AMB Financial Corp. 8230 Hohman Avenue Munster, Indiana 46321 Financial Report For The Three and Six Months Ended June 30, 2016 Note: This report is intended to be read in conjunction with our Annual Report to Stockholders for the year ended December 31, 2015, copies of which are included on this website. This report is dated June 30, 2016 and should not be read to cover any subsequent periods. We specifically disclaim any obligation to update this report even if the contents thereof should become misleading. This report has not been prepared in accordance with Securities and Exchange Commission rules applicable to public companies and is not intended to comply with such rules.
Transcript
AMB Financial Corp. 8230 Hohman Avenue
Munster, Indiana 46321
Financial Report For The Three and Six Months Ended
June 30, 2016
Note: This report is intended to be read in conjunction with our Annual Report to Stockholders for the year ended December 31, 2015, copies of which are included on this website. This report is dated June 30, 2016 and should not be read to cover any subsequent periods. We specifically disclaim any obligation to update this report even if the contents thereof should become misleading. This report has not been prepared in accordance with Securities and Exchange Commission rules applicable to public companies and is not intended to comply with such rules.
AMB FINANCIAL CORP. TABLE OF CONTENTS
Page
Consolidated Statements of Financial Condition at June 30, 2016 (unaudited) and December 31, 2015 2 Consolidated Statements of Income for the three and six months ended June 30, 2016 and 2015 (unaudited) 3 Consolidated Statements of Comprehensive Income for the six months ended June 30, 2016 and 2015 (unaudited) 4 Consolidated Statements of Changes in Stockholders’
Equity for the six months ended June 30, 2016 and 2015 (unaudited) 5 Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (unaudited) 6
Earnings per Share Analysis 7 Notes to Unaudited Consolidated Financial Statements 8
Management’s Discussion and Analysis of Financial Condition and Results of Operations 8 - 27
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June 30, December 31,2016 2015
Assets unaudited unaudited
Cash and amounts due from depository institutions 1,998,848$ 1,734,083$ Interest-bearing deposits 17,119,466 11,778,734 Total cash and cash equivalents 19,118,314 13,512,817Mortgage backed securities, available for sale, at fair value 5,008,353 5,661,724Stock in Federal Home Loan Bank of Indianapolis, at cost 949,700 949,700Loans receivable (net of allow ance for loan losses: $1,911,223 at June 30, 2016 and $1,902,406 at December 31, 2015) 158,344,988 153,325,149Other real estate ow ned 139,846 139,846Investment in limited partnership 384,870 403,470Accrued interest receivable 558,944 533,515Office properties and equipment- net 8,854,249 8,951,166Bank ow ned life insurance 4,699,254 4,655,534Prepaid expenses and other assets 1,648,885 1,803,269
Total assets 199,707,403$ 189,936,190$
Liabilities and Stockholders' Equity
Liabilities
Deposits 171,193,829$ 163,197,268$ Borrow ed money 7,446,507 2,498,683Junior subordinated debentures 3,093,000 3,093,000Other liabilities 2,552,413 2,476,076 Total liabilities 184,285,749$ 171,265,027$
Stockholders' EquityPreferred stock, $1,000 liquidation value; authorized 100,000 shares; 0 shares issued and outstanding at June 30, 2016 and 3,858 shares issued and outstanding at December 31, 2015 -$ 3,858,000$ Common Stock, $.01 par value; authorized 1,900,000 shares; 1,683,641 shares issued and 981,638 shares outstanding at June 30, 2016 and December 31, 2015 16,837 16,837Additional paid-in capital 11,533,912 11,533,912Retained earnings 11,604,009 11,025,038Accumulated other comprehensive income (loss), net of tax 27,739 (1,781)Treasury stock, at cost (702,003 shares at June 30, 2016 and December 31, 2015) (7,760,843) (7,760,843) Total stockholders' equity 15,421,654$ 18,671,163$
Total liabilities and stockholders' equity 199,707,403$ 189,936,190$
See accompanying notes to audited consolidated f inancial statements.
AMB Financial Corp. and SubsidiariesConsolidated Balance Sheets
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Three Months Three Months Six Months Six MonthsEnded Ended Ended Ended
June 30, June 30, June 30, June 30,2016 2015 2016 2015
Interest income Interest on Loans 1,784,364$ 1,752,576$ 3,565,374$ 3,623,738$ Interest on mortgage-backed securities 22,447 30,016 50,029 64,520 Interest on interest-bearing deposits 9,767 3,944 21,980 8,043 Dividends on Federal Home Loan Bank stock 10,008 11,992 20,071 26,365 Total interest income 1,826,586$ 1,798,528$ 3,657,454$ 3,722,666$
Interest expense Interest on deposits 189,166$ 174,700$ 375,585$ 348,153$ Interest on borrow ings 52,766 59,597 103,994 118,637 Total interest expense 241,932$ 234,297$ 479,579$ 466,790$
Net interest income 1,584,654$ 1,564,231$ 3,177,875$ 3,255,876$ Provision for loan losses - 40,000 40,000 90,000 Net interest income after provision for loan losses 1,584,654$ 1,524,231$ 3,137,875$ 3,165,876$
Non-interest income: Loan fees and service charges 97,878$ 82,712$ 178,248$ 140,460$ Deposit related fees 71,422 75,025 136,933 148,054 Other fee income 25,044 21,247 69,062 39,612 Rental Income 100,927 106,226 205,619 211,567 Gain on sale of loans 108,910 92,324 247,636 213,428 Net gain on sale of other real estate ow ned, net of w ritedow ns - 14,220 - 20,343 Loss from limited partnership (9,300) (9,300) (18,600) (18,600) Increase in cash surrender value of life insurance 21,810 22,514 43,720 45,437 Other income 5,068 6,093 12,084 13,597 Total non-interest income 421,759$ 411,061$ 874,702$ 813,898$
Non-interest expense: Staff ing costs 830,210$ 758,013$ 1,591,969$ 1,534,721$ Advertising 74,894 69,379 107,422 150,990 Occupancy and equipment expense 145,836 134,766 313,245 307,354 Data processing 151,566 122,530 318,285 285,275 Professional fees 65,317 77,305 124,153 167,746 Federal deposit insurance premiums 28,535 22,853 58,814 56,693 Insurance expense 28,039 27,341 54,373 54,452 Other operating expenses 130,851 220,430 281,031 429,742 Total non-interest expense 1,455,248$ 1,432,617$ 2,849,292$ 2,986,973$
Income before income taxes 551,165$ 502,675$ 1,163,285$ 992,801$ Income tax expense 204,437 187,022 432,376 368,998 Net income 346,728 315,653 730,909 623,803 Preferred stock dividends - 9,645 4,692 19,290
Net income available to common shareholders 346,728$ 306,008$ 726,217$ 604,513$
Earnings per common share: Basic 0.35$ 0.31$ 0.74$ 0.61$ Diluted 0.35$ 0.31$ 0.74$ 0.61$
See accompanying notes to audited consolidated f inancial statements.
AMB Financial Corp. and SubsidiariesConsolidated Statements of Income
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2016 2015
Net income 730,909$ 623,803$
Other comprehensive (loss) income, net of tax:
Unrealized gains on securities
available for sale--
Unrealized holding gain arising during the period 29,520 (15,379)
Less: reclassification adjustment for (gain) loss
included in net income - -
Other comprehensive income, net of tax 29,520 (15,379)
Total comprehensive income 760,429$ 608,424$
See accompanying notes to audited consolidated financial statements
Six Months Ended June 30,
AMB Financial Corp. and SubsidiariesConsolidated Statements of Comprehensive Income
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Accumulated
Additional Other
Preferred Common Paid-in Retained Comprehensive Treasury
Stock Stock Capital Earnings Income (Loss) Stock Total
Balance at December 31, 2014 3,858,000$ 16,837$ 11,533,912$ 9,813,067$ 22,488$ (7,760,843)$ 17,483,461$
Net income 623,803 623,803
Other comprehensive loss, net of tax (15,379) (15,379)
Cash dividends declared on common
shares ($.10 per share) (98,164) (98,164)
Cash dividends paid on preferred stock (19,290) (19,290)
Balance at June 30, 2015 3,858,000$ 16,837$ 11,533,912$ 10,319,416$ 7,109$ (7,760,843)$ 17,974,431$
Accumulated
Additional Other
Preferred Common Paid-in Retained Comprehensive Treasury
Stock Stock Capital Earnings Income (Loss) Stock Total
Balance at December 31, 2015 3,858,000$ 16,837$ 11,533,912$ 11,025,038$ (1,781)$ (7,760,843)$ 18,671,163$
Net income 730,909 730,909
Other comprehensive income, net of tax 29,520 29,520
Redemption of SBLF preferred stock (3,858,000) (3,858,000)
Cash dividends declared on common
shares ($.15 per share) (147,246) (147,246)
Cash dividends paid on preferred stock (4,692) (4,692)
Balance at June 30, 2016 -$ 16,837$ 11,533,912$ 11,604,009$ 27,739$ (7,760,843)$ 15,421,654$
See accompanying notes to audited consolidated financial statements.
AMB Financial Corp. and SubsidiariesConsolidated Statements of Changes in Stockholders' Equity
For the Six Months Ended June 30, 2016 and 2015
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2016 2015
Cash flows from operating activities:
Net income 730,909$ 623,803$
Adjustments to reconcile net income to net cash from operating activities:
Depreciation 177,236 175,923
Amortization of premiums and accretion of discounts 32,093 44,626
Proceeds from sale of loans originated for sale 9,118,570 9,118,673
Loans originated for sale (8,961,249) (8,905,245)
Gain on sale of loans (219,348) (213,428)
Loans sold - credit card portfolio 391,733 -
Gain on sale of loans - credit card portfolio (28,288) -
Gain on sale of other real estate owned - (20,343)
Provision for loan losses 40,000 90,000
Loss from limited partnership 18,600 18,600
Increase in cash surrender value of life insurance (43,720) (45,437)
Increase in deferred yield adjustments on loans 11,570 4,833
(Decrease) increase in prepaid and deferred income taxes (89,054) 437,213
Decrease (increase) in accrued interest receivable (25,429) 17,594
Decrease in other assets 264,909 34,251
Increase (decrease) in other liabilites 97,213 (506,717)
Net cash provided by operating activities 1,515,745 874,346
Cash flows from investing activities:
Purchase of mortgage-backed securities - -
Proceeds from repayments of mortgage-backed securities 670,478 894,708
Other increase in loans (5,434,854) (347,201)
Proceeds from sale of other real estate owned - 720,417
Proceeds from the redemption of Federal Home Loan Bank stock - 403,700
Property and equipment expenditures, net (80,319) (173,592)
Net cash for investing activities (4,844,695) 1,498,032
Cash flows from financing activities:
Net increase in deposits 7,996,561 1,163,836
Proceeds from borrowed money 5,000,000 6,000,000
Repayment of borrowed money (52,176) (6,049,904)
Redemption of preferred stock (3,858,000) -
Dividends paid on common stock (147,246) (98,164)
Dividends paid on preferred stock (4,692) (19,290)
Net cash provided by financing activities 8,934,447 996,478
Net change in cash and cash equivalents 5,605,497 3,368,856
Cash and cash equivalents at beginning of period 13,512,817 12,227,892
Cash and cash equivalents at end of period 19,118,314$ 15,596,748$
Supplemental disclosure of cash flow information:
Interest paid 478,346$ 466,508$
Income taxes paid 460,000 410,000
Transfer of loans to other real estate owned - 243,380
See accompanying notes to audited consolidated financial statements.
(unaudited)
Six Months Ended June 30,
AMB Financial Corp. and Subsidiaries
Consolidated Statements of Cash Flows
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Three Months Three Months
Ended Ended
June 30, 2016 June 30, 2015
Net Income 346,728$ 315,653$
Less: Preferred stock dividends - (9,645)
Net income available to common shareholders 346,728$ 306,008$
Weighted average common shares
outstanding for basic computation 981,638 981,638
Basic income per common share 0.35$ 0.31$
Weighted average common shares
outstanding for basic computation 981,638 981,638
Common stock equivalents due to
dilutive effect of stock options - -
Weighted average common shares and
equivalents outstanding for diluted
computation 981,638 981,638
Diluted income per common share 0.35$ 0.31$
Six Months Six Months
Ended Ended
June 30, 2016 June 30, 2015
Net Income 730,909$ 623,803$
Less: Preferred stock dividends (4,692) (19,290)
Net income available to common shareholders 726,217$ 604,513$
Weighted average common shares
outstanding for basic computation 981,638 981,638
Basic income per common share 0.74$ 0.61$
Weighted average common shares
outstanding for basic computation 981,638 981,638
Common stock equivalents due to
dilutive effect of stock options - -
Weighted average common shares and
equivalents outstanding for diluted
computation 981,638 981,638
Diluted income per common share 0.74$ 0.61$
AMB Financial Corp. and Subsidiaries
Earnings Per Share
(Unaudited)
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AMB Financial Corp. And Subsidiaries
Status as Non-Reporting Company. We are not subject to the reporting requirements of Section 13 of the Securities Exchange Act of 1934 and accordingly this report has not been prepared in accordance with applicable Securities Exchange Commission rules. This report is intended to cover the six month period ended June 30, 2016 and should not be read to cover any other periods. Notes to Consolidated Financial Statements. The accompanying unaudited consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America and in the opinion of management contain all adjustments (all of which are normal and recurring in nature) necessary for a fair presentation. The results of operations for the three months ended June 30, 2016 are not necessarily indicative of the results expected for the year ending December 31, 2016. The June 30, 2016 consolidated financial statements should be read in conjunction with the consolidated financial statements and notes for the year ended December 31, 2015 included in the Company’s Annual Report. The Company’s consolidated statement of condition as of December 31, 2015 has been derived from the Company’s audited consolidated statement of condition as of that date. The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that could have a material effect on the carrying value of certain assets and liabilities. These estimates and assumptions affect the amounts reported in the consolidated financial statements and the disclosures provided. The determination of the allowance for loan losses, valuations and impairments of investment securities, and the accounting for income tax expense are highly dependent on management’s estimates and assumptions where changes in any of these could have a significant impact on the financial statements. The consolidated financial statements include the accounts of AMB Financial Corp. (the “Company”), and its wholly-owned subsidiary, American Community Bank of Indiana (the “Bank”). Earnings per Share. Earnings per share for the three and six month periods ended June 30, 2016 and 2015 were determined by dividing net income available to common shareholders for the periods by the weighted average number of both basic and diluted shares of common stock, as well as common stock equivalents outstanding. Stock options are regarded as common stock equivalents and are considered in diluted earnings per share calculations. Common stock equivalents are computed using the treasury stock method. For such periods, there was no dilutive effect of common stock equivalents. Reclassifications. Certain 2015 items or amounts have been reclassified or restated in order to conform to the 2016 presentation. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements. The Company and the Bank may from time to time make written or oral “forward-looking statements.” These forward-looking statements may be included in this Financial Report, which are made in good faith by us. These forward-looking statements include statements about our beliefs, plans, objectives, goals, expectations, anticipations, estimates and intentions, which are subject to significant risks and uncertainties, and are subject to change based on various factors, some of which are beyond our control. The words “may,” “could,” “should,” “would,” “believe,” “anticipate,” “estimate,” “expect,” “intend,” “plan” and similar expressions are intended to identify forward-looking statements. The following factors, among others, could cause our financial performance to differ
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materially from the plans, objectives, expectations, estimates and intentions expressed in the forward-looking statements:
the current condition of the United States economy in general and in our local economy (including unemployment) in which we conduct operations;
the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Federal Reserve Board and the United States Treasury (“UST”);
our ability to manage and reduce our non-performing assets; our ability to repay our holding company debt, including our $3 million of trust preferred stock
and $1.7 million of holding company notes, when due; the impact of new laws and regulations resulting from the recent economic crisis on financial
institutions, the lending market and our regulatory agencies; the impact of new regulations imposed by the Federal Reserve System, the Federal Deposit
Insurance Corporation (“FDIC”) and the State of Indiana Department of Financial Institutions; future deposit premium levels which may rise; future loan underwriting and consumer protection requirements including those issued by the
Consumer Financial Protection Bureau; inflation, interest rate, market and monetary fluctuations and its impact on our interest rate
sensitive balance sheet; the decline in loan demand and real estate values within our local market; the future financial strength, dividend level and activities of the FHLB of Indianapolis in which
we own stock and from which we borrow money; the impact of any new government foreclosure relief and loan modification programs; the timely development of and acceptance of our new products and services and the perceived
overall value of these products and services by users, including the features, pricing and quality thereof compared to competitors’ products and services;
the willingness of users to substitute our products and services for products and services of our competitors;
our ability to reinvest our cash flows in today’s very low interest rate environment; our success in gaining regulatory approval of our products and services, when required; the impact of changes in financial services’ laws and regulations (including laws concerning
taxes, banking, securities and insurance); the impact of technological changes; competition from other financial service providers in the Company’s market area; the success of our new executives in managing our business operations; the success of our loan restructuring and work out arrangements; our ability to accurately estimate the value of our assets and the appropriate level of our
allowance for loan losses; our ability to lease space in our branch facilities when vacancies occur; and future changes in consumer spending and saving habits.
Redemption of Preferred Stock under Small Business Lending Fund. On March 22, 2016, AMB Financial Corp redeemed all of the outstanding preferred shares, totaling $3,858,000, from the Small Business Lending Fund ("SBLF") program. The redemption was funded with available cash on hand. Following the redemption, AMB has no preferred securities outstanding under the SBLF program. The SBLF was created by the United States Department of the Treasury to encourage banks to increase lending to small businesses by providing additional capital to eligible
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institutions. On September 22, 2011, AMB issued 3,858 preferred shares to the Treasury for $3,858,000 in capital under the SBLF program. Financial Condition. Total assets of the Company were $199.7 million at June 30, 2016, an increase of $9.8 million, from $189.9 million at December 31, 2015. Cash and cash equivalents increased $5.6 million and net loans receivable increased $5.0 million. The aforementioned increases were funded by an $8.0 million increase in deposits and a $4.9 million increase in borrowings. Cash and cash equivalent, which consist primarily of interest-earning deposits, totaled $19.1 million at June 30, 2016, an increase of $5.6 million, from $13.5 million at December 31, 2015. Cash and cash equivalents can fluctuate significantly on a day-to-day basis due to cash demands, customer deposit levels, loan activity and future expected cash flows. Mortgage-backed securities, available for sale, decreased $653,000 to $5.0 million at June 30, 2016, from $5.7 million at December 31, 2015. The decrease was the result of repayments as there was no purchase activity during the six month period ended June 30, 2016. The Company recorded an unrealized gain on available for sale mortgage-backed securities of $46,000 at June 30, 2016 compared to a $3,000 unrealized loss at December 31, 2015. These amounts are included as part of the carrying cost of mortgage-backed securities, available for sale, at each respective period. The Bank is a member of the FHLBI and had a $950,000 investment in stock of the FHLBI at June 30, 2016. Members are required to own a certain amount of stock based on the level of borrowings and other factors. The investment is carried at par value, as there is not an active market for FHLBI stock. Net loans receivable totaled $158.3 million at June 30, 2016, a $5.0 million increase from the $153.3 million balance at December 31, 2015. The Company originated $9.0 million of loans held for sale which were subsequently sold during the six month period ended June 30, 2016, as compared to $8.9 million during the prior year period. Loans originated for sale are fixed-rate, single-family mortgage loans, which are sold in an effort to manage interest rate risk and generate fee income. The Company also sold its investment in a credit card portfolio totaling $363,000 during March 2016 and must continue to guarantee a portion of the portfolio which totaled $162,000 at June 30, 2016. The determination of the allowance for loan losses involves material estimates that are susceptible to significant change in the near term. The allowance for loan losses is maintained at a level appropriate to absorb management’s estimate of probable incurred losses inherent in the loan portfolio. The provision for loan losses is based upon management’s quarterly review of the loan portfolio. The purpose of the review is to assess loan quality, identify impaired loans, analyze delinquencies, ascertain loan growth, evaluate potential charge-offs and recoveries, and assess general economic conditions in the markets that the Company serves. To determine the appropriate level for the allowance for loan losses, management applies historical loss percentages to performing residential real estate, nonresidential real estate, consumer, and commercial business loan balances. In addition, nonperforming loans are evaluated for current collateral deficiencies. When such loans are found to have collateral deficiencies, the deficiency is charged-off to the allowance for loan losses. Management evaluates the results of the allowance for loan losses by applying the historical and subjective loss factors to the current loan balances and identifying any required collateral deficiency reserves for the period. Based upon this analysis, management will record any required loan loss provisions to establish the appropriate level for the allowance for loan losses.
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The allowance for loan losses totaled $1.9 million at June 30, 2016, representing a $9,000 increase as compared to December 31, 2015. The Bank’s allowance for loan losses to total loans was 1.19% at June 30, 2016 as compared to 1.23% at December 31, 2015. Management believes that the allowance for loan losses is adequate to meet probable incurred loan losses in the portfolio. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in information and economic conditions. In addition, both the FDIC and the Indiana Department of Financial Institutions, as an integral part of their examination process, will periodically review the Bank's allowance for loan losses and may require the Bank to recognize additions to the loan loss allowance based upon their judgments about information available to them at the time of their examination. The following table sets forth the activity in the allowance for loan losses for the six months ended June 30, 2016 and 2015. Six Months Six Months Ended Ended June 30, June 30, 2016 2015
Balance at beginning of period: ............................................ $1,902,406 $1,773,710 Charge-offs: One- to four family ............................................................. (21,462) (16,920) Multi-family ........................................................................ - (7,040) Non-residential .................................................................... - - Land .................................................................................... - - Consumer ............................................................................ (20,641) (2,489) Commercial business .......................................................... - - Total charge-offs .............................................................. (42,103) (26,449) Recoveries: One- to four family ............................................................. 8,191 28,474 Multi-family ........................................................................ - - Non-residential .................................................................... - - Land .................................................................................... - - Consumer ............................................................................ 783 - Commercial business .......................................................... 1,946 13,912 Total recoveries ................................................................ 10,920 42,386 Net (charge-offs) recoveries .................................................. (31,183) 15,937 Provisions for loan losses ...................................................... 40,000 90,000 Balance at end of period ....................................................... $1,911,223 $1,879,647 Ratio of net (charge-offs) recoveries during the period to average gross loans outstanding during the period ............................. (0.02)% 0.01% Ratio of net (charge-offs) recoveries during the period to average non-performing loans during the period ............................... (2.54)% 1.35%
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Loans receivable are summarized as follows at the dates indicated:
June 30, December 31,2016 2015
Mortgage loans:One-to-four family 68,364,779$ 69,691,566$ Multi-family 8,582,526 9,007,701 Nonresidential 45,028,847 43,587,067 Construction 12,550,449 9,206,504 Land 5,208,893 5,130,063
Total mortgage loans 139,735,494 136,622,901
Other loans:Equity lines of credit 7,509,059 6,602,437 Other consumer 1,133,095 1,479,804
Substandard non-accruing loans: One- to four-family $ 1,504,335 $ 852,850 Non-residential 120,356 132,073 Equity lines of credit 18,883 20,106 Other consumer 95,701 12,030 Total substandard non-accruing loans $ 1,739,275 $ 1,017,059 Total loans receivable $ 160,591,152 $ 155,550,927 Total non-accrual / loans receivable 1.08% 0.65%
Substandard – accruing loans One- to four-family $ 781,243 $ 984,517 Land 166,082 172,630 Total substandard – accruing loans $ 947,325 $ 1,157,147 Total loans receivable $ 160,591,152 $ 155,550,927 Total substandard accruing / loans receivable 0.59% 0.74%
Total classified loans $ 2,686,600 $ 2,174,206 Total loans receivable $ 160,591,152 $ 155,550,927 Total classified loans / loans receivable 1.67% 1.40%
Substandard other real estate owned: Land 139,846 139,846Total substandard other real estate owned $ 139,846 $ 139,846
Total classified assets $ 2,826,446 $ 2,314,052 Total assets $ 199,707,403 $ 191,152,507 Total classified assets / total assets 1.42% 1.21%
Other criticized assets Special mention – accruing loans Total special mention – accruing loans $ - $ - Total loans receivable $ 160,591,152 $ 155,550,927 Total special mention accruing / loans receivable 0.00% 0.00%
Criticized and Classified Assets. The following table sets forth the amounts and categories of non-performing assets and other criticized and classified assets, on the dates indicated.
Total 1,945,511$ 158,645,641$ 160,591,152$ 1,242,674$ 154,308,253$ 155,550,927$
Impaired loans, which consist of the Company's non-accrual loans and troubled debt restructured loans, were as follows:
June 30, December 31,
2016 2015Period end loans with allocated allowance for loan losses 206,236$ 218,538$ Period end loans with no allocated allowance for loan losses 1,739,275 1,024,136 Total 1,945,511$ 1,242,674$
Valuation reserve relating to impaired loans 41,826$ 52,738$
Non-Performing Assets, Impaired Loans and Allowance for Loan Losses.
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 for the dates indicated:
At June 30, 2016 At December 31, 2015
Allowance for Loan Losses
Loan Balances
At June 30, 2016 At December 31, 2015
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Unpaid Allowance for Unpaid Allowance forPrincipal Loan Losses Principal Loan LossesBalance Allocated Balance Allocated
With an allowance recorded:One-to-four family 206,236$ 41,826$ 208,897$ 43,097$ Multi-family - - - - Nonresidential - - - - Construction - - - - Land - - - - Equity lines of credit - - - - Other consumer - - 9,641 9,641 Commercial business loans - - - -
With no related allowance recorded:One-to-four family 1,504,335 - 869,568 - Multi-family - - - - Nonresidential 120,356 - 132,073 - Construction - - Land - - Equity lines of credit 18,883 - 20,106 - Other consumer 95,701 - 2,389 - Commercial business loans - - - - Total 1,945,511$ 41,826$ 1,242,674$ 52,738$
June 30, December 31,
2016 2015One-to-four family 1,504,335$ 852,850$ Multi-family - - Nonresidential 120,356 132,073 Construction - - Land - - Equity lines of credit 18,883 20,106 Other consumer 95,701 12,030 Commercial business loans - -
Total 1,739,275$ 1,017,059$
Nonaccrual loans are summarized as follows:
The following table presents loans individually evaluated for impairment by class of loans as of the dates indicated:
At December 31, 2015At June 30, 2016
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30 - 89 90 Days Loans
Days or Greater Total Not
Past Due Past Due Past Due Past Due Total
One-to-four family 1,762,364$ 1,037,757$ 2,800,121$ 65,564,658$ 68,364,779$
The Company has allocated $41,826 and $43,097 of loan loss reserves to customers whose loan terms have been modified in troubled debt restructurings as of June 30, 2016 and December 31, 2015, respectively.
The following tables present the aging of the recorded investment in past due loans.
The following table presents loans classified as troubled debt restructurings.
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Risk Classification of Loans. The Company’s policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or criticized assets designated as special mention. A substandard asset is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Assets so classified must have a well-defined weakness, or weaknesses, that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Risk rating guidance clarifies that a loan with a well-defined weakness does not have to present a probability of default for the loan to be rated substandard, and that an individual loan’s loss potential does not have to be distinct for the loan to be rated substandard. An asset classified doubtful has all the weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Assets classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted; such balances are promptly charged-off as required by applicable federal regulations. A special mention asset has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the institution’s credit position at some future date. Special mention assets are not adversely classified and do not expose an institution to sufficient risk to warrant adverse classification. Based on a review of the Company’s classified assets, loans classified substandard as well as other real estate owned totaled $2.8 million at June 30, 2016, as compared to $2.3 million at December 31, 2015. Non-Performing Loans. Non-performing loans, which consist primarily of those nonaccrual loans which are past due ninety days or more as well as loans less than ninety days past due for which the collectability of principal and interest is in doubt totaled $1.7 million, or 1.08% of total loans receivable at June 30, 2016, compared to $1.0 million, or 0.65% of total loans receivable at December 31, 2015. Potential Problem Loans. The Company defines potential problem loans as performing loans rated substandard or special mention, which do not meet the definition of a non-performing loan. The Company does not necessarily expect to realize losses on potential problem loans, but does recognize that potential problem loans carry a higher probability of default and require additional attention by management. As part of its loan review process, the Company evaluates a borrower’s financial condition as well as the underlying collateral’s cash flows in order to determine the appropriate loan grade/classification. The Company reviews nonresidential real estate loans, commercial non real estate loans and multiple non-owner occupied single-family loans made to the same borrower to determine if these loans should be classified. As a result of these reviews, loans totaling $947,000 were classified as performing substandard at June 30, 2016, compared to $1.2 million at December 31, 2015. There were no potential problem loans categorized as special mention at June 30, 2016 and December 31, 2015. The ratio of allowance for loan losses to classified and criticized loans was 71.1% at June 30, 2016, compared to 87.5% at December 31, 2015. Other real estate owned, which is classified substandard, totaled $140,000 at June 30, 2016 and December 31, 2015. Other real estate owned properties are initially recorded at fair value less estimated cost to sell at acquisition, establishing a new cost basis. If fair value declines subsequent to foreclosure,
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a valuation allowance is recorded through expense. There can be no assurance whether, when, and at what price the Company will be able to sell the remaining inventory of other real estate owned properties. There also can be no assurance that we will not experience increases in our non-performing assets or that the value of our current non-performing assets will not further decline. It is not clear how serious an effect the economy will have on the Company’s loan volume, credit quality and deposit flows. However, management believes that the Company’s non-owner occupied loans, purchased loans, and consumer loans, as well as the other real estate it owns, may be particularly sensitive to adverse economic conditions. The Company’s investment in a limited partnership decreased $18,000 to $385,000 at June 30, 2016, from $403,000 at December 31, 2015. The decrease represents the Company’s share of the operating losses generated by the partnership, which manages an investment in an affordable housing apartment development. Office properties and equipment totaled $8.9 million at June 30, 2016, a $97,000 decrease from the balance at December 31, 2015. The decrease represents normal depreciation of $177,000, offset by current period additions that totaled $80,000. Bank owned life insurance increased $44,000 to $4.7 million at June 30, 2016. The change represents an increase in the cash surrender value of the life insurance policies purchased in connection with deferred compensation plans utilized by directors and officers of the Company. Prepaid expenses and other assets decreased $154,000 to $1.6 million at June 30, 2016, from $1.8 million at December 31, 2015. Included in prepaid expenses and other assets is an $826,000 net deferred tax asset. Total deposits increased $8.0 million to $171.2 million at June 30, 2016, from $163.2 million at December 31, 2015. The increase in deposits during the period was due to a $7.5 million increase in demand deposits and NOW accounts (checking) and a $1.4 million increase in money market accounts, offset, in part, by a $169,000 decrease in passbook deposits and a $748,000 decrease in certificates of deposit accounts. At June 30, 2016, the Bank’s non-certificate accounts (passbook, checking and money market accounts) comprised $104.2 million, or 60.8% of deposits, compared to $95.4 million, or 58.5% of deposits, at December 31, 2015. The majority of the Bank’s deposits are derived from core client sources, relating to long-term relationships with local individuals, businesses and municipal entities. The Company does not utilize brokered deposits. Borrowed money, which consisted of FHLBI advances and other borrowings, increased $4.9 million to $7.4 million at June 30, 2016. Borrowings from the FHLBI at June 30, 2016 totaled $5.8 million with a weighted average rate of 2.03% and a weighted term to maturity of 4.9 years. On June 24, 2016, the Company borrowed $5.0 million at an interest rate of 1.32% having a maturity date of June 24, 2021. Other borrowed money totaled $1.7 million and carries a 5.00% rate of interest with a maturity date of March 30, 2018. This borrowing requires principal and interest payments amortized over a fifteen year period. Principal payments have reduced the balance by $52,000 during the six month period ended June 30, 2016. The Company’s trust preferred subordinated debentures remained unchanged totaling $3.1 million at June 30, 2016. The interest rate payable on the debentures adjusts quarterly to the three month LIBOR
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plus 1.65% and was 2.30% at June 30, 2016. These debentures have a contractual maturity date of June 15, 2037 and the Company has the right to redeem the debentures, in whole or in part, on any interest payment date. Other liabilities increased $76,000 totaling $2.6 million at June 30, 2016, compared to $2.5 million at December 31, 2015. Total stockholders’ equity decreased $3.2 million to $15.4 million, or 7.72% of total assets, at June 30, 2016, compared to $18.7 million, or 9.83% of total assets, at December 31, 2015. The decrease in stockholders’ equity was attributable to the $3,858,000 redemption of our preferred shares held through the SBLF, a preferred stock cash dividend paid to the United States Treasury under the SBLF program totaling $5,000 and a $147,000 cash dividend paid to common shareholders, offset, in part, by $730,000 of net income for the six month period ended June 30, 2016, and a $29,000 increase in the unrealized gain on available for sale securities, net of tax. The number of common shares outstanding at June 30, 2016 was 981,638 and the book value per common share outstanding was $15.71. The Bank’s Tier 1 leverage capital ratio, risked-based common equity Tier 1 capital ratio, risk-based Tier 1 capital ratio and risk-based total capital ratio percentages of 9.95%, 12.45%, 12.45% and 13.70%, respectively, at June 30, 2016 exceeded all regulatory requirements and categorize the Bank as well capitalized under applicable regulations. Comparison of the Results of Operations for the Quarter Ended June 30, 2016 and June 30, 2015 General. Net income available to common shareholders for the quarter ended June 30, 2016 was $347,000, or $0.35 per diluted common share, an increase of $31,000 or 9.8%, compared to $316,000 or $0.31 per diluted common share for the same period in 2015. The increase in the current quarter net income available to common shareholders compared to the prior year quarter was the result of a $20,000 increase in net interest income, a $40,000 decrease in the provision for loan losses, and an $11,000 increase in non-interest income, offset, in part, by a $23,000 increase other non-interest expense and a $17,000 increase in income tax expense. Interest Income. Total interest income increased $28,000, or 1.6%, to $1.8 million for the quarter ended June 30, 2016, from the prior year quarter as the result of a $7.4 million increase in the average balance of interest-earning assets outstanding offset, in part, by a 13 basis point decline in the weighted average yield on interest-earning assets to 4.23%. Interest income on loans receivable decreased $32,000, to $1.8 million for the quarter ended June 30, 2016, as compared to the prior year quarter as the result of a $6.7 million increase in the average balance of net loans receivable outstanding offset, in part, by 12 basis point decrease in the average yield to 4.59%. The increase in the average balance was due to increased originations between the periods which outpaced loan payoffs and repayments. The decrease in the average yield earned reflects the impact of new originations at relatively lower yields. Interest income on mortgage-backed securities decreased $8,000 to $22,000 for the quarter ended June 30, 2016, compared to the prior year quarter as the result of a $1.6 million decrease in the average outstanding balance of mortgage-backed securities and a 3 basis point decrease in the average yield to 1.74%. Interest income on interest-bearing deposits increased $6,000 to $10,000 for the quarter ended June 30, 2016, compared to the prior year quarter as the result of a $2.6 million increase in the average outstanding balance and an 18 basis point increase in the average yield to 0.39%. Dividend income on FHLBI stock decreased $2,000 to $10,000 for the quarter ended June 30, 2016, compared to the prior year quarter as the result of a $257,000 decline in the average balance outstanding offset, in part, by a 24 basis point increase in the average yield to 4.23%.
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Interest Expense. Total interest expense increased $8,000, or 3.3%, to $242,000 for the quarter ended June 30, 2016, compared to the prior year quarter as the result of $10.7 million increase in the average balance of interest-bearing liabilities outstanding offset, in part, by a 1 basis point decrease in the average cost of interest bearing liabilities to 0.57%. Interest expense on deposits increased $14,000, or 8.3%, to $189,000 for the quarter ended June 30, 2016, compared to the prior year quarter as the result of a $7.4 million increase in the average balance of deposits outstanding and a 1 basis point increase in the average cost of deposits to 0.46%. Interest expense on borrowings decreased $7,000, or 11.5%, to $53 for the quarter ended June 30, 2016, compared to the prior year quarter as the result of a $435,000 decline in the average balance of borrowings outstanding as well as a 19 basis point decrease in the average cost to 3.56%. Interest expense on FHLBI advances decreased $8,000 to $14,000 for the quarter ended June 30, 2016, compared to the prior year quarter as the result of a $333,000 decrease in the average balance outstanding and a 114 basis point decrease in the average cost to 4.97%. Interest expense on other borrowings, having an outstanding average balance of $1.7 million, declined $1,000 to $21,000 for the quarter ended June 30, 2016, compared to the prior year quarter as the result of a $100,000 decrease in the average balance outstanding. The interest expense on junior subordinated debentures, having an outstanding average balance of $3.1 million, increased $2,000 to $17,000 for the quarter ended June 30, 2016, compared to the prior year quarter as the result of a 35 basis point increase in the average cost to 2.24%. Net Interest Income. As a result of the above changes in interest income and interest expense, net interest income increased $20,000 for the quarter ended June 30, 2016, compared to the prior year quarter. The net interest rate spread decreased 12 basis points to 3.66% for the quarter ended June 30, 2016, while the net interest margin, expressed as a percentage of average earning assets, decreased 12 basis points to 3.67% for the quarter ended June 30, 2016. Provision for Loan Losses. The Company recorded $0 in provision for loan losses for the quarter ended June 30, 2016, compared to $40,000 for the quarter ended June 30, 2015. The provision for loan losses is a function of the allowance for loan loss methodology used to determine the appropriate level of the allowance for inherent loan losses after adjusting for loan charge-offs and recoveries. Loan losses are charged-off against the allowance when it is believed that the loan balance, or a portion of the loan balance, is no longer realizable by the paying capacity of the borrower based on an evaluation of available cash resources and collateral value. Recoveries of amounts previously charged-off are credited to the allowance. The Company recorded net charge-offs of $10,000 for the quarter ended June 30, 2016, compared to net recoveries of $3,000 for the prior year quarter ended June 30, 2015. Non-Interest Income. Non-interest income increased $11,000 to $422,000 for the quarter ended June 30, 2016, compared to prior year quarter due primarily to a $15,000 increase in loan fees due to increased loan origination and fees derived from sales and a $16,000 increase in gains on the sale of loans. These increases were offset, in part, by a $14,000 decrease in gains on the sale of other real estate owned and a $5,000 decrease in rental income. Non-Interest Expense. Non-interest expense increased $23,000 to $1.4 million for the quarter ended June 30, 2016, compared to prior year quarter primarily as the result of a $72,000 increase in staffing expenses due to additional payroll associated with the Company’s recent data processing conversion as well as increased pension costs, an $18,000 increase in real estate taxes and a $29,000 increase in data
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processing expenses primarily due to the aforementioned data processing conversion. Partially offsetting these increases was a $12,000 decrease in legal and professional fees and a $90,000 decrease in other operating expenses consisting of OREO, telecommunication and loan expenses. Income Taxes. The Company recorded income tax expense of $204,000 for the quarter ended June 30, 2016, resulting in an effective tax rate of 37.1%, compared to income tax expense of $187,000, or an effective income tax rate of 37.2%, for the prior year quarter. The increase in the current quarter income tax expense of $17,000 was impacted by a $48,000 increase in net income before income taxes as compared to the prior year’s period.
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Analysis of Net Interest Income. Net interest income represents the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them. The following table presents, for the periods indicated, the total dollar amounts of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances were calculated using average daily balances and include non-accruing loans. Yield Analysis
Non-interest-bearing liabilities 4,098 Total liabilities 174,917 164,810 Stockholders’ equity 15,288 17,872 Total liabilities and stockholders’ equity $190,205 $182,682 Net interest income / interest rate spread $1,584 3.66% $1,564 3.78% Net interest margin 3.67% 3.79%
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Comparison of the Results of Operations for the Six Months Ended June 30, 2016 and June 30, 2015 General. Net income available to common shareholders for the six month period ended June 30, 2016 was $731,000, or $0.74 per diluted common share, an increase of $107,000 or 17.2%, compared to $624,000 or $0.61 per diluted common share for the same period in 2015. The increase in the 2016 period net income available to common shareholders compared to the 2015 period was the result of a $50,000 decrease in the provision for loan losses, a $61,000 increase in non-interest income and a $137,000 decrease other non-interest expense offset, in part, by a $78,000 decrease in net interest income and a $63,000 increase in income tax expense. Interest Income. Total interest income decreased $65,000, or 1.8%, to $3.7 million for the six month period ended June 30, 2016, compared to the prior year six month period as the result of a 24 basis point decline in the weighted average yield on interest-earning assets to 4.24% offset, in part, by a $6.4 million increase in the average balance of interest-earning assets outstanding. Interest income on loans receivable decreased $58,000, to $3.6 million for the six month period ended June 30, 2016, as compared to the prior year six month period as the result of a 26 basis point decrease in the average yield to 4.57% offset, in part, by a $5.9 million increase in the average balance of loans outstanding. The increase in the average balance was due to increased originations between the periods which outpaced loan payoffs and repayments. The decrease in the average yield earned reflects the impact of new originations at relatively lower yields as well as loan payoffs in the first six month period of 2015 on two non-accrual loans resulting in the recognition of $119,000 of interest income which had been previously reserved. Interest income on mortgage-backed securities decreased $15,000 to $50,000 for the six month period ended June 30, 2016, compared to the prior year six month period as the result of a $1.7 million decrease in the average outstanding balance of mortgage-backed securities offset, in part, by a 4 basis point increase in the average yield to 1.88%. Interest income on interest-bearing deposits increased $14,000 to $22,000 for the six month period ended June 30, 2016, compared to the prior year six month period as the result of a $2.5 million increase in the average outstanding balance and a 22 basis point increase in the average yield to 0.43%. Dividend income on FHLBI stock decreased $6,000 to $20,000 for the six month period ended June 30, 2016, compared to the prior year six month period as the result of a $330,000 decline in the average balance outstanding offset, in part, by a 9 basis point increase in the average yield to 4.24%. Interest Expense. Total interest expense increased $13,000, or 2.7%, to $480,000 for the six month period ended June 30, 2016, compared to the prior year six month period as the result of $6.5 million increase in the average balance of interest-bearing liabilities outstanding offset, in part, by a 1 basis point decline in the average cost. Interest expense on deposits increased $27,000, or 7.9%, to $376,000 for the six month period ended June 30, 2016, compared to the prior year six month period as the result of a $7.1 million increase in the average balance of deposits outstanding and a 1 basis point increase in the average cost of deposits to 0.46%. Interest expense on borrowings decreased $15,000, or 12.3%, to $104,000 for the six month period ended June 30, 2016, compared to the prior year six month period end as the result of a $628,000 decline in the average balance of borrowings outstanding as well as a 12 basis point decrease in the average cost to 3.62%. Interest expense on FHLBI advances decreased $18,000 to $27,000 for the six month period ended June 30, 2016, compared to the prior year six month period as the result of a $628,000 decrease in
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the average balance outstanding and a 41 basis point decrease in the average cost to 5.70%. Interest expense on other borrowings, having an outstanding average balance of $1.7 million, decreased $2,000 to $43,000 for the six month period ended June 30, 2016, compared to the prior year six month period as the result of a $103,000 decrease in the average balance outstanding. The interest expense on junior subordinated debentures, having an outstanding average balance of $3.1 million, increased $5,000 to $34,000 for the six month period ended June 30, 2016, compared to the prior year six month period as the result of a 34 basis point increase in the average cost to 2.20%. Net Interest Income. As a result of the above changes in interest income and interest expense, net interest income decreased $78,000 for the six month period ended June 30, 2016, compared to the prior year six month period. The net interest rate spread decreased 23 basis points to 3.67% for the six month period ended June 30, 2016, while the net interest margin, expressed as a percentage of average earning assets, decreased 23 basis points to 3.69% for the six month period ended June 30, 2016. Provision for Loan Losses. The Company recorded $40,000 in provision for loan losses for the six month period ended June 30, 2016, compared to $90,000 for the prior year six month period ended June 30, 2015. The provision for loan losses is a function of the allowance for loan loss methodology used to determine the appropriate level of the allowance for inherent loan losses after adjusting for loan charge-offs and recoveries. Loan losses are charged-off against the allowance when it is believed that the loan balance, or a portion of the loan balance, is no longer realizable by the paying capacity of the borrower based on an evaluation of available cash resources and collateral value. Recoveries of amounts previously charged-off are credited to the allowance. The Company recorded net charge-offs of $31,000 for the six month period ended June 30, 2016, compared to net recoveries of $16,000 for the prior year six month period ended June 30, 2015. Non-Interest Income. Non-interest income increased $61,000 to $875,000 for the six month period ended June 30, 2016, compared to prior year six month period due primarily to a $38,000 increase in increase in loan fees due to increased loan origination and fees derived from sales, a $34,000 increase in gains on the sale of loans primarily due to a $28,000 gain on the sale of the credit card portfolio and a $29,000 increase in other fee income consisting of third party brokerage commissions. These increases were partially offset by a $20,000 decrease in gains on the sale of other real estate owned and an $11,000 decline in deposit related fee income due partially to a decline in overdraft fee income. Non-Interest Expense. Non-interest expense decreased $138,000 to $2.8 million for the six month period ended June 30, 2016, compared to prior year six month period primarily as the result of a $148,000 decrease in other operating expenses consisting of OREO expenses and office supplies, a $44,000 decrease in advertising expenses due to increased expenses associated with the name change of the Bank in the prior year, a $44,000 decrease in legal and professional fees related to prior year expenses associated with the charter conversion. These declines were offset, in part, by a $57,000 increase in staffing expenses due to additional payroll associated with the Company’s recent data processing conversion as well as increased pension costs and a $33,000 increase in data processing expenses primarily due to the aforementioned conversion. Income Taxes. The Company recorded income tax expense of $432,000 for the six month period ended June 30, 2016, resulting in an effective tax rate of 37.2%, compared to income tax expense of $369,000, or an effective income tax rate of 37.2%, for the prior year six month period. The increase in the current six month period income tax expense of $63,000 was impacted by a $170,000 increase in net income before income taxes as compared to the prior year’s period.
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Analysis of Net Interest Income. Net interest income represents the difference between interest earned on interest-earning assets and interest paid on interest-bearing liabilities. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities, and the interest rates earned or paid on them. The following table presents, for the periods indicated, the total dollar amounts of interest income from average interest-earning assets and the resultant yields, as well as the interest expense on average interest-bearing liabilities, expressed both in dollars and rates. No tax equivalent adjustments were made. All average balances were calculated using average daily balances and include non-accruing loans. Yield Analysis
Non-interest-bearing liabilities 3,085 Total liabilities 172,659 165,925 Stockholders’ equity 16,800 17,756 Total liabilities and stockholders’ equity $189,459 $183,681 Net interest income / interest rate spread $3,178 3.67% $3,256 3.90% Net interest margin 3.69% 3.92%
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Capital Standards. As a state chartered commercial bank, the Bank’s deposits are insured up to the applicable limits by the Federal Deposit Insurance Corporation (“FDIC”). The Bank is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis, which is one of the twelve regional banks comprising the FHLB system. The Bank is regulated by the FDIC and the State of Indiana Department of Financial Institutions. The Holding Company is regulated and examined by the Board of Governors of the Federal Reserve System (“FRB”). Such regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities. Any change in such regulation, whether by the FDIC, State of Indiana Department of Financial Institutions, the FRB or Congress could have a material impact on the Company and its operations. In July 2013, federal bank regulatory agencies issued a final rule that revised the leverage and risk-based capital requirements and the method for calculating risk-weighted assets to make them consistent with agreements that were reached by the Basel Committee on Banking Supervision and certain provisions of the Dodd-Frank Act. Among other things, the rule establishes a Tier 1 leverage adequately capitalized ratio of 4.0% (well capitalized ratio of 5.00%), a risked-based common equity Tier 1 adequately capitalized ratio requirement of 4.50% (well capitalized ratio of 6.50%), a risked-based Tier 1 adequately capitalized capital ratio requirement of 6.00% (well capitalized ratio of 8.00%) and a risk-based total capital adequately capitalized ratio of 8.00% (well capitalized ratio of 10.00%). The final rule also required unrealized gains and losses on certain “available-for-sale” securities holdings to be included for purposes of calculating regulatory capital requirements unless a one-time opt-in or opt-out is exercised. The Bank elected to opt-out regarding the aforementioned. The rule limits a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. This final rule became effective for the Bank on January 1, 2015. The capital conservation buffer requirement will be phased in beginning January 1, 2016 and ending January 1, 2019, when the full capital conservation buffer requirement will be effective. The final rule maintains the continued exemption of consolidated capital requirements for bank holding companies, such as the Company.
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At June 30, 2016, the Bank was in compliance with all of its capital requirements as follows:
Percent of
Average
Well Capitalized Capital Requirement: Amount Assets
Tier 1 Leverage Ratio:
Average Total Assets 189,883,000$ Common Equity Tier 1 Capital 18,891,000$ 9.9488%Common Equity Tier 1 Capital Requirement 9,494,150 5.0000%Excess 9,396,850$ 4.9488%
Risk-Based Common Equity Tier 1 Capital Ratio:
Risk-Weighted Assets 151,721,000$ Common Equity Tier 1 Capital 18,891,000$ 12.4511%Common Equity Tier 1 Capital Requirement 9,861,865 6.5000%Excess 9,029,135$ 5.9511%
Risk-Based Tier 1 Capital Ratio:
Risk-Weighted Assets 151,721,000$ Common Equity Tier 1 Capital 18,891,000$ 12.4511%Common Equity Tier 1 Capital Requirement 12,137,680 8.0000%Excess 6,753,320$ 4.4511%
Risk-Based Total Capital Ratio:
Risk-Weighted Assets 151,721,000$ Common Equity Tier 1 Capital 18,891,000$ Includable Allowance for Loan Losses 1,897,000 Total Risk-Based Capital 20,788,000$ 13.7015%Total Risk-Based Capital Requirement 15,172,100 10.0000%Excess 5,615,900$ 3.7015%
Capital Conservation Buffer 5.7015%
Transition Provisions for the Capital Conservation Buffer:Calendar Year 2016 0.6250%Calendar Year 2017 1.2500%Calendar Year 2018 1.8750%Calendar Year 2019 and Thereafter 2.5000% Legal Proceedings. At June 30, 2016, we were not involved in any legal proceedings or lawsuits that are not routine and incidental to our business.
