UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT 1934. For the quarterly period ended September 30, 1996
---------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934 For the transition period from to .
---------- ----------
Commission File Number: 0-27306
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Ambanc Holding Co., Inc.
-----------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 14-1783770
- ------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11 Division Street, Amsterdam, New York 12010-4303
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (518)842-7200
-----------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 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. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's class
of common stock, as of the latest practicable date.
Class Outstanding at November 14, 1996
- ----------------------------- -----------------------------------
Common Stock, $.01 Par Value 4,880,025
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 1996
Table of Contents
Part I. FINANCIAL INFORMATION
Item 1. Consolidated Interim Financial Statements(unaudited):
Consolidated Interim Statements of Income for the three months
and nine months ended September 30, 1996 and 1995.............. 3
Consolidated Interim Statements of Financial Condition at
September 30, 1996 and December 31, 1995....................... 4
Consolidated Interim Statements of Cash Flows for the nine
months ended September 30, 1996 and 1995....................... 5
Summarized Notes to Consolidated Interim Financial Statements.. 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 8
Part II. OTHER INFORMATION..................................................17
SIGNATURES....................................................................18
EXHIBITS INDEX................................................................19
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Income (unaudited)
(dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Three Months
Ended Sept. 30, Ended Sept. 30,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income:
Loans ....................................... $ 15,352 $ 16,200 $ 5,306 $ 5,317
Mortgage-backed securities .................. 5,531 1,364 2,753 443
Investment securities ....................... 1,783 1,025 785 344
Federal funds sold and other ................ 725 514 10 301
-------- -------- -------- --------
Total interest income ..................... 23,391 19,103 8,854 6,405
-------- -------- -------- --------
Interest Expense:
Deposits .................................... 9,373 9,045 3,053 3,341
Borrowings .................................. 2,165 298 1,542 --
-------- -------- -------- --------
Total interest expense .................... 11,538 9,343 4,595 3,341
-------- -------- -------- --------
Net interest income ....................... 11,853 9,760 4,259 3,064
Provision for loan losses ...................... 2,610 1,344 549 60
-------- -------- -------- --------
Net interest income after provision
for loan losses ......................... 9,243 8,416 3,710 3,004
-------- -------- -------- --------
Non-interest income:
Service charges on deposit accounts ......... 504 478 174 165
Net gains (losses) on securities transactions (89) 1 9 1
Other ....................................... 255 349 100 123
-------- -------- -------- --------
Total other income ........................ 670 828 283 289
-------- -------- -------- --------
Non-interest expense:
Salaries, wages and benefits ................ 3,618 3,227 1,157 1,014
Occupancy and equipment ..................... 847 740 277 251
Data processing ............................. 624 444 201 145
Federal deposit insurance premium ........... 2 381 1 28
Correspondent bank processing fees .......... 87 214 30 46
Provision for losses on investments ......... -- 105 -- --
Losses & write-downs on real estate owned ... 789 1,133 570 136
Repairs and maintenance ..................... 149 161 46 42
Legal expenses .............................. 238 137 67 66
Other ....................................... 2,195 1,846 681 534
-------- -------- -------- --------
Total other expenses ...................... 8,549 8,388 3,030 2,262
-------- -------- -------- --------
Income before taxes ............................ 1,364 856 963 1,031
Income tax expenses ............................ 596 363 391 366
-------- -------- -------- --------
Net income ................................ $ 768 $ 493 $ 572 $ 665
======== ======== ======== ========
Net income per common share*
(4,881,147 and 4,657,401 weighted average
number of shares issued and outstanding,
for the nine months and three months ended
September 30, 1996, respectively). $0.16 N/A $0.12 N/A
</TABLE>
*Primary and fully diluted
See accompanying notes to consolidated interim financial statements
3
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Financial Condition (unaudited)
(dollars in thousands, except share data)
<TABLE>
<CAPTION>
September 30 December 31,
1996 1995
------------ ------------
<S> <C> <C>
Assets
Cash and due from banks .................................... $ 3,537 $ 7,513
Federal funds sold ......................................... -- 77,100
--------- ---------
Cash and cash equivalents ............................. 3,537 84,613
Investment securities available for sale, at fair value .... 42,633 21,389
Mortgage-backed securities available for sale, at fair value 162,714 53,033
Loans receivable, net of unamortized fees .................. 277,269 252,638
Allowance for loan losses ............................. (4,716) (2,647)
--------- ---------
Loans receivable, net ................................. 272,553 249,991
Accrued interest receivable ................................ 3,452 1,827
Premises and equipment ..................................... 2,809 3,071
Investments required by law, principally stock in the
Federal Home Loan Bank .................................. 2,029 1,892
Real estate owned, net ..................................... 2,959 2,888
Other assets ............................................... 3,819 2,533
Due from brokers ........................................... -- 18,128
--------- ---------
Total assets .......................................... $ 496,505 $ 439,365
========= =========
Liabilities and Shareholders' Equity
Liabilities:
Deposits ................................................ $ 299,991 $ 311,239
Advances from borrowers for taxes and insurance ......... 888 1,693
Advances from FHLB ...................................... 22,500 --
Other borrowed funds .................................... 99,890 --
Accrued expenses and other liabilities .................. 2,874 3,538
Due to brokers .......................................... -- 46,880
--------- ---------
Total liabilities ..................................... 426,143 363,350
Shareholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000
shares; none outstanding at September 30, 1996 and
December 31, 1995 ....................................... -- --
Common stock $.01 par value. Authorized 15,000,000
shares; 4,880,025 and 5,422,250 shares issued and
outstanding at September 30, 1996 and December 31, 1995 54 54
Retained earnings,substantially restricted .............. 29,040 28,272
Additional paid in capital .............................. 52,127 52,127
Treasury Stock (542,225 shares at September 30, 1996 and
no shares at December 31, 1995) ...................... (5,474) --
Common stock acquired by ESOP ........................... (4,013) (4,338)
Net unrealized loss on securities available for sale .... (1,372) (100)
--------- ---------
Total shareholders' equity ............................ 70,362 76,015
Total liabilities and shareholders' equity ............ $ 496,505 $ 439,365
========= =========
</TABLE>
See accompanying notes to consolidated interim financial statements
4
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows (unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
For the nine months
ended September 30,
1996 1995
----------- -----------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income ............................................ $ 768 $ 493
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization ...................... 420 365
Provision for loan losses .......................... 2,610 1,344
Writedowns on real estate owned and
other repossessed assets ....................... 479 822
Writedown of Nationar related amounts .............. -- 105
Loss on sales and disposals of fixed assets & software 64 --
Loss (gain) on sales and redemptions of investment
and mortgage-backed securities-AFS ............... 89 (1)
Net loss on sales of other real estate owned and
other repossessed assets ...................... 96 133
Net amortization on investment securities and
mortgage-backed securities-AFS ................... 400 12
Deferred tax benefit ............................... (358) (107)
Decrease (increase) in other assets ................ 16,195 (747)
(Decrease) increase in accrued expenses
and other liabilities ............................ (47,544) 960
Decrease in advances from borrowers
for taxes and insurance .......................... (805) (1,348)
--------- ---------
Net cash (used) provided by operating activities ...... (27,586) 2,031
Cash flows from investing activities:
Purchases of mortgage-backed securities-AFS ........... (136,178) --
Proceeds from principal paydowns of
mortgage-backed securities-AFS ..................... 18,025 1,801
Proceeds from maturity of investment securites-AFS .... 9,100 4,013
Proceeds from sales of investment and mortgage-backed
securities-AFS ..................................... 21,897 --
Purchase of investment securities-AFS ................. (46,191) --
Purchase of FHLB stock ................................ (137) (237)
Net (increase) decrease in loans made to customers .... (26,543) 4,074
Capital Expenditures .................................. (201) (455)
Expenditures Computer Software ........................ (9) (16)
Proceeds from Sale of Real Estate Owned and
Other Repossessed Asset ......................... 729 1,633
Proceeds from Fixed Asset Sale ........................ 25 --
--------- ---------
Net cash (used) provided by investing activities ...... (159,483) 10,813
5
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows(unaudited), Continued
(dollars in thousands) For the nine months
ended September 30,
1996 1995
---------- -----------
Cash flows from financing activities:
Amortization of Unearned ESOP shares 325 ---
Purchase of Treasury Stock (5,474) ---
Net increase (decrease) in deposits (11,248) 17,266
(Repayments) advances from FHLB 22,500 (15,000)
Advances from other borrowings 99,890 ---
Repayments from other borrowings --- (4,000)
---------- -----------
Net cash provided (used) by financing activities 105,993 (1,734)
Net increase (decrease) in cash and cash equivalents (81,076) 11,110
Cash and cash equivalents at beginning of year 84,613 16,287
---------- -----------
Cash and cash equivalents at end of period $3,537 $27,397
========== ===========
Supplemental disclosures of cash flow information- cash paid during the year
for:
Interest $10,675 $9,341
========== ===========
Income Taxes $736 $870
========== ===========
Noncash investing activity:
Net reduction in loans receivable resulting from the transfer
to real estate owned and other repossessed assets $1,371 $1,193
========== ===========
Net increase in unrealized loss on investment
securities and mortgage-backed securities,
available for sale, net of deferred tax effect $1,272 ---
========== ===========
</TABLE>
See accompanying notes to consolidated interim financial statements
6
<PAGE>
SUMMARIZED NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(1) In Management's opinion, the financial information, which is unaudited,
reflects all adjustments (consisting solely of normal recurring adjustments)
necessary for a fair presentation of the financial information as of and for the
three and nine month periods ended September 30, 1996 and September 30, 1995, in
conformity with generally accepted accounting principles. These financial
statements should be read in conjunction with Ambanc Holding Co., Inc.'s ("the
Company" herein) 1995 Annual Report on Form 10-K.
(2) In May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121 (SFAS No. 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
Various assets are excluded from the scope of SFAS No. 121, including financial
instruments which constitute the majority of the Company's assets. For
long-lived assets included in the scope of SFAS No. 121, such as premises and
equipment, an impairment loss must be recognized when the estimate of total
undiscounted future cash flows attributable to the asset is less than the
asset's carrying amount of the asset to its fair value. Long-lived assets to be
disposed of such as real estate or premises to be sold, are reported at the
lower of carrying amount or fair value less cost to sell. The Company adopted
SFAS No. 121 in the first quarter of 1996. The adoption of SFAS No. 121 did not
have a material effect on the Company's consolidated financial statements or
results of operations.
(3) Amounts in the prior periods' consolidated interim financial statements are
reclassified wherever necessary to conform to current period presentations.
(4) Commitments and Contingent Liabilities: Legal Proceedings
Current Owners of F.H. Doherty Associates, Inc. vs.
Amsterdam Savings Bank, F.S.B.
As an update to the disclosure in Note (15) to the Company's consolidated
financial statements for the year ended December 31, 1995, the parties involved
stipulated to a termination on November 1, 1996. This termination will not have
a significant effect on the Company's consolidated financial condition and
results of operations in the three months and twelve months ending December 31,
1996.
(5) Loss Contingency
As an update to the disclosure in Note (17) to the Company's consolidated
financial statements for the year ended December 31, 1995, in regard to the
seizure of Nationar by the Superintendent of Banks of the State of New York, the
Amsterdam Savings Bank, F.S.B. (the "Bank" herein) has received the full amount
of its demand deposit account claim of $221,000, less $1,000 for interest
assessed by the Superintendent. The interest was charged against the reserve
previously established.
In addition, effective June 10, 1996, the Bank agreed to the issuance of a
new letter of credit as proposed by the attorneys representing the
Superintendent of Banks. The new letter of credit was for $150,000. With the
issuance of this letter of credit, the Bank effectively recovered $837,500 of
the estimated fair value of the security seized by the Superintendent at the
time of the Nationar takeover. Concurrent with the issuance of the $150,000
letter of credit, the Bank was required to pay to the Banking Department
interest of $58,000 under the terms of the original letter of credit agreement.
The interest was charged against the reserve account that the Bank had
previously established.
On October 23, 1996, the New York State Superintendent of Banks announced
that he had filed an application with the New York State Supreme Court seeking
authority to pay in full the balance of all accepted unsecured claims (other
than claims for subordinated debt and stock interests). If authorized by the
Court, the Superintendent stated that he intends to make payments before the end
of 1996. Subsequent to the Superintendent's announcement, the Company was
informed by the Superintendent's Office that the $150,000 letter of credit will
be canceled and that the Company will have no further liability in connection
with its agreement with the Superintendent.
7
<PAGE>
(6) Earnings per Share
This ratio is a single number representing the reduction of an entity's
total net income after taxes to the amount earned by each share outstanding for
the financial period presented. The ratio is calculated by dividing the total
net income after taxes for the period presented by the weighted average number
of shares outstanding, excluding reacquired shares from the date of acquisition
and unearned shares owned by an ESOP, during the period presented. The Company
had no common stock equivalents for the periods presented in the consolidated
financial statements, herein, for inclusion in the earnings per share
calculation.
Item 2
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis should be read in conjunction with
the unaudited consolidated interim financial statements and related notes and
with the statistical information and financial data appearing in this report as
well as the Company's 1995 Annual Report on Form 10-K.
General
- -------
Prior to the consummation of the conversion on December 26, 1995, the
Company had no significant assets, liabilities or operations. Accordingly, the
consolidated data for the three months and the nine months ended September 30,
1995, represents the data of the Bank and its subsidiaries.
When used in this quarterly Report on Form 10-Q, the words or phrases
"will likely result", "are expected to", "will continue", "is anticipated",
"estimate", "project" or similar expressions are intended to identify
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to certain risks and
uncertainties - including, changes in economic conditions in the Company's
market area, changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in the Company's market area and competition,
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which speak only as of the date made. The Company wishes to advise readers that
the factors listed above could affect the Company's financial performance and
could cause the Company's actual results for future periods to differ materially
from any opinions or statements expressed with respect to future periods in any
current statements.
The Company does not undertake - and specifically disclaims any obligation
- - to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect events or circumstances after the date of
such statements or to reflect the occurrence of anticipated or unanticipated
events.
The Company's results of operations are dependent primarily on net
interest income, which is the difference between the income earned on its loan
and investment portfolios and its cost of funds, consisting of the interest paid
on deposits and borrowings. Results of operations are also affected by the
Company's provision for loan losses, net expenses on real estate owned and by
general economic and competitive conditions, particularly changes in interest
rates, government policies and actions of regulatory authorities. Future changes
in applicable law, regulations or government policies may materially impact the
financial condition and results of operations of the Company and the Bank.
The Company recorded net income of $572,000 for the quarter ended
September 30, 1996, or $0.12 per share, and earnings for the nine months ended
September 30, 1996, of $768,000, or $0.16 per share, compared to net income of
$665,000 and $493,000 in the corresponding periods in 1995, respectively. The
average number of shares outstanding (excluding unearned shares owned by the
ESOP) were 4,657,401 and 4,881,147 for the three and nine months ended September
30, 1996, respectively.
8
<PAGE>
The 1996 third quarter earnings decline in comparison to the 1995 period,
was due to increases in the provision for loan losses and non-interest expenses
of $489,000 and $768,000, respectively, partially offset by an increase in net
interest income before provision for loan losses of $1.2 million, or 39.0%, to
$4.3 million from $3.1 million. The Company's efficiency ratio improved to 54.2%
for the three months ended September 30,1996, from 63.4% in the comparable 1995
period.
The improvement in net income of $275,000 for the nine months ended
September 30, 1996, to $768,000 was the result of an increase in net interest
income before provision for loan losses of $2.1 million, or 21.4%, to $11.9
million compared to $9.8 million for the nine months ended September 30, 1995.
This positive factor was partially offset by an increase in the provision for
loan losses of $1.3 million. The Company's efficiency ratio improved to 61.5%
for the nine months ended September 30, 1996, from 68.5% in the same period a
year ago.
Non-performing assets increased to $18.0 million at September 30,1996,
from $12.0 million at December 31, 1995. At September 30, 1996, non-performing
assets were 3.63% of total assets compared to 2.72% at December 31, 1995. The
Company's allowance for loan losses to non-performing loans and to total loans
at September 30, 1996, was 31.88% and 1.70%, respectively, compared to 30.10%
and 1.05%, respectively, at December 31, 1995. See "Asset Quality" herein.
RESULTS OF OPERATIONS
COMPARISON OF OPERATING RESULTS FOR THE QUARTERS ENDED SEPTEMBER 30, 1996 AND
1995
Net Interest Income
- -------------------
Net interest income before provision for loan losses for the quarter ended
September 30, 1996 was $4.3 million, an increase of $1.2 million, or 39.0%,
compared to the same period in 1995. The improvement in net interest income
resulted from an increase in average net interest-earning assets of $47.7
million (net of net unrealized losses on available for sale securities and
average interest-bearing liabilities ) funded primarily by the proceeds received
in the conversion. The growth in average net interest- earning assets was
primarily attributable to an increase in average mortgage-backed securities
available for sale of $126.5 million to $151.9 million from $25.3 million in the
third quarter 1995. In addition, average investment securities available for
sale increased by $20.5 million to $45.7 million and average loans receivable
grew to $271.8 million, an increase of $11.1 million. These increases were
partially offset by a decline in average other interest-earning assets of $20.2
million, primarily federal funds sold, and an increase in average
interest-bearing liabilities of $90.2 million. The increase in average
interest-bearing liabilities was mainly due to the addition of $102.9 million in
borrowed funds to the mix of interest-bearing liabilities, with average
securities sold under agreements to repurchase increasing by $89.7 million,
partially offset by a decline of $12.7 million in average interest-bearing
deposits.
The positive effect derived from the growth in average net
interest-earning assets was partially offset by a narrowing of 5 basis points in
the Company's average net interest margin to 3.60% from 3.65% in 1995's third
quarter. The narrowing in the average net interest margin resulted primarily
from a decrease of 32 basis points in the average yield on loans receivable
mainly attributable to a general decline in the level of local market loan rates
since September 30, 1995, partially offset by a decline of 12 basis points in
the overall cost of the funds used to support average interest-earning assets.
Provision for loan losses
- -------------------------
The provision for loan losses increased by $489,000 to $549,000 for the
quarter ended September 30, 1996, compared to the same quarter in 1995. In the
1996 period, as the result of the increase in non-performing loans and other
factors, the provision for loan losses was increased. See "Asset Quality",
herein.
9
<PAGE>
Non-interest income
- -------------------
Non-interest income declined modestly to $283,000, a decrease of $6,000
from the third quarter 1995. Service charges on deposit accounts and net gains
on securities transactions increased by $9,000 and $8,000, respectively, but
were offset by a decline of $23,000 in other non-interest income, mainly
attributable to a decrease of $11,000 in commissions received from the sales of
annuities and mutual funds by the Bank's insurance agency subsidiary.
Non-interest expense
- --------------------
The increase in non-interest expenses of $768,000 was primarily
attributable to an increase in losses and write-downs on real estate owned of
$434,000. In the third quarter of 1996, compared to the comparable 1995 period,
the Company significantly increased its losses and write-down expense on real
estate owned based on actual expenses incurred and management's estimations of
lower fair values, less disposal costs. Management's estimations of the fair
value of the Company's real estate owned were based on various factors, which
included appraisals, actual sales, and offers to purchase such properties or
properties similar in nature to the foreclosed properties held by the Company.
Also contributing to the increase in non-interest expenses were new costs
pertaining to the Company's ESOP, the introduction of new services, e.g., check
imaging and 24-hour telephone balance and rate access, a third supermarket
branch, the additional costs associated with being a public company and higher
marketing and advertising expenses to support a more aggressive advertising
campaign to promote an increased public awareness of the Bank's name and
products.
Income taxes
- ------------
For the three months ended September 30, 1996, income taxes increased by
$25,000 to $391,000 due primarily to the additional taxes related to the holding
company.
COMPARISON OF OPERATING RESULTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
and 1995
Net interest income
- -------------------
Net interest income before provision for loan losses increased $2.1
million, or 21.4%, to $11.9 million for the nine months ended September 30,
1996, compared to the like period in 1995. The improvement in net interest
income was attributable to an increase in average net interest-earning assets of
$47.0 million (net of net unrealized losses on available for sale securities and
average interest-bearing liabilities) funded primarily by the proceeds from the
conversion. The growth in average net interest-earning assets was primarily
attributable to increases in average mortgage-backed securities available for
sale of $79.5 million. Average investment securities available for sale
increased by $9.6 million and average other interest-earning assets increased by
$6.1 million, comprised mainly of federal funds sold. These increases were
partially offset by a decline in average loans receivable of $5.4 million and an
increase in average interest-bearing liabilities of $42.8 million. The increase
in average interest- bearing liabilities was mainly due to an increase of $42.1
million in average borrowed funds to $48.7 million for the nine months ended
September 30, 1996. Additionally, average interest-bearing deposits increased by
$779,000.
The positive effect derived from the growth in average net
interest-earning assets was partially offset by a decrease in the average net
interest margin to 3.79 % for the nine months ended September 30, 1996, from
3.98% for the same period in 1995. The narrowing in the average net interest
margin was attributable primarily to a significant increase in the concentration
of average borrowed funds, especially securities sold under agreements to
repurchase, in the funding mix and a decline of 31 basis points in the average
rate earned on interest-earning assets to 7.48%. This decline resulted from a
heavier concentration of mortgage-backed securities in the mix of average
interest-earning assets for the nine months ended September 30, 1996 , 25.2% of
total average interest-earning assets compared to 7.9% for the comparable 1995
period, at an average rate of 7.00%, which was down slightly from an average
rate of 7.03% in 1995.
10
<PAGE>
Provision for loan losses
- -------------------------
The increase was primarily due to a $1.5 million provision taken on March
31, 1996, pertaining to the Bank's aggregate lending relationship of $3.6
million with the Bennett Funding Group, a company that filed for Chapter 11
bankruptcy protection on March 29, 1996. See "Asset Quality" herein.
Non-interest income
- -------------------
Non- interest income decreased by $158,000 to $670,000, primarily due to
net losses on securities sold of $89,000 compared with a net gain of $1,000 in
the 1995 period. The Bank's available for sale securities portfolio was yielding
below market rates in late 1995. As a result, the Bank decided in the first
quarter of 1996 to sell most of its holdings and reinvest the proceeds in then
current higher yielding securities, based on a projection that the losses on the
sales would be recovered in approximately six-months. Also contributing to the
decrease in non-interest income was a decline of $32,000 in commission income
from the sales of annuities and mutual funds by the Bank's insurance agency
subsidiary and a decrease in insurance dividends received of $32,000, which
resulted from the recognition of non-recurring dividends received in the
three-months ended March 31, 1995.
Non-interest expense
- --------------------
Non-interest expense increased by a modest 1.9%, or $161,000, to $8.5
million for the nine months ended September 30, 1996, from $8.4 million in 1995.
Salaries, wages and benefits increased by $391,000, mainly due to the Company's
ESOP which added $325,000 in new compensation expenses. Other non-interest
expenses increased by $349,000 primarily attributable to: other repossessed
asset (non-real estate) expenses which were higher by $95,000 mainly due to
lower fair values on the repossessed assets; an increase in non-deferrable loan
related expenses of $87,000, primarily the payment of delinquent property taxes
on a loan in the process of being foreclosed; armored car and messenger service
expenses increased $58,000, the result of the three supermarket branches and the
Bank's joining of the Albany Clearing House for the direct presentment of checks
drawn on member institutions; and , consultant fees increased by $68,000 due
primarily to the engagement of a consulting firm to evaluate and make
recommendations in regard to opportunities for the Bank to reduce and control
non-interest expenses.
Partially offsetting the aforementioned increases was a decline in the
FDIC/BIF deposit insurance premium of $379,000, which reflects the lower
assessment rate applied to the Bank for 1996 as a well-capitalized institution.
Income taxes
- ------------
The Company recorded tax expenses of $596,000 for the nine months ended
September 30, 1996, compared to $363,000 in the corresponding 1995 period. This
increase resulted from an increase in pre-tax income of $508,000 and the
additional tax expenses applicable to the holding company.
11
<PAGE>
FINANCIAL CONDITION
The Company's total assets at September 30, 1996, were $496.5 million, an
increase of $57.1 million, or 13.0%, compared to total assets of $439.4 million
at December 31, 1995. The growth in assets was primarily attributable to a
$109.7 million increase in mortgage-backed securities available for sale and an
increase of $21.2 million in investment securities available for sale. Loans
receivable, net of unamortized fees, grew to $277.3 million, an increase of
9.7%, which is more indicative of the Company's current loan origination trend
than the decline in average loans receivable for the nine months ended September
30, 1996, compared to the corresponding period in 1995. Partially offsetting
these increases were a decline in federal funds sold of $77.1 million and an
$18.1 million decrease in the amount due from brokers. The growth in total
assets was primarily funded with new borrowings of $99.9 million in securities
sold under agreements to repurchase and $22.5 million in advances from the
Federal Home Loan Bank of New York, partially offset by declines in deposits of
$11.2 million and due to brokers of $46.9 million. .
Total deposits were $300.0 million, a decline of 3.6% from December
31, 1995.
Total shareholders' equity decreased $5.7 million from December 31,1995,
to $70.4 million at September 30, 1996, due primarily to the buy-back of 10% of
the total shares initially issued by the Company and an increase of $1.3 million
in net tax-effected unrealized losses on securities available for sale.
On July 22, 1996, the Company announced that it intended to repurchase up
to 10% of its outstanding shares, or 542,225 shares, during the period July 23,
1996 to December 31, 1996. As of August 6, 1996, the Company successfully
completed the buy-back of the 542,225 shares at an average repurchase price of
$10.10 per share. Shares issued and outstanding on September 30, 1996, were
4,880,025 (including unearned shares owned by the ESOP) and the book value per
share was $14.42 compared to $14.02 at December 31, 1995, on 5,422,250 shares
issued and outstanding.
The primary factor responsible for the increase in net tax-effected
unrealized losses on securities available for sale was the general increase in
market interest rates that occurred during the nine months ended September 30,
1996. If market interest rates continue to increase, the Company would evaluate
whether it would be more advantageous to sell the below market securities at a
loss and reinvest the proceeds in higher yielding securities and/or loans if the
losses on such sales could be recovered in a reasonable time period. Moreover,
the sales of securities at a loss could adversely impact the Company's net
earnings in the year of the sales. Conversely, if the Company decided not to
sell the below market securities as market interest rates continued to rise, net
interest income could be adversely impacted as the Company's average cost of
funds increased.
However, if market interest rates decline in the future, the Company's
consolidated unrealized losses would decrease. Furthermore, depending on the
magnitude of any future interest rate declines, the Company's available for sale
investment and mortgage-backed securities could produce unrealized gains.
Additionally, net interest income could increase as the Company's average cost
to fund these interest-earning assets would be decreasing.
Liquidity and Funding
- ---------------------
The Company's primary sources of funds for operations are deposits from
its market area, principal and interest payments on loans and securities
available for sale, proceeds from the sale and maturity of securities available
for sale, advances from the FHLB of New York and other borrowed funds, primarily
securities sold under agreements to repurchase. While maturities and scheduled
amortization of loans and securities are predictable sources of funds, deposit
flows and mortgage prepayments are greatly influenced by general interest rates,
economic conditions, and competition.
12
<PAGE>
The primary investing activities of the Company are the origination of
loans and the purchase of securities. During the nine months ended September 30,
1996, the Company's loan originations totaled $66.3 million. The Company
purchased investment securities available for sale and mortgage-backed
securities available for sale, during the nine months ended September 30, 1996,
of $46.2 million and $136.2 million, respectively.
The primary financing activity of the Company is the attraction of
deposits. However, as of September 30, 1996, the Bank had experienced a net
decrease in deposits of $11.2 million from December 31, 1995. Management
believes that the decrease in deposits, primarily certificates of deposit,
occurred because some of the Company's customers were unwilling to accept the
lower interest rates offered by the Company and other local banks that resulted
from a general decline in local market CD rates and, therefore, these more rate
sensitive depositors pursued alternative investments in order to maximize their
returns on investment.
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. This requirement, which may be varied by the OTS
depending upon economic conditions and deposit flows, is based upon a percentage
of deposits and short-term borrowings. The required minimum liquidity ratio is
currently 5% and the short-term liquidity ratio is 1%. The Bank's average daily
liquidity ratio for the month of September 1996 was 7.5%, and its short-term
liquidity ratio for the same month was 1.1%.
The Company's most liquid assets are cash and cash equivalents, which
consist of federal funds sold and bank deposits. The level of these assets is
dependent on the Bank's operation, financing, and investing activities during
any given period. At September 30, 1996, cash and cash equivalents totaled $3.5
million, compared to $84.6 million at December 31, 1995. The decline in cash
equivalents, mainly federal funds sold, resulted from a shift from these lower
yielding assets in the mix of interest-earning assets into higher yielding
mortgage-backed and investment securities available for sale.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. At September 30, 1996, the Bank had commitments to
originate loans of $6.4 million as well as undrawn commitments of $6.2 million
on home equity and other lines of credit. Certificates of deposit which are
scheduled to mature in one year or less at September 30, 1996, totaled $99.2
million. Management believes that a significant portion of such deposits will
remain with the Bank. However, if the Bank is not able to maintain its
historical retention rate on maturing certificates of deposit, it may consider
employing the following strategies: increase its borrowed funds position to
compensate for the deposit outflows; increase the rates it offers on these
deposits in order to increase the retention rate on maturing CDs and/or to
attract new deposits; or, attempt to increase certificates of deposit through
the use of deposit brokers. Depending on the level of market interest rates at
the CD renewal dates, these strategies could result in higher or lower levels of
net interest income and net earnings.
The Company also has a need for, and sources of, liquidity. Liquidity is
required to fund its operating expenses, as well as for the payment of any
dividends to stockholders. The primary source of liquidity on an ongoing basis
is dividends from the Bank. To date, no dividends have been paid from the Bank
to the Company.
Management does not believe that the consolidated financial condition and
results of operations of the Company and its subsidiaries will be affected
materially by the termination of the legal proceeding in which the Bank was the
defendant or by the settlement of its claims in the Nationar bankruptcy workout.
See Summarized Notes (3) and (4) to the interim consolidated financial
statements (unaudited) herein.
Capital
- -------
Federally insured savings institutions are required to maintain a minimum
level of regulatory capital. The OTS 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. These capital requirements must be generally as stringent as the
comparable capital requirements for national banks. The OTS is also authorized
to impose capital requirements in excess of these standards on individual
associations on a case-by-case basis.
13
<PAGE>
At September 30, 1996, the Bank had $50.8 million of tangible and core
capital, respectively, or 10.4% of adjusted total assets, which was
approximately $43.5 million and $36.2 million above the minimum requirements of
1.5% and 3.0%, respectively, of the adjusted total assets in effect on that
date. On September 30, 1996, the Bank had risk-based capital of $53.5 million
(including $50.8 million in core capital and $2.7 million in qualifying
supplementary capital) or 24.6% of risk-weighted assets of $217.8 million. The
Bank's risk-weighted capital was $36.1 million above the 8.0% requirement in
effect on that date.
ASSET QUALITY
Non-performing assets
- ---------------------
The table below sets forth the amounts and categories of non-performing
assets in the Company's loan portfolio at the dates indicated. A loan is placed
on non-accrual status when the loan is more than 90 days delinquent (except for
FHA insured and VA guaranteed loans) or when the collection of principal and/or
interest in full becomes doubtful. When loans are designated as non-accrual, all
accrued but unpaid interest is reversed against current period income.
Foreclosed assets includes assets acquired in settlement of loans.
Sept. 30 Dec. 31
1996 1995
--------- -------
(In thousands)
Non-accruing loans:
One-to four-family ...................... $ 803 $ 1,525
Multi-family ............................ 1,501 77
Commercial real estate .................. 3,287 1,549
Consumer ................................ 1,104 605
Commercial Business ..................... 4,195 743
------- -------
Total ................................. 10,890 4,499
------- -------
Accruing loans delinquent more than 90 days:
One-to four-family ...................... 168 261
Multi-family ............................ 0 0
Commercial real estate .................. 0 0
Consumer ................................ 2 0
Commercial Business ..................... 0 0
------- -------
Total ................................. 170 261
------- -------
Troubled debt restructured loans:
One-to four-family ...................... 88 89
Multi-family ............................ 1,607 1,626
Commercial real estate .................. 1,892 2,185
Consumer ................................ 81 84
Commercial Business ..................... 63 51
------- -------
Total ................................. 3,731 4,035
------- -------
Foreclosed assets:
One-to four-family ...................... 964 459
Multi-family ............................ 556 926
Commercial real estate .................. 1,439 1,503
Consumer ................................ 275 281
Commercial Business ..................... 0 0
------- -------
Total ................................. 3,234 3,169
------- -------
Total non-performing assets ................ $18,025 $11,964
======= =======
Total as a percentage
of total assets ............................ 3.63% 2.72%
14
<PAGE>
For the nine months ended September 30, 1996, gross interest income which
would have been recorded had the non-accruing loans been current in accordance
with their original terms amounted to $890,000. The amount that was included in
interest income on such loans was $253,000, which represents actual receipts.
Similarly, for the nine months ended September 30, 1996, gross interest
income which would have been recorded had the restructured loans paid in
accordance with their original terms amounted to $306,000. The amount that was
included in interest income on such loans was $218,000.
Material changes in non-performing assets since December 31, 1995,
resulted primarily from the addition of three loans to the non-accruing category
during the quarter ended March 31, 1996, and these loans continued to be
non-performing as of September 30, 1996. During the quarter ended September
30,1996, there was one material addition made to non-performing assets .
As previously mentioned, the Company has a lending relationship with the
Bennett Funding Group, Inc. comprised of nine commercial business loans,
aggregating $3.6 million, secured by a total of 684 lease agreements. The
Company designated all of the Bennett loans as non-accruing due to the Bennett
bankruptcy filing and the subsequent freeze placed on their accounts. Counsel
for the bankruptcy trustee and counsel for the Bank have been engaged in
discussions which might lead to an agreed upon recognition of a percentage of
the Bank's perfected security interest in the cash collateral held by the
trustee. The discussions are quite preliminary, and it is not known if a
settlement is likely or what percentage of the security, if any, will actually
be paid. While management believes, based on these discussions, that the $1.5
million reserve is appropriate at September 30, 1996, additional reserves may be
necessary in the future.
The second loan placed on non-accrual status during the nine months ended
September 30,1996, was a commercial real estate loan in the amount of $702,000.
This loan is secured by an 8 story, 33-unit mixed purpose income property
located in Albany, New York, consisting of 30 residential apartments and 3
commercial suites. At September 30, 1996, the loan was more than 90 days
delinquent and the Bank has re-initiated its foreclosure action as the result of
the borrower's failure to respond to the Bank's workout proposal by the deadline
date specified in the proposed agreement.
The third material addition to non-performing loans at September 30, 1996,
compared to December 31, 1995, was a multi-family real estate loan in the amount
of $600,000. This loan is secured by a three building, 27- unit garden apartment
complex located in Monroe County, New York. The borrower became delinquent due
to personal financial problems not directly related to the apartment complex.
The Bank has initiated foreclosure proceedings and a receiver has been appointed
to collect rental payments. The borrower requested and has been provided with a
workout agreement. Under the terms of the workout agreement, the borrower will
be required to agree to the appointment of a real estate management firm to
oversee the property and to a stipulation that the loan be brought current.
During the negotiation of the workout terms, an environmental concern was
detected and reported to the N.Y.S. Department of Environmental Conservation
("DEC"). A Phase I Environmental Inspection has been completed and the initial
remediation effort is underway. However, the total work required to restore the
property to acceptable environmental standards cannot be determined at this time
and, therefore, further stipulations may have to be added to the workout
agreement. Once the borrower and the Bank have agreed to the workout terms, the
receivership will be terminated and the foreclosure proceeding will be
discontinued.
During the third quarter, the Bank added a $1.4 million commercial real
estate loan to its non-performing loans as of September 30, 1996, due to the
loan becoming more than 90-days delinquent. The Bank was monitoring this loan
and included a discussion in its June 30, 1996, Form 10-Q filing. This loan is
secured by property located in Colonie, New York and is currently being used for
the operation of a restaurant. The restaurant has been operating at a loss and
the borrower has indicated that the main reason for this unexpected performance
is the increasing competition from national restaurant chains that have opened
in the restaurant's primary market area. The borrower was notified that in order
for the Bank to postpone a foreclosure action, interest only payments must be
made on the loan while the borrower's refinancing negotiations continue. Due to
the borrower's failure to adhere to the Bank's interest-only payment terms, a
foreclosure action has been initiated.
15
<PAGE>
Allowance for Loan Losses
- -------------------------
The allowance for loan losses is established through a provision for loan
losses based on management's evaluation of the risk inherent in its loan
portfolio and changes in the nature and volume of its loan activity, including
those loans which are being specifically monitored by management. Such
evaluation, which includes a review of loans for which full collectibility may
not be reasonably assured, considers among other matters, the estimated fair
value of the underlying collateral for collateral dependent loans, the net
present value of estimated future cash flows if the loan is not collateral
dependent, economic conditions, historical loan loss experience, and other
factors that warrant recognition in providing for an adequate loan loss
allowance.
The following table sets forth an analysis of the Company's allowance for loan
losses.
For the nine months
ended September 30,
1996 1995
--------- ---------
(In thousands)
Balance at beginning of period ................. $ 2,647 $ 2,235
Charge-offs:
One- to four-family ....................... (120) (25)
Multi Family .............................. 0 0
Commercial Real Estate .................... (28) (437)
Consumer .................................. (372) (266)
Commercial Business ....................... (69) (46)
--------- ---------
Total Charge offs ...................... (589) (774)
Recoveries:
One- to four-family ....................... 9 0
Multi Family .............................. 0 64
Commercial Real Estate .................... 0 2
Consumer .................................. 39 35
Commercial Business ....................... 0 0
--------- ---------
Total Recoveries ....................... 48 101
Net Charge-offs ............................... (541) (673)
Provisions charged to operations ............... 2,610 1,344
--------- ---------
Balance at end of period ....................... $4,716 $2,906
========= =========
Ratio of net charge-offs during
the period to average loans
outstanding during period 0.20% 0.26%
Ratio of net charge-offs during
the period to average
non-performing assets 3.34% 5.39%
16
<PAGE>
Part II - Other Information
Item 1. Legal Proceedings
The parties involved stipulated to a termination on November 1, 1996.
This termination will not have a significant effect on the Company's
consolidated financial condition and results of operations in the three months
and twelve months ending December 31, 1996. Refer to Summarized Notes To
Consolidated Interim Financial Statements, Note Number (4), herein.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits as required by Item 601 of Regulation S-K.
Exhibit number 27, Financial Data Schedule
(b) Reports on Form 8-K
Current reports on form 8-K were filed on November 4, 1996 for:
(i) October 25, 1996 press release regarding Ambanc Holding
Co., Inc. earnings for the three and nine months ended September 30, 1996.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
AMBANC HOLDING CO., INC.
Robert J. Brittain
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1996
Harold A. Baylor, Jr.
Vice President and Treasurer
(Principal Financial and Accounting Officer)
Date: November 14, 1996
18
<PAGE>
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
19
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