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Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2015

 

OR

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from          to          

 

000-55083

(Commission File Number)

 

AJS BANCORP, INC.

(Exact name of Registrant as Specified in its Charter)

 

Maryland

 

90-1022599

(State or Other Jurisdiction of

 

(I.R.S. Employer Identification Number)

Incorporation or Organization)

 

 

 

14757 S. Cicero Ave.

Midlothian, IL 60445

(708) 687-7400

(Address, including Zip Code and Telephone Number, including Area Code

of Registrant’s Principal Executive Officers)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer o

 

 

 

Accelerated filer o

 

 

 

 

 

Non-accelerated filer o (do not check if smaller reporting company)

 

Smaller reporting company x

 

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

 

Registrant had 2,195,457 common shares outstanding at November 12, 2015

 

 

 



Table of Contents

 

AJS BANCORP, INC.

FORM 10-Q

Table of Contents

 

 

 

Page

 

 

Number

 

 

PART I - Financial Information

 

 

 

Item 1. Financial Statements (Unaudited)

 

 

 

Consolidated Statements of Financial Condition

1

Consolidated Unaudited Statements of Operations

2

Consolidated Unaudited Statements of Comprehensive Income (Loss)

3

Consolidated Unaudited Statements of Cash Flows

4

Consolidated Unaudited Statements of Stockholders’ Equity

6

Notes to Consolidated Unaudited Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

52

Item 4.

Controls and Procedures

52

 

 

PART II - Other Information

 

 

 

 

Item 1.

Legal Proceedings

52

Item 1A.

Risk Factors

52

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

52

Item 3.

Defaults Upon Senior Securities

53

Item 4.

Mine Safety Disclosures

53

Item 5.

Other Information

53

Item 6.

Exhibits

53

Signatures

 

54

 



Table of Contents

 

AJS BANCORP, INC.

 

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

(Dollars in thousands, except per share data)

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

29,807

 

$

32,898

 

Securities available-for-sale

 

48,085

 

54,214

 

Securities held-to-maturity (fair value: 2015 -$333; 2014 - $341)

 

327

 

331

 

Loans, net (allowance: 2015 — $1,085; 2014 - $1,103)

 

115,697

 

114,130

 

Federal Home Loan Bank stock

 

1,291

 

1,768

 

Premises and equipment

 

3,517

 

3,623

 

Bank-owned life insurance

 

5,849

 

5,706

 

Other real estate owned

 

1,249

 

1,751

 

Accrued interest receivable

 

425

 

438

 

Other assets

 

2,736

 

2,664

 

 

 

 

 

 

 

Total assets

 

$

208,983

 

$

217,523

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

Liabilities

 

 

 

 

 

Deposits

 

$

166,534

 

$

166,249

 

Federal Home Loan Bank advances

 

5,000

 

12,000

 

Advance payments by borrowers for taxes and insurance

 

1,190

 

2,068

 

Other liabilities and accrued interest payable

 

2,530

 

3,084

 

Total liabilities

 

175,254

 

183,401

 

 

 

 

 

 

 

Employee Stock Ownership Plan (ESOP) repurchase obligation

 

988

 

909

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

Preferred stock, $.01 par value, 50,000,000 shares authorized; none issued

 

 

 

Common stock, $.01 par value, 100,000,000 shares authorized; 2,195,457 shares outstanding at September 30, 2015 and 2,218,863 shares outstanding at December 31, 2014

 

22

 

22

 

Additional paid-in capital

 

13,364

 

13,731

 

Retained earnings

 

20,832

 

21,126

 

Accumulated other comprehensive income (loss)

 

48

 

(20

)

Unearned stock awards

 

(475

)

(596

)

Unearned ESOP shares

 

(1,050

)

(1,050

)

Total stockholders’ equity

 

32,741

 

33,213

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

208,983

 

$

217,523

 

 

See accompanying notes to consolidated unaudited financial statements.

 

1



Table of Contents

 

AJS BANCORP, INC.

 

CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND SEPTEMBER 30, 2014

(Dollars in thousands, except per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Interest and dividend income:

 

 

 

 

 

 

 

 

 

Loans

 

$

1,127

 

$

1,151

 

$

3,367

 

$

3,561

 

Securities

 

169

 

199

 

513

 

660

 

Interest-earning deposits and other

 

18

 

19

 

53

 

48

 

Total interest income

 

1,314

 

1,369

 

3,933

 

4,269

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

144

 

176

 

438

 

503

 

Federal Home Loan Bank advances and other

 

33

 

84

 

114

 

260

 

Total interest expense

 

177

 

260

 

552

 

763

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

1,137

 

1,109

 

3,381

 

3,506

 

Provision for loan losses

 

 

207

 

130

 

687

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

1,137

 

902

 

3,251

 

2,819

 

 

 

 

 

 

 

 

 

 

 

Non-interest income:

 

 

 

 

 

 

 

 

 

Service fees

 

74

 

73

 

215

 

211

 

Rental income

 

18

 

18

 

56

 

56

 

Earnings on bank-owned life insurance

 

47

 

49

 

143

 

147

 

Security gains

 

 

56

 

74

 

123

 

Other real estate owned gains (losses)

 

 

740

 

(19

)

756

 

Other

 

31

 

21

 

94

 

52

 

Total non-interest income

 

170

 

957

 

563

 

1,345

 

 

 

 

 

 

 

 

 

 

 

Non-interest expense:

 

 

 

 

 

 

 

 

 

Compensation and employee benefits

 

551

 

655

 

1,749

 

1,766

 

Occupancy expense

 

211

 

173

 

576

 

537

 

Data processing expense

 

86

 

84

 

263

 

259

 

Advertising and promotion

 

20

 

9

 

42

 

38

 

Professional and regulatory

 

82

 

122

 

264

 

388

 

Postage and supplies

 

21

 

21

 

68

 

70

 

Bank security

 

29

 

28

 

89

 

89

 

Federal deposit insurance

 

47

 

48

 

143

 

184

 

Other real estate owned expense/impairment

 

87

 

42

 

324

 

67

 

Other

 

120

 

156

 

348

 

429

 

Total non-interest expense

 

1,254

 

1,338

 

3,866

 

3,827

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before income taxes

 

53

 

521

 

(52

)

337

 

Income tax expense (benefit)

 

6

 

192

 

(66

)

(1,699

)

 

 

 

 

 

 

 

 

 

 

Net income

 

$

47

 

$

329

 

$

14

 

$

2,036

 

Earnings per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

.02

 

$

0.15

 

$

.01

 

$

0.92

 

Diluted

 

$

.02

 

$

0.15

 

$

.01

 

$

0.92

 

 

See accompanying notes to consolidated unaudited financial statements.

 

2



Table of Contents

 

AJS BANCORP, INC.

 

CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND SEPTEMBER 30, 2014

(Dollars in thousands)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

47

 

$

329

 

$

14

 

$

2,036

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on securities available-for-sale:

 

 

 

 

 

 

 

 

 

Unrealized holding gains (losses) arising during the period

 

339

 

(170

)

187

 

460

 

Reclassification adjustment for (gains) losses included in net income

 

 

(56

)

(74

)

(123

)

Related income tax (expense) benefit

 

(132

)

91

 

(45

)

(134

)

Total other comprehensive income (loss)

 

207

 

(135

)

68

 

203

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income (loss)

 

$

254

 

$

194

 

$

82

 

$

2,239

 

 

See accompanying notes to consolidated unaudited financial statements.

 

3



Table of Contents

 

AJS BANCORP, INC.

 

CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS

NINE MONTHS ENDED SEPTEMBER 30, 2015 AND SEPTEMBER 30, 2014

 

(Dollars in thousands)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2015

 

2014

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

14

 

$

2,036

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities

 

 

 

 

 

Depreciation

 

142

 

176

 

Provision for loan losses

 

130

 

687

 

Net amortization of securities

 

184

 

196

 

Stock award and option expense

 

115

 

54

 

Earnings on bank-owned life insurance

 

(143

)

(147

)

(Gain) loss on sale of securities available-for-sale

 

(74

)

(123

)

(Gain) loss on the sale of other real estate owned

 

19

 

(756

)

Other real estate owned impairment

 

359

 

86

 

Reversal of valuation allowance on deferred taxes

 

 

(1,701

)

Changes in:

 

 

 

 

 

Accrued interest receivable and other assets

 

(59

)

(80

)

Accrued interest payable and other liabilities

 

(598

)

(34

)

Net cash provided by operating activities

 

89

 

394

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Securities available-for-sale

 

 

 

 

 

Purchases

 

(20,959

)

(21,964

)

Sales

 

3,306

 

11,297

 

Calls, maturities and principal payments

 

23,788

 

17,163

 

Loan originations, purchases and repayments, net

 

(2,016

)

4,724

 

Proceeds from sale of other real estate

 

455

 

1,959

 

Improvements to other real estate owned

 

(12

)

 

Purchase of equipment, net

 

(36

)

(211

)

Net cash provided by investing activities

 

4,526

 

12,968

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net change in deposits

 

285

 

(1,510

)

Maturities of FHLB advances

 

(7,000

)

(3,000

)

Redemption of FHLB stock

 

477

 

 

Repurchase of common stock

 

(282

)

(681

)

Dividends paid on common stock

 

(308

)

(925

)

Net change in advance payments by borrowers for taxes and insurance

 

(878

)

(1,050

)

Net cash used in financing activities

 

(7,706

)

(7,166

)

 

See accompanying notes to consolidated unaudited financial statements.

 

4



Table of Contents

 

AJS BANCORP, INC.

 

CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS (Continued)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(3,091

)

6,196

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of year

 

32,898

 

22,281

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

29,807

 

$

28,477

 

 

 

 

 

 

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

Interest

 

$

569

 

$

771

 

Income taxes

 

 

1

 

 

 

 

 

 

 

Supplemental noncash disclosures:

 

 

 

 

 

Transfers from loans to real estate owned

 

$

319

 

$

86

 

Loans provided for sales of other real estate owned

 

 

$

25

 

Transfers of negative advance payment for borrower’s tax and insurance balances to loans

 

 

$

154

 

 

See accompanying notes to consolidated unaudited financial statements.

 

5



Table of Contents

 

AJS BANCORP, INC.

 

CONSOLIDATED UNAUDITED STATEMENTS OF STOCKHOLDERS’ EQUITY

NINE MONTHS ENDED SEPTEMBER 30, 2015 AND YEAR ENDED DECEMBER 31, 2014

(Dollars in thousands, except per share data)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

Unearned

 

Unearned

 

 

 

 

 

Common

 

Paid-In

 

Retained

 

Comprehensive

 

Stock

 

ESOP

 

 

 

 

 

Stock

 

Capital

 

Earnings

 

Income (Loss)

 

Awards

 

Shares

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2014

 

$

23

 

$

15,330

 

$

20,523

 

$

(405

)

$

 

$

(1,087

)

$

34,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of stock awards of 56,267 shares

 

1

 

674

 

 

 

(675

)

 

 

Stock awards earned

 

 

 

 

 

79

 

 

79

 

Stock options compensation

 

 

16

 

 

 

 

 

16

 

Common stock repurchases of 150,867 shares

 

(2

)

(2,039

)

 

 

 

 

(2,041

)

Reclassification due to changes in fair value of common stock in ESOP subject to contingent repurchase obligation

 

 

(263

)

 

 

 

 

(263

)

Net income

 

 

 

2,102

 

 

 

 

2,102

 

Cash dividends of $0.70

 

 

 

(1,499

)

 

 

 

(1,499

)

Other comprehensive income

 

 

 

 

385

 

 

 

385

 

ESOP shares earned shares

 

 

13

 

 

 

 

37

 

50

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

22

 

13,731

 

21,126

 

(20

)

(596

)

(1,050

)

33,213

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of stock awards of 6,000 shares

 

 

89

 

 

 

(89

)

 

 

Forfeited stock awards of 9,612 shares

 

 

(115

)

 

 

115

 

 

 

Issuance of 863 shares for exercise of 4,200 stock options, net of 3,337 shares surrendered

 

 

 

 

 

 

 

 

Stock awards earned

 

 

 

 

 

95

 

 

95

 

Stock options compensation

 

 

20

 

 

 

 

 

20

 

Common stock repurchases of 20,657 shares

 

 

(282

)

 

 

 

 

(282

)

Reclassification due to changes in fair value of common stock in ESOP subject to contingent repurchase obligation

 

 

(79

)

 

 

 

 

(79

)

Net income

 

 

 

14

 

 

 

 

14

 

Cash dividends of $0.15

 

 

 

(308

)

 

 

 

(308

)

Other comprehensive income

 

 

 

 

68

 

 

 

68

 

Balance at September 30, 2015

 

$

22

 

$

13,364

 

$

20,832

 

$

48

 

$

(475

)

$

(1,050

)

$

32,741

 

 

6



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 1 -BASIS OF PRESENTATION AND CONSOLIDATION

 

AJS Bancorp, Inc. (the “Company”), is a savings and loan holding company, the principal asset of which consists of its ownership of A.J. Smith Federal Savings Bank (the “Bank”). The Bank is a federally chartered savings bank with operations located in Midlothian and Orland Park, Illinois. The Bank provides single-family residential, home equity and commercial real estate loans to customers and accepts deposits from customers located in the southern suburbs of Chicago, Illinois. The consolidated financial statements included herein include the accounts of the Company and the Bank. All significant intercompany items have been eliminated.

 

On October 9, 2013, the Company completed a second step conversion and reorganization and sale of common stock. Prior to the completion of the second step conversion, the Company was a federal corporation and mid-tier holding company in the mutual holding company structure. Following the reorganization, the Company is the Maryland chartered holding company of the Bank.

 

The information contained in the accompanying consolidated financial statements is unaudited.  In the opinion of management, the consolidated financial statements contain all adjustments necessary for a fair statement of the results of operations for the interim periods. All such adjustments are of a normal recurring nature.  Any differences appearing between the numbers presented in the financial statements and management’s discussion and analysis are due to rounding.  The results of operations for the interim periods are not necessarily indicative of the results which may be expected for the entire year or for any other period.

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of income and expenses during the reported periods.  Actual results could differ from those estimates.

 

7



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 2 - SECURITIES

 

The fair value of securities available-for-sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income (loss) were as follows:

 

 

 

September 30, 2015

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored entities

 

$

8,000

 

$

4

 

$

(1

)

$

8,003

 

Residential agency mortgage-backed

 

40,006

 

217

 

(141

)

40,082

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

48,006

 

$

221

 

$

(142

)

$

48,085

 

 

 

 

December 31, 2014

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

U.S. government-sponsored entities

 

$

11,000

 

$

3

 

$

(10

)

$

10,993

 

Residential agency mortgage-backed

 

43,248

 

188

 

(215

)

43,221

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

54,248

 

$

191

 

$

(225

)

$

54,214

 

 

8



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 2 - SECURITIES (Continued)

 

The amortized cost, unrecognized gains and losses, and fair values of securities held-to-maturity were as follows:

 

 

 

September 30, 2015

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrecognized

 

Unrecognized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

Residential agency mortgage-backed

 

$

7

 

$

 

$

 

$

7

 

State and municipal

 

320

 

6

 

 

326

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

327

 

$

6

 

$

 

$

333

 

 

 

 

December 31, 2014

 

 

 

 

 

Gross

 

Gross

 

 

 

 

 

Amortized

 

Unrecognized

 

Unrecognized

 

Fair

 

 

 

Cost

 

Gains

 

Losses

 

Value

 

 

 

 

 

 

 

 

 

 

 

Residential agency mortgage-backed

 

$

11

 

$

 

$

 

$

11

 

State and municipal

 

320

 

10

 

 

330

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

331

 

$

10

 

$

 

$

341

 

 

9



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 2 - SECURITIES (Continued)

 

Expected maturities of securities at September 30, 2015 were as follows.  Securities not due at a single maturity date (mortgage-backed securities) are shown separately.

 

 

 

Available-for-Sale

 

Held-to-Maturity

 

 

 

Amortized

 

Fair

 

Amortized

 

Fair

 

 

 

Cost

 

Value

 

Cost

 

Value

 

 

 

 

 

 

 

 

 

 

 

Due after one year through five years

 

$

8,000

 

$

8,003

 

$

260

 

$

265

 

Due after five years through ten years

 

 

 

60

 

61

 

Residential agency mortgage-backed

 

40,006

 

40,082

 

7

 

7

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

48,006

 

$

48,085

 

$

327

 

$

333

 

 

Securities with a carrying value of approximately $8,836 and $10,161 at September 30, 2015 and December 31, 2014, respectively were pledged to secure public deposits and for other purposes as required or permitted by law.

 

The proceeds from sales of securities and the associated gains for the three and nine months ended September 30, 2015 and 2014 are listed below:

 

 

 

Three Months

 

Nine Months

 

Three Months

 

Nine Months

 

 

 

Ended

 

Ended

 

Ended

 

Ended

 

 

 

September 30,

 

September 30,

 

September 30,

 

September 30,

 

 

 

2015

 

2015

 

2014

 

2014

 

 

 

 

 

 

 

 

 

 

 

Proceeds from sale

 

$

 

$

3,306

 

$

3,889

 

$

11,297

 

Gross realized gains

 

 

74

 

56

 

123

 

 

10



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 2 - SECURITIES (Continued)

 

Securities with unrealized losses not recognized in income, by length of time that individual securities have been in a continuous unrealized loss position, are as follows:

 

 

 

September 30, 2015

 

 

 

Less Than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government- sponsored entities

 

$

1,999

 

$

(1

)

$

 

$

 

$

1,999

 

$

(1

)

Residential agency mortgage-backed

 

1,941

 

(3

)

11,080

 

(138

)

13,021

 

(141

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

$

3,940

 

$

(4

)

$

11,080

 

$

(138

)

$

15,020

 

$

(142

)

 

 

 

December 31, 2014

 

 

 

Less Than 12 Months

 

12 Months or More

 

Total

 

 

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

Fair

 

Unrealized

 

 

 

Value

 

Loss

 

Value

 

Loss

 

Value

 

Loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government- sponsored entities

 

$

4,992

 

$

(8

)

$

998

 

$

(2

)

$

5,990

 

$

(10

)

Residential agency mortgage-backed

 

3,112

 

(10

)

13,750

 

(205

)

16,862

 

(215

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total temporarily impaired

 

$

8,104

 

$

(18

)

$

14,748

 

$

(207

)

$

22,852

 

$

(225

)

 

Unrealized losses on securities have not been recognized because the issuer’s securities are of high credit quality (rated AA or higher), management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value was largely due to changes in interest rates.  The fair value is expected to recover as the securities approach maturity.

 

11



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 3 - LOANS

 

Loans were as follows:

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

Amount

 

Percent

 

Amount

 

Percent

 

Mortgage:

 

 

 

 

 

 

 

 

 

One—to-four family

 

$

100,701

 

86.3

%

$

97,214

 

84.4

%

Multi-family and commercial

 

8,791

 

7.5

 

9,493

 

8.3

 

Home equity

 

6,943

 

6.0

 

8,069

 

7.0

 

Consumer and other

 

214

 

0.2

 

349

 

0.3

 

 

 

 

 

 

 

 

 

 

 

 

 

116,649

 

100.0

%

115,125

 

100.0

%

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

(1,085

)

 

 

(1,103

)

 

 

Net deferred costs and other

 

133

 

 

 

108

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans, net

 

$

115,697

 

 

 

$

114,130

 

 

 

 

The following tables present the activity in the allowance for loan losses by portfolio segment:

 

 

 

For the Three Months Ended September 30, 2015

 

 

 

 

 

Multi-family

 

 

 

 

 

 

 

 

 

One—to-Four

 

and

 

Home

 

Consumer

 

 

 

 

 

Family

 

Commercial

 

Equity

 

and Other

 

Total

 

Allowances for loan losses:

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

846

 

$

214

 

$

20

 

$

 

$

1,080

 

Provision for loan losses

 

 

 

 

 

 

Charge-offs

 

(8

)

 

 

 

(8

)

Recoveries

 

13

 

 

 

 

13

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending allowance balance

 

$

851

 

$

214

 

$

20

 

$

 

$

1,085

 

 

12



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 3- LOANS (Continued)

 

 

 

For the Nine Months Ended September 30, 2015

 

 

 

 

 

Multi-family

 

 

 

 

 

 

 

 

 

One-to-Four

 

and

 

Home

 

Consumer

 

 

 

 

 

Family

 

Commercial

 

Equity

 

and Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowances for loan losses:

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

822

 

$

259

 

$

22

 

$

 

$

1,103

 

Provision for loan losses

 

172

 

(40

)

(2

)

 

130

 

Charge-offs

 

(160

)

(7

)

 

 

(167

)

Recoveries

 

17

 

2

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending allowance balance

 

$

851

 

$

214

 

$

20

 

$

 

$

1,085

 

 

 

 

For the Three Months Ended September 30, 2014

 

 

 

 

 

Multi-family

 

 

 

 

 

 

 

 

 

One—to-Four

 

and

 

Home

 

Consumer

 

 

 

 

 

Family

 

Commercial

 

Equity

 

and Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowances for loan losses:

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

925

 

$

253

 

$

25

 

$

1

 

$

1,204

 

Provision for loan losses

 

 

207

 

 

 

207

 

Charge-offs

 

(47

)

(160

)

 

 

(207

)

Recoveries

 

1

 

1

 

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending allowance balance

 

$

879

 

$

301

 

$

25

 

$

1

 

$

1,206

 

 

 

 

For the Nine Months Ended September 30, 2014

 

Allowances for loan losses:

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

823

 

$

466

 

$

109

 

$

1

 

$

1,399

 

Provision for loan losses

 

161

 

610

 

(84

)

 

687

 

Charge-offs

 

(108

)

(778

)

 

 

(886

)

Recoveries

 

3

 

3

 

 

 

6

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending allowance balance

 

$

879

 

$

301

 

$

25

 

$

1

 

$

1,206

 

 

13



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 3- LOANS (Continued)

 

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method:

 

 

 

September 30, 2015

 

 

 

 

 

Multi-Family

 

 

 

Consumer

 

 

 

 

 

One—to-Four

 

and

 

Home

 

and

 

 

 

 

 

Family

 

Commercial

 

Equity

 

Other

 

Total

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

214

 

$

 

$

 

$

 

$

214

 

Loans collectively evaluated for impairment

 

637

 

214

 

20

 

 

871

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending allowance balance

 

$

851

 

$

214

 

$

20

 

$

 

$

1,085

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

1,537

 

$

697

 

$

 

$

 

$

2,234

 

Loans collectively evaluated for impairment

 

99,164

 

8,094

 

6,943

 

214

 

114,415

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending loans balance

 

$

100,701

 

$

8,791

 

$

6,943

 

$

214

 

$

116,649

 

 

 

 

December 31, 2014

 

 

 

 

 

Multi-Family

 

 

 

Consumer

 

 

 

 

 

One-to-Four

 

and

 

Home

 

and

 

 

 

 

 

Family

 

Commercial

 

Equity

 

Other

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses:

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

234

 

$

 

$

 

$

 

$

234

 

Loans collectively evaluated for impairment

 

588

 

259

 

22

 

 

869

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending allowance balance

 

$

822

 

$

259

 

$

22

 

$

 

$

1,103

 

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

Loans individually evaluated for impairment

 

$

1,564

 

$

899

 

$

 

$

 

$

2,463

 

Loans collectively evaluated for impairment

 

95,650

 

8,594

 

8,069

 

349

 

112,662

 

 

 

 

 

 

 

 

 

 

 

 

 

Total ending loans balance

 

$

97,214

 

$

9,493

 

$

8,069

 

$

349

 

$

115,125

 

 

14



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 3- LOANS (Continued)

 

 

 

As of September 30, 2015

 

As of December 31, 2014

 

 

 

 

 

 

 

Allowance

 

 

 

 

 

Allowance

 

 

 

Unpaid

 

 

 

for Loan

 

Unpaid

 

 

 

for Loan

 

 

 

Principal

 

Recorded

 

Losses

 

Principal

 

Recorded

 

Losses

 

 

 

Balance

 

Investment

 

Allocated

 

Balance

 

Investment

 

Allocated

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

One—to-four family

 

$

401

 

$

288

 

$

 

$

410

 

$

297

 

$

 

Multi-family and commercial

 

987

 

697

 

 

1,185

 

899

 

 

Home equity

 

 

 

 

 

 

 

 

 

Consumer and other

 

 

 

 

 

 

 

Subtotal

 

1,388

 

985

 

 

1,595

 

1,196

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

One—to-four family

 

1,291

 

1,249

 

214

 

1,300

 

1,267

 

234

 

Multi-family and commercial

 

 

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

 

Consumer and other

 

 

 

 

 

 

 

Subtotal

 

1,291

 

1,249

 

214

 

1,300

 

1,267

 

234

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

2,679

 

$

2,234

 

$

214

 

$

2,895

 

$

2,463

 

$

234

 

 

 

 

For the Three Months

 

For the Three Months

 

 

 

Ended September 30, 2015

 

Ended September 30, 2014

 

 

 

Average

 

Interest

 

Cash

 

Average

 

Interest

 

Cash

 

 

 

Recorded

 

Income

 

Basis

 

Recorded

 

Income

 

Basis

 

 

 

Investment

 

Recognized

 

Recognized

 

Investment

 

Recognized

 

Recognized

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

One—to-four family

 

$

290

 

$

3

 

$

 

$

299

 

$

3

 

$

 

Multi-family and commercial

 

703

 

 

9

 

1,787

 

1

 

6

 

Home equity

 

 

 

 

 

 

 

 

Consumer and other

 

 

 

 

 

 

 

 

Subtotal

 

993

 

3

 

9

 

2,086

 

4

 

6

 

 

15



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 3 - LOANS (Continued)

 

 

 

For the Three Months

 

For the Three Months

 

 

 

Ended September 30, 2015

 

Ended September 30, 2014

 

 

 

Average

 

Interest

 

Cash

 

Average

 

Interest

 

Cash

 

 

 

Recorded

 

Income

 

Basis

 

Recorded

 

Income

 

Basis

 

 

 

Investment

 

Recognized

 

Recognized

 

Investment

 

Recognized

 

Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

One—to-four family

 

1,253

 

12

 

 

1,175

 

17

 

 

Multi-family and commercial

 

 

 

 

 

 

 

Home equity

 

 

 

 

 

 

 

 

Consumer and other

 

 

 

 

 

 

 

Subtotal

 

1,253

 

12

 

 

1,175

 

17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

2,246

 

$

15

 

$

9

 

$

3,261

 

$

21

 

$

6

 

 

 

 

For the Nine Months

 

For the Nine Months

 

 

 

Ended September 30, 2015

 

Ended September 30, 2014

 

 

 

Average

 

Interest

 

Cash

 

Average

 

Interest

 

Cash

 

 

 

Recorded

 

Income

 

Basis

 

Recorded

 

Income

 

Basis

 

 

 

Investment

 

Recognized

 

Recognized

 

Investment

 

Recognized

 

Recognized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With no related allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

One—to-four family

 

$

292

 

$

12

 

$

 

$

199

 

$

10

 

$

 

Multi-family and commercial

 

708

 

 

21

 

1,911

 

1

 

12

 

Home equity

 

 

 

 

 

 

 

Subtotal

 

1,000

 

12

 

21

 

2,110

 

11

 

12

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

With an allowance recorded:

 

 

 

 

 

 

 

 

 

 

 

 

 

One—to-four family

 

1,255

 

39

 

 

1,276

 

47

 

 

Multi-family and commercial

 

 

 

 

191

 

 

 

Home equity

 

 

 

 

 

 

 

Subtotal

 

1,255

 

39

 

 

1,467

 

47

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

2,255

 

$

51

 

$

21

 

$

3,577

 

$

58

 

$

12

 

 

The recorded investment in loans excludes accrued interest receivable and loan origination costs, net, due to immateriality.

 

16



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 3 - LOANS (Continued)

 

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.  The following tables present the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans:

 

 

 

 

 

 

 

Loans Past Due Over

 

 

 

Nonaccrual

 

90 Days Still Accruing

 

 

 

September 30,

 

December 31,

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

One—to-four family

 

$

1,128

 

$

1,886

 

$

 

$

 

Multi-family and commercial

 

697

 

900

 

 

 

Home equity

 

34

 

192

 

 

 

Consumer and other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,859

 

$

2,978

 

$

 

$

 

 

The following tables present the aging of the recorded investment in past due loans by class of loans:

 

 

 

September 30, 2015

 

 

 

30 - 59

 

60 - 89

 

Greater Than

 

 

 

 

 

 

 

 

 

Days

 

Days

 

90 Days

 

Total

 

Loans Not

 

 

 

 

 

Past Due

 

Past Due

 

Past Due

 

Past Due

 

Past Due

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One—to-four family

 

$

572

 

$

207

 

$

220

 

$

999

 

$

99,702

 

$

100,701

 

Multi-family and commercial

 

 

196

 

 

196

 

8,595

 

8,791

 

Home equity

 

 

34

 

 

34

 

6,909

 

6,943

 

Consumer and other

 

 

 

 

 

214

 

214

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

572

 

$

437

 

$

220

 

$

1,229

 

$

115,420

 

$

116,649

 

 

 

 

December 31, 2014

 

 

 

30 - 59

 

60 - 89

 

Greater Than

 

 

 

 

 

 

 

 

 

Days

 

Days

 

90 Days

 

Total

 

Loans Not

 

 

 

 

 

Past Due

 

Past Due

 

Past Due

 

Past Due

 

Past Due

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

245

 

$

305

 

$

753

 

$

1,303

 

$

95,911

 

$

97,214

 

Multi-family and commercial

 

206

 

 

379

 

585

 

8,908

 

9,493

 

Home equity

 

88

 

44

 

35

 

167

 

7,902

 

8,069

 

Consumer and other

 

 

 

 

 

349

 

349

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

539

 

$

349

 

$

1,167

 

$

2,055

 

$

113,070

 

$

115,125

 

 

17



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 3 - LOANS (Continued)

 

Troubled Debt Restructurings

 

Troubled debt restructurings by accrual status and specific reserves allocated to troubled debt restructurings were as follows:

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Accrual status

 

$

1,225

 

$

1,431

 

Non-accrual status

 

1,009

 

1,032

 

 

 

2,234

 

2,463

 

Specific reserves allocated

 

(214

)

(234

)

 

 

 

 

 

 

Net

 

$

2,020

 

$

2,229

 

 

No additional loan commitments were outstanding to these borrowers at September 30, 2015 and December 31, 2014. Loans are returned to accrual status after a period of satisfactory payment performance under the terms of the restructuring, but no earlier than six months.

 

The following tables present loans by class modified as troubled debt restructurings that occurred during the nine months ended September 30, 2015:

 

 

 

 

 

Pre-Modification

 

Post-Modification

 

 

 

 

 

Outstanding

 

Outstanding

 

 

 

Number of

 

Recorded

 

Recorded

 

 

 

Loans

 

Investment

 

Investment

 

September 30, 2015

 

 

 

 

 

 

 

 

 

One-to—four family

 

1

 

$

217

 

$

219

 

Multi-family and commercial

 

 

 

 

Home equity

 

 

 

 

Consumer and other

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

1

 

$

217

 

$

219

 

 

The recorded investment increased due to real estate taxes. The troubled debt restructuring described above was evaluated for impairment prior to modification, did not result in an increase in the allowance for loan losses upon modification, and resulted in no additional charge-offs for the three and nine months ended September 30, 2015. There were no new troubled debt restructurings made during the three months ended September 30, 2015 and the three and nine months ended September 30, 2014.

 

18



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 3 - LOANS (Continued)

 

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.  The following table presents the loan by class modified as a troubled debt restructuring for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2015.

 

 

 

Number of

 

Recorded

 

 

 

Loans

 

Investment

 

September 30, 2015

 

 

 

 

 

One-to—four family loans

 

1

 

$

217

 

 

 

 

 

 

 

Total

 

1

 

$

217

 

 

There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the three and nine months ended September 30, 2014. There were no troubled debt restructurings for which there was a payment default during the three months ended September 30, 2015.

 

The terms of certain other loans were modified during the three and nine months ended September 30, 2015 and 2014 that did not meet the definition of a troubled debt restructuring. These loan balances were not material in the three and nine months ended September 30, 2015 and 2014.

 

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

 

19



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 3 - LOANS (Continued)

 

Credit Quality Indicators:

 

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as:  current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors.  The Company analyzes loans individually by classifying the loans as to credit risk.  This analysis includes one —to four-family, multi-family and commercial real estate loans, home equity loans, and consumer and other. This analysis is performed on a quarterly basis.  The Company uses the following definitions for risk ratings:

 

Special Mention.  Loans classified as special mention have a potential weakness that deserves management’s close attention.  If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

 

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

 

Doubtful.  Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of current existing facts, conditions, and values, highly questionable and improbable.

 

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans.  As of September 30, 2015 and December 31, 2014, the risk category of loans by class of loans was as follows:

 

 

 

September 30, 2015

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

Pass

 

Mention

 

Substandard

 

Doubtful

 

Total

 

One —to- four family

 

$

97,136

 

$

 

$

3,565

 

$

 

$

100,701

 

Multi-family and commercial

 

1,329

 

141

 

7,321

 

 

8,791

 

Home equity

 

6,875

 

 

68

 

 

6,943

 

Consumer and other

 

214

 

 

 

 

214

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

105,554

 

$

141

 

$

10,954

 

$

 

$

116,649

 

 

20



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 3 - LOANS (Continued)

 

 

 

December 31, 2014

 

 

 

 

 

Special

 

 

 

 

 

 

 

 

 

Pass

 

Mention

 

Substandard

 

Doubtful

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

One—to-four family

 

$

94,007

 

$

 

$

3,207

 

$

 

$

97,214

 

Multi-family and commercial

 

2,649

 

102

 

6,742

 

 

9,493

 

Home equity

 

7,641

 

 

428

 

 

8,069

 

Consumer and other

 

349

 

 

 

 

349

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

104,646

 

$

102

 

$

10,377

 

$

 

$

115,125

 

 

NOTE 4 - FAIR VALUES

 

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  There are three levels of inputs that may be used to measure fair value:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

 

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

 

21



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 4 - FAIR VALUES (Continued)

 

The Company used the following methods and significant assumptions used to estimate the fair value of the following items:

 

Securities:  The fair values of trading securities and securities available-for-sale are determined by quoted market prices, if available (Level 1).  For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).

 

Impaired Loans:  At the time a loan is considered impaired, it is valued at the lower of cost or fair value of underlying collateral.  Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses.  For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification.  Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

 

Other Real Estate Owned:  Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.  These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

 

22



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 4 - FAIR VALUES (Continued)

 

Appraisals for both collateral dependent impaired loans and real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company.  On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value.

 

At September 30, 2015 and December 31, 2014, the Company had no liabilities measured at fair value.  Assets measured at fair value on a recurring basis are summarized below:

 

 

 

September 30, 2015

 

 

 

 

 

Quoted Prices in

 

Significant

 

 

 

 

 

 

 

Active Markets

 

Other

 

Significant

 

 

 

 

 

For Identical

 

Observable

 

Unobservable

 

 

 

 

 

Assets

 

Inputs

 

Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Securities available-for-sale

 

 

 

 

 

 

 

 

 

U.S. government-sponsored entities

 

$

8,003

 

$

 

$

8,003

 

$

 

Residential agency mortgage-backed

 

40,082

 

 

40,082

 

 

 

 

 

December 31, 2014

 

 

 

 

 

Quoted Prices in

 

Significant

 

 

 

 

 

 

 

Active Markets

 

Other

 

Significant

 

 

 

 

 

For Identical

 

Observable

 

Unobservable

 

 

 

 

 

Assets

 

Inputs

 

Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Securities available-for-sale

 

 

 

 

 

 

 

 

 

U.S. government-sponsored entities

 

$

10,993

 

$

 

$

10,993

 

$

 

Residential agency mortgage-backed

 

43,221

 

 

43,221

 

 

 

There were no transfers between Level 1 and Level 2 during the nine months ended September 30, 2015 and the year ended December 31, 2014.

 

23



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 4 - FAIR VALUES (Continued)

 

The following tables set forth the Company’s assets that were measured at fair value on a non-recurring basis:

 

 

 

September 30, 2015

 

 

 

 

 

Quoted Prices in

 

Significant

 

 

 

 

 

 

 

Active Markets

 

Other

 

Significant

 

 

 

 

 

For Identical

 

Observable

 

Unobservable

 

 

 

 

 

Assets

 

Inputs

 

Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Other real estate owned:

 

 

 

 

 

 

 

 

 

One—to-four family

 

$

143

 

$

 

$

 

$

143

 

Multi-family and commercial

 

166

 

 

 

166

 

 

 

 

December 31, 2014

 

 

 

 

 

Quoted Prices in

 

Significant

 

 

 

 

 

 

 

Active Markets

 

Other

 

Significant

 

 

 

 

 

For Identical

 

Observable

 

Unobservable

 

 

 

 

 

Assets

 

Inputs

 

Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Impaired loans:

 

 

 

 

 

 

 

 

 

One-to-four family

 

$

201

 

$

 

$

 

$

201

 

Multi-family and commercial

 

346

 

 

 

346

 

Other real estate owned:

 

 

 

 

 

 

 

 

 

One-to-four family

 

412

 

 

 

412

 

Multi-family and commercial

 

1,299

 

 

 

1,299

 

 

At September 30, 2015, other real estate owned, which is carried at fair value less estimated costs to sell, had a carrying amount of $1,778, net of a valuation allowance of $529, resulting in a write-down of $359 during the nine months ended September 30, 2015. At December 31, 2014, other real estate owned had a carrying amount of $2,021, net of a valuation allowance of $310, resulting in a write-down of $86 during 2014.

 

At December 31, 2014, loans which are measured for impairment using the fair value of the collateral for collateral dependent loans impaired loans, had a recorded investment of $547, with no valuation allowance, resulting in an additional provision for loan losses of $134 for 2014.

 

24



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 4 - FAIR VALUES (Continued)

 

The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis:

 

 

 

September 30, 2015

 

 

 

 

Valuation

 

 

 

Range

 

 

Fair Value

 

Technique(s)

 

Unobservable Input(s)

 

(Weighted Average)

 

 

 

 

 

 

 

 

 

Other real estate owned:

 

 

 

 

 

 

 

 

One-to-four family

 

$

143

 

Sales comparison approach

 

Adjustment for differences between the comparable sales

 

(24.5)-3.7%(-7.82%)

Multi-family and commercial

 

166

 

Sales comparison approach

 

Adjustment for differences between the comparable sales

 

5.7-55.4% (34.2%)

 

At September 30, 2015, the Bank also had a commercial real estate owned property with a carrying value of $940,000, which is supported by an approved cash purchase offer.  As of December 31, 2014, the value was supported by an appraisal, and was included in the level 3 assets in the below table as of 12/31/2014.

 

 

 

December 31, 2014

 

 

 

 

Valuation

 

 

 

Range

 

 

Fair Value

 

Technique(s)

 

Unobservable Input(s)

 

(Weighted Average)

 

 

 

 

 

 

 

 

 

Impaired loans:

 

 

 

 

 

 

 

 

One-to-four family

 

$

201

 

Sales comparison approach

 

Adjustment for differences between the comparable Sales

 

0.0-7.0% (-4.8%)

Multi-family and commercial

 

346

 

Sales comparison approach

 

Adjustment for differences between the comparable sales

 

0.0-56.7% (18.2%)

Other real estate owned:

 

 

 

 

 

 

 

 

One-to-four family

 

412

 

Sales comparison approach

 

Adjustment for differences between the comparable sales

 

0.0-5.3% (-6.5%)

Multi-family and commercial

 

90

 

Sales comparison approach

 

Adjustment for differences between the comparable sales

 

5.7-55.4% (34.2%)

 

 

1,209

 

Income approach

 

Adjustment for differences in net operating income expectations

 

13.1% (13.1%)

 

 

 

 

 

 

Capitalization rate

 

8.3% (8.3%)

 

25



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 4 - FAIR VALUES (Continued)

 

The carrying amount and estimated fair value of financial instruments not previously presented were as follows.

 

 

 

September 30, 2015

 

 

 

Carrying

 

Fair Value Measurements Using:

 

 

 

Amount

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,807

 

$

29,807

 

$

 

$

 

$

29,807

 

Securities held-to-maturity

 

327

 

 

333

 

 

333

 

Loans, net

 

115,697

 

 

 

114,734

 

114,734

 

FHLB stock

 

1,291

 

N/A

 

N/A

 

N/A

 

N/A

 

Accrued interest receivable

 

425

 

 

16

 

409

 

425

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing deposits

 

$

21,754

 

$

21,754

 

$

 

$

 

$

21,754

 

Interest-bearing deposits

 

144,780

 

 

144,954

 

 

144,954

 

FHLB advances

 

5,000

 

 

5,055

 

 

5,055

 

Advances from borrowers for taxes

 

1,190

 

 

1,190

 

 

1,190

 

Accrued interest payable

 

11

 

 

11

 

 

11

 

 

 

 

December 31, 2014

 

 

 

Carrying

 

Fair Value Measurements Using:

 

 

 

Amount

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Financial assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,898

 

$

32,898

 

$

 

$

 

$

32,898

 

Securities held-to-maturity

 

331

 

 

341

 

 

341

 

Loans, net (less impaired loans)

 

113,583

 

 

 

113,316

 

113,316

 

FHLB stock

 

1,768

 

N/A

 

N/A

 

N/A

 

N/A

 

Accrued interest receivable

 

438

 

 

20

 

418

 

438

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

 

 

 

 

Non-interest-bearing deposits

 

$

20,905

 

$

20,905

 

$

 

$

 

$

20,905

 

Interest-bearing deposits

 

145,344

 

 

145,444

 

 

145,444

 

FHLB advances

 

12,000

 

 

12,163

 

 

12,163

 

Advances from borrowers for taxes

 

2,068

 

 

2,068

 

 

2,068

 

Accrued interest payable

 

28

 

 

28

 

 

28

 

 

26



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 4 - FAIR VALUES (Continued)

 

The methods and assumptions, not previously presented, used to estimate fair values are described as follows:

 

(a)         Cash and Cash Equivalents

 

The carrying amounts of cash and short-term instruments approximate fair values and are classified as Level 1

 

(b)         Securities Held-to-Maturity

 

The carrying amounts of held to maturity securities are determined using a pricing matrix resulting in a Level 2 classification.

 

(c)          FHLB Stock

 

It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

 

(d)         Loans

 

The fair values of loans, excluding loans held for sale, are estimated as follows:  For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification.  Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

 

(e)          Accrued Interest Receivable

 

The carrying amount of accrued interest receivable approximates its fair value and is classified as Level 2 for securities and Level 3 for loans.

 

27



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 4 - FAIR VALUES (Continued)

 

(f)            Deposits

 

The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) and are classified as Level 1.  The carrying amounts of variable rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date are classified as a Level 2. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

 

(g)         Federal Home Loan Bank Advances

 

The fair value of Federal Home Loan Bank  advances, which are at a fixed rate, are estimated using discounted cash flow analyses based on current rates for similar advances resulting in a Level 2 classification.

 

(h)         Securities Sold Under Agreements to Repurchase

 

The carrying amounts of securities sold under agreements to repurchase approximate fair value resulting in a Level 2 classification.

 

(i)            Advances From Borrowers For Taxes

 

The carrying values of short-term borrowings approximated fair value and are classified as Level 2.

 

(j)            Accrued Interest Payable

 

The carrying amount of accrued interest payable approximates its fair value and is classified as Level 2.

 

28



Table of Contents

 

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 5 - EARNINGS PER SHARE

 

According to the provisions of FASB ASC 260, Earnings Per Share, non-vested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and are included in the computation of EPS pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. ESOP shares are considered outstanding for basic and diluted earnings per share when the shares are committed to be released. The Company’s non-vested restricted stock awards qualify as participating securities.

 

Net income is allocated between the common stock and participating securities pursuant to the two-class method, based on their rights to receive dividends, participate in earnings or absorb losses. Basic earnings per common share is computed by dividing net earnings available to common shareholders by the weighted average number of common shares outstanding during the period, excluding participating non-vested restricted shares.

 

The table below calculates the earnings per share for the three months and nine months ended September 30, 2015 and 2014:

 

 

 

Three Months

 

Nine Months

 

 

 

September 30,

 

September 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Basic

 

 

 

 

 

 

 

 

 

Net income

 

$

47

 

$

329

 

$

14

 

$

2,036

 

Distributed earnings allocated to participated securities

 

2

 

3

 

7

 

3

 

Undistributed earnings allocated to participated securities

 

(1

)

5

 

(7

)

13

 

Net earnings allocated to common shareholders

 

$

46

 

$

321

 

$

14

 

$

2,020

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding including participating securities

 

2,087,361

 

2,252,924

 

2,094,192

 

2,228,180

 

Less: Participating securities

 

(38,780

)

(56,267

)

(48,947

)

(21,641

)

Weighted-average common shares outstanding for basic

 

2,048,581

 

2,196,657

 

2,045,245

 

2,206,539

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

 

$

0.02

 

$

0.15

 

$

0.01

 

$

0.92

 

 

 

 

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

 

 

 

 

Net earnings allocated to common stock

 

$

46

 

$

321

 

$

14

 

$

2,020

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding for basic

 

2,048,581

 

2,196,657

 

2,045,245

 

2,206,539

 

Add: dilutive effects of assumed exercise of stock options and stock awards

 

15,167

 

 

11,831

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding for diluted

 

2,063,748

 

2,196,657

 

2,057,076

 

2,206,539

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

 

$

0.02

 

$

0.15

 

$

0.01

 

$

0.92

 

 

At September 30, 2015 and 2014, there were 1,375 anti-dilutive stock options, respectively.

 

Employee stock ownership plan shares are considered outstanding for this calculation unless unearned. At September 30, 2015 and 2014, there were 105,032 and 108,783 shares unearned from the employee stock ownership plan, respectively.

 

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

(Dollars in thousands, except per share and share data)

 

NOTE 6 — EQUITY INCENTIVE PLAN

 

The Company’s 2014 Equity Incentive Plan provides for grants of stock options, stock awards, stock units, awards, performance stock awards, stock appreciations rights, and other equity-based awards to key employees and nonemployee directors. As of September 30, 2015, the Company has only granted stock options and stock awards. The Company recognizes stock compensation costs for services received in a share-based payment transaction over the required service period, generally defined as the vesting period.

 

For stock options, certain key employees and nonemployee directors were granted options to purchase shares of the Company’s common stock at fair value at the date of the grant (exercise price). The options become exercisable in equal installments over a five-year period from the date of grant, and they expire ten years from the date of grant. Compensation cost is determined by estimating the fair value of the option on the date of the grant using a closed form option valuation (Black-Scholes) model. Expected volatilities are based on historical volatilities of the Company’s common stock. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferrable. The risk-free interest rate for the expected term of the option is based on the U.S. treasury yield curve in effect at the time of grant. There were 118,132 options granted in May 2014 with a strike price of $11.99, 4,000 options granted in June 2015 with a strike price of $15.00 and 10,000 options granted with a strike price of $14.85. During the nine months ended September 30, 2015, there were 23,624 options vested, 16,800 options forfeited, 4,200 options were exercised, and no options expired. Total unrecognized compensation expense for stock options was $100 as of September 30, 2015. Compensation expense totaled $20 and $9 for the nine months ended September 30, 2015 and 2014, respectively. Management expects outstanding options to vest over the weighted average remaining vesting period of 3.8 years.

 

For stock awards, the compensation cost is based on the grant date fair value of the award (as determined by quoted market prices) and is recognized over the vesting period. The Company’s stock awards vest based on a service period of five years. The unamortized cost of shares not yet earned (vested) is reported as a reduction of stockholders’ equity. The Company awarded 56,267 shares of stock in May 2014 and 6,000 shares in August 2015. During the nine months ended September 30, 2015, there were 11,251 awards vested and 9,612 awards forfeited. Total unrecognized compensation expense for awards was $475 as of September 30, 2015. Compensation expense totaled $95 and $45 for the nine months ended September 30, 2015 and 2014, respectively. Management expects outstanding awards to vest over the weighted average remaining vesting period of 3.8 years.

 

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Item 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

 

This Quarterly Report on Form 10-Q contains certain forward-looking statements and information relating to the Company and the Bank that are based on the beliefs of management as well as assumptions made by and information currently available to management. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words like “believe,” “expect,” “anticipate,” “estimate,” and “intend” or future or conditional verbs such as “will,” “should,” “could,” or “may” and similar expressions or the negative thereof. Certain factors that could cause actual results to differ materially from expected results include, changes in the interest rate environment, changes in general economic conditions, legislative and regulatory changes that adversely affect the business of the Company and the Bank, and changes in the securities markets. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially from those described herein. We caution readers not to place undue reliance on forward-looking statements. The Company disclaims any obligation to revise or update any forward-looking statements contained in this Form 10-Q to reflect future events or developments.

 

Critical Accounting Policies

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. By their nature, changes in these assumptions and estimates could significantly affect our financial position or results of operations.  Actual results could differ from those estimates.

 

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. Accordingly, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.

 

Discussed below are selected critical accounting policies that are of particular significance to us.

 

Allowance for Loan Losses.  The allowance for loan losses is a valuation allowance for probable incurred credit losses, increased by the provision for loan losses and decreased by charge-offs less recoveries.  We estimate the allowance balance required using past loan loss experience; known and inherent losses in the nature and volume of the portfolio that are both probable and estimable;

 

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information about specific borrower situations; and estimated collateral values, economic conditions, and other factors.  Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in our judgment, should be charged off.  Loan losses are charged against the allowance when we believe that the uncollectibility of a loan balance is confirmed.

 

The allowance consists of specific and general components.  The specific component relates to loans that are individually classified as impaired or loans otherwise classified as substandard or doubtful.

 

Non-performing loans and impaired loans are defined differently.  A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement.  A loan is non-performing when it is on non-accrual or greater than 90 days past due.  Some loans may be included in both categories, whereas other loans may only be included in one category. Our policy requires that all non-homogeneous loans past due greater than 90 days be classified as impaired and non-performing.  However, performing loans may also be classified as impaired when we do not expect to collect all amounts due according to the contractual terms of the loan agreement even though the borrower may be current or less than 90 days past due on repaying a loan.  Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings and classified as impaired.

 

Factors considered by us in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  We determine the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

 

Multifamily and commercial real estate loans are individually evaluated for impairment. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.  Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans are collectively evaluated for impairment, and accordingly, are not separately identified for impairment disclosures.

 

Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.  If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.  For troubled debt restructurings that subsequently default, we determine the amount of reserve in accordance with the accounting policy for the allowance for loan losses.

 

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The general component covers non-impaired loans and is based on actual historical loss experience determined by portfolio loan segment adjusted for current factors.  This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio loan segment, such as real estate trends and national and local economic conditions.  As greater risk is associated with loans classified as special mention and substandard that are not impaired, the Company considers the actual historical loss experience by loan segment, the levels of loans classified as special mention and substandard, and the trends in the collateral associated with these classifications.

 

The following portfolio segments have been identified: One-to four-family, multifamily and commercial, home equity, consumer and other.  Substantially all of the loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate.  Commercial real estate loans are expected to be repaid from cash flows from operations of businesses and consumer loans are expected to be repaid from personal cash flows.  There are no significant concentrations of loans to any one industry or customer.  Risk factors impacting loans in each of the portfolio segments include local and national real estate values, local and national economic factors affecting borrowers’ employment prospects and income levels, levels and movement of interest rates and general availability of credit, and overall economic sentiment.

 

Other Real Estate Owned.  Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.  If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense.  Operating costs after acquisition are expensed.

 

Realization of Deferred Tax Asset.  The future realization of a deferred tax asset ultimately depends on the existence of sufficient taxable income of the appropriate character, (for example, ordinary income or capital gain) within the carry back and carry forward period available under the tax law.  We evaluate the future realization of the deferred tax asset on a quarterly basis and establish a valuation allowance predicated on consideration of future performance as well as tax planning strategies available to us.  Tax-planning strategies are actions that we would take in order to prevent an operating loss or tax credit carry forward from expiring unused.  In order for a tax-planning strategy to be considered, it must be prudent and feasible and result in realization of the deferred tax assets.

 

Fair Value of Financial Instruments.  Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in Note 4.  Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items.  Some of these estimates are not necessarily indicative of an exit price. Changes in assumptions or in market conditions could significantly affect the estimates.

 

Overview

 

We had net income of $47,000, or $0.02 per share, for the three months ended September 30, 2015 compared to net income of $329,000, or $0.15 per share, for the same period in 2014. Our net income for the nine months ended September 30, 2015 was $14,000, or $0.01 per share, compared to

 

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net income of $2.0 million, or $0.92 per share, for the same period in 2014. The decrease in net income for the three months ended September 30, 2015 compared to the prior year period was mainly attributable to a $740,000 decrease in other real estate owned gains, partially offset by a decline in the provision for loan losses of $207,000 and a $186,000 decrease in income tax expense. The decline in net income for the nine month period ended September 30, 2015 compared to the prior year period was mainly attributable to the $1.7 million reversal of the remaining deferred tax asset valuation allowance in the second quarter of 2014, a $775,000 decrease in other real estate owned gains, higher other real estate owned expense/impairment of $257,000, and a decline in net interest income of $125,000. These decreases were partially offset by a decline in the provision for loan losses of $557,000 for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.

 

Comparison of Financial Condition at September 30, 2015 and December 31, 2014

 

Assets. Total consolidated assets as of September 30, 2015 were $209.0 million, a decrease of $8.5 million, or 3.9%, from $217.5 million at December 31, 2014.  The decrease was due to declines in cash and cash equivalents, securities available-for-sale, and other real estate owned, partially offset by an increase in net loans.

 

Cash and cash equivalents decreased $3.1 million, or 9.4%, to $29.8 million at September 30, 2015 from $32.9 million at December 31, 2014. The primary reason for the decline in cash and cash equivalents was due to the repayment of maturing Federal Home Loan Bank (FHLB) advances of $7.0 million and a $1.6 million increase in net loans during the nine months ended September 30, 2015, partially offset by a $6.1 million decrease in the securities available-for-sale portfolio.

 

Securities available-for-sale decreased $6.1 million, or 11.3%, to $48.1 million at September 30, 2015 from $54.2 million at December 31, 2014.  The decrease was primarily due to securities available-for-sale principal repayments, calls and sales of $27.1 million exceeding new securities purchases of $21.0 million and a decrease in the unrealized loss on available-for-sale securities of $112,000 as a result of the decrease in interest rates during the nine months ended September 30, 2015.

 

Net loans increased $1.6 million, or 1.4%, to $115.7 million at September 30, 2015 from $114.1 million at December 31, 2014.  The increase was primarily attributable to an increase in our one-to four-family residential portfolio, partially offset by declines in our multifamily and commercial real estate and home equity portfolios during the nine months ended September 30, 2015. One-to four-family residential loans increased $3.5 million, or 3.6%, to $100.7 million at September 30, 2015 from $97.2 million at December 31, 2014. The increase was primarily due to increased borrower demand to lock in current low interest rates prior to anticipated increases in interest rates in future periods as well as the seasonal increase in home sales in the spring and summer. Multifamily and commercial real estate loans declined $702,000, or 7.4%, to $8.8 million at September 30, 2015 from $9.5 million at December 31, 2014. Home equity loans decreased $1.1 million, or 14.0%, to $6.9 million at September 30, 2015 from $8.1 million at December 31, 2014. The decrease in the multifamily and commercial real estate loan portfolio was due to aggressive price competition for these loans in the Bank’s marketplace.

 

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Federal Home Loan Bank stock decreased $477,000, or 27.0%, to $1.3 million at September 30, 2015 from $1.8 million at December 31, 2014 as we sold shares of FHLB stock back to the FHLB.  The decrease was primarily due to changes in the membership stock requirement as specified in the FHLB of Chicago’s capital plan which allowed excess stock to be available for repurchase so that those funds could be deployed elsewhere in the organization.

 

Other real estate owned decreased $502,000, or 28.7%, to $1.2 million at September 30, 2015 from $1.7 million at December 31, 2014. The decrease was primarily due to $474,000 in sales of three one-to four- family residential properties which resulted in a loss of $19,000 and write-downs of $359,000 on two commercial real estate properties, partially offset by additions to other real estate owned of two one-to four-family residential properties and a commercial real estate property for a total of $319,000 during the nine months ended September 30, 2015.

 

Liabilities. Total liabilities decreased $8.1 million, or 4.4%, to $175.3 million at September 30, 2015 from $183.4 million at December 31, 2014. The decrease in total liabilities was primarily due to declines in FHLB advances and advance payments by borrowers for taxes and insurance.

 

Deposits. Total deposits increased $285,000, or 0.2%, to $166.5 million at September 30, 2015 from $166.2 million at December 31, 2014. Passbook account balances grew $2.7 million, or 4.1%, to $68.0 million at September 30, 2015 from $65.4 million at December 31, 2014. NOW and checking account balances increased $1.9 million, or 6.0%, to $33.8 million at September 30, 2015 from $31.9 million at December 31, 2014. The increase in our lower cost core deposits, which we consider to be our checking, passbook and NOW accounts were partially offset by a decrease in our money market accounts and certificates of deposit. Money market accounts decreased $963,000, or 15.0%, to $5.5 million at September 30, 2015 from $6.4 million at December 31, 2014. Higher cost certificates of deposit decreased $3.3 million, or 5.3%, to $59.3 million at September 30, 2015 from $62.6 million at December 31, 2014. The decline in the balance of certificates of deposit was attributable to legacy certificates of deposit customers seeking higher yields as accounts re-priced to current lower market interest rates upon maturity and/or moving maturing certificates into more liquid core deposit accounts in anticipation of higher interest rates.

 

FHLB Advances. FHLB of Chicago advances decreased $7.0 million, or 58.3%, to $5.0 million at September 30, 2015 from $12.0 million at December 31, 2014.  Due to our excess liquidity, we repaid our maturing FHLB advances of $7.0 million with a weighted average interest rate of 2.24% during the nine months ended September 30, 2015. Outstanding FHLB of Chicago advances at September 30, 2015 were fixed-rate with maturities of less than one year with a weighted average interest rate of 2.55%.

 

ESOP Repurchase Obligation. The ESOP repurchase obligation increased $79,000, or 8.7% to $988,000 at September 30, 2015 from $909,000 at December 31, 2014. The increase was primarily due to an increase in the market value of the vested portion of the common stock held in the ESOP.

 

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Table of Contents

 

Stockholders’ Equity. Total stockholders’ equity decreased $472,000, or 1.4%, to $32.7 million at September 30, 2015 from $33.2 million at December 31, 2014. The Company repurchased shares of 20,657 at an average price of $13.66 per share from the second and third stock repurchase programs for a total cost of $282,000 and paid dividends on common stock of $308,000, which were partially offset by net income of $14,000, and a decrease in the unrealized loss on securities classified as available-for-sale of $68,000 for the nine months ended September 30, 2015. Book value per share was $14.91 at September 30, 2015 as compared to $14.97 at December 31, 2014.

 

Asset Quality

 

The following table sets forth information with respect to our non-performing assets at the dates indicated (dollars in thousands):

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Loans 90 days or more past due and still accruing

 

$

 

$

 

Non-accrual troubled debt restructurings

 

1,009

 

1,032

 

Non-accrual loans (excludes troubled debt restructurings)

 

850

 

1,946

 

Total non-performing loans

 

$

1,859

 

$

2,978

 

Other real estate owned

 

1,249

 

1,751

 

 

 

 

 

 

 

Total non-performing assets

 

$

3,108

 

$

4,729

 

 

 

 

 

 

 

Non-performing assets to total assets

 

1.49

%

2.17

%

Non-performing loans to total loans

 

1.59

 

2.59

 

Allowance for loan losses to non-performing loans

 

58.36

 

37.04

 

Allowance for loan losses to total loans

 

0.93

 

0.96

 

 

Non-performing Assets and Allowance for Loan Losses. We had non-performing assets of $3.1 million, or 1.49% of total assets, as of September 30, 2015 and $4.7 million, or 2.17% of total assets, as of December 31, 2014. The decrease in nonperforming assets was primarily attributable to sales of $474,000 of three one-to four-family residential other real estate owned properties and write-downs of $359,000 on two commercial real estate properties, partially offset by additions of two one-to four-family residential properties and a commercial real estate property for a total of $319,000 during the nine months ended September 30, 2015. Net charge-offs for the nine months ended September 30, 2015 and September 30, 2014 were $148,000 and $880,000, respectively. The allowance for loan losses totaled $1.1 million at both September 30, 2015 and December 31, 2014.  This represents a ratio of the allowance for loan losses to total loans of 0.93% at September 30, 2015 and 0.96% at December 31, 2014. The slight decrease in the allowance for loan losses to total loans was due to a decline in the historical loss factors on multi-family and commercial real estate loans collectively evaluated for

 

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impairment, the continued reduced risk profile of the loan portfolio, and improvements in economic conditions.

 

At September 30, 2015, we had 22 one- to four-family residential loans, one home equity loan, and four multifamily and commercial real estate loans with an aggregate principal balance of $1.9 million, none of which had an individual principal balance in excess of $500,000 on nonaccrual status. At December 31, 2014, we had 27 one- to four-family residential loans, five home equity loans, and five multifamily and commercial real estate loans with an aggregate principal balance of $3.0 million, none of which had an individual principal balance in excess of $500,000, on nonaccrual status.

 

At September 30, 2015, we had three one- to four-family residential loans and four multifamily and commercial real estate loans classified as troubled debt restructurings with an aggregate principal balance of $2.2 million of which $1.0 million was on non-accrual status. At December 31, 2014, we had 10 one-to four-family residential loans and five multifamily and commercial real estate loans classified as troubled debt restructurings with an aggregate principal balance of $2.5 million of which $1.0 million was on non-accrual status.

 

At September 30, 2015, we had a $3.5 million commercial real estate loan secured by a golf course located in Flossmoor, Illinois. Borrowers’ risk ratings are reassessed annually when the borrowers’ financial statements are received. Based on the most recent financial statements of the borrower, we determined the borrower displayed well-defined credit weaknesses that may jeopardize full collection of principal and interest if not corrected. As a result, the loan is classified as substandard as of September 30, 2015. However, the loan was performing in accordance with its terms and is on accrual status.

 

At September 30, 2015, we had another real estate owned property of $940,000 representing a 3.35% participation in an indoor water park/ hotel complex. During the quarter ended September 30, 2015 the property manager received two offers from third parties to purchase the property, subject to customary due diligence. In October 2015, the participants voted to accept the lower cash offer and authorized the property manager to proceed with the due diligence and drafting of the sale agreement. As a result, we recorded an additional $104,000 write-down during the third quarter of 2015 to reflect the expected net realizable value upon the sale.

 

Although we record our non-performing assets at the estimated fair value of the property or underlying collateral less costs to sell, there may be additional losses on these properties in the future.

 

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Comparison of Operating Results for the Three Months Ended September 30, 2015 and September 30, 2014

 

General.  Net income for the three months ended September 30, 2015 was $47,000, a decrease of $282,000, or 85.7%, compared to net income of $329,000 for the three months ended September 30, 2014. The decline was mainly attributable to a $740,000 decrease in other real estate owned gains, partially offset by a decline in the provision for loan losses of $207,000, an $84,000 decrease in non-interest expense and a $186,000 decrease in income tax expense.

 

Net Interest Income.  Net interest income increased by $28,000 to $1.1 million for the three months ended September 30, 2015, as compared to the same period in 2014. The net interest margin increased by 19 basis points to 2.37% for the three months ended September 30, 2015 compared to 2.18% for the three months ended September 30, 2014, and the net interest rate spread increased 22 basis points to 2.26% for the three months ended September 30, 2015 compared to 2.04% for the three months ended September 30, 2014.

 

Interest Income.  Total interest income decreased $55,000, or 4.0%, to $1.3 million for the three months ended September 30, 2015 from $1.4 million for the same period in 2014.  The decrease was primarily due to a $12.0 million, or 5.9% decrease in average interest-earning assets, partially offset by a five basis point increase in the average yield on interest-earning assets. The average yield on interest- earning assets was 2.74% for the three months ended September 30, 2015 as compared to 2.69% for the same period in 2014. The decline in the average balance of interest-earning assets was primarily due to using the proceeds from calls and repayments of lower yielding securities available-for-sale portfolio and funding the repayment of FHLB advances and modest deposit outflows.

 

Interest income from loans decreased by $24,000, or 2.0%, to $1.1 million for the three months ended September 30, 2015, from $1.2 million for the three months ended September 30, 2014. The decline in interest income from loans was due to a nine basis point decrease in the average loan yield. The average yield on loans decreased to 3.87% for the three months ended September 30, 2015 from 3.94% for the same period in 2014. The decrease in the average yield on loans was primarily caused by lower yields earned on new loan originations and repayments of higher yielding seasoned loans as a result of the prolonged low interest rate environment.

 

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Interest income from securities decreased $30,000, or 15.1%, to $169,000 for the three months ended September 30, 2015, from $199,000 for the three months ended September 30, 2014.  The decrease primarily resulted from a $10.0 million, or 17.1% decrease in the average securities balance, partially offset by a three basis point increase in the average securities yield for the three months ended September 30, 2015 as compared to the same period in 2014.  The average yield on securities increased to 1.39% for the three months ended September 30, 2015 from 1.36% for the same period in 2014.

 

Interest Expense.  Interest expense decreased by $83,000, or 31.9%, to $177,000 for the three months ended September 30, 2015, from $260,000 for the same period in 2014.  The primary reasons for the decrease were due to the $11.7 million, or 17.1% decrease in the average balance of interest- bearing liabilities and a 17 basis points decline in the average interest rate paid for interest-bearing liabilities. Average interest bearing liabilities were $148.9 million and $160.6 million for the three months ended September 30, 2015 and September 30, 2014, respectively. The decrease was primarily due to the repayment of maturing FHLB advances and modest deposit outflows.

 

Interest expense on deposits decreased by $32,000, or 18.2%, to $144,000 for the three months ended September 30, 2015, from $176,000 for the same period in 2014. Our average cost of deposits decreased eight basis points to 0.40% for the three months ended September 30, 2015 from 0.48% for the three months ended September 30, 2014. The decrease in our average cost of deposits resulted from the continued change in the mix of our average deposits from higher-cost certificates of deposit to lower-cost core deposits. Average interest-bearing deposit balances decreased $2.2 million to $143.9 million for the three months ended September 30, 2015, from $146.1 million for the same period in 2014 due primarily to a $5.1 million decrease in the average balance of certificates of deposit and a $1.9 million decrease in the average balance of money market accounts, partially offset by a $4.3 million increase in the average balance of passbook accounts.  The decrease in the average balance of certificates of deposit was attributable to legacy certificates of deposit customers seeking higher yields as accounts re-priced to current lower market interest rates upon maturity and/or moving maturing certificates into more liquid core deposit accounts in anticipation of higher interest rates.

 

Interest expense on FHLB advances decreased $51,000, or 60.7%, to $33,000 for the three months ended September 30, 2015, from $84,000 for the same period in 2014. The primary reason for the decrease was a $9.5 million, or 65.5% decrease in the average balance of FHLB of Chicago advances, partially offset by a 32 basis point increase in the average cost of FHLB advances to 2.56% due to the payoff of lower cost advances. The decrease in average balance was due to the repayment of maturing FHLB advances.

 

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Table of Contents

 

 

 

For the Three Months Ended September 30,

 

 

 

2015

 

2014

 

 

 

Average
Outstanding
Balance

 

Interest
Earned/
Paid

 

Yield/
Cost (4)

 

Average
Outstanding
Balance

 

Interest
Earned/
Paid

 

Yield/
Cost (4)

 

 

 

(Dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits in other financial institutions

 

$

25,716

 

$

16

 

0.25

%

$

26,688

 

$

17

 

0.25

%

Securities

 

48,497

 

169

 

1.39

 

58,526

 

199

 

1.36

 

Loans receivable

 

116,475

 

1,127

 

3.87

 

116,965

 

1,151

 

3.94

 

Federal Home Loan Bank common stock

 

1,291

 

2

 

0.62

 

1,768

 

2

 

0.45

 

Total interest-earning assets

 

191,979

 

1,314

 

2.74

 

203,947

 

1,369

 

2.69

 

Total non-interest-earning assets

 

16,391

 

 

 

 

 

16,672

 

 

 

 

 

Total assets

 

$

208,370

 

 

 

 

 

$

220,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Passbook accounts

 

$

68,010

 

27

 

0.16

%

$

63,723

 

24

 

0.15

%

NOW accounts

 

11,556

 

 

 

11,089

 

 

 

Money market accounts

 

4,755

 

 

 

6,666

 

 

 

Certificates of deposit

 

59,595

 

117

 

0.79

 

64,659

 

152

 

0.94

 

Total deposits

 

143,916

 

144

 

0.40

 

146,137

 

176

 

0.48

 

Federal Home Loan Bank of Chicago advances

 

5,000

 

33

 

2.64

 

14,500

 

84

 

2.32

 

Total interest-bearing liabilities

 

148,916

 

177

 

0.48

 

160,637

 

260

 

0.65

 

Non-interest-bearing demand deposits-checking accounts

 

$

21,963

 

 

 

 

 

$

19,939

 

 

 

 

 

Other liabilities

 

4,858

 

 

 

 

 

4,490

 

 

 

 

 

Total liabilities

 

175,737

 

 

 

 

 

185,066

 

 

 

 

 

Stockholders’ Equity

 

32,633

 

 

 

 

 

35,553

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

208,370

 

 

 

 

 

$

220,619

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

$

1,137

 

 

 

 

 

$

1,109

 

 

 

Net interest rate spread (1)

 

 

 

 

 

2.26

%

 

 

 

 

2.04

%

Net interest-earning assets (2)

 

$

43,063

 

 

 

 

 

$

43,310

 

 

 

 

 

Net interest margin (3)

 

 

 

 

 

2.37

%

 

 

 

 

2.18

%

Average interest-earning assets to average interest-bearing liabilities

 

128.92

%

 

 

 

 

126.96

%

 

 

 

 

 


(1)         Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)         Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)         Net interest margin represents net interest income divided by average total interest-earning assets.

(4)         Annualized.

 

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Provision for Loan Losses.  We establish a provision for loan losses, which is charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio.  In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change.  Based on our evaluation of these factors, we recorded no provision for loan losses for the three months ended September 30, 2015 and $207,000 for the three months ended September 30, 2014. The lack of a provision was due to a decline in historical loss factors and having net recoveries for the quarter of $5,000. The allowance for loan losses was $1.1 million, or 0.93% of total loans, at September 30, 2015 compared to $1.1 million, or 0.96% of total loans, at December 31, 2014. The decrease in the allowance for loan losses as a percent of total loans was due to a decline in the historical loss factors on multifamily and commercial real estate loans collectively evaluated for impairment, the continued reduced risk profile of the loan portfolio, and improvements in economic conditions in the Bank’s market area.

 

Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance.  While management uses available information to recognize and provide for losses on loans, future loan loss provisions may be necessary based on changes in economic conditions.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to recognize additional provisions based on their judgment of information available to them at the time of their examination.  The allowance for loan losses as of September 30, 2015 was maintained at a level that represents management’s best estimate of inherent losses in the loan portfolio, and such losses that were both probable and reasonably estimable.

 

Non-Interest Income.  Non-interest income decreased $787,000 to $170,000 for the three months ended September 30, 2015, from $957,000 for the three months ended September 30, 2014. The decrease was primarily due to a $740,000 and $56,000 decrease in gains in other real estate owned, and securities sales, respectively.

 

Non-Interest Expense.  Non-interest expense decreased $84,000, or 6.3%, to $1.3 million for the three months ended September 30, 2015, as compared to the same period in 2014.  The decrease was primarily due to a $104,000 decrease in compensation and employee benefits expense, and a $40,000 decline in professional and regulatory expense, partially offset by a $45,000 increase in other real estate owned expense/impairment

 

Compensation and employee benefits expense decreased $104,000, or 15.9% to $551,000 for the three months ended September 30, 2015, from $655,000 for the same period in 2014. The primary reasons for the decrease were lower compensation expense related to reduced headcount, lower bonus accruals and decreases in medical insurance, payroll tax and stock related compensation expenses.

 

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Professional and regulatory expense decreased $40,000 to $82,000 for the three months ended September 30, 2015 from $122,000 for the same period in 2014. The decrease was primarily due to reporting efficiencies from the Company’s second year reporting as a public company and the Bank’s improved overall regulatory condition.

 

Other real estate owned expense/impairment increased $45,000 to $87,000 for the three months ended September 30, 2015, from $42,000 for the three months ended September 30, 2014. The increase was primarily due to write-downs of $154,000 on two commercial properties, partially offset by $51,000 of operating income received from one of its commercial properties.

 

Income Tax Expense.  We recorded an income tax expense of $6,000 for the three months ended September 30, 2015 and an income tax expense of $192,000 for the three months ended September 30, 2014. The decrease in the income tax expense was primarily due to the $468,000 decrease in income before income taxes for the third quarter of 2015 compared to the same period in 2014.

 

Comparison of Operating Results for the Nine Months Ended September 30, 2015 and September 30, 2014

 

General.  Net income for the nine months ended September 30, 2015 was $14,000, a decrease of $2.0 million, or 99.3%, from net income of $2.0 million for the nine months ended September 30, 2014. The decline was mainly attributable to the $1.7 million reversal of the remaining deferred tax asset valuation allowance in the second quarter of 2014, a $775,000 decrease in other real estate owned gains, higher other real estate owned expense/impairment of $257,000, and a decline in net interest income of $125,000. These decreases were partially offset by a decline in the provision for loan losses of $557,000 for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014.

 

Net Interest Income.  Net interest income decreased by $125,000 to $3.4 million for the nine months ended September 30, 2015, from $3.5 million for the same period in 2014. The decrease was primarily due to an $8.7 million, or 4.2% decrease in the level of interest-earning assets, slightly offset by a one basis point improvement in the net interest margin to 2.31% from 2.30% for the nine months ended September 30, 2015 as compared to the same period in 2014.

 

Interest Income.  Total interest income decreased $336,000, or 7.9%, to $3.9 million for the nine months ended September 30, 2015 from $4.3 million for the same period in 2014.  The decrease was primarily due to the &8.7 million, or 4.2% decrease in average interest-earning assets and an 11 basis points decline in the average yield on interest- earning assets. The average yield on interest- earning assets was 2.69% for the nine months ended September 30, 2015 as compared to 2.80% for the same period in 2014. The decline was primarily a result of the 12 and 16 basis point decreases in the average yield on loans and securities, respectively.

 

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Interest income from loans decreased by $194,000, or 5.4%, to $3.4 million for the nine months ended September 30, 2015, from $3.6 million for the nine months ended September 30, 2014. The decline in interest income from loans was due to decreases in the average loan yield and average loan balance for the nine months ended September 30, 2015 as compared to the nine months ended September 30, 2014. The average yield on loans decreased to 3.87% for the nine months ended September 30, 2015 from 3.99% for the same period in 2014. The decrease in the average yield on loans was primarily caused by lower yields earned on new loan originations and repayments of higher yielding seasoned loans as a result of the prolonged low interest rate environment. The average loan balance decreased by $3.7 million to $115.9 million for the nine months ended September 30, 2015 from $119.0 million for the same period in 2014. The decrease in the average loan balance was primarily due to the aggressive price competition for multifamily and commercial real estate loans in the Bank’s marketplace.

 

Interest income from securities decreased $147,000, or 22.3%, to $513,000 for the nine months ended September 30, 2015, from $660,000 for the nine months ended September 30, 2014.  The decrease primarily resulted from a decrease in the average securities yield and average securities balance for the nine months ended September 30, 2015 as compared to the same period in 2014.  The average yield on securities decreased to 1.32% for the nine months ended September 30, 2015 from 1.48% for the same period in 2014 due to the prolonged low interest rate environment. The average balance of securities decreased $7.7 million to $51.9 million for the nine months ended September 30, 2015 from $59.6 million for the same period in 2014. The decrease in the average securities balance was due to securities principal repayments, calls, and sales exceeding new securities purchases.

 

Interest Expense.  Interest expense decreased by $211,000, or 27.7%, to $552,000 for the nine months ended September 30, 2015, from $763,000 for the same period in 2014.  The primary reasons for the decrease were due to the $9.0 million decrease in the average balance of interest-bearing liabilities and a 14 basis points decline in the average interest rate paid for interest-bearing liabilities. Average interest-bearing liabilities were $151.1 million and $160.2 million for the nine months ended September 30, 2015 and September 30, 2014, respectively, while the average cost of interest bearing liabilities was 0.49% for the nine months ended September 30, 2015 as compared to 0.63% for the same period in 2014.

 

Interest expense on deposits decreased by $65,000, or 12.9%, to $438,000 for the nine months ended September 30, 2015, from $503,000 for the same period in 2014. Our average cost of deposits decreased six basis points to 0.40% for the nine months ended September 30, 2015 from 0.46% for the nine months ended September 30, 2014. The decrease in our average cost of deposits resulted from the continued change in the mix of our average deposits from higher-cost certificates of deposit to lower-cost core deposits. Average interest-bearing deposit balances were relatively unchanged at $144.9 million for the nine months ended September 30, 2015, compared to $145.0 million for the same period in 2014 due primarily to the increase in the average balance of passbook accounts of $3.0 million. The increase was primarily due to customer preferences in moving maturing certificate of deposit balances to more liquid core deposit products.

 

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Interest expense on FHLB advances decreased $146,000, or 56.2%, to $114,000 for the nine months ended September 30, 2015, from $260,000 for the same period in 2014. The primary reason for the decrease in interest expense on FHLB advances was a decrease in the average balance of FHLB of Chicago advances, partially offset by a 17 basis point increase in the average cost of FHLB advances to 2.45%. Average balances of FHLB of Chicago advances decreased $9.0 million to $6.2 million for the nine months ended September 30, 2015 from $15.2 million for the same period in 2014. The decrease was due to the repayment of maturing FHLB advances.

 

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For the Nine Months Ended September 30,

 

 

 

2015

 

2014

 

 

 

Average
Outstanding
Balance

 

Interest
Earned/
Paid

 

Yield/
Cost (4)

 

Average
Outstanding
Balance

 

Interest
Earned/
Paid

 

Yield/
Cost (4)

 

 

 

(Dollars in thousands)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-earning deposits in other financial institutions

 

$

25,434

 

$

47

 

0.24

%

$

23,081

 

$

42

 

0.24

%

Securities

 

51,930

 

513

 

1.32

 

59,593

 

660

 

1.48

 

Loans receivable

 

115,888

 

3,367

 

3.87

 

118,965

 

3,561

 

3.99

 

Federal Home Loan Bank of Chicago common stock

 

1,482

 

6

 

0.54

 

1,768

 

6

 

0.45

 

Total interest-earning assets

 

194,734

 

3,933

 

2.69

 

203,407

 

4,269

 

2.80

 

Total non-interest-earning assets

 

16,482

 

 

 

 

 

16,034

 

 

 

 

 

Total assets

 

$

211,216

 

 

 

 

 

$

219,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest-bearing liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Passbook accounts

 

$

66,770

 

79

 

0.16

%

$

63,723

 

70

 

0.15

%

NOW accounts

 

10,988

 

 

 

10,624

 

 

 

Money market accounts

 

6,375

 

1

 

 

6,557

 

 

 

Certificates of deposit

 

60,777

 

358

 

0.79

 

64,109

 

433

 

0.90

 

Total deposits

 

144,910

 

438

 

0.40

 

145,013

 

503

 

0.46

 

Federal Home Loan Bank of Chicago advances

 

6,200

 

114

 

2.45

 

15,200

 

260

 

2.28

 

Total interest-bearing liabilities

 

151,110

 

552

 

0.49

 

160,213

 

763

 

0.63

 

Non-interest-bearing demand deposits-checking accounts

 

$

22,057

 

 

 

 

 

$

19,654

 

 

 

 

 

Other liabilities

 

5,234

 

 

 

 

 

4,748

 

 

 

 

 

Total liabilities

 

178,401

 

 

 

 

 

184,615

 

 

 

 

 

Stockholders’ Equity

 

32,815

 

 

 

 

 

34,826

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

211,216

 

 

 

 

 

$

219,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net interest income

 

 

 

$

3,381

 

 

 

 

 

$

3,506

 

 

 

Net interest rate spread (1)

 

 

 

 

 

2.20

%

 

 

 

 

2.17

%

Net interest-earning assets (2)

 

$

43,624

 

 

 

 

 

$

43,194

 

 

 

 

 

Net interest margin (3)

 

 

 

 

 

2.31

%

 

 

 

 

2.30

%

Average interest-earning assets to average interest-bearing liabilities

 

128.87

%

 

 

 

 

126.96

%

 

 

 

 

 


(1)          Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average cost of interest-bearing liabilities.

(2)          Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)          Net interest margin represents net interest income divided by average total interest-earning assets.

(4)          Annualized.

 

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Provision for Loan Losses.  We establish a provision for loan losses, which is charged to operations, at a level management believes is appropriate to absorb probable incurred credit losses in the loan portfolio.  In evaluating the level of the allowance for loan losses, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions.  This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change.  Based on our evaluation of these factors, we recorded a provision for loan losses of $130,000 for the nine months ended September 30, 2015 and $687,000 for the nine months ended September 30, 2014. The allowance for loan losses was $1.1 million, or 0.93% of total loans, at September 30, 2015 compared to $1.1 million, or 0.96% of total loans, at December 31, 2014. The decrease in the allowance for loan losses as a percent of total loans was due to a decline in the historical loss factors on multifamily and commercial real estate loans collectively evaluated for impairment, the continued reduced risk profile of the loan portfolio, and improvements in economic conditions in the Bank’s market area.

 

Management assesses the allowance for loan losses on a quarterly basis and makes provisions for loan losses as necessary in order to maintain the adequacy of the allowance.  While management uses available information to recognize and provide for losses on loans, future loan loss provisions may be necessary based on changes in economic conditions.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and may require us to recognize additional provisions based on their judgment of information available to them at the time of their examination.  The allowance for loan losses as of September 30, 2015 was maintained at a level that represents management’s best estimate of inherent losses in the loan portfolio, and such losses that were both probable and reasonably estimable.

 

Non-Interest Income.  Non-interest income decreased $782,000 to $563,000 for the nine months ended September 30, 2015, from $1.3 million for the nine months ended September 30, 2014. The decrease was primarily due to a $775,000 decrease in other real estate owned gains due to a large commercial real estate parcel that was sold in 2014.

 

Non-Interest Expense.  Non-interest expense increased $39,000, or 1.0%, to $3.9 million for the nine months ended September 30, 2015, from $3.8 million for the nine months ended September 30, 2014.  The increase was primarily due to $257,000 of higher other real estate owned expense/impairment, partially offset by a $124,000 decrease in professional and regulatory expense, a $41,000 decrease in federal deposit insurance expense, and an $81,000 decrease in other non-interest expense items. The decrease in other non-interest expense was due to less legal expenses related to problem loans and lack of costs associated with flood damage at a branch location in 2014.

 

Other real estate owned expense/impairment increased $257,000 to $324,000 for the nine months ended September 30, 2015, from $67,000 for the nine months ended September 30, 2014. The increase was primarily due to write-downs of $359,000 on two commercial properties, partially offset by

 

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$51,000 of operating income received from one of the commercial properties and having lower expenses due to a $1.0 million commercial property that was sold in the third quarter of 2014.

 

Professional and regulatory expense decreased $124,000 to $264,000 for the nine months ended September 30, 2015 from $388,000 for the same period in 2014. The decrease was primarily due to reporting efficiencies from the Company’s second year reporting as a public company and the Bank’s improved overall regulatory condition.

 

Federal deposit insurance expense decreased $41,000 to $143,000 for the nine months ended September 30, 2015 from $184,000 for the same period in 2014. The decrease was due to the Bank’s improved overall regulatory condition.

 

Income Tax Benefit.  We recorded an income tax benefit of $66,000 for the nine months ended September 30, 2015 and an income tax benefit of $1.7 million for the nine months ended September 30, 2014. The decrease in the income tax benefit was primarily due to the reversal of the remaining deferred tax asset valuation allowance of $1.7 million during the second quarter of 2014.

 

Liquidity and Capital Resources

 

We maintain liquid assets at levels we consider adequate to meet our liquidity needs.  Our liquidity ratio averaged 42.3% and 41.8% for the nine months ended September 30, 2015 and for the year ended December 31, 2014, respectively.  We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on mortgage loans, repay borrowings and to fund loan commitments.  We also adjust liquidity as appropriate to meet our asset and liability management objectives.

 

Our primary sources of liquidity are deposits, amortization and prepayment of loans and mortgage-backed securities, maturities of investment securities and other short-term investments, and earnings and funds provided from operations.  While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition.  We set the interest rates on our deposits to maintain a desired level of total deposits.  In addition, we invest excess funds in short-term interest-earning investments and other assets, which provide liquidity to meet lending requirements.  Short-term interest-earning deposits with the Federal Reserve Bank of Chicago amounted to $26.1 million at September 30, 2015 and $29.5 million at December 31, 2014.

 

A significant portion of our liquidity consists of securities classified as available-for-sale and cash and cash equivalents, which are a product of our operating, investing and financing activities.  Our primary sources of cash are principal repayments on loans and mortgage-backed securities and increases in deposit accounts, along with advances from the FHLB of Chicago.

 

Liquidity management is both a daily and long-term function of business management.  If we require funds beyond our ability to generate them internally, borrowing agreements exist with the FHLB of Chicago and JP Morgan Chase which provides an additional source of funds.  At September 30, 2015, we had $5.0 million in advances outstanding and were eligible to borrow an additional $69.7 million from the FHLB of Chicago. At September 30, 2015, we had no balance outstanding on the $5.0

 

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Table of Contents

 

million line of credit at JP Morgan Chase.  The $5.0 million in FHLB advances outstanding at September 30, 2015, are due within one year.

 

Our cash flows are comprised of three classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $89,000 for the nine months ended September 30, 2015 compared to $394,000 for the nine months ended September 30, 2014.

 

Net cash used by investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from the sales, calls, repayments and maturities of securities, was $4.5 million for the nine months ended September 30, 2015. Net cash provided by investing activities was $13.0 million for the nine months ended September 30, 2014. During the nine months ended September 30, 2015, we purchased $21.0 million and sold $3.3 million in securities classified as available-for sale, and during the nine months ended September 30, 2014, we purchased $22.0 million and sold $11.3 million in securities classified as available-for-sale.

 

Net cash used in financing activities, consisting primarily of deposit account activity, FHLB advance and stock activity, repurchases of the Company’s common stock, and dividends paid to our stockholders, was $7.9 million and $7.2 million for the nine months ended September 30, 2015 and September 30, 2014, respectively.

 

At September 30, 2015, we had outstanding commitments of $2.9 million to originate loans.  This amount does not include the unfunded portion of loans in process.  At September 30, 2015, certificates of deposit scheduled to mature in less than one year totaled $32.0 million.  Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case.  In addition, the cost of such deposits may be significantly higher upon renewal in a rising interest rate environment.

 

We are required to maintain liquid assets in an amount that would ensure our safe and sound operation.  Our liquidity ratio at September 30, 2015 was 41.8%.

 

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Regulatory Capital

 

Basel III Capital Rules. In July 2013, the OCC and the other federal bank regulatory agencies published final rules (the “Basel III Capital Rules”) that implement, in part, agreements reached by the Basel Committee on Banking Supervision (“Basel Committee”) in “Basel III: A Global Regulatory Framework for More Resilient Banks and Banking Systems” (“Basel III”) and imposed new capital requirements on the Bank, effective January 1, 2015. The Federal Reserve has amended its “Small Bank Holding Company” policy statement to exempt savings and loan holding companies with less than $1.0 billion in assets from capital requirements.

 

The Basel III Capital Rules provide for the following minimum capital to risk-weighted assets ratios beginning as of January 1, 2015: a) 4.5% based upon common equity tier 1 capital (“CET1”); b) 6.0% based upon tier 1 capital; and c) 8.0% based upon total regulatory capital.  A minimum leverage ratio (tier 1 capital as a percentage of total average assets) of 4.0% is also required under the Basel III Capital Rules.  When fully phased in, the Basel III Capital Rules will additionally require institutions to retain a capital conservation buffer, composed of CET1, of 2.5% above these required minimum capital ratio levels.  Banking organizations that fail to maintain the minimum 2.5% capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers.  Restrictions would begin phasing in where the banking organization’s capital conservation buffer was below 2.5% at the beginning of a quarter, and distributions and discretionary bonus payments would be completely prohibited if no capital conservation buffer exists.  When the capital conservation buffer is fully phased in on January 1, 2019, the Bank will effectively have the following minimum capital to risk-weighted assets ratios: a) 7.0% based upon CET1; b) 8.5% based upon tier 1 capital; and c) 10.5% based upon total regulatory capital.

 

The Basel III Capital Rules provide for a number of deductions from, and adjustments to, CET1.  These include, for example, the requirement that mortgage servicing rights, deferred tax assets arising from temporary differences that could not be realized through net operating loss carrybacks and significant investments in non-consolidated financial entities be deducted from CET1 to the extent that any one such category exceeds 10% of CET1 or all such items, in the aggregate, exceed 15% of CET1.

 

Implementation of the deductions from, and other adjustments to, CET1 began on January 1, 2015 and will be phased-in over a 4-year period (beginning at 40% on January 1, 2015 and an additional 20% per year thereafter). The implementation of the capital conservation buffer will begin on January 1, 2016 at 0.625% and increase by 0.625% each subsequent January 1, until it reaches 2.5% on January 1, 2019.

 

The Basel III Capital Rules prescribe a new standardized approach for risk weightings that expand the risk-weighting categories from the former four Basel I-derived categories (0%, 20%, 50% and 100%) to a larger and more risk-sensitive number of categories, depending on the nature of the assets, generally

 

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ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset classes.  In particular, the Basel III Capital Rules provide stricter rules related to the risk weighting of past due and certain commercial real estate loans, as well as on some equity investment exposures, and replace the existing credit rating approach for determining the risk weighting of securitization exposures with an alternative approach in which senior securitization tranches are assigned a risk weight associated with the underlying exposure and requiring a banking organization to hold capital for the senior tranche based on the risk weight of the underlying exposures.  Under the revised approach, for subordinate securitization tranches, a banking organization must hold capital for the subordinate tranche, as well as all more senior tranches for which the subordinate tranche provides credit support.

 

With respect to the Bank, the Basel III Capital Rules revise the “prompt corrective action” (“PCA”) regulations adopted pursuant to Section 38 of the Federal Deposit Insurance Act by: (i) introducing a CET1 ratio requirement at each PCA category (other than critically undercapitalized), with the required CET1 ratio being 6.5% for well-capitalized status; (ii) increasing the minimum Tier 1 capital ratio requirement for each category, with the minimum tier 1 capital ratio for well-capitalized status being 8.0% (as compared to the former 6.0%); and (iii) eliminating the current provision that a bank with a composite supervisory rating of 1 may have a 3.0% leverage ratio and still be adequately capitalized. The Basel III Capital Rules do not change the total risk-based capital requirement for any PCA category.

 

The Basel III Capital Rules will increase the required capital levels of the Bank. The Bank made the one-time, permanent election to continue to exclude the effects of accumulated other comprehensive income or loss items included in stockholders’ equity for the purposes of determining the regulatory capital ratios.  The following table summarizes the Bank’s capital amounts and ratios, together with capital adequacy requirements, under Basel III regulatory requirements as of September 30, 2015, and under pre-Basel III regulatory requirements as of December 31, 2014.

 

 

 

 

 

 

 

 

 

 

 

To Be Well

 

 

 

 

 

 

 

Required

 

Capitalized

 

 

 

 

 

 

 

For Capital

 

Under Basel III

 

 

 

 

 

 

 

Adequacy Purposes

 

Regulatory

 

 

 

Actual

 

Under Basel III

 

Requirements

 

 

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

As of September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital to risk-weighted assets

 

$

28,891

 

32.62

%

$

7,096

 

8.0

%

$

8,870

 

10.0

%

Tier I (core) capital to risk- weighted assets

 

27,851

 

31.40

 

5,322

 

6.0

 

7,096

 

8.0

 

Common equity tier I capital to risk-weighted assets

 

27,851

 

31.40

 

3,991

 

4.5

 

5,765

 

6.5

 

Tier I (core) capital to adjusted total assets

 

27,851

 

13.51

 

8,246

 

4.0

 

10,308

 

5.0

 

 

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To Be Well

 

 

 

 

 

 

 

Required

 

Capitalized

 

 

 

 

 

 

 

For Capital

 

Under Pre-Basel III

 

 

 

 

 

 

 

Adequacy Purposes

 

Regulatory

 

 

 

Actual

 

Pre-Basel III

 

Requirements

 

 

 

Amount

 

Ratio

 

Amount

 

Ratio

 

Amount

 

Ratio

 

As of December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total risk-based capital to risk-weighted assets

 

$

30,603

 

32.21

%

$

7,601

 

8.0

%

$

9,502

 

10.0

%

Tier I (core) capital to risk-weighted assets

 

29,500

 

31.05

 

3,801

 

4.0

 

5,701

 

6.0

 

Tier I (core) capital to adjusted total assets

 

29,500

 

13.67

 

8,630

 

4.0

 

10,787

 

5.0

 

 

Implementation of the Basel III Capital Rules effective January 1, 2015 did not have a material impact on the capital levels required for the Bank.

 

Off-Balance Sheet Arrangements.  In the normal course of operations, we engage in a variety of financial transactions that, in accordance with generally accepted accounting principles are not recorded in our consolidated financial statements.  These transactions involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage customers’ requests for funding and take the form of loan commitments, unused lines of credit and standby letters of credit.

 

The contractual amount of financial instruments with off-balance sheet risk was as follows (dollars in thousands):

 

 

 

September 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

Fixed

 

Variable

 

Fixed

 

Variable

 

 

 

Rate

 

Rate

 

Rate

 

Rate

 

 

 

 

 

 

 

 

 

 

 

Commitments to make loans

 

$

2,867

 

$

 

$

1,827

 

$

221

 

Unused lines of credit and letters of credit

 

189

 

7,470

 

181

 

8,633

 

 

Commitments to make loans are generally made for periods of 120 days or less.  At September 30, 2015, the fixed rate loan commitments had interest rates ranging from 2.75% to 4.50% and the commitments are to extend credit ranging from 10 to 20 years.

 

For the nine months ended September 30, 2015 and the year ended December 31, 2014, we did not engage in any off-balance-sheet transactions other than loan origination commitments, unused lines of credit and standby letters of credit in the normal course of our lending activities.

 

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Item 3.         Quantitative and Qualitative Disclosures about Market Risk

 

Not required for smaller reporting companies.

 

Item 4.         Controls and Procedures

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on this evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective. In addition, there have been no changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II — Other Information

 

Item 1. Legal Proceedings

 

At September 30, 2015, there were no material legal proceedings to which the Company is a party or of which any of its property is subject. From time to time, the Company is a party to various legal proceedings incident to its business.

 

Item 1A. Risk Factors

 

Not required for smaller reporting companies.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

On March 17, 2015, the Board of Directors of the Company adopted a third stock repurchase program. Under the repurchase program, the Company may purchase up to 110,000 shares of its common stock, or approximately 5.0% of its then outstanding shares.

 

The Company’s stock repurchases for the three months ended September 30, 2015 were as follows:

 

 

 

 

 

 

 

Total # of shares

 

Maximum # of

 

 

 

Total #

 

Average

 

purchased as part

 

shares that

 

 

 

of share

 

price paid

 

of publicly announced

 

may yet

 

Period

 

purchased

 

per share

 

plans or programs

 

be purchased

 

July 1 - 31, 2015

 

 

$

 

 

109,972

 

August 1 – 31, 2015

 

229

 

$

14.50

 

229

 

109,743

 

September 1 – 30, 2015

 

 

$

 

 

109,743

 

Total

 

229

 

$

14.50

 

229

 

109,743

 

 

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Item 3. Defaults Upon Senior Securities

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

 

 

Description

 

 

 

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32

 

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101

 

The following materials from AJS Bancorp, Inc.’s Form 10-Q report for the quarter ended September 30, 2015, formatted in XBRL pursuant to Rule 405 of Regulation S-T: (i) Consolidated Statements of Financial Condition, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss),(iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and, (vi) the Notes to Consolidated Financial Statements.

 

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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.

 

 

 

 

 

By:

/s/ Thomas R. Butkus

 

 

 

 

 

Thomas R. Butkus,

 

 

 

 

 

Chairman of the Board,

 

 

President and Chief Executive Officer

 

 

 

 

 

 

 

Date:

November 13, 2015

 

 

 

 

 

 

 

By:

/s/ Jerry A. Weberling

 

 

 

 

 

Jerry A. Weberling,

 

 

 

 

 

Executive Vice President and

 

 

Chief Financial Officer

 

 

 

 

 

 

 

Date:

November 13, 2015

 

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