UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2016

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

For the transition period from to

000-55083

(Commission File Number)

AJS BANCORP, INC.

(Exact name of Registrant as Specified in its Charter)

Maryland		90-1022599
(State or Other Jurisdiction of		(I.R.S. Employer Identification Number)
Incorporation or Organization)

14757 S. Cicero Ave.

Midlothian, IL 60445

(708) 687-7400

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

of Registrant’s Principal Executive Officers)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large accelerated filer	o	Accelerated filer	o

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

Indicate by checkmark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

Registrant had 2,150,718 common shares outstanding at August 11, 2016

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AJS BANCORP, INC.

FORM 10-Q

Table of Contents

		Page Number

PART I - Financial Information

Item 1. Financial Statements (Unaudited)

Consolidated Statements of Financial Condition		1
Consolidated Unaudited Statements of Operations		2
Consolidated Unaudited Statements of Comprehensive Income (Loss)		3
Consolidated Unaudited Statements of Cash Flows		4
Consolidated Unaudited Statements of Stockholders’ Equity		6
Notes to Consolidated Unaudited Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	49
Item 4.	Controls and Procedures	49

PART II - Other Information

Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51
Signatures		52

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AJS BANCORP, INC.

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

JUNE 30, 2016 AND DECEMBER 31, 2015

(Dollars in thousands, except per share data)

	June 30,			December 31,
	2016			2015
	(Unaudited)
ASSETS
Cash and cash equivalents	$	31,485		$	29,922
Securities available-for-sale	45,847			49,942
Securities held-to-maturity (fair value: 2016 -$276; 2015 - $332)	274			326
Loans, net (allowance: 2016 – $864; 2015 - $988)	109,959			114,423
Federal Home Loan Bank stock	598			1,291
Premises and equipment	3,349			3,464
Bank-owned life insurance	5,989			5,896
Other real estate owned	40			307
Accrued interest receivable	412			434
Receivable due from broker	2,106			—
Other assets	2,531			2,930
Total assets	$	202,590		$	208,935
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Deposits	$	164,440		$	165,649
Federal Home Loan Bank advances	—			5,000
Advance payments by borrowers for taxes and insurance	1,999			2,135
Other liabilities and accrued interest payable	2,657			2,659
Total liabilities	169,096			175,443
Employee Stock Ownership Plan (ESOP) repurchase obligation	1,051			994
Stockholders’ equity
Preferred stock, $.01 par value, 50,000,000 shares authorized; none issued	—			—
Common stock, $.01 par value, 100,000,000 shares authorized; 2,154,718 shares outstanding at June 30, 2016 and 2,193,440 shares outstanding at December 31, 2015	22			22
Additional paid-in capital	12,745			13,352
Retained earnings	20,922			20,802
Accumulated other comprehensive income (loss)	189			(221		)
Unearned stock awards	(422		)	(444		)
Unearned ESOP shares	(1,013		)	(1,013		)
Total stockholders’ equity	32,443			32,498
Total liabilities and stockholders’ equity	$	202,590		$	208,935

See accompanying notes to consolidated unaudited financial statements.

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AJS BANCORP, INC.

CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(Dollars in thousands, except per share data)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Interest and dividend income:
Loans	$	1,057		$	1,121		$	2,143		$	2,240
Securities	161			169			332			344
Interest-earning deposits	42			16			81			35
Total interest income	1,260			1,306			2,556			2,619
Interest expense:
Deposits	137			148			275			294
Federal Home Loan Bank advances	5			32			26			81
Total interest expense	142			180			301			375
Net interest income	1,118			1,126			2,255			2,244
Provision (credit) for loan losses	(50		)	115			(110		)	130
Net interest income after provision (credit) for loan losses	1,168			1,011			2,365			2,114
Non-interest income:
Service fees	70			74			134			141
Rental income	17			19			35			38
Earnings on bank-owned life insurance	47			48			93			96
Security gains	37			—			72			74
Other real estate owned gains (losses)	(4		)	—			(4		)	(19		)
Other	34			33			47			63
Total non-interest income	201			174			377			393
Non-interest expense:
Compensation and employee benefits	581			595			1,146			1,198
Occupancy expense	210			181			401			365
Data processing expense	87			87			176			177
Advertising and promotion	8			11			23			22
Professional and regulatory	84			89			154			182
Postage and supplies	18			22			45			47
Bank security	33			32			60			60
Federal deposit insurance	30			49			67			96
Other real estate owned (income) expense/impairment	(14		)	208			(9		)	237
Other	107			113			220			228
Total non-interest expense	1,144			1,387			2,283			2,612
Income (loss) before income taxes	225			(202		)	459			(105		)
Income tax expense (benefit)	75			(94		)	137			(72		)
Net income (loss)	$	150		$	(108	)	$	322		$	(33	)
Earnings (loss) per share:
Basic	$	0.07		$	(0.05	)	$	0.15		$	(0.02	)
Diluted	$	0.07		$	(0.05	)	$	0.15		$	(0.02	)

See accompanying notes to consolidated unaudited financial statements.

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AJS BANCORP, INC.

CONSOLIDATED UNAUDITED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

THREE AND SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(Dollars in thousands)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
Net income (loss)	$	150		$	(108	)	$	322		$	(33	)
Other comprehensive income (loss):
Unrealized gains (losses) on securities available-for-sale:
Unrealized holding gains (losses) arising during the period	187			(310		)	745			(153		)
Reclassification adjustment for (gains) losses included in net income	(37		)	—			(72		)	(74		)
Related income tax (expense) benefit	(58		)	122			(263		)	88
Total other comprehensive income (loss)	92			(188		)	410			(139		)
Comprehensive income (loss)	$	242		$	(296	)	$	732		$	(172	)

See accompanying notes to consolidated unaudited financial statements.

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AJS BANCORP, INC.

CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2016 AND 2015

(Dollars in thousands)

	Six Months Ended June 30,
	2016			2015
Cash flows from operating activities:
Net income (loss)	$	322		$	(33	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation	121			102
Provision (credit) for loan losses	(110		)	130
Net amortization of securities	97			124
Stock award and option expense	79			80
Earnings on bank-owned life insurance	(93		)	(96		)
(Gain) loss on sale of securities available-for-sale	(72		)	(74		)
(Gain) loss on the sale of other real estate owned	4			19
Other real estate owned impairment	—			205
Changes in:
Accrued interest receivable and other assets	(1,948		)	(112		)
Accrued interest payable and other liabilities	(2		)	(428		)
Net cash used in operating activities	(1,602		)	(83		)
Cash flows from investing activities:
Securities available-for-sale
Purchases	(9,000		)	(14,958		)
Sales	5,347			3,306
Calls, maturities and principal payments	8,448			13,778
Loan originations, purchases and repayments, net	4,574			(2,906		)
Proceeds from sale of other real estate	263			455
Redemption of FHLB stock	693			477
Improvements to other real estate owned	—			(12		)
Purchase of equipment, net	(6		)	(19		)
Net cash provided by investing activities	10,319			121
Cash flows from financing activities:
Net change in deposits	(1,209		)	(926		)
Maturities of FHLB advances	(5,000		)	(7,000		)
Repurchase of common stock	(607		)	(279		)
Dividends paid on common stock	(202		)	(205		)
Net change in advance payments by borrowers for taxes and insurance	(136		)	(10		)
Net cash used in financing activities	(7,154		)	(8,420		)

See accompanying notes to consolidated unaudited financial statements.

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AJS BANCORP, INC.

CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS (Continued)

	Six Months Ended
	June 30,
	2016		2015
Net change in cash and cash equivalents	1,563		(8,382		)
Cash and cash equivalents at beginning of year	29,922		32,898
Cash and cash equivalents at end of period	$	31,485	$	24,516
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	312	$	569
Income taxes	5		—
Supplemental noncash disclosures:
Transfers from loans to real estate owned	$	—	$	319
Receivable due from broker	2,106		—

See accompanying notes to consolidated unaudited financial statements.

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AJS BANCORP, INC.

CONSOLIDATED UNAUDITED STATEMENTS OF STOCKHOLDERS’ EQUITY

SIX MONTHS ENDED JUNE 30, 2016 AND YEAR ENDED DECEMBER 31, 2015

(Dollars in thousands, except per share data)

									Accumulated
			Additional						Other			Unearned			Unearned
	Common		Paid-In			Retained			Comprehensive			Stock			ESOP
	Stock		Capital			Earnings			Income (Loss)			Awards			Shares			Total

Balance at January 1, 2015	$	22	$	13,731		$	21,126		$	(20	)	$	(596	)	$	(1,050	)	$	33,213
Allocation of stock awards of 6,000 shares			89			—			—			(89		)	—			—
Forfeited stock awards of 9,612 shares	—		(115		)	—			—			115			—			—
Issuance of 863 shares for exercise of 4,200 stock options, net of 3,337 shares surrendered	—		—			—			—			—			—			—
Stock awards earned	—		—			—			—			126			—			126
Stock options compensation	—		26			—			—			—			—			26
Common stock repurchases of 20,657 shares	—		(310		)	—			—			—			—			(310		)
Reclassification due to changes in fair value of common stock in ESOP subject to contingent repurchase obligation	—		(85		)	—			—			—			—			(85		)
Net income	—		—			86			—			—			—			86
Cash dividends of $0.20	—		—			(410		)	—			—			—			(410		)
Other comprehensive income	—		—			—			(201		)	—			—			(201		)
ESOP shares earned	—		16			—			—			—			37			53
Balance at December 31, 2015	$	22	$	13,352		$	20,802		$	(221	)	$	(444	)	$	(1,013	)	$	32,498

Allocation of stock awards of 3,000 shares	—		44			—			—			(44		)	—			—
Stock awards earned	—		—			—			—			66			—			66
Stock options compensation	—		13			—			—			—			—			13
Common stock repurchases of 41,722 shares	—		(607		)	—			—			—			—			(607		)
Reclassification due to changes in fair value of common stock in ESOP subject to contingent repurchase obligation	—		(57		)	—			—			—			—			(57		)
Net income	—		—			322			—			—			—			322
Cash dividends of $0.10	—		—			(202		)	—			—			—			(202		)
Other comprehensive income	—		—			—			410			—			—			410
Balance at June 30, 2016	$	22	$	12,745		$	20,922		$	189		$	(422	)	$	(1,013	)	$	32,443

See accompanying notes to consolidated financial statements

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 1 -BASIS OF PRESENTATION AND CONSOLIDATION

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

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

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

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

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses: Measurement of Credit Losses on Financial Instruments.” The standard is the final guidance on the new current expected credit loss (“CECL”) model. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to estimate future credit loss estimates. As CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity (“HTM”) debt securities. The update amends the accounting for credit losses on available-for-sale securities (“AFS”), whereby credit losses will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for purchased loans with credit deterioration since origination, so that reserves are established at the date of acquisition for purchased loans. Lastly, the amendment requires enhanced disclosures on the significant estimates and judgments used to estimate credit losses, as well as on the credit quality and underwriting standards of an organization’s portfolio. These disclosures require organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. The guidance allows for a

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 1 -BASIS OF PRESENTATION AND CONSOLIDATION (Continued)

modified retrospective approach with a cumulative effect adjustment to the balance sheet upon adoption (charge to retained earnings instead of the income statement). The new guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, and early adoption is permitted. We are currently evaluating the impact of adopting the new guidance on our consolidated financial statements.

NOTE 2 - SECURITIES

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

	June 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	14,265	$	10	$	(3	)	$	14,272
Residential agency mortgage-backed	31,273		307		(5		)	31,575
Total	$	45,538	$	317	$	(8	)	$	45,847

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. government-sponsored entities	$	10,265	$	—	$	(50	)	$	10,215
Residential agency mortgage-backed	40,041		75		(389		)	39,727
Total	$	50,306	$	75	$	(439	)	$	49,942

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 2 - SECURITIES (Continued)

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

	June 30, 2016
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Residential agency mortgage-backed	$	4	$	—	$	—	$	4
State and municipal	270		2		—		272
Total	$	274	$	2	$	—	$	276

	December 31, 2015
			Gross		Gross
	Amortized		Unrecognized		Unrecognized		Fair
	Cost		Gains		Losses		Value
Residential agency mortgage-backed	$	6	$	—	$	—	$	6
State and municipal	320		6		—		326
Total	$	326	$	6	$	—	$	332

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 2 - SECURITIES (Continued)

Expected maturities of securities at June 30, 2016 were as follows. Securities not due at a single maturity date (mortgage-backed securities) are shown separately.

	Available-for-Sale				Held-to-Maturity
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
Due after one year through five years	$	12,265	$	12,275	$	270	$	272
Due after five years through ten years	—		—		—		—
Due after 10 years	2,000		1,997
Residential agency mortgage-backed	31,273		31,575		4		4
Total	$	45,538	$	45,847	$	274	$	276

Securities with a carrying value of approximately $8,043 and $8,504 at June 30, 2016 and December 31, 2015, respectively were pledged to secure public deposits and for other purposes as required or permitted by law.

The proceeds from sales of securities and the associated gains for the three and six months ended June 30, 2016 and 2015 are listed below:

	Three Months		Six Months		Three Months		Six Months
	Ended		Ended		Ended		Ended
	June 30,		June 30,		June 30,		June 30,
	2016		2016		2015		2015
Proceeds from sale	$	2,106	$	5,347	$	—	$	3,306
Gross realized gains	37		72		—		74

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 2 - SECURITIES (Continued)

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

	June 30, 2016
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
U.S. government- sponsored entities	$	1,997	$	(3	)	$	—	$	—		$	1,997	$	(3	)
Residential agency mortgage-backed	1,440		(2		)	3,940		(3		)	5,380		(5		)
Total temporarily impaired	$	3,437	$	(5	)	$	3,940	$	(3	)	$	7,377	$	(8	)

	December 31, 2015
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Loss			Value		Loss			Value		Loss
U.S. government- sponsored entities	$	10,215	$	(50	)	$	—	$	—		$	10,215	$	(50	)
Residential agency mortgage-backed	16,516		(117		)	12,969		(272		)	29,485		(389		)
Total temporarily impaired	$	26,731	$	(167	)	$	12,969	$	(272	)	$	39,700	$	(439	)

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

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS

Loans were as follows:

	June 30,					December 31,
	2016					2015
	Amount			Percent		Amount			Percent
Mortgage:
One-to-four family	$	97,535		88.1	%	$	100,127		86.9	%
Multi-family and commercial	7,889			7.1		8,663			7.5
Home equity	5,201			4.7		6,408			5.5
Consumer and other	74			0.1		76			0.1
	110,699			100.0	%	115,274			100.0	%
Allowance for loan losses	(864		)			(988		)
Net deferred costs and other	124					137

Loans, net	$	109,959				$	114,423

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

	For the Three Months Ended June 30, 2016
				Multi-family
	One-to-Four			and			Home		Consumer
	Family			Commercial			Equity		and Other		Total
Allowances for loan losses:
Beginning balance	$	709		$	176		$	16	$	—	$	901
Provision for loan losses	20			(70		)	—		—		(50		)
Charge-offs	(13		)	—			—		—		(13		)
Recoveries	12			14			—		—		26

Total ending allowance balance	$	728		$	120		$	16	$	—	$	864

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 3- LOANS (Continued)

	For the Six Months Ended June 30, 2016
				Multi-family
	One–to-Four			and			Home		Consumer
	Family			Commercial			Equity		and Other		Total
Allowances for loan losses:
Beginning balance	$	722		$	250		$	16	$	—	$	988
Provision for loan losses	35			(145		)	—		—		(110		)
Charge-offs	(48		)	—			—		—		(48		)
Recoveries	19			15			—		—		34
Total ending allowance balance	$	728		$	120		$	16	$	—	$	864

	For the Three Months Ended June 30, 2015
				Multi-family
	One–to-Four			and			Home			Consumer
	Family			Commercial			Equity			and Other		Total
Allowances for loan losses:
Beginning balance	$	816		$	233		$	21		$	—	$	1,070
Provision for loan losses	135			(19		)	(1		)	—		115
Charge-offs	(107		)	—			—			—		(107		)
Recoveries	2			—			—			—		2
Total ending allowance balance	$	846		$	214		$	20		$	—	$	1,080

	For the Six Months Ended June 30, 2015
				Multi-family
	One-to-Four			and			Home			Consumer
	Family			Commercial			Equity			and Other		Total
Allowances for loan losses:
Beginning balance	$	822		$	259		$	22		$	—	$	1,103
Provision for loan losses	172			(40		)	(2		)	—		130
Charge-offs	(152		)	(7		)	—			—		(159		)
Recoveries	4			2			—			—		6
Total ending allowance balance	$	846		$	214		$	20		$	—	$	1,080

Table of Contents

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 3- LOANS (Continued)

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

	June 30, 2016
			Multi-Family				Consumer
	One–to-Four		and		Home		and
	Family		Commercial		Equity		Other		Total
Allowance for loan losses:
Loans individually evaluated for impairment	$	206	$	—	$	—	$	—	$	206
Loans collectively evaluated for impairment	522		120		16		—		658
Total ending allowance balance	$	728	$	120	$	16	$	—	$	864
Loans:
Loans individually evaluated for impairment	$	1,841	$	665	$	—	$	—	$	2,506
Loans collectively evaluated for impairment	95,694		7,224		5,201		74		108,193
Total ending loans balance	$	97,535	$	7,889	$	5,201	$	74	$	110,699

	December 31, 2015
			Multi-Family				Consumer
	One–to-Four		and		Home		and
	Family		Commercial		Equity		Other		Total
Allowance for loan losses:
Loans individually evaluated for impairment	$	211	$	—	$	—	$	—	$	211
Loans collectively evaluated for impairment	511		250		16		—		777
Total ending allowance balance	$	722	$	250	$	16	$	—	$	988
Loans:
Loans individually evaluated for impairment	$	1,577	$	684	$	—	$	—	$	2,261
Loans collectively evaluated for impairment	98,550		7,979		6,408		76		113,013
Total ending loans balance	$	100,127	$	8,663	$	6,408	$	76	$	115,274

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 3- LOANS (Continued)

	As of June 30, 2016						As of December 31, 2015
					Allowance						Allowance
	Unpaid				for Loan		Unpaid				for Loan
	Principal		Recorded		Losses		Principal		Recorded		Losses
	Balance		Investment		Allocated		Balance		Investment		Allocated

With no related allowance recorded:
One–to-four family	$	676	$	607	$	—	$	400	$	333	$	—
Multi-family and commercial	974		665		—		983		684		—
Home equity	—		—		—						—
Consumer and other	—		—		—		—		—		—
Subtotal	1,650		1,272		—		1,383		1,017		—
With an allowance recorded:
One–to-four family	1,274		1,234		206		1,282		1,244		211
Multi-family and commercial	—		—		—		—
Home equity	—		—		—		—		—		—
Consumer and other	—		—		—		—		—		—
Subtotal	1,274		1,234		206		1,282		1,244		211
Total	$	2,924	$	2,506	$	206	$	2,665	$	2,261	$	211

	For the Three Months Ended June 30, 2016						For the Three Months Ended June 30, 2015
	Average		Interest		Cash		Average		Interest		Cash
	Recorded		Income		Basis		Recorded		Income		Basis
	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
One–to-four family	$	460	$	2	$	—	$	294	$	4	$	—
Multi-family and commercial	670		6		—		713		—		6
Home equity	—		—		—				—		—
Consumer and other	—		—		—				—		—
Subtotal	1,130		8		—		1,007		4		6

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS (Continued)

	For the Three Months Ended June 30, 2016						For the Three Months Ended June 30, 2015
	Average		Interest		Cash		Average		Interest		Cash
	Recorded		Income		Basis		Recorded		Income		Basis
	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With an allowance recorded:
One–to-four family	1,237		12		—		1,258		12		—
Multi-family and commercial	—		—		—		—		—		—
Home equity	—		—		—				—		—
Consumer and other	—		—		—		—		—		—
Subtotal	1,237		12		—		1,258		12		—
Total	$	2,367	$	20	$	—	$	2,265	$	16	$	6

	For the Six Months Ended June 30, 2016						For the Six Months Ended June 30, 2015
	Average		Interest		Cash		Average		Interest		Cash
	Recorded		Income		Basis		Recorded		Income		Basis
	Investment		Recognized		Recognized		Investment		Recognized		Recognized
With no related allowance recorded:
One–to-four family	$	408	$	4	$	—	$	295	$	9	$	—
Multi-family and commercial	680		12		—		775		—		12
Home equity	—		—		—		—		—		—
Subtotal	1,088		16		—		1,070		9		12

With an allowance recorded:
One–to-four family	1,242		26		—		1,261		27		—
Multi-family and commercial	—		—		—		—		—		—
Home equity	—		—		—		—		—		—
Subtotal	1,242		26		—		1,261		27		—
Total	$	2,330	$	42	$	—	$	2,331	$	36	$	12

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

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS (Continued)

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

					Loans Past Due Over
	Nonaccrual				90 Days Still Accruing
	June 30,		December 31,		June 30,		December 31,
	2016		2015		2016		2015
One–to-four family	$	1,329	$	968	$	—	$	—
Multi-family and commercial	557		350		—		—
Home equity	5		5		—		—
Consumer and other	—		—		—		—
Total	$	1,891	$	1,323	$	—	$	—

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

	June 30, 2016
	30 - 59		60 - 89		Greater Than
	Days		Days		90 Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
One–to-four family	$	429	$	94	$	513	$	1,036	$	96,499	$	97,535
Multi-family and commercial	—		197		224		421		7,468		7,889
Home equity	19		—		—		19		5,182		5,201
Consumer and other	—		—		—		—		74		74
Total	$	448	$	291	$	737	$	1,476	$	109,223	$	110,699

	December 31, 2015
	30 - 59		60 - 89		Greater Than
	Days		Days		90 Days		Total		Loans Not
	Past Due		Past Due		Past Due		Past Due		Past Due		Total
One-to-four family	$	833	$	159	$	330	$	1,322	$	98,805	$	100,127
Multi-family and commercial	297		—		—		297		8,366		8,663
Home equity	18		—		5		23		6,385		6,408
Consumer and other	—		—		—		—		76		76
Total	$	1,148	$	159	$	335	$	1,642	$	113,632	$	115,274

Table of Contents

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS (Continued)

Troubled Debt Restructurings

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

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

	June 30,			December 31,
	2016			2015
Accrual status	$	1,554		$	1,880
Non-accrual status	952			381
	2,506			2,261
Specific reserves allocated	(206		)	(211		)
Net	$	2,300		$	2,050

No additional loan commitments were outstanding to these borrowers at June 30, 2016 and December 31, 2015. Loans are returned to accrual status after a period of satisfactory payment performance under the terms of the restructuring, but no earlier than six months.

The following tables’ present loans by class modified as troubled debt restructurings due to extending maturity dates that occurred during the three and six months ended June 30, 2016 and 2015:

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
	Loans	Investment		Investment
June 30, 2016
One-to–four family	1	$	295	$	297
Multi-family and commercial	—	—		—
Home equity	—	—		—
Consumer and other	—	—		—
Total	1	$	295	$	297

Table of Contents

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS (Continued)

		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number of	Recorded		Recorded
	Loans	Investment		Investment
June 30, 2015
One-to–four family	1	$	217	$	219
Multi-family and commercial	—	—		—
Home equity	—	—		—
Consumer and other	—	—		—
Total	1	$	217	$	219

The recorded investments increased due to real estate taxes and closing costs. The troubled debt restructuring described above was evaluated for impairment prior to modification, did not result in an increase in the allowance for loan losses upon modification, and resulted in no additional charge-offs for the three and six months ended June 30, 2016 and 2015.

A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the three and six months ended June 30, 2016. There was one troubled debt restructuring in the amount of $202 for which there was a payment default during the three and six months ended June 30, 2016.

The terms of certain other loans were modified during the three and six months ended June 30, 2016 and 2015 that did not meet the definition of a troubled debt restructuring. These loan balances were not material in the three and six months ended June 30, 2016 and 2015.

Table of Contents

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS (Continued)

Credit Quality Indicators:

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

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be Pass rated loans. As of June 30, 2016 and December 31, 2015, the risk category of loans by class of loans was as follows:

	June 30, 2016
			Special
	Pass		Mention		Substandard		Doubtful		Total
One –to- four family	$	96,206	$	—	$	1,329	$	—	$	97,535
Multi-family and commercial	5,393		130		2,366		—		7,889
Home equity	5,196		—		5		—		5,201
Consumer and other	74		—		—		—		74
Total	$	106,869	$	130	$	3,700	$	—	$	110,699

Table of Contents

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 3 - LOANS (Continued)

	December 31, 2015
			Special
	Pass		Mention		Substandard		Doubtful		Total
One–to-four family	$	99,193	$	—	$	934	$	—	$	100,127
Multi-family and commercial	2,677		137		5,849		—		8,663
Home equity	6,370		—		38		—		6,408
Consumer and other	76		—		—		—		76
Total	$	108,316	$	137	$	6,821	$	—	$	115,274

NOTE 4 - FAIR VALUES

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

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

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

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

Table of Contents

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 4 - FAIR VALUES (Continued)

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

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

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

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

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 4 - FAIR VALUES (Continued)

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

At June 30, 2016 and December 31, 2015, the Company had no liabilities measured at fair value. Assets measured at fair value on a recurring basis are summarized below:

June 30, 2016

Quoted Prices in

Significant

Active Markets

Other

Significant

For Identical

Observable

Unobservable

Assets

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Securities available-for-sale

U.S. government-sponsored entities

14,272

—

14,272

—

Residential agency mortgage-backed

31,575

—

31,575

—

December 31, 2015

Quoted Prices in

Significant

Active Markets

Other

Significant

For Identical

Observable

Unobservable

Assets

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Securities available-for-sale

U.S. government-sponsored entities

10,215

—

10,215

—

Residential agency mortgage-backed

39,727

—

39,727

—

There were no transfers between Level 1 and Level 2 during the six months ended June 30, 2016 and the year ended December 31, 2015.

Table of Contents

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 4 - FAIR VALUES (Continued)

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

June 30, 2016

Quoted Prices in

Significant

Active Markets

Other

Significant

For Identical

Observable

Unobservable

Assets

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Other real estate owned:

One—to-four family

—

Multi-family and commercial

—

December 31, 2015

Quoted Prices in

Significant

Active Markets

Other

Significant

For Identical

Observable

Unobservable

Assets

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Other real estate owned:

One-to-four family

144

—

144

Multi-family and commercial

163

—

163

At June 30, 2016, other real estate owned, which is carried at fair value less estimated costs to sell, had a carrying amount of $40. At December 31, 2015, other real estate owned had a carrying amount of $307, net of a valuation allowance of $3.

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AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 4 - FAIR VALUES (Continued)

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

	June 30, 2016
			Valuation		Range
	Fair Value		Technique(s)	Unobservable Input(s)	(Weighted Average)

Other real estate owned:
One-to-four family	$	40	Sales comparison approach	Adjustment for differences between the comparable sales	0.00-11.7% (-0.18%)

	December 31, 2015
			Valuation		Range
	Fair Value		Technique(s)	Unobservable Input(s)	(Weighted Average)

Other real estate owned:
One-to-four family	$	144	Sales comparison approach	Adjustment for differences between the comparable Sales	0.0-15.8% (5.6%)
Multi-family and commercial	163		Sales comparison approach	Adjustment for differences between the comparable sales	0.0-24.7% (11.7%)

Table of Contents

AJS BANCORP, INC.

NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS

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

NOTE 4 - FAIR VALUES (Continued)

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

	June 30, 2016
	Carrying		Fair Value Measurements Using:
	Amount		Level 1		Level 2		Level 3		Total

Financial assets
Cash and cash equivalents	$	31,485	$	31,485	$	—	$	—	$	31,485
Securities held-to-maturity	274		—		276		—		276
Loans, net	109,959		—		—		112,631		112,631
FHLB stock	598		N/A		N/A		N/A		N/A
Accrued interest receivable	412		—

AJS Bancorp, Inc. 10-Q