% of adjusted total assets, which was $4.3 million above the minimum
leverage ratio requirement of 3% in effect on that date. The Bank had total
capital of $8.4 million (including $7.8 million in core capital and
$540,000 in qualifying supplementary capital) and risk-weighted assets of
$66.6 million at September 30, 1999; or total risk-based capital of 12.54%
of risk-weighted assets at September 30, 1999. This amount was $3.1 million
above the 8% requirement in effect on that date.
Non-Performing Assets
The following table sets forth the amounts and categories of
non-performing assets in the Company's portfolio. Loans are reviewed
monthly and a loan whose collectability is doubtful is placed on
non-accrual status. Loans are placed on non-accrual status when principal
and interest is 90 days or more past due, unless, in the judgement of
management, the loan is well collateralized and in the process of
collection. Interest accrued and unpaid at the time a loan is placed on
non-accrual status is charged against interest income. Subsequent payments
are either applied to the outstanding principal balance or recorded as
interest income, depending on the assessment of the ultimate collectibility
of the loan. Restructured loans include troubled debt restructuring (which
involved forgiving a portion of interest principal on any loans or making
loans at a rate materially less than the market).
14
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------------- --------------------
(Dollars in thousands)
<S> <C> <C>
Non- accruing loans:
One to four family 358 397
Multi- family --- ---
Non- residential --- ---
Construction 504 ---
Consumer 71 86
---------------------- --------------------
Total 933 473
---------------------- --------------------
Foreclosed assets:
One to four family --- 23
Multi-family --- ---
Non-residential --- ---
Construction --- ---
Consumer --- ---
---------------------- --------------------
Total 0 23
---------------------- --------------------
Total non- performing assets 933 506
====================== ====================
Total as a percentage of total assets 0.76% 0.43%
====================== ====================
</TABLE>
For the nine months period ended September 30, 1999, gross income interest,
which would have been recorded, had the non-accruing loans been current in
accordance with their original terms amounted to $37,900.
In addition to the non-performing assets set forth in the table above, as
of September 30, 1999, there were no loans with respect to which known
information about the possible credit problems of the borrowers or the cash
flows of the security properties have caused management to have concerns as
to the ability of the borrowers to comply with present loan repayment terms
and which may result in the future inclusion of such items in the
non-performing asset categories.
Management has considered the Company's non-performing and "of concern"
assets in establishing its allowance for loan losses.
15
<PAGE>
Year 2000 Readiness Disclosure
General. The year 2000 ("Y2K") issues confronting the Company and its suppliers,
customers, customers' suppliers and competitors centers on the inability of
computer systems to recognize the year 2000. Many existing computer programs and
systems originally were programmed with six digit dates that provided only two
digits to identify the calendar year 1900 rather than the year 2000.
Financial institution regulators recently have increased their focus upon Y2K
compliance issues and have issued guidance concerning the responsibilities of
senior management and directors. The Federal Financial Institutions Examination
Council ("FFIEC") has issued several interagency statements on Y2K Project
Management Awareness. These statements require financial institutions to, among
other things, examine the Y2K implications of their reliance on vendors and with
respect to data exchange and the potential impact of the Y2K issue on their
customers, suppliers and borrowers. These statements also require each federally
regulated financial institution to survey its exposure, measure its risk and
prepare a plan to address the Y2K issue. In addition, the federal banking
regulators have issued safety and soundness guidelines to be followed by insured
depository institutions, such as the Bank, to assure resolution of any Y2K
problems. The federal banking agencies have asserted that Y2K testing and
certification is a key safety and soundness issue in conjunction with regulatory
exams and, thus, that an institution's failure to address appropriately the Y2K
issue could result in supervisory action, including the reduction of the
institution's supervisory ratings, the denial of applications for approval of
mergers or acquisitions or the imposition of civil money penalties.
American Savings, FSB understands the importance of the Y2K issue, and the Bank
is currently taking steps to insure a smooth transition into the next millenium.
The Senior Management Team of the Bank has decided to follow the guidelines
established by the Federal Financial Institutions Examination Council (FFIEC)
for Y2K preparation. The Bank has intended to meet all deadlines established by
the FFIEC, and to-date the Bank has satisfied all requirements.
A Steering Committee comprised of the Bank's department heads was established in
1998 to oversee and report all the events pertaining to the Y2K project. These
individuals are under the direct supervision of the Bank's CEO and prepare
regular reports to the Board of Directors.
Risks. Like most financial service providers, the Y2K issue due to its
dependence on technology and date-sensitive data may significantly affect the
Company and its operations. Computer software and hardware and other equipment,
both within and outside the Company's direct control, and third parties with
whom the Company electronically or operationally interfaces (including without
limitation its customers and third party vendors) are likely to be affected. If
computer systems are not modified in order to be able to identify the year 2000,
many computer applications could fail or create erroneous results. As a result,
many calculations which rely on date field information,
16
<PAGE>
such as interest, payment or due dates and other operating functions, could
generate results which are significantly misstated, and the Company could
experience an inability to process transactions, prepare statements or engage in
similar normal business activities. Likewise, under certain circumstances, a
failure to adequately address the Y2K issue could adversely affect the viability
of the Company's suppliers and creditors and the creditworthiness of its
borrowers. Thus, if not adequately addressed, the Y2K issue could result in a
significant adverse impact on the Company's operations and, in turn, its
financial condition and results of operations.
The Bank has adopted a five-phase plan to insure Y2K processing success. Many
aspects required for the plan's success have been completed, and are currently
undergoing minor improvement adjustments. The main categories of the five-phase
plan are as follows:
1. Awareness During this phase of the American Savings Y2K
program the senior management members attempted to gather
information relevant to the Bank's Y2K scenario. Information
was gathered from a variety of sources including seminars,
numerous publications and external consultants.
2. Assessment During the assessment phase of the Bank's Y2K
program each department of the Bank submitted information on
areas that presented a potential risk to the institution.
Members of the Y2K Steering Committee identified the "date
sensitive" systems and assigned a risk rating to the
individual items. The areas classified as "mission critical"
receive a higher priority rating from the committee.
3. Renovation Through out the renovation phase of Bank's Y2K
program systems were replaced or upgraded to insure Y2K
compliance. The costs associated with this phase were not
material during 1998 and a substantial change in 1999 is not
expected.
4. Testing American Savings performed internal testing on all
in-house systems and some systems under the control of service
providers. Proxy tests were used to test the integrity of the
Bank's core application system. The senior management of the
Bank is currently satisfied with the progress of the test
results.
5. Contingency American Savings contingency plan is designed to
address the areas deemed by the Y2K committee as mission
critical. The Bank followed the guidelines of the FFIEC for
the preparation of its Y2K contingency plan. In the event of a
mission critical failure the contingency plan will assist
management in implementing short and long-term solutions to
the system failures. The key components covered in the
contingency plan are as follows:
17
<PAGE>
a) Management has developed the recovery team necessary
to invoke the contingency for any particular system.
b) The Bank has determined the acceptable levels of
service in a failure situation.
c) The plan outlines general details regarding
preparation of contingency planning needs.
d) Contingency plans for specific mission critical areas
have been developed to continue bank operation.
The Company is expensing all cost associated with training and software as those
costs are incurred, and such costs are being funded through operating cash
flows. Hardware cost will be capitalized and expensed under our fixed asset
guidelines. The updated total cost of the Y2K conversion project for the Company
is estimated to be $67,000. Expenses of approximately $62,000 were incurred and
expensed by the Company through September 30, 1999. Remaining expenses are
expected to occur during the fourth quarter of 1999. The Company does not expect
significant increases in future data processing costs related to Y2K compliance.
While we believe this amount will be sufficient to complete the requirements of
becoming Y2K compliant, it is an estimate. As such we will review our budget
monthly to help ensure that we have allocated sufficient resources to this
project. Any deviations to the budget will be reported to the Board of
Directors.
Recent Developments
The Company declared a cash dividend of $.08 per share, payable on
November 26, 1999 to shareholders of record on November 12, 1999.
The Company announced its intention to repurchase up to 100,000 shares
in the open market over a twelve-month period. The shares will be
purchased at prevailing market prices from time to time depending upon
market conditions. The repurchased shares will become treasury stock.
18
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
-----------------
From time to time, the Bank is a party to legal proceedings in
the ordinary course of business, wherein it enforces its
security interest. The Company and the Bank are not engaged in
any legal proceedings of a material nature at the present
time.
Item 2. CHANGES IN SECURITIES
---------------------
None.
Item 3. DEFAULTS UPON SENIOR SECURITIES
-------------------------------
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
None.
Item 5. OTHER INFORMATION
-----------------
Not applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Computation of earnings per share (Exhibit 11 filed
herewith)
(b) Financial Data Schedule (Exhibit 27 filed herewith)
(c) No reports on Form 8-K were filed this quarter
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 and 15 (d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMB FINANCIAL CORP.
-------------------
Registrant
Date: October 28, 1999
By: /s/ Clement B. Knapp, Jr.
-----------------------------------------
Clement B. Knapp, Jr.
President and Chief Executive Officer
(Duly Authorized Representative)
By: /s/ Daniel T. Poludniak
------------------------------------------------
Daniel T. Poludniak
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
20
<PAGE>
INDEX TO EXHIBIT
Exhibit No. Page No.
11 Statement re: Computation of Earnings Per Share 22
27 Financial Data Schedule 23
21
EXHIBIT 11
<TABLE>
<CAPTION>
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Three Months Nine Months
Ended Ended
September 30, 1999 September 30, 1999
<S> <C> <C>
Net Income $ 105,951 507,021
======================== =========================
Weighted average shares outstanding
for basic EPS computation 751,564 808,057
Reduction for common shares not yet
Released by Employee Stock Ownership Plan (58,455) (62,951)
------------------------ -------------------------
Total weighted average common shares
Outstanding for basic computation 693,109 745,106
======================== =========================
Basic earnings per share $0.15 $0.68
======================== =========================
Total weighted average common shares
Outstanding for basic computation 693,109 745,106
Common stock equivalents due to
dilutive effect of stock options 5,467 1,621
------------------------ -------------------------
Total weighted average common shares and
Equivalents outstanding for diluted
Computation 698,576 746,727
======================== =========================
Diluted earnings per share $0.15 $0.68
======================== =========================
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS LEGEND CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FORM 10 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,610,227
<INT-BEARING-DEPOSITS> 881,613
<FED-FUNDS-SOLD> 300,000
<TRADING-ASSETS> 1,953,999
<INVESTMENTS-HELD-FOR-SALE> 7,973,012
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 101,193,811
<ALLOWANCE> 579,694
<TOTAL-ASSETS> 122,426,382
<DEPOSITS> 81,910,804
<SHORT-TERM> 12,000,000
<LIABILITIES-OTHER> 1,814,496
<LONG-TERM> 15,067,043
11,241
0
<COMMON> 0
<OTHER-SE> 11,622,798
<TOTAL-LIABILITIES-AND-EQUITY> 122,426,382
<INTEREST-LOAN> 5,471,584
<INTEREST-INVEST> 649,849
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 6,121,433
<INTEREST-DEPOSIT> 2,654,109
<INTEREST-EXPENSE> 3,614,772
<INTEREST-INCOME-NET> 2,506,661
<LOAN-LOSSES> 103,626
<SECURITIES-GAINS> (69,895)
<EXPENSE-OTHER> 2,086,405
<INCOME-PRETAX> 758,191
<INCOME-PRE-EXTRAORDINARY> 758,191
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 507,021
<EPS-BASIC> 0.68
<EPS-DILUTED> 0.68
<YIELD-ACTUAL> 3.01
<LOANS-NON> 933,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 506,534
<CHARGE-OFFS> 36,956
<RECOVERIES> 6,490
<ALLOWANCE-CLOSE> 579,694
<ALLOWANCE-DOMESTIC> 579,694
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
