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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[_] TRANSACTION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number 0-23182
AMB Financial Corp.
(Exact name of registrant as specified in its
charter)
| Delaware (State or other jurisdiction of incorporation or organization) |
35-1905382 I.R.S. Employer Identification Number |
| 8230 Hohman Avenue, Munster,
Indiana (Address of Principle executive offices) |
46321-1578 (Zip Code) |
Registrant telephone number, include are code: (219) 836-5870
Check whether the issuer (1) has filed all reports required to be iled by Section 130 or 15 (d) of the Securities Exchange Act of 1934 during the receding 12 months (or for such shorter period that the registrant was required o file such reports), and (2) has been subject to such filing requirements for he past 90 days. Yes [X] No [_]
As of October 27, 2000 there were 1,686,169 shares of the Registrant's common stock issued and 945,175 shares outstanding.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
Part I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Statements of Financial Condition at
September 30, 2000 (Unaudited) and December 31, 1999 3
Consolidated Statements of Earnings for the three
and nine months ended September 30, 2000 and 1999
(unaudited) 4
Consolidated Statements of Changes in
Stockholders Equity, nine months ended
September 30, 2000 (unaudited) 5
Consolidated Statements of Cash Flows for the
Nine months ended September 30, 2000 and 1999
(unaudited) 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-18
Part II. OTHER INFORMATION 19
Signatures 20
Index of Exhibits 21
Earnings Per Share Analysis (Exhibit 11) 22
Financial Data Schedule (Exhibit 27) 23
2
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Financial Condition
September 30, December 31,
2000 1999
unaudited
Assets
Cash and amounts due from depository institutions 3,391,284 4,180,088
Interest-bearing deposits 1,313,930 1,277,650
------------------ -------------------
Total cash and cash equivalents 4,705,214 5,457,738
Investment securities, available for sale, at fair value 3,862,286 5,352,142
Trading securities 976,131 1,909,333
Mortgage backed securities, available for sale, at fair value 3,451,338 1,868,000
Loans receivable (net of allowance for loan losses:
$692,289 at September 30, 2000 and
$590,701 at December 31, 1999) 111,959,633 105,909,909
Investment in LTD Partnership 1,246,437 1,327,000
Stock in Federal Home Loan Bank of Indianapolis 1,383,500 1,383,500
Accrued interest receivable 743,022 642,111
Office properties and equipment- net 525,236 399,867
Prepaid expenses and other assets 3,856,621 3,536,270
------------------ -------------------
Total assets 132,709,418 127,785,870
================== ===================
Liabilities and Stockholders' Equity
Liabilities
Deposits 95,358,608 88,944,925
Borrowed money 22,629,590 24,675,589
Notes Payable 1,214,536 1,333,324
Advance payments by borrowers for taxes and insurance 657,749 431,676
Other liabilities 1,633,919 861,087
------------------ -------------------
Total liabilities 121,494,402 116,246,601
------------------ -------------------
Stockholders' Equity
Preferred stock, $.01 par value; authorized
100,000 shares; none outstanding - -
Common Stock, $.01 par value; authorized 1,900,000 shares;
1,686,169 shares issued and 950,475 shares outstanding
at September 30, 2000 and 1,054,975 shares outstanding at 16,862 16,862
December 31, 1999
Additional paid- in capital 10,816,453 10,793,053
Retained earnings, substantially restricted 8,215,509 7,780,655
Accumulated other comprehensive income, net of income taxes (1,000) (79,763)
Treasury stock, at cost (735,694 at September 30,2000
and 631,194 at December 31, 1999) (7,167,793) (6,219,684)
Common stock acquired by Employee Stock Ownership Plan (539,580) (539,580)
Common stock awarded by Recognition and Retention Plan (125,435) (212,274)
------------------ -------------------
Total stockholders' equity 11,215,016 11,539,269
------------------ -------------------
Total liabilities and stockholders' equity 132,709,418 127,785,870
================== ===================
3
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Earnings
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
------------------ ---------------- ------------------ ----------------
2000 1999 2000 1999
unaudited unaudited unaudited unaudited
Interest income
Loans 2,196,046 1,895,457 6,252,164 5,471,584
Mortgage-backed securities 61,198 38,631 147,992 118,942
Investment securities 60,179 92,636 212,528 279,304
Interest-bearing deposits 32,581 32,102 111,223 171,770
Dividends on FHLB stock 29,560 26,904 84,598 79,833
--------------- -------------- -------------- -----------
Total interest income 2,379,564 2,085,730 6,808,505 6,121,433
--------------- -------------- -------------- -----------
Interest expense
Deposits 1,148,106 884,144 3,181,717 2,654,109
Borrowings 353,375 344,678 1,082,810 960,663
--------------- -------------- -------------- -----------
Total interest expense 1,501,481 1,228,822 4,264,527 3,614,772
--------------- -------------- -------------- -----------
Net interest income before
provision for loan losses 878,083 856,908 2,543,978 2,506,661
Provision for loan losses 58,231 37,577 108,810 103,626
--------------- -------------- -------------- -----------
Net interest income after
provision for loan losses 819,852 819,331 2,435,168 2,403,035
--------------- -------------- -------------- -----------
Non-interest income:
Loan fees and service charges 24,423 24,723 73,284 118,083
Commission income 14,716 6,620 30,502 35,990
Deposit related fees 91,787 77,349 264,829 221,887
Gain (loss) on sale of investment
securities available for sale - - (4,676) 15,981
Gain (loss) on sale of trading securities - - (75,014) 92,981
Unrealized gain (loss) on trading
securities 66,072 (163,949) 116,448 (178,857)
Gain on sale
of real estate owned - - - 9,904
Loss from investment
in joint venture (22,187) - (80,563) (3,154)
Loss on disposition of fixed asset - - (7,822) -
Other income 41,085 43,574 135,917 128,746
--------------- -------------- -------------- -----------
Total non-interest income 215,896 (11,683) 452,905 441,561
--------------- -------------- -------------- -----------
Non-interest expense:
Staffing costs 302,536 335,421 1,045,475 1,021,080
Advertising 19,551 29,882 54,436 77,500
Occupancy and equipment expense 88,622 72,175 273,262 219,197
Data processing 103,486 97,297 305,840 296,727
Federal deposit insurance premiums 4,667 11,894 13,651 35,271
Other operating expenses 157,729 140,901 450,817 436,630
--------------- -------------- -------------- -----------
Total non-interest expense 676,591 687,570 2,143,481 2,086,405
--------------- -------------- -------------- -----------
Net income before income taxes 359,157 120,078 744,592 758,191
Provision for federal and state
income taxes 93,272 14,127 160,076 251,170
--------------- -------------- -------------- -----------
Net income 265,885 105,951 584,516 507,021
=============== ============== ============== ===========
Earnings per share- basic $0.30 $0.10 $0.65 $0.45
Earnings per share- diluted $0.30 $0.10 $0.65 $0.45
See accompanying notes to consolidated financial statements.
4
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statement of Changes in Stockholder's Equity
Accumulated
Additional Other
Common Paid-in Retained Comprehensive Treasury
Stock Capital Earnings Income Stock
------------ ------------- ----------- -------------- --------------
Balance at December 31, 1999 $ 11,241 10,798,674 7,780,655 (79,763) (6,219,684)
3 or 2 stock split on June 30, 2000 5,621 (5,621)
------------ ------------- ----------- -------------- --------------
Restated balance as of December 31, 1999 16,862 10,793,053 7,780,655 (79,763) (6,219,684)
------------ ------------- ----------- -------------- --------------
Comprehensive income:
Net income 584,516
Other comprehensive income,
net of income taxes:
Unrealized holding gain
during the period 78,717
Less: Reclassification
adjustment of gains
included in net income 46
----------- --------------
Total comprehensive income 584,516 78,763
Purchase of treasury stock (104,500 shares) (948,109)
Amortization of award of
RRP stock
ESOP compensation adjustment 23,400
Dividends declared on
common stock($.1667 per share) (149,496)
3 for 2 stock split related
to fractional shares (166)
------------ ------------- ----------- -------------- --------------
Balance at September 30, 2000 $ 16,862 10,816,453 8,215,509 (1,000) (7,167,793)
============ ============= =========== ============== ==============
Common Common
Stock Stock
Acquired Awarded
by ESOP by RRP Total
----------- ---------- -----------
Balance at December 31, 1999 (539,580) (212,274) 11,539,269
3 or 2 stock split on June 30, 2000
----------- ---------- -----------
Restated balance as of December 31, 1999 (539,580) (212,274) 11,539,269
----------- ---------- -----------
Comprehensive income:
Net income 584,516
Other comprehensive income,
net of income taxes:
Unrealized holding gain
during the period 78,717
Less: Reclassification
adjustment of gains
included in net income 46
-----------
Total comprehensive income 663,279
Purchase of treasury stock (104,500 shares) (948,109)
Amortization of award of
RRP stock 86,839 86,839
ESOP compensation adjustment 23,400
Dividends declared on
common stock($.1667 per share) (149,496)
3 for 2 stock split related
to fractional shares (166)
----------- ---------- -----------
Balance at September 30, 2000 (539,580) (125,435) 11,215,016
=========== ========== ===========
See accompanying notes to consolidated financial statements.
5
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30,
---------------------------------------
2000 1999
--------------- --------------
(unaudited)
Cash flows from operating activities:
Net income $ 584,516 507,021
Adjustments to reconcile net income to net cash
from operating activities:
Depreciation 115,261 92,023
Amortization of cost of stock benefit plans 86,839 86,839
Amortization of premiums and discounts on
investment and mortgage-backed securities - net 10,182 23,164
Provision for loan losses 108,810 103,626
Increase in deferred compensation 62,744 57,866
ESOP compensation 23,400 18,750
Gain (loss) on sale of investment securities
available for sale 4,676 (15,981)
Gain (loss) on sale of trading account securities 75,014 (92,981)
Unrealized (gain) loss on trading account securities (116,448) 178,857
Purchase of trading account securities - (93,750)
Proceeds from sales of trading account securities 974,636 448,005
Loss from limited partnership 80,563 3,154
Loss on disposal of fixed assets 7,822 -
Gain on sale of real estate owned - (9,904)
Incease (decrease) in deferred income on loans 22,181 (13,450)
Increase in accrued interest receivable (100,911) (88,204)
Increase in accrued interest payable 38,289 16,565
Change in current and deferred income tax (162,924) (146,369)
Change in prepaid and accrued items, net 454,476 (192,456)
--------------- ----------------
Net cash provided by ( for) operating activities 2,269,126 882,775
--------------- ----------------
Cash flows from investing activities:
Proceeds from sale of investment securities 1,530,205 15,981
Purchase of investment securities (5,841) (4,590)
Proceeds from repayments of mortgage-backed securities 299,229 554,838
Proceeds from sales of mortgage-backed securities 361,625 -
Purchase of mortgage-backed securities (2,162,287) -
Purchase of loans (4,603,563) (17,442,567)
Disbursements for loans (19,655,785) (20,515,622)
Loan repayments 18,085,855 26,467,085
Proceeds from sale of real estate owned - 33,273
Property and equipment expenditures (248,452) (63,090)
--------------- ----------------
Net cash provided for investing activities (6,399,014) (10,954,692)
--------------- ----------------
Cash flows from financing activities:
Deposit account receipts 135,476,123 123,546,643
Deposit account withdrawals (131,770,604) (122,788,039)
Interest credited to deposit accounts 2,708,164 2,154,985
Proceeds from borrowed money 10,023,363 4,000,000
Repayment of borrowed money (12,069,362) (7,411)
Repayment of note payable (118,788) -
Increase in advance payments by borrowers
for taxes and insurance 226,073 107,460
Dividend paid on common stock (149,496) (181,595)
Purchase of treasury stock (948,109) (2,065,702)
--------------- ----------------
Net cash provided by financing activities 3,377,364 4,766,341
--------------- ----------------
Net change in cash and cash equivalents (752,524) (5,305,576)
Cash and cash equivalents at beginning of period 5,457,738 9,097,416
--------------- ----------------
Cash and cash equivalents at end of period $ 4,705,214 3,791,840
=============== ================
Cash paid during the period for:
Interest $ 4,226,238 3,598,207
Income taxes 323,000 427,539
See accompanying notes to consolidated financial statements.
6
AMB FINANCIAL CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Statement of Information Furnished
| The accompanying unaudited consolidated financial statements have been prepared in accordance with Form 10-Q instructions and Article 10 of Regulation S-X, and in the opinion of management contains all adjustments (all of which are normal and recurring in nature) necessary to present fairly the financial position as of September 30, 2000, the results of operations for the three and nine months ended September 30, 2000 and 1999 and cash flows for the nine months ended September 30, 2000 and 1999. These results have been determined on the basis of generally accepted accounting principles. The preparation of financial statements in conformity with generally accepted principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. The attached consolidated statements are those of AMB Financial Corp. (the “Holding Company”) and its consolidated subsidiaries American Savings, FSB (the “Bank”), the Bank’s wholly owned subsidiary NIFCO, Inc., and the wholly owned subsidiary of NIFCO, Inc., Ridge Management, Inc. The results of operations for the three and nine month periods ended September 30, 2000 is not necessarily indicative of the results to be expected for the full year. |
2. Mutual to Stock Conversion
| In December 1995, the Bank’s Board of Directors approved a Plan of Conversion (the “Conversion”), providing for the Bank’s conversion from a federally chartered mutual savings to a federally chartered stock savings bank with the concurrent formation of a holding company. The Holding Company issued 1,124,125 shares of $.01 par value common stock at $10.00 per share, for an aggregate price of $11,241,250. The Conversion and sale of 1,124,125 shares of common stock of the Holding Company was completed on March 29, 1996. Net proceeds to the Company, after conversion expenses, totaled approximately $10,658,000. |
3. Earnings Per Share
| Earnings per share for the three and nine month periods ended September 30, 2000 and 1999 were determined by dividing net income for the periods by the weighted average number of both basic and diluted shares of common stock and common stock equivalents outstanding after consideration of the 3 for 2 stock split completed on June 30, 2000 (see Exhibit 11 attached). Stock options are regarded as common stock equivalents and are considered in diluted earnings per share calculations. Common stock equivalents are computed using the treasury stock method. ESOP shares not committed to be |
7
| released to participants are not considered outstanding for purposes of computing earnings per share amounts. |
4. Stockholders' Equity
| On May 31, 2000, the Board of Directors of AMB Financial Corp. approved a 3 for 2 stock split, effected in the form of a stock dividend which was payable on June 30, 2000 to stockholders of record on June 14, 2000. Accordingly, stockholders of record received one additional share for each two shares owned as of June 14, 2000. All prior share related information has been restated to reflect the stock split effect, including earnings per share data. |
5. 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. |
6. New Accounting Pronouncements
| In June 1998, the FASB issued SFAS No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities”. This Statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires all derivatives to be recognized as either assets or liabilities in the statement of financial condition and to be measured at fair value. As issued, the Statement is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB issued SFAS No. 137, “Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of SFAS No. 133". The Statement is effective upon issuance and it amends SFAS No. 133 to be effective for all fiscal quarters of fiscal years beginning after June 30, 2000. In June 2000, the FASB issued SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activities, an Amendment of FASB Statement No. 133". The Statement is effective at the later of the first fiscal quarter beginning after June 15, 2000 or upon adoption of SFAS No. 133, and should be adopted concurrently with SFAS No. 133. In September 2000, the FASB issued SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities” which replaces SFAS No. 125. This Statement resolves implementation issues, especially involving disclosures and collateral, but carries forward most of SFAS No. 125 provisions without change. The Statement is effective for transfers occurring after March 31, 2000, and for disclosures relating to securitization transactions and collateral arrangements for fiscal years ending after December 15, 2000. The Company does not believe these statements will have a material impact on its financial position or results of operations. |
| The foregoing does not constitute a comprehensive summary of all-material changes or developments affecting the manner in which the Company keeps its books and records and performs its financial accounting responsibilities. It is intended only as a summary of some of the recent pronouncements made by the FASB, which are of particular interest to financial institutions. |
8
Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION
September 30, 2000 compared to December 31, 1999
| Total assets of the Company increased $4.9 million, or 3.8% to $132.7 million at September 30, 2000 compared to $127.8 million at December 31, 1999. The increase is primarily due to an increase in deposits used to fund loans receivable. While the Company intends to continue to grow the balance sheet, management expects that the recent rise in interest rates and anticipated future actions by the Federal Reserve may slow housing market activity. This, in turn, will likely lead to more moderate balance sheet growth than was experienced in the prior year. |
| Cash and short term investments decreased by $753,000 to $4.7 million at September 30, 2000. Cash and due from banks decreased $789,000 due to the reinvestment of vault cash accumulated as of December 31, 1999 for potential customer Year 2000 concerns. |
| Investment securities available for sale decreased by $1.5 million to $3.9 million at September 30, 2000. The decrease is primarily due to the sale of $1.5 million short-term U.S. Treasury notes which were reinvested in mortgage-backed securities. Gross unrealized losses in the available for sale portfolio were $63,000 at September 30, 2000, compared to gross unrealized losses of $120,000 at December 31, 1999. |
| Mortgage-backed securities available for sale increased $1.6 million to $3.5 million at September 30, 2000. The increase is primarily due to purchases of $998,000 of fixed rate GNMA securities and $1.2 million of fixed rate FHLMC Gold securities offset by prepayments and amortization of $299,000 and sales of $362,000. |
9
| Loans receivable increased to $112.0 million at September 30, 2000, a $6.1 million or 5.7% increase from December 31, 1999, as new loan originations of both residential and non-residential loans of $19.7 million and loan purchases of $4.6 million exceeded loan repayments of $18.1 million. The Company continues to remain focused on an aggressive lending effort, however, recent higher interest rates may curtail the production of longer term fixed rate mortgage loans. |
| Total deposits at September 30, 2000 increased by $6.4 million or 7.2 % to $95.4 million, due to net deposit receipts of $3.7 million and interest credited of $2.7 million. The deposit growth was primarily attributable to the Company’s continued aggressive advertising and competitive rates with regards to a special rate 11-21 month certificate of deposit program. |
| Total stockholders’ equity decreased by $324,000 to $11.2 million at September 30, 2000 from $11.5 million at December 31, 1999. This decrease was primarily due to the repurchase of common stock in the amount of $948,000 and the payment of dividends on common stock of $150,000, which was offset by net income of $585,000, a decrease of $79,000 in the net unrealized loss on securities available for sale and normal amortization of RRP and ESOP benefits of $110,000. The Company is no longer subject to regulatory limitations on stock repurchases and intends to continue modest repurchases of stock. |
Results of Operations
| The Company’s results of operations depend primarily upon the level of net income, which is the difference between the interest income earned on its interest-earning assets such as loans and investments, and the costs of the Company’s interest-bearing liabilities, primarily deposits and borrowings. Net interest income depends upon the volume of interest-earning assets and interest-bearing liabilities and the interest rate earned or paid on them, respectively. Results of operations are also dependent upon the level of the Company’s non-interest income, including fee income and service charges, and affected by the level of its non-interest expenses, including its general and administrative expenses. |
Comparison of
Operating Results for the Quarters
Ended September 30, 2000 and
1999
Net Income
| The Company’s net income for the three months ended September 30, 2000 increased $160,000 to $266,000 as compared to $106,000 in the same period in 1999. This increase was primarily due to an increase in non-interest income of $228,000 and to a lesser extent by an increase in net interest income of $21,000 and a decrease in non-interest expense of $11,000 offset by an increase in the provision for loan losses of $20,000 and an increase in current period income taxes of $79,000. |
10
Interest Income
| Total interest income increased $294,000 or 14.1%, for the three months ended September 30, 2000 compared to the prior year’s quarter. This increase is due to the higher volume of interest-earning assets which increased to $123.3 million for the three months ended September 30, 2000, compared to $112.5 million for the three months ended September 30, 1999, and to a lesser extent, to an increase in the average yield on interest-earning assets of 30 basis points to 7.72%. Interest income on loans receivable increased by $301,000 for the three months ended September 30, 2000 to $2.2 million and is attributable to the higher volume of loans receivable which reflects the Company’s aggressive lending efforts. During the quarter ended September 30, 2000, the average yield on loans receivable increased to 7.88% from 7.73% during the prior year’s quarter. |
Interest Expense
| Total interest expense increased $273,000 or 22.2%, for the three months ended September 30, 2000 compared to the prior year’s quarter. Interest expense on deposit accounts increased $264,000 to $1.1 million, due to a $13.2 million increase in average deposits during the three month period, and a 51 basis point increase in the average cost of deposits. The increase in the average cost of deposits is primarily due to upward repricing on maturing certificates of deposit. Interest expense on borrowed funds increased by $9,000 to $353,000 as a result of a 44 basis point increase in the average cost of borrowed funds, offset by a decline of $1.1 million in the average balance of borrowed funds. |
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 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. |
| A provision for loan losses of $58,000 was recorded during the three months ended September 30, 2000 compared to $38,000 for the same quarter a year ago. The increase in the provision for loan losses was due to the continuing growth in loans receivable as well as management’s review of non-performing assets. |
| Non-performing loans at September 30, 2000 increased to $1.4 million, or 1.23% of net loans receivable, compared to $929,000 or .88% of net loans receivable as of December 31, 1999. The increase in non-performing loans from December 31, 1999 relates to one commercial loan in the amount of $500,000 secured by residential real estate and marketable equity |
11
| securities. The borrower has subsequently brought the loan current. The Company did establish a $110,000 specific reserve against a $550,000 non-residential participation construction loan during the third quarter of 2000, bringing the total specific reserve against this loan to $150,000. This property is currently in the foreclosure process and based upon the best available information obtained to date, management has authorized the establishment of this specific reserve. The $110,000 specific reserve established during the quarter was transferred from the general valuation allowance. |
| The Bank will continue to review its allowance for loan losses and make future provisions as economic and regulatory conditions dictate. Although the Bank maintains its allowance for loan losses at a level that it considers adequate to provide for losses, there can be no assurance that future losses will not exceed estimated amounts of that additional provisions for loan losses will not be required in future periods. |
Non-Interest Income
| The Company’s non-interest income increased during the quarter by $228,000 to $216,000 compared to a loss of $12,000 recorded for the same quarter a year ago. The increase in non-interest income is primarily attributable to an increase in income from unrealized gains on trading securities. The Company’s trading portfolio, which is comprised of holdings in community bank and thrift stocks, performed well in the quarter. For the quarter ended September 30, 2000, the Company recorded unrealized gains in the trading portfolio of $66,000 as compared to recording a net loss in the prior period of $164,000. Non-interest income also increased during the current period by higher deposit related fee income of $14,000 due in part to an increased volume of transactions. Non-interest income declined in part from a loss of $22,000 related to an investment in a low-income housing joint venture. As a result of this investment, the Company recorded an offsetting $35,000 income tax credit during the quarter which resulted in the reduction of the Company’s effective income tax rate. |
Non-Interest Expense
| The Company’s non-interest expense decreased $11,000 to $677,000 in the 2000 quarter from $688,000 in the prior year’s quarter. The decrease is primarily attributable to a decrease in compensation and benefits of $33,000 as a result of management’s decision during the quarter to restructure the Company’s ESOP program. All accumulated unallocated dividends within the ESOP trust fund will be used to pay down the ESOP debt as opposed to retaining the funds for future allocation to the participants. This change resulted in reduced benefit expense during the quarter of $67,000. Non-interest expense was also decreased by $10,000 in reduced advertising costs, due to fewer deposit promotions and by $7,000 in FDIC insurance premiums. Non-interest expense was increased by $16,000 in occupancy costs due to increased depreciation and maintenance charges, $6,000 in data processing costs and $17,000 in other operating expenses. |
12
Income Taxes
| The provision for income taxes increased $79,000 to $93,000 for the three months ended September 30, 2000 as compared to $14,000 the prior year quarter. This increase was attributable to a higher level of pre-tax income and the recognition of low-income housing tax credits provided through an investment in a limited partnership organized to build, own and operate a 56 unit low-income housing apartment complex. |
Comparison
of Operating Results for the Nine Months
Ended September 30, 2000 and 1999
Net Income
| The Company’s net income for the nine months ended September 30, 2000 increased $78,000 to $585,000 as compared to $507,000 for the same period in 1999. This increase was due to an increase in net interest income of $37,000, an increase in non-interest income of $12,000 and a decrease in income taxes of $91,000 offset by an increase in non-interest expense of $57,000 and an increase in the loan loss provision of $5,000. |
Interest Income
| Total interest income increased $687,000 or 11.22%, for the nine month period ended September 30, 2000 compared to the prior nine month period primarily due to the increased volume of loans receivable. The Company’s average balance of loans receivable increased $13.9 million during the current period, while the average yield on loans receivable decreased 3 basis points, resulting in a $781,000 increase in interest income attributable to loans receivable. Interest income on investment securities declined by $67,000 for the nine month period ended September 30, 2000, due to a decrease of $2.0 million in the average balance. The decrease in the average balance was used, in part, to fund the purchase of new mortgage-backed securities and to a lesser extent, to repurchase the Company’s common stock. |
13
Interest Expense
| Total interest expense increased $650,000 or 18.0% for the nine month period ended September 30, 2000 compared to the prior year period. Interest expense on savings deposits increased $528,000, primarily due to an increase in the average deposits of $10.6 million and to a lesser extent, by a 26 basis point increase in average cost. Interest expense on borrowed funds increased by $122,000, due to a $1.5 million increase in the average balance of borrowed funds and by a 31 basis point increase in average cost. The increase in the average balance of both deposits and borrowed funds have been utilized to fund the Company’s loan origination activity. |
Provision of 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 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. |
| A provision for loan losses of $109,000 was recorded during the nine months ended September 30, 2000 compared to $104,000 for the same period a year ago. The increase in the provision for losses was due to the continuing growth in loans receivables as well as management review of non-performing assets. The Bank will continue to review its allowance for loan losses and make future 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 was $453,000 for the nine months ended September 30, 2000 compared to $442,000 for the same period a year ago. The increase was due in part from both realized and unrealized gains and losses on trading securities. For the nine month period ended September 30, 2000, the Company recorded a net gain of $41,000 from trading securities as compared to a net loss of $86,000 on trading securities recorded in the prior year’s period. In addition, the Company recorded higher deposit fee income of $43,000 due to increased NOW account overdraft and ATM fee charges. These increases were offset by a decline of $45,000 in loan fees and service charges as a result of lower loan origination activity, primarily due to the increase in the interest rates over the last twelve month period, and from an increased loss from an investment in a low-income housing joint venture of $77,000. As a result |
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| of this investment, the Company recorded an offsetting $105,000 income tax credit during the nine month period which resulted in the reduction of the Company’s effective tax rate. |
Non-Interest Expense
| The Company’s non-interest expense increased $57,000 to $2.1 million for the nine months ended September 30, 2000 compared to the same period a year ago. The increase resulted primarily from increased staffing costs of $24,000, due to new hirings and some normal salary and benefit increases, and additional occupancy and equipment expenses increase of $54,000 related to increased depreciation and maintenance charges. Staffing costs were positively impacted during the most recent three month period, as discussed under comparison of operating results for the three months. These increases were offset by declines of $23,000 in advertising and $21,000 in FDIC insurance premiums. |
Income Taxes
| The provision for income taxes decreased $91,000 to $160,000 for the nine months ended September 30, 2000 as compared to $251,000 the prior year period. This decrease was attributable the recognition of low-income housing tax credits of $105,000 provided through an investment in a limited partnership organized to build, own and operate a 56 unit low-income housing apartment complex. Low-income housing tax credits recorded in the prior year period amounted to $26,000. |
Liquidity and Capital Resources
| The Company’s principal sources of funds are deposits, proceeds from principal and interest payments on loans (including mortgage-backed securities), sales or maturities of investment securities, advances from the FHLB of Indianapolis and income from operations. While scheduled loan repayments and maturing investments are relatively predictable, deposit flows and early loan repayments are more influenced by interest rates, floors and caps on loan rates, general economic conditions and competition. The primary business activity of the Company, that of making conventional mortgage loans on residential housing, is likewise affected by economic conditions. |
| Current Office of Thrift Supervision regulations require the Bank to maintain cash and eligible investments in an amount equal to at least 4% of short-term customer accounts and borrowings to assure its ability to meet demands for withdrawals and repayment of short-term borrowings. Liquid assets for purposes of this ratio include cash, certain time deposits, U.S. Government, government agency and corporate securities and other obligations generally having remaining maturities of less than five years. The Bank has historically maintained its liquidity ratio for regulatory purposes at levels in excess of those required. At September 30, 2000, the Bank’s liquidity ratio for regulatory purposes was 10.94%. |
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| The Company’s most liquid assets are cash and cash equivalents, which consist of interest-bearing deposits and short-term highly liquid investments with original maturities of less than three months that are readily convertible to known amounts of cash. The level of these is dependent on the Company’s operating, financing and investing activities during any given period. At September 30, 2000 and December 31, 1999 cash and cash equivalents totaled $4.7 million and $5.5 million respectively. |
| Liquidity management for the Company is both a daily and long-term function of the Company’s management strategy. Excess funds are generally invested in short-term investments, such as overnight deposits. If the Company requires funds beyond its ability to generate them internally, additional funds are available through FHLB advances. |
| The Company anticipates that it will have sufficient funds available to meet current commitments. At September 30, 2000 the Company has outstanding loan commitments totaling $2.0 million and unused lines of credit granted totaling $5.0 million. In addition, the Company has entered into a contract for the purchase of real estate located at 1001 Main Street in Dyer, Indiana. The Bank currently leases their Dyer office location at this address. The purchase price for this property is $1.73 million which the Company plans to fund with an additional advance from the FHLB. |
| Federally insured savings associations, such as the Bank, are required to maintain a minimum level of regulatory capital. The OTS has established capital standards, including leverage ratio (or core capital) requirement and a risk-based capital requirement applicable to such savings associations. These capital requirements must be generally as stringent as the comparable capital requirements for national banks. The OTS is also authorized to impose capital requirements in excess of these standards on individual associations on a case-by-case basis. |
| At September 30, 2000, the Bank had core capital equal to $8.5 million, or 6.55% of adjusted total assets, which was $4.6 million above the minimum leverage ratio requirement of 3% in effect on that date. The Bank had total capital of $9.1 million (including $8.5 million in core capital and $600,000 in qualifying supplementary capital) and risk-weighted assets of $75.8 million at September 30, 2000; or total risk-based capital of 11.95% of risk-weighted assets at September 30, 2000. This amount was $3.0 million above the 8% requirement in effect on that date. |
Non-Performing Assets
| The following table sets forth the amounts and categories of non-performing assets in the Company’s portfolio. Loans are reviewed monthly and a loan whose collectability is doubtful is placed on non-accrual status. Loans are placed on non-accrual status when principal and interest is 90 days or more past due, unless, in the judgement of management, the loan is well collateralized and in the process of collection. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as |
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| interest income, depending on the assessment of the ultimate collectibility of the loan. Restructured loans include troubled debt restructuring (which involved forgiving a portion of interest principal on any loans or making loans at a rate materially less than the market). |
September 30, December 31,
2000 1999
--------------- ---------------
(Dollars in thousands)
Non- accruing loans:
One to four family 334 289
Multi- family -- --
Non- residential -- --
Construction 400 479
Commercial 609 --
Consumer 30 161
--------------- ---------------
Total 1373 929
--------------- ---------------
Foreclosed assets:
One to four family -- --
Multi-family -- --
Non-residential -- --
Construction -- --
Consumer -- --
--------------- ---------------
Total 0 0
--------------- ---------------
Total non- performing assets 1373 929
=============== ===============
Total as a percentage of total assets 1.04% 0.73%
=============== ===============
| For the nine months period ended September 30, 2000, gross interest, which would have been recorded, had the non-accruing loans been current in accordance with their original terms amounted to $64,340. |
| In addition to the non-performing assets set forth in the table above, as of September 30, 2000, there were no loans with respect to which known information about the possible credit problems of the borrowers or the cash flows of the security properties have caused management to have |
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| concerns as to the ability of the borrowers to comply with present loan repayment terms and which may result in the future inclusion of such items in the non-performing asset categories. |
Management has considered the Company’s non-performing and “of concern” assets in establishing its allowance for loan losses.
Recent Developments
The Company declared a cash dividend of $.06 per share, payable on November 24, 2000 to shareholders of record on November 10, 2000.
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PART 11 - OTHER INFORMATION
| Item 1. | LEGAL PROCEEDINGS |
| From time to time, the Bank is a party to legal proceedings in the ordinary course of business, wherein it enforces its security interest. The Company and the Bank are not engaged in any legal proceedings of a material nature at the present time. | |
| Item 2. | CHANGES IN SECURITIES |
| None. | |
| Item 3. | DEFAULTS UPON SENIOR SECURITIES |
| None. | |
| Item 4. | SUBMISSION OF MATTERS TO A VOTE OF SECRUITY HOLDERS |
| None. | |
| Item 5. | OTHER INFORMATION |
| Not applicable. | |
| Item 6. | EXHIBITS AND REPORTS ON FORM 8-K |
| (a) Computation of earnings per share (Exhibit 11 filed herewith) | |
| (b) Financial Data Schedule (Exhibit 27 filed herewith) | |
| (c) Report on Form 8-K Form 8-K was filed on August 16,2000 announcing clarification of a cash dividend announcement of August 2,2000. |
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| Pursuant to the requirements of Section 13 and 15 (d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. |
Date: October 27,2000
| By: /S/ Clement B. Knapp, Jr. President and Chief Executive Officer (Duly Authorized Representative) |
| By: /S/ Daniel T. Poludniak Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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INDEX TO EXHIBIT
Exhibit No. Page No.
11 Statement re: Computation of Earnings Per Share 21
27 Financial Data Schedule 22
21
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