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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2004
Commission file number 000-33405
AJS BANCORP, INC.
(Exact name of registrants specified in its charter)
Federal 36-4485429
(State of incorporation) (IRS Employer Identification No.)
14757 S. Cicero Avenue, Midlothian, Illinois 60445
(Address of Principal Executive Offices)
(708) 687-7400
(Issuer's telephone number, including area code)
Check whether the issuer: (1) filed all reports required to be filed by Section
12, 13 or 15(d) of the Exchange Act during the past 12 months (or such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes |X| No |_|
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act) Yes |_| No |X|
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
As of April 29, 2004 the Registrant had outstanding 2,388,571 shares of common
stock.
AJS BANCORP, INC.
Form 10-Q Quarterly Report
Index
Page
----
PART I - Financial Information
Item 1. Financial Statements 1
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 13
PART II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Securities Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
ITEM 1. FINANCIAL STATEMENTS
AJS Bancorp, Inc.
Consolidated Statements of Financial Condition
(in thousands of dollars, except share data)
(unaudited)
March 31, December 31,
2004 2003
--------- ------------
ASSETS
Cash and cash equivalents
Cash and due from banks (interest-earning: 2004 -
$2,116; 2003 - $9,956) $ 10,002 $ 19,801
Federal funds sold 6,972 --
--------- ---------
Total cash and cash equivalents 16,974 19,801
Securities available-for-sale 48,880 42,475
Securities held-to-maturity (fair value: 2004 -
$173; 2003 - $179) 168 177
Loans, net 158,970 155,628
Federal Home Loan Bank stock, at cost 13,833 13,612
Premises and equipment 4,827 4,875
Accrued interest receivable 1,148 967
Other assets 394 849
--------- ---------
Total assets $ 245,194 $ 238,384
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 186,447 $ 183,847
Federal Home Loan Bank advances 21,400 17,000
Advance payments by borrowers for taxes and insurance 1,189 1,651
Accrued interest payable and other liabilities 3,892 3,781
--------- ---------
Total liabilities 212,928 206,279
Stockholders' equity
Preferred stock, $.01 par value, 20,000,000 shares authorized, none issued -- --
Common stock, $.01 par value, 50,000,000 shares authorized;
2,444,521 shares issued at March 31, 2004 and
December 31, 2003 24 24
Treasury stock (2004 - 55,950 shares; 2003 - 51,600 shares) (1,188) (1,075)
Additional paid in capital 10,752 10,972
Unearned ESOP shares (330) (377)
Unearned stock awards (833) (924)
Retained earnings 23,616 23,257
Accumulated other comprehensive income 225 228
--------- ---------
Total stockholders' equity 32,266 32,105
--------- ---------
Total liabilities and stockholders' equity $ 245,194 $ 238,384
========= =========
See notes to consolidated financial statements.
1
AJS Bancorp, Inc.
Consolidated Statements of Income
(in thousands of dollars, except share data)
(unaudited)
Three Months
Ended March 31,
--------------------------
2004 2003
---------- ----------
Interest and dividend income
Loans $ 2,325 $ 2,354
Securities 468 680
Interest-earning deposits and other 234 83
Federal funds sold 12 36
---------- ----------
Total interest income 3,039 3,153
Interest expense
Deposits 942 1,079
Federal Home Loan Bank
advances and other 203 209
---------- ----------
Total interest expense 1,145 1,288
---------- ----------
Net interest income 1,894 1,865
Provision for loan losses -- --
---------- ----------
Net interest income after provision for loan losses 1,894 1,865
Noninterest income
Service fees 103 123
Insurance commissions 48 89
Gain on sale of loans -- 23
Other 37 51
---------- ----------
Total noninterest income 188 286
Noninterest expense
Compensation and employee benefits 913 781
Occupancy expense 153 224
Data processing expense 102 80
Advertising and promotion 87 67
Other 265 264
---------- ----------
Total noninterest expense 1,520 1,416
---------- ----------
Income before income taxes 562 735
Income taxes 203 265
---------- ----------
Net income $ 359 $ 470
========== ==========
Earnings per share
Basic $ .16 $ .20
Diluted $ .15 $ .20
Weighted average shares - Diluted 2,347,945 2,350,597
Comprehensive income $ 356 $ 275
========== ==========
See notes to consolidated financial statements.
2
AJS Bancorp, Inc.
Consolidated Statements of Cash Flows
(in thousands of dollars)
(unaudited)
Three Months Ended
March 31,
-----------------------
2004 2003
-------- --------
Cash flows from operating activities
Net income $ 359 $ 470
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 82 75
Provision for loan losses -- --
Premium amortization, net 19 --
Stock award compensation expense 91 --
ESOP compensation expense 126 85
Federal Home Loan Bank stock dividends (221) (124)
Gain on sale of loans held for sale -- (23)
Gain on sale of other real estate -- (3)
Changes in
Loans held for sale -- (275)
Accrued interest receivable and other assets 253 530
Accrued interest payable and other liabilities (188) (16)
-------- --------
Net cash from operating activities 521 719
Cash flows from investing activities
Securities available-for-sale
Purchases (10,192) (7,184)
Maturities and principal payments 3,763 4,961
Securities held-to-maturity
Maturities and principal payments 9 18
Maturities of certificates of deposit -- --
Loan originations, net (3,340) (4,991)
Proceeds from sale of other real estate 21 3
Purchase of equipment (34) (355)
Purchase of Federal Home Loan Bank stock -- (2,500)
-------- --------
Net cash from investing activities (9,773) (10,048)
Cash from financing activities
Net change in deposits 2,600 13,862
Net change in Federal Home Loan Bank advances 4,400 3,000
Purchase of treasury stock (113) (150)
Net change in advance payments by borrowers for taxes and insurance (462) (311)
-------- --------
Net cash from financing activities 6,425 16,401
-------- --------
Net change in cash and cash equivalents (2,827) 7,072
Cash and cash equivalents at beginning of period 19,801 22,896
-------- --------
Cash and cash equivalents at end of period $ 16,974 $ 29,968
======== ========
See notes to consolidated financial statements.
3
AJS Bancorp, Inc.
Consolidated Statements of Stockholders' Equity
Three months ended March 31, 2004
(in thousand of dollars)
(unaudited)
Additional Unearned
Common Paid-in Treasury Stock
Stock Capital Stock Awards
------------ ------------ ------------ ------------
Balance at December 31, 2002 $ 24 $ 11,308 $ -- $ --
Purchase of 8,400 shares of treasury stock -- -- (150) --
ESOP shares earned -- 38 -- --
Comprehensive income
Net income -- -- -- --
Change in unrealized gain on securities --
available for sale, net of taxes -- -- -- --
Total comprehensive income
------------ ------------ ------------ ------------
Balance at March 31, 2003 $ 24 $ 11,346 $ (150) $ --
============ ============ ============ ============
Accumulated
Unearned Other Total
ESOP Retained Comprehensive Stockholders'
Shares Earnings Income (Loss) Equity
------------ ------------ ------------- -------------
Balance at December 31, 2002 $ (566) $ 21,864 $ 1,016 $ 33,646
Purchase of 8,400 shares of treasury stock -- -- -- (150)
ESOP shares earned 47 -- -- 85
Comprehensive income
Net income -- 470 -- 470
Change in unrealized gain on securities
available for sale, net of taxes -- -- (195) (195)
--------
Total comprehensive income 275
------------ ------------ ------------ --------
Balance at March 31, 2003 $ (519) $ 22,334 $ 821 $ 33,856
============ ============ ============ ========
Additional Unearned
Common Paid-in Treasury Stock
Stock Capital Stock Awards
------------ ------------ ------------ ------------
Balance at December 31, 2003 $ 24 $ 10,972 $ (1,075) $ (924)
Purchase of 4,350 shares of treasury stock (113)
Allocation of stock awards
ESOP shares earned 79
Stock awards earned 91
ESOP put option (299)
Comprehensive income
Net income
Change in unrealized gain on securities
available-for-sale, net of taxes
Total comprehensive income
------------ ------------ ------------ ------------
Balance at March 31, 2004 $ 24 $ 10,752 $ (1,188) $ (833)
============ ============ ============ ============
Accumulated
Unearned Other Total
ESOP Retained Comprehensive Stockholders'
Shares Earnings Income (Loss) Equity
------------ ------------ ------------- -------------
Balance at December 31, 2003 $ (377) $ 23,257 $ 228 $ 32,105
Purchase of 4,350 shares of treasury stock (113)
Allocation of stock awards
ESOP shares earned 47 126
Stock awards earned 91
ESOP put option (299)
Comprehensive income
Net income 359 359
Change in unrealized gain on securities
available-for-sale, net of taxes (3) (3)
--------
Total comprehensive income 356
------------ ------------ ------------ --------
Balance at March 31, 2004 $ (330) $ 23,616 $ 225 $ 32,266
============ ============ ============ ========
See notes to consolidated financial statements.
4
AJS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
Note 1 - Basis of Presentation
Principles of Consolidation: The accompanying consolidated interim financial
statements include the accounts of AJS Bancorp, Inc. ("the Company") and its
wholly owned subsidiaries, A. J. Smith Federal Savings Bank ("the Bank") and
A.J.S. Insurance, LLC, which provides insurance and investment services to the
public. All significant intercompany balances and transactions have been
eliminated.
The accompanying interim consolidated financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly,
certain disclosures required by accounting principles generally accepted in the
United States of America are not included herein. These interim statements
should be read in conjunction with the Company's Annual Report on Form 10-K. The
December 31, 2003 balance sheet presented herein has been derived from the
audited financial statements included in the Company's Annual Report on Form
10-K, but does not include all of the disclosures required by accounting
principles generally accepted in the United States of America.
Interim statements are subject to possible adjustment in connection with the
annual audit of the Company for the year ending December 31, 2004. In the
opinion of management of the Company, the accompanying unaudited interim
consolidated financial statements reflect all of the adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position and consolidated results of operations for the
periods presented. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full year.
Note 2 - Earnings Per Share
Basic earnings per share for the three months ended March 31, 2004 and 2003 were
computed by dividing net income by the weighted average number of shares
outstanding. Diluted earnings per share for the three months ended March 31,
2004 and 2003 were computed by dividing net income by the weighted average
number of shares outstanding, adjusted for the dilutive effect of the
outstanding stock options and stock awards. Computations for basic and diluted
earnings per share are provided below.
For the Three Months
Ended March 31,
2004 2003
---------- ----------
(in thousands, except
per share data)
Basic
Net income $ 359,000 $ 470,000
========== ==========
Weighted average common shares
outstanding 2,310,299 2,350,597
========== ==========
Basic earnings per common share $ .16 $ .20
========== ==========
Diluted
Net income $ 359,000 $ 470,000
========== ==========
Weighted average common shares
outstanding 2,310,299 2,350,597
Dilutive effect of stock options 7,925 --
Dilutive effect of stock awards 29,721 --
========== ==========
Diluted average common shares 2,347,945 2,350,597
========== ==========
Diluted earnings per common share $ .15 $ .20
========== ==========
5
Note 3 - Stock Option Plan
The Company adopted a stock plan in May 2003 under the terms of which options
for 114,685 shares of the Company's common stock were granted to directors,
officers, and employees. The options become exercisable in equal installments
over a five-year period from the date of grant. The options expire ten years
from the date of grant. No option may be exercised if such exercise would cause
the mutual holding company to own fewer than a majority of the total number of
shares outstanding.
A summary of the status of the Company's stock option plan and changes during
the three months ended March 31, 2004 and 2003 is presented below:
For the Three Months
Ended March 31,
---------------------------------------
2004 2003
---- ----
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding at beginning of period 114,685 18.75 -- $ --
Granted -- -- -- --
Exercised -- -- -- --
Forfeited 2,000 18.75 -- --
------- ------- ------- ------
Outstanding at end of period 112,685 $ 18.75 -- $ --
======= ======= ======= ======
6
2004 2003
---- ----
Options exercisable at end of period 6,000 --
Weighted-average fair value of options granted during period $ -- --
Average remaining option term 9.1 years --
The Company applies Accounting Principles Board ("APB") Opinion 25 and related
Interpretations in accounting for its stock option plan. Accordingly, no
compensation cost has been recognized at the date of grant. Had compensation
cost been determined based on the fair value at the grant dates for awards under
the plan consistent with the method of Statement of Financial Accounting
Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, the Company's
net income and earnings per share for the three months ended March 31, 2004
would have been reduced to the pro forma amounts in the table below. For
purposes of pro forma disclosure, the estimated fair value of the options is
amortized to expense over the options' vesting period.
For the Three Months
Ended March 31, 2004
---------------------
(in thousands, except
per share data)
Net income as reported $ 359
Pro forma net income 353
Earnings per share as reported
Basic .16
Diluted .15
Pro forma earnings per share
Basic and diluted .15
Pursuant to its 2003 stock-based incentive plan, the Company awarded 58,971
shares of restricted stock in May 2003. These shares vest over a five-year
period. The unamortized cost of shares not yet earned (vested) is reported as a
reduction of stockholders' equity. Compensation expense for restricted stock
awards totaled $91,000 and zero for the three-months ended March 31, 2004 and
2003.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Reform Act of
1995 as amended and is including this statement for purposes of these safe
harbor provisions. Forward-looking statements, which are based on certain
assumptions and describe future plans, strategies, and expectations of the
Company, are generally identifiable by use of the words "believe," "expect,"
"intend," "anticipate," "estimate," "project," or similar expressions. The
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors that could have a material adverse
affect on the operations and future prospects of the Company and its wholly
owned subsidiaries include, but are not limited to, changes in: interest rates;
general economic conditions; legislative/regulatory provisions; monetary and
fiscal policies of the U.S. Government, including policies of the U.S. Treasury
and the Federal Reserve Board; the quality or composition of the loan or
investment portfolios; demand for loan products; deposit flows; competition;
demand for financial services in the Company's market area; and accounting
principles, policies, and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements, and undue reliance should
not be placed on such statements. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
The following discussion compares the financial condition of the Company at
March 31, 2004 to its financial condition at December 31, 2003 and the results
of operations for the three-month period ended March 31, 2004 to the same period
in 2003. This discussion should be read in conjunction with the interim
financial statements and footnotes included herein.
FINANCIAL CONDITION
Total assets at March 31, 2004 were $245.2 million compared to $238.4 million at
December 31, 2003, an increase of $6.8 million, or 2.9%. The increase in total
assets primarily reflects increases in securities, and loans partially offset by
a decrease in cash and cash equivalents. Loans receivable increased $3.4 million
to $159.0 million at March 31, 2004 from $155.6 million at December 31, 2003.
The increase in loans reflects new and refinanced commercial and multifamily
mortgage loans and, to a lesser extent, single-family loans. Securities
increased $6.3 million, or 14.8%, to $49.0 million at March 31, 2004 from $42.7
million at December 31, 2003. The increase was due to an arrangement whereby the
Company purchased $10.0 million in mortgage-backed securities partially funded
by $5.0 million in fixed rate Federal Home Loan Bank (FHLB) advances. These
advances will mature over the next six years. The mortgage-backed securities
purchased represent the Company's attempt to lock in a spread between the
interest earned on the asset and the lower interest paid on the FHLB advances.
The Company had non-performing assets of $1.2 million at March 31, 2004 and
December 31, 2003. The allowance for loan losses was $1.9 million at March 31,
2004 and $2.0 million at December 31, 2003. This represents a ratio of allowance
for loan losses to gross loans receivable of 1.20% at March 31, 2004 and 1.24%
at December 31, 2003. The allowance for loan losses to non-performing loans was
167.10% at March 31, 2004 compared to 172.71% at December 31, 2003. Subprime
loan balances decreased $1.1 million to $17.2 million at March 31, 2004 from
$18.3 million at December 31, 2003. The decrease in subprime loans reflects our
decision to de-emphasize this type of lending.
8
Total liabilities at March 31, 2004 were $212.9 million compared to $206.3
million at December 31, 2003, an increase of $6.6 million, reflecting increases
in deposits and Federal Home Loan Bank advances offset by a decrease in advance
payments by borrowers for taxes and insurance. Total deposits increased $2.6
million, or 1.4%, to $186.4 million at March 31, 2004 from $183.8 million at
December 31, 2003. This increase was largely due to greater marketing efforts
and promotional deposit rates designed to attract deposits for specific time
frames. Federal Home Loan Bank advances increased to $21.4 million at March 31,
2004 from $17.0 million at December 31, 2003. The additional fixed rate
borrowings were used to fund the purchase of mortgage-backed securities. Advance
payments by borrowers for taxes and insurance decreased $462,000 to $1.2 million
at March 31, 2004 from $1.7 million at December 31, 2003. This decrease was due
to the timing differences of payments for county real estate taxes.
Total stockholders' equity increased to $32.3 million at March 31, 2004 from
$32.1 million at December 31, 2003. The increase in stockholders' equity was
primarily due to net income of $359,000 offset by a decrease in additional paid
in capital due to an increase in the liability the Bank has as a result of the
put option available on the ESOP, and, to a lesser extent, the repurchase of the
Company's stock that took place during the quarter ended March 31, 2004. The
Internal Revenue Service (IRS) has determined that any security traded on the
bulletin board or pink sheets does not have a sufficiently active market to
support the trading necessary should an employee wish to sell their Company
stock they received as a part of the ESOP. Therefore, the Company has a
liability in amount equal to the market value of the vested portion of the ESOP
as a result of the obligation the Company has to repurchase the stock should the
employee decide to sell it, and there were no buyers available on the open
market. The ESOP put option liability is $1.5 million at March 31, 2004,
compared to $1.2 million at December 31, 2003. The Company repurchased 4,350
shares of its common stock during the three months ended March 31, 2004. This
repurchase was done as part of a 120,000 share repurchase program announced in
January 2003. Repurchased shares are not considered outstanding and are not
included when calculating earnings per share information.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2004 AND MARCH 31,
2003
Net income decreased $111,000 to $359,000 for the quarter ended March 31, 2004
compared to the same period in 2003. The return on average assets decreased to
..59% for the quarter ended March 31, 2004 from .79% for the same period in 2003.
The decline was primarily due to lower interest rates earned on these assets due
to the continued general decline in market interest rates. Interest income on
securities dropped by $212,000 or 31.2% to $468,000 for the quarter ended March
31, 2004 compared to $680,000 for the same period in 2003. The decline was due
to lower average balances as well as lower overall interest earned on
securities. Interest on interest-earning deposits & other increased $151,000 to
$234,000 or 181.9% for the quarter ended March 31, 2004 compared to $83,000 for
the same period in 2003. This increase was largely due to higher FHLB stock
balances held during the quarter ended March 31, 2004 when compared to the
balance in FHLB stock held for the quarter ended March 31, 2003. Interest on
federal funds sold declined by $24,000 to $12,000 or 66.7% for the quarter ended
March 31, 2004 compared to $36,000 earned for the same period in 2003. This
decrease was primarily due to lower average balances during the 2004 quarter
when compared to the 2003 quarter. Average interest earning assets were $231.4
million and $224.4 million during the comparative 2004 and 2003 quarters while
the average yield was 5.26% and 5.62%, respectively.
Interest expense on deposits decreased by $137,000 or 12.7% to $942,000 for the
quarter ended March 31, 2004 from $1.1 million for the same quarter in 2003. The
decrease in the cost of our deposits was primarily due to the general decline in
market interest rates and certificates of deposit maturing and renewing at lower
rates. The average cost of deposits at March 31, 2004 was 2.04% as compared to
2.39% at March 31, 2003. The average cost on interest-bearing liabilities
decreased to 2.25% for the three months ended March 31, 2004 from 2.58% for the
same period ended 2003.
Net interest income increased by $29,000 or 1.55% to $1.9 million for the
quarter ended March 31, 2004 as compared to the quarter ended March 31, 2003.
Our net interest rate spread decreased 4 basis points to 3.00% for the quarter
ended March 31, 2004 from 3.04% for the same period in 2003, while our net
interest
9
margin decreased 4 basis points to 3.28% for the quarter ended March 31, 2004
from 3.32% for the same period in March 31, 2003. The ratio of average
interest-earning assets to average interest-bearing liabilities improved to
113.77% for the three months ended March 31, 2004 from 112.41% for the same
period in 2003.
There was no provision for loan losses for the three months ended March 31, 2004
or March 31, 2003. Any loan provisions made are based on concerns regarding
losses inherent in our loan portfolio. Our subprime loan portfolio has decreased
$11.5 million to $17.2 million at March 31, 2004 compared to $28.7 million at
March 31, 2003. At this time, management felt no additional provisions were
necessary. Should any unforeseen risks present themselves however, management
may need to increase this provision in the future. At March 31, 2004 and
December 31, 2003, our allowance for loan losses was $1.9 million and $2.0
million or 1.20% and 1.24% of total gross loans, respectively. Non-performing
assets as a percentage of total assets was .47% at March 31, 2004 and .49% at
December 31, 2003. The allowance for loan losses to non-performing loans was
167.10% and 172.71% at March 31, 2004 and December 31, 2003, respectively.
Noninterest income decreased $98,000 to $188,000 for the quarter ended March 31,
2004 from $286,000 for the comparable quarter in 2003. This decrease in
noninterest income was the result of a $41,000 decline in insurance commissions,
a $20,000 decrease in service charges on accounts, and a $37,000 decrease in
other noninterest income. The decrease in insurance commissions reflects lower
sales of variable and fixed rate annuities. The decrease in service charges on
accounts is primarily due a decrease in late fees charged and a decrease in loan
closing fees. The decrease in other non-interest income was primarily due to a
decrease in gains from the sale of loans and correspondent fees.
Noninterest expense increased to $1.5 million from $1.4 million for the quarter
ended March 31, 2004 compared to the same period in 2003. Salaries and benefits
increased $132,000, advertising and promotion costs increased $20,000, and data
processing costs increased $22,000. These increases were offset by a decrease in
occupancy costs of $71,000. The increase in salaries and benefits was primarily
due to increases in the ESOP cost, in the recognition and retention plan (RRP)
cost and in group insurance costs. The ESOP cost rose due to an increase in the
per share price of the Company's stock. The RRP was approved at the previous
year's annual meeting held in May of 2003; therefore there was no comparable
expense during the first quarter of 2003. Group insurance expense increased due
to normal annual policy increases. The increase in advertising and promotion
costs occurred due to various deposit program specials offered during the
quarter ended March 31, 2004. Data processing expenses increased due to the
Company's new debit card program, as well as growth in the number of accounts
the Company services. Occupancy expense decreased due to a reduction in the
estimated real estate taxes due on our Wolf Road facility.
Our federal and state taxes decreased $62,000 to $203,000 for the quarter ended
March 31, 2004 from $265,000 in the same period of 2003. This is primarily the
result of lower pre-tax income for the quarter ended March 31, 2004.
NEW ACCOUNTING PRONOUNCEMENTS
None
LIQUIDITY
The Bank must maintain an adequate level of liquidity to ensure the availability
of sufficient funds to fund loan originations and deposit withdrawals, to
satisfy other financial commitments, and to take advantage of investment
opportunities. The Bank invests excess funds in overnight deposits and other
short-term interest-bearing assets to provide liquidity to meet these needs. At
March 31, 2004, cash and cash equivalents totaled $17.0 million. At March 31,
2004, the Bank had commitments to fund loans of $9.5 million, available lines of
credit of $13.0 million, and standby letters of credit of $208,000. At March 31,
2004, certificates of deposit represented 55.4% of total deposits. The Bank
expects to retain these deposit accounts. In addition, the Bank has borrowing
capacity for an additional $62.9 million from the Federal Home Loan
10
Bank without providing additional collateral. The Bank considers its liquidity
and capital resources sufficient to meet its outstanding short-term and
long-term needs.
CAPITAL RESOURCES
The Bank is subject to capital-to-asset requirements in accordance with bank
regulations. The following table summarizes the Bank's regulatory capital
requirements versus actual capital as of March 31, 2004:
ACTUAL REQUIRED EXCESS
(Dollars in thousands) AMOUNT % AMOUNT % AMOUNT %
------- ---- ------- --- ------- ---
Core capital
(to adjusted total assets) $29,600 12.1% $ 9,800 4.0% $19,800 8.1%
Risk-based capital
to (risk-weighted assets) 31,200 23.8 10,500 8.0 20,700 15.8
11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUALITATIVE ASPECTS OF MARKET RISK
The majority of our assets and liabilities are monetary in nature. Consequently,
our most significant form of market risk is interest rate risk. Our assets,
consisting primarily of mortgage loans, have longer maturities than our
liabilities, consisting primarily of deposits. As a result, a principal part of
our business strategy is to manage interest rate risk and reduce the exposure of
our net interest income to changes in market interest rates. Accordingly, our
Board of Directors has established an Asset/Liability Management Committee,
which is responsible for evaluating the interest rate risk inherent in our
assets and liabilities, for determining the level of risk that is appropriate
given our business strategy, operating environment, capital, liquidity and
performance objectives; and for managing this risk consistent with the
guidelines approved by the Board of Directors. Senior management monitors the
level of interest rate risk on a regular basis, and the Asset/Liability
Management Committee, which consists of senior management operating under a
policy adopted by the Board of Directors, meets as needed to review our
asset/liability policies and interest rate risk position.
We have sought to manage our interest rate risk by more closely matching the
maturities of our interest rate sensitive assets and liabilities. In particular,
we offer one-, three- and five-year adjustable rate mortgage loans, and three-
and five-year balloon loans. In a low interest rate environment, borrowers
typically prefer fixed-rate loans rather than adjustable-rate mortgages. We may
sell some of our originations of longer-term fixed-rate loans into the secondary
market. We do not solicit high-rate jumbo certificates of deposit or brokered
funds.
In past years, many savings associations have measured interest rate sensitivity
by computing the "gap" between the assets and liabilities that are expected to
mature or reprice within certain time periods based on assumptions regarding
loan prepayment and deposit decay rates formerly provided by the Office of
Thrift Supervision. However, the Office of Thrift Supervision now requires the
computation of amounts by which the net present value of an institution's cash
flow from assets, liabilities, and off-balance-sheet items (the institution's
net portfolio value or "NPV") would change in the event of a range of assumed
changes in market interest rates. The Office of Thrift Supervision provides all
institutions that file a Consolidated Maturity/Rate Schedule as a part of their
quarterly Thrift Financial Report with an interest rate sensitivity report of
net portfolio value. The Office of Thrift Supervision simulation model uses a
discounted cash flow analysis and an option-based pricing approach to measuring
the interest rate sensitivity of net portfolio value. The Office of Thrift
Supervision model estimates the economic value of each type of asset, liability,
and off-balance-sheet contract under the assumption that the United States
Treasury yield curve increases or decreases instantaneously by 100 to 300 basis
points in 100 basis point increments. A basis point equals one-hundredth of one
percent, and 100 basis points equals one percent. An increase in interest rates
from 7% to 8% would mean, for example, a 100 basis point increase in the "Change
in Interest Rates" column below. The Office of Thrift Supervision provides us
the results of the interest rate sensitivity model, which is based on
information we provide to the Office of Thrift Supervision to estimate the
sensitivity of our net portfolio value.
12
The table below sets forth, as of December 31, 2003 (the latest date for which
information is available), the estimated changes in our net portfolio value that
would result from the designated instantaneous changes in the United States
Treasury yield curve. The company expects the March 31, 2004 Net Portfolio Value
to be similar to the December 31, 2003 table shown below.
NPV as % of
Change in Portfolio Value of Assets
Interest Rates Net Portfolio Value -------------------------
in Basis Points ------------------- NPV Basis Point
(Rate Shock) Amount $ Change % Change Ratio Change
------------ ------ -------- -------- ----- ------
(Dollars in thousands)
300 $27,955 -8,849 -24.0% 11.84% -289
200 31,116 -5,688 -15.0 12.92 -181
100 34,089 -2,715 -7.0 13.89 -84
Static 36,804 14.73
-100 37,591 787 2.0 14.88 15
-200
-300
The table above indicates that at December 31, 2003, in the event of a 200 basis
point increase in interest rates, we would experience a 15.0% decrease in net
portfolio value. A 100 basis point decrease in interest rate would result in a
2.0% increase in net portfolio value. All model outputs associated with the -300
and -200 basis point scenarios are not applicable because of the low prevailing
interest rate environment.
Certain shortcomings are inherent in the methodology used in the above interest
rate risk measurement. Modeling changes in net portfolio value require making
certain assumptions that may or may not reflect the manner in which actual
yields and costs respond to changes in market interest rates. In this regard,
the net portfolio value table presented assumes that the composition of our
interest-sensitive assets and liabilities existing at the beginning of a period
remains constant over the period being measured and assumes that a particular
change in interest rates is reflected uniformly across the yield curve
regardless of the duration or repricing of specific assets and liabilities.
Accordingly, although the net portfolio value table provides an indication of
our interest rate risk exposure at a particular point in time, such measurements
are not intended to and do not provide a precise forecast of the effect of
changes in market interest rates on its net interest income, and will differ
from actual results.
ITEM 4. CONTORLS AND PROCEDURES
Under the supervision and with the participation of the Company's management,
including the Chief Executive Officer, President and Chief Financial Officer,
the Company has evaluated the effectiveness of the design and operation of it's
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15(d)-15(e)
under the Exchange Act) as of the end of the period covered by this quarterly
report. Based upon that evaluation, the Chief Executive Officer, President and
Chief Financial Officer concluded that, as of the end of the period covered by
this quarterly report, the Company's disclosure controls and procedures are
effective to ensure that information required to be disclosed in the reports
that the Company files or submits under the Securities Exchange Act of 1934 is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange commission's rules and forms. There has been no
change in the Company's internal control over financial reporting during the
most recent fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Company's internal control over financial reporting.
13
PART II - - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Periodically, there have been various claims and lawsuits involving
the Company, such as claims to enforce liens, condemnation
proceedings on properties in which the Company holds security
interest, claims involving the making and servicing of real property
loans, and other issues incident to the Company's business. In the
opinion of management, after consultation with the Company's legal
counsel, no significant loss is expected from any such pending
claims or lawsuits. The Company is not a party to any material
pending legal proceedings.
ITEM 2. CHANGES IN SECURITIES, USE OF PROCEEDS AND STOCK REPURCHASES.
Issuer purchases of equity securities during the prior three months:
Total number Average price Total number of Maximum number
shares purchased paid per share shares purchased of shares that
under publicly may be purchased
announced plan under the
repurchase plan
January 1 -January 31 -- $ -- 73,000 120,000
February 1 - February 29 1,850 26.25 74,850 120,000
March 1 - March 31 2,500 26.25 77,350 120,000
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None.
(b) Reports on Form 8-K.
The Company announced its December 31, 2003 financial
results by press release. The press release was included as an
exhibit and filed on January 26, 2004 on Form 8-K.
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AJS BANCORP, INC.
Date: May 13, 2004 /s/ Thomas R. Butkus
----------------------------------------
Thomas R. Butkus
Chief Executive Officer and Chairman of
the Board
Date: May 13, 2004 /s/ Lyn G. Rupich
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Lyn G. Rupich
President and Chief Operating Officer