AMFC AMB Financial Corp (PK)

Commission File Number 0-23182

 

AMB FINANCIAL CORP.

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(Exact Name of Small Business Registrant as Specified in its Charter)

 

Delaware	35-1905382
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
8230 Hohman Avenue, Munster, Indiana	46321-1578
(Address of principal executive offices)	(Zip Code)

PART I

 

Item 1. Description of Business

 

AMB Financial was formed in 1993 by American Savings under the laws of Delaware for the purpose of becoming a savings and loan holding company. American Savings, headquartered in Munster, Indiana, was founded in 1957 as a federally chartered institution. In March 1996, American Savings converted to the stock form of organization through the sale and issuance of 1,686,169 (split adjusted) shares of its common stock to AMB Financial. The principal asset of AMB Financial is the outstanding stock of American Savings. AMB Financial presently has no separate operations and its business consists only of the business of American Savings. All references to AMB Financial, unless otherwise indicated, at or before March 29, 1996 refer to American Savings. References in this Form 10-KSB to “we,” “us” and “our” refer to AMB Financial and/or American Savings as the context requires.

 

We are a community-based financial institution that offers a variety of selected financial services to meet the needs of the community we serve. We attract deposits from the general public and use such deposits to originate and purchase one- to four-family residential mortgages and, to a lesser extent, non-residential real estate, multi-family real estate, consumer, commercial business, land and construction loans. We also invest in mortgage-backed securities, investment securities consisting primarily of U.S. government obligations and various types of short-term liquid assets. See “- Lending Activities” and “- Investment Activities.” In February, 2005, the Company commenced real estate development activities in cooperation with a local builder. See “Subsidiaries.”

 

We serve the financial needs of families and local businesses in our primary market area, northwest Lake County, Indiana, through our main office located in Munster, Indiana and two branch offices located in the communities of Dyer and Hammond, Indiana. In addition, in December 2006, we acquired property located in Schererville, Indiana, for the purpose of constructing a branch office. Construction of the branch office is currently underway and scheduled to be completed in June 2008, and the branch facility is expected to open soon thereafter.

 

Our deposits are insured up to applicable limits by the Federal Deposit Insurance Corporation (the “FDIC”). At December 31, 2007, we had total assets of $174.8 million, deposits of $118.9 million and stockholders’ equity of $13.5 million or 7.70% of total assets.

 

Our executive office is located at 8230 Hohman Avenue, Munster, Indiana 46321-1578 and our telephone number at that address is (219) 836-5870.

 

Lending Activities

 

Our principal lending activity is originating and, to a lesser extent, purchasing first mortgage loans secured by owner-occupied one- to four-family residential properties located in our primary market areas. We also originate and purchase non-residential real estate, multi-family real estate, consumer, commercial business, construction and land loans. In addition to increasing the yield and/or the interest rate sensitivity of our portfolio, these non-one- to four family loans allow us to provide more comprehensive financial services to families and community businesses in our primary market area.

 

Management believes that the current economic conditions, including the slowing economy and softening real estate values, may have an adverse impact on the Company’s operations. In this regard, management believes that the Company’s construction loans and its other loans, other than one-to four-family loans, may be particularly vulnerable to adverse changes in the economy.

 

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Loan Portfolio Composition . The following table sets forth information concerning the composition of our loan portfolio in dollar amounts and in percentages (before deductions for loans in process, net deferred yield adjustments and allowances for losses) as of the dates indicated.

 

		December 31,
		2007						2006						2005						2004						2003
		Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
		(Dollars in Thousands)
Real Estate Loans:
One-to four-family		$	103,103			68.29	%	$	105,223			67.08	%	$	92,809			64.02	%	$	87,607			66.65	%	$	78,948			64.43	%
Multi-family			6,210			4.11			8,319			5.30			8,956			6.18			7,320			5.57			11,128			9.08
Non-residential			18,173			12.03			18,190			11.60			17,111			11.80			18,026			13.71			14,711			12.01
Construction			8,512			5.64			6,424			4.09			6,737			4.65			3,576			2.72			2,053			1.68
Land			4,663			3.09			8,480			5.41			6,891			4.75			5,197			3.96			4,544			3.71
Total real estate loans			140,661			93.16			146,636			93.48			132,504			91.40			121,726			92.61			111,384			90.91
Other Loans:
Consumer Loans:
Deposit account			123			0.08			126			0.08			91			0.06			160			0.12			180			0.15
Credit Card			551			0.37			449			0.28			421			0.29			365			0.28			408			0.33
Line of credit (1)			4,842			3.21			5,523			3.52			6,208			4.28			5,330			4.05			5,004			4.08
Other			1,029			0.68			1,189			0.76			2,286			1.58			1,414			1.08			1,389			1.13
Total consumer loans			6,545			4.34			7,287			4.64			9,006			6.21			7,269			5.53			6,981			5.69
Commercial business loans			3,777			2.50			2,943			1.88			3,465			2.39			2,444			1.86			4,158			3.40
Total loans receivable			150,983			100.00	%		156,866			100.00	%		144,975			100.00	%		131,439			100.00	%		122,523			100.00	%
Less:
Loans in process			2,198						5,394						4,182						1,413						1,359
Net deferred yield adjustments			22						85						9						(32	)					(78	)
Allowance for losses			738						686						749						716						1,033
Total loans receivable, net		$	148,025					$	150,701					$	140,035					$	129,342					$	120,209

 

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⁽¹⁾   Substantially all of which are secured by residential real estate.

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The following table shows the composition of our loan portfolios by fixed- and adjustable-rate at the dates indicated.

 

		December 31,
		2007						2006						2005						2004						2003
		Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent			Amount			Percent
		(Dollars in Thousands)
Fixed Rate Loans:
Real estate:
One-to four-family		$	84,632			56.06	%	$	80,520			51.33	%	$	73,461			50.67	%	$	73,666			56.05	%	$	68,081			55.56	%
Multi-family			5,889			3.90			8,026			5.11			8,374			5.78			5,752			4.38			6,454			5.27
Non-residential			14,257			9.44			13,325			8.50			13,652			9.42			15,203			11.56			11,520			9.40
Construction			7,572			5.02			2,649			1.69			—			—			2,016			1.53			1,576			1.29
Land			813			0.54			654			0.42			877			0.60			974			0.74			545			0.45
Total real estate loans			113,163			74.96			105,174			67.05			96,364			66.47			97,611			74.26			88,176			71.97
Consumer			1,621			1.07			1,314			0.83			2,313			1.59			1,939			1.48			1,941			1.58
Commercial business			2,191			1.45			1,000			0.64			2,739			1.89			1,469			1.12			2,436			1.99
Total fixed-rate loans			116,975			77.48			107,488			68.52			101,416			69.95			101,019			76.86			92,553			75.54
Adjustable Rate Loans:
Real estate:
One-to four-family			18,471			12.23			24,703			15.75			19,348			13.35			13,941			10.60			10,867			8.87
Multi-family			321			0.21			293			0.19			582			0.40			1,568			1.19			4,674			3.81
Non-residential			3,916			2.59			4,865			3.10			3,459			2.38			2,823			2.15			3,191			2.61
Construction			940			0.62			3,775			2.40			6,737			4.65			1,560			1.19			477			0.39
Land			3,850			2.55			7,826			4.99			6,014			4.15			4,223			3.22			3,999			3.26
Total real estate loans			27,498			18.20			41,462			26.43			36,140			24.93			24,115			18.35			23,208			18.94
Consumer			4,924			3.27			5,973			3.81			6,693			4.62			5,330			4.05			5,040			4.11
Commercial business			1,586			1.05			1,943			1.24			726			0.50			975			0.74			1,722			1.41
Total adjustable-rate loans			34,008			22.52			49,378			31.48			43,559			30.05			30,420			23.14			29,970			24.46
Total loans receivable			150,983			100.00	%		156,866			100.00	%		144,975			100.00	%		131,439			100.00	%		122,523			100.00	%
Less:
Loans in process			2,198						5,394						4,182						1,413						1,359
Net deferred yield adjustments			22						85						9						(32	)					(78	)
Allowance for losses			738						686						749						716						1,033
Total loans receivable, net		$	148,025					$	150,701					$	140,035					$	129,342					$	120,209

 

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The following table illustrates the interest rate sensitivity of the loan portfolio at December 31, 2007. Mortgages which have adjustable or renegotiable interest rates are shown as maturing in the period during which the contract requires the final payment to be made. This is shown without regard to interest rate adjustments. The table does not reflect the effects of possible prepayments or enforcement of due-on-sale clauses.

 

		Real Estate
		One-to Four Family						Non-residential and  multi-family						Construction						Land						Consumer						Commercial Business						Total
		Amount			Weighted  Average  Rate			Amount			Weighted  Average  Rate			Amount			Weighted  Average  Rate			Amount			Weighted  Average  Rate			Amount			Weighted  Average  Rate			Amount			Weighted  Average  Rate			Amount			Weighted  Average  Rate
		(Dollars in Thousands)
Due During the Period Ending December 31,
2008		$	4,642			7.36	%		3,607			7.46	%		6,655			7.43	%		3,848			7.73	%		706			12.51	%		1,339			7.85	%		20,797			7.67	%
2009 to 20010			5,596			6.22	%		7,726			6.71	%								368			7.36	%		562			7.43	%		999			7.93	%		15,251			6.65	%
2011 to 2012			12,494			6.55	%		10,091			6.88	%		846			7.12	%		30			8.25	%		882			7.81	%		435			7.95	%		24,778			6.77	%
2013 to 2017			11,259			6.14	%		1,701			6.39	%		575			6.37	%		76			6.58	%		1,238			7.84	%		1,004			7.69	%		15,853			6.40	%
2018 and following			69,112			6.16	%		1,258			6.49	%		436			6.50	%		341			7.39	%		3,157			8.01	%								74,304			6.25	%
Total		$	103,103			6.26	%		24,383			6.86	%		8,512			7.28	%		4,663			7.66	%		6,545			8.38	%		3,777			7.84	%		150,983			6.57	%

 

As of December 31, 2007, the total amount of loans due after December 31, 2007 which had predetermined interest rates was $104.2 million. The total amount of loans due after such dates which have floating or adjustable interest rates is $26.0 million.

 

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Under federal law, the aggregate amount of loans that we are permitted to make to any one borrower is generally limited to 15% of unimpaired capital and surplus (25% if the security for such loan has a “readily marketable” value or 30% for certain residential development loans). At December 31, 2007, our regulatory loan-to-one borrower limit was approximately $2.3 million. On the same date, we had no borrowers with outstanding balances in excess of this amount. As of December 31, 2007, the largest dollar amount of indebtedness to one borrower or group of related borrowers was a $2.1 million land development loan located in Northwest Indiana. On the same date, this loan was performing in accordance with its terms.

 

All of our lending is subject to our written underwriting standards and to loan origination procedures. Decisions on loan applications are made on the basis of detailed applications and property valuations by qualified independent appraisers.

 

Loans generated by the Bank are approved by Bank officers dependent on their individual level of approval authority and based on the type of collateral securing the loan under consideration. Officers may join together to approve individual loans in excess of their individual authority. Loans greater than $1 million must be approved by the Board of Directors after review and preliminary approval by officers. The loan applications are designed primarily to determine the borrower’s ability to repay and the more significant items on the application are verified through use of credit reports, financial statements, tax returns and/or confirmations.

 

Generally, we require title insurance on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. We also require flood insurance to protect the property securing our interest when the property is located in a flood plain or otherwise deemed prudent by management.

 

One-to-Four Family Residential Real Estate Lending . The cornerstone of our lending program is the origination of long-term permanent loans secured by mortgages on owner-occupied one- to four-family residences. At December 31, 2007, $103.1 million, or 68.29% of our loan portfolio consisted of permanent loans on one- to four-family residences. At that date, the average outstanding residential loan balance was $105,000 and the largest outstanding residential loan had a principal balance of $876,000. Virtually all of the residential loans we originate are secured by properties located in our market area. However, we have purchased a number of one-to-four family residential loans secured by properties located out of our market area during the past there years. See “Originations, Sales and Purchases of Loans.”

 

We originate 15-30-year fixed rate loans secured by one- to four-family residential real estate as a result of continued consumer demand. We monitor the volume and rate of our fixed rate loans to ensure compliance with our asset/liability management policy. At December 31, 2007, we had, exclusive of balloon loans, $11.7 million of fixed-rate residential loans with less than 10 years to contractual maturity, $14.8 million of fixed-rate residential loans with remaining contractual maturities between 10 and 20 years and $41.6 million of fixed-rate residential loans with remaining contractual maturities in excess of 21 years in its portfolio. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Asset/Liability Management” in our Annual Report to Stockholders for the year ended December 31, 2007 attached hereto as Exhibit 13 (the “Annual Report”).

 

In addition, we originate (subject to consumer demand) and acquire adjustable rate mortgage and balloon loans to reduce our exposure to changes in interest rates. We retain and service all adjustable rate mortgages and balloon loans we originate. We make such loans at rates, terms and points determined in accordance with market and competitive factors. Our current one- to four-family residential adjustable rate mortgages are fully amortizing loans with contractual maturities of up to 30 years. The interest rates on the adjustable rate mortgages we originate are generally subject to adjustment at three-year intervals based on a margin over the Three Year Treasury Securities Constant Maturity Index.   Decreases or increases in the interest rate of our adjustable rate mortgages are generally limited to 5% above or below the initial interest rate over the life of the loan. Our adjustable rate mortgages are not convertible into fixed-rate loans, do not contain prepayment penalties and do not produce negative amortization. Adjustable rate mortgage loans may be assumed by other lenders provided home buyers meet our underwriting standards and the applicable fees are paid. At December 31, 2007, the total balance of one- to four-family adjustable rate mortgages was $18.5 million.

 

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Our balloon loans generally carry three to five year terms and 25 year amortization schedules. On December 31, 2007, we had $16.5 million of one -to-four family balloon loans.

 

We evaluate both the borrower’s ability to make principal, interest and escrow payments and the value of the property that will secure the loan. We originate residential mortgage loans with loan-to-value ratios up to 95%. On mortgage loans exceeding an 80% loan-to-value ratio at the time of origination, we will generally require private mortgage insurance in an amount intended to reduce our exposure to 80% or less of the appraised value of the underlying property.

 

As of December 31, 2007, we had 14 one- to four-family residential mortgage loans having an aggregate balance of $8.1 million with current balances in excess of $417,000, the 2007 Freddie Mac maximum. Our delinquency experience on our loans in excess of this maximum has been similar to our experience on other residential loans.

 

Our residential mortgage loans customarily include due-on-sale clauses giving us the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells or otherwise disposes of the property subject to the mortgage and the loan is not repaid.

 

Non-Residential and Multi-Family Real Estate Lending . We both originate and purchase permanent non-residential and multi-family real estate loans. We have increased these types of loans in recent years in accordance with our asset/liability management policy and favorable market conditions. Most of our originated non-residential and multi-family loans are located in our primary market area while our purchased loans are located throughout the United States. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Asset/Liability Management” in our Annual Report attached hereto as Exhibit 13.

 

The multi-family loan portfolio includes loans secured by five or more unit residential buildings located primarily in our primary market area. Our non-residential real estate loan portfolio consists of loans on a variety of non-residential properties including restaurants, hotel/motels, retail facilities, and small office buildings.

 

We originate and purchase both adjustable-and fixed-rate non-residential and multi-family real estate loans. Rates on our adjustable-rate non-residential and multi-family real estate loans generally adjust in a manner consistent with our one- to four-family residential adjustable rate mortgages. Non-residential and multi-family real estate loans are generally underwritten in amounts of up to 80% of the appraised value of the underlying property and normally have terms up to 25 years.

 

Appraisals on properties securing non-residential and multi-family real estate loans originated by us are performed by a qualified independent appraiser at the time the loan is made. In addition, our underwriting procedures generally require verification of the borrower’s credit history, income and financial statements, banking relationships, accompanying analysis references and income/debt coverage projections for the property. Personal guarantees are generally obtained for non-residential and multi-family real estate loans.

 

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The table below sets forth by type of security property the estimated number, loan amount and outstanding balance of our non-residential and multi-family real estate loans at December 31, 2007.

 

		Number of Loans			Original Loan Amount			Outstanding Principal Balance
		(Dollars in Thousands)
Multi-family		$	18		$	8,802		$	6,210
Office			7			2,504			1,750
Retail			6			4,266			4,053
Commercial building			25			5,728			4,912
Restaurants			9			2,767			2,527
Hotel			4			2,630			2,062
Other			10			3,188			2,869
Total		$	79		$	29,885		$	24,383

 

At December 31, 2007, our largest multi-family and largest nonresidential real estate loans totaled $921,000 and $1.8 million, and consisted of a loan on a 28 unit town home complex located in Northwest Indiana and a loan on a Harley Davidson retail showroom located in Northwest Indiana, respectively. As of December 31, 2007, both of these loans were performing in accordance with their terms.

 

Non-residential and multi-family real estate loans generally present a higher level of risk than loans secured by one- to four-family residences. This greater risk is due to several factors, including the concentration of principal in a limited number of loans and borrowers, the effects of general economic conditions on income producing properties and the increased difficulty of evaluating and monitoring these types of loans. Furthermore, the repayment of loans secured by non-residential and multi-family residential real estate is typically dependent upon the successful operation of the related real estate project. If the cash flow from the project is reduced (for example, if leases are not obtained or renewed), the borrower’s ability to repay the loan may be impaired. At December 31, 2007, we had $610,000 of nonresidential and multi-family loans, which were 90 days or more delinquent.

 

Construction Lending . We make construction loans to individuals for the construction of their primary or secondary residences and loans to builders or developers for the construction of single-family and multi-family properties.

 

Loans to individuals for the construction of their residences typically run for six months. The borrower pays interest only during the construction period. Residential construction loans are generally underwritten pursuant to the same guidelines used for originating permanent residential loans. Subject to future market conditions, we intend to continue construction lending activities to persons intending to be owner occupants.

 

We also make loans to builders and developers “on speculation” to finance the construction of residential property where an independent appraisal shows that a ready market exists for the property as completed. Such loans generally have adjustable interest rates based upon prime with terms from six months to one year. The proceeds of the loan are advanced during construction based upon the percentage of completion as determined by an inspection. The loan amount normally does not exceed 80% of projected completed value for homes that have been pre-sold to the ultimate occupant. For loans to builders for the construction of homes not pre-sold, which may carry a higher risk, the loan-to value ratio is generally limited to 75%. Whether we are willing to provide permanent takeout financing to the purchaser of the home is determined independently of the construction loan by a separate underwriting process. At December 31, 2007, we had construction loans with outstanding aggregate balances of $2.6 million secured by one-to-four family residential property built on speculation.

 

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We also occasionally originate construction financing on non-residential and multi-family real estate. However, there were no loans of this type outstanding as of December 31, 2007. Additionally, we participate with other lenders in loans to developers and builders to finance multi-family housing and commercial property construction. At December 31, 2007, we were involved in two out-of-state participation construction loans with an outstanding balance of $2.0 million (includes $128,000 in undisbursed loan proceeds) to construct commercial properties.    

 

Construction lending generally affords us an opportunity to receive interest at rates higher than those obtainable from residential lending and to receive higher origination and other loan fees. In addition, such loans are generally made for relatively short terms. Nevertheless, construction lending to persons other than owner-occupants is generally considered to involve a higher level of credit risk than one- to four-family residential lending due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions (including today’s slowing economy and softening real estate values) on construction projects, real estate developers and managers. In addition, the nature of these loans is such that they are more difficult to evaluate and monitor. Our risk of loss on a construction loan is dependent largely upon the accuracy of the initial estimate of the property’s value upon completion of the project and the estimated cost (including interest) of the project. If the estimate of value proves to be inaccurate, we may be confronted, at or prior to the maturity of the loan, with a project with a value which is insufficient to assure full repayment and/or the possibility of having to make substantial investments to complete and sell the project. Because defaults in repayment may not occur during the construction period, it may be difficult to identify problem loans at an early stage. When loan payments become due, the cash flow from the property may not be adequate to service the debt. In such cases, we may be required to modify the terms of the loan.

 

Land Lending . Land loans, which include vacant land and developed lots, are made to various builders and developers with whom we have pre-existing relationships. All originated land loans are secured by land zoned for residential developments and located within our market area. Disbursements related to acquisition and development land loans are typically based on the construction cost estimate of an independent architect or engineer who inspects the project in connection with significant disbursement requests. At December 31, 2007, we had $4.7 million in loans secured by land, representing 3.09% of our entire gross loan portfolio.

 

On occasion, we have participated with other lenders in loans to developers and builders to finance land acquisition and development. At December 31, 2007, we were not involved in any land development participation loans.

 

Land lending generally affords us an opportunity to receive interest at rates higher than those obtainable from residential lending. In addition, land loans are limited to a maximum 75% loan-to-value and are made with adjustable rates of interest and for relatively short terms. Nevertheless, land lending is generally considered to involve a higher level of credit risk due to the fact that funds are advanced upon the security of the land, which is of uncertain value prior to its development. Because of the uncertainties inherent in estimating land development costs as well as the market value on the completed project and the effects of governmental regulation of real property, it is relatively difficult to evaluate accurately the total funds required to complete a development project and the related loan-to-value ratio.

 

As of December 31, 2007, we had one land development loan, which was repossessed and is included in real estate owned. See “Delinquencies and Non-Performing Assets.”

 

Consumer Lending . We believe that offering consumer loan products helps to expand the customer base and to create stronger ties to the existing customer base. In addition, because consumer loans generally have shorter terms to maturity and carry higher rates of interest than do residential mortgage loans, they can be valuable asset/liability management tools. For these reasons, we have been increasing our originations of consumer loans. We currently originate substantially all of our consumer loans in our market area. At December 31, 2007, our consumer loans totaled $6.5 million representing 4.34% of the gross loan portfolio.

 

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We offer a variety of secured consumer loans, including home equity lines of credit, home improvement loans, loans secured by savings deposits and automobile loans. Although we primarily originate consumer loans secured by real estate, deposits or other collateral, we also make unsecured personal loans.

 

Our home equity lines of credit are generally limited to $100,000. We use the same underwriting standards for home equity lines of credit as we use for one- to four-family residential mortgage loans. Home equity lines of credit are originated in amounts, which together with the amount of the first mortgage, generally do not exceed 80% of the appraised value of the property securing the loan. The interest rate for all home equity loans floats at a stated margin over the prime rate. At December 31, 2007, we had $4.8 million of home equity lines of credit and $5.5 million of additional funds committed, but undrawn, under such lines.

 

We also offer a Visa credit card program. At December 31, 2007, approximately 604 credit cards had been issued, with an aggregate outstanding loan balance of $551,000 and unused credit available of $2.0 million. We presently charge a fixed rate on interest on credit card loans and no annual membership fee.

 

The terms of other types of consumer loans vary according to the type of collateral, length of contract, and creditworthiness of the borrower. The underwriting standards employed for consumer loans include a determination of the applicant’s payment history on other debts and an assessment of the borrower’s ability to meet payments on the proposed loan along with his existing obligations. In addition to the creditworthiness of the applicant, the underwriting process also includes a comparison of the value of the security, if any, in relation to the proposed loan amount. Unsecured personal loans are available to credit worthy borrowers for a variety of personal needs.

 

Consumer loans may entail greater risk than residential mortgage loans, particularly in the case of consumer loans which are unsecured or secured by rapidly depreciable assets such as automobiles. In such cases, any repossessed collateral for defaulted consumer loans may not provide adequate sources of repayment for the outstanding loan balances as a result of the greater likelihood of damage, loss or depreciation. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by adverse personal circumstances. Furthermore, the application of various federal and state laws, including federal and state bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. At December 31, 2007, $60,000, or approximately 0.92% of the consumer loan portfolio, was 60 days or more delinquent. There can be no assurance that delinquencies will not increase in the future.

 

Commercial Business Lending . In order to increase the yield and interest rate sensitivity of our loan portfolio and to satisfy the demand for financial services in our primary market area, we actively originate and purchase commercial business loans.

 

During the past five years, we have originated commercial business loans to businesses such as small retail operations, small manufacturing concerns and professional firms. Also included in commercial business loans as of December 31, 2007 were $1.5 million of purchased loans all of which were made to borrowers located outside of our market area. Our commercial business loans almost always include personal guarantees and are usually, but not always, are at least partially secured by business assets, such as accounts receivable, equipment, inventory and real estate. However, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business.

 

Most of our commercial business loans have terms ranging from six months to five years and carry adjustable interest rates. The underwriting process for commercial business loans generally includes consideration of the borrower’s financial statements, tax returns, projections of future business operations and inspection of the subject collateral, if any.

 

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Since 1995, we have purchased seasoned commercial leases covering various types of office/commercial/medical equipment. As of December 31, 2007, the outstanding balance on these leases was $1.5 million. In general, the leases are full-payout finance leases in which the lease payments effectively repay the lessor for the purchase price of the equipment, plus an acceptable yield. The selling institution continues to service the leases for us and provides limited recourse in the event of a default by the lessor. We have purchased these leases because they carry relatively high yields and have relatively short terms, consistent with our asset/liability management strategy.

 

The following table sets forth the Company’s commercial business loans as of December 31, 2007.

 

TYPE		AMOUNT			PERCENT OF PORTFOLIO
		(Dollars in Thousands)
Equipment leases		$	1,536			40.67	%
Business equipment			591			15.65
Low income housing venture			191			5.05
Accounts receivable			210			5.56
Other			1,249			33.07
Total			3,777			100.00	%

 

Unlike residential mortgage loans, which generally are made on the basis of the borrower’s ability to make repayment, and which are secured by real property whose value tends to be more easily ascertainable, commercial business loans are generally of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. As a result, the availability of funds for the repayment of commercial business loans may be substantially dependent on the success of the business itself (which, in turn, may be dependent upon the general economic environment, including today’s slowing economy). For these reasons, commercial business loans generally carry a higher degree of credit risk than the residential loans. At December 31, 2007, the Company had $37,000 of non performing commercial business loans.

 

The Bank also invests in commercial accounts receivables, which possess similar investment characteristics to commercial business loans. See “Accounts Receivable Investments.”

 

Originations, Purchases and Sales of Loans

 

We originate real estate and other loans through marketing efforts, our customer base, walk-in customers and referrals from real estate brokers and builders. In addition, we occasionally utilize the services of mortgage brokers. We do not pay commissions to employees for loan originations.  

 

We regularly purchase loans from third parties to supplement loan production. In particular, we may purchase loans of a type, which are not available or available with as favorable terms in our own market area. We generally use the same underwriting standards in evaluating loan purchases as we do in originating loans. We will continue to evaluate loan purchase opportunities as they arise and make purchases in the future depending on market conditions. At December 31, 2007, approximately $25.5 million of our loan portfolio was serviced by others. During 2007, we began to sell fixed rate one-to four-family loans in the secondary market in order to reduce interest rate risk. At December 31, 2007, we serviced approximately $1.4 million of loans held by others.

 

Our ability to originate large dollar volumes of real estate loans may be substantially reduced or restricted in periods of rising interest rates, with a resultant decrease in related fee income and operating earnings.

 

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The following table shows our loan origination, purchase, sale and repayment activities for the periods indicated.

 

		Year Ending December 31,
		2007			2006			2005
		(In Thousands)
Originations by type :
Adjustable rate:
Real estate - one-to four-family		$	2,098		$	4,459		$	2,072
-non-residential			400			—			568
-construction			1,109			1,978			5,021
-land			202			3,003			1,218
Non-real estate-consumer			6,165			8,603			9,073
-commercial business			508			212			980
Total adjustable-rate			10,482			18,255			18,932
Fixed rate:
Real estate - one-to four-family			20,524			21,824			17,697
-multi family			—			1,791			3,464
-non-residential			4,042			3,669			682
-construction			3,823			2,649			386
-land			349			120			369
Non-real estate-consumer			671			440			1,693
-commercial business			2,292			208			872
Total fixed-rate			31,701			30,701			25,163
Total loans originated			42,183			48,956			44,095
Purchases :
Real estate - one-to four-family			648			5,181			3,949
-multi family			—			—			1,987
-non-residential			892			16			—
-construction			2,400			1,371			1,118
-land			28			1,000			2,500
Non-real estate—commercial business			558			924			2,701
Total loans purchased			4,526			8,492			12,255
Total additions			46,709			57,448			56,350
Principal repayments			50,675			44,505			41,927
Loan sales			1,380			—			—
Net before other items			(5,346	)		12,943			14,423
Increase (decrease) in other items, net			2,670			(2,277	)		(3,730	)
Net (decrease) increase		$	(2,676	)	$	10,666		$	10,693

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Delinquencies and Non-Performing Assets

 

Delinquency Procedures. When a borrower fails to make a required payment on a loan, we attempt to cause the delinquency to be cured by contacting the borrower. In the case of loans, a late notice is sent on all loans over 30 days delinquent. Another late notice along with any required demand letters as set forth in the loan contract are sent 60 days after the due date. Additional written and verbal contacts are made with the borrower between 45 and 90 days after the due date.

 

If the delinquency is not cured by the 90th day, the customer is normally provided 10 days written notice that the account will be referred to counsel for collection and foreclosure, if necessary. A drive-by appraisal is normally obtained at this time and a title search is ordered. A good faith effort by the borrower at this time will defer foreclosure for a reasonable length of time depending on individual circumstances. We may agree to accept a deed in lieu of foreclosure. If it becomes necessary to foreclose, the property is sold at public sale and we may bid on the property to protect its interest. The decision to foreclose is made by the Senior Loan Officer after discussion with the members of the Loan Committee.

 

Consumer loans are charged off if they remain delinquent for 120 days unless the borrower and lender agree on a payment plan. If terms of the plan are not met, they are then subject to charge off. Our procedure for repossession and sale of consumer collateral are subject to various requirements under Indiana consumer protection laws.

 

When we acquire real estate as a result of foreclosure or by deed in lieu of foreclosure it is classified real estate owned until it is sold. The real estate is recorded at the lower of cost or estimated fair value, less estimated selling costs, at the date of acquisition, and any write-down resulting therefrom is charged to the allowance for loan losses. Subsequent decreases in the value of the property are charged to operations through the creation of a valuation allowance. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell.

 

Loan Delinquencies . The following table sets forth loan delinquencies by type, by amount and by percentage of type at December 31, 2007.

 

		Loans Delinquent For:
		60-89 Days									90 Days and Over									Total Delinquent Loans
		Number			Amount			Percent of Loan Category			Number			Amount			Percent of Loan Category			Number			Amount			Percent of Loan Category
		(Dollars in Thousands)
Real Estate:
One- to four-family			7		$	696			.67	%		16		$	1,679			1.63	%		23		$	2,375			2.30	%
Multi-family			—			—			—			1			350			5.64	%		1			350			5.64	%
Non-residential			—			—			—			1			260			1.43	%		1			260			1.43	%
Construction			—			—			—			1			231			2.71	%		1			231			2.71	%
Consumer			2			24			.37	%		7			36			.55	%		9			60			.92	%
Commercial business			—			—			—			2			37			.98	%		2			37			.98	%
Total			9		$	720			.48	%		28		$	2,593			1.72	%		37		$	3,313			2.20	%

 

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Classified Assets . Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the Office of Thrift Supervision (the “OTS”) to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present 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 without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are placed on a “watch list” by our management.

 

When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, who may order the establishment of additional general or specific loss allowances.

 

In connection with the filing of our periodic reports with the OTS and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations. On the basis of this review of our assets, at December 31, 2007, we had classified the following assets:

 

		One-to- Four Family			Multi- Family			Non- Residential			Construction			Consumer			Commercial Business			Real Estate  Owned			Total
								(In Thousands)
Substandard		$	1,679			350		$	260		$	231		$	36		$	37		$	750		$	3,343
Doubtful			—			—			—			—			—			—			—			—
Loss			—			—			—			—			—			—			—			—
		$	1.679			350		$	260		$	231		$	36		$	37		$	750		$	3,343

 

Our classified assets consist of the (i) non-performing loans and (ii) loans and other assets of concern discussed herein. As of the date hereof, these asset classifications are consistent with those of the OTS and the FDIC.

 

Non-Performing Assets . The following table sets forth the amounts and categories of non-performing assets in our loan portfolio. Loans are reviewed quarterly and any loan whose collectibility is doubtful is placed on non-accrual status. Loans are placed on non-accrual status when either principal or interest is 90 days or more past due, unless, in the judgment of management, the loan is well collateralized and in the process of collection. Interest accrued and unpaid at the time a loan is placed on non-accrual status is charged against interest income. Subsequent payments are either applied to the outstanding principal balance or recorded as interest income, depending on the assessment of the ultimate collectibility of the loan. For all years presented, we have had no troubled debt restructurings (which involved forgiving a portion of interest or principal on any loans or making loans at a rate materially less than that of market rates). Foreclosed assets include assets acquired in settlement of loans. Except as noted, the loans and foreclosed asset amounts shown are stated without giving effect to the specific reserves which have been established against such assets. See “Loan Loss Reserve Analysis.”

 

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		December 31,
		2007			2006			2005			2004			2003
		(Dollars in Thousands)
Non-accruing loans:
One-to-four family		$	1,679		$	1,142		$	527		$	474		$	544
Multi-family			350			—			—			—			—
Non-residential			260			339			707			765			546
Construction			231			1,108			—			—			—
Land			—			—			144			140			140
Consumer			36			61			96			84			105
Commercial business			37			26			—			146			246
Total			2,593			2,676			1,474			1,609			1,581
Foreclosed assets:
One-to-four family			—			678			584			—			—
Non-residential			403			403			—			—			—
Land			347			—			—			—			—
Total			750			1,081			584			—			—
Other assets:
Escrow advances on non-performing loans			—			—			48			—			—
Total			—			—			48			—			—
Total non-performing assets		$	3,343		$	3,757		$	2,106		$	1,609		$	1,581
Total as a percentage of total assets			1.91	%		2.06	%		1.24	%		1.02	%		1.08	%

 

For the year ended December 31, 2007, gross interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms amounted to $121,000.

 

At December 31, 2007, there were no other loans or other assets that are not disclosed on the table or discussed above, where known information about the possible credit problems of borrowers caused us to have serious doubts as to the ability of the borrowers to comply with present loan repayment terms and which may result in disclosure of such loans in the future.

 

Allowance for Loan Losses . The allowance for loan losses is established through a provision for loan losses based on our evaluation of probable losses in our loan portfolio and changes in the nature and volume of our loan activity. Such evaluation, which includes a review of all loans for which full collectibility may not be reasonably assured, considers among other matters, the estimated fair value of the underlying collateral, economic conditions, historical loan loss experience and other factors that warrant recognition in providing for an adequate loan allowance. Although we believe we use the best information available to make such determinations, future adjustments to the allowance may be necessary, and net income could be significantly affected if circumstances differ substantially from the assumptions used in making the initial determinations. At December 31, 2007, we had an allowance for loan losses of $738,000.

 

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The following table sets forth an analysis of the allowance for loan losses.

 

		December 31,
		2007			2006			2005			2004			2003
		(Dollars in Thousands)
Balance at beginning of period:		$	686		$	749		$	716		$	1,033		$	838
Charge-offs:
One-to-four family			27			26			—			35			—
Multi-family			—			—			—			—			—
Non-residential			—			268			—			377			—
Land			188			—			—			—			—
Consumer			116			48			36			38			18
Commercial business			—			—			213			91			5
Total charge offs			331			342			249			541			23
Recoveries:
One-to-four family			—			—			—			—			—
Multi-family			—			—			—			—			—
Non-residential			—			1			—			—			—
Consumer			1			1			7			1			4
Commercial business			249			29			—			34			—
Total recoveries			250			31			7			35			4
Net charge-offs			(81	)		(311	)		(242	)		(506	)		(19	)
Additions charged to operations			133			248			275			189			214
Balance at end of period		$	738		$	686		$	749		$	716		$	1,033
Ratio of net charge-offs during the period to average loans outstanding during the period			0.06	%		0.21	%		0.18	%		0.41	%		0.02	%
Ratio of net charge-offs during the period to average non-performing assets			2.23	%		10.73	%		12.70	%		25.29	%		1.34	%

 

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The distribution of the allowance for losses on loans at the dates indicated is summarized as follows:

		December 31,
		2007									2006									2005									2004									2003
		Amount of Loan Loss Allowance			Loan Amounts by Category			Percent of Loans in Each Category to Total Loans			Amount of Loan Loss Allowance			Loan Amounts by Category			Percent of Loans in Each Category to Total Loans			Amount of Loan Loss Allowance			Loan Amounts by Category			Percent of Loans in Each Category to Total Loans			Amount of Loan Loss Allowance			Loan Amounts by Category			Percent of Loans in Each Category to Total Loans			Amount of Loan Loss Allowance						Loan Amounts by Category			Percent of Loans in Each Category to Total Loans
		(Dollars in Thousands)
One-to-four family		$	169		$	103,103			68.29	%	$	274		$	105,223			67.08	%	$	198		$	92,809			64.02	%	$	158		$	87,607			66.65	%	$	160		$78,948							64.43	%
Multi-family			19			6,210			4.11			25			8,319			5.30			27			8,956			6.18			22			7,320			5.57			33		11,128							9.08
Non-residential			161			18,173			12.04			104			18,190			11.60			267			17,111			11.80			195			18,026			13.71			429		14,711							12.01
Construction and land			144			13,175			8.73			122			14,904			9.50			123			13,628			9.40			89			8,773			6.68			75		6,597							5.39
Consumer			94			6,545			4.33			65			7,287			4.64			77			9,006			6.21			64			7,269			5.53			68		6,981							5.69
Commercial business			76			3,777			2.50			28			2,943			1.88			34			3,465			2.39			109			2,444			1.86			140		4,158							3.40
Unallocated			75			—			—			68			—			—			23			—			—			79			—			—			128		—							—
Total		$	738		$	150,983			100.00	%	$	686		$	156,866			100.00	%	$	749		$	144,975			100.00	%	$	716		$	131,439			100.00	%	$	1,033		$122,523							100.00	%

 

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Accounts Receivable Investments

 

The Company purchases through brokers accounts receivable on both a direct and indirect basis. These accounts receivable are secured by, among other activities, trucking, health care, government contracts, commercial, cleaning, architectural services and manufacturing. The Company purchases both individual receivables and, to a lesser extent, interests in pools of receivables.

 

Our purchased accounts receivable are classified as “other assets.” Like commercial business loans, these assets are subject to the risk that the debtor is unable to obtain payment on the receivables. The Bank underwrites these assets both on the ability of the debtor to pay on the receivables as well as on the ability of the seller to repurchase the receivables although, under the terms of the purchase agreements, the sellers are in many cases not obligated to do so. In some cases, the Bank has acquired credit insurance on a portion of the receivables. At December 31, 2007 and 2006, the Company owned $3.7 million and $3.0 million, respectively, of accounts receivable. See “Note 11 of the Notes to Consolidated Financial Statements” in the Annual Report.

 

Investment Activities

 

In support of our asset/liability management policy, most of our investments have historically consisted of U.S. Government and agency securities with maturities of five years or less, mortgage backed securities and short term assets. We also invest, to a limited degree, in municipal securities, mutual funds and equity securities of other financial companies. At December 31, 2007, we did not own any securities of a single issuer which exceeded 10% of our retained earnings, other than U.S. government or federal agency obligations. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” in the Annual Report.

 

Investment Securities . At December 31, 2007, investment securities totaled $3.8 million, or 2.16% of total assets. Included in this amount is a $1.8 million investment in Federal Home Loan Bank stock which is required for membership in the Federal Home Loan Bank of Indianapolis. It is our general policy to purchase securities which are U.S. Government securities or federal agency obligations or other issues that are rated investment grade or have credit enhancements. At December 31, 2007, the average term to maturity or repricing of the investment portfolio was 2.1 years.

 

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The following table sets forth the composition of our investment securities at the dates indicated.

 

		December 31,
		2007						2006						2005
		Carry Value			% of Total			Carry Value			% of Total			Carry Value			% of Total
		(Dollars in Thousands)
Interest-bearing deposits		$	380					$	5,503					$	4,376
Investment securities available for sale:
U.S. government securities			1,511			74.62	%		2,988			84.96	%		3,004			85.42	%
Government securities mutual fund			207			10.22			190			5.40			184			5.23
Total investments available for sale			1,718			84.84			3,178			90.36			3,188			90.65
Trading securities:
Common stock of other financial institutions			307			15.16			339			9.64			329			9.35
Total trading securities			307			15.16			339			9.64			329			9.35
Total investment securities		$	2,025			100.00	%	$	3,517			100.00	%	$	3,517			100.00	%
Average remaining life of debt investment securities		2.1 years						3.8 years						2.6 years
Stock in FHLB of Indianapolis		$	1,751					$	1,751					$	1,803

 

The composition and maturities of the investment securities portfolio, excluding Federal Home Loan Bank stock, as of December 31, 2007 are indicated in the following table.

 

		Less Than 1 Year			1 to 5 Years			5 to 10 Years			Over 10 Years			Total Investment Securities
		Carry Value			Carry Value			Carry Value			Carry Value			Carry Value			Fair Value
		(Dollars in Thousands)
U.S. government securities		$	999			—		$	512		$	—		$	1,511		$	1,511
Marketable equity securities:			—			—			—			—			—			—
Government securities mutual fund (1)			—			—			—			207			207			207
Common stock of other financial institutions (1)			—			—			—			307			307			307
Total		$	999		$	—		$	512		$	514		$	2,025		$	2,025
Weighted average yield			4.60	%					5.50	%		3.60	%		4.54	%

 

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⁽¹⁾   Marketable equity securities with no stated maturity are included in the “over 10 years” category .

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Mortgage-Backed Securities . We purchase mortgage-backed securities from time to time to supplement residential loan production. The type of securities purchased is based upon our asset/liability management strategy and balance sheet objectives. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Asset/Liability Management” in our Annual Report to Shareholders. Our mortgage-backed securities are held in the available for sale portfolio in order to retain investment flexibility and accordingly are included in our financial statements at fair value.

 

All of our mortgage-backed securities at December 31, 2007, are backed by federal agencies or government corporations. Accordingly, we believe that the mortgage-backed securities are generally resistant to credit problems.

 

The following table sets forth the composition of our mortgage-backed securities at the dates indicated.

 

		December 31,
		2007						2006						2005
		Carry Value			% of Total			Carry Value			% of Total			Carry Value			% of Total
		(Dollars in Thousands)
Mortgage-backed securities available for sale:
Ginnie Mae		$	36			4.20	%	$	43			3.43	%	$	54			3.25	%
Fannie Mae			347			40.44			477			38.10			607			36.48
Freddie Mac			428			49.88			594			47.44			756			45.43
Collateralized mortgage obligation available for sale:
Fannie Mae		$	47			5.48		$	138			11.03		$	247			14.84
Total mortgage-backed securities		$	858			100.00	%	$	1,252			100.00	%	$	1,664			100.00	%

 

The following table shows mortgage-backed and related securities, purchase, sale and repayment activities for the periods indicated.

 

		Year Ended December 31,
		2007			2006			2005
		(Dollars in Thousands)
Purchases :
Adjustable-rate		$	—		$	—		$	—
Fixed-rate			—			—			—
Total purchases			—			—			—
Sales and Repayments :
Total sales			—			—			2
Principal repayments			410			403			581
Total reductions			(410	)		(403	)		(583	)
Increase (decrease) in other items, net			16			(9	)		(39	)
Net decrease		$	(394	)	$	(412	)	$	(622	)

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The following table sets forth the contractual maturities of our mortgage-backed securities at December 31, 2007. These securities are anticipated to be repaid well in advance of their contractual maturities as a result of mortgage loan payments. The amounts set forth below represent principal balances only and do not include premiums, discounts and fair value adjustments.

 

		Due in												December 31, 2007 Balance Outstanding
		1 to 5 Years			5 to 10 Years			10 to 20 Years			Over 20 Years			Fixed			Adjustable
		(Dollars in Thousands)
Ginnie Mae		$	—		$	—		$	—		$	34		$	34		$	—
Fannie Mae			92			—			9			239			331			9
Freddie Mac			110			—			280			43			433			—
CMO			—			—			48			—			48			—
Total		$	202			—			337			316			846			9

 

Sources of Funds

 

Our primary sources of funds are deposits, borrowings, amortization and prepayment of loan principal, maturities of investment securities, short-term investments and funds provided from operations.

 

Deposits . American Savings offers a variety of deposit accounts having a wide range of interest rates and terms. The deposits consist of passbook accounts, demand and NOW accounts, and money market and certificate accounts. We rely primarily on advertising, competitive pricing policies and customer service to attract and retain these deposits.

 

The flow of deposits is influenced significantly by general economic conditions, changes in money market and prevailing interest rates and competition. The varieties of deposits we offer have allowed us to be competitive in obtaining funds and to respond with flexibility to changes in consumer demand. Like all depository institutions, we have become more susceptible to short-term fluctuations in deposit flows as customers have become more interest rate conscious. We manage the pricing of our deposits in keeping with our asset/liability management, profitability and growth objectives. Based on our experience, we believe that passbook, demand and NOW accounts may be a somewhat more stable sources of deposits than certificate deposits. However, our ability to attract and maintain these and all deposits, and the rates paid on these deposits, has been and will continue to be significantly affected by market conditions.

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The following table sets forth the savings flows during the periods indicated.

 

		Year Ending December 31,
		2007			2006			2005
		(In Thousands)
Opening balance		$	124,858		$	127,435		$	115,658
Deposits			284,516			282,235			274,007
Withdrawals			(294,400	)		(288,717	)		(264,429	)
Interest credited			3,908			3,905			2,199
Ending balance		$	118,882		$	124,858		$	127,435
Net (decrease) increase		$	(5,976	)	$	(2,577	)	$	11,777
Percent (decrease) increase			(4.79) %			(2.02) %			10.18	%

The following table sets forth the dollar amount of savings deposits in the various types of deposit programs we offer as of the dates indicated.

		December 31,
		2007						2005						2005
		Amount			Percent of Total			Amount			Percent of Total			Amount			Percent of Total
		(Dollars in Thousands)
Transactions and Savings Deposits :
Commercial Demand (0.00%) (1)		$	3,193			2.68	%	$	3,993			3.20	%	$	2,718			2.13	%
Passbook Accounts (1.00%) (1)			16,929			14.25			17,616			14.11			19,515			15.32
NOW Accounts (0.50%) (1)			10,140			8.53			11,472			9.19			10,158			7.97
Money Market Accounts (tiered)			9,993			8.40			10,853			8.69			12,959			10.17
Total Non-Certificates			40,255			33.86			43,934			35.19			45,350			35.59
Certificates :
0.76 - 2.00%			—			—			298			.24			1,184			0.93
2.01 - 3.00%			567			0.48			1,989			1.59			21,224			16.65
3.01 - 4.00%			10,107			8.50			14,421			11.55			41,255			32.37
4.01 - 5.00%			39,149			32.93			34,933			27.98			18,422			14.46
5.01 - 6.00%			28,804			24.23			29,283			23.45			—			—
Total Certificates			78,627			66.14			80,924			64.81			82,085			64.41
Total Deposits		$	118,882			100.00	%	$	124,858			100.00	%	$	127,435			100.00	%

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⁽¹⁾   Rates in effect at December 31, 2007.

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The following table shows rate and maturity information for our certificates of deposit as of December 31, 2007.

		2.01- 3.00%			3.01- 4.00%			4.01- 5.00%			5.01- 6.00%			Total			Percent of Total
		(Dollars in Thousands)
Certificate account maturing in quarter ending :
March 31, 2008		$	398		$	3,002		$	13,685		$	11,019		$	28,104			35.74	%
June 30, 2008			78			2,739			5,378			1,940			10,135			12.89
September 30, 2008			—			2,690			5,500			8,774			16,964			21.58
December 31, 2008			61			995			7,348			4,025			12,429			15.81
March 31, 2009			30			497			3,014			551			4,092			5.20
June 30, 2009			—			90			1,009			55			1,154			1.47
September 30, 2009			—			18			397			489			904			1.15
December 31, 2009			—			—			707			724			1,431			1.82
March 31, 2010			—			—			1,171			624			1,795			2.28
June 30, 2010			—			—			189			433			622			0.79
September 30, 2010			—			—			21			—			21			0.03
December 31, 2010			—			—			143			—			143			0.18
Thereafter			—			76			587			170			833			1.06
Total		$	567		$	10,107		$	39,149		$	28,804		$	78,627			100.00	%
Percent of total			0.72	%		12.85	%		49.79	%		36.63	%		100.00	%		—	%

 

 

The following table indicates the amount of our certificates of deposit and other deposits by time remaining until maturity as of December 31, 2007.

 

		Maturity
		3 Months or Less			Over 3 to 6 Months			Over 6 to 12 Months			Over 12 Months			Total
		(Dollars in Thousands)
Certificates of deposit less than $100,000		$	19,993			7,671			21,583			7,766			57,013
Certificates of deposit of $100,000 or more			8,111			2,464			7,810			3,229			21,614
Total certificates of deposit		$	28,104			10,135			29,393			10,995			78,627

 

Borrowings . We may obtain advances from the Federal Home Loan Bank of Indianapolis upon the security of our capital stock in the Federal Home Loan Bank of Indianapolis and certain of our mortgage loans and mortgage-backed securities. Such advances may be made pursuant to several different credit programs, each of which has its own interest rate and range of maturities. At December 31, 2007, we had $33.4 million in Federal Home Loan Bank advances outstanding. From time to time during recent years we have utilized short-term borrowings, most of which had original maturities of 12 to 36 months, in order to fund loan demand. To the extent such borrowings are different than the average term to repricing of our deposits, they can change our interest rate risk profile. See “Management Discussion and Analysis - Asset/Liability Management” in the Annual Report. During the first quarter of 2007, the Company repaid its $5.0 million trust preferred issue and replaced it with a new $3.0 million trust preferred issue at a reduced rate and borrowed an additional $2.0 million that is scheduled to mature annually. During fiscal 2007, the Company also borrowed $300,000 from a third-party lender for general operating purposes.

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The following table sets forth certain information as to our borrowings, at or for the periods ended on the dates indicated.

 

		December 31,
		2007			2006			2005
		(Dollars in Thousands)
Federal Home Loan Bank advances:
Average balance outstanding		$	31,303		$	27,017		$	20,701
Maximum amount outstanding at any month-end during the period			34,075			34,075			22,845
Balance outstanding at end of period			33,370			34,075			20,769
Weighted average interest rate during the period			5.27	%		5.03	%		4.77	%
Weighted average interest rate at end of period			4.87	%		5.16	%		4.67	%
Other advances:
Average balance outstanding		$	1,828		$	243		$	37
Maximum amount outstanding at any month-end during the period			2,543			243			243
Balance outstanding at end of period			2,543			243			243
Weighted average interest rate during the period			6.76	%		7.65	%		6.67	%
Weighted average interest rate at end of period			6.38	%		7.75	%		6.75	%
Junior subordinated advances:
Average balance outstanding		$	3,495		$	5,000		$	5,000
Maximum amount outstanding at any month-end during the period			5,000			5,000			5,000
Balance outstanding at end of period			3,000			5,000			5,000
Weighted average interest rate during the period			7.78	%		9.08	%		7.18	%
Weighted average interest rate at end of period			6.55	%		8.97	%		7.56	%

 

Subsidiaries

 

We have one wholly owned subsidiary service corporation, NIFCO, Inc., and one second tier subsidiary service corporation, Ridge Management, Inc. which is owned by NIFCO. NIFCO previously sold annuities and securities. As of December 31, 2003, the activities of NIFCO were effectively transferred to the Bank.

 

In the past, Ridge Management engaged in lending and investment activity, although it is currently essentially inactive. For the year ended December 31, 2007, Ridge Management had no activity.

 

We also own all of the common securities of AMB Financial Statutory Trust II which was created in connection with the issuance in March 2007 of $3.0 million of trust preferred securities.

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Regulation

 

American Savings is a federally chartered savings and loan association, the deposits of which are federally insured by the FDIC and backed by the full faith and credit of the United States government. Accordingly, American Savings is subject to broad federal regulation and oversight extending to all of our operations. American Savings is a member of the Federal Home Loan Bank of Indianapolis and is subject to certain limited regulation by the Board of Governors of the Federal Reserve System. As the savings and loan holding company that has existed as a unitary savings and loan holding company prior to May 4, 1999, there is virtually no restriction on its activities.

 

Federal Regulation of Savings Associations . The Office of Thrift Supervision has extensive authority over the operations of savings associations. As part of this authority, we are required to file periodic reports with the Office of Thrift Supervision and are subject to periodic examinations by the Office of Thrift Supervision and the FDIC. When these examinations are conducted by the Office of Thrift Supervision and the FDIC, the examiners may require American Savings to provide for higher general or specific loan loss reserves.

 

The Office of Thrift Supervision also has extensive enforcement authority over all savings institutions and their holding companies, such as American Savings and AMB Financial, respectively. This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders, and to initiate injunctive actions.

 

Our general permissible lending limit for loans-to-one-borrower is equal to the greater of $500,000 or 15% of capital and surplus (except for loans fully secured by certain readily marketable collateral, in which case this limit is increased to 25% of capital and surplus). At December 31, 2007, our lending limit under this restriction was approximately $2.3 million. At December 31, 2007, we had no loans in excess of our loans-to-one-borrower limit.

 

Insurance of Accounts and Regulation by the FDIC . Deposit accounts in American Savings are insured by the Federal Deposit Insurance Corporation generally up to a maximum of $100,000 per separately insured depositor and up to a maximum of $250,000 for self-directed retirement accounts. American Savings’ deposits, therefore, are subject to Federal Deposit Insurance Corporation deposit insurance assessments.

The Federal Deposit Insurance Corporation regulations assess insurance premiums based on an institution’s risk. Under this assessment system, the Federal Deposit Insurance Corporation evaluates the risk of each financial institution based on its supervisory rating, financial ratios, and long-term debt issuer rating. The rates for nearly all of the financial institutions industry vary between five and seven cents for every $100 of domestic deposits. The assessment to be paid during the year ending December 31, 2007 will be offset by a credit from the Federal Deposit Insurance Corporation to American Savings of $86,000. Federal law requires the Federal Deposit Insurance Corporation to establish a deposit reserve ratio for the deposit insurance fund of between 1.15% and 1.50% of estimated deposits. The Federal Deposit Insurance Corporation has designated the reserve ratio for the deposit insurance fund through the first quarter of 2008 at 1.25% of estimated insured deposits.

 

Effective March 31, 2006, the Federal Deposit Insurance Corporation merged the Bank Insurance Fund (“BIF”) and the Savings Association Insurance Fund (“SAIF”) into a single fund called the Deposit Insurance Fund. In addition to the Federal Deposit Insurance Corporation assessments, the Financing Corporation (“FICO”) is authorized to impose and collect, with the approval of the Federal Deposit Insurance Corporation, assessments for anticipated payments, issuance costs and custodial fees on bonds issued by the FICO in the 1980s to recapitalize the Federal Savings and Loan Insurance Corporation. The bonds issued by the FICO are due to mature in 2017 through 2019. For the quarter ended June 30, 2007, the annualized FICO assessment was equal to 1.14 basis points for each $100 in domestic deposits maintained at an institution.

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Regulatory Capital Requirements . Federally insured savings associations, such as American Savings, are required to maintain a minimum level of regulatory capital. The Office of Thrift Supervision has established capital standards, including a tangible capital requirement, a leverage ratio (or core capital) requirement and a risk-based capital requirement applicable to such savings associations.

 

The capital regulations require tangible capital of at least 1.5% of adjusted total assets (as defined by regulation). At December 31, 2007, American Savings had tangible capital of $15.2 million, or 8.86% of adjusted total assets, which is approximately $12.6 million above the minimum requirement of 1.5% of adjusted total assets in effect on that date. At December 31, 2007, American Savings had purchased mortgage servicing rights of $8,000.

 

The capital standards also require core capital equal to at least 3% to 4% of adjusted total assets, depending on an institution’s supervisory rating. Core capital generally consists of tangible capital. At December 31, 2007, we had core capital equal to $15.2 million, or 8.86% of adjusted total assets, which is $10.0 million above the minimum leverage ratio requirement of 3% as in effect on that date.

 

The Office of Thrift Supervision risk-based capital requirement requires savings associations to have total capital of at least 8% of risk-weighted assets. Total capital consists of core capital, as defined above, and supplementary capital. Supplementary capital consists of certain permanent and maturing capital instruments that do not qualify as core capital and general valuation loan and lease loss allowances up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used to satisfy the risk-based requirement only to the extent of core capital.

 

In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet items, will be multiplied by a risk weight, ranging from 0% to 100%, based on the risk inherent in the type of asset. For example, the Office of Thrift Supervision has assigned a risk weight of 50% for prudently underwritten permanent one- to four-family first lien mortgage loans not more than 90 days delinquent and having a loan-to-value ratio of not more than 80% at origination, unless insured to such ratio by an insurer approved by Fannie Mae or Freddie Mac.

 

On December 31, 2007, we had total risk-based capital of approximately $15.9 million, including $15.2 million in core capital and $700,000 in qualifying supplementary capital, and risk-weighted assets of $112.4 million, or total capital of 14.13% of risk-weighted assets. This amount was $6.9 million above the 8% requirement in effect on that date.

 

The Office of Thrift Supervision is authorized to impose capital requirements in excess of these standards on individual associations on a case-by-case basis. The Office of Thrift Supervision and the FDIC are authorized and, under certain circumstances required, to take certain actions against savings associations that fail to meet their capital requirements. The Office of Thrift Supervision is generally required to take action to restrict the activities of an “undercapitalized association” (generally defined to be one with less than either a 4% core capital ratio, a 4% core risked-based capital ratio or an 8% risk-based capital ratio). Any such association must submit a capital restoration plan and until such plan is approved by the Office of Thrift Supervision may not increase its assets, acquire another institution, establish a branch or engage in any new activities, and generally may not make capital distributions. The Office of Thrift Supervision is authorized to impose the additional restrictions that are applicable to significantly undercapitalized associations.

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The Office of Thrift Supervision is also generally authorized to reclassify an association into a lower capital category and impose the restrictions applicable to such category if the institution is engaged in unsafe or unsound practices or is in an unsafe or unsound condition.

 

The imposition by the Office of Thrift Supervision or the FDIC of any of these measures on AMB Financial or American Savings may have a substantial adverse effect on our operations and profitability.

 

Limitations on Dividends and Other Capital Distributions . The Office of Thrift Supervision imposes various restrictions on savings associations with respect to their ability to make distributions of capital, which include dividends, stock redemptions or repurchases, cash-out mergers and other transactions charged to the capital account. The Office of Thrift Supervision also prohibits a savings association from declaring or paying any dividends or from repurchasing any of its stock if, as a result of such action, the regulatory capital of the savings association would be reduced below the amount required to be maintained for the liquidation account established in connection with American Savings mutual to stock conversion.

 

American Savings may make a capital distribution without the prior approval of the Office of Thrift Supervision provided we notify the Office of Thrift Supervision at least 30 days before we declare the capital distribution and we meet the following requirements: (i) we have a regulatory rating in one of the two top examination categories, (ii) we are not of supervisory concern, and will remain adequately- or well-capitalized, as defined in the Office of Thrift Supervision prompt corrective action regulations, following the proposed distribution, and (iii) the distribution does not exceed our net income for the calendar year-to-date plus retained net income for the previous two calendar years (less any dividends previously paid). If we do not meet the above stated requirements, we must obtain the prior approval of the Office of Thrift Supervision before declaring any proposed distributions.

 

Qualified Thrift Lender Test . All savings institutions are required to meet a qualified thrift lender test to avoid certain restrictions on their operations. This test requires a savings institution to have at least 65% of its portfolio assets (as defined by regulation) in qualified thrift investments on a monthly average for nine out of every 12 months on a rolling basis. As an alternative, the savings institutions may maintain 60% of its assets in those assets specified in Section 7701(a)(19) of the Internal Revenue Code. Under either test, these assets primarily consist of residential housing related loans and investments. At December 31, 2007, American Savings met the test and has always met the test since its effectiveness. American Savings’ qualified thrift lender percentage was 79.43% at December 31, 2007.

 

Any savings institution that fails to meet the qualified thrift lender test must convert to a bank charter, unless it requalifies as a qualified thrift lender and remains a qualified thrift lender. If an institution has not yet requalified or converted to a national bank, its new investments and activities are limited to those permissible for both a savings association and a national bank, and it is limited to national bank branching rights in its home state. In addition, the institution is immediately ineligible to receive any new Federal Home Loan Bank borrowings and is subject to national bank limits for payment of dividends. If the institution has not requalified or converted to a national bank within three years after the failure, it must sell all investments and stop all activities not permissible for a national bank. In addition, it must repay promptly any outstanding Federal Home Loan Bank borrowings, which may result in prepayment penalties. If any institution that fails the qualified thrift lender test is controlled by a holding company, then within one year after the failure, the holding company must register as a bank holding company and become subject to all restrictions on bank holding companies. See “- Holding Company Regulation.”

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Community Reinvestment Act . Under the Community Reinvestment Act, every FDIC insured institution has a continuing and affirmative obligation, consistent with safe and sound banking practices, to help meet the credit needs of its entire community, including low- and moderate- income neighborhoods. The Community Reinvestment Act requires the Office of Thrift Supervision, in connection with its examination of American Savings, to assess the institution’s record of meeting the credit needs of our community and to take this record into account in our evaluation of certain applications, such as a merger or the establishment of a branch, by American Savings. An unsatisfactory rating may be used as the basis for the denial of an application by the Office of Thrift Supervision. American Savings was examined for Community Reinvestment Act compliance in May 2004 and received a rating of “satisfactory.”

 

Transactions with Affiliates . Generally, transactions between a savings association or its subsidiaries and its affiliates are required to be on terms as favorable to the association or subsidiary as transactions with non-affiliates. In addition, certain of these transactions, such as loans to an affiliate, are restricted to a percentage of the association’s capital. Affiliates of American Savings include AMB Financial and any company which is under common control with American Savings. In addition, a savings association may not lend to any affiliate engaged in activities not permissible for a bank holding company or acquire the securities of most affiliates. The Office of Thrift Supervision has the discretion to treat subsidiaries of savings associations as affiliates on a case by case basis.

 

Certain transactions with directors, officers or controlling persons are also subject to conflict of interest regulations enforced by the Office of Thrift Supervision. These conflict of interest regulations and other statutes also impose restrictions on loans to such persons and their related interests. Among other things, such loans must be made on terms substantially the same as for loans to unaffiliated individuals.

 

Holding Company Regulation . AMB Financial is a unitary savings and loan holding company subject to regulatory oversight by the Office of Thrift Supervision. AMB Financial is required to register and file reports with the Office of Thrift Supervision and are subject to regulation and examination by the Office of Thrift Supervision. In addition, the Office of Thrift Supervision has enforcement authority over AMB Financial and its non-savings association subsidiaries which also permits the Office of Thrift Supervision to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings association.

 

As a unitary savings and loan holding company, that has been in existence since before May 4, 1999, AMB Financial generally is not subject to activity restrictions. If AMB Financial acquires control of another savings association as a separate subsidiary, it would become a multiple savings and loan holding company and the activities of AMB Financial and any of our subsidiaries (other than American Savings or any other Deposit Insurance Fund insured savings association) would generally become subject to certain restrictions. Additionally, if we fail the qualified thrift lender test, within one year AMB Financial must register as, and will become subject to, the significant activity restrictions applicable to bank holding companies.

 

USA PATRIOT Act . The USA PATRIOT Act was signed into law on October 26, 2001. The USA PATRIOT Act gives the federal government new powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing and broadened anti-money laundering requirements. The USA PATRIOT Act also requires the federal banking agencies to take into consideration the effectiveness of controls designed to combat money laundering activities in determining whether to approve a merger or other acquisition application of a member institution. Accordingly, if we engage in a merger or other acquisition, our controls designed to combat money laundering would be considered as part of the application process. The Company has established policies, procedures and systems designed to comply with these regulations.

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Federal Securities Law . The stock of AMB Financial is registered with the SEC under the Securities Exchange Act of 1934, as amended. AMB Financial is subject to the information, proxy solicitation, insider trading restrictions and other requirements of the SEC under the Securities Exchange Act of 1934.

 

AMB Financial stock held by persons who are affiliates (generally executive officers, directors and 10% shareholders) of AMB Financial may not be resold without registration or unless sold in accordance with certain resale restrictions. If AMB Financial meets specified current public information requirements, each affiliate of AMB Financial is able to sell in the public market, without registration, a limited number of shares in any three-month period.

 

Sarbanes Oxley Act of 2002 . On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002, which contains important new requirements for public companies in the area of financial disclosure and corporate governance. Among the requirements of the Sarbanes-Oxley Act of 2002 are written certifications by our Chief Executive Officer and Chief Financial Officer of our quarterly and annual reports filed with the SEC, as well as disclosures regarding our internal controls and procedures. In response to the Sarbanes-Oxley Act of 2002 and the related regulations, the Company has reviewed and amended its practices, policies and procedures to ensure our ability to comply with the requirements of the Act.

 

Federal Reserve System . The Federal Reserve Board requires all depository institutions to maintain noninterest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW and Super NOW checking accounts). At December 31, 2007, American Savings was in compliance with these reserve requirements.

 

Savings associations are authorized to borrow from the Federal Reserve Bank “discount window,” but Federal Reserve Board regulations require associations to exhaust other reasonable alternative sources of funds, including Federal Home Loan Bank borrowings, before borrowing from the Federal Reserve Bank.

 

Federal Home Loan Bank System . American Savings is a member of the Federal Home Loan Bank of Indianapolis, which is one of 12 regional Federal Home Loan Banks that administer the home financing credit function of savings associations. Each Federal Home Loan Bank serves as a reserve or central bank for its members within its assigned region. It makes loans to members (i.e., advances) in accordance with policies and procedures, established by the board of directors of the Federal Home Loan Bank, which are subject to the oversight of the Federal Housing Finance Board. All advances from the Federal Home Loan Bank are required to be fully secured by sufficient collateral as determined by the Federal Home Loan Bank. In addition, all long-term advances must be used for residential home financing.

 

As a member, American Savings is required to purchase and maintain a minimum amount of stock in the Federal Home Loan Bank of Indianapolis. At December 31, 2007, American Savings had $1.8 million in Federal Home Loan Bank stock, which was in compliance with this requirement. In past years, American Savings has received substantial dividends on our Federal Home Loan Bank stock. For the fiscal year ended December 31, 2007, dividends paid by the Federal Home Loan Bank of Indianapolis to American Savings totaled $80,000, which constituted a $6,000 decrease from the amount of dividends received in fiscal 2006. Over the past five fiscal years these dividends have averaged 4.62% and were 4.62% for fiscal 2007.

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Federal and State Taxation

 

Federal Taxation . Savings institutions that met certain definitional tests relating to the composition of assets and other conditions prescribed by the Internal Revenue Code of 1986, as amended, had been permitted to establish reserves for bad debts and to make annual additions which could, within specified formula limits, be taken as a deduction in computing taxable income for federal income tax purposes. The amount of the bad debt reserve deduction is now computed under the experience method.

 

In addition to the regular income tax, corporations, including savings institutions, generally are subject to a minimum tax. An alternative minimum tax is imposed at a minimum tax rate of 20% on alternative minimum taxable income, which is the sum of a corporation’s regular taxable income (with certain adjustments) and tax preference items, less any available exemption. The alternative minimum tax is imposed to the extent it exceeds the corporation’s regular income tax and net operating losses can offset no more than 90% of alternative minimum taxable income.

 

To the extent earnings appropriated to a savings institution’s bad debt reserves for “qualifying real property loans” and deducted for federal income tax purposes exceed the allowable amount of such reserves computed under the experience method and to the extent of the institution’s supplemental reserves for losses on loans, such excess may not, without adverse tax consequences, be utilized for the payment of cash dividends or other distributions to a shareholder (including distributions on redemption, dissolution or liquidation) or for any other purpose (except to absorb bad debt losses). As of December 31, 2007, American Savings’ excess for tax purposes totaled approximately $1.9 million.

 

We file consolidated federal income tax returns on a fiscal year basis using the accrual method of accounting.

 

Our federal income tax returns for the last three years are open to possible audit by the IRS. No returns are being audited by the IRS at the current time. In our opinion, any examination of still open returns would not result in a deficiency which could have a material adverse effect on our financial condition.

 

Indiana Taxation . The State of Indiana imposes an 8.5% financial institution tax on the net income of financial (including thrift) institutions. Taxable income for financial institution tax purposes will constitute federal taxable income before net operating loss deductions and special deductions, adjusted for certain items, including the addition of Indiana income taxes, tax exempt interest and bad debts. Other applicable Indiana taxes include sales, use and personal property taxes.

 

Delaware Taxation . As a company incorporated under Delaware state law, AMB Financial is exempt from Delaware corporate income tax but is required to file an annual report with, and pay an annual fee to, the State of Delaware. The Holding Company is also subject to an annual franchise tax imposed by the State of Delaware.

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Competition

 

We face strong competition both in originating real estate loans and in attracting deposits. Competition in originating loans comes primarily from other savings institutions, credit unions, commercial banks and mortgage bankers who also make loans secured by real estate located in our primary market area. We compete for loans principally on the basis of the interest rates and loan fees we charge, the types of loans we originate and the quality of services we provide to borrowers.

 

We attract all of our deposits through our branch offices, primarily from the communities in which those branch offices are located; therefore, competition for those deposits is principally from other savings institutions, commercial banks, securities firms, money market and mutual funds and credit unions located in the same communities. Our ability to attract and retain deposits depends on our ability to provide an investment opportunity that satisfies the requirements of investors. We compete for these deposits by offering a variety of deposit accounts at competitive rates, convenient business hours and a customer oriented staff. As of June 30, 2007, we estimate our market share of savings deposits in the Lake County, Indiana market area to be approximately 1.81%. The Company also experiences competition from online financial service providers.

 

Employees

 

At December 31, 2007, we had a total of 37 employees, including nine part-time employees. Our employees are not represented by any collective bargaining group. We consider employee relations to be good.

 

Item 2. Description of Property

 

We conduct business from our main office located in Munster, Indiana and branch offices. The following table sets forth information relating to each of our properties as of December 31, 2007.

 

Location		Year Acquired			Owned Or Leased			Total Approximate Square Footage			Book Value at December 31, 2007
											(Dollars in Thousands)
Main Office:
8230 Hohman Avenue Munster, Indiana			1963			Owned			8,400		$	68
Branch Offices:
1001 Main Street Dyer, Indiana			2000			Owned	(1)		16,000		$	1,640
4521 Hohman Avenue Hammond, Indiana			1983			Owned			1,600		$	66
Schererville, Indiana (under construction; anticipated to be open to public in June, 2008)			2007			Owned			24,000		$	3,880

________________________

⁽¹⁾   Our branch office occupies 5,300 square feet of this building. The balance of the property is leased.

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We believe that current facilities are adequate to meet our present and foreseeable needs, subject to possible future expansion.

 

We maintain an on-line data base with a service bureau servicing financial institutions. The net book value of the data processing and computer equipment utilized at December 31, 2007 was $34,000.

 

Item 3. Legal Proceedings

 

We, from time to time, are party to certain lawsuits in the ordinary course of its business, wherein American Savings enforces its security interest. American Savings is currently involved in one legal proceeding, Steve H. Tokarski, et al. v. American Savings, FSB , Cause No. 45D04-0706-CC-075, which involves multiple claims, including a claim involving a restricted deposit account in the amount of $155,000 and another involving the cashing of two checks totaling approximately $513,000. The suit claims that we violated a Notice of Restriction placed on the deposit account and that we assisted an individual in misappropriating funds. Management believes that the transactions were handled appropriately and will refute the charges. The Plaintiff filed the complaint in Lake County, Indiana Superior Court in June 2007, more than two years after the May 2005 withdrawal of funds or the June 2003 presentation and cashing of checks. At this time, the outcome of this litigation is still in question and the amount of potential loss, if any, cannot be estimated.

 

At December 31, 2007, other than as described above we were not involved in any legal proceedings, that are not routine and incidental to our business.

 

Item 4. Submission of Matters to a Vote of Security Holders

 

No matters were submitted to a vote of security holders, through the solicitation of proxies, during the quarter ended December 31, 2007.

 

33

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PART II

 

Item 5. Market for Common Equity and Related Stockholder Matters

 

During the fourth quarter of 2007 the Company repurchased 35,187 shares of stock at an average price of $14.98 per share.

 

With respect to recent stock trading and dividend information, please see page 48 of the Annual Report to Shareholders attached as Exhibit 13 which is herein incorporated by reference.

 

Company Purchases of Common Stock
Period		Total number of shares purchased			Average price paid per share			Total number of shares purchased as part of publicly announced plans or programs			Approximate dollar value of shares that may yet be purchased under the plans or programs
October 1, 2007 through October 31, 2007			5,187		$	14.73			32,184		$	262,429
November 1, 2007 through November 30, 2007			30,000		$	15.02			50,000			-

 

Item 6. Management’s Discussion and Analysis or Plan of Operation

 

Pages 5 through 19 of the Annual Report to Shareholders attached as Exhibit 13 are herein incorporated by reference.

34

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Item 7. Financial Statements  

 

Report of Management on Internal Control over Financial Reporting  

Management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:

(1) Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;

(2) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and

(3) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has used the framework set forth in the report entitled “Internal Control - Integrated Framework” published by the Committee of Sponsoring Organizations of the Treadway Commission to evaluate the effectiveness of the Company’s internal control over financial reporting. Management has concluded that the Company’s internal control over financial reporting was effective as of the end of the most recent fiscal year.

/s/ Michael Mellon
Michael Mellon
President and Chief Executive Officer
/s/ Steven A. Bohn
Steven A. Bohn
Vice President and Chief Financial Officer

35

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The following information appearing in the Annual Report is incorporated herein by reference.

 

Annual Report Section	Pages in Annual Report
Report of Independent Auditors	20
Consolidated Statements of Financial Condition (December 31, 2007 and 2006)	21
Consolidated Statements of Income (For the Years Ended December 31, 2007, 2006 and 2005)	22
Consolidated Statements of Changes in Stockholders’ Equity (For the Three Years Ended December 31, 2007, 2006 and 2005)	23
Consolidated Statements of Cash Flows (For the Years Ended December 31, 2007, 2006 and 2005)	24-25
Notes to Consolidated Financial Statements	26

 

With the exception of the aforementioned information in Part II of the Form 10-KSB, the Annual Report is not deemed filed as part of this annual report on Form 10-KSB.

 

Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

 

There has been no Current Report on Form 8-K filed within 24 months prior to the date of the most recent financial statements reporting a change in accountants and/or reporting disagreements on any matter of accounting principle or financial statement disclosure.

 

ITEM 8A. (T)   Controls and Procedures

 

(a) Evaluation of Disclosure Controls and Procedures

 

We have adopted disclosure controls and procedures designed to facilitate our financial reporting. The disclosure controls currently consist of communications between the Chief Executive Officer, the Chief Financial Officer and each department head to identify any new transactions, events, trends or contingencies which may be material to our operations. In addition, our Chief Executive Officer, Chief Financial Officer, Audit Committee and independent accountants meet on a quarterly basis and discuss our material accounting policies. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of these interim disclosure controls as of the end of the period covered by this report and found them to be adequate.

 

(b) Management’s Report on Internal Control over Financial Reporting

 

The Report of Management on Internal Control over Financial Reporting is on page 36 of the Form 10-KSB. This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only a management’s report in this annual report.

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(c) Changes in Internal Control over Financial Reporting

 

We maintain internal control over financial reporting. There have not been any significant changes in such internal control over the financial reporting in the last quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Item 8B. Other Information .

 

None.

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PART III

 

Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act

 

Information concerning the directors, executive officers and Section 16(a) compliance is incorporated herein by reference from the definitive proxy statement for the annual meeting of stockholders to be held in 2008, a copy of which will be filed not later than 120 days after the close of fiscal year.

 

Item 10. Executive Compensation

 

Information concerning executive compensation is incorporated herein by reference from the definitive proxy statement for the annual meeting of stockholders to be held in 2008, a copy of which will be filed not later than 120 days after the close of the fiscal year.

 

Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Information concerning security ownership of certain beneficial owners and management is incorporated herein by reference from our definitive proxy statement for the annual meeting of stockholders to be held in 2008, a copy of which will be filed not later than 120 days after the close of the fiscal year.

 

Set forth below is information, as of December 31, 2007 regarding equity compensation plans categorized by those plans that have been approved by stockholders and those plans that have not been approved by stockholders.

		Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights  (1)			Weighted Average Exercise Price of Outstanding Options, Warrants and Rights  (2)			Number of Securities Remaining Available For Future Issuance Under Equity Compensation Plans  (3)
Equity compensation plans approved by stockholders			37,500		$	13.25			25,694
Equity compensation plans not approved by stockholders			-			N/A			-
Total			37,500		$	13.25			25,694

 

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(1)

Consists of options to purchase 23,194 and 13,306 shares of common stock under the AMB Financial Corp. 1996 Stock Option and Incentive Plan and the AMB Financial Corp. 2005 Stock Option Plan, respectively.

(2)

The weighted average exercise price reflects the weighted average exercise price of stock options awarded from the AMB Financial Corp. 1996 Stock Option and Incentive Plan and the AMB Financial Corp. 2005 Stock Option Plan.

(3)

Consists of stock options for 25,694 shares of common stock available to be granted from the AMB Financial Corp. 2005 Stock Option Plan.

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Item 12. Certain Relationships and Related Transactions, and Director Independence

 

Information concerning certain relationships and transactions is incorporated herein by reference from our definitive proxy statement for the annual meeting of stockholders to be held in 2008, a copy of which will be filed not later than 120 days after the close of the fiscal year.

 

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Item 13. Exhibits

 

Regulation S-B Exhibit Number	Document	Reference to Prior Filing or Exhibit Number Attached Hereto
2	Plan of acquisition, reorganization, arrangement, liquidation or succession	None
3.1	Certificate of Incorporation	*
3.2	Bylaws	*
4	Instruments defining the rights of security holders, including indentures	*
9	Voting trust agreement	None
10	Material contracts:
10.1	1996 Stock Options and Incentive Plan	**
10.2	Recognition and Retention Plan	**
10.3	Employee Stock Ownership Plan	*
10.4	Employee Severance Compensation Plan	*
10.5	Employment Agreements	*
10.6	Second Executive Deferred Compensation Plan	***
10.7	Trust Agreement for the Compensation Agreement	***
10.8	2005 Stock Option Plan..	******
11	Statement re: computation of per share earnings	****
13	Annual report to security holders	13
14	Code of Ethics	*****
16	Letter on change in certifying accountant	None
18	Letter on change in accounting principles	None
21	Subsidiaries of registrant	21
22	Published report regarding matters submitted to vote	None
23	Consent of experts and counsel	23
24	Power of attorney	Not required
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	31.1
31.2	Certification of Chief Financial Officer pursuant to Section 30 of the Sarbanes-Oxley Act of 2002	31.2
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	32.1
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	32.2
99	Additional Exhibits	None

 

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*	Filed on December 29, 1995 as an exhibit to the Registrant’s Registration Statement No. 33-80991 on Form S-1. All of such previously filed documents are hereby incorporated herein by reference in accordance with Item 601 of Regulation S-B.

**	Filed on September 12, 1996 under Schedule 14A as an appendix to the Registrant’s definitive proxy materials and incorporated herein by reference.

***	Filed on March 31, 1999 as an exhibit to the Registrant’s Annual Report on Form 10-KSB and incorporated herein by reference.

****	See Note A of the Notes to the Consolidated Financial Statements in the Annual Report attached hereto as Exhibit 13.

*****

Filed on March 30, 2007as an exhibit to the Registrant’s Form 10-KSB for the year ended December 31, 2007 and incorporated herein by reference.

******

Filed on May 6, 2005 under Schedule 14A as Appendix A to the Registrant’s definitive proxy materials and incorporated herein by reference.

 

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Item 14. Principal Accountant Fees and Services

 

Information concerning principal accountant fees and services is incorporated herein by reference from the definitive Proxy Statement for the Annual Meeting of Stockholders to be held in April 2008, a copy of which will be filed not later than 120 days after the close of the fiscal year.

 

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SIGNATURES

 

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	AMB FINANCIAL CORPORATION
Date: March 28, 2008	By:	/s/ Michael Mellon
		Michael Mellon, President and Chief Executive Officer
		(Duly Authorized Representative)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 

By:	/s/ Michael Mellon		By:	/s/ Steven A. Bohn
	Michael Mellon, President and Chief			Steven A. Bohn, Vice President and
	Executive Officer			Chief Financial Officer
	(Principal Executive and Operating Officer)			(Principal Financial and Accounting Officer)
Date: March 28, 2008			Date: March 28, 2008
By:	/s/ Clement B. Knapp, Jr.		By:	/s/ Ronald Borto
	Clement B. Knapp, Jr., Chairman of the Board			Ronald W. Borto, Director
Date: March 28, 2008			Date: March 28, 2008
By:	/s/ Louis Green		By:	/s/ Donald L. Harle
	Louis Green, Director			Donald L. Harle, Director
Date: March 28, 2008			Date: March 28, 2008
By:	/s/ Robert E. Tolley		By:	/s/ Thomas Corsiglia
	Robert E. Tolley, Director			Thomas Corsiglia, Director
Date: March 28, 2008			Date: March 28, 2008

 

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Index to Exhibits

 

Exhibit No.		Document
13		Annual Report
21		Subsidiaries of the Registrant
23		Consent of Cobitz, VandenBerg & Fennessy
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
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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