Back to GetFilings.com
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 September 30, 2004
Commission file number 000-33405
AJS BANCORP, INC.
(Exact name of registrant 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 November 1, 2004 the Registrant had outstanding 2,267,057 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 7
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, Use of Proceeds and Issuer Purchases of
Equity 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)
September 30, December 31,
2004 2003
---- ----
ASSETS
Cash and cash equivalents
Cash and due from banks (interest-earning: 2004 -
$6,358; 2003 - $9,956) $ 15,597 $ 19,801
Federal funds sold 9,750 --
--------- ---------
Total cash and cash equivalents 25,347 19,801
Certificates of deposit 7,388 --
Securities available-for-sale 60,170 42,475
Securities held-to-maturity 145 177
Loans, net 158,828 155,628
Federal Home Loan Bank stock, at cost 14,245 13,612
Premises and equipment 4,810 4,875
Accrued interest receivable 1,002 967
Other assets 854 849
--------- ---------
Total assets $ 272,789 $ 238,384
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 201,975 $ 183,847
Federal Home Loan Bank advances 33,850 17,000
Advance payments by borrowers for taxes and insurance 2,491 1,651
Accrued interest payable and other liabilities 4,283 3,781
--------- ---------
Total liabilities 242,599 206,279
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 September 30, 2004 and December 31, 2003 24 24
Treasury stock (176,964 shares at September 30, 2004;
51,600 shares at December 31, 2003) (4,064) (1,075)
Additional paid in capital 10,866 10,972
Unearned ESOP shares (236) (377)
Unearned stock awards (732) (924)
Retained earnings 24,406 23,257
Accumulated other comprehensive income (loss) (74) 228
--------- ---------
Total stockholders' equity 30,190 32,105
--------- ---------
Total liabilities and stockholders' equity $ 272,789 $ 238,384
========= =========
See notes to consolidated financial statements.
1
AJS Bancorp, Inc.
Consolidated Statements of Income
(in thousands of dollars, except share data)
(unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
Interest and dividend income
Loans $ 2,362 $ 2,364 $ 7,057 $ 7,045
Securities 601 502 1,629 1,773
Interest-earning deposits and other 256 205 707 408
Federal funds sold 17 16 43 93
---------- ---------- ---------- ----------
Total interest income 3,236 3,087 9,436 9,319
Interest expense
Deposits 1,036 1,040 2,979 3,206
Federal Home Loan Bank advances
and other 322 217 767 644
---------- ---------- ---------- ----------
Total interest expense 1,358 1,257 3,746 3,850
---------- ---------- ---------- ----------
Net interest income 1,878 1,830 5,690 5,469
Provision for loan losses (57) (10) (72) (61)
---------- ---------- ---------- ----------
Net interest income after provision for loan losses 1,935 1,840 5,762 5,530
Noninterest income
Service fees 164 150 382 407
Insurance commissions 70 72 159 228
Gain on sale of loans -- 4 -- 53
Other 66 71 141 167
---------- ---------- ---------- ----------
Total noninterest income 300 297 682 855
Noninterest expense
Compensation and employee benefits 919 960 2,739 2,679
Occupancy expense 206 225 576 653
Data processing expense 89 97 284 282
Advertising and promotion 85 58 263 200
Other 227 279 757 809
---------- ---------- ---------- ----------
Total noninterest expense 1,526 1,619 4,619 4,623
---------- ---------- ---------- ----------
Income before income taxes 709 518 1,825 1,762
Income taxes 267 187 676 648
---------- ---------- ---------- ----------
Net income $ 442 $ 331 $ 1,149 $ 1,114
========== ========== ========== ==========
Earnings per share
Basic $ .20 $ .14 .51 $ .48
Diluted $ .20 $ .14 .50 .48
Weighted average shares - Diluted 2,229,145 2,317,516 2,293,273 2,333,488
Comprehensive income $ 736 $ 55 $ 847 $ 520
========== ========== ========== ==========
See notes to consolidated financial statements.
2
AJS Bancorp, Inc.
Consolidated Statements of Cash Flows
(in thousands of dollars)
(unaudited)
Nine Months Ended
September 30,
-------------------
2004 2003
---- ----
Cash flows from operating activities
Net income $ 1,149 $ 1,114
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 235 222
Provision for loan losses (72) (61)
Premium amortization, net 73 75
Stock award compensation expense 192 130
ESOP compensation expense 370 270
Federal Home Loan Bank stock dividends (633) (400)
Gain on sale of loans held for sale -- (53)
Gain on sale of other real estate -- --
Changes in
Loans held for sale -- 53
Accrued interest receivable and other assets 297 662
Accrued interest payable and other liabilities 167 135
-------- --------
Net cash from operating activities 1,778 2,147
Cash flows from investing activities
Securities available-for-sale
Purchases (29,978) (18,294)
Maturities and principal payments 11,548 23,488
Securities held-to-maturity
Maturities and principal payments 32 59
Purchase of certificates of deposit (7,388) --
Loan originations, net (3,126) (15,661)
Proceeds from sale of other real estate 21 --
Purchase of equipment (170) (469)
Purchase of Federal Home Loan Bank stock -- (8,500)
-------- --------
Net cash from investing activities (29,061) (19,377)
Cash from financing activities
Net change in deposits 18,128 15,494
Net change in Federal Home Loan Bank advances 16,850 2,500
Purchase of treasury stock (2,989) (1,298)
Net change in advance payments by borrowers for taxes and insurance 840 (833)
-------- --------
Net cash from financing activities 32,829 15,863
-------- --------
Net change in cash and cash equivalents 5,546 (1,367)
Cash and cash equivalents at beginning of period 19,801 22,896
-------- --------
Cash and cash equivalents at end of period $ 25,347 $ 21,529
======== ========
See notes to consolidated financial statements.
3
AJS Bancorp, Inc.
Consolidated Statements of Stockholders' Equity
Nine months ended September 30, 2004
(in thousand of dollars)
(unaudited)
Accumulated
Additional Unearned Unearned Other Total
Common Paid-in Treasury Stock ESOP Retained Comprehensive Stockholders'
Stock Capital Stock Awards Shares Earnings Income (Loss) Equity
------- ------- ------- ------- ------- -------- ------------- -------
Balance at December 31, 2002 $ 24 $11,308 $ -- $ -- $ (566) $21,864 $ 1,016 $33,646
Purchase of 65,500 shares of treasury stock -- -- (1,298) -- -- -- -- (1,298)
Allocation of stock awards -- 722 384 (1,106) -- -- -- --
ESOP shares earned -- 129 -- -- 141 -- -- 270
Stock awards earned -- -- -- 130 -- -- -- 130
Comprehensive income
Net income -- -- -- -- -- 1,114 -- 1,114
Change in unrealized gain on securities --
available for sale, net of taxes -- -- -- -- -- -- (594) (594)
-------
Total comprehensive income 520
------- ------- ------- ------- ------- ------- ------- -------
Balance at September 30, 2003 $ 24 $12,159 $ (914) $ (976) $ (425) $22,978 $ 422 $33,268
======= ======= ======= ======= ======= ======= ======= =======
Accumulated
Additional Unearned Unearned Other Total
Common Paid-in Treasury Stock ESOP Retained Comprehensive Stockholders'
Stock Capital Stock Awards Shares Earnings Income (Loss) Equity
------- ------- ------- ------- ------- -------- ------------- -------
Balance at December 31, 2003 $ 24 $10,972 $(1,075) $ (924) $ (377) $23,257 $ 228 $32,105
Purchase of 125,364 shares of treasury stock -- -- (2,989) -- -- -- -- (2,989)
ESOP shares earned -- 229 -- -- 141 -- -- 370
Stock awards earned -- -- -- 192 -- -- -- 192
ESOP put option -- (335) -- -- -- -- -- (335)
Comprehensive income
Net income -- -- -- -- -- 1,149 -- 1,149
Change in unrealized gain on securities --
available-for-sale, net of taxes -- -- -- -- -- -- (302) (302)
-------
Total comprehensive income 847
------- ------- ------- ------- ------- ------- ------- -------
Balance at September 30, 2004 $ 24 $10,866 $(4,064) $ (732) $ (236) $24,406 $ (74) $30,190
======= ======= ======= ======= ======= ======= ======= =======
See notes to consolidated financial statements.
4
AJS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 subsidiary, A. J. Smith Federal Savings Bank ("the Bank"). 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 the 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 and nine months ended September 30, 2004
and 2003 were computed by dividing net income by the weighted average number of
shares outstanding. Diluted earnings per share for the three and nine months
ended September 30, 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 For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
(in thousands, except (in thousands, except
per share data) per share data)
Basic
Net income $ 442 $ 331 $ 1,149 $ 1,114
======== ======== ======== ========
Weighted average common shares
outstanding 2,202 2,318 2,262 2,333
======== ======== ======== ========
Basic earnings per common share $ .20 $ .14 $ .51 $ .48
======== ======== ======== ========
5
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
(in thousands, except (in thousands, except
per share data) per share data)
Diluted
Net income $ 442 $ 331 $ 1,149 $ 1,114
======== ======== ======== ========
Weighted average common shares
outstanding 2,202 2,318 2,262 2,333
Dilutive effect of stock awards 5 3 6 --
Dilutive effect of stock options 22 11 25 1
======== ======== ======== ========
Diluted average common shares 2,229 2,332 2,293 2,334
======== ======== ======== ========
Diluted earnings per common share $ .20 $ .14 $ .50 $ .48
======== ======== ======== ========
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 nine months ended September 30, 2004 and 2003 is presented below:
For the Nine Months
Ended September 30,
--------------------------------------------
2004 2003
---- ----
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding at beginning of period 114,685 $ 18.75 -- $ --
Granted -- -- 114,685 18.75
Exercised -- -- -- --
Forfeited 2,000 18.75 -- --
-------- -------- -------- --------
Outstanding at end of period 112,685 $ 18.75 114,685 $ 18.75
======== ======== ======== ========
2004 2003
---- ----
Options exercisable at end of period 27,337 --
Weighted-average fair value of options granted during period $ -- $ 2.82
Average remaining option term 8.6 years 9.6 years
6
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 and nine months ended
September 30, 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 For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
2004 2003 2004 2003
---- ---- ---- ----
(in thousands, except (in thousands, except
per share data) per share data)
Net income as reported $ 442 $ 331 $ 1,149 $ 1,114
Pro forma net income 436 325 1,132 1,105
Earnings per share as reported
Basic .20 .14 .51 .48
Diluted .20 .14 .50 .48
Pro forma earnings per share
Basic .20 .14 .50 .47
Diluted .20 .14 .49 .47
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 $192,000 and $130,000 for the nine months ended September 30,
2004 and 2003,respectively.
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 Litigation 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.
7
The following discussion compares the financial condition of the Company at
September 30, 2004 to its financial condition at December 31, 2003 and the
results of operations for the three- and nine-month periods ended September 30,
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 September 30, 2004 were $272.8 million compared to $238.4
million at December 31, 2003, an increase of $34.4 million, or 14.4%. The
increase in total assets primarily reflects increases in federal funds sold,
certificates of deposit, and securities. We invested in certificates of deposit
at other financial institutions, and mortgage-backed securities in order to
attain slightly higher yields without locking into longer-term investments. The
mortgage-backed securities are expected to mature in ten to fifteen years,
however prepayments may cause them to pay down a faster pace. Loans receivable
increased $3.2 million to $158.8 million at September 30, 2004 from $155.6
million at December 31, 2003. The increase in loans reflects new and refinanced
commercial and multifamily mortgage loans. For the last three years, the Company
has focused on originating more commercial and multifamily loans as these
products generally carry higher interest rates with shorter terms than the
traditional single-family loans. We plan on continuing this strategy for the
foreseeable future. Federal funds sold increased to $10.0 million, and
certificates of deposit increased to $7.4 million at September 30, 2004. There
were no balances in federal funds sold or certificates of deposit at December
31, 2003. Securities increased $17.6 million, or 41.2%, to $60.3 million at
September 30, 2004 from $42.7 million at December 31, 2003. The increase was due
to an arrangement whereby the Company purchased $19.5 million in mortgage-backed
securities funded by cash and Federal Home Loan Bank ("FHLB") advances. 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 $996,000 at September 30, 2004 and $1.2
million at December 31, 2003. The allowance for loan losses was $1.9 million at
September 30, 2004 and $2.0 million at December 31, 2003. This represents a
ratio of allowance for loan losses to gross loans receivable of 1.15% at
September 30, 2004 and 1.24% at December 31, 2003. The allowance for loan losses
to non-performing loans was 190.16% at September 30, 2004 compared to 172.71% at
December 31, 2003.
Total liabilities at September 30, 2004 were $242.6 million compared to $206.3
million at December 31, 2003, an increase of $36.3 million, reflecting increases
in deposits, FHLB advances, advance payments by borrowers for taxes and
insurance, and accrued expenses. Total deposits increased $18.2 million, or
9.9%, to $202.0 million at September 30, 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.
FHLB advances increased to $33.9 million at September 30, 2004 from $17.0
million at December 31, 2003. The additional fixed rate borrowings were used
primarily to fund the purchase of mortgage-backed securities. Advance payments
by borrowers for taxes and insurance increased $840,000 to $2.5 million at
September 30, 2004 from $1.7 million at December 31, 2003. This increase was due
to the timing differences of payments for county real estate taxes. Accrued
expenses and other liabilities increased $502,000, or 13.2% to $4.3 million at
September 30, 2004 from $3.8 million at December 31, 2003. The increase was
primarily due to an increase in the ESOP put option. 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 contingent liability in an 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 $1.6 million at September 30, 2004, compared to $1.2 million
at December 31, 2003
Total stockholders' equity decreased to $30.2 million at September 30, 2004 from
$32.1 million at December 31, 2003. The decrease in stockholders' equity during
the past nine months was primarily due to
8
the repurchase of 125,364 shares of the Company's stock at an average price of
$23.84 per share. This decrease was primarily offset by net income of $1.1
million. Repurchased shares are not considered outstanding and are not included
when calculating earnings per share or book value information.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2004 AND
SEPTEMBER 30, 2003
Net income increased $111,000 to $442,000 for the quarter ended September 30,
2004 compared to the same period in 2003. The return on average assets increased
to 0.66% for the quarter ended September 30, 2004 from 0.55% for the same period
in 2003. The increase was primarily due to an increase in net interest income,
and a decrease in non-interest expense. Total interest income increased by
$149,000 or 4.8% to $3.2 million for the quarter ended September 30, 2004 as
compared to $3.1 million for the same quarter in 2003. The increase was due to a
$99,000 increase in income earned on securities, and a $51,000 increase in
income earned on interest earning deposits. Interest income on securities
increased due to increased average balances for the comparable quarters ending
September 30, 2004 and 2003. The average balance for securities for the three
months ended September 30, 2004 was $60.7 million with an average yield of 3.96%
compared to an average balance of $48.1 million with an average yield of 4.18%
for the same quarter in 2003. Interest income on interest earning deposits
increased to $256,000 or 24.9% for the quarter ended September 30, 2004 compared
to $205,000 for the same period in 2003. The increase was primarily due to a
higher average yield on interest-bearing deposits during the quarter ended
September 30, 2004 when compared to the same quarter in 2003. The average yield
on interest earning deposits was 4.16% for the quarter ended September 30, 2004
compared to 3.43% for the same quarter in 2003. Average interest earning assets
were $255.0 million and $229.1 million during the comparative 2004 and 2003
quarters while the average yield was 5.08% and 5.39%, respectively.
Total interest expense increased $101,000 to $1.4 million at September 30, 2004
from $1.3 million at September 30, 2003. Interest expense on Federal Home Loan
Bank ("FHLB") advances increased by $105,000 or 48.4% to $322,000 for the
quarter ended September 30, 2004 from $217,000 for the same quarter in 2003.
This was due to an increase in the average FHLB advance balance for the quarter
ended September 30, 2004 compared to the same quarter in 2003. The average FHLB
advance balance was $31.4 million for an average cost of 4.11% for the quarter
ended September 30, 2004 compared to an average balance of $18.5 million for an
average cost of 4.69% for the same quarter in 2003. The average cost of deposits
at September 30, 2004 was 2.08% as compared to 2.24% at September 30, 2003. The
average cost of interest-bearing liabilities decreased to 2.35% for the three
months ended September 30, 2004 from 2.46% for the same period ended 2003.
Our net interest rate spread decreased 21 basis points to 2.72% for the quarter
ended September 30, 2004 from 2.93% for the same period in 2003, while our net
interest margin decreased 25 basis points to 2.95% for the quarter ended
September 30, 2004 from 3.20% for the same period in September 30, 2003. The
ratio of average interest-earning assets to average interest-bearing liabilities
declined to 110.48% for the three months ended September 30, 2004 from 112.06%
for the same period in 2003.
There was no increase to the provision for loan losses for the three months
ended September 30, 2004 or September 30, 2003. However, there were $57,000 in
loan loss recoveries during the three months ended September 30, 2004, and
$10,000 in recoveries during the three months ended September 30, 2003. Loan
provisions made are to maintain the allowance to reflect management's estimates
of losses inherent in our loan portfolio. 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 September 30, 2004 and December 31, 2003, our allowance for loan
losses was $1.9 million and $2.0 million or 1.15% and 1.24% of total loans,
respectively. Non-performing assets as a percentage of total assets was 0.37% at
September 30, 2004 and 0.49% at December 31, 2003. The allowance for loan losses
to non-performing loans was 190.16% and 172.71% at September 30, 2004 and
December 31, 2003, respectively.
9
Noninterest income increased $3,000 to $300,000 for the quarter ended September
30, 2004 from $297,000 for the comparable quarter in 2003. The increase in
noninterest income was the result of a $14,000 increase in service charges on
accounts, offset by a $9,000 decrease in other noninterest income. The increase
in service charges on accounts is primarily due to an increase in prepayment
penalties charged and fees charged on NOW accounts. The decrease in other
noninterest income was partially due to a decrease in gains from the sale of MBS
securities.
Noninterest expense decreased by $93,000 to $1.5 million at September 30, 2004
when compared to $1.6 million for the comparable quarter in 2003. Salaries and
benefits decreased $41,000, occupancy cost decreased $19,000, and other
noninterest expense decreased $52,000, offset by advertising and promotion
costs, which increased $27,000. The decrease in salaries and benefits was
primarily due to the death of the Executive Vice-President and the resignation
of a higher earning employee. Occupancy costs decreased due to lower repair and
maintenance costs on the building and lower estimated real estate taxes for the
quarter ended September 30, 2004 when compared to the same quarter in the prior
year. Other noninterest expense decreased due to reductions in legal expense,
stationary, printing and office supplies, and postage expense during the quarter
ended September 30, 2004 when compared to the same quarter in the prior year.
The increase in advertising and promotion costs occurred due to various deposit
program specials offered during the quarter ended September 30, 2004
Our federal and state taxes increased $80,000 to $267,000 for the quarter ended
September 30, 2004 from $187,000 in the same period of 2003. This is primarily
the result of higher pretax income for the quarter ended September 30, 2004.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2004 AND SEPTEMBER
30, 2003
Net income increased $35,000 to $1.1 million for the nine months ended September
30, 2004 compared to the same period in 2003. The return on average assets
decreased slightly to 0.60% for the nine months ended September 30, 2004 from
0.62% for the comparable period in 2003. The increase in net income resulted
from an increase in net interest income, offset by a decrease in noninterest
income.
Net interest income was $5.7 million for the nine months ended September 30,
2004 compared to $5.5 million for the same period in 2003. The increase in net
interest income was primarily due to increased average interest earning assets.
The net interest rate spread decreased to 2.85% for the nine months ended
September 30, 2004 from 2.91% for the comparable period ended September 30,
2003, while the net interest margin decreased to 3.10% for the nine months ended
September 30, 2004 from 3.20% for the nine months ended September 30, 2003. The
decrease in the net interest rate spread and net interest margin was due to the
decrease in the yield on interest-earning assets exceeding the decrease in the
cost of funds. The average yield in interest-earning assets decreased to 5.14%
for the nine months ended September 30, 2004 from 5.45% for the same period in
2003, while the average yield on interest-bearing liabilities decreased to 2.29%
for the nine months ended September 30, 2004 from 2.91% for the same period
ended 2003.
We did not increase the provision for loan losses during the nine months ended
September 30, 2004 or 2003. However, there were $72,000 in loan loss recoveries
during the nine months ended September 30, 2004, and $61,000 in recoveries
during the nine months ended September 30, 2003. Management does not feel that
additional loan loss provisions are warranted at this time, however, should any
unforeseen risks present themselves, management may need to increase the
provision in the future.
Noninterest income decreased to $682,000 for the nine months ended September 30,
2004 from $855,000 for the comparable period in 2003. The $173,000 decrease was
the result of a $69,000 reduction in insurance commission income, a $25,000
reduction in service charge income, and a $79,000 reduction in other
non-interest income for the nine months ended September 30, 2004 when compared
to the nine months ended September 30, 2003. The decrease in insurance
commissions reflects lower sales of variable- and fixed-rate
10
annuities due to customer's reluctance to enter the market at a time of
historically low interest rates, as well as reduced staffing in the department
during the nine-month period ended September 30, 2004 when compared to the same
period in 2003. 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 noninterest income was primarily due to a decrease in gains from the
sale of loans and a decrease in gains on the sale of MBS securities.
Noninterest expense decreased marginally by $4,000 to $4.6 million for the nine
months ended September 30, 2004. Occupancy costs decreased $77,000 for the
comparable periods, while advertising and promotion costs increased $63,000 for
the nine month period ended September 30, 2004 compared to the same period in
2003. Salaries and benefits, data processing costs and other noninterest expense
remained fairly stable when comparing the two nine month periods ended September
30, 2004 and September 30, 2003, with a less than 10% fluctuation in the
comparative year to date balances. Occupancy costs decreased during the nine
months ended September 30, 2004 when compared to the same period in 2003
primarily due to a revision of the estimation of real estate taxes on our
facility in Orland Park. The increase in advertising and promotion costs
occurred due to various deposit program specials offered during the nine months
ended September 30, 2004 as compared to the nine months ended September 30,
2003.
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
September 30, 2004, cash and cash equivalents totaled $25.3 million. At
September 30, 2004, the Bank had commitments to fund loans of $9.2 million,
available lines of credit of $14.4 million, and standby letters of credit of
$63,000. At September 30, 2004, certificates of deposit represented 49.5% of
total deposits. The Bank expects to retain these deposit accounts. In addition,
the Bank has borrowing capacity for an additional $52.2 million from the FHLB
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 September 30, 2004:
ACTUAL REQUIRED EXCESS
------ -------- ------
(Dollars in thousands) AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ ---
Core capital
(to adjusted total assets) $ 29,246 10.7% $ 10,928 4.0% $ 18,318 6.7%
Risk-based capital
to (risk-weighted assets) 30,906 23.3 10,601 8.0 20,305 15.3
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 the current
low interest rate environment we have kept our purchases of investments in fixed
rate notes and bonds to maturities within two to three years. In addition, we
may emphasize fixed rate mortgages that mature in fifteen years or less by
offering very competitive interest rates on those products while not being as
aggressive in pricing those mortgages that mature in greater than fifteen years.
We also offer one-, three- five-, and seven-year adjustable rate mortgage loans,
and three- and five-year balloon loans. However, 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.
The table below sets forth as of June 30, 2004 (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 anticipates that the September 30, 2004 Net
Portfolio Value will be similar to the June 30, 2004 table shown below.
12
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 27,401 -11,001 -29% 10.89% -337 bp
200 31,089 -7,313 -19% 12.08% -218 bp
100 34,810 -3,592 -9% 13.22% -104 bp
Static 38,402 -- -- 14.26% --
-100 40,620 2,218 6% 14.83% 57 bp
-200 -- -- -- --
-300 -- -- -- --
The table above indicates that at June 30, 2004, in the event of a 200 basis
point increase in interest rates, we would experience a 19.0% decrease in net
portfolio value. A 100 basis point decrease in interest rate would result in a
6.0% 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. CONTROLS 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 ISSUER PURCHASES OF EQUITY
SECURITIES.
The Company's second repurchase plan was announced on May 18, 2004
and allows for the repurchase of 117,000 shares of the Company's
stock, which represented approximately 5% of the Company's
outstanding shares.
Issuer purchases of equity securities during the prior three months:
Maximum
Total number number of
of shares shares that may
purchased be purchased
Total Average under publicly under the
number shares price paid announced repurchase
purchased per share plan plan
--------- --------- ---- ----
July 1 - July 31 375 $ 22.85 75,525 117,000
August 1 - August 31 -- -- 75,525 117,000
September 1 - September 30 -- -- 75,525 117,000
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 June 30, 2004 financial
results by press release. The press release was included
as an exhibit and filed on July 22, 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: November 9, 2004 /s/ Thomas R. Butkus
--------------------------------------
Thomas R. Butkus
Chief Executive Officer and
Chairman of the Board
Date: November 9, 2004 /s/ Lyn G. Rupich
--------------------------------------
Lyn G. Rupich
President and Chief Operating Officer
15