UNITED STATES
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, 1999
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
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Commission File Number 0-23182
AMB FINANCIAL CORP.
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(Exact Name of Small Business Registrant as Specified in its Charter)
Delaware 35-1905382
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8230 Hohman Avenue, Munster, Indiana 46321-1578
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (219) 836-5870
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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 $0.01 per share
---------------------------------------
(Title of class)
Check whether the Registrant (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 Registrant 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 Registrant'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 Registrant had $8.9 million in gross income for the year ended
December 31, 1999.
<PAGE>
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, computed by reference to the average of the bid and asked
price of such stock as of December 31, 1999 was $5.8 million. (The exclusion
from such amount of the market value of the shares owned by any person shall not
be deemed an admission by the Registrant that such person is an affiliate of the
Registrant.)
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-KSB - 1999 Annual Report to
Stockholders. Part III of Form 10-KSB - Proxy Statement for the
2000 Annual Meeting of Stockholders.
<PAGE>
FORWARD-LOOKING STATEMENTS
AMB Financial Corp., and its wholly-owned subsidiary, American Savings,
FSB, may from time to time make written or oral "forward-looking statements,"
including statements contained in its filings with the Securities and Exchange
Commission. These forward-looking statements may be included in this Annual
Report on Form 10-KSB and the exhibits attached to it, in AMB Financial's
reports to shareholders and in other communications, which are made in good
faith by us pursuant to the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995.
These forward-looking statements include statements about our beliefs,
plans, objectives, goals, expectations, anticipations, estimates and intentions,
that are subject to significant risks and uncertainties, and are subject to
change based on various factors, some of which are beyond our control. The words
"may", "could", "should", "would", "believe", "anticipate", "estimate",
"expect", "intend", "plan" and similar expressions are intended to identify
forward-looking statements. The following factors, among others, could cause our
financial performance to differ materially from the plans, objectives,
expectations, estimates and intentions expressed in the forward-looking
statements:
o the strength of the United States economy in general and the
strength of the local economies in which we conduct operations;
o the effects of, and changes in, trade, monetary and fiscal
policies and laws, including interest rate policies of the
Federal Reserve Board;
o inflation, interest rate, market and monetary fluctuations;
o the timely development of and acceptance of our new products and
services and the perceived overall value of these products and
services by users, including the features, pricing and quality
compared to competitors' products and services;
o the willingness of users to substitute our products and services
for products and services of our competitors;
o our success in gaining regulatory approval of our products and
services, when required;
o the impact of changes in financial services' laws and regulations
(including laws concerning taxes, banking, securities and
insurance);
o the impact of technological changes;
o acquisitions;
o changes in consumer spending and saving habits; and
o our success at managing the risks involved in the foregoing.
The list of important factors stated above is not exclusive. We do not
undertake to update any forward-looking statement, whether written or oral, that
may be made from time to time by or on behalf of AMB Financial or American
Savings.
2
<PAGE>
PART I
Item 1. Description of Business
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AMB Financial Corp., was formed in 1993 by American Savings, FSB 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. In March 1996, American Savings
converted to the stock form of organization through the sale and issuance of
1,124,125 shares of its common stock to AMB Financial. The principal asset of
AMB Financial is the outstanding stock of American Savings. AMB Financial
presently has no separate operations and its business consists only of the
business of American Savings. All references to AMB Financial, unless otherwise
indicated, at or before March 29, 1996 refer to American Savings. References in
this Form 10- KSB to "we", "us" and "our" refer to AMB Financial and/or American
Savings as the context requires.
We are a community-based financial institution that offers a variety of
selected financial services to meet the needs of the community we serve. We
attract deposits from the general public and use such deposits to originate and
purchase one- to four-family residential mortgage and, to a lesser extent, non-
residential, multi-family real estate, commercial business, consumer and land
loans. We also invest 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."
We serve the financial needs of families and local businesses in our
primary market area, northwest Lake County, Indiana, through our main office
located in Munster, Indiana and two branch offices located in the communities of
Dyer and Hammond, Indiana. Our deposits are insured up to applicable limits by
the FDIC. At December 31, 1999, we had total assets of $127.8 million, deposits
of $88.9 million and stockholders' equity of $11.5 million or 9.03% of total
assets.
Our executive office is located at 8230 Hohman Avenue, Munster, Indiana
46321-1578 and its telephone number at that address is (219) 836-5870.
Lending Activities
Our principal lending activity is originating and, to a lesser extent,
purchasing first mortgage loans secured by owner-occupied one- to four-family
residential properties located in our primary market areas. We also originate
and purchase non-residential real estate, multi-family, commercial business,
consumer and land loans. In addition to increasing the yield and/or the interest
rate sensitivity of our portfolio, these non-one- to four family loans allow us
to provide more comprehensive financial services to families and community
businesses in our primary market area.
3
<PAGE>
Loan Portfolio Composition
The following table sets forth information concerning the composition
of our loan portfolio in dollar amounts and in percentages (before deductions
for loans in process, net deferred yield adjustments and allowances for losses)
as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
------------------- ------------------- ------------------- ------------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
- -----------------
One- to four-family.............. $82,210 76.11% $63,369 69.69% $51,567 64.71% $43,669 63.41%
Multi-family..................... 2,144 1.98 2,446 2.69 4,010 5.03 3,259 4.73
Non-residential.................. 8,775 8.12 10,370 11.40 8,376 10.51 8,806 12.79
Construction..................... 4,279 3.96 2,522 2.77 4,450 5.59 4,406 6.40
Land............................. 632 0.59 1,227 1.35 1,264 1.59 217 0.32
------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans...... 98,040 90.76 79,934 87.90 69,667 87.43 60,357 87.65
------- ------ ------- ------ ------- ------ ------- ------
Other Loans:
- -----------
Consumer Loans:
Deposit account................. 147 0.13 172 0.19 165 0.21 185 0.27
Credit Card..................... 439 0.41 414 0.46 405 0.51 430 0.63
Home improvement................ --- --- 10 0.01 11 0.01 15 0.01
Line of credit.................. 3,336 3.09 3,552 3.91 3,259 4.09 2,968 4.31
Other .......................... 1,059 0.98 1,244 1.37 1,264 1.58 1,391 2.02
------- ------ ------- ------ ------- ------ ------- ------
Total consumer loans ....... 4,981 4.61 5,392 5.93 5,104 6.40 4,989 7.24
------- ------ ------- ------ ------- ------ ------- ------
Commercial business loans........ 4,999 4.63 5,607 6.17 4,916 6.17 3,519 5.11
------- ------ ------- ------ ------- ------ ------- ------
Total loans receivable....... 108,020 100.00% 90,933 100.00% 79,687 100.00% 68,865 100.00%
====== ====== ====== =======
Less:
- ----
Loans in process................. 1,523 569 1,975 910
Net deferred yield adjustments... (4) 95 209 234
Allowance for losses............. 591 507 410 355
------- ------- ------- -------
Total loans receivable, net...... $105,910 $89,762 $77,093 $67,366
======== ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1995
------------------
Amount Percent
------ -------
<S> <C> <C>
Real Estate Loans:
- -----------------
One- to four-family.............. $38,056 68.60%
Multi-family..................... 3,419 6.16
Non-residential.................. 4,146 7.47
Construction..................... 3,194 5.76
Land............................. 223 0.40
------- ------
Total real estate loans...... 49,038 88.39
------- ------
Other Loans:
- -----------
Consumer Loans:
Deposit account................. 223 0.40
Credit Card..................... 368 0.67
Home improvement................ 12 0.01
Line of credit.................. 2,745 4.96
Other .......................... 673 1.21
-------- -------
Total consumer loans......... 4,021 7.25
-------- -------
Commercial business loans........ 2,420 4.36
-------- -------
Total loans receivable....... 55,479 100.00%
======
Less:
- ----
Loans in process................. 268
Net deferred yield adjustments... 213
Allowance for losses............. 359
--------
Total loans receivable, net...... $54,639
=======
</TABLE>
4
<PAGE>
The following table shows the composition of our loan portfolios by
fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------
1999 1998 1997 1996
------------------- ------------------- ------------------- ------------------
Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
- ----------------
Real estate:
One- to four-family............... $ 50,067 46.35% $39,243 43.16% $38,967 48.90% $33,248 48.28%
Multi-family...................... 618 0.57 688 0.76 1,847 2.32 1,999 2.90
Non-residential................... 5,160 4.78 2,685 2.95 3,364 4.22 2,917 4.24
Construction...................... 3,799 3.52 1,242 1.37 2,893 3.63 --- ---
Land.............................. 286 0.27 338 0.37 211 0.27 --- ---
-------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans........ 59,930 55.49 44,196 48.60 47,282 59.34 38,164 55.42
-------- ------ ------- ------ ------- ------ ------- ------
Consumer........................... 1,645 1.52 1,840 2.02 1,845 2.31 1,588 2.31
Commercial business................ 3,227 2.99 5,026 5.53 3,828 4.80 3,252 4.72
-------- ------ ------- ------ ------- ------ ------- ------
Total fixed-rate loans......... 64,802 60.00 51,062 56.15 52,955 66.45 43,004 62.45
-------- ------ ------- ------ ------- ------ ------- ------
Adjustable-Rate Loans:
- ---------------------
Real estate:
One- to four-family............... 32,143 29.76 24,126 26.53 12,600 15.81 10,421 15.13
Multi-family...................... 1,526 1.41 1,758 1.93 2,163 2.71 1,260 1.83
Non-residential................... 3,615 3.34 7,685 8.45 5,012 6.29 5,889 8.55
Construction...................... 480 0.44 1,280 1.41 1,557 1.96 4,406 6.40
Land ............................. 346 0.32 889 0.98 1,053 1.32 217 0.32
-------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans........ 38,110 35.27 35,738 39.30 22,385 28.09 22,193 32.23
-------- ------ ------- ------ ------- ------ ------- ------
Consumer........................... 3,336 3.09 3,552 3.91 3,259 4.09 3,401 4.93
Commercial business................ 1,772 1.64 581 0.64 1,088 1.37 267 0.39
-------- ------ ------- ------ ------- ------ ------- ------
Total adjustable-rate loans.... 43,218 40.00 39,871 43.85 26,732 33.55 25,861 37.55
-------- ------ ------- ------ ------- ------ ------- ------
Total loans receivable......... 108,020 100.00% 90,933 100.00% 79,687 100.00% 68,865 100.00 %
====== ====== ====== =======
Less:
- ----
Loans in process................... 1,523 569 1,975 910
Net deferred yield adjustment...... (4) 95 209 234
Allowance for loan losses.......... 591 507 410 355
-------- ------- ------- -------
Total loans receivable, net..... $105,910 $89,762 $77,093 $67,366
======== ======= ======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Fixed-Rate Loans:
- ----------------
Real estate:
One- to four-family............... $30,512 55.00%
Multi-family...................... 2,102 3.79
Non-residential................... 2,021 3.64
Construction...................... --- ---
Land.............................. --- ---
------- ------
Total real estate loans........ 34,635 62.43
------- ------
Consumer........................... 1,272 2.29
Commercial business................ 2,089 3.76
------- -------
Total fixed-rate loans......... 37,996 68.48
------- ------
Adjustable-Rate Loans:
- ---------------------
Real estate:
One- to four-family............... 7,544 13.60
Multi-family...................... 1,317 2.37
Non-residential................... 2,125 3.83
Construction...................... 3,194 5.76
Land ............................. 223 0.40
------- --------
Total real estate loans........ 14,403 25.96
------- -------
Consumer........................... 2,749 4.96
Commercial business................ 331 0.60
------- --------
Total adjustable-rate loans.... 17,483 31.52
------- -------
Total loans receivable......... 55,479 100.00%
======
Less:
- ----
Loans in process................... 268
Net deferred yield adjustment...... 213
Allowance for loan losses.......... 359
-------
Total loans receivable, net..... $54,639
=======
</TABLE>
5
<PAGE>
The following table illustrates the interest rate sensitivity of the
loan portfolio at December 31, 1999. 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. This is shown 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
-----------------------------------------------------------------------------------------
Weighted Weighted Weighted Weighted
Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate
-----------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Due During the Period
Ending December 31,
2000....................... $ 997 8.38% $ 876 8.09% $3,106 8.22% $369 9.38%
2001 to 2002............... 6,076 7.00 112 9.55 --- --- 92 7.67
2003 and 2004.............. 4,829 7.74 2,960 8.27 948 9.00 59 8.00
2005 to 2009............... 13,333 7.35 1,737 8.18 200 7.00 78 8.54
2010 to 2019............... 21,861 7.40 2,631 8.95 25 9.00 34 9.00
2020 and following......... 35,114 7.33 2,603 8.00 --- --- --- ---
------- ---- ------- ---- ------ ---- ---- ----
Total................... $82,210 7.36% $10,919 8.35% $4,279 8.34% $632 8.88%
======= ======= ====== ====
<CAPTION>
Commercial
Consumer Business Total
---------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Amount Rate Amount Rate Amount Rate
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Due During the Period
Ending December 31,
2000....................... $3,989 10.16% $1,271 8.71% $10,608 9.05%
2001 to 2002............... 428 7.68 1,571 9.56 8,279 7.56
2003 and 2004.............. 472 8.05 823 9.24 10,091 8.15
2005 to 2009............... 16 8.00 1,334 6.72 16,698 7.38
2010 to 2019............... 76 8.32 --- --- 24,627 7.57
2020 and following......... --- --- --- --- 37,717 7.38
----- ---- ------ ---- -------- ----
Total................... $4,981 9.71% $4,999 8.53% $ 108,020 7.63%
====== ====== =========
</TABLE>
The total amount of loans due after December 31, 2000 which have
predetermined interest rates is $70.1 million. The total amount of loans due
after such dates which have floating or adjustable interest rates is $27.3
million.
6
<PAGE>
Under federal law, the aggregate amount of loans that we are 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, 1999,
our regulatory loan-to-one borrower limit was approximately $1.2 million. On the
same date, we had no borrowers with outstanding balances in excess of this
amount. As of December 31, 1999, the largest dollar amount of indebtedness to
one borrower or group of related borrowers was $1.1 million in loans secured by
non-residential property. Such loans are performing in accordance with their
terms.
All of our lending is subject to its written underwriting standards and
to loan origination procedures. Decisions on loan applications are made on the
basis of detailed applications and property valuations by qualified independent
appraisers. Loans greater than $500,000 must be approved by the Board of
Directors after review and preliminary approval by the Loan Committee. 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, we require title insurance on our 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. We also require 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
our lending program is the origination of long-term permanent loans secured by
mortgages on owner-occupied one- to four- family residences. At December 31,
1999, $82.2 million, or 76.11% of our loan portfolio consisted of permanent
loans on one- to four-family residences. At that date, the average outstanding
residential loan balance was $79,100 and the largest outstanding residential
loan had a principal balance of $800,000. Virtually all of the residential loans
originated by us are secured by properties located in our market area. However,
we have purchased a number of one-to-four family residential loans secured by
properties located elsewhere in the United States. See "- Originations, Sales
and Purchases of Loans."
We originate 30-year fixed rate loans secured by one- to four-family
residential real estate as a result of continued consumer demand. We monitored
the fixed rate loans to ensure compliance with our asset/liability management
policy. At December 31, 1999, we had $21.5 million of fixed-rate residential
loans with less than 10 years to maturity, $15.7 million of fixed-rate
residential loans with maturities between 10 and 20 years and $12.9 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 annual report to
stockholders filed as Exhibit 13 hereto.
In addition, we originate and acquire adjustable rate mortgage and
balloon loans to reduce our exposure to changes in interest rates. We retain and
service all adjustable rate mortgages and balloon loans originated by us. We
make adjustable rate mortgage loans at rates, terms and points determined in
accordance with market and competitive factors. Our current one- to four-family
residential adjustable rate mortgages are fully amortizing loans with
<PAGE>
contractual maturities of up to 30 years. The interest rates on the adjustable
rate mortgages originated by us 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 our
adjustable rate mortgages are generally limited to 5% above or below the initial
interest rate over the life of the loan. We also originate balloon payment loans
normally due seven years from date of origination and amortized over 30 years.
Our adjustable rate mortgages are not convertible into fixed-rate loans, do not
contain prepayment penalties and do not produce negative
7
<PAGE>
amortization. Adjustable rate mortgage loans may be assumed provided home buyers
meet our underwriting standards and the applicable fees are paid. At December
31, 1999, the total balance of one- to four-family adjustable rate mortgages was
$32.1 million.
We evaluate both the borrower's ability to make principal, interest and
escrow payments and the value of the property that will secure the loan. We
originate 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,
we will generally require private mortgage insurance in an amount intended to
reduce our exposure to 80% or less of the appraised value of the underlying
property.
As of December 31, 1999, we had 25 one- to four-family residential
mortgage loans having an aggregate balance of $8.3 million with current balances
in excess of the 1999 Freddie Mac maximum, $240,000. Our delinquency experience
on our loans in excess of this maximum has been similar to its experience on its
other residential loans.
Our residential mortgage loans customarily include due-on-sale clauses
giving us 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. During 1999 and
1998, we purchased $11.8 million and $11.5 million respectively, of adjustable
rate one- to four-family first mortgage loans.
Multi-Family and Non-Residential Real Estate Lending. We both originate
and, to a lesser extent purchase, permanent multi-family and non-residential
real estate loans in our primary market area. We have increased these portfolios
in recent years in accordance with our asset/liability management policy. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Asset/Liability Management" in our 2000 annual report. At December
31, 1999, we had $10.9 million in multi-family and non-residential real estate
loans, representing 10.10% of the gross loan portfolio.
The multi-family loan portfolio includes loans secured by five or more
unit residential buildings located primarily in our primary market area. Our
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.
We originate and purchase both adjustable-and fixed-rate multi-family
and non-residential real estate loans. Rates on our adjustable-rate multi-family
and non-residential real estate loans generally adjust in a manner consistent
with our one- to four-family residential adjustable rate mortgages. 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 and
normally have terms up to 25 years.
Appraisals on properties securing multi-family and non-residential real
estate loans originated by us are performed by a qualified independent appraiser
at the time the loan is made. In addition, our 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 multi-family and
non-residential real estate loans.
<PAGE>
Substantially all of the multi-family residential and non-residential
real estate loans originated by us are secured by properties located within 50
miles of one or more of our offices.
The table below sets forth by type of security property the estimated
number, loan amount and outstanding balance of our multi-family and
non-residential real estate loans at December 31, 1999.
8
<PAGE>
<TABLE>
<CAPTION>
Outstanding
Number of Original Principal
Loans Loan Amount Balance
--------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Multi-family................ 7 $ 2,961 $ 2,144
Office...................... 5 830 793
Retail...................... 4 389 345
Commercial building......... 8 2,422 2,337
Auto service/repair......... 1 244 228
Restaurants................. 4 828 483
Hotel....................... 5 2,949 2,770
Nursing home................ 1 500 473
Other....................... 11 1,459 1,346
-- --------- ---------
Total.................... 46 $12,582 $10,919
== ======= =======
</TABLE>
At December 31, 1999, the largest multi-family and largest
non-residential real estate loans totaled $501,000 and $1.1 million,
respectively. As of December 31, 1999, none of these loans were 60 days or more
delinquent and were otherwise performing in accordance with their terms.
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, 1999, we had no multi-family loans which were 90 days
or more delinquent.
Construction Lending. We make 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, 1999, we had three construction loans with outstanding aggregate
balances of $1.2 million (including an additional $835,000 in undisbursed loan
proceeds) secured by one- to four- family residential property to borrowers
intending to live on the properties upon completion of construction. Subject to
future market conditions, we intend to continue construction lending activities
to persons intending to be owner occupants.
<PAGE>
We also make loans to builders and developers to finance the
construction of residential property. Such loans generally have adjustable
interest rates based upon prime with terms 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 pre-sold, which may carry a higher risk, the loan- to
value ratio is generally limited to 75%. Whether we are willing to provide
permanent takeout
9
<PAGE>
financing to the purchaser of the home is determined independently of the
construction loan by a separate underwriting process. At December 31, 1999, we
had four construction loans with outstanding aggregate balances of $519,000
(including an additional $143,000 in undisbursed loan proceeds) secured by one-
to four-family residential property built on speculation.
We also provide construction financing on multi-family housing.
However, there were no loans of this type were outstanding as of December 31,
1999. Additionally, we do occasionally participate with other lenders in loans
to developers and builders to finance family housing and commercial property
construction. At December 31, 1999, we were involved in four participation
construction loans with an outstanding aggregate balance of $2.5 million
(including an additional $540,000 in undisbursed loan proceeds).
Construction lending generally affords us 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. Our 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, we 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, we may be required to modify the terms of the
loan.
We had one non-performing construction loan outstanding as of December
31, 1999, amounting to $519,000. This loan was originally a $500,000
non-residential construction loan participation in a strip shopping center in
Goshen, Indiana. We have a 35% participation interest in the loan. The increased
balance at December 31, 1999 is primarily attributable to capitalized legal
fees. The construction on the property is completed and tenants are currently
being sought. The loan balance became delinquent during the second quarter of
1999 and is in foreclosure with a receiver appointed. We have established a
$40,000 specific reserve against this loan as of December 31, 1999.
Land Lending. Land loans, which include vacant land and developed lots,
are made to various builders and developers with whom we have had long-standing
relationships. All of such loans are secured by land zoned for residential
developments and located within our 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, 1999, we
had $632,000 in loans secured by land, or 0.59% of our entire gross loan
portfolio.
10
<PAGE>
Land lending generally affords us 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, 1999, we have not experienced significant losses in
connection with our land lending. See "Delinquencies and Non-Performing Assets."
Consumer Lending. We believe that offering consumer loan products helps
to expand the customer base and to create stronger ties to the existing customer
base. In addition, because consumer loans generally have shorter terms to
maturity and carry higher rates of interest than do residential mortgage loans,
they can be valuable asset/liability management tools. We currently originate
substantially all of our consumer loans in our market area. At December 31,
1999, the consumer loans totaled $5.0 million or 4.61% of the gross loan
portfolio.
We offer a variety of secured consumer loans, including home equity
lines of credit, home improvement loans, loans secured by savings deposits and
automobile loans. Although we primarily originate consumer loans secured by real
estate, deposits or other collateral, we also, on occasion, make unsecured
personal loans.
Our home equity loans are generally limited to $100,000. We use the
same underwriting standards for home equity lines of credit as we use for one-
to four-family residential mortgage loans. 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, 1999, we had $3.3 million of home equity lines
of credit and an additional $2.7 million of additional funds committed, but
undrawn, under such lines.
We also offer a Visa credit card program. At December 31, 1999,
approximately 417 credit cards had been issued, with an aggregate outstanding
loan balance of $439,000 and unused credit available of $850,000. We presently
charge 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 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.
<PAGE>
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
11
<PAGE>
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, 1999, $101,000, or approximately 2.03% of the consumer loan
portfolio, was 60 days or more delinquent. There can be no assurance that
delinquencies will not increase in the future.
Commercial Business Lending. We maintain a portfolio of commercial
business loans to increase the yield and interest rate sensitivity of our loan
portfolio and to satisfy the demand for financial services in our primary market
area. Unlike residential mortgage loans, which generally are made on the basis
of the borrower's ability to make repayment, 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, we have originated and purchased commercial business
loans to businesses such as small retail operations, small manufacturing
concerns and professional firms. Our 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 our 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.
Since 1995, we have purchased seasoned commercial leases covering
various types of office/commercial equipment from another financial institution
with expertise in originating and acquiring such leases. As of December 31,
1999, the outstanding balance on these leases was $821,000. 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 selling institution continues to service the leases for us and
provides limited recourse in the event of a default by the lessor. We 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 our 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 our 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, 1999, all of such
leases were performing in accordance with their terms.
Originations, Purchases and Sales of Loans
We originate real estate and other loans through marketing efforts, our
customer base, walk-in customers and referrals from real estate brokers and
builders. In addition, we occasionally utilize the services of mortgage brokers.
<PAGE>
We purchase loans from third parties to supplement loan production. In
particular, we may purchase loans of a type which are not available or available
with favorable terms in our own market
12
<PAGE>
area. We generally use the same underwriting standards in evaluating loan
purchases as we do in originating loans. We will continue to evaluate loan
purchase opportunities as they arise and make purchases in the future depending
on market conditions.
We occasionally sell long-term fixed-rate loans. To date, most of our
loan sales have been made on a servicing released basis. At December 31, 1999,
approximately $37.1 million of the loan portfolio was serviced by others and we
did not service any loans for others.
Our ability to originate large dollar volumes of real estate loans may
be substantially reduced or restricted in periods of rising interest rates, with
a resultant decrease in related fee income and operating earnings. In addition,
our ability to sell loans may substantially decrease if potential buyers reduce
their purchasing activities.
13
<PAGE>
The following table shows our loan origination, purchase, sale and
repayment activities for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
--------------------------------------
<S> <C> <C> <C>
Originations by type:
- --------------------
Adjustable rate:
Real estate - one- to four-family.................. $ 2,463 $ 1,979 $ 3,444
- multi-family....................... --- --- ---
- non-residential.................... 410 1,884 1,014
- construction....................... --- --- 772
- land............................... --- 370 ---
Non-real estate - consumer......................... 4,013 4,261 3,565
- commercial business........... 2,814 1,608 677
-------- -------- -------
Total adjustable-rate....................... 9,700 10,102 9,472
-------- -------- -------
Fixed rate:
Real estate - one- to four-family.................. 9,866 10,243 7,096
- multi-family....................... 344 --- 35
- non-residential.................... 2,748 1,050 160
- construction....................... 1,110 664 2,707
- land............................... --- 176 192
Non-real estate - consumer......................... 1,540 1,568 1,543
- commercial business........... --- 2,118 531
-------- -------- -------
Total fixed-rate............................ 15,608 15,819 12,264
------- ------ -------
Total loans originated...................... 25,308 25,921 21,736
-------- -------- -------
Purchases:
- ---------
Real estate - one- to four-family.................. 20,408(1) 11,539(1) 3,797
- multi-family....................... --- 459 491
- non-residential.................... 510 --- 500
- construction....................... 2,910 1,306 272
Non-real estate - consumer......................... --- 483 ---
- commercial business........... 284 700 1,813
-------- -------- -------
Total loans purchased....................... 24,112 14,487 6,873
-------- -------- -------
Total additions............................. 49,420 40,408 28,609
-------- -------- -------
Total loans sold............................ --- --- ---
Principal repayments............................... 32,297 27,756 18,851
-------- -------- -------
Net before other items...................... 17,123 12,652 9,758
Increase (decrease) in other items, net.............. (975) 17 (31)
-------- -------- -------
Net increase................................ $ 16,148 $ 12,669 $ 9,727
======== ======== =======
</TABLE>
- -----------
<PAGE>
(1) Consisted primarily of conforming adjustable rate mortgage's secured by
one-to-four family properties located out of our market area.
Delinquencies and Non-Performing Assets
Delinquency Procedures. When a borrower fails to make a required
payment on a loan, we attempt 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 along with any required demand letters as
set forth in the loan contract are 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.
14
<PAGE>
If the delinquency is not cured by the 90th day, the customer is
normally 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. We may agree to accept a
deed in lieu of foreclosure. If it becomes necessary to foreclose, the property
is sold at public sale and we 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. Our procedure for repossession and
sale of consumer collateral are subject to various requirements under Indiana
consumer protection laws.
When we acquire real estate as a result of foreclosure or by deed in
lieu of foreclosure it is classified real estate owned until it is sold. The
real estate 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.
Loan Delinquencies. The following table sets forth loan delinquencies
by type, by amount and by percentage of type at December 31, 1999.
<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 $267 .32% 4 $282 .34% 10 $ 549 .66%
Multi-family............. --- --- --- --- --- --- --- --- ---
Non-residential.......... --- --- --- --- --- --- --- --- ---
Construction............. --- --- --- 1 519 12.13 1 519 12.13
Land..................... --- --- --- --- --- --- --- --- ---
Consumer................... 4 90 1.81 4 11 .22 8 101 2.03
Commercial business........ 2 128 2.56 3 157 3.14 5 285 5.70
-- ---- ---- --- --- ---- --- ------ ----
Total................. 12 $485 .45% 12 $969 .90% 24 $1,454 1.35%
== ==== === == ==== === == ====== ====
</TABLE>
15
<PAGE>
Classified Assets. Federal regulations provide for the classification
of loans and other assets, such as debt and equity securities considered by the
Office of Thrift Supervision to be of lesser quality, as "substandard,"
"doubtful" or "loss." An asset is considered "substandard" if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. "Substandard" assets include those characterized by
the "distinct possibility" that the insured institution will sustain "some loss"
if the deficiencies are not corrected. Assets classified as "doubtful" have all
of the weaknesses inherent in those classified "substandard," with the added
characteristic that the weaknesses present make "collection or liquidation in
full," on the basis of currently existing facts, conditions, and values, "highly
questionable and improbable." Assets classified as "loss" are those considered
"uncollectible" and of such little value that their continuance as assets
without the establishment of a specific loss reserve is not warranted. Assets
which do not currently expose the insured institution to sufficient risk to
warrant classification in one of the aforementioned categories but possess
weaknesses are placed on a "watch list" by management.
When an insured institution classifies problem assets as either
substandard or doubtful, it may establish general allowances in an amount deemed
prudent by management to cover probable losses. General allowances represent
loss allowances which have been established to cover probable losses associated
with lending activities, but which, unlike specific allowances, have not been
allocated to particular problem assets. When an insured institution classifies
problem assets as "loss," it is required either to establish a specific
allowance for losses equal to 100% of that portion of the asset so classified or
to charge-off such amount. An institution's determination as to the
classification of its assets and the amount of its valuation allowances is
subject to review by the regulatory authorities, who may order the establishment
of additional general or specific loss allowances.
In connection with the filing of our periodic reports with the Office
of Thrift Supervision and in accordance with our classification of assets
policy, we regularly review the problem loans in our portfolio to determine
whether any loans require classification in accordance with applicable
regulations. On the basis of this review of our assets, at December 31, 1999, we
had classified a total of $969,000 of our loans and other assets of concern, as
follows:
<TABLE>
<CAPTION>
One- to Four- Commercial
Family Construction Consumer Business Total
------------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Substandard............... $282 $479 $11 $157 $929
Doubtful.................. --- --- --- --- ---
Loss...................... --- 40 --- --- 40
---- ---- --- ---- ----
$282 $519 $11 $157 $969
==== ==== === ==== ====
</TABLE>
Our 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 Office of Thrift
Supervision and FDIC.
16
<PAGE>
Non-Performing Assets. The following table sets forth the amounts and
categories of non- performing assets in our 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, we have 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."
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1999 1998 1997 1996 1995
-------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family........................... $282 $314 $263 $269 $318
Multi-family.................................. --- --- --- --- ---
Non-residential............................... --- --- --- --- ---
Construction.................................. 479 --- --- --- ---
Consumer...................................... 11 161 45 36 51
Commercial business........................... 157 --- --- --- ---
------ ------ ------- ------ ------
Total...................................... 929 475 308 305 369
--- ---- ----- ----- -----
Accruing loans delinquent more than 90 days:
Consumer...................................... --- 8 --- --- ---
------ ------ ------- ------ ------
Foreclosed assets:
One- to four-family........................... --- 23 27 --- ---
Multi-family.................................. --- --- --- --- ---
Non-residential............................... --- --- --- --- ---
Construction.................................. --- --- --- --- ---
Consumer...................................... --- --- --- --- ---
Commercial business........................... --- --- --- --- ---
------ ------ ------- ------ ------
Total...................................... --- 23 27 -- ---
------ ----- ------ ------ ------
Total non-performing assets..................... $929 $506 $335 $305 $369
====== ===== ====== ====== ======
Total as a percentage of total assets........... 0.73% 0.43% 0.34% 0.35% 0.53%
====== ===== ====== ====== ======
</TABLE>
<PAGE>
Non-performing assets increased in 1999 due primarily to the
delinquency of the strip mall construction loans discussed under the caption
"Construction Lending" and three commercial business loans secured by
receivables and fixed assets totaling $157,000.
For the year ended December 31, 1999, gross interest income which would
have been recorded had the non-accruing loans been current in accordance with
their original terms amounted to $47,000.
At December 31, 1999, there were no other loans not included on the
table or discussed above where known information about the possible credit
problems of borrowers caused us to have serious
17
<PAGE>
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 based on our evaluation of the probable
losses in our loan portfolio and changes in the nature and volume of our loan
activity. Such evaluation, which includes a review of all loans for which full
collectibility may not be reasonably assured, considers among other matters, the
estimated fair value of the underlying collateral, economic conditions,
historical loan loss experience and other factors that warrant recognition in
providing for an adequate loan allowance. Although we believe we use the best
information available to make such determinations, future adjustments to the
allowance may be necessary, and net income could be significantly affected if
circumstances differ substantially from the assumptions used in making the
initial determinations. At December 31, 1999, we had an allowance for loan
losses of $591,000.
18
<PAGE>
The following table sets forth an analysis of the allowance for loan
losses.
<TABLE>
<CAPTION>
Year Ended December 31
1999 1998 1997 1996 1995
-------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period........... $507 $410 $355 $360 $331
Charge-offs:
One- to four-family.................... --- --- --- --- ---
Multi-family........................... --- --- --- --- ---
Non-residential........................ --- --- --- --- ---
Construction........................... --- --- --- --- ---
Consumer............................... 40 5 33 5 10
Commercial business.................... --- --- --- --- ---
------ ------- ------- ----- -----
Total charge-offs............... 40 5 33 5 10
----- ------- ------ ----- ----
Recoveries:
One- to four-family.................... --- --- --- --- ---
Multi-family........................... --- --- --- --- ---
Non-residential........................ --- --- --- --- ---
Construction........................... --- --- --- --- ---
Consumer............................... 5 --- 14 --- ---
Commercial business.................... --- --- --- --- ---
------ ------- ------ ----- -----
Total recoveries................. 5 --- 14 --- ---
------ ------- ----- ----- -----
Net charge-offs.......................... (35) (5) (19) (5) (10)
Additions charged to operations.......... 119 102 74 --- 39
----- ------ ------- -------- -------
Balance at end of period................. $591 $507 $410 $355 $360
==== ==== ==== ==== ====
Ratio of net charge-offs during the
period to average loans outstanding
during the period........................ 0.04% 0.01% 0.03% 0.01% 0.02%
==== ==== ==== ==== ====
Ratio of net charge-offs during the
period to average non-performing
assets................................... 4.62% 1.70% 4.15% 1.48% 2.30%
==== ==== ==== ==== ====
</TABLE>
19
<PAGE>
The distribution of the allowance for losses on loans at the dates
indicated is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------ ------------------------------ -----------------------------
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)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family..... $125 $82,210 76.11% $ 110 $63,369 69.69% $ 97 $51,567 64.71%
Multi-family............ 7 2,144 1.98 12 2,446 2.69 12 4,010 5.03
Non-residential......... 26 8,775 8.12 26 10,370 11.40 25 8,376 10.51
Construction and land... 136 4,911 4.55 19 3,749 4.12 28 5,714 7.18
Consumer................ 46 4,981 4.61 71 5,392 5.93 45 5,104 6.40
Commercial business..... 74 4,999 4.63 56 5,607 6.17 49 4,916 6.17
Unallocated............. 177 --- --- 212 --- --- 154 --- ---
---- -------- ------ ----- ------- ------ ---- ------- ------
Total.............. $591 $108,020 100.00% $ 506 $90,933 100.00% $410 $79,687 100.00%
==== ======== ====== ===== ======= ====== ==== ======= ======
<CAPTION>
December 31, 1999
---------------------------------------------------------------
1996 1995
---------------------------------------------------------------
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
----------------------------------------------------------------
<C> <C> <C> <C> <C> <C>
<S>
One- to four-family..... $ 89 $43,669 63.41% $ 93 $38,056 68.60%
Multi-family............ 10 3,259 4.73 10 3,419 6.16
Non-residential......... 26 8,806 12.79 13 4,146 7.47
Construction and land... 23 4,623 6.72 17 3,417 6.16
Consumer................ 45 4,989 7.24 23 4,021 7.25
Commercial business..... 35 3,519 5.11 24 2,420 4.36
Unallocated............. 127 --- --- 180 --- ---
---- ------- ------ ---- ------- ------
Total.............. $355 $68,865 100.00% $360 $55,479 100.00%
==== ======= ====== ==== ======= ======
</TABLE>
20
<PAGE>
Investment Activities
American Savings must maintain minimum levels of investments that
qualify as liquid assets under Office of Thrift Supervision regulations.
Liquidity may increase or decrease depending upon the availability of funds and
comparative yields on investments in relation to the return on loans.
Historically, we have maintained liquid assets at levels above the minimum
requirements imposed by the Office of Thrift Supervision regulations and at
levels believed adequate to meet the requirements of normal operations,
including repayments of maturing debt and potential deposit outflows. Cash flow
projections are regularly reviewed and updated to assure that adequate liquidity
is maintained. At December 31, 1999, our liquidity ratio (liquid assets as a
percentage of net withdrawable savings deposits and current borrowings) was
10.88%. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources" in the Annual Report.
Federally chartered savings institutions have the authority to invest
in various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Our general investment policy authorizes us to purchase investment
grade municipal securities and, depending on market conditions, we may purchase
such securities from time to time. We also invest, to a limited degree, in
equity securities of other financial companies. At December 31, 1999, we did not
own any securities of a single issuer which exceeded 10% of our retained
earnings, other than U.S. government or federal agency obligations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" in the Annual Report.
Investment Securities. At December 31, 1999, investment securities
totaled $8.6 million, or 6.76% of total assets. Included in this amount is $1.4
million investment in Federal Home Loan Bank stock, which satisfies our
requirement for membership in the Federal Home Loan Bank of Indianapolis. It is
our general policy to purchase investment securities which are U.S. Government
securities or federal agency obligations or other issues that are rated
investment grade or have credit enhancements. At December 31, 1999, the average
term to maturity or repricing of the investment portfolio was 3.2 years.
21
<PAGE>
The following table sets forth the composition of our investment
securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1999 1998 1997
-------------------- ---------------- --------------------
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:
Federal Home Loan Bank Stock..................... $1,383 16.00% $1,334 13.52% $ 725 6.39%
------ ------ ------ ------ ------ ------
Investment securities available for sale:
U.S. government securities........................ 5,124 59.28 5,901 59.82 8,090 71.27
Municipal obligations............................. 94 1.09 102 1.03 --- ---
Government securities mutual fund................. 134 1.55 134 1.36 124 1.09
------ ------ ------ ------ ------ ------
5,352 61.92 6,137 62.21 8,214 72.36
------ ------ ------ ------ ------ ------
Trading Securities:
Thrift common stock mutual fund................... 965 11.16 964 9.77 1,325 11.67
General equity mutual fund........................ --- --- 57 0.58 --- ---
Common stock of other financial institutions...... 857 9.91 1,277 12.94 1,088 9.58
Corporate debt securities......................... 87 1.01 96 0.98 --- ---
------ ------ ------ ------ ------ ------
1,909 22.08 2,394 24.27 2,413 21.25
------ ------ ------ ------ ------ ------
Total investment securities.................... $8,644 100.00% $9,865 100.00% $11,352 100.00%
====== ====== ====== ====== ======= ======
Average remaining life of debt investment
securities......................................... 3.2 years 3.9 years 1.8 years
Other interest-earning assets:
Interest-bearing deposits with banks.............. 1,278 100.00% $5,887 100.00% $ 3,119 98.21%
Money market mutual fund.......................... --- --- --- --- 57 1.79
------ ------ ------ ------ ------- ------
Total.......................................... $1,278 100.00% $5,887 100.00% $ 3,176 100.00%
====== ====== ====== ====== ======= ======
</TABLE>
The composition and maturities of the investment securities portfolio,
excluding Federal Home Loan Bank stock and equity securities as of December 31,
1999, are indicated in the following table.
<PAGE>
<TABLE>
<CAPTION>
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>
U.S. government securities.................. $1,152 $3,972 $ --- --- $5,124 $5,124
Municipal obligation........................ --- --- --- 94 94 94
Corporate debt securities................... --- --- --- 87 87 87
------ ------ ------ ---- ------ ------
Total investment securities (excluding Federal
Home Loan Bank stock and equity securities). $1,152 $3,972 --- $181 $5,305 $5,305
====== ====== ====== ==== ====== ======
Weighted average yield...................... 6.14% 6.07% --- 6.85% 6.13% ---
</TABLE>
22
<PAGE>
Mortgage-Backed Securities. We purchase mortgage-backed securities from
time to time to supplement residential loan production. The type of securities
purchased is based upon our 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. Our mortgage-backed securities are held in the available for sale
portfolio in order to retain investment flexibility and accordingly are included
in our financial statements at fair value.
All of our mortgage-backed securities at December 31, 1999, are backed
by federal agencies or government corporations. Accordingly, we believe that the
mortgage-backed securities are generally resistant to credit problems.
The following table sets forth the composition of our mortgage-backed
securities at the dates indicated.
<TABLE>
<CAPTION>
December 31,
1999 1998 1997
-------------------------------------------------------------------
Book % of Book % of Book % of
Value Total Value Total Value Total
----- ----- ----- ----- ----- -----
(Dollars in Thousands)
Mortgage-backed securities
available for sale:
<S> <C> <C> <C> <C> <C> <C>
Ginnie Mae............................. $ 374 20.02 $ 489 18.46% $ 639 18.29%
Fannie Mae............................. 41 2.20 53 2.00 70 2.00
Freddie Mac............................ 1,453 77.78 2,107 79.54 2,785 79.71
----- ------ ------- ----- ------ ------
Total mortgage-backed
securities........................ $1,868 100.00% $ 2,649 100.00% $3,494 100.00%
====== ====== ======= ====== ====== ======
</TABLE>
The following table shows mortgage-backed and related securities, sale
and repayment activities for the periods indicated. There were no
mortgage-backed securities purchases during such periods.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1999 1998 1997
------------------------------------
(In Thousands)
<S> <C> <C> <C>
Purchases:
- ---------
Adjustable-rate................................ $ --- $ --- $ ---
Fixed-rate..................................... --- --- ---
------- ------- -------
Total purchases......................... --- --- ---
------- ------- -------
Sales and Repayments:
- --------------------
Total sales............................. --- --- ---
------- ------- -------
Principal repayments........................... 720 847 570
------- ------- -------
Total reductions........................ (720) (847) (570)
Increase (decrease) in other items, net........ (61) 2 45
------- ------- -------
Net increase (decrease)................. $(781) $(845) $(525)
======= ======= =======
</TABLE>
23
<PAGE>
The following table sets forth the contractual maturities of our
mortgage-backed securities at December 31, 1999. These securities are
anticipated to be repaid well 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, 1999
Balance Outstanding
Due in --------------------
1 to 5 to 10 10 to 20
5 Years Years Years Fixed Adjustable
------- ------- -------- ------- ----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Freddie Mac....................... $155 $96 $1,220 $1,471 $ ---
Fannie Mae........................ --- --- 41 --- 41
Ginnie Mae........................ --- --- 372 --- 372
------ ----- -------- --------- -----
Total........................ $155 $96 $1,633 $1,471 $413
==== === ====== ====== ====
</TABLE>
Sources of Funds
Our 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 deposits consist of passbook
accounts, demand and NOW accounts, and money market and certificate accounts. We
rely 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 deposits we offer by have allowed us to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. We have become more susceptible to short-term fluctuations in
deposit flows, as customers have become more interest rate conscious. We manage
the pricing of our deposits in keeping with our asset/liability management,
profitability and growth objectives. Based on our experience, we believe that
passbook, demand and NOW accounts are relatively stable sources of deposits as
compared to certificate deposits. However, our ability 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.
24
<PAGE>
The following table sets forth the savings flows during the periods
indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1999 1998 1997
--------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Opening balance............................. $78,997 $71,700 $ 60,411
Deposits.................................... 171,722 151,006 142,882
Withdrawals................................. (164,716) (143,774) (134,005)
Sale of deposit accounts --- (2,703) ---
Interest credited........................... 2,942 2,768 2,412
--------- --------- ----------
Ending balance.............................. $88,945 $78,997 $ 71,700
======= ======= ========
Net increase................................ $ 9,948 $ 7,297 $ 11,289
======= ======= ========
Percent increase............................ 12.59% 10.18% 18.69%
===== ===== =====
</TABLE>
The following table sets forth the dollar amount of savings deposits in
the various types of deposit programs we offer as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------
1999 1998 1997
------------------- ------------------- --------------------
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))................ $1,229 1.38% $ 794 1.01% $ 698 0.97%
Passbook Accounts (2.75%(1))................ 14,960 16.82 15,143 19.17 16,407 22.88
NOW Accounts (1.90%(1))..................... 7,375 8.29 6,610 8.37 6,560 9.15
Money Market Accounts (3.25%(1))............ 3,372 3.79 3,773 4.78 2,878 4.01
------- ------ ------- ------- ------- ------
Total Non-Certificates...................... 26,936 30.28 26,320 33.32 26,543 37.02
------ ------ ------ ------ ------ -----
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Certificates:
- ------------
3.01 - 4.00%.............................. --- --- --- --- 257 0.36
4.01 - 5.00%............................... 17,354 19.51 9,036 11.44 1,158 1.62
5.01 - 6.00%............................... 42,042 47.27 39,206 49.63 25,074 34.97
6.01 - 7.00%............................... 2,507 2.82 3,822 4.84 18,005 25.11
7.01 - 9.00%............................... 106 0.12 613 0.78 663 0.93
--------- ------ -------- ------- -------- -------
Total Certificates.......................... 62,009 69.72 52,677 66.68 45,157 62.98
------- ------ -------- ------ ------- ------
Total Deposits.............................. $88,945 100.00% $78,997 100.00% $71,700 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
- -----------------------
(1) Rates in effect at December 31, 1999.
25
<PAGE>
The following table shows rate and maturity information for our
certificates of deposit as of December 31, 1999.
<TABLE>
<CAPTION>
4.01- 5.01- 6.01- Percent
5.00% 6.00% 9.00% Total of Total
----- ----- ----- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Certificate account maturing
in quarter ending:
-----------------
March 31, 2000................. $5,779 $1,778 $225 $7,782 12.55%
June 30, 2000.................. 4,991 1,467 298 6,756 10.89
September 30, 2000............. 2,060 13,920 100 16,080 25.93
December 31, 2000.............. 1,895 17,315 121 19,331 31.17
March 31, 2001................. 997 754 --- 1,751 2.82
June 30, 2001.................. 661 388 60 1,109 1.79
September 30, 2001............. 265 86 --- 351 0.57
December 31, 2001.............. 127 508 1,706 2,341 3.78
March 31, 2002................. 180 4,319 88 4,587 7.40
June 30, 2002.................. 45 560 --- 605 0.98
September 30, 2002............. 50 159 --- 209 0.34
December 31, 2002.............. --- 257 --- 257 0.41
Thereafter..................... 304 531 15 850 1.37
------- ------- ------ ------- -------
Total....................... $17,354 $42,042 $2,613 $62,009 100.00%
======= ======= ====== ======= ======
Percent of total............ 27.99% 67.80% 4.21% 100.00%
===== ===== ==== ======
</TABLE>
The following table indicates the amount of our certificates of deposit
and other deposits by time remaining until maturity as of December 31, 1999.
<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....... $6,108 $5,600 $28,617 $11,386 $51,711
Certificates of deposit of $100,000 or more...... 1,674 1,156 6,794 674 10,298
------ ------ -------- --------- -------
Total certificates of deposit.................... $7,782 $6,756 $35,411 $12,060 $62,009
====== ====== ======= ======= =======
</TABLE>
26
<PAGE>
Borrowings. We may obtain advances from the Federal Home Loan Bank of
Indianapolis upon the security of our capital stock in the Federal Home Loan
Bank of Indianapolis and certain of our mortgage loans and mortgage-backed
securities. Such advances may be made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. At
December 31, 1999, we had $24.7 million in Federal Home Loan Bank advances
outstanding. During recent years, we have utilized short-term borrowings, most
of which have maturities of 12 to 36 months in order to fund loan demand. See --
"Management Discussion and Analysis - Asset/Liability Management."
The following table sets forth the maximum month-end balance and
average balance of Federal Home Loan Bank advances, securities sold under
agreements to repurchase and other borrowings for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1999 1998 1997
------- ------- -------
(In Thousands)
<S> <C> <C> <C>
Maximum Balance:
- ---------------
Federal Home Loan Bank advances......................... $25,676 $25,683 $12,000
Securities sold under agreements to repurchase.......... --- --- ---
Other borrowings........................................ --- --- ---
Average Balance:
- ---------------
Federal Home Loan Bank advances......................... $23,262 $18,663 $11,629
Securities sold under agreements to repurchase.......... --- --- ---
Other borrowings........................................ --- --- ---
</TABLE>
The following table sets forth certain information as to our borrowings
at the dates indicated.
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1999 1998 1997
------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C>
Federal Home Loan Bank advances........................... $24,676 $21,683 $12,000
Securities sold under agreements to repurchase............ --- --- ---
Other borrowings.......................................... --- --- ---
------- ------- -------
Total borrowings..................................... $24,676 $21,683 $12,000
======= ======= =======
Weighted average interest rate of Federal Home
Loan Bank advances........................................ 5.67% 5.65% 5.89%
Weighted average interest rate of securities sold
under agreements to repurchase........................... ---% ---% ---%
Weighted average interest rate of other borrowings........ ---% ---% ---%
</TABLE>
27
<PAGE>
Service Corporations
We have one wholly owned subsidiary service corporation, NIFCO, Inc.,
and one second tier subsidiary service corporation, Ridge Management, Inc. which
is owned by NIFCO. NIFCO sells annuities and securities. At December 31, 1999,
we had an equity investment in NIFCO of $30,000. For the year ended December 31,
1999, NIFCO recorded net income of $148. In the past, Ridge Management engaged
in lending and investment activity, although it is currently essentially
inactive. For the year ended December 31, 1999, Ridge Management had no
activity.
Regulation
American Savings is a federally chartered savings and loan association,
the deposits of which are federally insured and 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 of our operations.
American Savings is a member of the Federal Home Loan Bank of Indianapolis and
is subject to certain limited regulation by the Board of Governors of the
Federal Reserve System. As the savings and loan holding company of American
Savings, AMB Financial also is subject to federal regulation and oversight.
However, since AMB Financial existed as a unitary savings and loan holding
company prior to May 4, 1999, there is virtually no restriction on its
activities.
Federal Regulation of Savings Associations. The Office of Thrift
Supervision has extensive authority over the operations of savings associations.
As part of this authority, we are required to file periodic reports with the
Office of Thrift Supervision and are subject to periodic examinations by the
Office of Thrift Supervision and the FDIC. When these examinations are conducted
by the Office of Thrift Supervision and the FDIC, the examiners may require
American Savings to provide for higher general or specific loan loss reserves.
The Office of Thrift Supervision also has extensive enforcement
authority over all savings institutions and their holding companies, such as
American Savings and AMB Financial. 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.
Our 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, 1999, our lending limit under this restriction was approximately
$1.2 million. At December 31, 1999, we had no loans in excess of our
loans-to-one-borrower limit.
Insurance of Accounts and Regulation by the FDIC. 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 Federal Home Loan Bank System
or the Savings Association Insurance Fund. The FDIC also has the authority to
initiate enforcement actions against savings associations, after giving the
Office of Thrift Supervision an opportunity to take such action, and may
terminate deposit insurance if it determines that the institution has engaged in
unsafe or unsound practices, or is in an unsafe or unsound condition.
<PAGE>
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
28
<PAGE>
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of core
capital to risk-weighted assets 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 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 is made by the FDIC semi- annually.
At December 31, 1999, American Savings was classified as a well-capitalized
institution.
The current premium schedule for Bank Insurance Fund and Savings
Association Insurance Fund insured institutions ranged from 0 to 27 basis
points. However, Savings Association Insurance Fund insured institutions and
Bank Insurance Fund insured institutions are required to pay a Financing
Corporation assessment in order to fund the interest on bonds issued to resolve
thrift failures in the 1980s. For the quarter ended December 31, 1999, this
amount was equal to 5.920 basis points for each $100 in domestic deposits for
Savings Association Insurance Fund members while Bank Insurance Fund insured
institutions pay an assessment equal to about 1.184 basis points for each $100
in domestic deposits. These assessments, which may be revised based upon the
level of Bank Insurance Fund and Savings Association Insurance Fund deposits,
will continue until the bonds mature in 2017 through 2019.
Regulatory Capital Requirements. Federally insured savings
associations, such as American Savings, are required to maintain a minimum level
of regulatory capital. The Office of Thrift Supervision 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.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). At December 31, 1999, American
Savings had tangible capital of $8.1 million, or 6.51% of adjusted total assets,
which is approximately $6.2 million above the minimum requirement of 1.5% of
adjusted total assets in effect on that date. At December 31, 1999, American
Savings did not have any intangible assets.
The capital standards also require core capital equal to at least 3% to
4% of adjusted total assets, depending on an institution's supervisory rating.
Core capital generally consists of tangible capital. At December 31, 1999, we
had core capital equal to $8.1 million, or 6.51% of adjusted total assets, which
is $4.4 million above the minimum leverage ratio requirement of 3% as in effect
on that date.
The Office of Thrift Supervision 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.
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
<PAGE>
example, the Office of Thrift Supervision 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
Fannie Mae or Freddie Mac.
On December 31, 1999, we had total risk-based capital of approximately
$8.6 million, including $8.1 million in core capital and $551,000 in qualifying
supplementary capital, and risk-weighted assets of
29
<PAGE>
$69.3 million, or total capital of 12.44% of risk-weighted assets. This amount
was $3.1 million above the 8% requirement in effect on that date.
The Office of Thrift Supervision is authorized to impose capital
requirements in excess of these standards on individual associations on a
case-by-case basis. The Office of Thrift Supervision 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 Office of
Thrift Supervision 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% core 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 Office of Thrift
Supervision 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 Office of Thrift Supervision is authorized to impose the
additional restrictions that are applicable to significantly undercapitalized
associations.
The Office of Thrift Supervision 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 Office of Thrift Supervision or the FDIC of any
of these measures on AMB Financial or American Savings may have a substantial
adverse effect on our operations and profitability.
Limitations on Dividends and Other Capital Distributions. The Office of
Thrift Supervision imposes various restrictions on savings associations with
respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. The Office of Thrift Supervision
also prohibits a savings association from declaring or paying any dividends or
from repurchasing any of its stock if, as a result of such action, the
regulatory capital of American Savings would be reduced below the amount
required to be maintained for the liquidation account established in connection
with American Savings mutual to stock conversion.
American Savings may make a capital distribution without the approval
of the Office of Thrift Supervision provided we notify the Office of Thrift
Supervision, 30 days before we declare the capital distribution and we meet the
following requirements: (i) we have a regulatory rating in one of the two top
examination categories, (ii) we are not of supervisory concern, and will remain
adequately- or well- capitalized, as defined in the Office of Thrift Supervision
prompt corrective action regulations, following the proposed distribution, and
(iii) the distribution does not exceed our net income for the calendar year-
to-date plus retained net income for the previous two calendar years (less any
dividends previously paid). If we do not meet the above stated requirements, we
must obtain the prior approval of the Office of Thrift Supervision before
declaring any proposed distributions.
Qualified Thrift Lender Test. All savings institutions are required to
meet a qualified thrift lender test to avoid certain restrictions on their
operations. This test requires a savings institution 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
<PAGE>
alternative, the savings institutions may maintain 60% of its assets in those
assets specified in Section 7701(a)(19) of the Internal Revenue Code. Under
either test, these assets primarily consist of residential housing related loans
and investments. At December 31, 1999, American Savings met the test and has
always met the test since its effectiveness. American Savings' qualified thrift
lender percentage was 91.3% at December 31, 1999.
30
<PAGE>
Any savings institution that fails to meet the qualified thrift lender
test must convert to a national bank charter, unless it requalifies as a
qualified thrift lender and remains a qualified thrift lender. If an institution
does not requalify and converts to a national bank charter, it must remain
Savings Association Insurance Fund-insured until the FDIC permits it to transfer
to the Banking Insurance Fund. If an institution 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
institution is immediately ineligible to receive any new Federal Home Loan Bank
borrowings and is subject to national bank limits for payment of dividends. If
the institution has not requalified or converted to a national bank within three
years after the failure, it must sell all investments and stop all activities
not permissible for a national bank. In addition, it must repay promptly any
outstanding Federal Home Loan Bank borrowings, which may result in prepayment
penalties. If any institution that fails the qualified thrift lender 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, 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
Community Reinvestment Act requires the Office of Thrift Supervision, in
connection with its examination of American Savings, to assess the institution's
record of meeting the credit needs of our community and to take this record into
account in our evaluation of certain applications, such as a merger or the
establishment of a branch, by American Savings. An unsatisfactory rating may be
used as the basis for the denial of an application by the Office of Thrift
Supervision. American Savings was examined for Community Reinvestment Act
compliance in July 1999 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 American Savings or subsidiary as transactions with
non-affiliates. In addition, certain of these transactions, such as loans to an
affiliate, are restricted to a percentage of American Savings' capital.
Affiliates of American Savings include AMB Financial and any company which is
under common control with American Savings. 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 Office of
Thrift Supervision 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 Office of
Thrift Supervision. 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.
Holding Company Regulation. AMB Financial is a unitary savings and loan
holding company subject to regulatory oversight by the Office of Thrift
Supervision. AMB Financial is required to register and file reports with the
Office of Thrift Supervision and are subject to regulation and examination by
the Office of Thrift Supervision. In addition, the Office of Thrift Supervision
has enforcement authority over AMB Financial and its non-savings association
subsidiaries which also permits the Office of Thrift Supervision to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings association.
31
<PAGE>
As a unitary savings and loan holding company, that has been in
existence since before May 4, 1999, AMB Financial generally is not subject to
activity restrictions. If AMB Financial acquires control of another savings
association as a separate subsidiary, it would become a multiple savings and
loan holding company and the activities of AMB Financial and any of our
subsidiaries (other than American Savings or any other Savings Association
Insurance Fund insured savings association) would generally become subject to
certain restrictions. Additionally, if we fail the qualified thrift lender test,
within one year AMB Financial must register as, and will become subject to, the
significant activity restrictions applicable to bank holding companies.
Federal Securities Law. The stock of AMB Financial is registered with
the SEC under the Securities Exchange Act of 1934, as amended. AMB Financial is
subject to the information, proxy solicitation, insider trading restrictions and
other requirements of the SEC under the Securities Exchange Act of 1934.
AMB Financial stock held by persons who are affiliates (generally
executive officers, directors and 10% shareholders) of AMB Financial may not be
resold without registration or unless sold in accordance with certain resale
restrictions. If AMB Financial meets specified current public information
requirements, each affiliate of AMB Financial is able to sell in the public
market, without registration, a limited number of shares in any three-month
period.
Federal Reserve System. The Federal Reserve Board requires all
depository institutions to maintain noninterest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts). At December 31, 1999, American Savings was in compliance
with these reserve requirements. The balances maintained to meet the reserve
requirements imposed by the Federal Reserve Board may also be used to satisfy
liquidity requirements that may be imposed by the Office of Thrift Supervision.
See "--Liquidity" in the annual report.
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
Federal Home Loan Bank borrowings, before borrowing from the Federal Reserve
Bank.
Federal Home Loan Bank System. American Savings is a member of the
Federal Home Loan Bank of Indianapolis, which is one of 12 regional Federal Home
Loan Banks that administer the home financing credit function of savings
associations. Each Federal Home Loan Bank serves as a reserve or central bank
for its members within its assigned region. It makes loans to members (i.e.,
advances) in accordance with policies and procedures, established by the board
of directors of the Federal Home Loan Bank, which are subject to the oversight
of the Federal Housing Finance Board. All advances from the Federal Home Loan
Bank are required to be fully secured by sufficient collateral as determined by
the Federal Home Loan Bank. In addition, all long-term advances must be used for
residential home financing.
As a member, American Savings is required to purchase and maintain a
minimum amount of stock in the Federal Home Loan Bank of Indianapolis. At
December 31, 1999, American Savings had $1.4 million in Federal Home Loan Bank
stock, which was in compliance with this requirement. In past years, American
Savings has received substantial dividends on our Federal Home Loan Bank stock.
<PAGE>
For the fiscal year ended December 31, 1999, dividends paid by the Federal Home
Loan Bank of Indianapolis to American Savings totaled $107,700, which
constitutes a $26,500 increase from the amount of dividends received in fiscal
1998. Over the past five fiscal years these dividends have averaged 7.94% and
were 8.00% for fiscal 1999.
32
<PAGE>
Federal and State Taxation
Federal Taxation. Savings institutions that met certain definitional
tests relating to the composition of assets and other conditions prescribed by
the Internal Revenue Code of 1986, as amended, had been permitted to establish
reserves for bad debts and to make annual additions which could, 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
now computed under the experience method.
In addition to the regular income tax, corporations, including savings
institutions, 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.
To the extent earnings appropriated to a savings institution's bad debt
reserves for "qualifying real property loans" and deducted for federal income
tax purposes exceed the allowable amount of such reserves computed under the
experience method and to the extent of the institution's supplemental reserves
for losses on loans, such excess 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,
1999, American Savings' excess for tax purposes totaled approximately $1.9
million.
We file consolidated federal income tax returns on a fiscal year basis
using the accrual method of accounting. Savings institutions 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.
Our federal income tax returns for the last three years are open to
possible audit by the IRS. No returns are being audited by the IRS at the
current time. In our opinion, any examination of still open returns would not
result in a deficiency which could have a material adverse effect on our
financial condition.
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.
<PAGE>
Delaware Taxation. As a company incorporated under Delaware state law,
AMB Financial 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.
33
<PAGE>
Competition
We face 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 our primary market area. We
compete for loans principally on the basis of the interest rates and loan fees
we charge, the types of loans we originate and the quality of services we
provide to borrowers.
We attract all of its deposits through our 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. Our ability to attract and retain
deposits depends on our ability to provide an investment opportunity that
satisfies the requirements of investors. We compete for these deposits by
offering a variety of deposit accounts at competitive rates, convenient business
hours and a customer oriented staff. As of December 31, 1999, our estimated
market share of savings deposits in the Gary-Hammond, Indiana MSA market area to
be approximately 1.4%.
Employees
At December 31, 1999, we had a total of 29 employees, including two
part-time employees. Our employees are not represented by any collective
bargaining group. We consider employee relations to be good.
34
<PAGE>
Item 2. Description of Property
- ------- -----------------------
We conduct business at its main office located in Munster, Indiana. The
following table sets forth information relating to each of our properties as of
December 31, 1999.
Total
Owned Approximate
Year or Square December 31, 1999
Location Acquired Leased Footage Book Value
- -------- -------- ------ ------- ----------
(In Thousands)
Main Office:
8230 Hohman Avenue 1963 Owned 8,400 $64,000
Munster, Indiana
Branch Offices:
1001 Main Street 1990 Leased 2,800 79,000
Dyer, Indiana
4521 Hohman Avenue 1983 Owned 1,600 43,000
Hammond, Indiana
We believe that current facilities are adequate to meet our present and
foreseeable needs, subject to possible future expansion.
We maintain an on-line data base with a service bureau servicing
financial institutions. The net book value of the data processing and computer
equipment utilized at December 31, 1999 was $105,000.
Item 3. Legal Proceedings
- ------- -----------------
We are 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 our
opinion, after consultation with counsel representing us in the proceedings,
that the resolution of these proceedings should not have a material effect on
the results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
No matters to a vote of security holders, through the solicitation of
proxies, during the quarter ended December 31, 1999.
35
<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
- ------- --------------------------------------------------------
Page 45 of our 1999 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 our 1999 annual report to stockholders is herein
incorporated by reference.
Item 7. Financial Statements
- ------- --------------------
The following information appearing in our annual report to
stockholders for the year ended December 31, 1999, is incorporated by reference
in this annual report on Form 10-KSB as Exhibit 13.
<TABLE>
<CAPTION>
Pages in
Annual
Annual Report Section Report
- ----------------------------------------------------------------------------------------- ------
<S> <C>
Report of Independent Certified Public Accountants........................................ 16
Consolidated Balance Sheets (December 31, 1999 and 1998).................................. 17
Consolidated Statements of Earnings (For the Years Ended December 31, 1999
and 1998)............................................................................... 18
Consolidated Statements of Stockholders' Equity (For the Years Ended December 31,
1999 and 1998)............................................................................ 19
Consolidated Statements of Cash Flows (For the Years Ended December 31, 1999
and 1998)............................................................................... 20
Notes to Consolidated Financial Statements................................................ 21
</TABLE>
With the exception of the aforementioned information in Part II of the
Form 10-KSB, our annual report to stockholders for the year ended December 31,
1999 is not deemed filed as part of this annual report on Form 10-KSB.
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
36
<PAGE>
Persons; Compliance with Section 16(a) of the Exchange Act
----------------------------------------------------------
Directors
- ---------
Information concerning the directors of AMB Financial is incorporated
herein by reference from the definitive proxy statement for the annual meeting
of stockholders to be held on April 26, 2000, a copy of which will be filed not
later than 120 days after the close of fiscal year.
Executive Officers
- ------------------
Information concerning the executive officers of AMB Financial is
incorporated herein by reference from the definitive proxy statement for the
annual meeting of stockholders to be held on April 26, 2000, a copy of which
will be filed not later than 120 days after the close of fiscal year.
Compliance with Section 16(a)
- -----------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires our
directors and executive officers, and persons who own more than 10% of a
registered class of AMB Financial equity securities, to file with the SEC
initial reports of ownership and reports of changes in ownership of Common Stock
and other equity securities of AMB Financial. Officers, directors and greater
than 10% stockholders are required by SEC regulation to furnish us with copies
of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such
reports furnished to the us and written representations that no other reports
were required, all Section 16(a) filing requirements applicable to its officers,
directors and greater than 10 percent beneficial owners were complied with
during the fiscal year ended December 31, 1999.
Item 10. Executive Compensation
- -------- ----------------------
Information concerning executive compensation is incorporated herein by
reference from our definitive proxy statement for the 2000 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
- -------- --------------------------------------------------------------
<TABLE>
<CAPTION>
Shares
Beneficially
Owned at Percent
Beneficial Owner March 15, 2000 of Class
---------------- -------------- --------
<S> <C> <C>
AMB Financial Corp. Employee Stock Ownership Plan 91,013(1) 14.01%
8230 Hohman Avenue
Munster, Indiana
Clement B. Knapp, Jr. 61,060(2) 9.09
Ronald W. Borto 26,705(3) 4.07
Donald L. Harle 15,120(3) 2.30
John C. McLaughlin 5,620(3) 0.86
John G. Pastrick 7,820(3) 1.19
Robert E. Tolley 11,020(3) 1.68
Directors, director emeritus and executive officers, 196,753(4) 27.72
as a group (12 persons)
</TABLE>
- -------------
(1) The amount reported represents shares held by the ESOP, 32,956
shares of which have been allocated to accounts of participants.
First Bankers Trust, the trustee of the ESOP, may be deemed to
beneficially own the shares held by the ESOP which have not been
allocated to accounts of participants. Participants in the ESOP
are entitled to instruct the trustee as to the voting of shares
allocated to their accounts under the ESOP. Unallocated shares
held in the ESOP's suspense account or allocated shares for which
no voting instructions are received are voted by the trustee in
the same proportion as allocated shares voted by participants.
(2) Includes 6,921 shares allocated under the ESOP, vested options to
purchase 16,862 shares pursuant to a stock option plan, 4,496
unvested shares under a recognition and retention plan and 14,536
beneficially owned by Mrs. Knapp. Excludes unvested options to
purchase 11,241 shares pursuant to a stock option plan.
(3) Includes vested options to purchase 3,372 shares which each
director has the right to acquire pursuant to the stock option
plan and 900 unvested shares which each director has the right to
acquire pursuant to the recognition and retention plan. Excludes
unvested options to purchase 2,248 shares.
(4) Includes shares held directly, as well as shares held in
retirement accounts, shares allocated to the ESOP accounts of
certain of the named persons, vested stock options, held by
certain members of the named individuals' families, or held by
trusts of which the named individual is a trustee or substantial
beneficiary, with respect to which the named individuals may be
deemed to have sole voting and investment power. Excludes
unvested options under the stock option plan.
<PAGE>
Item 12. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
Information concerning certain relationships and transactions is
incorporated herein by reference from our definitive proxy statement for the
2000 annual meeting of stockholders, a copy of which will be filed not later
than 120 days after the close of the fiscal year.
37
<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> <C>
2 Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation None
or Succession.....................................................
3 Articles of Incorporation and Bylaws.............................. *
4 Instruments defining the rights of security holders,
including indentures:
Common Stock Certificate......................................... *
9 Voting Trust Agreement............................................ None
10 Material contracts:
1996 Stock Option and Incentive Plan.............................. ***
Recognition and Retention Plan.................................... ***
Employee Stock Ownership Plan..................................... *
Employee Severance Compensation Plan.............................. *
Employment Agreements............................................. **
Second Executive Deferred Compensation Plan....................... ****
Trust Agreement for the Compensation Agreement.................... ****
11 Statement re computation of per share earnings.................... *****
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......................... *
18 Letter on Change in Accounting Principles......................... None
21 Subsidiaries of Registrant........................................ 21
22 Published Report Regarding Matters Submitted to Vote.............. None
23 Consent of Experts and Counsel.................................... 23
24 Power of Attorney................................................. Not required
27 Financial Data Schedule........................................... 27
99 Additional Exhibits............................................... None
</TABLE>
- --------------------
* 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 appendices 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.
<PAGE>
**** Filed on March 31, 1999, as exhibits to the Registrant's annual report
on Form 10-KSB. All of such previously filed documents are hereby
incorporated herein by reference in accordance with Item 601 of
Regulation S-B.
***** See Note A of the Notes to the Consolidated Financial Statement in the
annual report to the Stockholder's attached hereto as Exhibit 13.
(b) Reports on Form 8-K:
No reports on Form 8-K have been filed during the three-month period
ended December 31, 1999.
38
<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 30, 2000 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
By: /s/ CLEMENT B. KNAPP, JR. By: /s/ DANIEL T. POLUDNIAK
------------------------ -----------------------
Clement B. Knapp, Jr., Chairman of the Daniel T. Poludniak, Vice President,
Board, President and Chief Executive Officer Treasurer and Chief Financial Officer
(Principal Executive and Operating (Principal Financial and Accounting
Officer) Officer)
Date: March 30, 2000 Date: March 30, 2000
-------------- --------------
By: /s/ DONALD L. HARLE By: /s/ RONALD W. BORTO
------------------- -------------------
Donald L. Harle, Director Ronald W. Borto, Director
Date: March 30, 2000 Date: March 30, 2000
-------------- --------------
By: /s/ JOHN G. PASTRICK By: /s/ JOHN C. McLAUGHLIN
-------------------- ----------------------
John G. Pastrick, Director John C. McLaughlin, Director
Date: March 30, 2000 Date: March 30, 2000
-------------- --------------
By: /s/ ROBERT E. TOLLEY
--------------------
Robert E. Tolley, Director
Date: March 30, 2000
--------------
</TABLE>
<PAGE>
Exhibit Index
Exhibit No. Document
----------- -------------------------------------------------------
11 Statement Regarding Computation of Per Share Earnings
(included under Note A of Notes to Consolidated
Financial Statements in the Annual Report to
Stockholders' attached hereto as Exhibit 13.
13 Annual Report
21 Subsidiaries of the Registrant
23 Consent of Cobitz, VandenBerg & Fennessy
27 Financial Data Schedule
Table of Contents
President's Message . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Selected Consolidated Financial Information . . . . . . . . . . . . . . . . .3
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . .5
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . .16
Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . .. .17
Stockholder Information . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Corporate Information . . . .. . . . . . . . . . . . . . . . . . . . . . . . .47
1
<PAGE>
President's Message
To Our Stockholders
On behalf of the Board of Directors, Officers and Employees of AMB Financial
Corp. (the Company), and its wholly owned subsidiary, American Savings, FSB (the
Bank), I am pleased to present our 1999 Annual Report.
As we enter the new millennium and our 90th year of servicing the financial
needs of the people and businesses in Northwest Indiana we are pleased with our
progress in 1999. Our primary goals are to remain an independent and viable
community bank and to take the necessary steps to increase the value of your
investment in our company.
In the last year our total assets grew 9.3% or $10.9 Million, our total loans
increased 18% or $16.1 Million and our deposits increased 12.6% or $9.9 Million.
The Bank had net income of $793,577. Primarily due to unrealized losses in our
trading portfolio in the amount of $123,773, the Holding Company reported a loss
of $96,736. On a consolidated basis, the Company had net income of $696,841
representing $.96 per diluted share. The 1999 return on average assets was .58%,
the return on average equity 5.68%.
During 1999 the Company embarked on an aggressive stock repurchase program. The
Company repurchased 166,500 shares. As of December 31, 1999 the number of
outstanding shares was 703,329, with book value per share of $16.41.
Our strategy for the year 2000 continues to emphasize strong growth and
aggressive stock repurchases. I believe that this strategy is in the best
interests of both the Bank and the stockholders.
Our financial performance and our stock performance are available on our web
site at http://www.ambfinancial.com. I urge you to visit our site to view this
information and utilize its other services.
The entire staff of the Bank and the Company 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
2
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands except per share data)
For the Year Ended December 31
----------------------------------------------------------
1999 1998 1997 1996 1995
---------------------------------------------------------
SELECTED OPERATING DATA:
<S> <C> <C> <C> <C> <C>
Total interest income $ 8,252 $ 7,969 $ 7,120 $ 5,957 $ 5,222
Total interest expense 4,904 4,570 3,793 2,955 2,686
------- ------- ------- ------- -------
Net interest income 3,348 3,399 3,327 3,002 2,536
Provision for loan losses 119 102 74 0 39
------- ------- ------- ------- -------
Net interest income after provision for loan losses 3,229 3,297 3,253 3,002 2,497
------- ------- ------- ------- -------
Non-interest income:
Fees and service charges 450 450 349 263 203
Commission income 46 55 78 57 59
Gain on sale of securities 116 68 58 53 - - -
Unrealized gain (loss) on trading securities (124) (771) 561 46 - - -
Gain on sale of deposits - - - 27 - - - - - - - - -
Gain (loss) on sale of real estate owned 10 (2) 5 28 2
Loss from investment in joint venture (54) (11) - - - - - - - - -
Other 168 123 81 64 76
------- ------- ------- ------- -------
Total non-interest income 612 (61) 1,132 511 340
------- ------- ------- ------- -------
Non-interest expense:
Compensation and benefits 1,345 1,377 1,294 1,129 909
Office occupancy and equipment expenses 311 309 353 334 328
Data processing 398 368 336 295 248
Federal deposit insurance premiums 47 45 41 130 134
SAIF special assessment - - - - - - - - - 389 - - -
Loss on disposition of fixed assets - - - 29 - - - - - - - - -
Other 715 751 662 580 595
------- ------- ------- ------- -------
Total non-interest expense 2,816 2,879 2,686 2,857 2,214
------- ------- ------- ------- -------
Income before income taxes 1,025 357 1,698 656 623
Income tax provision 328 152 675 214 236
------- ------- ------- ------- -------
Net income 697 205 1,023 442 387
------- ------- ------- ------- -------
Basic earnings per share $ 0.97 $ 0.24 $ 1.12 $ 0.43 NM
Diluted earnings per share $ 0.96 $ 0.24 $ 1.10 $ 0.43 NM
</TABLE>
NM-Earnings per share information for the year ended December 31, 1995 is not
meaningful becaue the Company was not a public company until March 26,
1996.
3
<PAGE>
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands)
At December 31,
------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets $127,786 $116,913 $ 99,796 $ 86,102 $ 69,788
Loans receivable, net 105,910 89,762 77,093 67,366 54,639
Investment securities 5,352 6,137 8,214 8,939 7,017
Mortgage-backed securities 1,868 2,649 3,494 4,019 1,479
Trading securities 1,909 2,394 2,413 539 - - -
Deposits 88,945 78,997 71,700 60,411 59,588
Borrowed funds 26,009 23,074 12,000 9,500 3,000
Stockholder's equity 11,539 13,413 14,770 15,170 6,314
<CAPTION>
At or For the Year Ended December 31,
---------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS AND OTHER DATA:
Return on average assets (1) 0.58 % 0.18 % 1.07 % 0.84 % 0.57 %
Return on average stockholders' equity (1) 5.68 1.46 7.06 5.02 6.40
Average stockholders' equity to
average assets 10.14 12.61 15.10 16.78 8.76
Stockholders' equity to total assets 9.03 11.47 14.80 17.62 9.05
Interest rate spread during period 2.70 2.86 3.10 3.37 3.84
Net interest margin 2.98 3.29 3.67 3.97 4.03
Operating expenses to average assets (1) 2.33 2.59 2.80 3.07 3.29
Efficiency ratio (1) 71.11 87.41 60.28 70.23 76.99
Non-performing assets to total assets 0.73 0.43 0.34 0.35 0.53
Allowance for loan losses to non-
performing loans 59.32 104.87 133.12 116.27 97.43
Allowance for loan losses to loans
receivable, net 0.56 0.56 0.53 0.53 0.66
Ratio of average interest-earning
assets to average interest-bearing liabilities 1.06x 1.10x 1.14x 1.16x 1.04x
Number of full-service offices 3 3 4 4 4
</TABLE>
(1) Excludes the effect of the special SAIF charge in 1996.
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
AMB Financial Corp. (the "Company") is the unitary thrift 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
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 two full-service banking
offices located in Dyer, 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, commercial real
estate, consumer, commercial business, construction and land loans. The
Company also invests in mortgage-backed and other investment securities.
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 and to a lesser degree, non-interest income and non-interest
expense. 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 (loss) primarily consists
of service charges, fees on deposit and loan products and, on occasion,
securities gains or losses. 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.
Operating Strategy
The Company's basic mission is to maintain its focus as 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
<PAGE>
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 consumer,
commercial business, commercial real estate, construction and land loans;
(iii) augment its lending activities with investments in purchased loans,
mortgage-backed and other securities; (iv) emphasize adjustable rate
and/or short and medium duration assets when market conditions permit (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.
5
<PAGE>
Comparison of Financial Condition at December 31, 1999 and 1998.
Total assets of the Company increased $10.9 million in the year ending December
31, 1999, from $116.9 million in 1998 to $127.8 million in 1999. This increase
of 9.3% was primarily attributable to the Company's continued loan growth. The
Company's asset growth was funded by an increase in savings deposits of $9.9
million and additional advances from the FHLB of Indianapolis in the amount of
$3.0 million.
Cash and cash equivalents amounted to $5.5 million at December 31, 1999 as
compared to $9.1 million at December 31, 1998. The Company used $2.4 million to
purchase 166,500 shares of common stock into treasury during the year. The Bank
used the remaining available cash to fund increased loan origination volume.
Investment securities available for sale decreased by $785,000 to $5.4 million
at December 31, 1999 primarily due to maturities of $500,000 which were used to
fund mortgage loans and a decline in the market value of these securities. Gross
unrealized losses in the available for sale portfolio were $120,000 at December
31, 1999 compared to gross unrealized gains of $138,000 at December 31, 1998
Mortgage backed securities available for sale decreased by $781,000 to $1.9
million at December 31, 1999 primarily due to prepayments and amortization.
Trading securities decreased by $485,000 at December 31, 1999 to $1.9 million as
a result of sale activity of $554,000 exceeding purchase activity of $94,000,
recognized gains of $99,000 and an unrealized loss on trading securities of
$124,000 recorded during the current year.
Loans receivable increased to $105.9 million at December 31, 1999, a $16.1
million or 18.0% increase, as new loan originations of both residential and
non-residential loans of $24.6 million and loan purchases of $24.0 million
exceeded loan repayments of $32.3 million. The Company continues to remain
focused on an aggressive lending effort as evidenced by the better that 37%
increase in loans receivable over the last two years.
Total deposits at December 31, 1999 increased by $9.9 million, or 12.6% to $88.9
million, due to net deposits receipts of $7.0 million and interest credited of
$2.9 million. The deposit growth was primarily attributable to the Company's
continued aggressive advertising and competitive rates with regards to special
certificate promotions (primarily 15, 18 and 30 month terms) during 1999.
Borrowed funds, which consist of FHLB of Indianapolis advances, increased $3.0
million to $24.7 million at December 31, 1999. The increase in borrowed funds
was utilized to fund loan originations and purchases during the year. The new
advances were at maturity terms of one year or less.
Total stockholders' equity decreased by $1.9 million to $11.5 million at
December 31, 1999 from $13.4 million at December 31, 1998. This decrease was
primarily due to the repurchase of common stock in the amount of $2.4 million,
the payment of dividends on common stock of $234,000, and a decrease of $194,000
in the unrealized gain on securities available for sale, which was offset by net
income of $697,000 and normal amortization of RRP and ESOP benefits of $233,000.
The Company is no longer subject to regulatory limitations on stock repurchases
and intends to continue modest repurchases of stock.
6
<PAGE>
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.
<TABLE>
<CAPTION>
For the Year Ended December 31
(Dollars in thousands)
--------------------------------------------------------------------------
1999 1998
--------------------------------------- ---------------------------------
Average Interest Average Interest
Outstanding Earned/ Yield/ Outstanding Earned/ Yield/
Balance Paid Rate Balance Paid Rate
--------- --------- ---- --------- --------- ----
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans receivable (1) 96,000 7,420 7.73% 86,033 7,027 8.17%
Mortgage-backed securities 2,277 153 6.72% 3,033 204 6.73%
Investment securities 8,335 371 4.45% 9,198 444 4.83%
Interest-bearing deposits 4,226 200 4.73% 4,072 213 5.23%
FHLB stock 1,347 108 8.02% 1,013 81 8.00%
--------- --------- ---- --------- --------- ----
Total interet-earning assets $ 112,185 $ 8,252 7.36% $ 103,349 $ 7,969 7.71%
Interest-Bearing Liabilities
Passbook accounts 15,361 420 2.73% 15,841 453 2.86%
Demand and NOW accounts 10,853 226 2.08% 10,028 221 2.20%
Certificate accounts 56,075 2,929 5.22% 49,707 2,800 5.63%
Borrowings 23,051 1,329 5.77% 18,663 1,096 5.87%
--------- --------- ---- --------- --------- ----
Total interest-bearing liabilities $ 105,340 $ 4,904 4.66% $ 94,239 $ 4,570 4.85%
--------- --------- ---- --------- --------- ----
Net interest income $ 3,348 $ 3,399
========= =========
Net interest rate spread 2.70% 2.86%
==== ====
Net earning assets $ 6,845 $ 9,110
========= =========
Net yield on average
interest-earning assets 2.98% 3.29%
==== ====
Average interest-earning assets to
average interest-bearing liabilities 1.06x 1.10x
==== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997
-------
Average Interest
Outstanding Earned/ Yield/
Balance Paid Rate
--------- --------- ----
<S> <C> <C> <C>
Interest-Earning Assets
Loans receivable (1) 71,473 6,003 8.40%
Mortgage-backed securities 3,783 258 6.82%
Investment securities 10,494 583 5.56%
Interest-bearing deposits 4,135 223 5.39%
FHLB stock 658 53 8.05%
--------- --------- ----
Total interet-earning assets $ 90,543 $ 7,120 7.86%
Interest-Bearing Liabilities
Passbook accounts 16,407 489 2.98%
Demand and NOW accounts 9,642 233 2.42%
Certificate accounts 42,051 2,378 5.66%
Borrowings 11,629 693 5.96%
--------- --------- ----
Total interest-bearing liabilities $ 79,729 $ 3,793 4.76%
--------- --------- ----
Net interest income $ 3,327
=========
Net interest rate spread 3.10%
====
Net earning assets $ 10,814
=========
Net yield on average
interest-earning assets 3.67%
====
Average interest-earning assets to
average interest-bearing liabilities 1.14x
====
</TABLE>
(1) Calculated net of deferred loan fees, loan discounts, loans in
process and allowance for losses.
7
<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>
For the Year Ended
------------------
December 31,
------------
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Increase (Decrease)
Due to Due to
------------------ (Dollar in Thousands) -----------------
Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ --- ---- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net (377) 814 (44) 393 (165) 1,223 (34) 1,024
Mortgage-backed
securities (51) (51) (4) (51) 1 (54)
Investment securities (34) (42) 3 (73) (76) (72) 9 (139)
Interest-bearing deposit (20) 8 (1) (13) (7) (3) (10)
FHLB Stock 27 27 28 28
------ ------ ------ ------ ------ ------ ------ ------
Totals (431) 756 (42) 283 (252) 1,125 (24) 849
------ ------ ------ ------ ------ ------ ------ ------
Interest-bearing liabilities:
Passbook accounts (20) (14) 1 (33) (20) (17) 1 (36)
Demand and Now
accounts (12) 18 (1) 5 (20) 9 (1) (12)
Certificate accounts (204) 359 (26) 129 (9) 433 (2) 422
Borrowed funds (20) 258 (5) 233 (10) 419 (6) 403
------ ------ ------ ------ ------ ------ ------ ------
Totals (256) 621 (31) 334 (59) 844 (8) 777
------ ------ ------ ------ ------ ------ ------ ------
Net change in net
interest income (51) 72
------ ------
</TABLE>
8
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1999 and 1998.
Net Income. The Company's net income for the year ended December 31, 1999 was
$697,000 as compared to $205,000 for the same period in 1998, an increase of
$492,000. The Company's prior year's period was affected by an unrealized loss
on trading securities of $771,000 as compared to the current year's unrealized
loss on trading securities of $124,000.
Interest Income. Interest income for the year ended December 31, 1999 increased
$283,000 or 3.6%, as compared to the prior year. The increase in interest income
was the result of an increase in average interest-earning assets of $8.8
million, partially offset by a decrease in the average asset yield to 7.36% from
7.71%. Interest income on loans increased $392,000 as a result of a $10.0
million increase in average loans receivable, offset by a 44 basis point
decrease in the average yield of the loan portfolio. Interest income on both
mortgage-backed and investment securities declined as a result of decreases in
the average balance of both securities as well as declines in the average yield.
The lack of additional purchase activity in these types of investments is a
result of the Company's strategy and ability to originate and purchase loans for
its own investment portfolio.
Interest Expense. Interest expense for the year ended December 31, 1999
increased $334,000, or 7.3% to $4.9 million as compared to $4.6 million in the
prior year. Deposit interest increased by $101,000, primarily as a result of the
$6.7 million increase in the average balance of deposit accounts offset by a 26
basis point decrease in the average cost of deposits. The average certificate of
deposit base increased by $6.4 million in 1999 as the Bank offered special
certificate promotions. Interest expense on borrowed funds increased $233,000,
to $1.3 million as the average balance of borrowed funds increased $4.4 million
to $23.1 million for the year ended December 31, 1999. This increase was
primarily due to funding requirements for new mortgage loan originations and
purchases.
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.
A provision of $119,000 was recorded during the year ended December 31, 1999
while a provision of $102,000 was recorded in the comparable 1998 period. The
increase in the provision for losses on loans was due to the continuing growth
in the loan portfolio and is based upon management's review of the loan
portfolio by property type and delinquency status. There were no significant
individual loans, which contributed to the increase in the allowance, and there
were no regulatory requests for additional provisions for loan losses during the
years ended December 31 1999 or 1998. Net charge offs for the year ended
December 31, 1999 amounted to $35,000.
<PAGE>
Non-performing assets increased to $928,000 at December 31, 1999 from $506,000
at December 31, 1998. The increase in non-performing loans from December 31,
1998 is attributable to a $500,000 non-residential participation construction
loan, which became delinquent during the second quarter of 1999 and has since
been foreclosed. The Bank has established a $40,000 specific reserve against
this loan and has classified the balance as substandard. 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
9
<PAGE>
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 $672,000 for
the year ended December 31, 1999 compared with the previous year. The increase
was directly related to an increase in unrealized gains and losses on trading
securities. For the year ended December 31, 1999, the Company recorded an
unrealized loss on trading securities of $124,000 compared to an unrealized loss
of $771,000 recorded in the prior year. The Company's trading portfolio, which
consists primarily of equity investments in community and regional financial
institutions, although at times appears to have stabilized, has yet to
experience any sustained turnaround from the devastating declines suffered
during the second half of 1998. Non-interest income, exclusive of unrealized
losses on trading securities, increased during the year 1999 by $25,000 to
$736,000 from $710,000 in the 1998 year. This increase resulted from an increase
of $48,000 in gains on the sale of trading securities and securities available
for sale, a $12,000 increase in gain on the sale of real estate owned, and
$36,000 in increased other operating income primarily from an increase in cash
surrender value from insurance policies. This increase was offset by an
additional $43,000 loss from investment in low-income housing joint venture, and
a $27,000 profit from the sale of the East Chicago deposit accounts in 1998,
which did not occur in 1999.
Non-Interest Expense. The Company's non-interest expense decreased $63,000 to
$2.8 million for the year ended December 31, 1999 compared to $2.9 million for
the previous year. The decrease was primarily the result of decreased staffing
costs of $32,000, due in part to $44,000 of bonuses paid and expensed during the
first quarter of 1998 that did not occur during 1999, a $29,000 loss on the
disposition of the Bank's East Chicago facility in 1998, and a $51,000 decrease
in other non-interest expense, primarily in decreased professional service fees
and increased efficiencies in operations. This decrease was offset by an
increase in data processing costs of $29,000, due to increased transaction
charges andY2K expenditures, and increased advertising costs of $19,000 as a
result of special promotions of certificate and loan products, and PC banking
services.
Provision for Income Taxes. Income tax expense for the year ended December 31,
1999 increased $176,000 to $328,000 compared to $152,000 for the 1998 year.
Income taxes increased primarily as a result of an increase in pre-tax income.
The Company's effective tax rate, however, did decline during the year ended
December 31, 1999 to 32.0% from 42.6% in the prior year due to the recognition
of $54,000 in low income housing tax credits provided through an investment in a
limited partnership organized to build, own and operate a 56 unit low income
apartment complex.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997.
Net Income. The Company's net income for the year ended December 31, 1998 was
$205,000 as compared to $1.0 million for the same period in 1997, a decrease of
$818,000. This decrease was due primarily to a decrease in non-interest income
of $1.2 million, an increase in non-interest expense of $193,000, and an
increase in loan loss provision of $28,000, offset by an increase in net
interest income of $72,000, and a decrease in income taxes of $523,000.
<PAGE>
Interest Income. Total interest income for the year ended December 31, 1998
increased $849,000 or 11.9%, as compared to the prior year. The increase in
interest income was the result of an increase in average interest-earning assets
of $12.8 million, partially offset by a decrease in the average asset yield to
7.71% from 7.86%. Interest income on loans increased $1.0 million as a result of
a $14.6 million increase in average loan receivable, offset by 23 basis point
decrease in the average yield of the loan portfolio. Interest income on both
mortgage-backed and investment securities declined as a result of decreases in
the average balance of both securities as well as declines in the average yield.
The lack of additional purchase activity in these investments is a result of the
Company's ability and strategy to originate and purchase loans for its own
investment portfolio.
10
<PAGE>
Interest Expense. Total interest expense for the year ended December 31, 1998
increased $777,000, or 20.5% to $4.6 million as compared to $3.8 million in the
prior year. Deposit interest increased by $374,000, primarily as a result of the
$7.5 million increase in the average balance of deposit accounts and to a lesser
extent, by a 5 basis point increase in the average cost of deposits. The average
certificate of deposit base increased by $7.7 million in 1998 as the Bank
offered special certificate promotions. Interest expense on borrowed funds
increased $393,000, to $1.1 million as the average balance of borrowed funds
increased $7.0 million to $18.7 million for the year ended December 31, 1998.
This increase was primarily 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.
A provision of $102,000 was recorded during the year ended December 31, 1998
while a provision of $74,000 was recorded in the comparable 1997 period. The
increase in the provision for losses on loans was due to the continuing growth
in the loan portfolio and is based upon management's review of the loan
portfolio by property type and delinquency status. There were no significant
individual loans, which contributed to the increase in the allowance, and there
were no regulatory requests for additional provisions for loan losses during the
year ended December 31 1998 or 1997. Net charge offs for the year ended December
31, 1998 amounted to less than $5,000. 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 decreased $1.2 million
for the year ended December 31, 1998 compared with the previous year. The
decrease was directly related to an unrealized loss on trading securities of
$771,000 recorded in 1998 compared to a $561,000 unrealized gain recorded in the
prior year. The decline in income from unrealized gains and losses on trading
securities is a reflection of the erosion in the value of community bank and
thrift stock prices during the second half of 1998. Although the stock market
appears to have generally recovered from its late summer declines, the Company's
trading portfolio, which consists primarily of equity investments in community
and regional financial institutions, has yet to experience any sustained
turnaround. Non-interest income also declined due to a decrease of $22,000 in
commissions from the sale of various financial products by the Bank's wholly
owned subsidiary NIFCO, and an $11,000 loss from investment in a low income
housing joint venture, offset by an increase of $101,000 in loan and deposit
related fees, a $10,000 increase on the sale of investment securities, and a
$27,000 profit from the sale of the East Chicago deposit accounts.
<PAGE>
Non-Interest Expense. The Company's non-interest expense increased $193,000 to
$2.9 million for the year ended December 31, 1998 compared to $2.7 million for
the previous year. The increase was primarily the result of increased staffing
costs of $83,000 due in part to normal salary and benefit increases and the
payment of a bonus in the first quarter of 1998 totaling $44,000, increased data
processing costs of $33,000 due to increased transaction charges and to a lesser
extent Y2K expenditures, a loss of $29,000 on the disposition of the closed East
Chicago branch office, and an increase in other operating expenses of $117,000
due to the expanded product offerings and growth in customer activity levels.
Among the increased expenses were bank correspondent and courier fees,
telephone, insurance, meetings, and professional service fees. This was offset
by decrease in advertising costs of $39,000, and a decrease in occupancy and
equipment expense of $44,000.
11
<PAGE>
Provision for Income Taxes. Tax expense for the year ended December 31, 1998
decreased $523,000 to $152,000 compared to $675,000 for the comparable year in
1997. Income taxes decreased primarily as a result of decrease in pre-tax
income.
Qualitative and Quantitative Disclosure of Market Risk
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 activity
may be permitted with the approval of the Board of Directors, management does
not intend to engage in such activity 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 (i.e., a "positively sloped yield
curve"), can 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.
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,
1999, adjustable-rate loans represented $43.2 million, or 40.0% of the total
loan portfolio. Second, significant portions of the Company's other debt
securities (primarily U.S. Government and agency securities) are
<PAGE>
intermediate-term instruments with $5.2 million of such securities contractually
maturing within five years of December 31, 1999. Third, 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, 1999, the Company had $15.0 million of
regular savings accounts, $3.4 million of money market accounts and $8.6 million
of NOW, checking and club accounts. Overall, these accounts comprised 30.3% of
the Company's total deposit base. Fourth, 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,
12
<PAGE>
One approach used by management to qualify interest rate risk is the net
portfolio value ("NPV") analysis. NPV is generally considered to be the present
value of the difference between expected incoming cash flows on interest-earning
and other assets and expected incoming cash flow on interest-earning and other
assets and expected outgoing cash flows on interest-bearing and other
liabilities. The application attempts to quantify interest rate risk as the
change in the NPV, which would result form a theoretical 200 basis point (1
basis point equals .01%) change in market interest rates.
Presented below, as of December 31,1999, is an analysis of the Bank's interest
rate risk as measured by changes in NPV for instantaneous and sustained parallel
shifts of 100 basis points in market interest rates. As illustrated in the
table, the Company's NPV is more sensitive to rising rates than declining rates.
From an overall perspective, such difference in sensitivity occurs principally
because, as rates rise, borrowers do not prepay fixed rate loans as quickly as
they do when interest rates are declining. Also, the interest the Company would
pay on its deposits in the event of a rate increase would increase more rapidly
than the yield on its assets because the Company's deposits generally have
shorter periods to repricing.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY OF NET PORTFOLIO VALUE
Assumed NPV as % of Present
Change in Interest Rates Net Portfolio Value Value of Assets
------------------------ ----------------------------------------------- -----------------------
(Basis Points) $ Amount $ Change % Change % Ratio Bp Change
-------------- -------- -------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
+300 5,361 -3,549 -40 4.63 -259
+200 6,662 -2,248 -25 5.63 -159
+100 7,866 -1,044 -12 6.50 -72
8,910 7.22
-100 9,589 680 8 7.63 +41
-200 9,944 1,034 12 7.79 +57
-300 9,914 1,004 11 7.66 +44
</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 interests' rate
scenarios. It was also assumed that delinquency rates would 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.
Other types of market risk, such as foreign currency exchange risk and commodity
price risk, do not arise in the normal course of the Company's business
activities.
13
<PAGE>
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 activity of the Company is the origination and purchase of
real estate and other loans. During the years ended December 31, 1999, and 1998,
the Company's disbursements for loan originations totaled $24.6 million, and
$26.0 million respectively and loan purchases totaled $24.0 million and $14.5
million respectively.
For the years ended December 31, 1999, and 1998, the Company experienced net
increases in deposits (including the effect of interest credited) of $9.9
million and $7.3 million respectively. The increase in fiscal 1999 reflects a
concerted effort to increase the deposit base through marketing local special
rate certificates for periods of 14 through 24 months. Proceeds from FHLB
advances were $9.0 million in fiscal 1999, and $15.7 million in fiscal 1998.
FHLB advances of $6.0 million and $6.0 million were repaid in fiscal 1999 and
1998 respectively.
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, 1999, the Company's borrowing limit from the FHLB of
Indianapolis was approximately $52.9 million, with unused borrowing capacity of
$26.2 million at that date.
The Company is required to maintain an average daily balance of liquid assets as
a percentage of net withdrawable deposit accounts plus short-term borrowings as
defined by OTS regulations. The minimum required liquidity ratio is currently
4.0%. At December 31, 1999 and 1998, the Company's liquidity ratio was 10.9%,
and 16.1% respectively.
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, 1999 and 1998, cash and cash equivalents
totaled $5.5 million and $9.1 million, respectively.
At December 31, 1999, the Company had outstanding loan origination commitments
of $1.1 million, undisbursed construction loans in process of $1.5 million and
approved but unused lines of credit extended to customers of $4.7 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, 1999 totaled $49.9
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.
<PAGE>
The OTS capital regulations require savings institutions to meet three minimum
capital standards: a 1.5% capital ratio, a 3% leverage (core capital) ratio and
an 8% risk-based capital ratio. The Bank satisfied these minimum capital
standards at December 31, 1999 with tangible and leverage capital ratios of
6.51% and a total risk-based capital ratio of 12.44%. 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.
14
<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. The Bank paid a dividend of $1.3 million to the Company during the
year ended December 31, 1999 compared to a $1.9 million and $2.5 million
dividend during the years ended December 31, 1998 and 1997. The dividends have
been primarily used by the Company to repurchase common stock for the treasury.
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.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data 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 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 changes in the
fair value of assets, liabilities, or firm commitment (fair value hedges),
hedges of the variable cash flows of forecasted transactions (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 three
hedge categories are included in income.
In September 1999, the FASB issued Statement of Financial Accounting Standard
No. 137 ("SFAS No. 137"), entitled "Accounting for Derivative Instruments in
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133".
SFAS No. 137 defers the 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 consolidated financial condition or
results of operations.
<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.
15
<PAGE>
Cobitz, Vandenberg & Fennessy
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, 1999 and 1998, 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, 1999.
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, 1999 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ending December 31, 1999, in conformity with generally accepted
accounting principles.
/s/Cobitz, Vandenberg & Fennessy
--------------------------------
Cobitz, Vandenberg & Fennessy
January 19, 2000
Palos Hills, Illinois
16
<PAGE>
<TABLE>
<CAPTION>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31,
-------------------------
1999 1998
------------- -------------
<S> <C> <C>
Assets
- ------
Cash and amounts due from depository institutions $ 4,180,088 3,210,234
Interest-bearing deposits 1,277,650 5,887,182
------------- -------------
Total cash and cash equivalents 5,457,738 9,097,416
Investment securities, available for sale, at fair value (note 2) 5,352,142 6,137,219
Trading securities (note 3) 1,909,333 2,394,130
Mortgage-backed securities, available for sale, at fair value (note 4) 1,868,000 2,649,380
Loans receivable (net of allowance for loan losses:
1999 - $590,701; 1998 - $506,534) (note 5) 105,909,909 89,762,417
Real estate owned -- 23,369
Investment in limited partnership (note 6) 1,327,000 1,380,925
Stock in Federal Home Loan Bank of Indianapolis 1,383,500 1,334,200
Office properties and equipment - net (note 7) 399,867 427,823
Accrued interest receivable (note 8) 642,111 594,942
Prepaid expenses and other assets (note 9) 3,536,270 3,111,101
------------- -------------
Total assets 127,785,870 116,912,922
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
- -------------
Deposits (note 10) 88,944,925 78,997,215
Borrowed money (note 11) 24,675,589 21,683,000
Note payable 1,333,324 1,391,454
Advance payments by borrowers for taxes and insurance 431,676 567,098
Other liabilities (note 12) 861,087 861,325
------------- -------------
Total liabilities 116,246,601 103,500,092
------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<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 703,329 shares outstanding at December 31, 1999 and
869,829 shares outstanding at December 31, 1998 11,241 11,241
Additional paid-in capital 10,798,674 10,771,799
Retained earnings, substantially restricted 7,780,655 7,317,519
Accumulated other comprehensive income, net of income taxes (79,763) 113,856
Treasury stock, at cost (420,796 and 254,296 shares at December 31, 1999 and 1998) (6,219,684) (3,844,015)
Common stock acquired by Employee Stock Ownership Plan (539,580) (629,510)
Common stock awarded by Recognition and Retention Plan (212,274) (328,060)
------------- -------------
Total stockholders' equity (notes 16 and 17) 11,539,269 13,412,830
------------- -------------
Commitments and contingencies (notes 18 and 19)
Total liabilities and stockholders' equity $ 127,785,870 116,912,922
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
17
<PAGE>
<TABLE>
<CAPTION>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31,
------------------------------------------------
1999 1998 1997
-------------- --------- ---------
<S> <C> <C> <C>
Interest income:
Interest on loans $ 7,419,764 7,027,445 6,003,470
Interest on mortgage-backed securities 153,111 204,014 257,542
Interest on investment securities 371,083 443,942 583,012
Interest on interest-bearing deposits 200,325 212,488 222,787
Dividends on Federal Home Loan Bank stock 107,719 81,208 52,699
-------------- --------- ---------
Total interest income 8,252,002 7,969,097 7,119,510
-------------- --------- ---------
Interest expense:
Interest on deposits 3,574,843 3,474,206 3,099,417
Interest on borrowings 1,329,235 1,096,056 693,214
-------------- --------- ---------
Total interest expense 4,904,078 4,570,262 3,792,631
-------------- --------- ---------
Net interest income before provision for loan losses 3,347,924 3,398,835 3,326,879
Provision for loan losses (note 5) 119,024 102,047 74,243
-------------- --------- ---------
Net interest income after provision for loan losses 3,228,900 3,296,788 3,252,636
-------------- --------- ---------
Non-interest income:
Loan fees and service charges 156,833 143,640 98,180
Commission income 45,781 55,416 77,811
Unrealized gain (loss) on trading securities - net (123,773) (771,172) 560,809
Gain on sale of trading securities 99,627 24,086 36,066
Gain on sale of investment securities 15,981 44,204 22,264
Gain (loss) on sale of real estate owned 9,904 (1,696) 4,908
Gain on sale of deposit accounts - 27,033 -
Loss from limited partnership (note 6) (53,925) (10,529) -
Deposit related fees 293,548 305,896 250,788
Other income 167,657 122,530 80,994
-------------- --------- ---------
Total non-interest income 611,633 (60,592) 1,131,820
-------------- --------- ---------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Non-interest expense:
Staffing costs (notes 13 and 14) 1,345,027 1,376,916 1,294,221
Advertising 117,011 98,036 126,016
Occupancy and equipment expenses (note 7) 311,297 309,385 353,116
Data processing 397,545 368,335 335,555
Professional fees 134,640 167,386 131,373
Federal deposit insurance premiums 47,150 45,112 41,400
Loss on disposition of fixed assets - 28,798 -
Other 463,128 485,415 404,848
-------------- --------- ---------
Total non-interest expense 2,815,798 2,879,383 2,686,529
-------------- --------- ---------
Income before income taxes 1,024,735 356,813 1,697,927
Income taxes (note 15) 327,894 152,171 674,874
-------------- --------- ---------
Net income $ 696,841 204,642 1,023,053
============== ======= =========
Earnings per share -
Basic $ .97 .24 1.12
Diluted $ .96 .24 1.10
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Three Years Ended December 31, 1999
Accumulated Common
Additional Other Stock
Common Paid-in Retained Comprehensive Treasury Acquired
Stock Capital Earnings Income Stock by ESOP
----- ------- -------- ------ ----- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $11,241 10,657,746 6,564,204 30,386 (724,718) (809,370)
------ ---------- --------- --------- ----------- -------
Comprehensive income:
Net income 1,023,053
Other comprehensive income, net of tax:
Unrealized holding gain during the year 54,600
Less: reclassification adjustment
of gains included in net income (13,925)
--------- --------
Total comprehensive income 1,023,053 40,675
Purchase of treasury stock
(104,121 shares) (1,498,333)
Tax benefit related to vested RRP stock 17,000
Amortization of award of RRP stock
Contribution to fund ESOP loan 42,322 89,930
Dividends declared on
common stock ($.25 per share) (230,007)
------ ---------- --------- --------- ----------- -------
Balance at December 31, 1997 11,241 10,717,068 7,357,250 71,061 (2,223,051) (719,440)
------ ---------- --------- --------- ----------- -------
Comprehensive income:
Net income 204,642
Other comprehensive income, net of tax:
Unrealized holding gain during the year 49,076
Less: reclassification adjustment
of gains included in net income (6,281)
--------- ---------
Total comprehensive income 204,642 42,795
Purchase of treasury stock
(93,969 shares) (1,620,964)
Amortization of award of RRP stock
Contribution to fund ESOP loan 54,731 89,930
Dividends declared on
common stock ($.29 per share) (244,373)
------ ---------- --------- --------- ----------- -------
Balance at December 31, 1998 11,241 10,771,799 7,317,519 113,856 (3,844,015) (629,510)
------ ---------- --------- --------- ----------- -------
Comprehensive income:
Net income 696,841
Other comprehensive income, net of tax:
Unrealized holding loss during the year (193,619)
------- ---------
Total comprehensive income 696,841 (193,619)
Purchase of treasury stock
(166,500 shares) (2,375,669)
Amortization of award of RRP stock
Contribution to fund ESOP loan 26,875 89,930
Dividends declared on
common stock ($.32 per share) (233,705)
------ ---------- --------- --------- ----------- -------
Balance at December 31, 1999 $11,241 10,798,674 7,780,655 (79,763) (6,219,684) (539,580)
------ ---------- --------- --------- ----------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Common
Stock
Awarded
by RRP Total
------ -----
<S> <C> <C>
Balance at December 31, 1996 (559,632) 15,169,857
------- ----------
Comprehensive income:
Net income 1,023,053
Other comprehensive income, net of tax:
Unrealized holding gain during the year 54,600
Less: reclassification adjustment
of gains included in net income (13,925)
----------
Total comprehensive income 1,063,728
Purchase of treasury stock
(104,121 shares) (1,498,333)
Tax benefit related to vested RRP stock 17,000
Amortization of award of RRP stock 115,786 115,786
Contribution to fund ESOP loan 132,252
Dividends declared on
common stock ($.25 per share) (230,007)
------- ----------
Balance at December 31, 1997 (443,846) 14,770,283
------- ----------
Comprehensive income:
Net income 204,642
Other comprehensive income, net of tax:
Unrealized holding gain during the year 49,076
Less: reclassification adjustment
of gains included in net income (6,281)
----------
Total comprehensive income 247,437
Purchase of treasury stock
(93,969 shares) (1,620,964)
Amortization of award of RRP stock 115,786 115,786
Contribution to fund ESOP loan 144,661
Dividends declared on
common stock ($.29 per share) (244,373)
------- ----------
Balance at December 31, 1998 (328,060) 13,412,830
------- ----------
Comprehensive income:
Net income 696,841
Other comprehensive income, net of tax:
Unrealized holding loss during the year (193,619)
----------
Total comprehensive income 503,222
Purchase of treasury stock
(166,500 shares) (2,375,669)
Amortization of award of RRP stock 115,786 115,786
Contribution to fund ESOP loan 116,805
Dividends declared on
common stock ($.32 per share) (233,705)
------- ----------
Balance at December 31, 1999 (212,274) 11,539,269
------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
<TABLE>
<CAPTION>
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended December 31,
---------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 696,841 204,642 1,023,053
Items not requiring (providing) cash:
Depreciation 122,984 136,566 153,426
Amortization of cost of stock benefit plans 205,716 205,716 205,716
Amortization of premiums and accretion of discounts 30,117 13,773 1,858
Net gain on sale of securities (115,608) (68,290) (58,330)
Net (gain) loss on sale of real estate owned (9,904) 1,696 (4,908)
Provision for loan losses 119,024 102,047 74,243
Loss on disposition of fixed assets -- 28,798 --
Loss from limited partnership 53,925 10,529 --
Gain on sale of deposits -- (27,033) --
Unrealized (gain) loss on trading securities 123,773 771,172 (560,809)
Purchase of trading securities (93,750) (852,648) (1,957,532)
Proceeds from sale of trading securities 554,401 124,399 680,940
Decrease in deferred income on loans (2,110) (76,687) (25,349)
Increase (decrease) in accrued and deferred income taxes (204,645) (591,282) 347,337
Increase in accrued interest receivable (47,169) (61,433) (80,554)
Increase (decrease) in accrued interest payable (5,350) 24,206 (8,163)
Increase in deferred compensation 76,974 61,581 79,320
Other, net (136,430) (8,354) (188,048)
------------- ------------- -------------
Net cash provided by (for) operating activities 1,368,789 (602) (317,800)
------------- ------------- -------------
Cash flows from investing activities:
Proceeds from sales of investment securities 15,981 2,793,760 4,014,689
Proceeds from maturities of investment securities 500,000 2,875,000 750,000
Purchase of investment securities (6,329) (3,492,968) (3,996,048)
Proceeds from repayments of mortgage-backed securities 719,969 847,014 569,678
Purchase of Federal Home Loan Bank stock (49,300) (608,800) (179,800)
Purchase of life insurance policies -- (1,515,000) --
Purchase of loans (23,991,209) (14,487,063) (6,872,966)
Loan disbursements (24,570,680) (25,987,142) (19,852,423)
Loan repayments 32,297,483 27,756,288 16,884,296
Proceeds from sale of real estate owned 33,273 25,785 102,702
Property and equipment expenditures, net (95,028) (121,457) (114,553)
------------- ------------- -------------
Net cash provided for investing activities (15,145,840) (11,914,583) (8,694,425)
------------- ------------- -------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cash flows from financing activities:
Deposit receipts 171,721,626 151,006,489 142,882,643
Deposit withdrawals (164,715,766) (143,773,817) (134,005,401)
Sale of deposit accounts -- (2,676,263) --
Interest credited to deposits 2,941,850 2,767,713 2,411,887
Proceeds from borrowed money 9,000,000 15,683,000 7,000,000
Repayment of borrowed money (6,007,411) (6,000,000) (4,500,000)
Repayment of note payable (58,130) -- --
Increase (decrease) in advance payments by borrowers
for taxes and insurance (135,422) 83,861 71,024
Purchase of treasury stock (2,375,669) (1,620,964) (1,498,333)
Dividends paid on common stock (233,705) (244,373) (230,007)
------------- ------------- -------------
Net cash provided by financing activities 10,137,373 15,325,646 12,131,813
------------- ------------- -------------
Net change in cash and cash equivalents (3,639,678) 3,410,461 3,119,588
Cash and cash equivalents at beginning of year 9,097,416 5,686,955 2,567,367
------------- ------------- -------------
Cash and cash equivalents at end of year $ 5,457,738 9,097,416 5,686,955
============= ============= =============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 4,909,428 4,546,056 3,800,794
Income taxes 532,539 739,521 310,609
Non-cash investing activities:
Transfer of loans to real estate owned $ -- 23,369 113,496
</TABLE>
See accompanying notes to consolidated financial statements.
20
<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.
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.
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 No. 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.
<PAGE>
SFAS No. 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.
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.
21
<PAGE>
1) Summary of Significant Accounting Policies
------------------------------------------
Trading Securities
------------------
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 over the contractual life of the loan.
The Company has adopted the provisions of 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.
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, 1999
and one loan to be evaluated for impairment at December 31, 1999.
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.
<PAGE>
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.
22
<PAGE>
1) Summary of Significant Accounting Policies
------------------------------------------
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.
Investment in Limited Partnership
---------------------------------
The investment in limited partnership is recorded using the equity method
of accounting. Losses due to impairment are recorded when it is
determined that the investment no longer has the ability to recover its
carrying amount. The benefits of low income housing tax credits
associated with the investment are accrued when earned.
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 on deferred tax assets and liabilities of a change in
tax rates is recognized in income for the period that includes the
enactment date.
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.
23
<PAGE>
1) Summary of Significant Accounting Policies
------------------------------------------
Earnings Per Share
------------------
The Company computes its earnings per share (EPS) in accordance with SFAS
No. 128 "Earnings per Share". This statement simplifies the standards for
computing EPS previously found in Accounting Principles Board Opinion No.
5 "Earnings per Share" and makes them comparable to international EPS
standards. It replaces the presentation of primary EPS with a
presentation of basic EPS and fully diluted EPS with diluted EPS.
Basic EPS, unlike primary EPS, excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity.
The following presentation illustrates basic and diluted EPS in
accordance with the provisions of SFAS No. 128:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1999 1998 1997
------------ ------- ---------
<S> <C> <C> <C>
Weighted average number of common shares
outstanding used in basic EPS calculation 784,822 917,240 995,455
Reduction for common shares not yet
released by Employee Stock Ownership Plan (62,951) (71,944) (80,937)
------------ ------- ---------
Total weighted average common shares
outstanding for basic computation 721,871 845,296 914,518
Add common stock equivalents for shares
issuable under Stock Option Plans 1,856 20,693 13,206
------------ ------- ---------
Weighted average number of shares outstanding
adjusted for common stock equivalents 723,727 865,989 927,724
============ ======= =========
Net income $ 696,841 204,642 1,023,053
Basic earnings per share $ .97 .24 1.12
Diluted earnings per share $ .96 .24 1.10
</TABLE>
24
<PAGE>
2) Investment Securities, Available for Sale
-----------------------------------------
Investment securities available for sale are recorded at fair value in
accordance with SFAS No. 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, 1999
- -----------------
United States Government securities $5,236,797 4,656 117,441 5,124,012
Municipal securities 99,600 -- 5,144 94,456
Marketable equity securities 135,416 -- 1,742 133,674
---------- ---------- ---------- ----------
$5,471,813 4,656 124,327 5,352,142
========== ========== ========== ==========
December 31, 1998
- -----------------
United States Government securities $5,770,284 137,421 7,106 5,900,599
Municipal securities 99,562 2,684 -- 102,246
Marketable equity securities 129,087 5,287 -- 134,374
---------- ---------- ---------- ----------
$5,998,933 145,392 7,106 6,137,219
========== ========== ========== ==========
</TABLE>
The contractual maturity of the above investments is summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------ -------------------------
Amortized Fair Amortized Fair
Term to Maturity Cost Value Cost Value
---------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less $1,150,531 1,151,578 500,000 513,565
Due after one year through five years 4,086,266 3,972,434 4,349,143 4,434,592
Due after five years through ten years -- -- 921,141 952,442
Due after ten years 99,600 94,456 99,562 102,246
Marketable equity securities 135,416 133,674 129,087 134,374
---------- ---------- ---------- ----------
$5,471,813 5,352,142 5,998,933 6,137,219
========== ========== ========== ==========
</TABLE>
<PAGE>
During the current year, the Company sold securities realizing gross
proceeds of $15,981, with gross gains of $15,981 realized on those sales.
Proceeds from sales of investment securities available for sale during
the years ended December 31, 1998 and 1997 were $2,793,760 and $4,014,689
with gross gains of $44,493 and $26,113 and gross losses of $289 and
$3,849 realized on those sales. The change in net unrealized gains and
losses during the current year of $257,957, net of the tax effect of
$103,184, resulted in a $154,773 charge to stockholders' equity.
25
<PAGE>
3) Trading Securities
------------------
Trading securities are accounted for at their current fair values.
Trading securities at December 31, 1999 consists of equity securities
(thrift common stock mutual fund investment with a carrying value of
$964,614 and common stock with a carrying value of $857,219) and debt
securities with a carrying value of $87,500. The common stock investment
at December 31, 1999 is pledged as collateral for a revolving line of
credit as discussed in note 11. Trading securities at December 31, 1998
also consists of equity securities (thrift common stock mutual fund
investment with a carrying value of $963,654, an equity mutual fund with
a carrying value of $57,128 and common stock with a carrying value of
$1,277,098) and debt securities with a carrying value of $96,250. The
adjustment of these securities to their current fair values has resulted
in a net unrealized loss of $123,773 and $771,172 for the years ended
December 31, 1999 and 1998 and a net unrealized gain of $560,809 for the
year ended December 31, 1997. Proceeds from sales of trading securities
during the years ended December 31, 1999, 1998 and 1997 were $554,401,
$124,399 and $680,940 with gross gains of $99,627, $24,086 and $37,410
and gross losses of $-0-, $-0- and $1,344 realized on those sales.
4) Mortgage-Backed Securities, Available for Sale
----------------------------------------------
Mortgage-backed securities available for sale are recorded at fair value
in accordance with SFAS No. 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, 1999
- -----------------
Participation Certificates:
FHLMC - Fixed rate $1,463,776 33 10,989 1,452,820
FNMA - Adjustable rate 40,785 -- 109 40,676
GNMA - Adjustable rate 376,707 816 3,019 374,504
---------- ---------- ---------- ----------
$1,881,268 849 14,117 1,868,000
========== ========== ========== ==========
Weighted average interest rate 6.73%
==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1998
- -----------------
Participation Certificates:
FHLMC - Fixed rate $2,057,661 50,070 600 2,107,131
FNMA - Adjustable rate 52,356 749 -- 53,105
GNMA - Adjustable rate 487,888 3,207 1,951 489,144
---------- ---------- ---------- ----------
$2,597,905 54,026 2,551 2,649,380
========== ========== ========== ==========
Weighted average interest rate 6.78%
==========
</TABLE>
There were no sales of mortgage-backed securities available for sale
during the years ended December 31, 1999, 1998 and 1997. The change in
net unrealized gains and losses during the current year of $64,743, net
of the tax effect of $25,897, resulted in a $38,846 charge to
stockholders' equity.
26
<PAGE>
5) Loans Receivable
----------------
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Mortgage loans:
One-to-four family $ 82,210,196 63,368,978
Multi-family 2,144,343 2,446,043
Nonresidential 8,774,978 10,370,172
Construction 4,278,942 2,522,279
Land 631,704 1,226,881
------------- -------------
Total mortgage loans 98,040,163 79,934,353
------------- -------------
Other loans:
Loans on deposit accounts 146,963 171,604
Equity lines of credit 3,336,406 3,552,371
Other consumer 1,497,930 1,667,732
------------- -------------
Total other loans 4,981,299 5,391,707
------------- -------------
Commercial business loans 4,998,619 5,607,204
------------- -------------
Total loans receivable 108,020,081 90,933,264
------------- -------------
Less:
Loans in process 1,522,746 569,028
Net deferred yield adjustments (3,275) 95,285
Allowance for loan losses 590,701 506,534
------------- -------------
Loans receivable, net $ 105,909,909 89,762,417
============= =============
Weighted average interest rate 7.63% 7.77%
============= =============
</TABLE>
<PAGE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year $ 506,534 410,383 354,631
Provision for loan losses 119,024 102,047 74,243
Charge-offs (39,845) (5,896) (32,942)
Recoveries 4,988 -- 14,451
--------- --------- ---------
Balance, end of year $ 590,701 506,534 410,383
========= ========= =========
</TABLE>
Delinquent loans (loans having monthly payments past due ninety days or
more and non-accruing) at December 31, 1999 and 1998 amounted to
approximately $969,000 and $475,000 respectively. As of December 31,
1999, the total investment in impaired loans was $519,000. The impaired
loan at this date was subject to an allowance for credit losses of
$40,000, which is included in the above loan loss allowance.
For the years ended December 31, 1999 and 1998, gross interest income
which would have been recorded had the non-accruing loans been current
in accordance with their original terms amounted to approximately
$47,000 and $17,000 respectively.
Loans to directors and executive officers aggregated approximately
$323,000 and $340,000 at December 31, 1999 and 1998 respectively. Such
loans are made on substantially the same terms as those for other loan
customers.
27
<PAGE>
6) Investment in Limited Partnership
---------------------------------
The investment in limited partnership of $1,327,000 and $1,380,925 at
December 31, 1999 and 1998 represents a 39.60% equity in Pedcor
Investments 1997 - XXXI ("Pedcor"), a limited partnership organized to
build, own and operate a 56 unit apartment complex. The Bank has recorded
its equity in the losses of Pedcor in the amount of $53,925 and $10,529
for the year ended December 31, 1999 and the nine months ended December
31, 1998. Condensed financial statements for Pedcor are as follows:
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Financial Condition
-------------------------------------------
December 31,
--------------------------------
1999 1998
-------------- ---------
<S> <C> <C>
Assets
------
Cash $ 181,985 1,800
Construction in process - 2,561,817
Property and equipment 4,028,104 -
Land 112,000 112,000
Other 19,177 501
-------------- ---------
Total assets 4,341,266 2,676,118
============== =========
Liabilities
-----------
Notes payable - Bank 983,000 983,000
Notes payable - Other 2,855,115 1,500,191
Other liabilities 312,242 219,516
-------------- ---------
Total liabilities 4,150,357 2,702,707
-------------- ---------
Partners' capital 190,909 (26,589)
-------------- ---------
Total liabilities and partners' capital $ 4,341,266 2,676,118
============== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Year Ended Ended
December 31, December 31,
1999 1998
--------- ---------
<S> <C> <C>
Condensed statement of operations
Total revenues 104,027 8,278
Total expenses $ 240,200 34,867
--------- ---------
Net loss $(136,173) (26,589)
========= =========
</TABLE>
28
<PAGE>
7) Office Properties and Equipment
-------------------------------
Office properties and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
--------- ----------
<S> <C> <C>
Cost:
Land - Munster $ 40,669 40,669
Hammond 33,300 33,300
East Chicago - -
Building - Munster 417,151 417,151
Hammond 243,030 243,030
East Chicago - -
Leasehold improvements - Dyer 144,932 148,096
Furniture and equipment 1,000,179 905,150
--------- ----------
1,879,261 1,787,396
---------- ----------
Less accumulated depreciation:
Building - Munster 394,190 385,442
Hammond 233,308 229,916
East Chicago - -
Leasehold improvements - Dyer 65,942 61,603
Furniture and equipment 785,954 682,612
---------- ----------
1,479,394 1,359,573
---------- ----------
Net book value $ 399,867 427,823
========== ==========
</TABLE>
Depreciation of office properties and equipment for the years ended
December 31, 1999, 1998 and 1997 amounted to $122,984, $136,566 and
$153,426 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, 1999 amounted to $3,236 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, 1999, 1998 and
1997 amounted to $38,320, $37,372 and $36,815 respectively.
During the prior year, the Bank disposed of its East Chicago facility.
The property was donated at no cost to a local non profit organization.
The net book value of the property at the date of donation amounted to
$28,798 and has been recorded as a loss. All personal property associated
with the office has been transferred to other office locations.
<PAGE>
8) Accrued Interest Receivable
---------------------------
Accrued interest receivable is summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------
1999 1998
--------- ---------
<S> <C> <C>
Investment securities $ 71,284 74,596
Mortgage-backed securities 10,619 14,796
Loans receivable 621,172 529,930
Allowance for uncollected interest (60,964) (24,380)
--------- ------
$ 642,111 594,942
========= =========
</TABLE>
29
<PAGE>
9) Prepaid Expenses and Other Assets
---------------------------------
Prepaid expenses and other assets consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
Prepaid insurance premiums $ 40,686 31,853
Prepaid pension cost 91,776 58,463
Prepaid federal and state income taxes 72,579 --
Other prepaid expenses 56,173 55,076
Cash surrender value of life insurance policies (a) 2,710,899 2,584,902
Deferred federal and state income tax benefit - net (b) 542,108 322,487
Miscellaneous 22,049 58,320
---------- ----------
$3,536,270 3,111,101
========== ==========
</TABLE>
(a) The Board of Directors has approved two non-qualified retirement
income plans 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 plans. 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, 1999 and
1998 under SFAS No. 109 is as follows:
<TABLE>
<CAPTION>
Assets Liabilities Net
------ ----------- ---
<S> <C> <C> <C>
December 31, 1999
- -----------------
Loan fees deferred for financial reporting purposes $ 16,832 -- 16,832
Accelerated book depreciation 36,492 -- 36,492
Deferred compensation 183,358 -- 183,358
Nondeductible incentive plan expense 11,934 -- 11,934
Bad debt reserves established for
financial reporting purposes 236,280 -- 236,280
Increases to tax bad debt reserves
since January 1, 1988 -- (76,325) (76,325)
Unrealized loss on securities available for sale 53,176 -- 53,176
Unrealized loss on trading account securities 55,976 -- 55,976
Other 24,385 -- 24,385
--------- --------- ---------
$ 618,433 (76,325) 542,108
========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
- -----------------
<S> <C> <C> <C>
Loan fees deferred for financial reporting purposes $ 24,272 -- 24,272
Accelerated book depreciation 30,818 -- 30,818
Deferred compensation 152,568 -- 152,568
Nondeductible incentive plan expense 8,176 -- 8,176
Bad debt reserves established for
financial reporting purposes 202,614 -- 202,614
Increases to tax bad debt reserves
since January 1, 1988 -- (95,406) (95,406)
Unrealized gain on securities available for sale -- (75,905) (75,905)
Unrealized loss on trading account securities 65,598 -- 65,598
Other 9,752 -- 9,752
--------- --------- ---------
$ 493,798 (171,311) 322,487
========= ========= =========
</TABLE>
30
<PAGE>
10) Deposits
--------
Deposit accounts are summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Passbook accounts $14,959,746 15,142,805
Demand deposits and NOW accounts 8,604,446 7,404,328
Money market accounts 3,371,829 3,772,914
----------- -----------
26,936,021 26,320,047
----------- -----------
Certificates of deposit by interest rate:
4.01 - 5.00 17,353,680 9,036,391
5.01 - 6.00 42,041,941 39,205,712
6.01 - 7.00 2,507,128 3,821,708
7.01 - 8.00 100,000 607,698
8.01 - 9.00 6,155 5,659
----------- -----------
62,008,904 52,677,168
----------- -----------
$88,944,925 78,997,215
=========== ===========
</TABLE>
The weighted average rate on deposit accounts at December 31, 1999 and
1998 was 4.43% and 4.48% respectively.
During the prior year, the Bank closed its East Chicago facility and sold
the related deposit accounts to Citizens Financial Services. In the
transaction, the Bank sold approximately $2,700,000 of deposit accounts
at a one percent premium, realizing a profit of $27,033.
A summary of certificates of deposit by maturity is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Within 12 months $49,948,679 45,333,909
12 months to 24 months 5,552,405 5,005,048
24 months to 36 months 5,658,055 1,072,985
36 months to 48 months 638,417 882,676
Over 48 months 211,348 382,550
----------- -----------
Total $62,008,904 52,677,168
=========== ===========
</TABLE>
<PAGE>
Interest expense on deposits consists of the following:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Passbook accounts $ 419,474 453,324 488,273
NOW accounts 128,313 127,794 143,687
Money market accounts 98,030 93,611 89,355
Certificates of deposit 2,929,026 2,799,477 2,378,102
---------- ---------- ----------
Total $3,574,843 3,474,206 3,099,417
========== ========== ==========
</TABLE>
The aggregate amount of deposit accounts with a balance of $100,000 or
greater was approximately $14,600,000 and $13,100,000, or approximately
16.4% and 16.6% of total deposit balances at December 31, 1999 and 1998,
respectively. Deposits in excess of $100,000 are not insured by the
Federal Deposit Insurance Corporation.
31
<PAGE>
11) 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 1999 1998
-------------- ----- ----------- ------------
<S> <C> <C> <C>
December 6, 1999 5.94% $ - 1,000,000
December 7, 1999 5.05 - 2,000,000
January 18, 2000 5.53 1,000,000 1,000,000
May 17, 2000 6.07* 3,000,000 3,000,000
June 21, 2000 4.26* 2,000,000 -
July 25, 2000 6.11 2,000,000 2,000,000
August 16, 2000 6.09 3,000,000 -
August 24, 2000 6.03 1,000,000 -
January 22, 2001 5.56 1,000,000 1,000,000
May 21, 2001 5.90 2,000,000 2,000,000
August 24, 2001 5.71 3,000,000 3,000,000
January 21, 2003 5.68 1,000,000 1,000,000
September 15, 2003 5.26 4,000,000 4,000,000
May 15, 2009 5.93 983,000 983,000
July 15, 2015 5.91 692,589 700,000
---------- -----------
$24,675,589 21,683,000
========== ==========
Weighted average interest rate 5.67% 5.65%
==== ====
</TABLE>
* Variable interest rate
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, 1999, 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.
<PAGE>
During the current year, the Company entered into a revolving line of
credit in the maximum amount of $650,000 with Peoples Bank SB. The loan
will bear interest at one half percent under the Wall Street Journal
prime rate of interest. The Company may borrow up to 75% of the market
value of the collateral security. At December 31, 1999, the Company
pledged common stock with a market value of approximately $857,000 as
collateral securing this line of credit. The Company did not borrow
against this line of credit during the year ended December 31, 1999.
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. At December 31,
1999, the balance of this loan amounted to $539,580.
32
<PAGE>
12) Other Liabilities
-----------------
Other liabilities include the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1999 1998
-------- --------
<S> <C> <C>
Accrued interest on deposits $ 49,679 62,559
Accrued interest on borrowings 61,982 54,452
Accrued bonus 48,015 45,000
Accrued audit and accounting fees 18,500 15,325
Accrued real estate and personal property taxes 55,500 47,900
Accrued federal and state income tax -- 41,526
Deferred compensation (see note 13) 458,394 381,420
Miscellaneous accounts payable 169,017 213,143
-------- --------
$861,087 861,325
======== ========
</TABLE>
33
<PAGE>
13) Benefit Plans
-------------
The Bank has a qualified noncontributory, 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 benefits are
primarily based on years of service and earnings.
The following is a summary of the plan as of December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Change in Benefit Obligation:
Benefit obligation at beginning of year $ 1,141,297 913,624
Service cost 46,150 40,233
Interest cost 82,956 67,636
Benefits paid (70,433) (23,630)
Other - net 73,394 143,434
----------- -----------
Benefit obligation at end of year 1,273,364 1,141,297
----------- -----------
Change in Plan Assets:
Plan assets at fair value at beginning of year 1,156,980 1,000,646
Actual return on plan assets 112,630 98,391
Benefits paid (70,433) (23,630)
Employer contribution 68,263 81,573
----------- -----------
Fair value of plan assets at end of year 1,267,440 1,156,980
----------- -----------
Plan assets in excess of (less than) projected benefit obligation (5,924) 15,683
Unrecognized net gain from actuarial experience (56,961) (122,261)
Unrecognized prior service cost 74,965 79,651
Unrecognized net transition obligation 79,696 85,390
----------- -----------
Pension asset included in other assets $ 91,776 58,463
=========== ===========
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of
the projected benefit obligation were 7.50% and 3.50%, respectively, for
the years ended December 31, 1999, 1998 and 1997. The weighted average
expected long-term rate return on assets was 9.00% for the years ended
December 31, 1999, 1998 and 1997.
<PAGE>
Net pension cost includes the following components:
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Service cost $ 46,150 40,233 30,648
Interest cost on benefit obligation 82,956 67,636 66,579
Expected return on assets (104,031) (92,666) (74,789)
Net amortization and deferral 9,875 (2,945) 30,609
--------- --------- ---------
Net periodic pension cost $ 34,950 12,258 53,047
========= ========= =========
</TABLE>
The Bank has established two non-qualified 401(k) Plan for officers of
the Bank. Both Plans provide participating officers the opportunity to
defer up to 6% of their salary into a tax deferred accumulation for
future retirement. Under the first Plan, the Bank was authorized to match
up to 50% (3% of salary) of this deferral. This Bank match ceased as of
December 31, 1997 and under the second Plan, there is no Bank matching
contribution. In addition, the Bank has also established a Director
Deferral Plan which provides participating directors with the opportunity
to defer all or a portion of their fees over a predetermined period. All
deferred non-qualified 401(k) Plan contributions and deferred director
fees 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 $41,933, $34,798 and $36,282 for the years ended
December 31, 1999, 1998 and 1997 respectively.
34
<PAGE>
14) 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
options on shares of common stock 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. The following is an analysis
of the stock option activity for each of the years in the three year
period ended December 31, 1999 and the stock options outstanding at the
end of the respective periods.
<TABLE>
<CAPTION>
Exercise Price
--------------------------------
Options Number of Options Per Share Total
------- ----------------- --------- ----------
<S> <C> <C> <C>
Outstanding at December 31, 1996 100,042 $ 12.75 $1,275,535
Granted 0
Exercised 0
Forfeited 0
------- --------- ----------
Outstanding at December 31, 1997 100,042 12.75 1,275,535
Granted 0
Exercised 0
Forfeited 0
------- --------- ----------
Outstanding at December 31, 1998 100,042 12.75 1,275,535
Granted 0
Exercised 0
Forfeited 0
------- --------- ----------
Outstanding at December 31, 1999 100,042 $ 12.75 $1,275,535
======= ========= ==========
Exercisable at December 31, 1999 60,024 $ 12.75 $ 765,306
======= ========= ==========
Options available for future grants at December 1999 12,370
=======
</TABLE>
The Company accounts for its stock options in accordance with Accounting
Principles Board (APB) Opinion No. 25 "Accounting for Stock Issued to
Employees". Under APB 25, as the exercise price of the Company's
employees' stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
<PAGE>
The Company has implemented SFAS No. 123 "Accounting for Stock-Based
Compensation". 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.
35
<PAGE>
14) Director, Officer and Employee Plans (continued)
------------------------------------------------
The following summarizes the pro forma net income as if the fair value
method of accounting for stock- based compensation plans had been
utilized:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
----------- ------- ---------
<S> <C> <C> <C>
Net income (as reported) $ 696,841 204,642 1,023,053
Pro forma net income 630,627 138,428 956,839
Diluted earnings per share (as reported) .96 .24 1.10
Pro forma diluted earnings per share .87 .16 1.03
</TABLE>
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 years ended December 31,
1999, 1998 and 1997 was estimated on the date of grant using the Black
Scholes option value model, with 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 $128,672,
$134,207 and $139,741 for the years ended December 31, 1999, 1998 and
1997 respectively.
Statement of Position No. 93-6, "Employers' Accounting for Employee Stock
Ownership Plans" ("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. 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 years ended December
31, 1999, 1998 and 1997, additional compensation expense of $26,875,
$54,731 and $42,322 was recognized as a result of implementation of this
accounting principle.
<PAGE>
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 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
years ended December 31, 1999, 1998 and 1997, $115,786, $115,786 and
$115,786 have been amortized to expense. The unamortized cost, which is
comparable to deferred compensation, is reflected as a reduction of
stockholders' equity.
36
<PAGE>
15) Income Taxes
------------
The Company has adopted SFAS No. 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 No. 109 which will impact the Bank is the
tax treatment of bad debt reserves. SFAS No. 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, 1999 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,
---------------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Current $ 418,434 529,126 551,901
Deferred (benefit) (90,540) (376,955) 122,973
--------- --------- ---------
$ 327,894 152,171 674,874
========= ========= =========
</TABLE>
A reconciliation of the statutory federal income tax rate to effective
income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes 4.9 6.0 5.9
Low income housing credit (5.3) -- --
Other (1.6) 2.6 (.2)
---- ---- ----
Effective income tax rate 32.0% 42.6% 39.7%
==== ==== ====
</TABLE>
<PAGE>
Deferred income tax expense (benefit) consists of the following tax
effects of timing differences:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Loan fees $ 7,440 21,203 (3,775)
Depreciation (5,674) (13,918) (15,400)
Deferred compensation (34,548) (25,089) (31,745)
Book loan loss provision in excess of tax deduction (33,666) (38,459) (33,765)
Recapture of bad debt reserve (19,081) (19,084) --
Unrealized gain (loss) on trading account securities 9,622 (296,671) 212,473
Other, net (14,633) (4,937) (4,815)
--------- --------- ---------
$ (90,540) (376,955) 122,973
========= ========= =========
</TABLE>
37
<PAGE>
16) Regulatory Capital Requirements
-------------------------------
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
total requirements can initiate certain mandatory and possible additional
discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt correction
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to quantitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Bank to maintain minimum amounts and ratios, set
forth in the table below of the total risk-based, tangible and core
capital, as defined in the regulations. Management believes, as of
December 31, 1999, that the Bank meets all capital adequacy requirements
to which it is subject.
The Bank, according to federal regulatory standards, is well-capitalized
under the regulatory framework for prompt corrective action. To be
categorized as adequately capitalized, the Bank must maintain minimum
total risk-based, tangible, and core ratios as set forth in the table.
There are no conditions or events since that notification that management
believes have changed the institution's category.
At December 31, 1999 and 1998, the Bank's regulatory equity capital was
as follows:
<TABLE>
<CAPTION>
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ----------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999
- -----------------
Tangible $8,090,945 6.51% $1,865,000 1.50% $ N/A N/A %
Core 8,090,945 6.51 3,730,000 3.00 6,217,000 5.00
Risk-based 8,626,646 12.44 5,547,000 8.00 6,934,000 10.00
December 31, 1998
- -----------------
Tangible $8,481,608 7.52% $1,691,000 1.50% $ N/A N/A %
Core 8,481,608 7.52 3,383,000 3.00 5,638,000 5.00
Risk-based 8,973,142 14.06 5,104,000 8.00 6,380,000 10.00
</TABLE>
38
<PAGE>
16) Regulatory Capital Requirements (continued)
-------------------------------------------
<TABLE>
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
------- ------- -------
<S> <C> <C> <C>
December 31, 1999
- -----------------
Stockholders' equity $8,012,227 8,012,227 8,012,227
Unrealized loss on securities available for sale,
net of taxes 78,718 78,718 78,718
General loss allowances -- -- 550,701
Direct equity investments -- -- (15,000)
---------- ---------- ----------
Regulatory capital computed $8,090,945 8,090,945 8,626,646
========== ========== ==========
</TABLE>
A reconciliation of the Bank's equity capital at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Stockholders' equity $ 11,539,269
Less Company stockholders' equity not available
for regulatory capital (3,527,042)
------------
Stockholders' equity of the Bank $ 8,012,227
============
<CAPTION>
Tangible Core Risk-based
Capital Capital Capital
------- ------- -------
December 31, 1998
- -----------------
<S> <C> <C> <C>
Stockholders' equity $ 8,595,464 8,595,464 8,595,464
Unrealized gain on securities
available for sale, net of taxes (113,856) (113,856) (113,856)
General loss allowances -- -- 506,534
Direct equity investments -- -- (15,000)
----------- ----------- -----------
Regulatory capital computed $ 8,481,608 8,481,608 8,973,142
=========== =========== ===========
</TABLE>
<PAGE>
A reconciliation of the Bank's equity capital at December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Stockholders' equity $ 13,412,830
Less Company stockholders' equity not available
for regulatory capital (4,817,366)
------------
Stockholders' equity of the Bank $ 8,595,464
============
</TABLE>
39
<PAGE>
17) 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.
In addition, 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 stockholders' equity to be reduced below applicable regulatory
capital maintenance requirements or if such declaration and payment would
otherwise violate regulatory requirements.
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.
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 $1,141,200 at December 31,
1999 represent amounts which the Bank plans to fund within the normal
commitment period of 60 to 90 days. Of this amount, $797,300 are in fixed
rate commitments with rates ranging from 7.00% to 8.375% and $343,900 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. 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.
<PAGE>
The Bank has approved, but unused, home equity lines of credit of
approximately $2,660,000 at December 31, 1999. 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 $1,160,000 at December 31, 1999. The
Bank also has approved but unused credit card lines of credit of
approximately $850,000.
The Bank is currently participating with several local financial
institutions in credit enhancement agreements with in-state
municipalities to guarantee the repayment on municipal revenue bonds. The
Bank has accepted credit risk on these various municipal projects in the
amount of $1,000,000. These credit enhancements are in cooperation with
the Federal Home Loan Bank of Indianapolis ("FHLB") and have pledging
requirements as part of the qualifying collateral agreement with FHLB.
40
<PAGE>
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 January 26, 2000, the Company declared a quarterly cash dividend of
$.08 per share, totaling $54,442, payable February 25, 2000 to
shareholders of record as of February 11, 2000.
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.
41
<PAGE>
21) Disclosures About the Fair Value of Financial Instruments (continued)
---------------------------------------------------------------------
The estimated fair value of the Company's financial instruments as of
December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, 1999
-----------------------------
Carrying Fair
Amount Value
------------ ---------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 5,457,738 5,457,738
Investment securities, available for sale 5,352,142 5,352,142
Trading securities 1,909,333 1,909,333
Mortgage-backed securities, available for sale 1,868,000 1,868,000
Loans receivable 105,909,909 104,015,000
Financial liabilities:
Deposits $ 88,944,925 88,551,000
Borrowed money 24,675,589 23,259,000
<CAPTION>
December 31, 1998
-----------------------------
Carrying Fair
Amount Value
------------ ---------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 9,097,416 9,097,416
Investment securities, available for sale 6,137,219 6,137,219
Trading securities 2,394,130 2,394,130
Mortgage-backed securities, available for sale 2,649,380 2,649,380
Loans receivable 89,762,417 91,079,000
Financial liabilities:
Deposits $78,997,215 79,302,000
Borrowed money 21,683,000 21,854,490
</TABLE>
42
<PAGE>
22) Condensed Parent Company Only Financial Statements
--------------------------------------------------
The following condensed statement of financial condition, as of December
31, 1999 and 1998 and condensed statements of income and cash flows for
the years ended December 31, 1999, 1998 and 1997 for AMB Financial Corp.
should be read in conjunction with the consolidated financial statements
and the notes thereto.
<TABLE>
<CAPTION>
Condensed Statements of Financial Condition
-------------------------------------------
December 31,
----------------------------
1999 1998
---------- ---------
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 574,929 406,803
Trading securities 1,909,333 2,394,130
Loans receivable 620,118 1,723,471
Equity investment in the Bank 8,482,502 8,988,925
Prepaid expenses and other assets 469,600 335,245
------------ ------------
12,056,482 13,848,574
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
- ------------
Accrued taxes and other liabilities 46,938 42,283
------------ ------------
Stockholders' Equity:
- ---------------------
Common stock 11,241 11,241
Additional paid-in capital 10,649,606 10,649,606
Retained earnings 7,780,655 7,317,519
Treasury stock (6,219,684) (3,844,015)
Common stock awarded by RRP (212,274) (328,060)
------------ ------------
Total stockholders' equity 12,009,544 13,806,291
------------ ------------
$ 12,056,482 13,848,574
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Condensed Statements of Income
------------------------------
Years Ended December 31,
-----------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net interest income $ 114,740 152,693 161,293
Gain on sale of trading securities 99,627 24,086 36,066
Unrealized gain (loss) on trading securities (123,773) (771,172) 560,809
Non-interest expense (242,094) (270,859) (201,164)
---------- ---------- ----------
Net income (loss) before income taxes
and equity in earnings of subsidiaries (151,500) (865,252) 557,004
Benefit from (provision for) income taxes 54,764 325,292 (217,815)
---------- ---------- ----------
Net income (loss) before equity
in earnings of subsidiaries (96,736) (539,960) 339,189
Equity in earnings of subsidiaries 793,577 744,602 683,864
---------- ---------- ----------
Net income $ 696,841 204,642 1,023,053
========== ========== ==========
</TABLE>
43
<PAGE>
22) Condensed Parent Company Only Financial Statements (continued)
--------------------------------------------------------------
<TABLE>
<CAPTION>
Statement of Cash Flows
-----------------------
Years Ended December 31,
---------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Operating activities:
Net income $ 696,841 204,642 1,023,053
Equity in earnings of the Bank (793,577) (744,602) (683,864)
Amortization of cost of stock benefit plan 115,786 115,786 115,786
Gain on sale of trading securities (99,627) (24,086) (36,066)
Unrealized (gain) loss on trading
securities held for trade 123,773 771,172 (560,809)
Purchase of trading securities (93,750) (852,648) (1,957,532)
Proceeds from sale of trading securities 554,401 124,399 680,940
Increase in other assets (134,355) (333,787) (1,458)
Increase (decrease) in accrued
taxes and other liabilities 4,655 (179,467) 180,944
----------- ----------- -----------
Net cash provided by (for) operating activities 374,147 (918,591) (1,239,006)
----------- ----------- -----------
Investing activities:
Loan disbursements (4,000,000) (4,000,000) (2,000,000)
Loan repayments 5,103,353 5,003,353 2,203,353
----------- ----------- -----------
Net cash provided by investing activities 1,103,353 1,003,353 203,353
----------- ----------- -----------
Financing activities:
Purchase of treasury stock (2,375,669) (1,620,964) (1,498,333)
Dividends received from Bank 1,300,000 1,900,000 2,500,000
Dividends paid on common stock (233,705) (244,373) (230,007)
----------- ----------- -----------
Net cash provided by (for) investing activities (1,309,374) 34,663 771,660
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 168,126 119,425 (263,993)
Cash and cash equivalents at beginning of year 406,803 287,378 551,371
----------- ----------- -----------
Cash and cash equivalents at end of year $ 574,929 406,803 287,378
=========== =========== ===========
</TABLE>
44
<PAGE>
AMB Financial Corp.
Stockholder Information
Annual Meeting
The annual meeting of stockholders will be held at 10:30 a.m., on April
26, 2000, 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 1999. 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>
March 31, 1999 13.750 10.375 $0.08
June 30, 1999 14.250 11.250 $0.08
September 30, 1999 15.375 13.000 $0.08
December 31, 1999 13.875 11.750 $0.08
</TABLE>
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 17 of the Notes to the Consolidated Financial
Statements for information regarding limitations of the Bank's ability
to pay dividends to the Company.
As of December 31, 1999, the Company had 360 stockholders of record and
703,329 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
45
<PAGE>
AMB Financial Corp.
Corporate Information
Corporate Office
AMB Financial Corp. Telephone (219) 836-5870
8230 Hohman Avenue Fax (219) 836-5883
Munster, IN 46321 Web site ambfinancial.com
Directors of the Board AMB Financial Corp.
Officers
Clement B. Knapp, Jr. Clement B. Knapp, Jr.
President since 1977. Chairman of the Board,
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.
9944 S. Roberts Road Suite 202 Attorneys at Law
Palos Hills, IL 60465 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
46
<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:
Sara E. Meeks
AMB Financial Corp.
8230 Hohman Avenue
Munster, Indiana 46321
(219) 836-5870
47
Exhibit 21
Subsidiaries of the Registrant
<PAGE>
<TABLE>
<CAPTION>
SUBSIDIARIES OF THE REGISTRANT
Percentage of State of Incorporation
Parent Subsidiary Ownership or Organization
- ----------------------------------------------------------------------------------------------------------
<S> <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>
Exhibit 23
Consent of Cobitz, VandenBerg & Fennessy
<PAGE>
[Letterhead of Cobitz, VandenBerg & Fennessy]
INDEPENDENT AUDITOR'S CONSENT
We hereby consent to the incorporation by reference and use of our
report, dated January 19, 2000 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, 1999.
/s/ Cobitz, VandenBerg & Fennessy
- ---------------------------------
Cobitz, VandenBerg & Fennessy
March 23, 2000
Palos 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, 1999 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-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 4,180,088
<INT-BEARING-DEPOSITS> 1,277,650
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 1,909,333
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11,241
0
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</TABLE>
