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, 1997
------------------
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: 0-27036
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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, 1997
- ----------------------------- -----------------------------------
Common Stock, $.01 Par Value 4,306,418
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
FORM 10-Q
September 30, 1997
- -----------------------------------------
Table of Contents
-----------------
Part I. FINANCIAL INFORMATION
---------------------
Item 1. Financial Statements (unaudited):
Consolidated Interim Statements of Income for the three months
and nine months ended September 30, 1997 and 1996............... 3
Consolidated Interim Statements of Financial Condition at
September 30, 1997 and December 31, 1996........................ 4
Consolidated Interim Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996........................ 5
Summarized Notes to Consolidated Interim Financial Statements... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations....................................... 9
Part II. OTHER INFORMATION
-----------------
Item 6. Exhibits and Reports on Form 8-K................................ 19
SIGNATURES.................................................................. 21
EXHIBITS INDEX.............................................................. 22
<PAGE>
<TABLE>
<CAPTION>
Part 1. FINANCIAL INFORMATION
---------------------
Item 1.
- -------
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Income (unaudited)
(dollars in thousands, except per share amounts)
- -----------------------------------------------------
The Nine Months Three Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
-------- -------- -------- --------
Interest and dividend income:
<S> <C> <C> <C> <C>
Loans ................................................ $ 15,359 $ 15,263 $ 5,415 $ 5,278
Securities available for sale ........................ 10,394 7,218 3,237 3,504
Federal Funds Sold ................................... 377 725 119 10
Federal Home Loan Bank stock ......................... 145 96 56 33
-------- -------- -------- --------
Total interest income .............................. 26,275 23,302 8,827 8,825
-------- -------- -------- --------
Interest Expense:
Deposits ............................................. 10,017 9,372 3,566 3,052
Borrowings ........................................... 4,349 2,165 1,380 1,542
-------- -------- -------- --------
Total interest expense ............................. 14,366 11,537 4,946 4,594
-------- -------- -------- --------
Net interest income ................................ 11,909 11,765 3,881 4,231
Provision for loan losses ............................... 863 2,610 225 549
-------- -------- -------- --------
Net interest income after provision
for loan losses .................................. 11,046 9,155 3,656 3,682
-------- -------- -------- --------
Non-interest income:
Service charges on deposit accounts .................. 580 549 204 200
Net gains (losses) on securities transactions ........ 505 (89) 328 9
Other ................................................ 196 170 46 57
-------- -------- -------- --------
Total non-interest income .......................... 1,281 630 578 266
-------- -------- -------- --------
Non-interest expense:
Salaries, wages and benefits ......................... 4,418 3,624 1,527 1,163
Occupancy and equipment .............................. 1,131 996 420 323
Data processing ...................................... 692 627 235 201
Federal deposit insurance premium .................... 29 2 10 1
Correspondent bank processing fees ................... 95 87 31 30
Real estate owned and repossessed assets expenses, net 291 906 48 623
Professional fees .................................... 365 498 108 107
Other ................................................ 2,153 1,881 667 603
-------- -------- -------- --------
Total non-interest expenses ........................ 9,174 8,621 3,046 3,051
-------- -------- -------- --------
Income before taxes .................................... 3,153 1,164 1,188 897
Income tax expense ...................................... 1,193 396 452 325
-------- -------- -------- --------
Net income ......................................... $ 1,960 $ 768 $ 736 $ 572
======== ======== ======== ========
Net income per common share $ 0.49 $ 0.16 $ 0.19 $ 0.12
======== ======== ======== ========
Weighted average shares outstanding 3,977,302 4,883,859 3,897,275 4,662,564
========= ========= ========= =========
See accompanying notes to consolidated interim financial statements
</TABLE>
3
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Financial Condition
(unaudited)(dollars in thousands)
- ------------------------------------------------------- Sept. 30, Dec. 31,
1997 1996
---------- ---------
Assets
------
Cash and due from banks ............................... $ 10,719 $ 6,387
Federal funds sold .................................... --- 4,500
-------- --------
Cash and cash equivalents ........................ 10,719 10,887
Securities available for sale, at fair value .......... 210,562 200,539
Loans receivable, net of unamortized fees ............. 280,546 251,532
Allowance for loan losses ........................ (4,147) (3,438)
-------- --------
Loans receivable, net ............................ 276,399 248,094
Accrued interest receivable ........................... 2,745 3,201
Premises and equipment, net ........................... 3,254 2,784
Federal Home Loan Bank of New York stock, at cost ..... 3,291 2,029
Real estate owned and repossessed assets .............. 228 715
Other assets .......................................... 2,669 4,172
Due from brokers ...................................... 19,442 ---
-------- --------
Total assets ..................................... $529,309 $472,421
======== ========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Deposits ........................................... $330,658 $298,082
Advances from borrowers for taxes and insurance .... 663 1,703
Advances from FHLB ................................. 4,000 6,000
Other borrowed funds ............................... 99,950 102,780
Accrued interest payable ........................... 928 1,077
Accrued expenses and other liabilities ............. 1,835 1,261
Due to brokers ..................................... 31,071 ---
-------- --------
Total liabilities ................................ 469,105 410,903
Shareholders' equity:
Preferred stock $.01 par value. Authorized 5,000,000
shares; none outstanding at September 30, 1997 and
December 31, 1996 .................................. -- --
Common stock $.01 par value. Authorized 15,000,000
shares; 5,422,250 shares issued
at September 30, 1997 and December 31, 1996 ..... 54 54
Additional paid in capital ......................... 52,294 52,128
Retained earnings,substantially restricted ......... 25,874 24,436
Treasury Stock, at cost (1,115,832 shares at
September 30, 1997 and 1,030,227 at
December 31, 1996) ............................... (12,585) (11,208)
Common stock acquired by ESOP ...................... (3,427) (3,812)
Unearned RRP shares issued ......................... (1,805) --
Net unrealized loss on securities available for sale (201) (80)
-------- --------
Total shareholders' equity ....................... 60,204 61,518
Total liabilities and shareholders' equity ....... $529,309 $472,421
======== ========
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)
- ---------------------------------------------
For the Nine Months Ended
September 30,
-------------------------
1997 1996
Increase (decrease) in cash and cash equivalents: ---- ----
Cash flows provided (used) by
operating activities:
Net income ........................................... $ 1,960 $ 768
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation ....................................... 439 374
Amortization of computer software costs ............ 34 46
Provision for loan losses .......................... 863 2,610
ESOP compensation expense .......................... 551 325
Loss on sale and disposal of fixed
assets/software .................................. ---- 64
Net loss (gains) on sale and redemptions of
securities available for sale .................... (505) 89
Net loss on sale and writedowns of other real
estate owned and other repossessed assets ........ 186 575
Net amortization on securities ..................... 230 400
Decrease (increase)in accrued interest
receivable and other assets ...................... 2,041 (2,291)
Decrease (increase) in due from broker ............. (19,442) 18,128
Increase (decrease) in accrued expenses and
other liabilities ................................ 425 (664)
Increase (decrease) in due to broker ............... 31,071 (46,880)
Decrease in advances from borrowers
for taxes and insurance .......................... (1,040) (805)
-------- --------
Net cash provided (used) by
operating activities ................... 16,813 (27,261)
Cash flows from investing activities:
Proceeds from sales and redemptions of
securities available for sale .................... 131,895 30,997
Purchases of securities available for sale .........(179,136) (182,369)
Proceeds from principal paydowns and
maturities of securities available for sale ...... 37,277 18,025
Purchase of FHLB stock ............................. (1,262) (137)
Net increase in loans made to customers ............ (29,326) (26,543)
Capital Expenditures ............................... (909) (201)
Expenditures Computer Software ..................... (22) (9)
Proceeds from Fixed Asset Sale ..................... ---- 25
Proceeds from Sale of other real estate owned
and other repossessed assets ..................... 459 729
-------- --------
Net cash used by investing
activities ............................. (41,024) (159,483)
5
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Interim Statements of Cash Flows,
Continued (unaudited-(dollars in thousands)
- -----------------------------------------------
For the Nine Months Ended
September 30,
-------------------------
1997 1996
---- ----
Cash flows from financing activities:
Purchase of Treasury Stock ............................. (1,377) (5,474)
Purchase of Recognition & Retention Plan Shares ........ (2,111) ----
Dividend Paid .......................................... (215) ----
Net increase (decrease) in deposits .................... 32,576 (11,248)
Advances (repayments) on FHLB borrowings, net .......... (2,000) 22,500
Increase (decrease) in other borrowed funds ............ (2,830) 99,890
-------- --------
Net cash provided by financing activities 24,043 105,668
-------- --------
Net increase (decrease) in cash and cash equivalents ... (168) (81,076)
Cash and cash equivalents at beginning of year ......... 10,887 84,613
-------- --------
Cash and cash equivalents at end of period .............$ 10,719 $ 3,537
======== ========
Supplemental disclosures of cash flow information-
cash paid during the year for:
Interest ................. $ 14,516 $ 10,675
======== ========
Income Taxes ............. $ 1,045 $ 736
======== ========
Noncash investing activity:
Net reduction in loans receivable resulting from
the transfer to real estate owned and other
repossessed assets .................................... $ 157 $ 1,371
======== ========
Net decrease in unrealized loss on investment
securities and mortgage-backed securities,
available for sale, net of deferred tax effect ........ ($ (121) $ 1,272
======== ========
See accompanying notes to consolidated interim financial statements
6
<PAGE>
SUMMARIZED NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
-------------------------------------------------------------
(1) In Management's opinion, the interim 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, 1997 and
September 30, 1996, in conformity with generally accepted accounting principles.
These financial statements should be read in conjunction with Ambanc Holding
Co., Inc.'s ("the Company" herein) 1996 Annual Report on Form 10-K.
(2) Amounts in the prior periods' consolidated interim financial statements are
reclassified whenever necessary to conform to current period presentations.
(3) Net income per common share for the three months and nine months ended
September 30, 1997 and 1996 has been determined by dividing net income by the
weighted average number of shares of common stock outstanding for the period.
Shares of common stock outstanding are reduced by the company's Employee Stock
Ownership Plan (ESOP) shares that have not been committed to be released in
accordance with SOP 93-6, "Employers' Accounting for Employee Stock Ownership
Plans. The weighted average number of shares of common stock outstanding for the
three months and nine months ended September 30, 1997 were 3,897,275 and
3,977,302, respectively. For the corresponding periods in 1996, the weighted
average number of shares of common stock outstanding were 4,662,564 and
4,883,859, respectively. The effect of outstanding stock option grants issued
under the 1997 Stock Option and Incentive Plan (SOP) and shares awarded under
the Recognition and Retention Plan (RRP) are not material to the calculation of
net income per share.
The RRP and SOP were ratified for adoption by the Company's shareholders at
the annual meeting of shareholders held May 23, 1997 (the grant date).
The Board of Directors believes that it is appropriate for the Company to
have a flexible and comprehensive SOP which permits the granting of a variety of
long-term incentive awards as a means of enhancing and encouraging the
recruitment and retention of those individuals on whom the continued success of
the Company most depend. As a result of the adoption of the SOP, options to
purchase an aggregate of 373,974 shares of common stock were granted to
directors and officers at an exercise price of $13.75 per share, representing
the fair market value of the stock on the grant date, which leaves available
168,251 shares for future grants. The options vest over a four year period at a
rate of 25% annually, commencing on the one year anniversary of the grant date.
The RRP is designed to provide directors, officers and employees with a
proprietary interest in the Company in a manner designed to encourage such
individuals to remain with the Company and the Bank. Pursuant to the
ratification of the RRP by shareholders, 216,890 shares of common stock were
made available for awards. Concurrent with the approval of the RRP, 131,285
shares were awarded and vest over a four year period at a rate of 25% annually,
commencing on the one year anniversary of the grant date. An aggregate of 85,605
shares are available for future awards.
(4) In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (Statement 128),
which establishes standards for computing and presenting earnings per share
(EPS). This Statement simplifies the standards for computing EPS making them
comparable to international EPS standards and supersedes Accounting Principals
Board Opinion No. 15, "Earnings Per Share" and related interpretations.
Statement 128 replaces the presentation of primary EPS with the presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the diluted
EPS calculation.
7
<PAGE>
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock, or resulted in the issuance of common stock that then shared
in the earnings of the entity. This Statement is effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods. Earlier application is not permitted. This statement requires
restatement of all prior-period EPS data presented.
The Company will present its EPS data in accordance with Statement 128 as
of December 31, 1997. Management anticipates that the effect of the adoption of
this Statement will not have a material effect on the Company's consolidated
financial statements.
(5) Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" (Statement 130), which establishes standards for reporting and display
of comprehensive income and its components in financial statements. Statement
130 states that comprehensive income includes reported net income of a company,
adjusted for items that are currently accounted for as direct entries to equity,
such as the net unrealized gain or loss on securities available for sale,
foreign currency items, and minimum pension liability adjustments. This
statement is effective for both interim and annual periods beginning after
December 15, 1997. As required, the Company will adopt Statement 130 in the
first quarter in 1998 and will report and display comprehensive income in
accordance with the new statement.
In June 1997, The FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(Statement 131), which establishes standards for reporting by public companies
about operating segments of their business. Statement 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. This statement is effective for periods beginning after
December 15, 1997. Management does not anticipate that the adoption of this
statement will have a material effect on the Company's consolidated financial
statements.
8
<PAGE>
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 consolidated interim financial statements and related notes (unaudited) and
with the statistical information and financial data appearing in this report as
well as the Company's 1996 Annual Report on Form 10-K.
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 has in place a committee that is overseeing the Year 2000 (Y2K)
computer program issues. The committee has prepared a specific action plan to
ensure that the Company will not face any business interruption. The plan is
designed to be comprehensive and yet flexible enough to change as more issues
are brought forward. The plan has been presented to the board of directors'
Audit Committee and through them to the Company's board of directors. The Audit
Committee will receive reports on a quarterly basis apprising them of the
Company's progress in resolving the Year 2000 issues and/or problems that the
Y2K committee has encountered.
The Company is in compliance with the Emerging Issues Task Force's (EITF)
pronouncement in July 1996 to charge to expense as incurred the costs associated
with Year 2000 projects. For the nine months ended September 30, 1997, Year 2000
expenses were not significant. On the basis of the work that the committee has
completed through October 31, 1997, the Company does not anticipate that the
Year 2000 issues will result in a material cost to address the issues nor does
it anticipate incomplete or untimely resolution of its Year 2000 issues.
9
<PAGE>
General
- -------
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 other
repossessed assets 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 $736,000 for the quarter ended September
30, 1997, or $0.19 per share, and earnings for the nine months ended September
30, 1997, of $2.0 million, or $0.49 per share, compared to earnings of $572,000,
or $0.12 per share, and $768,000, or $0.16 per share, in the corresponding
periods in 1996, respectively.
The improvement in third quarter 1997 earnings compared to 1996 was due, in
part, to an increase by $319,000 in net gains on sales of securities available
for sale (securities AFS). Also contributing to the improved earnings was a
decrease in the provision for loan losses by $324,000. Partially offsetting
these positive changes was a reduction in net interest income by $350,000, or
8.3%, to $3.9 million for the third quarter of 1997 from $4.2 million in the
third quarter of 1996.
The improvement in net income by $1.2 million to $2.0 million for the nine
months ended September 30, 1997, compared to the corresponding 1996 period, was
primarily the result of a decrease by $1.7 million in the provision for loan
losses. In the first nine months of 1996, the Company incurred a charge to
provision for loan losses of $1.5 million related to a lending relationship with
the Bennett Funding Group, Inc., a lease finance company that filed for Chapter
11 bankruptcy protection on March 29, 1996 (see "Asset Quality," herein). Also
contributing to the improvement in earnings were increases in net gains on sales
of securities AFS, net interest income before the provision for loan losses, and
noninterest income. These positive factors were partially offset by increases in
noninterest expenses and income tax expense.
The level of non-performing assets declined from $5.6 million at December
31, 1996, to $3.8 million at September 30,1997. As of September 30, 1997,
non-performing assets were 0.73% of total assets compared to 1.18% at December
31, 1996. The Company's ratios for allowance for loan losses to non-performing
loans and to total loans at September 30, 1997, were 114.8% and 1.49%,
respectively, compared to December 31, 1996, when the ratios were 70.5% and
1.37% , respectively. See "Asset Quality" herein.
10
<PAGE>
RESULTS OF OPERATIONS
---------------------
Comparison of Operating Results for the Quarters Ended September 30, 1997
and 1996
Net Interest Income
- -------------------
Net interest income before provision for loan losses for the quarter ended
September 30, 1997, compared to the like period in 1996, declined by $350,000,
or 8.3%, to $3.9 million. The decline resulted primarily from an increase in
total average interest-bearing liabilities by $13.9 million to $396.9 million,
mainly due to an increase in average certificates of deposit, which grew by
$31.8 million. The growth in certificates of deposit was accompanied by an
increase in the average rate paid on these deposits by 21 basis points to 5.77%,
compared to the prior year's third quarter, due mainly to increases in local
market rates from 1996 to 1997.
Total average interest-earning assets decreased by $1.7 million, or 0.4%,
to $469.7 million in the third quarter of 1997, as compared to the like 1996
quarter. A decline of $16.8 million in average securities AFS, due mainly to the
reduction in borrowings related to securities sold under agreements to
repurchase, more than offset increases by $5.3 million and $10.1 million in
average loans and average all other interest-earning assets (primarily federal
funds sold ), respectively.
The increase in certificates of deposit was partially offset by a decline
in total average borrowed funds by $13.3 million to $89.7 million from $102.9
million in 1996. Other average interest-bearing deposits also declined,
decreasing by $4.6 million, or 3.5%, in the quarter ended September 30, 1997 as
compared to the same period in 1996.. Management believes that the decline in
other interest-bearing deposits resulted from depositors shifting funds into
higher yielding certificates of deposit from lower yielding savings and money
market accounts.
The total cost of interest-bearing liabilities increased by 17 basis points
to 4.94%, which more than offset a one (1) basis point increase in the average
yield on interest-earning assets thereby reducing the Company's net interest
rate spread by 16 basis points to 2.51% from 2.67% in the quarter ended
September 30, 1996. The Company's net interest margin also narrowed in the three
months ended September 30, 1997, compared to the corresponding period in 1996,
declining by 29 basis points to 3.28%. The decrease in the net interest margin
was attributable to a higher proportion of interest-earning assets being
supported by interest-bearing liabilities in 1997 than in 1996, 84.5% compared
to 81.2%.
Ambanc Holding Co., Inc. operates in an environment of intense competition
for the public's investable funds and loan business. The competition in today's
environment is not limited to other local banks and thrifts, but also includes a
myriad of financial services providers that are located both within and outside
the Company's local market area. Due to this heightened level of competition to
attract and retain customers, i.e., grow the customer base, the Company must
continue to offer competitive interest rates on loans and deposits. As a
consequence of these competitive pressures, from time-to-time, the relative
spreads between interest rates earned and interest rates paid will tighten ,
exerting downward pressure on net interest income, net interest rate spread and
the net interest margin. This is especially true during periods when the growth
in interest-earning assets lags the growth in interest-bearing liabilities, the
environment that the Company has experienced in the first nine months of 1997
and that manifested itself in the third quarter's decrease in net interest
income as compared to the same period in 1996. However, management does not want
to discourage, by offering noncompetitive interest rates, the creation of new
11
<PAGE>
customer relationships or jeopardize existing relationships thereby curtailing
customer base and loan growth and the attendant benefits to be derived from
them. Management believes that the longer range benefits to be derived from this
position will outweigh the shorter term costs associated with attracting,
cross-selling and retaining an expanding customer base. The Company's growing
customer base provides Ambanc with the potential for future, profitable customer
relationships, which will, in turn, increase the value of the franchise.
Provision for loan losses
- -------------------------
The provision for loan losses declined by $324,000 to $225,000 for the
quarter ended September 30, 1997, compared to the same quarter in 1996. The
lower expense was attributable to the improvement in the quality of the
Company's loan portfolio and the level of the allowance for loan losses at
September 30, 1997, in relation to total loans and to non-performing loans.
Noninterest income
- ------------------
Total noninterest income increased by $312,000 to $578,000 from the third
quarter 1996 level. The improvement in total noninterest income was primarily
the result of an increase in gains on the sales of securities available for sale
in the third quarter of 1997, an increase of $319,000 compared to 1996. All
other noninterest income decreased by $7,000, primarily due to a decline in the
amount of commissions received on the sales of mutual funds and annuity
contracts by the Company's wholly owned subsidiary, ASB Insurance Agency, Inc.
Noninterest expense
- -------------------
Total noninterest expense for the three months ended September 30, 1997,
decreased by $5,000, or 0.2%, compared to 1996. The decrease was due primarily
to a decline in real estate owned and repossessed asset expenses, net, by
$575,000. The reduction in these expenses resulted primarily from the bulk sales
of problem loans and other real estate owned in the fourth quarter of 1996.
Partially offsetting the decrease in real estate owned and repossessed asset
expenses, net, was an increases in salaries, wages and benefits by $364,000 with
$148,000 of the total increase attributable to increased accruals for the
Company's ESOP and the newly adopted RRP related to employees during the quarter
ended September 30, 1997. Also contributing to the total increase in salaries,
wages and benefits were additions to staff, mainly to support the opening in the
second quarter of 1997 of three new branch offices. Salaries and wages related
to the new branches totaled approximately $92,000 during the quarter ended
September 30, 1997.
Income taxes
- ------------
Income tax expense increased by $127,000 to $452,000 due to the improvement
in the Company's income before taxes to $1.2 million from $897,000 in the third
quarter of 1996.
12
<PAGE>
Comparison of Operating Results for the Nine Months Ended September 30, 1997
and 1996
Net interest income
- -------------------
Net interest income before provision for loan losses increased by $144,000,
or 1.2%, to $11.9 million for the nine months ended September 30,1997, compared
to the corresponding period in 1996. The improvement in net interest income was
attributable to an increase in total average interest-earning assets by $48.6
million to $466.9 million, primarily funded by increases in the average volumes
of certificates of deposit and borrowed funds by $18.2 million and $47.1
million, respectively. The growth in total average interest-earning assets was
attributable primarily to an increase in average securities AFS by $51.5 million
to $191.3 million and average loan growth of $4.3 million to $282.3 million,
partially offset by an $8.2 million decline in the average volume of federal
funds sold to $10.2 million. The total average yield on interest-earning assets
increased by 8 basis points to 7.52% for the nine months ended September 30,
1997 from 7.44% in the 1996 period. These positive effects were partially offset
by higher funding costs attributable primarily to the increases in the average
volumes of certificates of deposit and borrowed funds.
Provision for loan losses
- -------------------------
The decrease by $1.7 million to $863,000 in the provision for loan losses
for the nine-months ended September 30, 1997, compared to 1996, was due mainly
to a $1.5 million charge taken during the first nine months of 1996 pertaining
to the Bank's aggregate lending relationship with the Bennett Funding Group, a
lease finance company that filed for Chapter 11 bankruptcy protection on March
29, 1996. See "Asset Quality" herein.
Noninterest income
- ------------------
Total noninterest income increased by $651,000 to $1.3 million for the
nine-months ended September 30, 1997, compared to 1996, primarily due to an
increase in net gains on sales of securities AFS by $594,000 to $505,000
compared to a net loss of $89,000 in the 1996 period. Also contributing to the
improvement in total noninterest income were increases in service charges on
deposit accounts, mainly NSF fees, and other noninterest income by $31,000 and
$26,000, respectively. The increase in other noninterest income resulted
primarily from the partial recovery of $25,000 against the prior charge-off of a
capital debenture issued by Nationar and to an increase by $9,000 in commissions
on sales of annuities and mutual funds through the Company's subsidiary, ASB
Insurance Agency, Inc.
13
<PAGE>
Noninterest expense
- -------------------
Total noninterest expense increased by $553,000 to $9.2 million for the
nine-months ended September 30, 1997, compared to the similar period in 1996.
The increase resulted primarily from an increase in salaries, wages and benefits
by $794,000, $332,000 of which resulted from increased accruals for the
Company's ESOP and other stock based compensation. Also contributing to the
total increase in salaries, wages and benefits were additions to staff, mainly
to support the opening of three new branch offices in the second quarter of
1997, an increase in medical insurance premiums by $28,000 and normal
cost-of-living and merit increases. The salaries and wages related to the new
branches totaled approximately $235,000 for the nine months ended September 30,
1997.
Income taxes
- ------------
The Company recorded an expense of $1.2 million on pretax income of $3.2
million for the nine months ended September 30, 1997, compared to pretax income
of $1.2 million in the 1996 period.
14
<PAGE>
FINANCIAL CONDITION
-------------------
The Company's total assets at September 30, 1997, were $529.3 million, an
increase of $56.9 million, or 12.0%, compared to total assets of $472.4 million
at December 31, 1996. The growth in total assets was primarily attributable to
an increase in loans receivable, net of unamortized fees, of $29.0 million and
to an increase in securities available for sale by $10.0 million, partially
offset by a decline of $4.5 million in federal funds sold. The growth in total
assets was primarily funded by an increase in total deposits of $32.6 million,
or 10.9%, to $330.7 million, partially offset by a decrease in advances from the
FHLB and other borrowed funds of $4.8 million. Due from brokers and due to
brokers, accounts that recognize securities transactions that have not been
settled as of the financial statement date, increased by $19.4 million and $31.1
million, respectively. .
Total shareholders' equity decreased by $1.3 million from December 31,
1996, to $60.2 million at September 30,1997, due primarily to repurchases of the
Company's common stock shares aggregating $3.5 million, $2.1 million for RRP
shares and $1.4 million in treasury shares, which more than offset a $1.7
million increase, net of the Company's first regular cash dividend totaling
$216,000 that was paid during the third quarter, in retained earnings. Also
contributing to the decline in total equity was an increase by $121,000 in
tax-effected unrealized losses on securities available for sale.
At September 30, 1997, the book value per share on 4,306,418 common shares
outstanding was $13.98 compared to $14.01 at December 31, 1996, on 4,392,023
shares outstanding. Common shares outstanding include unallocated ESOP shares
and unearned RRP shares. Excluding the tax-effected unrealized losses on
securities AFS, the book value per share at September 30, 1997 was $14.03
compared to $14.02 at December 31, 1996.
Liquidity and Funding
- ---------------------
The Company's primary sources of funds for operations are deposits from its
market area, principal and interest payments on loans, mortgage-backed
securities and investment securities, proceeds from the sale and maturity of
securities, 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 loan prepayments, primarily mortgage prepayments, are greatly
influenced by general interest rates, economic conditions, and competition.
The primary investing activities of the Company are the origination of
loans and the purchase of securities. During the nine months ended September 30,
1997, the Company's loan originations totaled $73.3 million. The Company
purchased securities AFS during the same period of $179.1 million.
The primary financing activity of the Company is the attraction of
deposits. During the nine months ended September 30, 1997, total deposits
increased by $32.6 million of which $6.6 million was attributable to the three
branch offices opened in May 1997. Management believes that the increase in
deposits primarily resulted from the relatively more attractive rates offered on
certificates of deposit by the Company in its local market area compared to
other interest-earning investment alternatives available to depositors during
the nine months ended September 30, 1997.
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
15
<PAGE>
liquidity ratio for the month of September 1997 was 8.4%, and its short-term
liquidity ratio for the same month was 3.4%.
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, 1997, cash and cash equivalents totaled $10.7
million, compared to $10.9 million at December 31, 1996.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. At September 30, 1997, the Bank had commitments to
originate loans of $5.9 million as well as undrawn commitments of $6.5 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, 1997, totaled $126.4
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 would consider
employing one or more of the following options: 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, the implementation of one or more of these options 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.
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.
At September 30, 1997, the Bank had $48.6 million of tangible and core
capital, respectively, or 9.3% of adjusted total assets, which was approximately
$40.7 million and $32.9 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, 1997, the Bank had risk-based capital of $51.6 million (including $48.6
million in core capital and $3.0 million in qualifying supplementary capital) or
21.9% of risk-weighted assets of $235.8 million. The Bank's risk-weighted
capital was $32.7 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
16
<PAGE>
accrued but unpaid interest is reversed against current period income and, as
long as the loan remains on non-accrual status, interest is recognized only when
received. Accruing loans delinquent 90 days or more include FHA insured loans,
VA guaranteed loans, and loans that are in the process of negotiating a
restructuring with the Bank, excluding troubled debt restructurings (TDRs), or
where the Bank has been notified by the borrower that the outstanding loan
balance plus accrued interest and late fees will be paid-in-full within a
relatively short period of time from the date of such notification. Foreclosed
assets includes assets acquired in settlement of loans.
September 30 December 31
1997 1996
------------- ------------
(In thousands)
Non-accruing loans:
One-to- four-family ................... $1,079 $ 259
Multi-family .......................... --- ---
Commercial real estate ................ 191 339
Consumer .............................. 286 256
Commercial Business ................... 564 2,269
------ ------
Total ............................... 2,120 3,123
------ ------
Accruing loans delinquent more than 90 days:
One-to-four family .................... 339 151
Multi-family .......................... --- ---
Commercial real estate ................ 14 568
Consumer .............................. 44 6
Commercial Business ................... 156 -
------ ------
Total ............................... 553 725
------ ------
Troubled debt restructured loans:
One-to four-family .................... 86 88
Multi-family .......................... 35 38
Commercial real estate ................ 763 781
Consumer .............................. - 56
Commercial Business ................... 56 68
------ ------
Total ............................... 940 1,031
------ ------
Total non-performing loans ............... 3,613 4,879
------ ------
Foreclosed assets:
One-to four-family .................... --- 194
Multi-family .......................... 188 282
Commercial real estate ................ --- ---
Consumer .............................. 39 239
Commercial Business ................... - -
------ ------
Total ............................... 227 715
------ ------
Total non-performing assets .............. $3,840
$5,594
====== ======
Total as a percentage of total assets .... 0.73% 1.18%
17
<PAGE>
Since December 31, 1996, no material additions were made to non-performing
assets and, as detailed in the above table, total non-performing assets have
declined. As previously mentioned, the Company has a lending relationship with
the Bennett Funding Group, Inc., a lease finance company that filed for Chapter
11 bankruptcy protection. At September 30, 1997, the aggregate balance
outstanding on this relationship was approximately $337,000, a $3.3 million
reduction from the original balance of $3.6 million as the result of a partial
charge-off in the fourth quarter of 1996 of $1.7 million and the receipt of
approximately $1.6 million during the nine months ended September 30, 1997 under
the terms of a settlement agreement entered into with the bankruptcy trustee. On
the basis of the terms specified in the settlement agreement, management
believes that no significant additional provisions or charge-offs on this
relationship will be necessary in the future.
In addition, as of September 30, 1997, the Company had foreclosed
multi-family assets of $188,000 consisting of one property: a three-story,
54-unit, student housing project located in Morrisville, New York. A purchase
proposal on this property has been accepted contingent upon a closing within 60
days. On the basis of the most recent offer, less estimated selling costs, the
asset has been written-down by $94,000 since December 31, 1996. The property
encroachment dispute discussed in the March 31, 1997 Form 10-Q has been
resolved.
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. Management believes the allowance for loan losses to be adequate.
18
<PAGE>
The following table sets forth an analysis of the Company's allowance for loan
losses.
For the nine months
ended September 30,
1997 1996
-------- --------
(In thousands)
Balance at beginning of period .............. $3,438 $2,647
Charge-offs:
One- to four-family .................... (11) (120)
Multi Family ........................... (12) 0
Commercial Real Estate ................. (50) (28)
Consumer ............................... (254) (372)
Commercial Business .................... (260) (69)
------ ------
Total Charge offs ................... (587) (589)
Recoveries:
One- to four-family .................... 1 9
Multi Family ........................... 0 0
Commercial Real Estate ................. 4 0
Consumer ............................... 46 39
Commercial Business .................... 382 0
------ ------
Total Recoveries .................... 433 48
Net Charge-offs ............................. (154) (541)
Provisions charged to operations ............ 863 2,610
------ ------
Balance at end of period .................... 4,147 4,716
====== ======
Ratio of net charge-offs during
the period to average loans
outstanding during period ................... 0.06% 0.20%
Ratio of net charge-offs during
the period to average
non-performing assets ....................... 3.89% 3.34%
19
<PAGE>
Part II - Other Information
- ---------------------------
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 report on Form 8-K was filed on November 10, 1997 for
October 24, 1997 press release regarding Ambanc Holding Co.,
Inc.'s earnings for the three and nine months ended September
30, 1997.
20
<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.
/s/ Robert J. Brittain
- ----------------------
Robert J. Brittain
President and Chief Executive Officer
(Principal Executive Officer)
Date: November 14, 1997
/s/ Harold A. Baylor, Jr.
- -------------------------
Harold A. Baylor, Jr.
Vice President, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
Date: November 14, 1997
21
<PAGE>
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
- -----------------------------------
22
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY
FINANCIAL INFORMATION EXTRACTED FROM THE FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1997 OF
AMBANC HOLDING CO., INC. AND ITS SUBSIDIARIES AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 9005
<INT-BEARING-DEPOSITS> 1714
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 210562
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 280546
<ALLOWANCE> 4147
<TOTAL-ASSETS> 529309
<DEPOSITS> 330658
<SHORT-TERM> 60950
<LIABILITIES-OTHER> 34497
<LONG-TERM> 43000
0
0
<COMMON> 54
<OTHER-SE> 60150
<TOTAL-LIABILITIES-AND-EQUITY> 529309
<INTEREST-LOAN> 15359
<INTEREST-INVEST> 10394
<INTEREST-OTHER> 522
<INTEREST-TOTAL> 26275
<INTEREST-DEPOSIT> 10017
<INTEREST-EXPENSE> 14366
<INTEREST-INCOME-NET> 11909
<LOAN-LOSSES> 863
<SECURITIES-GAINS> 505
<EXPENSE-OTHER> 9174
<INCOME-PRETAX> 3153
<INCOME-PRE-EXTRAORDINARY> 3153
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1960
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
<YIELD-ACTUAL> 3.41
<LOANS-NON> 2120
<LOANS-PAST> 553
<LOANS-TROUBLED> 940
<LOANS-PROBLEM> 4334
<ALLOWANCE-OPEN> 3438
<CHARGE-OFFS> 587
<RECOVERIES> 433
<ALLOWANCE-CLOSE> 4147
<ALLOWANCE-DOMESTIC> 4147
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
