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, 2005
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 May 5, 2005 the Registrant had outstanding 2,230,028 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 11
Item 4. Controls and Procedures 12
PART II - Other Information
Item 1. Legal Proceedings 13
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Securities Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
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,
2005 2004
---- ----
ASSETS
Cash and cash equivalents
Cash and due from banks (interest-earning: 2005 -
$7,635; 2004 - $10,751) $ 12,993 $ 13,717
Federal funds sold 2,459 3,314
---------- ----------
Total cash and cash equivalents 15,452 17,031
Certificates of deposit 9,783 9,783
Securities available-for-sale 65,508 61,483
Securities held-to-maturity 324 132
Loans, net 158,180 163,291
Federal Home Loan Bank stock, at cost 8,133 12,459
Premises and equipment 4,701 4,760
Accrued interest receivable 983 969
Other assets 994 961
---------- ----------
Total assets $ 264,058 $ 270,869
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits $ 192,816 $ 198,056
Federal Home Loan Bank advances 35,750 36,250
Advance payments by borrowers for taxes and insurance 1,286 1,795
Accrued interest payable and other liabilities 4,463 4,238
---------- ----------
Total liabilities 234,315 240,339
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, 2005 and December 31, 2004 24 24
Treasury stock (208,393 shares at March 31, 2005; 177,464
shares at December 31, 2004) (4,819) (4,075)
Additional paid in capital 10,785 10,830
Unearned ESOP shares (142) (189)
Unearned stock awards (632) (682)
Retained earnings 25,208 24,837
Accumulated other comprehensive income (loss) (681) (215)
---------- ----------
Total stockholders' equity 29,743 30,530
---------- ----------
Total liabilities and stockholders' equity $ 264,058 $ 270,869
========== ==========
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,
---------------------------------
2005 2004
---- ----
Interest and dividend income
Loans $ 2,341 $ 2,325
Securities 597 468
Interest-earning deposits and other 323 234
Federal funds sold 15 12
----------- -----------
Total interest income 3,276 3,039
Interest expense
Deposits 1,066 942
Federal Home Loan Bank
advances and other 373 203
----------- -----------
Total interest expense 1,439 1,145
----------- -----------
Net interest income 1,837 1,894
Provision for loan losses (34) --
----------- -----------
Net interest income after provision for loan losses 1,871 1,894
Noninterest income
Service fees 142 103
Insurance commissions 50 48
Other 52 37
----------- -----------
Total noninterest income 244 188
Noninterest expense
Compensation and employee benefits 871 913
Occupancy expense 206 153
Data processing expense 103 102
Advertising and promotion 101 87
Other 256 265
----------- -----------
Total noninterest expense 1,537 1,520
----------- -----------
Income before income taxes 578 562
Income taxes 207 203
----------- -----------
Net income $ 371 $ 359
=========== ===========
Earnings per share
Basic $ 0.17 $ 0.16
Diluted $ 0.17 $ 0.15
Weighted average shares - Diluted 2,238,632 2,347,945
Comprehensive income $ (95) $ 356
=========== ===========
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,
------------------
2005 2004
---- ----
Cash flows from operating activities
Net income $ 371 $ 359
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation 77 82
Provision for loan losses (34) --
Premium amortization, net 23 19
Stock award compensation expense 50 91
ESOP compensation expense 113 126
Federal Home Loan Bank stock dividends (174) (221)
Changes in
Accrued interest receivable and other assets 248 253
Accrued interest payable and other liabilities 114 (188)
-------- --------
Net cash from operating activities 788 521
Cash flows from investing activities
Securities available-for-sale
Purchases (8,583) (10,192)
Maturities and principal payments 3,774 3,763
Securities held-to-maturity
Purchases (200) --
Maturities and principal payments 8 9
Loan originations, net 5,145 (3,340)
Proceeds from sale of other real estate -- 21
Purchase of equipment (18) (34)
Sale of Federal Home Loan Bank stock 4,500 --
-------- --------
Net cash from investing activities 4,626 (9,773)
Cash from financing activities
Net change in deposits (5,240) 2,600
Net change in Federal Home Loan Bank advances (500) 4,400
Purchase of treasury stock (744) (113)
Net change in advance payments by borrowers for taxes and insurance (509) (462)
-------- --------
Net cash from financing activities (6,993) 6,425
-------- --------
Net change in cash and cash equivalents (1,579) (2,827)
Cash and cash equivalents at beginning of period 17,031 19,801
-------- --------
Cash and cash equivalents at end of period $ 15,452 $ 16,974
======== ========
See notes to consolidated financial statements.
3
AJS Bancorp, Inc.
Consolidated Statements of Stockholders' Equity
Three months ended March 31, 2005
(in thousand of dollars)
(unaudited)
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) --
ESOP Put Option -- (299) -- --
ESOP shares earned -- 79 -- --
Stock awards earned -- -- -- 91
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)
ESOP Put Option -- -- -- (299)
ESOP shares earned 47 -- -- 126
Stock awards earned -- -- -- 91
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
======== ======== ======== ========
Additional Unearned
Common Paid-in Treasury Stock
Stock Capital Stock Awards
----- ------- ----- ------
Balance at December 31, 2004 $ 24 $ 10,830 $ (4,075) $ (682)
Purchase of 30,929 shares of treasury stock -- -- (744) --
ESOP shares earned -- 66 -- --
Stock awards earned -- -- -- 50
ESOP put option -- (111) -- --
Comprehensive income
Net income -- -- -- --
Change in unrealized gain on securities --
available-for-sale, net of taxes -- -- -- --
Total comprehensive income
-------- -------- -------- --------
Balance at March 31, 2005 $ 24 $ 10,785 $ (4,819) $ (632)
======== ======== ======== ========
Accumulated
Unearned Other Total
ESOP Retained Comprehensive Stockholders'
Shares Earnings Income (Loss) Equity
------ -------- ------------- ------
Balance at December 31, 2004 $ (189) $ 24,837 $ (215) $ 30,530
Purchase of 30,929 shares of treasury stock -- -- -- (744)
ESOP shares earned 47 -- -- 113
Stock awards earned -- -- -- 50
ESOP put option -- -- -- (111)
Comprehensive income
Net income -- 371 -- 371
Change in unrealized gain on securities
available-for-sale, net of taxes -- -- (466) (466)
--------
Total comprehensive income (95)
-------- -------- -------- --------
Balance at March 31, 2005 $ (142) $ 25,208 $ (681) $ 29,743
======== ======== ======== ========
See notes to consolidated financial statements.
4
AJS BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2005
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 U.S. generally accepted accounting principles
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, 2004 balance
sheet presented herein has been derived from the audited consolidated financial
statements included in the Company's Annual Report on Form 10-K, but does not
include all of the disclosures required by U. S. generally accepted accounting
principles.
Interim statements are subject to possible adjustment in connection with the
annual audit of the Company for the year ending December 31, 2005. 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 months ended March 31, 2005 and 2004 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,
2005 and 2004 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,
---------------
2005 2004
---- ----
(in thousands, except
per share data)
Basic
Net income $ 371 $ 359
=========== =========
Weighted average common shares
outstanding 2,211 2,310
=========== =========
Basic earnings per common share $ 0.17 $ 0.16
========== =========
5
For the Three Months
Ended March 31,
---------------
2005 2004
---- ----
(in thousands, except
per share data)
Diluted
Net income $ 371 $ 359
=========== =========
Weighted average common shares
outstanding 2,211 2,310
Dilutive effect of stock awards 5 8
Dilutive effect of stock options 23 30
=========== =========
Diluted average common shares 2,239 2,348
=========== =========
Diluted earnings per common share $ 0.17 $ 0.15
=========== =========
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. No option was granted or exercised during the three months
ended March 31, 2005 or 2004.
A summary of the status of the Company's stock option plan and changes during
the three months ended March 31, 2005 and 2004 is presented below:
For the Three Months
Ended March 31,
--------------------------------------------------
2005 2004
---- ----
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding at beginning of period 112,685 $ 18.75 114,685 $ 18.75
Forfeited (800) 18.75 (2,000) 18.75
-------- -------- -------- --------
Outstanding at end of period 111,885 $ 18.75 112,685 $ 18.75
======== ======== ======== ========
2005 2004
---- ----
Options exercisable at end of period 26,537 6,000
Average remaining option term 8.1 years 9.1 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 months ended March 31,
2005 and 2004, respectively 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 option's vesting period.
For the Three Months
Ended March 31,
---------------
2005 2004
---- ----
(in thousands, except
per share data)
Net income as reported $ 371 $ 359
Pro forma net income 365 353
Earnings per share as reported
Basic 0.17 0.16
Diluted 0.17 0.15
Pro forma earnings per share
Basic 0.17 0.15
Diluted 0.16 0.15
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 $50,000 and $91,000 for the three months ended March 31, 2005 and
2004, 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
March 31, 2005 to its financial condition at December 31, 2004 and the results
of operations for the three-month period ended March 31, 2005 to the same period
in 2004. This discussion should be read in conjunction with the interim
financial statements and footnotes included herein.
FINANCIAL CONDITION
Total assets at March 31, 2005 were $264.1 million compared to $270.9 million at
December 31, 2004, a decrease of $6.8 million, or 2.5%. The decrease in total
assets primarily reflects decreases in cash and cash equivalents, loans
receivable, and Federal Home Loan Bank ("FHLB") stock. Cash and cash equivalents
decreased $1.6 million or 9.3% to $15.4 million from $17.0 million. Loans
receivable decreased $5.1 million to $158.2 million at March 31, 2005 from
$163.3 million at December 31, 2004. The decrease in loans occurred in the
conventional fixed-rate and home equity type mortgage loan types. This is
primarily due to seasonal reductions in loan volume that generally occur during
the first quarter of year, as well as reductions in refinancing activity. FHLB
stock decreased $4.3 million or 34.7% to $8.1 million at March 31, 2005 from
$12.4 million at December 31, 2005. The Company decreased its investment in FHLB
stock due to uncertainty regarding the payment and level of the FHLB dividend.
There was no gain or loss recorded on the sale of the FHLB stock.
The Company had non-performing assets of $677,000 as of March 31, 2005 and
$983,000 as of December 31, 2004. The allowance for loan losses was $1.8 million
at March 31, 2005 and December 31, 2004. This represents a ratio of allowance
for loan losses to gross loans receivable of 1.15% at March 31, 2005 and 1.12%
at December 31, 2004. The allowance for loan losses to non-performing loans was
270.61% at March 31, 2005 compared to 187.89% at December 31, 2004.
Total liabilities at March 31, 2005 were $234.1 million compared to $240.3
million at December 31, 2004, a decrease of $6.2 million, reflecting decreases
in deposits, FHLB advances, and advance payments by borrowers for taxes and
insurance. Total deposits decreased $5.3 million, or 2.6%, to $192.8 million at
March 31, 2005 from $198.1 million at December 31, 2004. This decrease was
primarily in certificates of deposits and money market accounts. FHLB advances
decreased to $35.8 million at March 31, 2005 from $36.3 million at December 31,
2004. Advance payments by borrowers for taxes and insurance decreased $509,000
to $1.3 million at March 31, 2005 from $1.8 million at December 31, 2004. This
decrease was the result of normal timing differences associated with the
payments for county real estate taxes.
Total stockholders' equity decreased to $29.9 million at March 31, 2005 from
$30.5 million at December 31, 2004. The decrease in stockholders' equity was
primarily due to the repurchase of 30,929 shares of the Company's stock at an
average price of $24.03 per share, combined with a decrease in other
comprehensive income. An increase to the Company's second repurchase plan was
announced on March 22, 2005. This allows for an additional 100,000 shares to be
added to the current stock repurchase program. The Company had previously
authorized the repurchase of 117,000 shares of the Company's stock on May 18,
2004. Other comprehensive income decreased due to a decrease in the market value
of securities available for sale. Repurchased shares are classified as treasury
shares, but 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 MARCH 31, 2005 AND
MARCH 31, 2004
Net income increased $12,000 to $371,000 for the quarter ended March 31, 2005
compared to the same period in 2004. The return on average assets increased to
0.61% for the quarter ended March 31, 2005 from 0.59% for the same period in
2004. The increase was due to an increase in non-interest income, offset by a
decrease in net interest income and an increase in non-interest expense. Total
interest income increased by $237,000 or 7.8% to $3.3 million for the quarter
ended March 31, 2005 as compared to $3.0 million for the same quarter
8
in 2004. The increase was due to a $129,000 increase in income earned on
securities, and a $89,000 increase in income earned on interest earning
deposits. Interest income on securities and interest-earning deposits both
increased due to higher average balances for the comparable quarters ending
March 31, 2005 and 2004. The average balance for securities for the three months
ended March 31, 2005 was $66.2 million with an average yield of 3.55% compared
to an average balance of $46.6 million with an average yield of 4.02% for the
same quarter in 2004. The average balance for interest-earning deposits for the
three months ended March 31, 2005 was $29.0 million with an average yield of
4.46% compared to an average balance of $19.5 million with an average yield of
4.83% for the same quarter in 2004. The average yields were down primarily due
to securities and interest-earning deposits continuing downwards as the assets
matured and were replaced at lower interest rates. Average interest earning
assets were $259.7 million and $231.4 million during the comparative 2005 and
2004 quarters while the average yield was 5.03% and 5.26%, respectively.
Total interest expense increased $294,000 to $1.4 million at March 31, 2005 from
$1.1 million at March 31, 2004. Interest expense on Federal Home Loan Bank
("FHLB") advances increased by $170,000 or 83.7% to $373,000 for the quarter
ended March 31, 2005 from $203,000 for the same quarter in 2004. This was due to
an increase in the average FHLB advance balance for the quarter ended March 31,
2005 compared to the same quarter in 2004. The average FHLB advance balance was
$36.1 million and the average cost was 4.13% for the quarter ended March 31,
2005 compared to an average balance of $18.4 million and an average cost of
4.42% for the same quarter in 2004. The average cost of deposits at March 31,
2005 was 2.19% as compared to 2.04% at March 31, 2004. The average cost of
interest-bearing liabilities increased to 2.49% for the three months ended March
31, 2005 from 2.25% for the same period ended 2004.
Our net interest rate spread decreased 46 basis points to 2.54% for the quarter
ended March 31, 2005 from 3.00% for the same period in 2004, while our net
interest margin decreased 46 basis points to 2.82% for the quarter ended March
31, 2005 from 3.28% for the same period in March 31, 2004. The ratio of average
interest-earning assets to average interest-bearing liabilities declined to
112.48% for the three months ended March 31, 2005 from 113.77% for the same
period in 2004.
The Company recorded a $34,000 negative provision for the three months ended
March 31, 2005, and no provision for the three months ended March 31, 2004. The
negative provision was due to a combination of $34,000 in loan loss recoveries
and our review of losses inherent in our loan portfolio. 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 March
31, 2005 and December 31, 2004, our allowance for loan losses was $1.8 million
or 1.15% and 1.12% of total loans, respectively. Non-performing assets as a
percentage of total assets was 0.26% at March 31, 2005 and 0.36% at December 31,
2004. The allowance for loan losses to non-performing loans was 270.61% and
187.89% at March 31, 2005 and December 31, 2004, respectively.
Noninterest income increased $56,000 to $244,000 for the quarter ended March 31,
2005 from $188,000 for the comparable quarter in 2004. The increase in
noninterest income was primarily the result of a $39,000 increase in service
charges on accounts and a $15,000 increase in other noninterest income. The
increase in service charges on accounts is primarily due to an increase in
prepayment penalties on commercial loans due to an early pay off of the loan and
an increase in debit card revenues. The increase in debit card revenues is due
to the Company's customer base becoming more familiar with and using the debit
cards more often since their introduction in September of 2003. The increase in
other noninterest income was primarily due to an increase in rental income and
correspondent fees.
Noninterest expense increased by $17,000 to $1.5 million for the quarters ended
March 31, 2005 and March 31, 2004. Occupancy cost increased $53,000 and
advertising and promotion costs increased $14,000 for the quarter ended March
31, 2005 when compared to the quarter ended March 31, 2004. These increases were
offset by a decrease in salaries and benefits of $42,000 for the comparable
quarters. Salaries and employee benefits decreased primarily due to a reduction
in the number of full time equivalent employees to 62 at
9
March 31, 2005 from 66 at March 31, 2004. The increase in occupancy costs was
due to an increase in real estate taxes. The increase in advertising and
promotions costs occurred due to various deposit program specials offered during
the quarter ended March 31, 2005.
Our federal and state taxes increased $4,000 to $207,000 for the quarter ended
March 31, 2005 from $203,000 in the same period of 2004. This is primarily the
result of higher pretax income for the quarter ended March 31, 2005.
NEW ACCOUNTING PRONOUNCEMENTS
Effect of Newly Issued But Not Yet Effective Accounting Standards: In April of
2005 the Securities and Exchange Commission has postponed the effectiveness of
FASB 123R Share-Based Payments until the fiscal year starting after June 15,
2005. For the Company this standard will be effective in the first quarter of
2006 and will require the expensing of stock options. The future impact of
adopting of this standard cannot be predicted and is based on the future
granting of options and the values of these options.
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, 2005, cash and cash equivalents totaled $15.4 million. At March 31,
2005, the Bank had commitments to fund loans of $10.0 million, available lines
of credit of $13.6 million, and standby letters of credit of $88,000. At March
31, 2005, certificates of deposit represented 58.0% of total deposits. The Bank
expects to retain these deposit accounts. In addition, the Bank has borrowing
capacity for an additional $38.6 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 March 31, 2005:
ACTUAL REQUIRED EXCESS
------ -------- ------
(Dollars in thousands) AMOUNT % AMOUNT % AMOUNT %
------ - ------ - ------ -
Core capital
(to adjusted total assets) $ 28,889 10.9% $ 10,619 4.0% $ 18,318 6.9%
Risk-based capital
to (risk-weighted assets) 30,494 23.8 10,256 8.0 20,305 15.8
10
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 December 31, 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 March 31, 2005 Net
Portfolio Value will be similar to the December 31, 2004 table shown below.
11
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 29,858 -8,272 -22% 11.19% -233 bp
200 32,911 -5,219 -14% 12.09% -143 bp
100 35,837 -2,293 -6% 12.92% -60 bp
Static 38,130 -- -- 13.52% --
-100 38,776 646 2% 13.59% 7 bp
-200 -- -- -- --
-300 -- -- -- --
The table above indicates that at December 31, 2004, in the event of a 200 basis
point increase in interest rates, we would experience a 14.0% 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. 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.
12
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.
An increase to the Company's second repurchase plan was announced on
March 22, 2005. This allows for an additional 100,000 shares to be
added to the current stock repurchase program. The Company had
previously authorized the repurchase of 117,000 shares of the
Company's stock on May 18, 2004.
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
--------- --------- ---- ----
January 1 - January 31 1,500 $ 23.85 77,525 217,000
February 1 - February 28 2,229 24.24 79,754 217,000
March 1 - March 31* 27,200 24.05 106,954 217,000
*Includes 8,000 shares purchased during March 2005, settled in April 2005.
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
31.1 Certification of Chief Executive Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of President Pursuant to Section 302
of the
13
Sarbanes-Oxley Act of 2002.
31.3 Certification of Chief Financial Officer Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
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, 2005 /s/ Thomas R. Butkus
-------------------------------------
Thomas R. Butkus
Chief Executive Officer and
Chairman of the Board
Date: May 13, 2005 /s/ Lyn G. Rupich
-------------------------------------
Lyn G. Rupich
President and Chief Operating Officer
15