UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from___________________ to ______________________
Commission file number: 0-27036
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
___________________________
Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
(Title of class)
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
requirements for the past 90 days. YES X . NO __.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, computed by reference to the average of the closing bid and
asked prices of such stock on the Nasdaq National Market as of April 11, 1997,
was $57,539,688. (The exclusion from such amount of the market value of the
shares owned by any person shall not be deemed an admission by the registrant
that such person is an affiliate of the registrant.)
As of April 11, 1997, there were issued and outstanding 4,392,023 shares
of the Registrant's Common Stock.
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
Parts II and IV of Form 10-K - Portions of the Annual Report to
Stockholders for the year ended December 31, 1996.
Part III of Form 10-K - Portions of the Proxy Statement for the Annual
Meeting of Stockholders for the year ended December 31, 1996.
PART I
Item 1. Description of Business
General
Ambanc Holding Co., Inc. (the "Company") was formed as a Delaware
corporation in June 1995 to act as the holding company for Amsterdam Savings
Bank, FSB (the "Bank") upon the completion of the Bank's conversion from mutual
to stock form (the "Conversion"). The Company received approval from the Office
of Thrift Supervision (the "OTS") to acquire all of the common stock of the Bank
to be outstanding upon completion of the Conversion. The Conversion was
completed on December 26, 1995. The Company's Common Stock trades on The Nasdaq
Stock Market under the symbol "AHCI". All references to the Company, unless
otherwise indicated, at or before December 26, 1995 refer to the Bank.
At December 31, 1996, the Company had $ 472.4 million of assets and
stockholders' equity of $61.5 million (or 13.0%) of total assets.
The Bank, organized in 1886, is a federally chartered savings bank
headquartered in Amsterdam, New York. The principal business of the Bank
consists of attracting retail deposits from the general public and using those
funds, together with borrowings and other funds, to originate primarily one- to
four-family residential mortgage loans, home equity loans and consumer loans,
and to a lesser extent, commercial and multi-family real estate, and commercial
business loans in the Bank's primary market area. See "-Market Area." The Bank
also invests in mortgage-backed securities, U.S. Government and agency
obligations and other permissible investments. Revenues are derived primarily
from interest on loans, mortgage-backed and related securities and investments.
The Bank offers a variety of deposit accounts having a wide range of
interest rates and terms. The Bank is a member of the Bank Insurance Fund (the
"BIF"), which is administered by the Federal Deposit Insurance Corporation (the
"FDIC"). Its deposits are insured up to applicable limits by the FDIC, which
insurance is backed by the full faith and credit of the United States
Government. The Bank primarily solicits deposits in its primary market area and
currently does not have brokered deposits. The Bank is a member of the Federal
Home Loan Bank (the "FHLB") System.
The Company's and the Bank's executive office is located at 11 Division
Street, Amsterdam, New York, 12010-4303, and its telephone number is (518)
842-7200.
<PAGE>
When used in this annual Report on Form 10-K, 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.
Market Area
The Company's primary market area is comprised of Albany, Fulton,
Montgomery, Saratoga and Schenectady Counties in New York, which are serviced
through the Bank's main office, eight other banking offices and its operations
center. The Company's primary market area consists principally of suburban and
rural communities with manufacturing serving as the basis of the local economy.
Trade, service and government related industries comprise the other major
components of the Company's primary market area economy.
Consistent with the trend throughout the United States, the service sector
has been increasing as a percentage of the total employment in the Bank's
primary market area with State and local government accounting for a large
percentage of such employment. The manufacturing sector of the economy is very
diverse, with a large majority of the manufacturers having fewer than 200
employees. Employers in Montgomery County include St. Mary's Hospital, Amsterdam
Memorial Hospital, Amsterdam Printing and Litho Corp., Hasbro, Inc. and Kasson &
Keller/Keymark.
Montgomery County, where the main office of the Company is located, is the
least populated county in the Company's primary market area with a population of
approximately 52,600. Albany County, where the Bank opened a new branch, is the
most populated county in the Company's market area with a population of
approximately 293,700. The unemployment rate in Montgomery County as of December
1996 was 6.9%, down from 7.0% as of October 1995; the unemployment rate for New
York State was 5.9%, down from 6.0% as of the same dates.
<PAGE>
Lending Activities
General
The Company primarily originates fixed- and adjustable rate, one- to
four-family mortgage loans. The Company's general policy is to originate
mortgages with terms between 15 and 30 years for retention in its portfolio. The
Company also originates fixed and adjustable rate consumer loans. Adjustable
rate mortgage ("ARM"), home equity and consumer loans are originated in order to
maintain loans with more frequent terms to repricing or shorter maturities than
fixed-rate, one- to four-family mortgage loans. See "- Loan Portfolio
Composition" and "- One- to Four-Family Residential Real Estate Lending." In
addition, the Company originates commercial and multi-family real estate,
construction and commercial business loans in its primary market area; although,
the originations of these types of loans has recently been de-emphasized by the
Bank. Beginning in 1997 the Company will initiate an FHA loan program primarily
directed at low-to-moderate income borrowers with terms up to 30 years. Loan
originations are generated by the Company's marketing efforts, which include
print and radio advertising, lobby displays and direct contact with local civic
and religious organizations, as well as by the Company's present customers,
walk-in customers and referrals from real estate agents, brokers and builders.
At December 31, 1996, the Company's net loan portfolio totaled $248.1 million.
Loan applications are initially considered and approved at various levels
of authority, depending on the type, amount and loan-to-value ratio of the loan.
Bank employees with lending authority are designated, and their lending limit
authority defined, by the Board of Directors of the Bank. The approval of the
Bank's Board of Directors is required for any loan relationship that includes a
commercial real estate or commercial business loan whose aggregate borrowings
exceed $250,000, and for all other loan relationships whose aggregate borrowings
exceed $500,000. The Bank also has an Officer/Director Loan Committee which has
authority to approve loans between $250,000 and $500,000 and meets as needed to
approve loans between Board meetings.
The aggregate amount of loans that the Bank is permitted to make under
applicable federal regulations to any one borrower, including related entities,
or the aggregate amount that the Bank could have invested in any one real estate
project is generally the greater of 15% of unimpaired capital and surplus or
$500,000. See "Regulation - Federal Regulation of Savings Associations." At
December 31, 1996, the maximum amount which the Bank could have loaned to any
one borrower and the borrower's related entities was approximately $6.9 million.
At such date, the Bank did not have any loans or series of loans to related
borrowers with an outstanding balance in excess of this amount.
At December 31, 1996, the Company's largest lending relationship totaled
$1.9 million (net of $1.7 million charged off in 1996) and consisted of eight
loans secured by various office equipment and the equipment lease contracts
between the borrower and its lessees. These loans were in default as of December
31, 1996 as a result of a bankruptcy filing on March 29, 1996. For further
discussion, see "Asset Quality - Non-Performing Assets" herein, and "Management
Discussion and Analysis of Financial Condition and Results of Operations":
contained in the Company's Annual Report to Stockholders attached hereto as
Exhibit 13 ("Annual Report").
<PAGE>
The next three largest lending relationships at December 31, 1996 consisted
of a $1.3 million loan secured by a motel, a $1.2 million loan secured by a
strip shopping center, and a $1.1 million loan secured by a day treatment center
for mentally retarded and developmentally disabled individuals. At December 31,
1996, there were only three other loans or lending relationships equal to or in
excess of $1 million. All of the foregoing loans were current at December 31,
1996.
<PAGE>
Loan Portfolio Composition.
The following table presents information concerning the composition of the
Company's loan portfolio in dollar amounts and in percentages (before deductions
for deferred fees and discounts and allowances for losses) as of the dates
indicated.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
One- to four-family $158,182 63.15% $133,468 53.20% $140,418 53.63% $116,441 52.18% $136,554 55.22%
Home Equity 22,817 9.11 17,519 6.98 16,715 6.39 16,135 7.23 15,777 6.38
Multi Family 4,724 1.88 8,176 3.26 8,718 3.33 10,978 4.92 10,499 4.25
Commercial 29,947 11.96 41,929 16.71 46,736 17.85 51,528 23.09 58,674 23.72
Construction 2,234 0.89 1,073 0.43 4,809 1.84 812 0.36 2,280 0.92
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
Total Real Estate 217,904 86.99 202,165 80.58 217,396 83.04 195,894 87.78 223,784 90.49
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
Other Loans:
Consumer Loans
Auto Loans 12,417 4.96 9,337 3.72 4,765 1.82 1,147 0.52 1,362 0.55
Recreational Vehicles 9,416 3.76 12,881 5.13 12,352 4.72 7,908 3.54 6,949 2.81
Manufactured Homes 620 0.25 13,484 5.37 15,161 5.79 5,751 2.58 1,616 0.66
Other Secured 1,866 0.74 2,020 0.81 2,065 0.79 3,867 1.73 3,793 1.53
Unsecured 1,445 0.58 1,299 0.52 1,398 0.53 1,499 0.67 1,564 0.63
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
Total Consumer Loans 25,764 10.29 39,021 15.55 35,741 13.65 20,172 9.04 15,284 6.18
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
Commercial Business Loans:
Secured 6,199 2.47 9,346 3.73 8,332 3.18 6,810 3.05 7,857 3.18
Unsecured 620 0.25 350 0.14 339 0.13 279 0.13 379 0.15
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
Total Commercial
Business Loans 6,819 2.72 9,696 3.87 8,671 3.31 7,089 3.18 8,236 3.33
-------- ------ -------- ------ -------- ------ ------- ------- ------- ------
Total Loan Portfolio, Gross 250,487 100.00% 250,882 100.00% 261,808 100.00% 223,155 100.00% 247,304 100.00%
====== ====== ====== ====== ======
Less:
Unamortized discount and
deferred loan fees (1,045) (1,756) (2,008) (741) (222)
Allowance for Loan Losses 3,438 2,647 2,235 3,249 3,089
-------- -------- -------- -------- --------
Total Loans Receivable, Net $248,094 $249,991 $261,581 $220,647 $244,437
======== ======== ======== ======== ========
</TABLE>
<PAGE>
The following table shows the composition of the Company's loan portfolio
by fixed- and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
-------------------------------------------------------------------------------------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Loans:
Real Estate:
One- to Four-Family $111,841 44.65% $ 91,528 36.48% $ 91,299 34.87% $ 68,377 30.64% $ 86,529 34.99%
Home Equity 15,234 6.08% 8,405 3.35% 6,689 2.56% 5,586 2.50% 5,133 2.08%
Commercial and Multi Family 2,590 1.03% 2,633 1.05% 13,144 5.02% 17,918 8.03% 17,268 6.98%
Construction 1,840 0.73% 633 0.25% 4,809 1.84% 812 0.36% 2,280 0.92%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total Real Estate 131,505 52.49% 103,199 41.13% 115,941 44.29% 92,693 41.53% 111,210 44.97%
Consumer 25,110 10.03% 33,343 13.29% 28,027 10.70% 15,644 7.01% 15,284 6.18%
Commercial Business 3,124 1.24% 4,476 1.79% 3,480 1.33% 2,387 1.07% 8,236 3.33%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total fixed-rate loans 159,739 63.76% 141,018 56.21% 147,448 56.32% 110,724 49.61% 134,730 54.48%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Adjustable Rate Loans:
Real Estate:
One- to Four-Family 46,341 18.50% 41,940 16.72% 49,119 18.76% 48,064 21.54% 50,025 20.23%
Home Equity 7,583 3.03% 9,114 3.63% 10,026 3.83% 10,549 4.73% 10,644 4.30%
Commercial and Multi Family 32,081 12.81% 47,472 18.92% 42,310 16.16% 44,588 19.98% 51,905 20.99%
Construction 394 0.16% 440 0.18% --- ----% --- ----% --- ----%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total Real Estate 86,399 34.50% 98,966 39.45% 101,455 38.75% 103,201 46.25% 112,574 45.52%
Consumer 654 0.26% 5,678 2.26% 7,714 2.95% 4,528 2.03% --- ----%
Commercial Business 3,695 1.48% 5,220 2.08% 5,191 1.98% 4,702 2.11% --- ----%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total adjustable-rate loans 90,748 36.24% 109,864 43.79% 114,360 43.68% 112,431 50.39% 112,574 45.52%
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
Total Loan Portfolio, Gross 250,487 100.00% 250,882 100.00% 261,808 100.00% 223,155 100.00% 247,304 100.00%
====== ====== ====== ====== ======
Less:
Unamortized discount and
deferred loan fees (1,045) (1,756) (2,008) (741) (222)
Allowance for Loan Loss 3,438 2,647 2,235 3,249 3,089
-------- -------- -------- -------- --------
Total Loans Receivable, Net $248,094 $249,991 $261,581 $220,647 $244,437
======== ======== ======== ======== ========
</TABLE>
<PAGE>
The following table illustrates the contractual maturity of the Company's
loan portfolio at December 31, 1996. Mortgages which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contract is due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
<TABLE>
<CAPTION>
Real Estate
--------------------------------------------------
One- to Multi-
Four-Family Family and Commercial
and Home Equity Commercial Construction(2) Consumer Business Total
-------------- -------------- -------------- -------------- -------------- --------------
Weighted Weighted Weighted Weighted Weighted Weighted
Average Average Average Average Average Average
Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate Amount Rate
Due During ------ ---- ------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Periods Ending
December 31,
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1997 (1) $1,711 9.34% $1,443 9.49% $ ----- ----% $2,088 9.64% $1,574 9.92% $6,816 9.60%
1998 1,277 8.60 2,288 8.36 ------ ---- 1,681 9.16 1,541 8.86 6,787 8.72
1999 2,300 8.40 3,839 9.75 ------ ---- 4,970 8.37 1,638 9.20 12,747 8.90
2000 and 2001 6,740 8.40 12,012 7.07 ------ ---- 8,376 8.35 1,331 7.53 28,459 7.78
2002 to 2006 19,748 8.13 7,282 9.38 ------ ---- 4,185 11.15 91 9.13 31,306 8.82
2007 to 2011 65,389 7.76 1,012 9.10 924 7.59 4,419 10.56 255 10.98 71,999 7.96
2012 and following 83,834 7.53 6,795 9.15 1,310 6.78 45 8.39 389 10.37 92,373 7.65
<FN>
- ---------------------
(1) Includes demand loans, loans having no stated maturity and overdraft loans.
(2) Construction loan terms are generally less than one year, however, upon
completion of the construction phase, the loans are generally converted to a
permanent mortgage with a term not to exceed thirty years, thereby extending the
contractual maturity. Accordingly, the maturity on these loans are shown at the
final expected maturity of the permanent financing.
</FN>
</TABLE>
As of December 31, 1996, the total amount of loans due after December 31,
1997 which have fixed interest rates was $ 158.0 million, while the total amount
of loans due after such date which have floating or adjustable interest rates
was $85.6 million.
<PAGE>
One- to Four-Family Residential Real Estate Lending
The Company's residential first mortgage loans consist primarily of one- to
four-family, owner-occupied mortgage loans. At December 31, 1996, $158.2
million, or 63.2%,of the Company's gross loans consisted of one- to four-family
residential first mortgage loans. Approximately 70.7% of the Company's one- to
four-family residential first mortgage loans provide for fixed rates of interest
and for repayment of principal over a fixed period not to exceed 30 years. The
Company's fixed-rate one- to four-family residential mortgage loans are priced
competitively with the market. Accordingly, the Company attempts to distinguish
itself from its competitors based on quality of service.
The Company generally underwrites its fixed-rate, one- to four-family,
residential, first mortgage loans using Federal National Mortgage Association
("FNMA") secondary market standards. The Company generally holds for investment
all one- to four-family residential first mortgage loans it originates. In
underwriting one- to four-family residential first mortgage loans, the Company
evaluates both the borrower's ability to make monthly payments and the value of
the property securing the loan. Properties securing real estate loans made by
the Company are appraised by independent fee appraisers approved by the Board of
Directors. The Company requires borrowers to obtain title insurance, and fire
and property insurance (including flood insurance, if necessary) in an amount
not less than the amount of the loan.
The Company currently offers one, three, five and seven year residential
ARM loans with an interest rate that adjusts annually in the case of a one-year
ARM loan, and every three, five or seven years in the case of a three, five or
seven year ARM loan, respectively, based on the change in the relevant Treasury
constant maturity index. These loans provide for up to a 2.0% periodic cap and a
lifetime cap of 6.0% over the initial rate. As a consequence of using caps, the
interest rates on these loans may not be as rate sensitive as is the Company's
cost of funds. Borrowers of one-year residential ARM loans are generally
qualified at a rate 2.0% above the initial interest rate. The Company's
residential ARM loans may be modified into fixed-rate loans. ARM loans generally
pose greater credit risks than fixed-rate loans, primarily because as interest
rates rise, the required periodic payment by the borrower rises, increasing the
potential for default. However, as of December 31, 1996, the Company had not
experienced higher default rates on these loans. See "Asset Quality -
Non-Performing Assets."
The Company's one- to four-family mortgage loans do not contain prepayment
penalties and do not permit negative amortization of principal. Real estate
loans originated by the Company generally contain a "due on sale" clause
allowing the Company to declare the unpaid principal balance due and payable
upon the sale of the security property. The Company has waived the due on sale
clause on loans held in its portfolio from time to time to permit assumptions of
the loans by qualified borrowers.
<PAGE>
The Company does not currently originate residential mortgage loans if the
ratio of the loan amount to the value of the property securing the loan (i.e.,
the "loan-to-value" ratio) exceeds 95%, with the exception of FHA loans, which
are fully insured by the Federal Government. If the loan-to-value ratio exceeds
80%, the Company requires that borrowers obtain private mortgage insurance in
amounts intended to reduce the Company's exposure to 80% or less of the lower of
the appraised value or the purchase price of the real estate security. See "Loan
Originations and Sales."
The Company makes construction loans to individuals for the construction
of their residences. The Company has occasionally made loans to builders for the
construction of residential homes, provided the builder has a sales contract to
sell the home upon completion. No construction loan is approved unless there is
evidence of a commitment for permanent financing upon completion of the
residence, whether through the Company or another financial institution.
Construction loans generally will require construction stage inspections before
funds may be released to the borrower. Such inspections are generally performed
by outside fee appraisers.
At December 31, 1996, the Company's construction loan portfolio totaled
$2.2 million, or 0.9% of its gross loan portfolio. Substantially all of these
construction loans were to individuals intending to occupy such residences and
were secured by property located within the Company's primary market area.
Although no construction loans were classified as non-performing as of December
31, 1996, these loans do involve a higher level of risk than conventional one-
to four-family residential mortgage loans. For example, if a project is not
completed and the borrower defaults, the Company may have to hire another
contractor to complete the project at a higher cost.
Home Equity Lending
The Company's home equity loans and lines of credit are secured by a lien
on the borrower's residence and generally do not exceed $200,000. The Company
uses the same underwriting standards for home equity loans as it uses for one-
to four-family residential mortgage loans. Home equity loans are generally
originated in amounts which, together with all prior liens on such residence, do
not exceed 90% of the appraised value of the property securing the loan. The
interest rates for home equity loans and lines of credit adjust at a stated
margin over the prime rate or, in the case of loans (but not lines of credit),
have fixed interest rates. Home equity lines of credit generally require
interest only payments on the outstanding balance for the first five years of
the loan, after which the outstanding balance is converted into a fully
amortizing, adjustable-rate loan with a term not in excess of 15 years. As of
December 31, 1996, the Company had $22.8 million in home equity loans and lines
of credit outstanding, with an additional $4.0 million of unused home equity
lines of credit.
<PAGE>
Commercial and Multi-Family Real Estate Lending
The Company has engaged in commercial and multi-family real estate lending
secured primarily by apartment buildings, small office buildings, motels,
warehouses, nursing homes, strip shopping centers and churches located in the
Company's primary market area, although the origination of these types of loans
has recently been de-emphasized by the Bank. At December 31, 1996, the Company
had $29.9 million and $4.7 million of commercial real estate and multi-family
real estate loans, respectively, which represented 12.0% and 1.9%, respectively,
of the Company's gross loan portfolio at that date. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Management
Strategy - Asset Quality" and "Provision for Loan Losses" in the Annual Report
for a discussion of the Bank's bulk sale of certain multi-family and commercial
loans.
The Bank's commercial and multi-family real estate loans generally have
adjustable rates and terms to maturity that do not exceed 20 years. The
Company's current lending guidelines generally require that the multi-family or
commercial income-producing property securing a loan generate net cash flows of
at least 125% of debt service after the payment of all operating expenses,
excluding depreciation, and a loan-to-value ratio not exceeding 65%. Prior to
September 1990, the Company originated commercial and multi-family loans with
loan-to-value ratios of up to 75%. Due to declines in the value of some
properties as a result of the economic conditions in the Company's primary
market area, however, the current loan-to-value ratio of some commercial and
multi-family real estate loans in the Company's portfolio may exceed the initial
loan-to-value ratio. Adjustable rate commercial and multi-family real estate
loans provide for interest at a margin over a designated index, with periodic
adjustments at frequencies of up to five-years. The Company generally analyzes
the financial condition of the borrower, the borrower's credit history, the
reliability and predictability of the cash flows generated by the property
securing the loan and the value of the property itself. The Company generally
requires personal guarantees of the borrowers in addition to the security
property as collateral for such loans. Appraisals on properties securing
commercial and multi-family real estate loans originated by the Company are
performed by independent fee appraisers approved by the Board of Directors.
At December 31, 1996, the Company's largest multi-family or commercial real
estate lending relationship consisted of a $1.3 million loan secured by a motel.
The next largest multi-family or commercial lending relationships at December
31, 1996 were a $1.2 million loan secured by a strip shopping center, and a $1.1
million loan secured by a day treatment center for mentally retarded and
developmentally disabled individuals, all of which were current as of December
31, 1996. At December 31, 1996, $1,726,000 , or 4.98% of the Company's
multi-family and commercial real estate loan portfolio was non-performing. See
"Asset Quality - Non-Performing Assets".
<PAGE>
Multi-family and commercial real estate loans generally present a higher
level of risk than loans secured by one- to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effect of general economic conditions
on income producing properties and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
multi-family and commercial real estate is typically dependent upon the
successful operation of the related real estate project. If the cash flow from
the project is reduced (for example, if leases are not obtained or renewed, or a
bankruptcy court modifies a lease term, or a major tenant is unable to fulfill
its lease obligations), the borrower's ability to repay the loan may be impaired
and the value of the property may be reduced. The balances of these types of
loans have declined over the past five years with a significant decrease from
$50.1 million at December 31, 1995 to $34.7 million at December 31, 1996, due
primarily to the bulk sale of certain performing and non-performing loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Management Strategy Asset Quality" in the Annual Report. The
Company currently plans to continue to de-emphasize the origination of
commercial and multi-family real estate loans, thereby reducing its credit risk
exposure associated with these types of loans.
Consumer Lending
The Company offers a variety of secured consumer loans, including loans
secured by automobiles and recreational vehicles ("RV's"). In addition, the
Company offers other secured and unsecured consumer loans. The Company currently
originates substantially all of its consumer loans in its primary market area.
The Company originates consumer loans on a direct basis only, where the Company
extends credit directly to the borrower. At December 31, 1996 the Company's
consumer loan portfolio totaled $25.8 million, or 10.3% of the gross loan
portfolio. At December 31, 1996, 97.5% of the Company's consumer loans were
fixed-rate loans and 2.5% were adjustable-rate loans.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. Terms to maturity range
up to 15 years for manufactured homes and certain RV's and up to 60 months for
other secured and unsecured consumer loans. The Company offers both open- and
closed-end credit. Open-end credit is extended through lines of credit that are
generally tied to a checking account. These credit lines currently bear interest
up to 18% and are generally limited to $10,000. The Company no longer originates
manufactured home loans.
The underwriting standards employed by the Company for consumer loans
include, a determination of the applicant's payment history on other debts and
an assessment of ability to meet existing obligations and payments on the
proposed loan. Although creditworthiness of the applicant is a primary
consideration, the underwriting process also includes a comparison of the value
of the security, if any, in relation to the proposed loan amount.
At December 31, 1996, automobile loans and RV loans (such as motor homes,
boats, motorcycles, snowmobiles and other types of recreational vehicles)
totaled $12.4 million and $9.4 million or 48.2% and 36.5% of the Company's total
consumer loan portfolio, and 5.0% and 3.8% of its gross loan portfolio,
respectively.
<PAGE>
During 1996, the Company placed more emphasis on originating automobile
loans secured by both new and used automobiles, thereby experiencing
approximately $3 million in net growth. In the past, originations were generated
primarily through advertising and lobby displays. The Company, over the past
year, has increased the number of relationships with local automobile
dealerships in order to further enhance automobile originations through their
referrals. The Company's maximum loan-to-value ratio on new automobiles is 100%
of the borrower's cost including sales tax, and on used automobiles up to 5
years old, 100% of the vehicle average retail value, based on NADA (National
Auto Dealers Association) valuation. Non-performing automobile loans as of
December 31, 1996 totaled $39,000 or .2% of the Company's consumer loan
portfolio.
Of the RV loan balance, approximately $6.5 and $2.9 million were secured by
new and used RVs, respectively. Approximately 75% of the RV portfolio consists
of loans that were originated through the Company's relationship with Alpin
Haus, Inc., a retail RV dealer formerly owned by one of the Company's directors.
The Company's maximum loan-to-value ratio on new and used RV loans is the lesser
of (i) 85% of the borrower's cost, which includes such items as sales tax and
dealer options or (ii) 115% of either the factory invoice for a new RV or the
wholesale value, plus sales tax, for a used RV. In the case of used RV's, the
wholesale value is determined using published guide books. At December 31, 1996,
RV loans totaling $175,000 or 1.9% of the total RV portfolio, were
non-performing.
Consumer loans may entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by rapidly depreciable assets, RVs and automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of high initial
loan-to-value ratios, repossession, rehabilitation and carrying costs, and the
greater likelihood of damage, loss or depreciation of the underlying collateral.
In addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be affected by
adverse personal circumstances. Furthermore, the application of various federal
and state laws, including bankruptcy and insolvency laws, may limit the amount
which can be recovered on these loans. In the case of RV loans, which tend to
have loan balances in excess of the resale value of the collateral, borrowers
may abandon the collateral property making repossession by the Company and
subsequent losses more likely.
During 1996, the Company sold certain performing and non-performing loans
as part of a bulk sale, including a majority of its manufactured home loan
portfolio, as well as certain RV loans, thereby significantly reducing its
credit risk exposure on these types of loans (see "Loan Originations and
Sales"). However, management expects that delinquencies in its consumer loan
portfolio may increase as RV loans continue to season. At December 31, 1996,
$318,000, or 1.2%, of the Company's consumer loan portfolio was non-performing
and $56,000 or 0.2% of such loans were restructured. There can be no assurances
that additional delinquencies will not occur in the future.
<PAGE>
Commercial Business Lending
The Company also originates commercial business loans, although the
origination of these types of loans has recently been de-emphasized by the Bank.
At December 31, 1996, commercial business loans comprised $6.8 million, or 2.7%
of the Company's gross loan portfolio. Most of the Company's commercial business
loans have been extended to finance local businesses and include primarily short
term loans to finance machinery and equipment purchases and, to a lesser extent,
inventory and accounts receivable. Loans made to finance inventory and accounts
receivable will only be made if the borrower secures such loans with the
inventory and/or receivables plus additional collateral acceptable to the
Company, generally real estate. Commercial loans also involve the extension of
revolving credit for a combination of equipment acquisitions and working capital
in expanding companies. At December 31, 1996, the largest commercial business
lending relationship consisted of eight loans to the Bennett Funding Group,
aggregating $3.6 million secured by various office equipment and the equipment
contracts between the borrower and its lessees. These loans were in default as
of December 31, 1996 as a result of a bankruptcy filing on March 29, 1996, and
the Bank reduced its recorded value to $1.9 million for such loans as of
December 31, 1996. For further discussion, see "Asset Quality - Non-Performing
Assets" herein, and "Management Discussion and Analysis of Financial Condition
and Results of Operations" contained in the Company's Annual Report.
The terms of loans extended on machinery and equipment are based on the
projected useful life of such machinery and equipment, generally not to exceed
seven years. Secured, non-mortgage lines of credit are available to borrowers
provided that the outstanding balance is paid in full (i.e.,the credit line has
a zero balance) for at least 30 days every year. In the event the borrower does
not meet this 30 day requirement, the line of credit is generally terminated and
the outstanding balance is converted into an amortizing loan.
Unlike residential mortgage loans, which generally are made on the basis of
the borrower's ability to make repayment from his or her employment and other
income and which are secured by real property, the value of which tends to be
more easily ascertainable, commercial business loans typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment of
commercial business loans may be substantially dependent on the success of the
business itself (which, in turn, is often dependent upon the general economic
environment). The Company's commercial business loans are usually, but not
always, secured by business assets. However, the collateral securing the loans
may depreciate over time, may be difficult to appraise and may fluctuate in
value based on the success of the business. As part of its commercial business
lending policy, the Company generally requires all borrowers with commercial
business loans to submit annual financial statements to the Company.
The Company's commercial business lending policy includes credit file
documentation and analysis of the borrower's character, capacity to repay the
loan, the adequacy of the borrower's capital and collateral as well as an
evaluation of conditions affecting the borrower. Consideration of the borrower's
cash flows is also an important aspect of the Company's current credit analysis.
The Company generally obtains personal guarantees on its commercial business
loans. Nonetheless, such loans are believed to carry higher credit risk than
more traditional thrift institution investments.
<PAGE>
The balances of these types of loans have declined from $9.7 million in
1995 to $6.8 million in 1996, due primarily to the bulk sale of certain
performing and non-performing loans, the partial charge-off of the Bennett
Funding Group loan relationship, as well as the general de-emphasis of this loan
type. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Management Strategy - Asset Quality" in the Annual
Report. The Company plans to continue to de-emphasize the origination of
commercial business loans, thereby reducing its credit risk exposure associated
with this type of lending.
Loan Originations and Sales
Loan originations are developed from continuing business with depositors
and borrowers, soliciting realtors, dealerships and mortgage brokers, as well as
walk-in customers. Loans are originated by the Company's staff of salaried loan
officers.
While the Company originates both fixed- and adjustable-rate loans, its
ability to originate loans is dependent upon demand for loans in its market.
Demand is affected by the local economy and interest rate environment. The
Company currently retains fixed-rate and adjustable-rate real estate loans it
originates in its portfolio. As a regular part of its business, the Company does
not sell loans and has not purchased any loans since 1989, except for one
$200,000 residential ARM loan it purchased from a mortgage banker in 1994.
During 1996, the Company completed the bulk sale of certain performing and
nonperforming loans in order to improve the credit quality of its loan
portfolio. See "Management Discussion and Analysis of Financial Condition and
Results of Operations" contained in the Company's Annual Report.
For the year ended December 31, 1996, the Company originated $81.4 million
of loans compared to $50.2 million and $91.2 million in 1995 and 1994,
respectively. Management attributes the high level of originations during 1994
to the sustained low interest rate environment prevalent during 1993 and the
first half of 1994, which caused many individuals to refinance their loans.
Similarly, management attributes the decrease in or the "leveling off" of loan
originations for 1995 to the sharp decline in refinancing as a result of a
generally rising interest rate environment since mid 1994. During 1996, the
Company increased its originations of one- to four-family mortgages through the
referrals of several local brokers. Primarily, these originations reflected a
resurgence of refinancings, which comprised approximately 67% of the Bank's
total
originations of one- to four family mortgages. Of the one- to four-family and
home equity originations, approximately $26.5 million were adjustable rate, and
$35.5 million were fixed rate loans.
In periods of economic uncertainty, the Company's ability to originate
large dollar volumes of real estate loans with acceptable underwriting
characteristics may be substantially reduced or restricted with a resultant
decrease in operating earnings.
<PAGE>
The following table shows the loan origination, loan sale and repayment
activities of the Company for the periods indicated.
Years Ended December 31,
--------------------------
1996 1995 1994
--------------------------
Origination by Type: (In Thousands)
Real estate-one- to four-family $47,691 $ 8,269 $56,014
-home equity 14,291 7,921 7,876
-multi-family 190 134 510
-non-residential 2,838 2,014 3,437
Non-real estate-consumer 7,735 18,359 17,207
-commercial business 8,681 13,472 6,174
------ ------ ------
Total loans originated 81,426 50,169 91,218
Repayments:
Principal repayments 52,741 58,374 48,504
Proceeds from sale of loans 18,929 --- ---
Other decreases, net (1) 11,653 3,385 1,780
------ ------ ------
Net increase (decrease) ($ 1,897) ($11,590) $40,934
======= ======= ======
- -----------------------------------
(1) Includes net charge-offs, transfers to real estate owned, and additions to
loan loss allowances.
Asset Quality
Generally, when a borrower fails to make a required payment on a loan
secured by residential real estate or consumer products, the Company initiates
collection procedures by mailing a delinquency notice after the account is 15
days delinquent. At 30 days delinquent, a personal letter is generally sent to
the customer requesting him or her to make arrangements to bring the loan
current. If the delinquency is not cured by the 45th day, the customer is
generally contacted by telephone and another personal letter is sent, with the
same procedure being repeated if the loan becomes 60 days delinquent. At 90 days
past due, a demand letter is generally sent. If there is no response, a final
demand letter for payment in full is sent, and unless satisfactory repayment
arrangements are made subsequent to the final demand letter, immediate
repossession or foreclosure procedures are commenced.
Similar collection procedures are employed for loans secured by commercial
real estate and commercial business collateral, except when such loans are 60
days delinquent, a letter is generally sent requesting rectification of the
delinquency within seven days, otherwise foreclosure or repossession procedures,
as applicable, are commenced.
<PAGE>
The following table sets forth the Company's loan delinquencies by type,
by amount and by percentage of type at December 31, 1996.
<TABLE>
<CAPTION>
--------------------------------------------------------------- Total Loans Delinquent
60-89 Days 90 Days and Over 60 Days or More
--------------------------------------------------------------- ------------------------------
% of Loan % of Loan % of Loan
Number Amount Category Number Amount Category Number Amount Category
-------- ------- --------- -------- ------- -------- -------- -------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One-to four-family --- $ --- ----% 16 $ 410 0.26% 16 $ 410 0.26%
Home Equity 1 21 0.09% --- --- ----% 1 21 0.09%
Multi-family --- --- ----% --- --- ----% --- --- ----%
Commercial 2 108 0.36% 7 907 3.03% 9 1,015 3.39%
Consumer 21 184 0.71% 33 262 1.02% 54 446 1.73%
Commercial Business 5 85 1.25% 15 2,269 33.27% 20 2,354 34.52%
-------- ------- --------- -------- ------- -------- -------- -------- ---------
Total 29 $398 0.16% 71 $3,848 1.54% 100 $4,246 1.70%
======== ======= ========= ======== ======= ======== ======== ======== =========
</TABLE>
<PAGE>
Non-Performing Assets
The table below sets forth the amounts and categories of non-performing
assets in the Company's total assets at the dates indicated. Loans are generally
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 and, as long as the loan remains on non-accrual status interest is
recognized only when received. Foreclosed assets include assets acquired in
settlement of loans. For further discussion of non-performing assets, and the
bulk sale of certain non-performing assets, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Asset Quality"
contained in the Annual Report.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
One- to four-family (1) $259 $1,525 $1,130 $1,705 $448
Multi-family --- 77 563 1,354 ---
Commercial real estate 339 1,549 4,096 2,937 2,669
Consumer 256 605 111 286 331
Commercial Business 2,269 743 404 684 1,563
---------- ---------- ---------- ---------- ----------
Total 3,123 4,499 6,304 6,966 5,011
---------- ---------- ---------- ---------- ----------
Accruing loans delinquent more
than 90 days:
One- to four-family (1) 151 261 480 396 803
Multi-family --- --- --- 54 ---
Commercial real estate 568 --- --- 67 1,230
Consumer 6 --- --- --- 2
Commercial Business --- --- --- --- ---
---------- ---------- ---------- ---------- ----------
Total 725 261 480 517 2,035
---------- ---------- ---------- ---------- ----------
Troubled debt restructured loans:
One- to four-family (1) 88 89 90 91 0
Multi-family 38 1,626 1,645 1,709 1,169
Commercial real estate 781 2,185 1,758 1,547 1,890
Consumer 56 84 62 3 23
Commercial Business 68 51 95 527 336
---------- ---------- ---------- ---------- ----------
Total 1,031 4,035 3,650 3,877 3,418
---------- ---------- ---------- ---------- ----------
Total non-performing loans: 4,879 8,795 10,434 11,360 10,464
---------- ---------- ---------- ---------- ----------
Foreclosed assets:
One- to four-family (1) 194 459 102 346 373
Multi-family 282 926 1,792 2,405 502
Commercial real estate --- 1,503 1,799 2,707 3,983
Consumer 239 281 111 42 64
Commercial Business --- --- --- --- ---
---------- ---------- ---------- ---------- ----------
Total 715 3,169 3,804 5,500 4,922
---------- ---------- ---------- ---------- ----------
Total non-performing assets $5,594 $11,964 $14,238 $16,860 $15,386
========== ========== ========== ========== ==========
Total as a percentage of total assets 1.18% 2.72% 4.15% 5.06% 4.76%
<FN>
- --------------------------------------
(1) Includes home equity loans
</FN>
</TABLE>
<PAGE>
For the year ended December 31, 1996, gross interest income which would
have been recorded had the year end non-accruing loans been current in
accordance with their original terms amounted to $477,000. The amount that was
included in interest income on such loans was $149,000, which represented actual
receipts.
Similarly, for the year ended December 31, 1996, gross interest income
which would have been recorded had the year end restructured loans paid in
accordance with their original terms amounted to $127,000. The amount that was
included in interest income for the year ended December 31, 1996 was $80,000.
Non-Accruing Assets
At December 31, 1996, the Company had $3.1 million in non-accruing loans,
which constituted 1.2% of the Company's gross loan portfolio. Except as
discussed immediately below, there were no non-accruing loans or aggregate
non-accruing loans-to-one-borrower in excess of $500,000.
The largest non-accruing loan or aggregate lending relationship at December
31, 1996, consisted of eight loans secured by various office equipment and the
equipment lease contracts between the borrower and its lessees. On March 29,
1996, the borrower, Bennett Funding Group, filed Chapter 11 bankruptcy. At that
time, the loan balances aggregated $3.6 million. During 1996, the Company
established reserves totaling $2.8 million. In the fourth quarter, $1.7 million
was charged against this reserve, reducing the recorded amount of these loans to
$1.9 million. Negotiations with the Bennett bankruptcy trustee related to the
Bank's total Bennett relationship are in process, and based upon discussions to
date, management believes that the remaining $1.1 million reserve is adequate.
Accruing Loans Delinquent More than 90 Days
As of December 31, 1996, the Company had $725,000 of accruing loans
delinquent more than 90 days. Of these loans, $151,000 were FHA insured or VA
guaranteed one- to four-family residential loans. The remaining $568,000
represented three commercial real estate loans for which management believes
that all contractual payments are collectible. Subsequent to December 31, 1996
these three loans were brought current.
Restructured Loans
As of December 31, 1996, the Company had restructured loans of $1.0 million
with one loan or aggregate lending relationship over $500,000 as discussed
below. The balance of the Company's restructured loans at that date consisted of
one one- to four-family residential mortgage loan, one multi-family real estate
loan, four commercial real estate loans, two consumer loans and three commercial
business loans.
<PAGE>
The Company's largest restructured loan or lending relationship at December
31, 1996, was a 58% loan participation interest, secured by a mixed use
office/apartment complex located in Syracuse, New York, on which the Company is
the lead lender. The loan participation was originated for $1.1 million in
February 1986 with a loan to value ratio of 67.0%. The loan had been
experiencing delinquencies since June 1993 due to cash flow problems caused by
high vacancy rates. In December 1993, the Company, based on an October 1993
appraisal, wrote-down the loan balance to $609,000 and in July 1994 restructured
the loan to reduce the principal balance outstanding and interest rate charged.
At December 31, 1996, the outstanding balance on the Company's participation
interest was $593,000. The office and apartment portions of the property at
December 31, 1996 were approximately 50% occupied. The rooms are rented on a
daily basis and the gross income from room rental increased 1% in 1996. The
loan, since being restructured, has performed according to the terms of the
restructuring.
Foreclosed Assets
As of December 31, 1996, the Company had $715,000 in carrying value of
foreclosed assets. Multi-family and commercial real estate represented 39.4% of
the Company's foreclosed property, which consisted solely of a three story,
54-unit, student housing project located in Morrisville, New York. Repossessed
consumer assets represented 33.4% of the Company's foreclosed properties,
consisting primarily of 18 manufactured homes and 13 recreational vehicles.
The student housing project loan referred to above was originated as a loan
to facilitate the sale of foreclosed property in 1985 for $1.4 million at a 100%
loan-to-value ratio. The Company reacquired this property through foreclosure in
April 1994. The apartment complex began experiencing vacancy problems when the
State University of New York at Morrisville stopped referring students to
off-campus housing and began requiring students to live on campus. The occupancy
rate of the housing project was approximately 28% during the 1995-1996 academic
year. Subsequent to December 31, 1996, the Company received a contract for sale
on this property, and expects a closing to take place in April 1997. This
property is being carried at a value equal to the estimated net sales proceeds.
Other Loans of Concern
As of December 31, 1996, there were $7.4 million of other loans not
included in the table or discussed above where known information about the
possible credit problems of borrowers caused management to have doubts as to the
ability of the borrower to comply with present loan repayment terms. Set forth
below is a description of the largest other loans of concern.
The largest other loan of concern at December 31, 1996, consisted of a
commercial real estate loan secured by a one-story light industrial facility in
Gates, New York. This loan was originated in May 1988 for $930,000 with a
loan-to-value ratio of 74.4%. The property has recently experienced tenant
vacancies and based on recent financial information submitted by the borrower,
the cash flow generated by this property has deteriorated. However, the borrower
has been able to keep the loan current by utilizing other sources of funds. As a
result, the Bank has requested additional financial information from the
guarantors on this loan, to assess their financial position, as the secondary
source of repayment on this lending relationship. At December 31, 1996, the
principal balance was $886,000.
<PAGE>
The second largest loan of concern at December 31, 1996, consisted of a
commercial real estate loan secured by an office building in Atlanta, Ga. This
loan was originated in 1987 with a loan-to-value ratio of 74%. Based on
financial information submitted by the borrower, the cash flow generated by this
property is insufficient to cover the debt service on this loan. At December 31,
1996, the principal balance was $848,000. Subsequent to this date, this loan has
been paid in full.
The third largest loan of concern at December 31, 1996, consisted of a
single use commercial property (a bowling facility and adjacent used car lot)
located in Schenectady, New York. This loan was originated in 1992 with a
loan-to-value ratio of 50%. Although the most recent financial information
received indicates that cash flow is adequate to service the debt on this loan,
the borrower's financial position has shown deterioration over the last few
years. The Bank has requested more recent financial statements from the borrower
and will continue to monitor the cash flow trends on this property. The
principal balance as of December 31, 1996 was $667,000.
The fourth largest loan of concern at December 31, 1996, consisted of a
multi-family real estate loan secured by a 32-unit apartment building located in
LeRoy, New York. This loan was originated in December 1989 with a loan-to-value
ratio of 72.2%. Although the property was 97% occupied based on a 1996 rent
roll, the cash flow generated by the property has deteriorated. However, the
borrower has been able to keep the loan current by utilizing other sources of
funds. As a result, the Bank has requested additional financial information from
the guarantors on this loan, to assess their financial position, as the
secondary source of repayment on this lending relationship. A recent property
inspection also noted the existence of deferred maintenance. At December 31,
1996, the principal balance was $645,000.
The fifth largest loan of concern at December 31, 1996, consisted of a
commercial real estate loan secured by a retail store/warehouse in Douglasville,
Georgia. This loan was originated in 1987 with a loan-to-value ratio of 78%. The
Bank has been unable to obtain current financial information from the borrower,
and therefore, cannot make any assumptions regarding the borrowers ability to
continue to service this debt in the future. The Bank continues to request
current financial information from the borrower. Also, a property inspection has
been completed subsequent to December 31, 1996 which indicates that the property
is in excellent condition and the value has remained stable, providing a
loan-to-value ratio at December 31, 1996 of 62%. At December 31, 1996, the
principal balance was $549,000.
All of the above mentioned loans were current at December 31, 1996.
There were no other loans with a balance in excess of $500,000 being
specially monitored by the Company as of December 31, 1996. The balance of other
loans of concern at that date consisted of 15 commercial and multi-family real
estate loans totaling $3.1 million, nine commercial business loans totaling
$484,000 and six one- to four-family mortgages totaling $193,000. These loans
have been considered by management in conjunction with the analysis of the
adequacy of the allowance for loan losses.
<PAGE>
Classified Assets
Federal regulations provide for the classification of loans and other
assets, such as debt and equity securities considered to be of lesser quality,
as "substandard," "doubtful" or "loss." An asset is considered "substandard" if
it is inadequately protected by the current net worth and paying capacity of the
obligor or of the collateral pledged, if any. "Substandard" assets include those
characterized by the "distinct possibility" that the insured institution will
sustain "some loss" if the deficiencies are not corrected. Assets classified as
"doubtful" have all of the weaknesses inherent in those classified
"substandard," with the added characteristic that the weaknesses present make
"collection or liquidation in full," on the basis of currently existing facts,
conditions, and values, "highly questionable and improbable." Assets classified
as "loss" are those considered "uncollectible" and of such little value that
their continuance as assets without the establishment of a specific loss reserve
is not warranted.
When an insured institution classifies problem assets as either substandard
or doubtful, it may increase general allowances for loan losses in an amount
deemed prudent by management to address the increased risk of loss on such
assets. General allowances represent loss allowances which have been established
to recognize the inherent risk associated with lending activities, but which,
unlike specific allowances, have not been allocated to particular problem
assets. When an insured institution classifies problem assets as "loss," it is
required either to establish a specific allowance for losses equal to 100% of
that portion of the asset so classified or to charge off such amount. An
institution's determination as to the classification of its assets and the
amount of its valuation allowances is subject to review and adjustment by the
OTS and the FDIC, which may order increases in general or specific loss
allowances.
In connection with the filing of its periodic reports with the OTS and in
accordance with its classification of assets policy, the Company regularly
reviews the problem assets in its portfolio to determine whether any assets
require classification in accordance with applicable regulations. On the basis
of management's review of its assets, at December 31, 1996, the Company had
classified $10.9 million as substandard, none as doubtful or loss.
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 loan
classifications discussed above, the estimated fair value, less estimated
disposal costs, of the underlying collateral, economic conditions, historical
loan loss experience, and other factors that warrant recognition in providing
for an adequate loan loss allowance.
<PAGE>
Real estate properties acquired through foreclosure are recorded at fair
value, less estimated disposal costs. If fair value at the date of foreclosure
is lower than the book balance of the related loan, the difference will be
charged to the allowance for loan losses at the time of transfer. Valuations of
the property are periodically updated by management and if the value declines, a
specific provision for losses on such property is established by a charge to
operations and the asset's recorded value is written down accordingly.
Although management believes that it uses the best information available to
determine the allowances, unforeseen market conditions could result in
adjustments and net earnings could be significantly affected if circumstances
differ substantially from the assumptions used in determining the level of the
allowance. Future additions to the Company's allowances will be the result of
periodic loan, property and collateral reviews and thus cannot be predicted in
advance. In addition, federal regulatory agencies, as an integral part of the
examination process, periodically review the Company's allowance for loan
losses. Such agencies may require the Company to recognize additions to the
allowance based upon their judgment of the information available to them at the
time of their examination. At December 31, 1996, the Company had a total
allowance for loan losses of $3.4 million, representing 70.5% of total
non-performing loans. See Note 5 of the Notes to Consolidated Financial
Statements.
<PAGE>
The following table sets forth an analysis of the Company's allowance for
loan losses.
<TABLE>
<CAPTION>
For the year
ended December 31,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $2,647 $2,235 $3,248 $3,089 $3,294
Charge-offs:
One- to four-family (1) (530) (31) (28) (24) ---
Multi Family (1,174) (171) (668) (257) ---
Commercial Real Estate (2,564) (568) (1,336) (641) (593)
Consumer (1,834) (400) (196) (409) (181)
Commercial Business (2,616) (46) (232) (399) (3)
----------- ----------- ----------- ----------- -----------
Total Charge offs (8,718) (1,216) (2,460) (1,730) (777)
Recoveries:
One- to four-family (1) 10 --- 27 13 ---
Multi Family --- 64 --- 1 ---
Commercial Real Estate --- 1 193 --- ---
Consumer 49 41 110 128 78
Commercial Business --- --- 10 58 4
----------- ----------- ----------- ----------- -----------
Total Recoveries 59 106 340 200 82
Net Charge-offs (8,659) (1,110) (2,120) (1,530) (695)
Provisions charged to operations 9,450 1,522 1,107 1,689 490
----------- ----------- ----------- ----------- -----------
Balance at end of period 3,438 2,647 2,235 3,248 3,089
=========== =========== =========== =========== ===========
Ratio of net charge-offs during
the period to average loans
outstanding during period 3.30% 0.42% 0.88% 0.65% 0.29%
====== ====== ====== ====== ======
Ratio of net charge-offs during
the period to average
non-performing assets 55.57% 8.45% 13.43% 9.92% 4.81%
====== ====== ====== ====== ======
<FN>
- -------------------------------------
(1) Includes home equity loans.
</FN>
</TABLE>
<PAGE>
The distribution of the Company's allowance for losses on loans at the
dates indicated is summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------------------------------------------------------------------------------------------------
Percent Percent Percent Percent Percent
Amount of loans Amount of loans Amount of loans Amount of loans Amount of loans
of in each of in each of in each of in each of in each
Loan category Loan category Loan category Loan category Loan category
Loss to total Loss to total Loss to total Loss to total Loss to total
Allowance loans Allowance loans Allowance loans Allowance loans Allowance loans
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family (1) $157 72.26% $268 60.18% $207 60.02% $175 59.41% $181 61.60%
Multi family and
commercial real
estate 1,599 13.84% 1,097 19.97% 1,260 21.18% 2,607 28.01% 2,123 27.97%
Construction and
development --- 0.89% --- 0.43% --- 1.84% --- 0.36% --- 0.92%
Consumer 355 10.29% 718 15.55% 454 13.65% 330 9.04% 294 6.18%
Commercial Business 1,327 2.72% 268 3.87% 114 3.31% 127 3.18% 491 3.33%
Unallocated --- ----% 296 ----% 200 ----% 9 ----% --- ----%
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
Total $3,438 100.00% $2,647 100.00% $2,235 100.00% $3,248 100.00% $3,089 100.00%
====== ======= ====== ======= ====== ======= ====== ======= ====== =======
<FN>
- -------------------------------
(1) Includes home equity loans.
</FN>
</TABLE>
<PAGE>
Investment Activities
The Bank must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations. Liquidity may increase or decrease depending upon
the availability of funds and comparative yields on investments in relation to
the return on loans. Historically, the Bank has maintained liquid assets at
levels above the minimum requirements imposed by the OTS regulations and above
levels believed adequate to meet the requirements of normal operations,
including potential deposit outflows. At December 31, 1996, the Bank's liquidity
ratio (liquid assets as a percentage of net withdrawable savings deposits and
current borrowings) was 7.51%. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the Annual Report
and "Regulation - Liquidity" contained herein.
In December 1995 the Company reclassified its entire portfolio of
investment and mortgage-backed securities to the available for sale category.
This reclassification was made in response to a one time transfer allowed by the
Financial Accounting Standards Board and the various federal banking regulators.
See Note 1(d) of the Notes to Consolidated Financial Statements contained in the
Annual Report.
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in investment grade
commercial paper and corporate debt securities and mutual funds whose assets
conform to the investments that a federally chartered savings institution is
otherwise authorized to make directly.
Generally, the investment policy of the Company is to invest funds among
various categories of investments and maturities based upon the Company's need
for liquidity, to achieve the proper balance between its desire to minimize risk
and maximize yield, to provide collateral for borrowings and to fulfill the
Company's asset/liability management policies. To date, the Company's investment
strategy has been directed toward high-quality mortgage-backed securities.
Substantially all of the mortgage-backed securities owned by the Company are
issued, insured or guaranteed either directly or indirectly by a federal agency.
At December 31, 1996, all of the Company's securities were classified as
available for sale. The fair market value (excluding FHLB stock) and amortized
cost of the Company's securities at December 31, 1996 was $200.5 million and
$200.7 million, respectively. For additional information on the Company's
securities, see Note 4 of the Notes to Consolidated Financial Statements in the
Annual Report.
<PAGE>
Mortgage-backed securities generally increase the quality of the Company's
assets by virtue of the insurance or guarantees that back them. Such securities
are more liquid than individual mortgage loans and may be used to collateralize
borrowings or other obligations of the Company. At December 31, 1996, $113.8
million or 72.8% of the Company's mortgage-backed securities were pledged to
secure various obligations of the Company.
While mortgage-backed securities carry a reduced credit risk as compared to
whole loans, such securities remain subject to the risk that a fluctuating
interest rate environment, along with other factors such as the geographic
distribution of the underlying mortgage loans, may alter the prepayment rate of
such mortgage loans and so affect both the prepayment speed, and value, of such
securities. The prepayment risk associated with mortgage-backed securities is
monitored periodically, and prepayment rate assumptions adjusted as appropriate
to update the Company's mortgage-backed securities accounting and
asset/liability reports. Classification of the Company's mortgage-backed
securities portfolio as available for sale is designed to minimize that risk.
At December 31, 1996, the contractual maturity of 88.8% of all of the
Company's mortgage-backed securities was in excess of ten years. The actual
maturity of the mortgage-backed security is typically less than its stated
maturity due to prepayments of the underlying mortgages. Prepayments that are
different than anticipated will affect the yield to maturity. The yield is based
upon the interest income and the amortization of any premium or discount related
to the mortgage-backed security. In accordance with generally accepted
accounting principles, premiums and discounts are amortized/accreted over the
estimated lives of the securities, which decrease and increase interest income,
respectively. The prepayment assumptions used to determine the
amortization/accretion period for premiums and discounts can significantly
affect the yield of the mortgage-backed security, and these assumptions are
reviewed periodically to reflect actual prepayments. Although prepayments of
underlying mortgages depend on many factors, including the type of mortgages,
the coupon rate, the age of mortgages, the geographical location of the
underlying real estate collateralizing the mortgages and general levels of
market interest rates, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
falling mortgage interest rates, if the coupon rate of the underlying mortgages
exceeds the prevailing market interest rates offered for mortgage loans,
refinancing generally increases and accelerates the prepayment of the underlying
mortgages and the related security. Under such circumstances, the Company may be
subject to reinvestment risk because to the extent that the Company's
mortgage-backed securities amortize or prepay faster than anticipated, the
Company may not be able to reinvest the proceeds of such repayments and
prepayments at a comparable rate.
<PAGE>
The following table sets forth the composition of the Company's securities
at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------------------
Carrying Carrying Carrying
Value (1) %of Total Value (1) %of Total Value (1) %of Total
------------ -------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Securities:
Federal Agency Obligations $ 43,773 21.65% $ 9,967 13.06% $ 10,000 18.17%
Municipal Bonds 505 0.25% --- ----% 239 0.43%
Other investment securities (2) --- ----% 11,422 14.97% 16,635 30.22%
Mortgage-backed securities 156,261 77.10% 53,033 69.49% 26,516 48.17%
----------- -------- ---------- -------- --------- --------
Total securities 200,539 99.00% 74,422 97.52% 53,390 96.99%
FHLB stock 2,029 1.00% 1,892 2.48% 1,656 3.01%
----------- -------- ---------- -------- --------- --------
Total securities, and $ 202,568 100.00% $ 76,314 100.00% $ 55,046 100.00%
FHLB stock ========== ======== ========== ======== ========= ========
Other interest-earning assets:
Interest-bearing deposits with banks $ 2,051 31.31% $ 5,259 6.39% $ 470 6.65%
Federal Funds Sold 4,500 68.69% 77,100 93.61% 6,600 93.35%
----------- -------- ---------- -------- ---------- --------
Total $ 6,551 100.00% $ 82,359 100.00% $ 7,070 100.00%
========== ======== ========== ======== ========= ========
<FN>
-------------------------------------
(1)At December 31, 1996 and 1995 debt security are classified as available for
sale and are carried at fair value, and at December 31, 1994 debt securities are
classified as held to maturity and are carried at amortized cost. The FHLB stock
is non-marketable and accordingly is carried at cost.
(2)Primarily comprised of debt securities of Fortune 500 companies initially
rated A or better. These securities generally contain greater risk than U.S.
Government securities and Federal agency obligations.
</FN>
</TABLE>
<PAGE>
The composition and contractual maturities of the securities portfolio (all
of which are categorized as available for sale), excluding FHLB stock, are
indicated in the following table. The Company's securities portfolio at December
31, 1996, contained no securities of any issuer with an aggregate book value in
excess of 10% of the Company's equity, excluding those issued by the United
States Government or its agencies. Securities are stated at their contractual
maturity date and does not reflect the effects of possible prepayments.
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------------------------------------------
Over One Over Five
One Year Year through Years through Over
or less Five Years Ten Years 10 Years Total Investment Securities
---------------------------------------------------------------------------------------
Amortized Cost Amortized Cost Amortized Cost Amortized Cost Amortized Cost Fair Value
---------------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Federal agency obligations $ --- $ 18,000 $ 13,000 $ 12,968 $ 43,968 $ 43,773
Other investment securities --- 250 250 --- 500 505
Mortgage-backed securities --- 11,044 6,403 138,744 156,191 156,261
------- ------- ------- ------- ------- -------
Total investment securities $ --- $ 29,294 $ 19,653 $151,712 $200,659 $200,539
======= ======= ======= ======= ======= =======
Weighted average yield .... ----% 5.99% 6.99% 7.72% 7.40% 7.40%
</TABLE>
Sources of Funds
General
The Company's primary sources of funds are deposits, borrowings,
amortization and prepayment of loan and mortgage-backed security principal,
maturities of investment securities, short-term investments, and funds provided
from operations.
Deposit
The Company offers a variety of deposit accounts having a range of interest
rates and terms. The Company's deposits consist of savings accounts, money
market accounts, transaction accounts, and certificate accounts currently
ranging in terms from 91 days to 60 months. The Company primarily solicits
deposits from its primary market area and at December 31, 1996, did not have
brokered deposits. The Company relies primarily on competitive pricing policies,
advertising and customer service to attract and retain these deposits. The
Company has utilized premiums and promotional gifts for new accounts in
connection with the opening of new branches or with club accounts. At times the
Company also uses small advertising give-aways in the aisles of the supermarkets
where it maintains branches. For information regarding average balances and rate
information on deposit accounts, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" in the Annual Report and for
information on the dollar amount of deposits in the various deposit types
offered by the Company, see Note 8 of the Notes to Consolidated Financial
Statements in the Annual Report.
<PAGE>
The flow of deposits is influenced significantly by general economic
conditions, changes in money market and prevailing interest rates, and
competition. The variety of deposit accounts offered by the Company has allowed
it to be competitive in obtaining funds and to respond with flexibility to
changes in consumer demand. The Company has become more susceptible to
short-term fluctuations in deposit flows, as customers have become more interest
rate conscious. The Company manages the pricing of its deposits in keeping with
its asset/liability management, liquidity and profitability objectives. Based on
its experience, the Company believes that its savings accounts, and transaction
accounts are relatively stable sources of deposits. However, the ability of the
Company to attract and maintain money market accounts, and certificates of
deposit and the rates paid on these deposits have been and will continue to be
significantly affected by market conditions.
The following table sets forth the savings flows at the Company during the
periods indicated. The net increase in deposits for the year ended December 31,
1995, was primarily the result of the Company's having opened two new branches
in November 1994 and May 1995 and the Company's decision to raise the interest
rates offered on six month certificates of deposit in order to replace borrowed
funds. Management believes that the decrease in deposits during 1996 was the
result, in part, to some of the Bank's depositors deciding to pursue alternative
opportunities, such as stock mutual funds, with a portion of their investable
funds.
Years Ended December 31,
--------------------------------
1996 1995 1994
---------- --------- ---------
(Dollars in thousands)
Opening balance $311,238 $293,152 $294,780
Deposits 860,011 841,042 807,373
Withdrawals 885,591 835,404 818,885
Interest credited 12,424 12,448 9,884
========== ========= =========
Ending balance $298,082 $311,238 $293,152
========== ========= =========
Net increase (decrease) ($13,156) $18,086 ($1,628)
=========== ======== =========
Percent increase (decrease) (4.23%) 6.17% (0.55%)
=========== ======== =========
<PAGE>
The following table shows rate and maturity information for the Company's
certificates of deposit as of December 31, 1996.
<TABLE>
<CAPTION>
Certificate Accounts 0.00- 4.01 - 6.01 - 8.01 - Percent
Maturing in Quarter Ending: 4.00% 6.00% 8.00 or greater Total of Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
March 31, 1997 $ 979 $ 33,387 $ 1,035 $ --- $ 35,401 23.30%
June 30, 1997 9 22,256 573 --- 22,838 15.03%
September 30, 1997 --- 17,006 1,625 --- 18,631 12.26%
December 31, 1997 6 13,251 931 --- 14,188 9.34%
March 31, 1998 --- 19,332 991 --- 20,323 13.38%
June 30, 1998 --- 9,384 2,668 --- 12,052 7.93%
September 30, 1998 --- 3,220 372 --- 3,592 2.36%
December 31, 1998 --- 2,407 23 --- 2,430 1.60%
March 31, 1999 --- 1,879 894 --- 2,773 1.83%
June 30, 1999 --- 1,758 880 --- 2,638 1.74%
September 30, 1999 --- 2,326 167 --- 2,493 1.64%
December 31, 1999 --- 1,287 1,132 --- 2,419 1.59%
Thereafter --- 3,373 8,781 --- 12,154 8.00%
Total $ 994 $130,866 $ 20,072 $ --- $151,932 100.00%
======== ======== ======== ======== ======== =======
Percent of Total 0.65% 86.13% 13.21% ----% 100.00%
======== ======== ======== ======== ========
</TABLE>
The following table indicates the amount of the Company's certificates of
deposit by time remaining until maturity as of December 31, 1996.
<TABLE>
<CAPTION>
Maturity
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
--------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Certificates of deposit
less than $100,000 $34,114 $21,591 $29,918 $55,109 $140,732
Certificates of deposit
of $100,000 or more 1,287 1,247 2,901 5,765 11,200
--------- -------- -------- -------- --------
Total certificates of deposit $35,401 $22,838 $32,819 $60,874 $151,932
========= ======== ======== ======== ========
</TABLE>
<PAGE>
Borrowings
Although deposits are the Company's primary source of funds, the Company's
policy generally has been to utilize borrowings when they are a less costly
source of funds, can be invested at a positive interest rate spread or when the
Company needs additional funds to satisfy loan demand.
The Company's borrowings historically have consisted of advances from the
FHLB of New York. Such advances can be made pursuant to several different credit
programs, each of which has its own interest rate and range of maturities. At
December 31, 1996, the Company had $6 million in FHLB advances. During 1996, the
Company significantly increased its other borrowings by $102.8 million. See Note
9 of the Notes to Consolidate Financial Statements contained in the Annual
Report. These borrowings were used to purchase various investments including
Federal agency obligations and mortgage-backed securities which were
simultaneously pledged as securities sold under agreements to repurchase. At
December 31, 1996, pledged securities totaled $113.8 million. The positive
interest rate spread between these volumes of investments and borrowings has
produced an increase of approximately $1.4 million in net interest income with a
narrowing in the Company's overall net interest margin from 3.87% for the year
ended December 31, 1995 to 3.66% for the year ended December 31, 1996. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Operating Results" contained in the Annual Report.
The following table sets forth the maximum month-end balance and average
balance of FHLB advances, securities sold under agreements to repurchase and
other borrowings for the periods indicated.
Years Ended December 31,
-----------------------------
1996 1995 1994
-------- -------- --------
(In thousands)
Maximum Balance:
FHLB Advances $ 28,000 $15,000 $15,000
Securities sold under agreements to repurchase 102,780 4,000 4,000
Average Balance:
FHLB Advances 9,757 3,922 4,068
Securities sold under agreements to repurchase 57,815 958 1,403
<PAGE>
The following table sets forth certain information as to the Company's
borrowings at the dates indicated:
December 31,
-----------------------------
1996 1995 1994
-------- -------- --------
(Dollars in thousands)
FHLB advances $ 6,000 $ --- $ 15,000
Securities sold under agreements to repurchase 102,780 --- 4,000
--------- -------- --------
Total borrowings $108,780 $ --- $ 19,000
========= ======== ========
Weighted average interest rate of FHLB advances 5.30% ----% 5.65%
Weighted average interest rate of securities sold
under agreements to repurchase 5.96% ----% 5.50%
Subsidiary and Other Activities
General
As a federally chartered savings association, the Bank is permitted by OTS
regulations to invest up to 2% of its assets, or $9.2 million at December 31,
1996, in the stock of, or loans to, service corporation subsidiaries. As of such
date, the Bank had no investments in service corporation subsidiaries. The Bank
may invest an additional 1% of its assets in service corporations where such
additional funds are used for inner-city or community development purposes and
up to 50% of its total capital in conforming loans to service corporations in
which it owns more than 10% of the capital stock. Federal associations also are
permitted to invest an unlimited amount in operating subsidiaries engaged solely
in activities which a federal association may engage in directly.
The Bank organized a single service corporation in 1984, which is known as
ASB Insurance Agency, Inc. ("ASB Insurance"). In November 1996, the Company
purchased the service corporation from the Bank for $1,000. ASB Insurance offers
mutual funds, annuity and brokerage services through a registered broker-dealer
to the Company's customers and members of the general public. ASB Insurance
recognized gross revenues of $67,500 for the year ended December 31, 1996.
<PAGE>
Regulation
General
The Bank, organized in 1886, is a federally chartered savings bank, the
deposits of which are federally insured and backed by the full faith and credit
of the United States Government. Accordingly, the Bank is subject to broad
federal regulation and oversight extending to all its operations. The Bank is a
member of the FHLB of New York and is subject to certain limited regulation by
the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
As the savings and loan holding company of the Bank, the Company also is subject
to federal regulation and oversight. The purpose of the regulation of the
Company and other holding companies is to protect subsidiary savings
associations. The Bank is a member of the Bank Insurance Fund, which is
administered by the FDIC. Its deposits are insured up to applicable limits by
the FDIC. As a result, the FDIC has certain regulatory and examination authority
over the Bank.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Association.
The OTS has extensive authority over the operations of savings
associations. As part of this authority, the Bank is required to file periodic
reports with the OTS and is subject to periodic examinations by the OTS, its
primary federal banking regulator, and the FDIC. The last regular OTS
examination of the Bank was as of December 31, 1996. When these examinations
are conducted by the OTS and the FDIC, the examiners, if they deem appropriate,
may require the Bank to provide for higher general or specific loan loss
reserves. All savings associations are subject to a semi-annual assessment,
based upon the savings association's total assets, to fund the operations of the
OTS. The Bank's OTS assessment for the fiscal year ended December 31, 1996, was
$89,600.
The OTS also has extensive enforcement authority over all federal savings
institutions and their holding companies, including the Bank and the Company.
This enforcement authority includes, among other things, the ability to assess
civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including the filing of misleading or untimely reports with the OTS.
Except under certain circumstances, public disclosure of final enforcement
actions by the OTS is required.
In addition, the investment, lending and branching authority of the Bank is
prescribed by federal laws and it is prohibited from engaging in any activities
not permitted by such laws. For instance, no savings institution may invest in
non-investment grade corporate debt securities. In addition, the permissible
level of investment by federal associations in loans secured by non-residential
real property may not exceed 400% of total capital, except with approval of the
OTS. Federal savings associations are also generally authorized to branch
nationwide. The Bank is in compliance with the noted restrictions.
<PAGE>
The Bank's general permissible lending limit for loans-to-one-borrower is
equal to the greater of $500,000 or 15% of unimpaired capital and surplus
(except for loans fully secured by certain readily marketable collateral, in
which case this limit is increased to 25% of unimpaired capital and surplus). At
December 31, 1996, the Bank's lending limit under this restriction was $6.9
million. Loans fully secured by certain readily marketable collateral may be
made for up to 25% of unimpaired capital and surplus, or $11.6 million. The Bank
is in compliance with the loans-to-one-borrower limitation.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an approved plan will subject the institution to further enforcement
action. The OTS and the other federal banking agencies have also proposed
additional guidelines on asset quality and earnings standards. No assurance can
be given as to whether or in what form the proposed regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC
The Bank is a member of the BIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines, by regulation or order, to pose a serious risk to the FDIC. The FDIC
also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices, or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums, based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium, while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions is made by the FDIC semi-annually.
<PAGE>
As is the case with the SAIF, the FDIC is authorized to adjust the
insurance premium rates for banks that are insured by the BIF, such as Amsterdam
Savings Bank, in order to maintain the reserve ratio of the BIF at 1.25% of BIF
insured deposits. As a result of the BIF reaching its statutory reserve ratio,
the FDIC revised the premium schedule for BIF insured institutions to provide a
range of 0.04% to 0.31% of deposits effective in the third quarter of 1995. In
addition, the BIF rates were further revised, effective January 1996, to provide
a range of 0% to 0.27% with a minimum annual assessment of $2,000. The insurance
premiums paid by institutions insured by the Savings Association Insurance Fund
(the "SAIF") were not adjusted, however, and remained at the range previously
applicable to both BIF and SAIF insured institutions which was .23% to .31% of
deposits. In addition, BIF insured institutions are required to contribute to
the cost if financial bonds were issued to finance the cost of resolving thrift
failures in the 1980s. Until the earlier of the year 2000 or when the BIF and
SAIF are merged, BIF deposits will only be assessed at a rate of 20% of the rate
for SAIF deposits. The rate currently set for BIF and SAIF deposits is 1.3 basis
points and 6.5 basis points, respectively.
On September 30, 1996 federal legislation was enacted that required the
SAIF to be recapitalized with a one-time assessment on virtually all SAIF
insured institutions, equal to 65.7 basis points on SAIF insured deposits
maintained by those institutions as of March 31, 1995. All of the Bank's
deposits are BIF insured, and therefore, this one-time assessment had no impact
on the Bank.
Regulatory Capital Requirements
Federally insured savings associations, such as the Bank, 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.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common shareholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At December 31, 1996, the Bank did not have any intangible
assets.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital. At December 31, 1996, the Bank had no subsidiaries.
<PAGE>
At December 31, 1996, the Bank had tangible capital of $46.2 million, or
10.0% of adjusted total assets, which is approximately $39.3 million above the
minimum requirement of 1.5% of adjusted total assets in effect on that date.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings association must maintain a core capital ratio of at
least 4% to be considered adequately capitalized unless its supervisory
condition is such to allow it to maintain a 3% ratio. At December 31, 1996, the
Bank had no intangibles which were subject to these tests.
At December 31, 1996, the Bank had core capital equal to $46.2 million, or
10.0% of adjusted total assets, which is $32.4 million above the minimum
leverage ratio requirement of 3% as in effect on that date.
The OTS risk-based requirement requires savings associations to have total
capital of at least 8% of risk-weighted assets. Total capital consists of core
capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital, plus general valuation loan and lease loss allowances
up to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be
used to satisfy the risk-based requirement only to the extent of core capital.
The OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At December 31, 1996, the Bank had
$2.5 million of general loss reserves included in risk-based capital, which
excludes $951,000 of general loss reserves which was in excess of the maximum of
1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for the
purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. The Bank had no such
exclusions from capital and assets at December 31, 1996.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.
<PAGE>
OTS regulations also require that every savings association with more than
normal interest rate risk exposure to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings association, greater than 2% of the present value of its
assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule provides for a two quarter lag between
calculating interest rate risk and recognizing any deduction from capital. The
rule will not become effective until the OTS evaluates the process by which
savings associations may appeal an interest rate risk deduction determination.
It is uncertain as to when this evaluation may be completed. Any savings
association with less than $300 million in assets and a total capital ratio in
excess of 12% is exempt from this requirement unless the OTS determines
otherwise.
On December 31, 1996, the Bank had total capital of $48.7 million
(including $46.2 million in core capital and $2.5 million in qualifying
supplementary capital) and risk-weighted assets of $198.0 million (including
$3.0 million in converted off-balance sheet assets); or total capital of 24.6%
of risk-weighted assets. This amount was $32.9 million above the 8% requirement
in effect on that date.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
<PAGE>
The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on the Bank
or the Company may have a substantial adverse effect on the Company's operations
and profitability. Company shareholders do not have preemptive rights, and
therefore, if the Company is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution of a
shareholder's percentage ownership of the Company.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations with
respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion.
Generally, savings associations, such as the Bank, that before and after
the proposed distribution meet their capital requirements, may make capital
distributions during any calendar year equal to the greater of 100% of net
income for the year-to-date plus 50% of the amount by which the lesser of the
association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. The Bank may pay
dividends in accordance with this general authority.
<PAGE>
Savings associations proposing to make any capital distribution need only
submit written notice to the OTS 30 days prior to such distribution. Savings
associations that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution, however, must obtain OTS
approval prior to making such distribution. The OTS may object to the
distribution during that 30-day notice period based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association may make a
capital distribution without notice to the OTS (unless it is a subsidiary of a
holding company) provided that it has a CAMEL 1 or 2 rating, is not of
supervisory concern, and would remain adequately capitalized (as defined in the
OTS prompt corrective action regulations) following the proposed distribution.
Savings associations that would remain adequately capitalized following the
proposed distribution but do not meet the other noted requirements must notify
the OTS 30 days prior to declaring a capital distribution. The OTS stated it
will generally regard as permissible that amount of capital distributions that
do not exceed 50% of the institution's excess regulatory capital plus net income
to date during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity
All savings associations, including the Bank, are required to maintain an
average daily balance of liquid assets equal to a certain percentage of the sum
of its average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less. For a discussion of what the Bank includes in
liquid assets, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations Liquidity and Capital Resources" in the Annual Report.
This liquid asset ratio requirement may vary from time to time (between 4% and
10%) depending upon economic conditions and savings flows of all savings
associations. At the present time, the minimum liquid asset ratio is 5%.
In addition, short-term liquid assets (e.g., cash, certain time deposits,
certain bankers acceptances and short-term United States Treasury obligations)
currently must constitute at least 1% of the association's average daily balance
of net withdrawable deposit accounts and current borrowings. Penalties may be
imposed upon associations for violations of either liquid asset ratio
requirement. At December 31, 1996, the Bank was in compliance with both
requirements, with an overall liquid asset ratio of 7.51% and a short-term
liquid assets ratio of 1.61%.
Accounting
An OTS policy statement applicable to all savings associations clarifies
and re-emphasizes that the investment activities of a savings association must
be in compliance with approved and documented investment policies and
strategies, and must be accounted for in accordance with GAAP. Under the policy
statement, management must support its classification of and accounting for
loans and securities (i.e., whether held for investment, sale or trading) with
appropriate documentation. OTS accounting regulations, which may be made more
stringent than GAAP by the OTS, require that transactions be reported in a
manner that best reflects their underlying economic substance and inherent risk
and that financial reports must incorporate any other accounting regulations or
orders prescribed by the OTS. The Bank is in compliance with these amended
rules.
<PAGE>
Qualified Thrift Lender Test
All savings associations, including the Bank, are required to meet a
qualified thrift lender ("QTL") test to avoid certain restrictions on their
operations. This test requires a savings association to have at least 65% of its
portfolio assets (as defined by regulation) in qualified thrift investments on a
monthly average for nine out of every 12 months on a rolling basis. As an
alternative, the savings association may maintain 60% of its assets in those
assets specified under Section 7701(a)(19) of the Internal Revenue Code. Under
either test, such assets primarily consist of residential housing related loans
and investments. At December 31, 1996, the Bank met the test and has always met
the test since its effectiveness.
Any savings association that fails to meet the QTL test must convert to a
national bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of the
Bank, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by the Bank. An
unsatisfactory rating may be used as the basis for the denial of an application
by the OTS.
<PAGE>
The federal banking agencies, including the OTS, have recently revised the
CRA regulations and the methodology for determining an institution's compliance
with the CRA. Due to the heightened attention being given to the CRA in the past
few years, the Bank may be required to devote additional funds for investment
and lending in its local community. The Bank was last examined for CRA
compliance in June 1996 and received a rating of "satisfactory".
Transactions with Affiliates
Generally, transactions between a savings association or its subsidiaries
and its affiliates are required to be on terms as favorable to the association
as transactions with non-affiliates. In addition, certain of these transactions,
such as loans to an affiliate, are restricted to a percentage of the
association's capital. Affiliates of the Bank include the Company and any
company which is under common control with the Bank. In addition, a savings
association may not lend to any affiliate engaged in activities not permissible
for a bank holding company or acquire the securities of most affiliates. The
Bank's subsidiaries are not deemed affiliates; however, the OTS has the
discretion to treat subsidiaries of savings associations as affiliates on a case
by case basis.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
Holding Company Regulation
The Company is a unitary savings and loan holding company subject to
regulatory oversight by the OTS. As such, the Company is required to register
and file reports with the OTS and is subject to regulation and examination by
the OTS. In addition, the OTS has enforcement authority over the Company and its
non-savings association subsidiaries, which authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings association.
<PAGE>
As a unitary savings and loan holding company, the Company generally is not
subject to activity restrictions. If the Company acquires control of another
savings association as a separate subsidiary, it would become a multiple savings
and loan holding company, and the activities of the Company and any of its
subsidiaries (other than the Bank or any savings association) would become
subject to activity restrictions unless such other associations each qualify as
a QTL and were acquired in a supervisory acquisition.
If the Bank fails the QTL test, the Company must obtain the approval of the
OTS prior to continuing after such failure, directly or through its other
subsidiaries, any business activity other than those approved for multiple
savings and loan holding companies or their subsidiaries. In addition, within
one year of such failure the Company must register as, and will become subject
to, the restrictions applicable to bank holding companies. The activities
authorized for a bank holding company are more limited than are the activities
authorized for a unitary or multiple savings and loan holding company. See
"Qualified Thrift Lender Test."
The Company must obtain approval from the OTS before acquiring control of
any savings association. Such acquisitions are generally prohibited if they
result in a multiple savings and loan holding company controlling savings
associations in more than one state. However, such interstate acquisitions are
permitted based on specific state authorization or in a supervisory acquisition
of a failing savings association.
Federal Securities Law
The stock of the Company is registered with the SEC under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Company is subject to
the information, proxy solicitation, insider trading restrictions and other
requirements of the SEC under the Exchange Act.
Company stock held by persons who are affiliates (generally officers,
directors and principal shareholders) of the Company may not be resold without
registration or unless sold in accordance with certain resale restrictions set
forth under Rule 144 of the Securities Act. If the Company meets specified
current public information requirements, each affiliate of the Company is able
to sell in the public market, without registration, a limited number of shares
in any three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to maintain
non-interest bearing reserves at specified levels against their transaction
accounts (primarily checking, NOW and Super NOW checking accounts). At December
31, 1996, the Bank was in compliance with these reserve requirements. The
balances maintained to meet the reserve requirements imposed by the Federal
Reserve Board may be used to satisfy liquidity requirements that may be imposed
by the OTS. See "Liquidity."
<PAGE>
Savings associations are authorized to borrow from the Federal Reserve
Bank "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Bank.
Federal Home Loan Bank System
The Bank is a member of the FHLB of New York, which is one of 12 regional
FHLBs that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within its assigned region. It is funded primarily from proceeds derived from
the sale of consolidated obligations of the FHLB System. It makes loans to
members (i.e., advances) in accordance with policies and procedures established
by the board of directors of the FHLB, which are subject to the oversight of the
Federal Housing Finance Board. All advances from the FHLB are required to be
fully secured by sufficient collateral as determined by the FHLB. In addition,
all long-term advances are required to be used to provide funds for residential
home financing.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of New York. At December 31, 1996, the Bank had $2.0 million in FHLB stock,
which was in compliance with this requirement. In past years, the Bank has
received substantial dividends on its FHLB stock. Over the past five calendar
years such dividends have averaged 8.0% and were $130,000 or 6.4% for 1996.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of the Bank's FHLB stock may result in a corresponding
reduction in the Bank's capital.
Federal Taxation
Savings associations such as the Bank that meet certain definitional tests
relating to the composition of assets and other conditions prescribed by the
Internal Revenue Code of 1986, as amended (the "Code"), are permitted to
establish reserves for bad debts and to make annual additions thereto which may,
within specified formula limits, be taken as a deduction in computing taxable
income for federal income tax purposes. The amount of the bad debt reserve
deduction is computed under the experience method. Under the experience method,
the bad debt reserve deduction is an amount determined under a formula based
generally upon the bad debts actually sustained by the savings association over
a period of years.
<PAGE>
In addition to the regular income tax, corporations, including savings
associations such as the Bank, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income. For taxable years beginning
after 1986 and before 1996, corporations, including savings associations such as
the Bank, are also subject to an environmental tax equal to 0.12% of the excess
of alternative minimum taxable income for the taxable year (determined without
regard to net operating losses and the deduction for the environmental tax) over
$2 million.
To the extent prior years earnings appropriated to a savings association's
bad debt reserves for "qualifying real property loans" and deducted for federal
income tax purposes exceed the allowable amount of such reserves computed under
the experience method and to the extent of the association's supplemental
reserves for losses on loans ("Excess"), such Excess may not, without adverse
tax consequences, be utilized for the payment of cash dividends or other
distributions to a shareholder (including distributions on redemption,
dissolution or liquidation) or for any other purpose (except to absorb bad debt
losses). As of December 31, 1996, the Bank's Excess for tax purposes totaled
approximately $162,000.
The Bank and its subsidiaries file consolidated federal income tax returns
on a fiscal year basis using the accrual method of accounting. The Company
intends to file consolidated federal income tax returns with the Bank and its
subsidiaries.
The Bank and its consolidated subsidiaries have been audited by the IRS
with respect to consolidated federal income tax returns through December 31,
1988. With respect to years examined by the IRS, either all deficiencies have
been satisfied or sufficient reserves have been established to satisfy asserted
deficiencies. In the opinion of management, any examination of still open
returns (including returns of subsidiaries and predecessors of, or entities
merged into, the Bank) would not result in a deficiency which could have a
material adverse effect on the financial condition of the Bank and its
consolidated subsidiaries.
<PAGE>
New York Taxation
The Bank and its subsidiaries that operate in New York are subject to New
York state taxation. The Bank is subject to the New York State Franchise Tax on
Banking Corporations in an annual amount equal to the greater of (i) 9% of the
Bank's "entire net income" allocable to New York State during the taxable year,
or (ii) the applicable alternative minimum tax. The alternative minimum tax is
generally the greater of (a) 0.01% of the value of the Bank's assets allocable
to New York State with certain modifications, (b) 3% of the Bank's "alternative
entire net income" allocable to New York State, or (c) $250. In addition, New
York also imposes a surtax of approximately 3% on the applicable tax described
above. The surtax is scheduled to expire in 1996. Entire net income is similar
to federal taxable income, subject to certain modifications (including the fact
that net operating losses cannot be carried back or carried forward) and
alternative entire net income is equal to entire net income without certain
modifications. The Bank and its consolidated subsidiaries have been audited by
the New York State Department of Taxation and Finance through December 31, 1994.
Delaware Taxation
As a Delaware holding company, the Company is exempted from Delaware
corporate income tax but is required to file an annual report with and pay an
annual fee to the State of Delaware. The Company is also subject to an annual
franchise tax imposed by the State of Delaware.
Competition
The Company faces strong competition, both in originating real estate and
other loans and in attracting deposits. Competition in originating real estate
loans comes primarily from other savings institutions, commercial banks, credit
unions and mortgage brokers making loans secured by real estate located in the
Company's primary market area. Other savings institutions, commercial banks,
credit unions and finance companies provide vigorous competition in consumer
lending.
The Company attracts substantially all of its deposits through its branch
offices, primarily from the communities in which those branch offices are
located; therefore, competition for those deposits is principally from mutual
funds and other savings institutions, commercial banks and credit unions located
in the same communities. The Company competes for these deposits by offering a
variety of deposit accounts at competitive rates, convenient business hours, and
convenient branch locations with interbranch deposit and withdrawal privileges.
Automated teller machine facilities are also available.
Employees
At December 31, 1996, the Company had a total of 172 employees, including
28 part-time employees. The Company's employees are not represented by any
collective bargaining group. Management considers its employee relations to be
good.
<PAGE>
Executive Officers of the Company and the Bank Who Are Not Directors
The following information as to the business experience during the past
five years is supplied with respect to the executive officers of the Company and
the Bank who do not serve on the Company's or the Bank's Board of Directors.
There are no arrangements or understandings between such persons named and any
persons pursuant to which such officers were selected.
Harold A. Baylor, Jr. Mr. Baylor, age 54, is Vice President and the
Treasurer of the Company and the Bank, positions he has held with the Company
since June 1995 and with the Bank since 1990 and 1987, respectively.
Robert Kelly. Mr. Kelly, age 50, is Vice President, Secretary and General
Counsel to the Company, positions he has held with the Company since its
incorporation in June 1995. Mr. Kelly has been Vice President and General
Counsel to the Bank since July 1994. In January 1995 he was appointed Secretary
of the Bank. Prior to joining the Bank in 1994, Mr. Kelly was self-employed in
the general practice of law in the State of New York.
Nancy S. Virkler. Ms. Virkler, age 47, is Vice President of Operations at
the Bank. She was appointed Vice President in June 1994. Ms. Virkler has served
the Bank in various capacities since she began as a management trainee in 1977.
Richard C. Edel. Mr. Edel, age 47, is a Vice President of the Bank, a
position he has held since 1987. Mr. Edel is also currently serving as the
Community Reinvestment Act Officer of the Bank.
Cynthia M. Proper. Ms. Proper, age 34, was appointed Vice President and
Director of Lending of the Bank in July 1995. Prior to such appointment, Ms.
Proper was the Director of Internal Audit. She also served the Bank in various
other capacities, primarily in the lending and savings areas. Ms. Proper has
been employed at the Bank since 1985.
Michelle G. Brown. Ms. Brown, age 29, is Vice President and the Director of
Human Resources of the Bank, positions she has held since June 1994. Ms. Brown
joined the Bank in June 1992 as the Director of Internal Audit. Prior to joining
the Bank, Ms. Brown was a District Financial Examiner with the National Credit
Union Administration.
Item 2. Description of Property
The Company conducts its business at its main office, eight other banking
offices and an operations office in its primary market area. The following table
sets forth information relating to each of the Company's offices as of December
31, 1996. The Company also owns a parking lot located at 18-22 Division Street,
Amsterdam, New York, which is used to service the main office. The net book
value of the Company's premises and equipment (including land, building and
leasehold improvements and furniture, fixtures and equipment) at December 31,
1996 was $2.8 million. See Note 7 of Notes to Consolidated Financial Statements
in the Annual Report. The Company believes that its current facilities are
adequate to meet the present and foreseeable needs of the Bank and the Company,
subject to possible future expansion.
<PAGE>
<TABLE>
<CAPTION>
Total
Owned Lease Approximate
Date or Expiration Square Net Book
Acquired Leased Date Footage Value
-------- ------ -------- -------- -------
<C> <C> <C> <C> <C> <C>
Location
Main Office:
11 Division Street 1914 Owned -- 18,600 $ 418,965
Amsterdam, New York
Branch Offices:
19 River Street 1972 Leased 1997 2,000 19,554
Fort Plain, New York
Arterial at Fifth Avenue 1979 Owned -- 2,200 272,200
Gloversville, New York
Route 30N 1972 Owned -- 2,700 249,828
Amsterdam, New York
Village Plaza 1987 Leased 1997 4,000 46,643
Clifton Park, New York
Grand Union Plaza 1988 Leased 2008 3,000 134,473
Route 50
Balston Spa, New York
Price Chopper Supermarket (1) 1994 Leased 1999 362 154,923
1640 Eastern Parkway
Schenectady, New York
Price Chopper Supermarket (1) 1995 Leased 2000 384 179,526
873 New Loudon Road
Latham, New York
Price Chopper Supermarket (1) 1995 Leased 2000 326 159,905
Sanford Farms Shopping Center
Amsterdam, New York
Operations Center:
35 East Main Street 1993 Owned -- 10,800 1,148,050
Amsterdam, New York
<FN>
- --------------------
(1) Banking operations are located inside of the supermarkets. Each of these
leases contains two 5 year renewal options.
</FN>
</TABLE>
The Company maintains an on-line data base with a service bureau servicing
financial institutions. The net book value of the data processing and computer
equipment utilized by the Company at December 31, 1996, was $292,473.
<PAGE>
Item 3. Legal Proceedings
The Company is involved as plaintiff or defendant in various legal actions
arising in the normal course of its business. While the ultimate outcome of
these proceedings cannot be predicted with certainty, it is the opinion of
management, after consultation with counsel representing the Company in the
proceedings, that the resolution of these proceedings should not have a material
effect on the Company's results of operations. For more information, see Note
13(a) of the Notes to Consolidated Financial Statements contained in the Annual
Report.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the quarter ended December 31,
1996.
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters
Page 58 of the Annual Report is herein incorporated by reference.
Item 6. Selected Financial Data
Pages 2 and 3 of the Annual Report is herein incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Pages 4 through 21 of the Annual Report are herein incorporated by
reference.
Item 8. Financial Statements and Supplementary Data
Pages 22 through 57 of the Annual Report are herein incorporated by
reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
There has been no Current Report on Form 8-K filed within 24 months prior
to the date of the most recent financial statements reporting a change of
accountants and/or reporting disagreements on any matter of accounting principle
or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning Directors of the Registrant is incorporated herein
by reference from the Corporation's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on May 23, 1997, except for
information contained under the heading "Compensation Committee Report on
Executive Compensation" and "Shareholder Return Performance Presentation", a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
Item 11. Executive Compensation
Information concerning executive compensation is incorporated herein by
reference from the Corporation's definitive Proxy Statement for the Annual
Meeting of Shareholders scheduled to be held on May 23, 1997, except for
information contained under the heading "Compensation Committee Report on
Executive Compensation" and "Shareholder Return Performance Presentation", a
copy of which will be filed not later than 120 days after the close of the
fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning security ownership of certain beneficial owners and
management is incorporated herein by reference from the Corporation's definitive
Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on
May 23, 1997, except for information contained under the heading "Compensation
Committee Report on Executive Compensation" and "Shareholder Return Performance
Presentation", a copy of which will be filed not later than 120 days after the
close of the fiscal year.
Item 13. Certain Relationships and Related Transactions
Information concerning certain relationships and transactions is
incorporated herein by reference from the Corporation's definitive Proxy
Statement for the Annual Meeting of Shareholders scheduled to be held on May 23,
1997, except for information contained under the heading "Compensation Committee
Report on Executive Compensation" and "Shareholder Return Performance
Presentation", a copy of which will be filed not later than 120 days after the
close of the fiscal year.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) (1) Financial Statements:
The following information appearing in the Registrant's Annual Report to
Shareholders for the year ended December 31, 1996, is incorporated by reference
in this Form 10-K Annual Report as Exhibit 13.
Pages in
Annual
Annual Report Section Report
--------------------- --------
Independent Auditors' Report ........................................ 22
Consolidated Statements of Financial Condition at
December 31, 1996 and 1995 ..................................... 23
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 ............................... 24
Consolidated Statements of Changes in Shareholders' Equity for
the years ended December 31, 1996, 1995 and 1994 ............... 25
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 ............................... 26-27
Notes to Consolidated Financial Statements .......................... 28-57
(a) (2) Financial Statement Schedules:
All financial statement schedules have been omitted as the information is
not required under the related instructions or is inapplicable.
<PAGE>
(a) (3) Exhibits:
<TABLE>
<CAPTION>
Reference to
Regulation Prior Filing or
S-K Exhibit Exhibit Number
Number Document Attached Hereto
<S> <C> <C>
2 Plan of acquisition, reorganization, arrangement, None
liquidation or succession
3 Certificate of Incorporation and Bylaws *
4 Instruments defining the rights of security *
holders, including indentures
9 Voting trust agreement None
10.1 Employment Agreements of Robert J. Brittain, *
Harold A. Baylor, Jr., Richard C. Edel, Nancy
S. Virkler, Cynthia M. Proper and Robert Kelly
10.2 Employee Stock Ownership Plan *
11 Statement re: computation of per share earnings **
12 Statement re: computation or ratios Not required
13 Annual Report to Security Holders 13
16 Letter re: change in certifying accountants None
18 Letter re: change in accounting principles None
21 Subsidiaries of Registrant 21
22 Published report regarding matters submitted to None
vote of security holders
23 Consent of experts and counsel None
24 Power of Attorney Not Required
27 Financial Data Schedule 27
99 Additional exhibits None
<FN>
- -------------------
*Filed on September 7, 1995, as exhibits to the Registrant's Form S-1
registration statement (Registration No. 33-96654), pursuant to the Securities
Act of 1933. All of such previously filed documents are hereby incorporated
herein by reference in accordance with Item 601 of Regulation S-K.
**See Notes to Consolidated Financial Statements, Note 1(n) contained in
the Company's Annual Report.
</FN>
</TABLE>
(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.
Current reports on from 8-K were filed on January 15, 1997 for:
(ii) December 13, 1996 press release announcing its intentions to
commence a 10% stock repurchase program; and approval to open a
new branch.
(iii) December 23, 1996 press release announcing the sale of loans and
foreclosed real estate and increased provisions for loan losses.
(iv) January 13, 1997 press release announcing the completion of the
10% stock repurchase.
<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.
Date: April 15, 1997 By: /s/ Robert J. Brittain
------------------------------ ----------------------
Robert J. Brittain, President
and Chief Executive Officer
(Duly Authorized Representative)
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
/s/ Robert J. Brittain /s/ Paul W. Baker
- ----------------------------------- -------------------------------------
Robert J. Brittain , President Paul W. Baker, Chairman of the Board
and Chief Executive Officer
(Principal Executive Officer)
Date: April 15, 1997 Date: April 15, 1997
----------------------------- --------------------------------
/s/ William A. Wilde, Jr. /s/ Lauren T. Barnett
- ----------------------------------- -------------------------------------
William A. Wilde, Jr., Director Lauren T. Barnett, Director
Date: April 15, 1997 Date: April 15, 1997
----------------------------- --------------------------------
/s/ Robert J. Dunning /s/ Carl A. Schmidt, Jr.
- ----------------------------------- -------------------------------------
Robert J. Dunning, DDS, Director Carl A. Schmidt, Jr., Director
Date: April 15, 1997 Date: April 15, 1997
----------------------------- --------------------------------
/s/ Charles S. Pedersen /s/ Lionel H. Fallows
- ----------------------------------- -------------------------------------
Charles S. Pedersen, Director Lionel H. Fallows, Director
Date: April 15, 1997 Date: April 15, 1997
----------------------------- --------------------------------
/s/ John J. Daly /s/ Harold A. Baylor, Jr.
- ----------------------------------- -------------------------------------
John J. Daly, Director Harold A. Baylor, Jr., Vice
President and Treasurer (Principal
Financial and Accounting Officer)
Date: April 15, 1997 Date: April 15, 1997
----------------------------- --------------------------------
<PAGE>
Index to Exhibits
Exhibit
Number
- -------
13 Annual Report to Security Holders
21 Subsidiaries of the Registrant
27 Financial Data Schedule
EXHIBIT 13
1996 ANNUAL REPORT
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
----
President's Message to Stockholders .................................... 1
Selected Consolidated Financial Information ............................ 2
Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................... 4
Independent Auditors' Report ........................................... 22
Consolidated Statements of Financial Condition ......................... 23
Consolidated Statements of Income ...................................... 24
Consolidated Statements of Changes in Shareholders' Equity ............. 25
Consolidated Statements of Cash Flows .................................. 26
Notes to Consolidated Financial Statements ............................. 28
Corporate and Stockholder Information .................................. 58
Directors and Executive Officers ....................................... 60
<PAGE>
A MESSAGE FROM THE PRESIDENT
- ----------------------------
To Our Stockholders
I am pleased to present the 2nd Annual Report to Stockholders of Ambanc
Holding Co., Inc., the parent holding company of Amsterdam Savings Bank, FSB.
Last year I told you that we would remain focused on providing a positive return
on your investment. As you review the Annual Report you will see that we have
been faithful to that promise. Two stock repurchases during 1996, totaling
1,030,227 shares, have reduced the company's outstanding shares to 4,392,023.
This has given added value to the investor, and represents a solid investment in
the company's future. The Proxy Statement contains a graph which will illustrate
the increase in market price per share of the company's stock which occurred
during 1996. We believe that this is an indication of the positive results of
our efforts.
I also told you last year that we are committed to a solid and steady
future and that we would use the capital raised in the initial stock offering to
expand customer services and utilize new technological developments. We have
also kept that promise. Three new branch locations were secured in 1996, and all
three will be opening for business in 1997. The new branch office in
Guilderland, New York will be strategically located to serve our Albany and
Schenectady customer base, in a newly constructed building, equipped with
state-of-the-art electronic facilities and customer friendly furnishings.
Construction is expected to be complete by mid-May 1997. The other two new
locations will be in our Saratoga market area and will be super marketbranches.
The opening date for both of these branches is April 14, 1997. We have also
confirmed our commitment to the utilization of new technology by establishing a
home page on the Internet. Our customers are now able to obtain current
information about the bank's products and services "on-line" without leaving the
comfort of their homes.
Our biggest challenge for the future is to successfully compete with larger
institutions for a profitable share of the Capital District market area. We
believe that the key to meeting this challenge is to continue to do what we have
always done the best -- deliver competitively priced products and services to
our customers on a person-to-person basis. In our first full year as a single
bank holding company we have built on the bank's heritage (dating back to 1886)
of strength, stability and personal service. We have stood the test of time and
boldly face the future with pride and confidence that we will meet the challenge
of providing maximum shareholder value, growth, improvement and focus on the
future.
The support of our shareholders (many of whom are also our customers) and
their continuous referrals of friends and neighbors is important to our growth
and profitability. I would like to express my heartfelt gratitude to all of you
and to our employees, officers, directors and customers for your ongoing loyalty
and support.
Very truly yours,
Robert J. Brittain
President and Chief Executive Officer
1
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
Set forth below are selected consolidated financial and other data of the
Company. This financial data is derived in part from, and should be read in
conjunction with, the Consolidated Financial Statements and Notes to the
Consolidated Financial Statements of the Company presented elsewhere in this
Annual Report.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------
(In thousands)
Selected Consolidated
Financial Condition Data:
- -------------------------
<S> <C> <C> <C> <C> <C>
Total assets $472,421 $438,944 $343,334 $332,902 $323,492
Loans receivable, net 248,094 249,991 261,581 220,647 244,437
Securities, available for sale 200,539 74,422 --- --- ---
Securities, held to maturity --- --- 53,390 57,797 36,767
Deposits 298,082 311,239 293,152 294,780 297,849
Total borrowings 108,780 --- 19,000 --- ---
Total equity 61,518 76,015 27,414 25,464 22,783
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------
(In thousands)
Selected Consolidated
Operations Data:
- ---------------------
<S> <C> <C> <C> <C> <C>
Total interest income $32,348 $25,582 $23,806 $23,789 $26,661
Total interest expense 16,435 12,746 10,192 10,885 14,332
-------- -------- -------- ------- --------
Net interest income 15,913 12,836 13,614 12,904 12,329
Provision for loan losses 9,450 1,522 1,107 1,689 490
-------- -------- -------- ------- --------
Net interest income after provision
for loan losses 6,463 11,314 12,507 11,215 11,839
Fees and service charges 764 783 642 679 605
Gain (loss) on sales and
redemptions of securities (102) 225 --- --- 5
Other noninterest income 258 504 263 517 451
-------- -------- -------- ------- --------
Total noninterest income 920 1,512 905 1,196 1,061
Total noninterest expense 13,148 11,383 11,340 9,659 8,833
-------- -------- -------- ------- --------
Income (loss) before taxes and
cummulative effect of a change
in accounting principle (5,765) 1,443 2,072 2,752 4,067
Income tax provision (benefit) (1,929) 586 122 671 1,568
Cummulative effect of a change
in accounting principle related to
SFAS No. 109 --- --- --- 600 ---
-------- -------- -------- ------- --------
Net income (loss) ($3,836) $857 $1,950 $2,681 $2,499
======== ======== ======== ======= ========
(Loss) per share (1) ($0.81) N/A N/A N/A N/A
<FN>
(1) Loss per share was calculated net of unearned ESOP shares. Average shares
outstanding for the year 1996 were 4,761,393. Per share earnings were not
calculated for the comparable periods since the Company had no stock outstanding
prior to its initial public offering completed on December 26, 1995.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1996 1995 1994 1993 1992
------------------------------------------------------
Selected Consolidated Financial
Ratios and Other Data:
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (0.84%) 0.25% 0.59% 0.83% 0.79%
Return on average equity (1) (5.24) 3.00 7.36 11.00 11.68
Interest rate spread information:
Average during period 2.74 3.36 4.01 3.85 3.66
Net interest margin (2) 3.66 3.87 4.34 4.19 4.08
Efficiency Ratio (3) 62.88 68.18 63.46 61.06 60.88
Ratio of operating expense to average
total assets 2.86 3.37 3.38 2.97 2.74
Ratio of average interest-earning assets
to average interest-bearing liabilities 124.26 113.31 110.24 109.53 108.84
Asset Quality Ratios:
Non-performing assets to total assets
at end of period 1.18 2.72 4.15 5.06 4.76
Non-performing loans to total loans 1.94 3.48 3.97 5.07 4.23
Allowance for loan losses to non-
performing loans 70.47 30.10 21.42 28.59 29.52
Allowance for loan losses to total
loans receivable 1.37 1.05 0.85 1.47 1.27
Capital Ratios:
Equity to total assets at end of period (1) 13.02 17.32 7.98 7.65 7.04
Average equity to average assets (1) 15.95 8.30 7.96 7.52 6.76
Other Data:
Number of full-service offices 9 9 7 6 6
- --------------------------------------
<FN>
(1) Period end and average asset and equity amounts reflect securities available
for sale at fair value, with net unrealized gains/losses, net of tax, included
as a component of equity.
(2) Net interest income divided by average interest-earning assets
(3) The efficiency ratio represents operating expenses (excluding real estate
owned and repossessed asset expense of $2.6 million, $1.6 million, $2.1 million,
$1.0 million and $534,000 for the fiscal years ended December 31, 1996, 1995,
1994, 1993, and 1992 respectively), divided by the sum of net interest income
and non-interest income.
</FN>
</TABLE>
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
The most significant events of the 1996 fiscal year were: (i) the
completion of the Company's two 10% stock repurchase programs, which resulted in
the buy-back of 1,030,227 shares of common stock; (ii) the bulk sales of certain
performing and non-performing loans and foreclosed real estate; and (iii) the
filing for Chapter 11 bankruptcy protection by the Bennett Funding Group, a
lease finance company that had a $3.6 million aggregate lending relationship
with the Company at the time of the bankruptcy filing.
All references to the Company prior to December 26, 1995, the conversion
date, except where otherwise indicated, are to Amsterdam Savings Bank, FSB. (the
"Bank"), the Company's wholly owned bank subsidiary. As of December 31, 1995,
the Company had no material results of operations; accordingly, the following
discussion relates primarily to the Bank's results of operations for periods
prior to fiscal year 1996.
When used in this annual report, 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 release publicly the result of any revisions that 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.
Management Strategy
Management's primary goal is to improve the Company's profitability while
minimizing its risks. To meet these goals, the Company's strategies focus on:
(i) emphasizing one- to four- family residential mortgage lending, home equity
loans, and consumer loans, especially automobile loans; (ii) asset quality;
(iii) increasing the Company's subsidiary Bank's presence in its market area
primarily through the establishment of low-cost supermarket branches; and (iv)
managing interest rate risk.
4
<PAGE>
Emphasizing Lending Secured by One- to Four-Family Residential Mortgages,
Home Equity and Consumer Products
The Company's bank subsidiary has emphasized and plans to continue to
emphasize originating traditional one- to four-family residential mortgage, home
equity and consumer loans in its primary market area.
During 1996, 1995, and 1994, the Bank originated $47.7 million, $8.3
million and $56.0 million, respectively, of loans secured by one-to-four-family
residences, home equity loans of $14.3 million, $7.9 million and $7.9 million,
respectively, and $7.7 million, $18.4 million and $17.2 million, respectively,
of consumer loans. At December 31, 1996, the Bank had $158.2 million of loans
secured by one- to four-family residences, $22.8 million of home equity loans
and $26.0 million of consumer loans representing 63.1%, 9.1% and 10.3%,
respectively, of the Bank's gross loan portfolio.
Asset Quality
The Bank's loan portfolio consists primarily of one- to four-family
residential and home equity loans, which are considered to have less risk than
commercial and multi-family real estate or consumer loans. The Bank has
de-emphasized its commercial and multi-family real estate lending, with the
portfolio shrinking from $50.1 million at December 31, 1995, to $34.7 million at
December 31, 1996. During the same period, the Bank's portfolio of loans secured
by one- to four-family and home equity mortgage loans has grown from $151.0
million to $181.0 million.
The Bank's non-performing assets consist of non-accruing loans, accruing
loans delinquent more than 90 days, troubled debt restructurings and foreclosed
assets. The Bank has established a high priority for its loan collection efforts
and has aggressively marketed real estate owned properties in order to increase
operating earnings.
At the end of the first quarter of 1996, non-performing loans increased due
to the Chapter 11 bankruptcy filing by the Bennett Funding Group, a lease
financing company that had a $3.6 million aggregate lending relationship with
the Company at the time of the filing. During 1996, the Company recorded a
provision for loan losses related to the Bennett relationship of $2.8 million on
a loan relationship exposure of $3.6 million. During December 1996, $1.7 million
of Bennett's total loan balance was charged-off against the allowance for loan
losses previously established through charges to earnings. Negotiations with the
Bennett bankruptcy trustee related to the Bank's total Bennett relationship are
in process, and, based upon discussions to date, the Bank believes that the
remaining $1.1 million loan loss reserve for Bennett is adequate.
5
<PAGE>
The Company has been severely handicapped by the level of its
non-performing assets, resulting in significant resources allocated to managing
these assets, as well as reduced earnings. The Company decided to dispose of
certain non-performing assets in a bulk sale versus continuing to resolve the
problems on an asset specific basis in order to accelerate the reduction in loan
portfolio credit risk, reduce the drag on earnings that resulted from these
assets, enhance overall asset quality and better position the Company to achieve
its strategic goals. Accordingly, during the fourth quarter of 1996, the Company
sold certain non-performing commercial type loans totaling $13.8 million and
other performing loans with relatively high credit risk (primarily manufactured
home loans) totaling $10.7 million and other real estate owned totaling $2.5
million. The net sales proceeds totaled $20.4 million, resulting in a loss of
$6.6 million, which was charged against the allowance for loan losses
(approximately $5.6 million) and to other real estate owned expense
(approximately $1.0 million). Primarily as a result of the bulk sale,
non-performing assets as a percentage of total assets improved to 1.18% at
December 31, 1996, from 2.72% at December 31, 1995. In addition, the Bank's
ratios of non-performing loans to total loans and the allowance for loan losses
to non-performing loans also improved. The ratio of non-performing loans to
total loans declined to 1.94% at December 31, 1996 from 3.48% at December 31,
1995. The ratio of the allowance for loan losses to non-performing loans
increased to 70.47% at December 31, 1996 from 30.10% at December 31, 1995. See
"--Selected Consolidated Financial Ratios and Other Data, Asset Quality Ratios,"
herein.
Increasing the Bank's Presence in its Market Area Primarily through the
Establishment of Low-Cost Supermarket Branches
Since November 1994, the Bank has opened three branch offices in
supermarkets, with one located in each of Schenectady, Albany and Montgomery
Counties, New York. The Bank will be opening its fourth and fifth supermarket
branches in April of 1997. These branch offices will both be located in Saratoga
County, New York, one of the fastest growing counties in New York State.
Management believes that these supermarket branch offices are an effective way
to service its customers due to their size, efficiency and convenient, high
traffic locations.
In addition to the two new supermarket branch offices, the Bank will also
open a "traditional" branch office in 1997. This branch office will be located
in the Town of Guilderland, Albany County, New York, in a new shopping center
being constructed at the intersection of N.Y.S. Routes 20 and 155, a high
traffic area.
With the opening of its three new branch offices in 1997, the Bank will be
operating 12 full-service branch locations in its primary market area, all of
which provide customers with 24-hour access to ATMs.
Managing Interest Rate Risk.
The Bank has an asset/liability management committee ("ALCO") that meets
weekly to develop, implement and review policies to manage interest rate risk.
The Bank has endeavored to manage its interest rate risk through the pricing and
diversification of its loans, including the introduction of new, first mortgage
loan products with shorter terms to maturity or with different interest rate
adjustment periods, the origination of consumer loans with shorter average lives
or which reprice at shorter intervals than fixed and adjustable-rate one- to
four-family residential loans and, from time to time, the purchase of short- to
intermediate-term securities available for sale.
6
<PAGE>
Financial Condition
Comparison of Financial Condition at December 31, 1996 and December 31,
1995. Total assets at December 31, 1996, were $472.4 million, an increase of
$33.5 million, or 7.6%, compared to total assets of $438.9 million at December
31, 1995. The growth in total assets was primarily attributable to a $126.1
million increase in securities available for sale, mainly mortgage-backed
securities which increased $103.1 million. The growth of $33.5 million in total
asset was funded by an increase in borrowed funds of $108.8 million, primarily
securities sold under agreements to repurchase, which increased to $102.8 at
December 31, 1996, from zero at December 31, 1995. Before committing the Company
to a significant change in the composition of its balance sheet, management
completed an analysis to measure the projected impact on the Company's net
interest income and the net interest margin. On the basis of its analysis,
management determined that the benefit of a projected significant increase in
net interest income, although at a spread lower than the Company's traditional
spread between interest-earning assets and interest-bearing liabilities,
outweighed the negative impact from a projected narrowing in the Company's net
interest margin. See "Net Interest Income" and "Asset/Liability Management"
herein.
Total deposits at December 31, 1996, were $298.1 million, a decrease of
$13.2 million, or 4.2%, compared to $311.2 million the prior year. The decrease
was primarily due to declines in certificates of deposit of $5.4 million,
passbook and statement savings accounts ("savings accounts") of $4.7 million,
and money market accounts of $2.4 million. On the basis of the Bank's
statistical and anecdotal monitoring reports of withdrawals and account
closeouts, management believes that the declines in deposit balances resulted,
in part, from a shift by some of the Bank's depositors of a portion of their
investable funds into alternative investment vehicles, such as stock mutual
funds, during 1996.
Total stockholders' equity decreased $14.5 million to $61.5 million mainly
as the result of the Company's stock buy-backs totaling $11.2 million and the
net loss of $3.8 million recorded for the year ended December 31, 1996,
partially offset by a $527,000 decrease in unearned shares held by the Company's
Employee Stock Ownership Plan ("ESOP").
7
<PAGE>
Results of Operations
Comparison of Fiscal Years Ended December 31, 1996 and 1995
General.
For the fiscal year ended December 31, 1996, the Company recorded a net
loss of $3.8 million compared to net income of $857,000 for the prior year. The
net loss for 1996 was attributable primarily to the provision for loan losses of
$9.5 million; which was primarily related to the bulk sale of certain performing
and non-performing loans and the Company's aggregate lending relationship with
the Bennett Funding Group ("Bennett"). See "--Provision for Loan Losses."
Interest Income.
Interest income increased $6.8 million, or 26.4%, to $32.3 million in 1996
from $25.6 million in 1995. The increase in interest income resulted from a
$103.2 million, or 31.2%, increase in the Company's average interest-earning
assets, primarily securities available for sale, which increased $106.5 million,
or 214% in 1996, to $156.1 million at December 31, 1996, compared to $49.6
million of securities held to maturity in 1995. The average yield earned on the
Company's securities increased 89 basis points to 7.00% in 1996 compared to
6.11% in 1995.
However, overall the average yield earned on interest-earning assets
decreased 28 basis points to 7.44% in 1996 from 7.72% in the prior year. The
decrease in the average yield earned was mainly the result of the change in the
mix of average interest-earning assets with lower yielding securities available
for sale increasing as a percent of the total mix, rising to 36.4% during 1996
from 15.5% in 1995, while the percentage of higher yielding loans to total
interest-earning assets declined to 60.3% from 78.9% for the same periods.
Interest Expense.
Interest expense increased by $3.7 million, or 28.9%, to $16.4 million in
1996 compared to $12.7 million in 1995. Average interest-bearing liabilities
increased $57.3 million, or 19.6%, to $349.7 million in 1996 compared to $292.4
million during the prior year. During the same periods, the average rate paid on
interest-bearing liabilities increased by 34 basis points to 4.70% from 4.37%.
The increase in interest expense was due primarily to a $62.7 million increase
in the average outstanding balance of borrowed funds to $67.6 million from $4.9
million in 1995, mainly resulting from an increase in securities sold under
agreements to repurchase, which grew $56.8 million to $57.8 million in 1996 from
$1.0 million in 1995. Average borrowed funds, with an average rate of 5.94%,
increased to 19.3% of total interest-bearing liabilities for 1996 up from 1.7%
in 1995 while average savings accounts, with an average rate of 3.04% in 1996,
declined to 29.5% from 37.2% in 1995 and average certificates of deposit, with
an average rate of 5.65% in 1996, decreased to 43.0% of the funding mix in 1996
from 50.4% the prior year.
8
<PAGE>
Net Interest Income.
Net interest income before provision for loan losses increased $3.1
million, or 24.0%, to $15.9 million for the year ended December 31, 1996,
compared to $12.8 million for 1995. As a result of implementing the Company's
strategy to enhance net interest income through the restructuring of its balance
sheet through the use of leveraged reverse repurchase agreements, net interest
income increased approximately $1.4 million. Partially offsetting the increased
net interest income attributable to average net earning asset growth was a
decline in the net yield on average interest-earning assets of 21 basis points
to 3.66% in 1996 from 3.87% in 1995, primarily the result of the changes in the
composition of average interest-earning assets and average interest-bearing
liabilities as discussed above. See "Financial Condition","Interest Income",
"Interest Expense" and "Asset Liability Management" herein.
Provision for Loan Losses.
The provision for loan losses increased $8.0 million to $9.5 million in
1996 from $1.5 million during 1995. The increase resulted primarily from the
Company's bulk sale of certain performing and non-performing loans in the fourth
quarter of 1996, the aggregate lending relationship with the Bennett Funding
Group (see "Asset Quality" herein), a company that filed for Chapter 11
bankruptcy protection on March 29, 1996, as well as the Company's continual
review of its loan portfolio. In order to accelerate its objective of reducing
credit risk in the loan portfolio and better position the Company to achieve its
strategic goals, management considered it to be more prudent to complete the
bulk sale of certain non-performing commercial type loans and manufactured home
loans (which are considered a higher credit risk consumer product), versus
continuing to address these assets on an asset specific basis (see "Asset
Quality" herein).
The Bank records a provision for loan losses based upon its analysis of the
adequacy of the allowance for loan losses. Management determines the adequacy of
the allowance for loan losses based upon its analysis of risk factors in the
loan portfolio. This analysis includes evaluation of concentrations of credit,
historical loss experience, current economic conditions, estimated fair value of
underlying collateral, delinquencies, and other factors.
While the increase in the 1996 provision for loan losses was primarily due
to the Bennett relationship and the result of the bulk loan sale, it was also
due to weaknesses in the economy in the Bank's primary market area, decreases in
the value of real estate (the primary collateral securing many loans) in the
region, as well as increases in charge-offs, even after excluding the effects of
the bulk loan sales and the Bennett relationship.
9
<PAGE>
At December 31, 1996, the Bank's allowance for loan losses totaled $3.4
million, or 1.4% of total loans and 70.5% of non-performing loans, compared to
$2.6 million, or 1.1% of total loans and 30.1% of non-performing loans at
December 31, 1995.
Non-interest Income.
Non-interest income decreased by $592,000 to $920,000 for the year ended
December 31, 1996, from $1.5 million in 1995. The primary reasons for the
decline in non-interest income were the receipt by the Bank of a non-recurring
FDIC deposit insurance premium refund of $189,000 in 1995, net losses on the
sale of securities available for sale of $102,000 in 1996 compared to a net gain
in the prior year of $225,000 and the receipt in 1995 of non-recurring insurance
proceeds related to a fire loss on a real estate owned property in the amount of
$76,000. In late 1995, the Bank's securities portfolio was yielding below market
rates. As a result, the Bank decided in early January 1996 to $34 million 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.
Non-interest Expense.
Non-interest expense increased $1.8 million to $13.1 million for the year
ended December 31, 1996, an increase of 15.5%, from $11.4 million in 1995. The
primary reasons for the increase were a $962,000 increase in the net costs
associated with the Bank's real estate owned and repossessed assets and an
increase in salaries, wages, and benefits of $694,000, or 15.8% over the prior
year.
The increase in the expenses related to real estate owned and repossessed
assets resulted primarily from the bulk sale of certain foreclosed real estate
properties at an amount below book value, which increased expenses by
approximately $1.0 million. Although these assets had been carried at fair
value, the Bank was willing to accept a price lower than book value as part of
this bulk sale in order to reduce the drag on earnings that resulted from
carrying these non-performing assets. This increase was partially offset by a
decline in other write-downs of real estate owned of $377,000 to $877,000 for
1996 compared to $1.3 million during 1995. Also contributing to the increase was
an increase in expenses related to holding these assets.
10
<PAGE>
The increase in salaries, wages, and benefits was primarily attributable to
the Company's Employee Stock Ownership Plan ("ESOP"), that was established at
the time of conversion. The year ended December 31, 1996, was the first year in
which the Company was required to recognize compensation expense related to the
ESOP. The amount of the expense recorded for 1996 was $527,000. Excluding the
ESOP expense, salaries, wages, and benefits increased $167,000, or 3.8%, to $4.6
million from $4.4 million in 1995 due mainly to normal cost of living and merit
increases.
All other non-interest expenses increased by $109,000, or 2.0%, to $5.5
million in 1996 from $5.4 million the prior year. Increases related to occupancy
and equipment, data processing, professional fees, and certain other expense
categories totaling $974,000 were offset almost entirely by decreases of
$865,000 in certain other expense categories, primarily FDIC deposit insurance
premiums, which declined by $531,000 from $533,000 in 1995 to $2,000 in 1996 due
to a decrease in the rates charged to well-capitalized, Bank Insurance Fund
(BIF) member institutions such as the Bank, and the recording of non-recurring
expenses of $205,000 in 1995 pertaining to the seizure and liquidation of
Nationar by the Superintendent of Banks of N.Y.S.
Income Tax Expense.
Due to the pre-tax loss of $5.8 million incurred in 1996 as compared to
pre-tax income of $1.4 million in 1995, the Company recorded a tax benefit of
$1.9 million for 1996 compared to an expense of $586,000 in 1995.
Comparison of Fiscal Years Ended December 31, 1995 and 1994
General.
Net income for the year ended December 31, 1995, decreased $1.1 million, or
56.1%, to $857,000 from $2.0 million for the year ended December 31, 1994. The
decrease in net income resulted primarily from a decline in net interest income
before provision for loan losses of $778,000, or 5.7%, an increase in the
provision for loan losses of $415,000, or 37.5%, and an increase in non-interest
expenses of $43,000, or 0.4%, partially offset by an increase in non-interest
income of $607,000, or 67.1%.
Interest Income.
Interest income increased $1.8 million, or 7.5%, to $25.6 million in 1995
from $23.8 million in 1994. The increase in interest income was the result of a
$17.7 million, or 5.6%, increase in the Bank's average interest-earning assets
(primarily loans receivable) for the year ended December 31, 1995, to $331.3
million, compared to $313.6 million during 1994. The yield earned on the Bank's
interest-earning assets increased 13 basis points to 7.72% in 1995 from 7.59% in
1994. This increase was primarily a result of an increase in rates earned on
federal funds sold by the Bank.
11
<PAGE>
Interest Expense.
Interest expense increased by $2.5 million, or 25.1%, to $12.7 million for
the year ended December 31, 1995, from $10.2 million in 1994. Average
interest-bearing liabilities increased $7.9 million, or 2.8%, to $292.4 million
in 1995 from $284.5 million in 1994 and the average rate paid on
interest-bearing liabilities increased by 75 basis points to 4.33% from 3.58%
during the same periods. The increase in interest expense, however, was
primarily the result of a $37.6 million increase in the average outstanding
balance of the Bank's certificate accounts (approximately $14.0 million of which
represented a shift from lower earning savings accounts at the Bank) coupled
with a 118 basis point increase in the rates paid on such accounts. In this
regard, the Bank offered attractive promotional rates on certain certificate
accounts in connection with the supermarket branch openings.
Net Interest Income.
Net interest income before provision for loan losses decreased $778,000, or
5.7%, to $12.8 million for the year ended December 31, 1995, compared to $13.6
million for 1994. The decrease was primarily due to a 65 basis point decline in
the Bank's average net interest rate spread to 3.36% in 1995 from 4.01% in 1994,
partially offset by an increase in average net earning assets of $9.8 million,
or 33.6%, to $38.9 million in 1995 from $29.1 million in 1994. The Bank's
average net yield on interest-earning assets also declined in 1995 to 3.87% from
4.34% in 1994.
Provision for Loan Losses.
The provision for loan losses increased $415,000, or 37.5%, to $1.5 million
for the year ended December 31, 1995, from $1.1 million for the year ended
December 31, 1994. This increase was attributable mainly to increased
non-accruals for consumer loans secured by recreational vehicles and to a lesser
extent manufactured homes. These types of loans typically have a higher risk of
loss associated with them than real estate loans since they are generally
secured by rapidly depreciable assets. Management's decision to increase the
provision for loan losses was impacted primarily by management's analysis of the
Bank's asset quality and the level of its allowance for loan losses. At December
31, 1995, the Bank's allowance for loan losses totaled $2.6 million or 1.1% of
total loans and 30.1% of total non-performing loans.
Non-interest Income.
Total non-interest income increased $607,000, or 67.1%, to $1.5 million for
the year ended December 31, 1995, from $905,000 for the year ended December 31,
1994. The primary reasons for the improvement in non-interest income in 1995
were a non-recurring FDIC deposit insurance premium refund of $189,000 and net
gains on the sale of securities available for sale of $225,000 on the sale of
securities available for sale. Also contributing to the increase in non-interest
income were a $46,000 increase in commissions from annuity and mutual fund sales
by the Bank's insurance agency subsidiary and the receipt of insurance proceeds
related to a fire loss on real estate owned property in the amount of $76,000.
12
<PAGE>
Non-interest Expense.
Total non-interest expense increased $43,000, or 0.4%, to $11.4 million for
1995 compared to $11.3 million for 1994. The increase in non-interest expense
was due to a $355,000, or 8.8% increase in salaries, wages, and benefits as a
result of normal cost of living and merit increases and the addition of 13
full-time equivalent employees for the three supermarket branch offices opened
since November of 1994. Also contributing to the increase was an increase of
$232,000 in data processing fees, of which $105,000 was related to the
implementation of check imaging, an increase of $151,000, or 14.1%, in occupancy
and equipment expenses, due mainly to the addition of the three supermarket
branches, partially offset by a decrease in other non-interest expenses of
$695,000. The decrease in other non-interest expenses resulted primarily from a
$451,000 decline in real estate owned and repossessed assets expenses and a
$259,000 reduction in correspondent bank processing fees as a result of the
Bank's decision to no longer outsource certain processes. Also contributing to
the overall decrease in other non-interest expenses was a reduction in the
Bank's FDIC, Bank Insurance Fund (BIF)-member, deposit insurance premiums of
$188,000 due to a downward revision by the FDIC in its premium schedule for
BIF-member institutions in anticipation of the BIF achieving its statutory
reserve ratio. The lower premiums for BIF-member institutions became effective
in the third quarter of 1995. Partially offsetting these decreases were a charge
of $175,000 for legal costs related to a lawsuit in which the Bank was the
defendant and the establishment of loss reserves totaling $205,000 related to
the Bank's relationship with Nationar.
Income Tax Expense.
Income tax expense increased by $464,000 to $586,000 for 1995. The increase
was due to a $641,000 decrease in the deferred tax asset valuation allowance
during 1994, which reduced income tax expenses in 1994, with no such credit in
1995.
13
<PAGE>
Average Balances, Interest Rates and Yields
The following table presents for the periods indicated the total dollar
amount of interest income earned on average interest-earning assets and the
resultant yields, as well as the total dollar amount of interest expense
incurred on average interest-bearing liabilities and the resultant rates. No tax
equivalent adjustments were made. All average balances are daily average
balances. Non-accruing loans have been included in the table as loans with
interest earned on a cash basis only.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------------------------
1996 1995 1994
---------------------------- --------------------------- ---------------------------
Average Interest Yield/ Average Interest Yield/ Average Interest Yield/
Balance Inc./Exp. Rate Balance Inc./Exp. Rate Balance Inc./Exp. Rate
-------- --------- ------- ------- --------- ------- ------- --------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable (1) $262,193 $20,557 7.84% $261,482 $21,385 8.18% $240,192 $19,718 8.21%
Securities-available for sale (2) 156,093 10,921 7.00 --- --- --- --- --- ---
Securities-held to maturity --- --- --- 49,598 3,028 6.11 55,890 3,360 6.01
Federal Home Loan Bank Stock 2,013 130 6.46 1,867 143 7.66 1,670 127 7.60
Federal funds sold 14,218 740 5.20 18,352 1,026 5.59 15,878 601 3.79
-------- --------- ------- --------- ------- ---------
Total interest-earning assets (1)(2) 434,517 32,348 7.44 331,299 25,582 7.72 313,630 23,806 7.59
-------- --------- ------- --------- ------- ---------
Interest-Bearing Liabilities
Savings deposits 103,931 3,162 3.04 108,747 3,300 3.03 135,747 4,123 3.04
NOW deposits 19,124 527 2.76 18,640 511 2.74 18,583 510 2.74
Certificates of deposit 150,300 8,492 5.65 147,348 8,272 5.61 109,713 4,861 4.43
Money market accounts 8,765 243 2.77 10,362 285 2.75 13,253 364 2.75
Borrowed funds 67,572 4,011 5.94 4,880 299 6.11 5,471 307 5.61
Advances from borrowers for taxes and
insurance, and stock subscription
proceeds --- --- --- 2,402 79 3.28 1,725 27 1.57
-------- --------- ------- --------- ------- ---------
Total interest-bearing liabilities 349,692 16,435 4.70 292,379 12,746 4.36 284,492 10,192 3.58
-------- --------- ------- --------- ------- ---------
Net interest income $15,913 $12,836 $13,614
========= ========= =========
Net interest rate spread (1)(2) 2.74% 3.36% 4.01%
===== ===== =====
Net earning assets (1)(2) $84,825 $38,920 $29,138
======== ======= =======
Net yield on average
interest-earning assets (1)(2) 3.66% 3.87% 4.34%
===== ===== =====
Average interest-earning assets/
average interest-bearing liabilities 124.26% 113.31% 110.24%
======== ======= =======
- ---------------------------------------------
<FN>
(1) Calculated net of deferred loan fees, loan discounts and loans in process.
(2) Net of Securities available for sale pending settlement and net unrealized gains/(losses).
</FN>
</TABLE>
14
<PAGE>
Rate/Volume Analysis of Net Interest Income
The following table presents the dollar amount of changes in interest
income and interest expense for major components of interest-earning assets and
interest-bearing liabilities. It distinguishes between the changes related to
outstanding balances and the changes due to changes in interest rates. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------
1996 vs. 1995 1995 vs. 1994
-----------------------------------------------------------------
Increase Increase
(Decrease) (Decrease)
Due to Total Due to Total
----------------- Increase ------------------ Increase
Volume Rate (Decrease) Volume Rate (Decrease)
-------- ------ --------- -------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans receivable (1) $58 ($886) ($828) $1,739 ($72) $1,667
Securities-available for sale (2) 10,921 -- 10,921 -- -- --
Securities-held to maturity (3,028) -- (3,028) (389) 57 (332)
Federal Home Loan Bank Stock 13 (26) (13) 15 1 16
Federal Funds sold (219) (67) (286) 105 320 425
-------- ------ --------- -------- ------ ---------
Total interest-earning assets 7,745 (979) 6,766 1,470 306 1,776
-------- ------ --------- -------- ------ ---------
Interest-Bearing Liabilities
Savings deposits (145) 7 (138) (809) (14) (823)
NOW deposits 13 3 16 2 (1) 1
Certificates of deposit 167 53 220 1,920 1,491 3,411
Money market accounts (44) 2 (42) (80) 1 (79)
Borrowed funds 3,720 (8) 3,712 (50) 42 (8)
Advances from borrowers for taxes and
insurance, and stock subscription
proceeds (45) (34) (79) 17 35 52
-------- ------ --------- -------- ------ ---------
Total interest-bearing liabilities $3,666 $23 3,689 $1,000 $1,554 2,554
======== ====== --------- ======== ======= ---------
Net interest income $3,077 ($778)
========= ========
- -------------------------------------
<FN>
(1) Calculated net of deferred loan fees, loan discounts and loans in process.
(2) Net of Securities available for sale pending settlement and net unrealized gains/(losses).
</FN>
</TABLE>
15
<PAGE>
Asset/Liability Management
The Bank, like other financial institutions, is subject to interest rate
risk to the extent that its interest-bearing liabilities reprice on a different
basis or at a different pace from its interest-earning assets. Management of the
Bank believes it is important to manage the relationship between interest rates
and the effect on the Bank's net portfolio value ("NPV"). This approach
calculates the difference between the present value of expected cash flows from
assets and the present value of expected cash flows from liabilities, as well as
cash flows from off-balance sheet contracts.
Thrift institutions with greater than "normal" interest rate exposure must
take a deduction from their total capital available to meet their risk-based
capital requirement. The amount of the deduction is one-half of the difference
between (a) the institution's actual calculated exposure to a 200 basis point
interest rate increase or decrease (whichever results in the greater pro forma
decrease in NPV) and (b) its "normal" level of exposure which is defined as 2%
of the present value of its assets. The regulation, however, will not become
effective until the OTS evaluates the process by which savings associations may
appeal an interest rate risk deduction determination. It is uncertain as to when
this evaluation may be completed. Furthermore, the Bank, due to its asset size
and level of risk-based capital is exempt from this requirement. At December 31,
1996, a change in interest rates of positive 200 basis points would have
resulted in a 4.14% decrease (as a percentage of the net present value of the
Bank's assets) in the Bank's NPV while a change in interest rates of negative
200 basis points would have resulted in a 2.43% increase (as a percentage of the
net present value of the Bank's assets) in the Bank's NPV. Accordingly, the
Bank's interest rate risk was considered normal under OTS regulations and no
additional risk-based capital would have been required at December 31, 1996.
Presented below, as of December 31, 1996, is an analysis of the Bank's
interest rate risk as calculated by the OTS, measured by changes in the Bank's
NPV for instantaneous and sustained parallel shifts in the yield curve, in 100
basis points increments, up and down 400 basis points.
Net Portfolio Value
-------------------
Change in
Interest Rate $ Amount $ Change % Change
------------- -------- -------- --------
(Basis Points) (Dollars in Thousands)
+400 $17,103 $(38,857) (69)%
+300 26,503 (29,459) (53)
+200 36,446 (19,514) (35)
+100 46,552 ( 9,409) (17)
---- 55,961 ---- ----
-100 62,976 7,016 13
-200 67,404 11,444 20
-300 71,920 15,959 29
-400 77,826 21,865 39
16
<PAGE>
Certain assumptions utilized by the OTS in assessing the interest rate
risk of thrift institutions were employed in preparing the previous table. These
assumptions related to interest rates, loan prepayment rates, deposit decay
rates and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above. In addition, a change in Treasury rates in the designated amounts
accompanied by a change in the shape of the Treasury yield curve would cause
significantly different changes to the NPV than indicated above.
The Bank maintains an asset/liability committee ("ALCO") which meets weekly
to review interest rate risk management strategy and to review the Bank's
investment strategy for loans and securities, monitor investment performance and
to take any actions necessary for adjusting future investment direction. In
managing its asset/liability mix, and depending on the relationship between
long- and short-term interest rates, market conditions and consumer preference,
the Bank may place more emphasis on limiting interest rate risk than on
enhancing its net interest income. Management believes that the stability which
can be obtained by limiting interest rate risk can more than offset the benefits
which can be derived from seeking to enhance the net interest margin on a
short-term basis.
In managing its asset/liability mix, the Bank, at times, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, may place greater emphasis on maximizing its net interest
margin than on matching the interest rate sensitivity of its assets and
liabilities, in an effort to improve or maintain its spread. Management believes
that the increased net income resulting from a mismatch in the maturity of its
asset and liability portfolios can, during periods of decline or stable interest
rates, provide high enough returns to justify the increased vulnerability to
sudden and unexpected increases in interest rates which can result from such a
mismatch. As a result, the Bank may at certain times be more vulnerable to rapid
increases in interest rates than some other institutions which concentrate
principally on matching the maturities of their assets and liabilities.
In evaluating the Bank's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing table
must be considered. For example, although certain assets and liabilities may
have similar maturities or periods to repricing, they may react in different
degrees to changes in market interest rates. Also, the interest rates on certain
types of assets and liabilities may fluctuate in advance of changes in market
interest rates, while interest rates on other types may lag behind changes in
market rates. Further, in the event of a change in interest rates, prepayments
and early withdrawal levels would likely deviate significantly from those
assumed in calculating the table. Finally, the ability of many borrowers to
service their debt may decrease in the event of an interest rate increase. As a
result, the actual effect of changing interest rates may differ from that
presented in the foregoing table.
17
<PAGE>
In addition, as part of its asset/liability management process, the Bank
subscribes as a member of the Federal Home Loan Bank of New York to the Interest
Rate Risk Service provided by the Federal Home Loan Bank of Atlanta (FHLBA). The
Bank directly furnishes the FHLBA with the starting data needed to run the
asset/liability simulation model developed by the FHLBA. The required starting
data consists of the Bank's quarterly OTS call report. The schedules from this
report, provide the FHLBA with asset, liability and capital positions in
addition to maturity, rate and repricing information. The FHLBA's simulation
model identifies the Bank's exposure to interest rate risk by measuring the
estimated interest rate sensitivity of the participating institution's Net
Portfolio Value (NPV), the estimated sensitivity of the institution's net
interest income (NII), and the institution's estimated maturity gap position. In
most cases the FHLBA has followed OTS methodology, however, because of
differences in modeling techniques and assumptions, the FHLBA results may differ
from estimates generated by the OTS.
Management believes that the strategy related to the purchase of securities
with borrowed funds and the simultaneous pledging of those securities as
securities sold under agreements to repurchase does not expose the Company's net
interest income and its net interest margin (NIM) to an unacceptable level of
sensitivity to changes, either up or down, in interest rates. See "Financial
Condition" and "Net Interest Income" herein. Management is aware, however, that
by pursuing the balance sheet strategy it followed, that the Bank's NPV would be
more sensitive to changes in interest rates. Based on the FHLBA's Peer Group
Report for December 31, 1996, if rates increased 200 basis points, the Bank's
NPV would decline 29.6% from its base NPV (compared to the OTS calculated 35% in
the table above) while the median decline for its peers was 22.6%. However, if
interest rates increased 400 basis points, the Bank's NPV would decline by 67.1%
(compared to the OTS calculated 69% in the table above) while the median decline
for its peer group was estimated at 47.2%.
When the Bank is compared to its peers in regard to changes in net interest
income and net interest margin, the Bank becomes less interest rate sensitive
than its peer group. With a 200 basis point increase in interest rates, the
Bank's NII would decline by an estimated 3.9% compared to its peer group's
median decline of 8.5%. If rates increased 400 basis points, the Bank's NII
would decline by 9.2% compared to a median decline of 18.6% for its peer group.
Given a 200 basis increase in interest rates as of December 31, 1996, the
Bank's NIM would decline 13 basis points from its base case rate of 3.14% to
3.01%, compared to a peer group decline to 2.66% from 2.83%, a decline of 17
basis points. If interest rates increased 400 basis points, the Bank's NIM would
decline 29 basis points to 2.85% from the base margin of 3.14% while the peer
group's NIM would decline by 42 basis points to 2.41% from 2.83%.
Liquidity and Capital Resources
The Bank'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 maturity of securities available for sale, advances
from the FHLB of New York and proceeds from the sale of securities sold under
agreements to repurchase ("reverse repo"). 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.
18
<PAGE>
The primary investing activities of the Company are the origination of
loans and purchase of securities. During, 1996, 1995 and 1994 the Bank's loan
originations totaled $81.4 million, $50.2 million and $91.2 million,
respectively. The Bank purchased securities held for investment during the year
ended December 31, 1994 of $12.2 million. During 1995, the Bank purchased $47.0
million of securities and classified such securities, consistent with the
reclassification of all investment and mortgage-backed securities at December
31, 1995, as available for sale. In 1996, the Company purchased $192.6 million
of securities and classified such securities as available for sale.
The primary financing activity of the Bank is the attraction of deposits.
However, during the years ended December 31, 1996 and 1994, the Bank experienced
net decreases in deposits of $13.2 million and $1.6 million, respectively.
During the year ended December 31, 1995, the Bank experienced a net increase in
deposits of $18.1 million. Management believes that the decrease in deposits
during the year ended December 31, 1996, was the result, in part, to some of the
Bank's depositors deciding to pursue alternative investment opportunities, such
as stock mutual funds, with a portion of their investable funds. The net
increase of $18.1 million in 1995 resulted from an increase of $41.2 million in
certificates of deposit, partially offset by declines in savings and transaction
accounts. The increase in certificates of deposit was the result of the Bank's
aggressive 1995 marketing campaigns related, in part, to the three supermarket
branches that the Bank opened since November 1994.
The Bank is required to maintain a 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 December 1996 was 7.5%, and its short-term
liquidity for the same month was 1.6%.
The Bank'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 December 31, 1996, 1995 and 1994 cash and cash equivalents totaled
$10.9 million, $84.6 million and $16.3 million, respectively.
The Bank anticipates that it will have sufficient funds available to meet
its current commitments. At December 31, 1996, the Bank had commitments to
originate loans of $1.9 million as well as undrawn commitments of $5.9 million
on home equity and other lines of credit. Certificates of deposit which are
scheduled to mature in one year or less at December 31, 1996, totaled $91.1
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: (i) increase its borrowed funds position to
compensate for the deposit outflows; (ii) increase the rates it offers on these
deposits in order to increase the retention rate on maturing certificates of
deposit and/or to attract new deposits; or (iii) attempt to increase
certificates of deposit through the use of deposit brokers. Depending on the
level of market interest rates on the renewal dates of the certificates of
deposit, the employment of one or a combination of these strategies could result
in higher or lower levels of net interest income and net income.
19
<PAGE>
The Bank is also involved as plaintiff or defendant in various legal
actions in the normal course of its business. For additional information
regarding such legal matters see "Business-Legal Proceedings" and Note 13(a) of
the Notes to Consolidated Financial Statements.
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 Company currently has no significant liquidity
commitments as operating costs are modest and dividends to stockholders are
discretionary and to date no dividends have been declared or paid. At December
31, 1996, the Holding Company had $469,000 in liquid assets on hand, however,
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.
Federally insured savings institutions are required to maintain a minimum
level of regulatory capital. The OTS has established 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 December 31, 1996, the Bank had tangible and core capital of $46.2
million and $46.2 million, respectively, or 10.08% of adjusted total assets,
which was approximately $39.3 million and $32.4 million above the minimum
requirements of 1.5% and 3.0%, respectively, of the adjusted total assets in
effect on that date. On December 31, 1996, the Bank had total risk-based capital
of $48.7 million (including $46.2 million in core capital), or 24.61% of
risk-weighted assets of $198.0 million. This amount was $32.9 million above the
8.0% requirement in effect on that date.
Impact Of Inflation
The Consolidated Financial Statements and Notes thereto presented herein
have been prepared in accordance with generally accepted accounting principles,
which require the measurement of financial position and operating results in
terms of historical dollars without considering the change in the relative
purchasing power of money over time due to inflation. The impact of inflation is
reflected in the increased cost of the Company's operations. Nearly all the
assets sand liabilities of the Company are financial, unlike most industrial
companies. As a result, the Company's performance is directly impacted by
changes in interest rates, which are indirectly influenced by inflationary
expectations. The Company's ability to match the interest sensitivity of its
financial assets to the interest sensitivity of its financial liabilities in its
asset/liability management may tend to minimize the effect of changes in
interest rates on the Company's performance. Changes in interest rates do not
necessarily move to the same extent as do changes in the price of goods and
services.
20
<PAGE>
Unaudited Consolidated Interim Financial Information
Following is a summary of unaudited quarterly consolidated financial
information for each quarter of 1996 and 1995.
<TABLE>
<CAPTION>
1996 Quarters Ended 1995 Quarters Ended
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
---- ---- ---- ----- ---- ---- ---- -----
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income $6,948 $7,590 $8,854 $8,956 $6,272 $6,426 $6,405 $6,479
Net Interest Income 3,686 3,909 4,259 4,059 3,418 3,278 3,064 3,076
Provision for Loan Losses 1,628 433 549 6,840 168 1,116 60 178
Income/(Loss) Before Income Taxes (472) 873 963 (7,129) 1,096 (1,271) 1,031 587
Net Income/(Loss) (314) 510 572 (4,604) 648 (820) 665 364
Per Share: Net Income/(Loss)* (.06) .10 .12 (1.05) N/A N/A N/A N/A
- -----------------------------------------
<FN>
* The summation of the 1996 quarterly earnings per share do not equal the
December 31, 1996 year to date loss per share of ($.81) as a result of the loss
in the fourth quarter being applied to a smaller average shares outstanding
balance for the fourth quarter (due to the two stock buy backs in December 1996)
as compared to the average on a year to date basis.
</FN>
</TABLE>
21
<PAGE>
Independent Auditors' Report
The Board of Directors
Ambanc Holding Co., Inc.:
We have audited the accompanying consolidated statements of financial condition
of Ambanc Holding Co., Inc. and subsidiaries (the Company) as of December 31,
1996 and 1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ambanc Holding Co.,
Inc. and subsidiaries at December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in note 1 to the consolidated financial statements, as of January
1, 1995, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 114
"Accounting by Creditors For Impairment of a Loan," and Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors For Impairment of a Loan
- - Income Recognition and Disclosures," which prescribe recognition criteria for
loan impairment and measurement methods for certain impaired loans and loans
whose terms are modified in a troubled debt restructuring subsequent to the
adoption of these Statements.
KPMG Peat Marwick LLP
Albany, N.Y.
February 7, 1997
22
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
December 31,
Assets 1996 1995
---- ----
(in thousands)
<S> <C> <C>
Cash and due from banks ........................................ $ 6,387 $ 7,513
Federal funds sold ............................................... 4,500 77,100
------- -------
Cash and cash equivalents ................ 10,887 84,613
Securities available for sale,
at fair value (note 4) .......................................... 200,539 74,422
Loans receivable, net (note 5) ................................... 248,094 249,991
Accrued interest receivable (note 6) ............................. 3,201 1,827
Premises and equipment, net (note 7) ............................. 2,784 3,071
Federal Home Loan Bank of New York
stock, at cost .................................................. 2,029 1,892
Real estate owned and repossessed assets ......................... 715 3,169
Other assets ..................................................... 4,172 1,831
Due from broker .................................................. -- 18,128
------- -------
Total assets ............................. $ 472,421 $ 438,944
======= =======
Liabilities and Shareholders' Equity
Liabilities:
Deposits (note 8) ........................................ $ 298,082 $ 311,239
Advances from borrowers for taxes
and insurance .......................................... 1,703 1,692
Borrowed funds (note 9) .................................. 108,780 --
Accrued interest payable ................................. 1,077 2
Accrued expenses and other liabilities ................... 1,261 3,116
Due to broker ............................................ -- 46,880
------- -------
Total liabilities ......................... $ 410,903 $ 362,929
------- -------
Commitments and contingent liabilities (notes 10, 11 and 13)
Shareholders' equity:
Preferred stock $.01 par value, Authorized 5,000,000
shares; none outstanding at December 31, 1996 and 1995 . -- --
Common stock $.01 par value, Authorized 15,000,000 shares;
5,422,250 shares issued and outstanding
at December 31, 1996 and 1995 .......................... 54 54
Additional paid-in capital ............................... 52,128 52,127
Retained earnings, substantially restricted .............. 24,436 28,272
Treasury stock, at cost, (1,030,227 shares
at December 31, 1996 and none at
December 31, 1995) ..................................... (11,208) --
Common stock acquired by ESOP ............................ (3,812) (4,338)
Net unrealized loss on securities
available for sale, net of tax ......................... (80) (100)
------- -------
Total shareholder's equity ................ 61,518 76,015
------- -------
Total liabilities and shareholders' equity. $ 472,421 438,944
======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
23
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Income
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C>
Interest and dividend income:
Loans ....................................... $ 20,557 21,385 19,718
Securities available for sale ............... 10,921 -- --
Investment securities ....................... -- 3,028 3,360
Federal funds sold .......................... 740 1,026 601
Federal Home Loan Bank stock ................ 130 143 127
-------- -------- --------
Total interest and dividend income ..... 32,348 25,582 23,806
Interest expense:
Deposits (note 8) ........................... 12,424 12,447 9,885
Borrowings .................................. 4,011 299 307
-------- -------- --------
Total interest expense ................. 16,435 12,746 10,192
-------- -------- --------
Net interest income .................... 15,913 12,836 13,614
Provision for loan losses (note 5) ............... 9,450 1,522 1,107
-------- -------- --------
Net interest income after
provision for loan losses ............ 6,463 11,314 12,507
-------- -------- --------
Other income:
Service charges on deposit accounts ......... 764 783 642
Net gains (losses) on securities transactions (102) 225 --
Other ....................................... 258 504 263
-------- -------- --------
Total other income ..................... 920 1,512 905
-------- -------- --------
Other expenses:
Salaries, wages and benefits ................ 5,097 4,403 4,048
Occupancy and equipment ..................... 1,328 1,219 1,068
Data processing ............................. 843 728 496
Federal deposit insurance premium ........... 2 533 721
Correspondent bank processing fees .......... 116 245 504
Provision for losses on Nationar
related receivable ....................... -- 205 --
Real estate owned and repossessed
assets expenses, net ..................... 2,563 1,601 2,052
Professional fees ........................... 540 358 326
Other ....................................... 2,659 2,091 2,125
-------- -------- --------
Total other expenses ................... 13,148 11,383 11,340
-------- -------- --------
Income (loss) before taxes ....................... (5,765) 1,443 2,072
Income tax expense (benefit) (note 10) ........... (1,929) 586 122
-------- -------- --------
Net income (loss) ...................... $ (3,836) 857 1,950
======== ======== ========
Net loss per share ............................... $ (0.81) N/A N/A
======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
24
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders' Equity
Years ended December 31, 1996, 1995 and 1994
(in thousands, except share data)
<TABLE>
<CAPTION>
Net unrealized
gain (loss) on
securities Common
Additional available stock
Common paid-in Treasury Retained for sale, acquired
stock capital stock earnings net of tax by ESOP Total
------- ---------- -------- -------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 ................... $ -- -- -- 25,465 -- -- 25,465
Net income ................................... -- -- -- 1,950 -- -- 1,950
Balance at December 31, 1994 ................. -- -- -- 27,415 -- -- 27,415
Net income ................................... -- -- -- 857 -- -- 857
Common stock issued (5,422,250 shares) ....... 54 52,127 -- -- -- -- 52,181
Purchase of ESOP shares (433,780 shares) ..... -- -- -- -- -- (4,338) (4,338)
Change in net unrealized loss on securities
available for sale, net of tax ............ -- -- -- -- (100) -- (100)
Balance at December 31, 1995 ................. 54 52,127 -- 28,272 (100) (4,338) 76,015
Net loss ..................................... -- -- -- (3,836) -- -- (3,836)
Purchase of treasury shares (1,030,227 shares) -- -- (11,208) -- -- -- (11,208)
Release of ESOP shares (52,964 shares) ....... -- 1 -- -- -- 526 527
Change in net unrealized loss on securities
available for sale, net of tax ............ -- -- -- -- 20 -- 20
Balance at December 31, 1996 ................. $ 54 52,128 (11,208) 24,436 (80) (3,812) 61,518
See accompanying notes to consolidated financial statements.
</TABLE>
25
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income (loss) ..................................... $ (3,836) 857 1,950
Adjustments to reconcile
net income (loss) to net cash
provided (used) by operating activities:
Depreciation .................................... 501 438 377
Amortization of computer software costs ......... 57 58 --
Provision for loan losses ....................... 9,450 1,522 1,107
Provision for losses and writedowns on
real estate owned and repossessed assets ............. 877 1,254 1,590
Provisions for losses on Nationar related receivables . -- 205 --
Loss on sale of fixed assets .......................... 64 -- --
ESOP compensation expense ............................. 527 -- --
Net loss (gains) on sale and redemptions of
securities available for sale ........................ 102 (225) --
Net loss on sale of other real estate owned ........... 1,260 74 128
Net amortization on securities ........................ 475 19 39
Deferred tax expense (benefit) ........................ (509) (577) 360
(Increase) decrease in accrued interest
receivable and other assets .......................... (2,807) 17 (1,410)
Decrease (increase) in due from broker ................ 18,128 (18,128) --
Increase (decrease) in accrued expenses and
other liabilities .................................... (1,201) 2,225 (9,144)
Increase (decrease) in due to broker .................. (46,880) 46,880 --
Increase (decrease) in advances from borrowers
for taxes and insurance .............................. 11 (762) 572
------- ------- -------
Net cash provided (used) by operating activities (23,781) 33,857 (4,431)
------- ------- -------
Cash flows from investing activities:
Proceeds from sales and redemptions of
securities available for sale ........................ 34,469 18,372 --
Purchases of securities available for sale ............ (192,647) -- --
Proceeds from principal paydowns and
maturities of securities available for sale .......... 31,508 -- --
Proceeds from principal paydowns and maturities
of investment securities ............................. -- 7,530 16,708
Purchase of investment securities ..................... -- (46,980) (12,195)
Purchase of FHLB stock ................................ (137) (237) --
Proceeds from sale of loans ........................... 18,929 -- --
Net (increase) decrease in loans made to customers .... (28,685) 8,205 (42,714)
Capital expenditures .................................. (341) (692) (544)
Proceeds from sales of other real estate .............. 2,519 1,340 1,378
Proceeds from the sale of fixed assets ................ 25 -- 9
------- ------- -------
Net cash used by investing activities .......... $ (134,360) (12,462) (37,358)
======= ======= =======
(Continued)
</TABLE>
26
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Purchase of ESOP shares ............................. $ -- (4,338) --
Net proceeds from common stock issued
in stock conversion .................................. -- 52,181 --
Purchase of treasury stock ............................ (11,208) -- --
Net increase (decrease) in deposits ................... (13,157) 18,087 (1,627)
Advances from (repayments on) FHLB
borrowings, net ...................................... 6,000 (19,000) 19,000
Increase in securities sold under
agreements to repurchase ............................. 102,780 -- --
------- ------- -------
Net cash provided by financing activities ....... 84,415 46,930 17,373
------- ------- -------
Net increase (decrease) in cash and cash equivalents .................. (73,726) 68,325 (24,416)
Cash and cash equivalents at beginning of year ........................ 84,613 16,288 40,704
------- ------- -------
Cash and cash equivalents at end of period ............................ $ 10,887 84,613 16,288
======= ======= =======
Supplemental disclosures of cash flow information -
cash paid during the year for:
Interest .............................................. $ 15,360 12,447 9,950
======= ======= =======
Income taxes .......................................... $ 306 1,000 498
======= ======= =======
Noncash investing activities:
Net reduction in loans receivable resulting
from the transfer to real estate owned ...................... $ 2,203 1,864 1,330
======= ======= =======
Transfer of investment securities to investment
securities available for sale ............................... $ -- 45,736 --
======= ======= =======
Net decrease in unrealized loss on securities
available for sale, net of tax ............................... $ 20 -- --
======= ======= =======
See accompanying notes to consolidated financial statements.
</TABLE>
27
<PAGE>
AMBANC HOLDING CO., INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1996 and 1995
(1) Summary of Significant Accounting Policies
Ambanc Holding Co. Inc. (the Holding Company) was incorporated under Delaware
law in June 1995 as a Holding Company to purchase 100% of the common stock of
Amsterdam Savings Bank, FSB (the Bank). The Bank converted from a mutual form to
a stock institution in December 1995, and the Holding Company completed its
initial public offering on December 26, 1995, at which time the Holding Company
purchased all the outstanding stock of the Bank.
The following is a description of the more significant policies which Ambanc
Holding Co., Inc. follows in preparing and presenting its consolidated financial
statements.
(a) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Ambanc Holding Co., Inc., and its wholly owned subsidiaries, Amsterdam Savings
Bank FSB and A.S.B. Insurance Agency, Inc., collectively referred to as the
Company. All significant intercompany accounts have been eliminated in
consolidation. The accounting and reporting policies of the Company conform in
all material respects to generally accepted accounting principles and to general
practice within the thrift industry.
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses and
the valuation of real estate owned and repossessed assets acquired in connection
with foreclosures or in satisfactions of loans. In connection with the
determination of the allowance for loan losses, the valuation of real estate
owned, and estimates of fair value for repossessed assets, management obtained
appraisals for significant assets.
(b) Business
A substantial portion of the Company's assets are loans secured by real estate
in the upstate New York area. In addition, a significant portion of the real
estate owned is located in those same markets. Accordingly, the ultimate
collectibility of a considerable portion of the Company's loan portfolio and the
recovery of a substantial portion of the carrying amount of real estate owned
are dependent upon market conditions in the upstate New York region.
28
<PAGE>
(1) Summary of Significant Accounting Policies, Continued
Management believes that the allowance for loan losses is adequate and that
other real estate owned and repossessed assets are properly valued. While
management uses available information to recognize losses on loans and other
real estate owned and repossessed assets, future additions to the allowance or
writedowns of other real estate and repossessed assets may be necessary based on
changes in economic conditions. In addition, various regulatory agencies, as an
integral part of their examination process, periodically review the Bank's
allowance for loan losses and valuation of other real estate owned and
repossessed assets. Such agencies may require the Bank to recognize additions to
the allowance or write downs of other real estate and repossessed assets based
on their judgments about information available to them at the time of their
examination which may not be currently available to management.
(c) Securities Available for Sale, Investment Securities and FHLB of New York
Stock
On January 1, 1994 the Bank adopted Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments and Debt and Equity Securities"
(SFAS No. 115). Management determines the appropriate classification of
securities at the time of purchase. If management has the positive intent and
ability to hold debt securities to maturity they are classified as held to
maturity and are stated at amortized cost. All other debt and marketable equity
securities are classified as securities available for sale and are reported at
fair value, with net unrealized gains and losses reported as a separate
component of shareholders' equity, net of estimated income taxes. The Company
does not maintain a trading portfolio, and at December 31, 1996 and 1995 the
Company had no securities classified as investment securities.
Unrealized losses on securities that reflect a decline in value that is other
than temporary are charged to income.
Non- marketable equity securities, such as Federal Home Loan Bank of New York
stock, is stated at cost. The investment in Federal Home Loan Bank of New York
stock is required for membership.
Mortgage backed securities, which are guaranteed by the Government National
Mortgage Association ("GNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC") or the Federal National Mortgage Corporation ("FNMA"), represent
participation interests in direct pass-through pools of long-term first mortgage
loans originated and serviced by the issuers of the securities.
Gains and losses on the sale and redemption of securities available for sale are
based on the amortized cost of the specific security sold. The cost of
securities is adjusted for amortization of premium and accretion of discounts,
which is calculated on an effective interest method.
Purchases and sales are recorded on a trade date basis. Receivables and payables
from unsettled transactions are shown as due from brokers or due to brokers in
the consolidated financial statements.
29
<PAGE>
(1) Summary of Significant Accounting Policies, Continued
(d) Reclassification of Investment Securities
In November 1995, the Financial Accounting Standards Board (FASB) released its
Special Report "A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities." The Special Report
contained, among other things, a unique provision that allowed entities to, as
of one date either concurrent with the initial adoption of the Special Report
(November 15, 1995), but no later than December 31, 1995, reassess the
appropriateness of the classifications of all securities held at that time. In
accordance with the FASB's Special Report, as of December 31, 1995, the Company
reclassified all investment securities held to maturity, with an amortized cost
of $45,735,971, to securities available for sale.
(e) Loans Receivable and Loan Fees
Loans receivable are stated at unpaid principal amount, net of unearned
discount, deferred loan fees, net, and allowance for loan losses. Discounts are
amortized to income over the contractual loan life using the level-yield method.
Loan fees received and the related direct cost of originations have been
deferred and are being recorded as yield adjustments over the life of the
related loans using the interest method of amortization.
Non-performing loans include non-accrual loans, restructured loans and loans
which are 90 days or more past due and still accruing interest. Loans considered
doubtful of collection by management are placed on a nonaccrual status for the
recording of interest. Generally loans past due 90 days or more as to principal
or interest are placed on nonaccrual status except for certain loans which, in
management's judgment, are adequately secured and for which collection is
probable. Previously accrued income that has not been collected is reversed from
current income. Thereafter, the application of payments received (principal or
interest) is dependent on the expectation of ultimate repayment of the loan. If
ultimate repayment of the loan is expected, any payments received are applied in
accordance with contractual terms. If ultimate repayment of principal is not
expected or management judges it to be prudent, any payment received on a
non-accrual loan is applied to principal until ultimate repayment becomes
expected. Loans are removed from non-accrual status when they are estimated to
be fully collectible as to principal and interest. Amortization of related
deferred fees is suspended when a loan is placed on non-accrual status.
The allowance for loan losses is maintained at a level deemed appropriate by
management based on an evaluation of the known and inherent risks in the present
portfolio, the level of non-performing loans, past loan loss experience,
estimated value of underlying collateral, and current and prospective economic
conditions. The allowance is increased by provisions for loan losses charged to
operations.
30
<PAGE>
(1) Summary of Significant Accounting Policies, Continued
(f) Loan Impairment
On May 31, 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan", (SFAS No. 114). Statement No. 114 was amended by
Statement of Financial Accounting Standards No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures," (SFAS No. 118).
These Statements prescribe recognition criteria for loan impairment, generally
related to commercial type loans and measurement methods for certain impaired
loans and all loans whose terms are modified in troubled debt restructuring
subsequent to the adoption of these Statements. A loan is considered impaired
when it is probable that the borrower will not repay the loan according to the
original contractual terms of the loan agreement. As of January 1, 1995, the
Company adopted the provisions of SFAS No. 114 and SFAS No. 118. The effect of
adoption was not material to the consolidated financial statements.
As a result of the adoption of SFAS No. 114, the allowance for loan losses
related to impaired loans that are identified for evaluation in accordance with
SFAS No. 114 is based on discounted cash flows using the loan's initial
effective rate or the fair value of the collateral for certain loans where
repayment of the loan is expected to be provided solely by the underlying
collateral (collateral dependent loans). The Company's impaired loans are
generally collateral dependent. The Company considers estimated costs to sell,
on a discounted basis, when determining the fair value of collateral in the
measurement of impairment if those costs are expected to reduce the cash flows
available to repay or otherwise satisfy the loans.
Impaired loans are included in non-performing loans, generally as
non-accrual commercial type loans and all loans restructured in a troubled debt
restructuring subsequent to January 1, 1996, and all restructured loans which
are not performing in accordance with their restructured terms.
(g) Real Estate Owned and Repossessed Assets
Real estate owned and repossessed assets include assets received from
foreclosures and in-substance foreclosures. In accordance with SFAS No. 114, a
loan is classified as an insubstance foreclosure when the Company has taken
possession of the collateral regardless of whether formal foreclosure
proceedings have taken place.
Real estate owned and repossessed assets, including in-substance foreclosures,
are recorded on an individual asset basis at net realizable value which is the
lower of fair value minus estimated costs to sell or "cost" (defined as the fair
value at initial foreclosure). When a property is acquired or identified as
in-substance foreclosure, the excess of the loan balance over fair value is
charged to the allowance for loan losses. Subsequent write-downs to carry the
property at fair value less costs to sell are included in noninterest expense.
Costs incurred to develop or improve properties are capitalized, while holding
costs are charged to expense.
31
<PAGE>
(1) Summary of Significant Accounting Policies, Continued
At December 31, 1996, real estate owned and repossessed assets consisted
primarily of residential one to four family properties and mobile homes. At
December 31, 1995, real estate owned and repossessed assets consisted primarily
of multi-family and commercial real estate properties. The Company had no
in-substance foreclosures at December 31, 1996 and 1995.
(h) Premises and Equipment, Net
Premises and equipment are carried at cost, less accumulated depreciation
applied on a straight-line basis over the estimated useful lives of the assets.
Leasehold improvements are amortized on a straight-line basis over the
respective original lease terms without regard to lease renewal options.
(i) Income Taxes
Income taxes are recorded on income reported in the consolidated statements of
income regardless of when such taxes are payable. The Company records income
taxes in accordance with Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, (SFAS No. 109) "Accounting for Income
Taxes."
Under the asset and liability method of SFAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between financial statement carrying amounts of existing assets and
liabilities and their respective tax basis. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes the
enactment date. The Company's policy is that deferred tax assets are reduced by
a valuation reserve if, based on the weight of available evidence, it is more
likely than not that some or all of the deferred tax assets will not be
recognized. In considering if it is more likely than not that some or all of the
deferred tax assets will not be realized, the Company considers temporary
taxable differences, historical taxes and estimates of future taxable income.
(j) Pension Plan
The Company has a defined benefit pension plan covering substantially all
employees. The Company's actuarially determined annual contribution to the
pension plan meets or exceeds the minimum funding requirements set forth in the
Employees Retirement Income Security Act of 1974.
(k) Off-Balance Sheet Risk
The Company is a party to certain financial instruments with off-balance sheet
risk such as commitments to extend credit, unused lines of credit and standby
letters of credit. The Company's policy is to record such instruments when
funded.
32
<PAGE>
(1) Summary of Significant Accounting Policies, Continued
(l) Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid debt instruments with original maturities of three months or
less to be cash equivalents.
(m) Long Lived Assets
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. Measurement of impairment loss is determined by
reducing the carrying amount of the asset to its fair value. Long-lived assets
to be disposed of, such as real estate owned and repossessed assets or premises
to be sold, are reported at the lower of carrying amount or fair value less
estimated cost to sell. The Company adopted SFAS No. 121 in 1996. The adoption
of SFAS No. 121 did not have a material impact on the Company's consolidated
financial statements.
(n) Earnings per share
Earnings or loss per share are computed based on the weighted average number of
shares outstanding, less unreleased employee stock ownership plan shares, during
the period. Earnings per share are not presented for periods prior to the
initial stock offering as the Bank was a mutual savings bank at the time and no
stock was outstanding. The weighted average number of shares outstanding was
4,761,393 for the year ended December 31, 1996.
(o) Official Bank Checks
The Company's treasurer checks (including expense checks) are drawn upon the
Bank and are ultimately paid through the Bank's Federal Reserve Bank of New York
correspondent account and are included in accrued expenses and other liabilities
in the consolidated statements of financial condition.
33
<PAGE>
(1) Summary of Significant Accounting Policies, Continued
(p) Accounting for Transfers and Servicing of Financial Assets and
Extinguishment of Liabilities
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfer and Servicing
of Financial Assets and Extinguishments of Liabilities" (SFAS No. 125). SFAS No.
125 provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings. SFAS No. 125 is effective for transfers and servicing of
financial assets and extinguishments of liabilities occurring after December 31,
1996 and will supesede SFAS No. 122, which is discussed above. Certain aspects
of SFAS No. 125 were amended by SFAS No. 127, "Deferral of the Effective Date of
Certain Provision of FAS Statement No. 125." Management believes that adoption
of SFAS No. 125, as amended, will not have a material impact on the Company's
consolidated financial statements.
(q) Reclassifications
Amounts in the prior years' consolidated financial statements are reclassified
whenever necessary to conform to current period presentations.
(2) Conversion to Stock Ownership
On December 26, 1995, the Holding Company sold 5,422,250 shares of common stock
at $10.00 per share to depositors and employees of the Bank. Net proceeds from
the sale of stock of the Holding Company, after deducting conversion expenses of
approximately $2.0 million, were $52.2 million and are reflected as common stock
and additional paid-in capital in the accompanying December 31, 1996 and 1995
consolidated statements of financial condition. The Company utilized $26.0
million of the net proceeds to acquire all of the capital stock of the Bank.
As part of the conversion, the Bank established a liquidation account for the
benefit of eligible depositors who continue to maintain their deposit accounts
in the Bank after conversion. In the unlikely event of a complete liquidation of
the Bank, each eligible depositor will be entitled to receive a liquidation
distribution from the liquidation account, in the proportionate amount of the
then current adjusted balance for deposit accounts held, before distribution may
be made with respect to the Bank's capital stock. The Bank may not declare or
pay a cash dividend to the Holding Company on, or repurchase any of, its capital
stock if the effect thereof would cause the retained earnings of the Bank to be
reduced below the amount required for the liquidation account. Except for such
restrictions, the existence of the liquidation account does not restrict the use
or application of retained earnings.
34
<PAGE>
(2) Conversion to Stock Ownership, Continued
The Bank's capital exceeds all of the fully phased-in capital regulatory
requirements. The Office of Thrift Supervision (OTS) regulations provide that an
institution that exceeds all fully phased-in capital requirements before and
after a proposed capital distribution could, after prior notice but without the
approval by the OTS, make capital distributions during the calendar year of up
to 100% of its net income to date during the calendar year plus the amount that
would reduce by one-half its "surplus capital ratio" (the excess capital over
its fully phased-in capital requirements) at the beginning of the calendar year.
Any additional capital distributions would require prior regulatory approval. At
December 31, 1996, the maximum amount that could have been paid by the Bank to
the Holding Company was approximately $17.0 million.
Unlike the Bank, the Holding Company is not subject to these regulatory
restrictions on the payment of dividends to its stockholders.
(3) Reserves and Investments Required by Law
The Company is required to maintain certain reserves of cash and or deposits
with the Federal Reserve Bank. The amount of this reserve requirement, included
in cash and due from banks, was approximately $1,069,000 and $1,005,000 at
December 31, 1996 and 1995, respectively.
The Company is required to maintain certain levels of stock in the Federal Home
Loan Bank. The Company has pledged its investment in this stock, as well as
certain residential real estate loans, to secure its advances from the Federal
Home Loan Bank of New York.
(4) Securities Available for Sale
The amortized cost and estimated fair values of securities available for sale at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996
-------------------------------------------------
(in thousands)
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and agency securities $ 43,968 69 (264) 43,773
Mortgage-backed securities .......... 156,191 705 (635) 156,261
State and political subdivisions .... 500 5 -- 505
-------- ----- ------ -------
Total ....................... $ 200,659 779 (899) 200,539
======== ===== ====== =======
</TABLE>
35
<PAGE>
(4) Securities Available for Sale, Continued
<TABLE>
<CAPTION>
1995
-------------------------------------------------
(in thousands)
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government and agency securities $ 10,000 2 (35) 9,967
Mortgage-backed securities .......... 53,070 1 (38) 53,033
Financial notes ..................... 6,998 -- (61) 6,937
Industrial bonds .................... 999 -- (2) 997
Public utility bonds ................ 2,400 -- (10) 2,390
Floating rate notes ................. 1,100 -- (2) 1,098
-------- ----- ------ -------
Total ............... $ 74,567 3 (148) 74,422
======== ===== ====== =======
</TABLE>
The amortized cost and estimated fair value of investment securities available
for sale at December 31, 1996, by contractual maturity, are shown below
(mortgage backed securities are included by final contractual maturity).
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
Amortized Estimated
cost fair value
---- ----------
(In thousands)
Due after one year through five years . $ 29,294 28,964
Due after five years through ten years 19,653 19,534
Due after ten years ................... 151,712 152,041
------- -------
Totals ........................ $ 200,659 200,539
======= =======
Proceeds from sales of securities available for sale in 1996 and 1995 were
$34,469,000 and $18,372,251, respectively. Gross realized gains in 1996 and 1995
were $13,718 and $318,855, respectively, and in 1996 and 1995 there were gross
realized losses of $115,806 and $94,086, respectively.
Securities available for sale carried at $113,828,560 on December 31, 1996 were
pledged to secure repurchase agreements and other purposes.
36
<PAGE>
(5) Loans Receivable, Net
Loans receivable consist of the following at December 31, 1996 and 1995:
December 31,
1996 1995
---- ----
(In thousands)
Loans secured by real estate:
1 - 4 Family ..................................... $ 158,182 133,468
Home equity ...................................... 22,817 17,519
Multi family ..................................... 4,724 8,176
Non-residential .................................. 29,947 41,929
Construction ..................................... 2,234 1,073
------- -------
Total loans secured by real estate 217,904 202,165
======= =======
Other Loans:
Consumer loans:
Manufactured homes ....................... 620 13,484
Recreational vehicles .................... 9,416 12,881
Auto loans ............................... 12,417 9,337
Other secured ............................ 1,866 2,020
Unsecured ................................ 1,445 1,299
------- -------
Total consumer loans ............. 25,764 39,021
======= =======
Commercial loans:
Secured .................................. 6,199 9,346
Unsecured ................................ 620 350
------- -------
Total commercial loans ........... 6,819 9,696
------- -------
250,487 250,882
======= =======
Less:
Allowance for loan losses ........................ 3,438 2,647
Unamortized discount and deferred loan fees ...... (1,045) (1,756)
------- -------
2,393 891
------- -------
$ 248,094 249,991
======= =======
A summary of the allowance for loan losses is as follows:
December 31,
1996 1995 1994
---- ---- ----
(In thousands)
Balance at beginning of period $ 2,647 2,235 3,248
Provision charged to operations 9,450 1,522 1,107
Charge-offs ................... (8,718) (1,216) (2,460)
Recoveries .................... 59 106 340
------ ------ ------
Balance at end of period ...... $ 3,438 2,647 2,235
====== ====== ======
37
<PAGE>
(5) Loans Receivable, Net, Continued
The following table sets forth the information with regard to non-performing
loans:
December 31,
1996 1995
---- ----
(In thousands)
Loans in a non-accrual status ...... $ 3,123 4,499
Loans contractually past due 90 days
or more and still accruing interest 725 261
Restructured loans ................ 1,031 4,035
----- -----
Total non-performing loans $ 4,879 8,795
===== =====
Accumulated interest on the above non-performing loans of $375,459,
$876,524 and $759,897 was not recognized as income in 1996, 1995 and 1994,
respectively. Approximately $229,000, $482,000 and $356,000 of interest on
restructured and non-accrual loans was collected and recognized as income in
1996, 1995 and 1994, respectively.
At December 31, 1996, the recorded investment in loans that are considered to be
impaired under Statement No. 114 totaled $2,638,780 for which the related
allowance for loan losses is $1,182,838. At December 31, 1995 the recorded
investment in loans that were considered to be impaired was $3,003,497 for which
the related allowance for loan losses was $603,127. As of December 31, 1996 and
1995, there were no impaired loans which did not have an allowance for loan
losses determined in accordance with Statement No. 114. The average recorded
investment in impaired loans during the years ended December 31, 1996 and 1995
was approximately $6,918,000 and $4,106,000, respectively. For the years ended
December 31, 1996 and 1995, the Company recognized interest income on those
impaired loans of $110,470 and $61,278, respectively, which included $13,633 and
$2,787, respectively, of interest income recognized using the cash basis method
of income recognition.
Certain directors and executive officers of the Company were customers of and
had other transactions with the Company in the ordinary course of business.
Loans to these parties were made in the ordinary course of business at the
Company's normal credit terms, including interest rate and collateralization.
The aggregate of such loans totaled approximately $887,696 and $1,154,765 at
December 31, 1996 and 1995, respectively. There were no advances to the
directors and executive officers during the year ended December 31, 1996. Total
payments made on these loans were $267,069.
38
<PAGE>
(6) Accrued Interest Receivable
Accrued interest receivable consists of the following:
December 31,
1996 1995
---- ----
(In thousands)
Loans ....................................... $ 1,260 1,374
Securities available for sale ............... 1,941 453
----- -----
$ 3,201 1,827
===== =====
(7) Premises and Equipment
A summary of premises and equipment is as follows:
December 31,
1996 1995
---- ----
(In thousands)
Banking house and land ....................... $ 2,362 2,362
Leasehold improvements ....................... 700 629
Furniture, fixtures and equipment ............ 3,114 3,078
Construction in progress ..................... 80 12
------ ------
6,256 6,081
Less accumulated depreciation and amortization (3,472) (3,010)
------ ------
$ 2,784 3,071
====== ======
Amounts charged to depreciation expense were $500,833, $438,057 and $376,632 for
the years ended December 31, 1996, 1995 and 1994.
(8) Deposits
Deposits are summarized as follows:
December 31,
1996 1995
---- ----
(In thousands)
Passbook accounts (3.00% at December
31, 1996 and 1995) $ 99,569 104,269
------- -------
Certificates of deposit:
3.01 to 4.00% ..................... 994 1,143
4.01 to 5.00% ..................... 42,824 29,464
5.01 to 6.00% ..................... 88,042 70,172
6.01 to 7.00% ..................... 11,330 46,983
7.01 to 8.00% ..................... 8,742 9,593
8.01 to 9.00% ..................... -- 6
------- -------
$ 151,932 157,361
------- -------
Money market accounts(2.86% and 2.75% at
December31, 1996 and 1995, respectively)... 7,433 9,808
NOW accounts (2.75% at December 31 and 1995) 18,875 19,037
Demand accounts ............................ 20,273 20,764
------- -------
Total deposits ..................... $ 298,082 311,239
======= =======
39
<PAGE>
(8) Deposits, Continued
The approximate amount of contractual maturities of certificates of deposit for
the years subsequent to December 31, 1996 are as follows:
(In thousands)
Years ended December 31,
1997 $ 91,058
1998 38,397
1999 10,323
2000 10,267
2001 1,887
-------
$ 151,932
=======
The aggregate amount of certificates of deposits with a balance of $100,000 or
more were approximately $11.2 million and $11.1 million at December 31, 1996 and
1995, respectively.
Interest expense on deposits for the years ended December 31, 1996, 1995 and
1994, is summarized as follows:
1996 1995 1994
---- ---- ----
(In thousands)
Passbook accounts ............................. $ 3,162 3,300 4,123
Certificate of deposits ....................... 8,492 8,272 4,860
Now accounts .................................. 527 511 511
Money market accounts ......................... 243 285 364
Advances from borrowers for taxes and insurance -- -- 27
Common stock subscriptions escrow ............. -- 79 --
------ ------ ------
Total interest expense ................ $ 12,424 12,447 9,885
====== ====== ======
(9) Borrowed Funds
On March 29, 1996, the Company entered into a $22.4 million overnight line of
credit and a $22.4 million 30 day line of credit with Federal Home Loan Bank of
New York (FHLB). As of December 31, 1996 the Company had taken $6 million in
advances on these lines of credit. At December 31, 1995, the Company had a $17.4
million line of credit with the FHLB. There were no advances taken on the line
of credit as of December 31, 1995.
The Company enters into sales of securities under repurchase agreements. Such
agreements are treated as financings, and the obligations to repurchase
securities sold are reflected as liabilities on the Company's consolidated
statements of financial condition. During the period of such agreements, the
underlying securities are transferred to a third party custodian's account that
explicitly recognizes the Company's interest in the securities.
40
<PAGE>
(9) Borrowed Funds, Continued
The following sets forth certain information related to the Company's
borrowings, consisting of Federal Home Loan Bank (FHLB) advances and securities
sold under agreements to repurchase:
December 31,
1996 1995
(In thousands)
FHLB advances .............................. $ 6,000 --
Securities sold under agreements to repurchase 102,780 --
------- -----
Total borrowings ...................... $ 108,780 --
======= =====
Weighted average interest rate of FHLB advances 5.30% --%
======= =====
Weighted average interest rate of securities
sold under agreements to repurchase .......... 5.96 --%
======= =====
The following table sets forth the maturities of securities sold under
agreements to repurchase, including the weighted average interest rates, and the
fair value of the securities sold under the repurchase agreements as of December
31, 1996:
Weighted Fair Value
Repurchase Average of Securities
Liability Interest Rate Sold
Due within 30 days ............. $ 20,450 5.67% $ 21,318
Due after 30 days up to 90 days 7,700 5.61% 11,372
Due after 91 days up to 365 days 24,130 5.72% 24,847
Due after 365 days ............. 50,500 6.24% 56,292
------- ----- ------
$ 102,780 5.96% $ 113,829
======= ===== =======
The following table sets forth the maximum month-end balances and average
balances of FHLB advances and securities sold under agreements to repurchase for
the periods indicated.
Years Ended December 31,
1996 1995
(In thousands)
Maximum Month-end Balance:
- -------------------------
FHLB advances ................................. $ 28,000 15,000
======= ======
Securities sold under agreements to repurchase 102,780 4,000
======= ======
Average Balance:
- ---------------
FHLB advances ................................. 9,757 3,922
======= ======
Securities sold under agreements to repurchase 57,815 958
======= ======
Weighted average interest rate of FHLB advances 5.35% 6.06%
======= ======
Weighted average interest rate of securities
sold under agreement to repurchase ............ 5.94% 6.30%
======= ======
41
<PAGE>
(10) Income Taxes
The components of income tax expense (benefit) are as follows:
December 31,
1996 1995 1994
---- ---- ----
(In thousands)
Current tax (benefit) expense:
Federal ........................ $ (1,421) 955 (98)
State ............................ 1 208 (140)
----- ----- -----
(1,420) 1,163 (238)
Deferred tax (benefit) expense ........... $ (509) (577) 360
----- ----- -----
Total income tax expense (benefit) (1,929) 586 122
===== ===== =====
Actual tax expense (benefit) for the years ended December 31, 1996, 1995 and
1994 differs from expected tax expense (benefit), computed by applying the
Federal corporate tax rate of 34% to income before taxes as follows:
December 31,
1996 1995 1994
---- ---- ----
(In thousands)
Expected tax expense (benefit) ........... $ (1,960) $ 491 $ 704
State taxes, net of Federal
income tax benefit ...................... 1 103 55
Change in valuation allowance for
deferred tax asset....................... -- -- (641)
Other items .............................. 30 (8) 4
----- ----- -----
$ (1,929) $ 586 $ 122
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1996 are
presented below:
Temporary Temporary
Deductions Taxable
Differences Differences
----------- -----------
(In thousands)
Reserves for loan losses ............................ $ 1,358 65
Nonqualified deferred compensation .................. 233 --
Loan accounting differences ......................... 236 --
Property and equipment .............................. -- 113
Prepaid expenses .................................... -- 330
Other items ......................................... 54 --
----- -----
1,881 508
Deferred tax liability .............................. 508
-----
Net deferred tax asset at December 31, 1996 ......... 1,373
Net deferred tax asset at January 1, 1996 ........... 864
-----
Deferred tax benefit for the year ended
December 31, 1996.................................. $ 509
=====
42
<PAGE>
(10) Income Taxes, Continued
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1995 are
presented below:
Temporary Temporary
Deductions Taxable
Differences Differences
----------- -----------
(In thousands)
Reserves for loan losses .......................... $ 1,206 120
Nonqualified deferred compensation ................ 417 --
Loan accounting differences ....................... -- 267
Property and equipment ............................ -- 124
Prepaid expenses .................................. -- 361
Other items ....................................... 113 --
----- ----
1,736 872
====
Deferred tax liability ............................ 872
-----
Net deferred tax asset at December 31, 1995 ....... 864
Net deferred tax asset at January 1, 1995 ......... 287
-----
Deferred tax benefit for the year ended
December 31, 1995................................ $ 577
=====
In addition to the deferred tax items described in the preceding table, the
Company also has a deferred tax asset of approximately $40,000 and $46,000 at
December 31, 1996 and 1995, respectively, relating to the unrealized loss on
securities available for sale.
There was no valuation allowance or change in the valuation allowance for
deferred tax assets as of and for the years ended December 31, 1996 and 1995.
Management believes that the realization of the recognized net deferred tax
asset at December 31, 1996 amounting to approximately $1.4 million is more
likely than not, based on available tax planning strategies, and expectations as
to future taxable income. The change in the deferred tax asset valuation reserve
in 1994 was based on the Company's continuing evaluation of the level of such
valuation reserve and the realizability of the temporary differences creating
the deferred tax asset and after considering the estimates of future taxable
income.
As a qualifying thrift institution under IRS guidelines, the Bank has been
eligible to claim special tax deductions substantially in excess of actual loss
experience as a tax bad debt reserve which has not been subject to deferred
taxes through December 31, 1987, in accordance with SFAS No. 109. Accordingly,
no deferred tax liability has been recorded for the tax bad debt reserve at
December 31, 1987. This reserve, which approximated $3,294,000 at December 31,
1987, will not be subject to tax as long as the Bank does not (i) redeem stock
or have excess distributions to shareholders, or (ii) fail to maintain a
specified qualifying assets ratio or meet other definition tests for New York
State purposes.
43
<PAGE>
(10) Income Taxes, Continued
As a result of tax legislation passed by Congress in 1996, the Company is no
longer eligible to claim the special deduction for Federal income tax purposes.
The Federal tax bad debt reserve, aggregating approximately $3,456,000 million
at December 31, 1996, exceeds the base year reserve by approximately $162,000
(the "excess reserve"). The excess reserve is to be recaptured as taxable income
over a defined number of years. The Company had previously established a
deferred tax liability for this excess reserve such that there is no impact on
total tax expense (benefit) for the Company in 1996 or any future year.
(11) Employee Benefit Plans
(a) Pension Plan
The Bank maintains a non-contributory pension plan with the RSI Retirement
Trust, covering substantially all employees aged 21 and over with 1 year of
service with the exception of hourly paid employees. Benefits are computed as
two percent of the highest three year average annual earnings multiplied by
credited service up to a maximum of 35 years.
The amounts contributed to the plan are determined annually on the basis of (a)
the maximum amount that can be deducted for Federal income tax purposes or (b)
the amount certified by a consulting actuary as necessary to avoid an
accumulated funding deficiency as defined by the Employee Retirement Income
Security Act of 1974. Contributions are intended to provide not only for
benefits attributed to service to date but also for those expected to be earned
in the future. Assets of the plan are primarily invested in pooled equity funds
and fixed income funds.
The following table sets forth the plan's funded status and amounts recognized
in the Company's consolidated statements of financial condition at December 31,
1996 and 1995:
1996 1995
---- ----
(In thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $3.1 million in 1996 and $3.0 million in 1995 $ (3,324) (3,171)
===== =====
Projected benefit obligation ............................. (4,060) (3,833)
Plan assets at fair value ................................ 5,093 4,553
----- -----
Projected plan assets in excess of benefit obligation .... 1,033 720
Unrecognized net loss .................................... (301) (28)
Unrecognized prior service cost .......................... 52 61
Unrecognized net asset being recognized over 10.71 years . (132) (178)
----- -----
Prepaid pension cost ..................................... $ 652 575
===== =====
44
<PAGE>
(11) Employee Benefit Plans, Continued
Net pension costs recognized in the consolidated statements of income for the
years ended December 31, 1996, 1995 and 1994 are summarized as follows:
1996 1995 1994
---- ---- ----
(In thousands)
Components of net pension cost:
Service cost - benefits earned during the period ...... $ 187 141 169
Interest cost on estimated projected benefit obligation 288 268 251
Actual return on plan assets .......................... (627) (783) 21
Net amortization and deferral ......................... 222 437 (366)
---- ---- ----
Net pension cost ...................................... $ 70 63 75
==== ==== ====
Significant assumptions used in determining the actuarial present value of the
projected benefit obligation are as follows:
1996 1995 1994
---- ---- ----
Weighted average discount rate ........................ 7.50% 7.50% 8.25%
Increase in future compensation ....................... 5.50% 5.50% 6.00%
Expected long term rate of return ..................... 8.00% 8.00% 8.00%
(b) 401(k) Savings Plan
The Bank maintains a defined contribution 401(k) savings plan, covering all full
time employees who have attained age 21 and have completed one year of
employment. The Bank matches 50% of employee contributions that are less than or
equal to 3% of the employee's salary. Total expense recorded during 1996, 1995,
and 1994 was $37,671, $33,181 and $27,514, respectively.
(c) Employee Stock Ownership Plan
As part of the conversion discussed in note 2, an employee stock ownership plan
(ESOP) was established to provide substantially all employees of the Company the
opportunity to become stockholders. The ESOP borrowed $4.3 million from the
Company and used the funds to purchase 433,780 shares of the common stock of the
Company issued in the conversion. The loan will be repaid principally from the
Company's discretionary contributions to the ESOP over a period of ten years. At
December 31, 1996 and 1995, the loan had an outstanding balance of $3.9 million
and $4.3 million, respectively and an interest rate of 6.21%. The loan
obligation is reduced by the amount of loan repayments made by the ESOP. Shares
are released for allocation and unearned compensation is amortized over the loan
repayment period based on the amount of principal and interest paid on the loan
as a percentage of the total principal and interest to be paid on the loan over
its entire term. Shares purchased with the loan proceeds are held in a suspense
account for allocation among participants as the loan is repaid. Contributions
to the ESOP and shares released from the suspense account are allocated among
participants on the basis of compensation in the year of allocation.
45
<PAGE>
(11) Employee Benefit Plans, Continued
The Company accounts for the ESOP in accordance with the American Institute of
Certified Public Accountants' Statement of Position No. 93-6 "Employees'
Accounting For Stock Ownership Plans" (SOP 93-6). Accordingly, the shares
pledged as collateral are reported as unallocated ESOP shares in shareholders'
equity. As shares are released from collateral, the Company reports compensation
expense equal to the average market price of the shares (during the applicable
service period), and the shares become outstanding for earnings per share
computations. Unallocated ESOP shares are not included in the earnings per share
computations. The Company recorded approximately $527,000 of compensation
expense under the ESOP during the year ended December 31, 1996.
The ESOP shares as of December 31, 1996 were as follows:
Allocated shares ........................................ --
Shares released for allocation .......................... 52,964
Unallocated shares ...................................... 380,816
---------
433,780
=========
Market value of unallocated shares at December 31, 1996.. $ 4,284,180
=========
(d) Post Retirement Benefits
The Company accounts for postretirement benefits under Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" (SFAS No. 106). Under SFAS No. 106, the cost of
postretirement benefits other than pensions must be recognized on an accrual
basis as employees perform services to earn the benefits. Based on the
transition provisions of SFAS No. 106, the accumulated postretirement benefit
obligation at the date of adoption (the transition obligation) may be recognized
in income as the cumulative effect of an accounting change in the period of
adoption or delayed and amortized as a component of net periodic postretirement
benefit cost. The Company adopted SFAS No. 106 as of January 1, 1995 and opted
to amortize the transition obligation into expense. The adoption of SFAS No. 106
did not have a material effect on the Company's consolidated financial
statements.
Certain postretirement health insurance benefits have been committed to a closed
group of twelve retired employees. The Company has formally adopted measures to
not offer these benefits to any additional employees. The annual health
insurance increase and discount rate used to calculate the transition obligation
were 6% and 8.5%, respectively. There are no plan assets. The estimated
transition obligation at January 1, 1995 was $260,000. The net periodic
postretirement benefit costs in 1996 and 1995 were approximately $26,000.
46
<PAGE>
(12) Retained Earnings
As a qualifying thrift institution, the Bank has been eligible to claim special
Federal tax deductions substantially in excess of actual loss experience as a
tax bad debt reserve. Such reserve, aggregating approximately $3,456,000 at
December 31, 1996, is included within equity in the accompanying consolidated
statement of financial condition. Federal tax law restricts the use of such
reserves to charges for bad debts. If this reserve is charged for amounts other
than bad debts, taxable income of an identical amount is created. Since
ineligible charges to the reserve are not anticipated, no provision has been
made for Federal income taxes thereon.
See also note 2.
(13) Commitments and Contingent Liabilities
(a) Legal Proceedings
The Company and its subsidiaries may, from time to time, be defendants in legal
proceedings relating to the conduct of their business. In the best judgments of
management, the consolidated financial position of the Company and its
subsidiaries will not be affected materially by the outcome of any pending legal
proceedings.
The Bank was a defendant in an action by the current owners of F. H.
Doherty Associates, Inc. (the Bank sold F. H. Doherty Associates, Inc. to the
current owners), seeking to rescind the sale of stock, recover any additional
capital contributions made by the plaintiffs, and punitive damages in the amount
of $1,000,000, and indemnification on a potential claim in the amount of $67,500
resulting from a subsequent transfer of a portion of the stock by plaintiffs to
a third party. During 1996, the Bank stipulated to a settlement and agreed to
pay $262,500 to the plaintiffs. The Bank charged $175,000 against the allowance
for probable loss which was established for this matter in 1995. The remaining
$87,500 was charged against current year operations.
(b) Nationar Receivables
On February 6, 1995, the Superintendent of Banks for the State of New York
("Superintendent") seized Nationar, a check-clearing and trust company, freezing
all of Nationar's assets. On that date, the Bank had: a demand account balance
of $233,000, and a Nationar debenture of $100,000 collateralized by a $1,000,000
investment security. On September 26, 1995, the Company entered into a standby
letter of credit with the Superintendent for $1,086,250 which replaced the
$1,000,000 security that was pledged as collateral for the capital debenture
bonds. As of December 31, 1995, the Company charged off the Nationar debenture
of $100,000 and established an additional reserve of $105,000 for potential
losses of the demand account and potential losses related to the stand by letter
of credit.
47
<PAGE>
(13) Commitments and Contingent Liabilities, Continued
During 1996 the Company received a cash payment of $233,000 from the
Superintendent relating to its Nationar claim. In addition, on June 10, 1996 the
Company issued a new standby letter of credit for $150,000 to the
Superintendent, and the initial standby letter of credit was cancelled.
Concurrent with the new standby letter of credit, the Company was required to
pay $58,000 under the original standby letter of credit agreement. This amount
was charged against the reserve the Company had previously established.
Subsequently, the Company was informed by the Superintendent's Office that the
$150,000 standby letter of credit was canceled and that the Company will have no
further liability in connection with its agreement with the Superintendent.
(c) Lease Commitments
The Company leases office space and equipment under noncancelable operating
leases. Minimum rental commitments under these leases are as follows:
Years ended December 31,
(In thousands)
1997 $ 289
1998 307
1999 230
2000 202
2001 146
2002 and thereafter 1,994
-----
$ 3,168
=====
Amounts charged to rent expense were approximately $225,000, $203,000 and
$141,000 for the years ended December 31, 1996, 1995 and 1994.
(d) Off-Balance Sheet Financing and Concentrations of Credit
The Company is a party to certain financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend credit,
unused lines of credit and standby letters of credit. These instruments involve,
to varying degrees, elements of credit risk in excess of the amount recognized
on the consolidated statement of financial condition. The contract amounts of
these instruments reflect the extent of involvement the Company has in
particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the commitments to extend credit, unused lines of credit and
standby letters of credit is represented by the contractual notional amount of
these instruments. The Company uses the same credit policies in making
commitments as it does for on-balance sheet instruments.
Unless otherwise noted, the Company does not require collateral or other
security to support off-balance sheet financial instruments with credit risk.
48
<PAGE>
(13) Commitments and Contingent Liabilities, Continued
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being fully drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral, if any,
required by the Company upon the extension of credit is based on management's
credit evaluation of the customer. Mortgage commitments are secured by a first
lien on real estate. Collateral on extensions of credit for commercial loans
varies but may include property, plant and equipment, and income producing
commercial property.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support borrowing arrangements. The credit risk involved in
issuing standby letters of credit is essentially the same as that involved in
extending loan facilities to customers.
Contract amounts of financial instruments that represent the future extension of
credit as of December 31, 1996 and 1995 at fixed and variable interest rates are
as follows:
1996
---------------------------
Fixed Variable Total
----- -------- -----
(In thousands)
Financial instruments whose
contract amounts represent
Credit risk:
Commitments to extend credit $ 1,076 826 1,902
Unused lines of credit ..... 914 4,981 5,895
Standby letters of credit .. -- 100 100
----- ----- -----
$ 1,990 5,907 7,897
===== ===== =====
1995
---------------------------
Fixed Variable Total
----- -------- -----
(In thousands)
Financial instruments whose
contract amounts represent
Credit risk:
Commitments to extend credit $ 426 1,528 1,954
Unused lines of credit ..... 864 5,723 6,587
Standby letters of credit .. -- 1,236 1,236
----- ----- -----
$ 1,290 8,487 9,777
===== ===== =====
The range of interest on fixed rate commitments was 7.0% to 8.5% at December 31,
1996, and 7.5% to 8.5% at December 31, 1995.
The range of interest on adjustable rate commitments was 5.5% to 9.75% and 8.50%
to 10.0% at December 31, 1996 and 1995, respectively.
49
<PAGE>
(14) Fair Values
The Financial Accounting Standards Board issued SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS No. 107), which requires that the
Company disclose estimated fair values for certain financial instruments. SFAS
No. 107 defines fair value of financial instruments as the amount at which the
instrument could be exchanged in a current transaction between willing parties
other than in a forced or liquidation sale. SFAS No. 107 defines a financial
instrument as cash, evidence of ownership interest in an entity, or a contract
that imposes on one entity a contractual obligation to deliver cash or another
financial instrument to a second entity or to exchange other financial
instruments on potentially unfavorable terms with a second entity and conveys to
that second entity a contractual right to receive cash or another financial
instrument from the first entity or to exchange other financial instruments on
potentially favorable terms with the first entity.
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected net cash flows, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on-and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include the deferred tax asset and
property, plant, and equipment. In addition, the tax ramifications related to
the realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered in the estimates of fair
value under SFAS No. 107.
In addition there are significant intangible assets that SFAS No. 107 does not
recognize, such as the value of "core deposits," the Company's branch network
and other items generally referred to as "goodwill."
50
<PAGE>
(14) Fair Values, Continued
The specific estimation methods and assumptions used can have a substantial
impact on the resulting fair values ascribed to financial instruments. The
following is a brief summary of the significant methods and assumptions used:
Securities Available for Sale
The carrying amounts for short-term investments approximate fair value because
they mature in 90 days or less and do not present unanticipated credit concerns.
The fair value of longer-term investments and mortgage-backed securities, except
certain state and municipal securities, is estimated based on bid prices
published in financial newspapers or bid quotations received from securities
dealers. The fair value of certain state and municipal securities is not readily
available through market sources other than dealer quotations, so fair value
estimates are based on quoted market prices of similar instruments, adjusted for
differences between the quoted instruments and the instruments being valued. See
note 4 for detail disclosure of securities available for sale.
Loans
Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as single family loans,
consumer loans and commercial loans. Each loan category is further segmented
into fixed and adjustable rate interest terms and by performing and
nonperforming categories.
The fair value of performing loans is calculated by discounting scheduled cash
flows through the estimated maturity using estimated market discount rates that
reflect the credit and interest rate risk inherent in the loan. The estimate of
maturity is based on the contractual term of the loans to maturity taking into
consideration certain prepayment assumptions.
Fair value for significant non-performing loans is based on recent external
appraisals and discounting of cash flows. Estimated cash flows are discounted
using a rate commensurate with the risk associated with the estimated cash
flows. Assumptions regarding credit risk, cash flows, and discount rates are
judgmentally determined using available market information and specific borrower
information.
Deposit Liabilities
Under SFAS No. 107, the fair value of deposits with no stated maturity, such as
non-interest bearing demand deposits, passbook accounts, NOW accounts and money
market accounts must be stated at the amount payable on demand. The fair value
of certificates of deposit is based on the discounted value of contractual cash
flows. The discount rate is estimated using the rates currently offered for
deposits of similar remaining maturities.
The fair value estimates above do not include the benefit that results from the
low-cost funding provided by the deposit liabilities compared to the cost of
borrowing funds in the market.
51
<PAGE>
(14) Fair Values, Continued
Borrowed Funds
The fair value of borrowed funds due in 90 days or less, or that reprice in 90
days or less is estimated to approximate the carrying amounts. The fair value of
longer term borrowed funds is estimated by discounting scheduled cash flows
based on current rates available to the Company for similar types of borrowing
arrangements.
Other Items
The following items are considered to have a fair value equal to book value due
to the nature of the financial instrument and the period within which it will be
settled or repriced: cash and due from banks, federal funds sold, accrued
interest receivable, due to/from broker, investments required by law, due to
broker, advances from borrowers for taxes and insurance, and accrued interest
payable.
Table of Financial Instruments
The carrying values and estimated fair values of financial instruments as of
December 31, 1996 and 1995 were as follows:
December 31, 1996 December 31, 1995
----------------- -----------------
Estimated Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
(in thousands)
Financial assets:
Cash and cash equivalents .......... $ 10,887 10,887 84,613 84,613
Securities available for sale ...... 200,539 200,539 74,422 74,422
Federal Home Loan Bank of New York
stock ....................... 2,029 2,029 1,892 1,892
Loans .............................. 251,532 249,665 252,638 248,936
Less: Allowance for loan losses ... (3,438) -- (2,647) --
------- ------- ------- -------
Net loans ................... 248,094 249,665 249,991 248,936
Due from broker .................... -- -- 18,128 18,128
Accrued interest receivable ........ 3,201 3,201 1,827 1,827
Financial liabilities:
Deposits:
Demand, passbook, money
market,and NOW accounts ..... 146,150 146,150 153,878 153,878
Certificates of deposit ..... 151,932 152,797 157,361 159,852
Borrowed funds ..................... 108,780 108,806 -- --
Accrued interest payable ........... 1,077 1,077 2 2
Advances from borrowers for tax
and insurance................ 1,703 1,703 1,692 1,692
Due to broker ...................... -- -- 46,880 46,880
52
<PAGE>
(14) Fair Values, Continued
Commitments to Extend Credit, Standby Letters of Credit, and Financial
Guarantees Written
The fair value of commitments to extend credit is estimated using the fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the present credit worthiness of the
counterparties. For fixed rate loan commitments, fair value also considers the
difference between current levels of interest rates and the committed rates. The
fair value of financial guarantees written and letters of credit is based on
fees currently charged for similar agreements or on the estimated cost to
terminate them or otherwise settle the obligations with the counterparties.
Fees, such as these are not a major part of the Company's business and in the
Company's business territory are not a "normal business practice." Therefore,
based upon the above facts the Company believes that book value equals fair
value and the amounts are not significant.
(15) Regulatory Capital Requirements
OTS capital regulations require savings institutions to maintain minimum levels
of regulatory capital. Under the regulations in effect at December 31, 1996, the
Bank was required to maintain a minimum ratio of tangible capital to total
tangible assets of 1.5%; a minimum leverage ratio of core (Tier 1) capital to
total adjusted tangible assets of 3.0%; and a minimum ratio of total capital
(core capital and supplementary capital) to risk-weighted assets of 8.0%, of
which 4.0% must be core (Tier 1) capital.
Under the prompt corrective action regulations, the OTS is required to take
certain supervisory actions (and may take additional discretionary actions) with
respect to an undercapitalized institution. Such actions could have a direct
material effect on an institution's financial statements. The regulations
establish a framework for the classification of savings institutions into five
categories: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. Generally, an
institution is considered well capitalized if it has a core (Tier 1) capital
ratio of at least 5.0% (based on average total assets); a core (Tier 1)
risk-based capital ratio of at least 6.0%; and a total risk-based capital ratio
of at least 10.0%.
The foregoing capital ratios are based in part on specific quantitative measures
of assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. Capital amounts and classifications are also
subject to qualitative judgments by the OTS about capital components, risk
weightings and other factors.
Management believes that, as a December 31, 1996, the Bank meets all capital
adequacy requirements to which it is subject. Further, the most recent OTS
notification categorized the Bank as a well-capitalized institution under the
prompt corrective action regulations. There have been no conditions or events
since that notification that management believes have changed the Bank's capital
classification.
53
<PAGE>
(15) Capital Requirements, Continued
The following is a summary of the Bank's actual capital amounts and ratios as of
December 31, 1996, compared to the OTS minimum capital adequacy requirements and
the OTS requirements for classification as a well-capitalized institution.
Although the OTS capital regulations apply at the Bank level only, the Company's
consolidated capital amounts and ratios are also presented. The OTS does not
have a holding company capital requirement.
Minimum Capital For Classification
Actual Adequacy as Well Capitalized
--------------- --------------- --------------------
Amount Ratio Ratio Ratio
------ ----- ----- -----
Bank
- ----
Tangible capital .... $ 46,225 10.08% 1.50% --
Tier 1 (core) capital 46,225 10.08 3.00 5.00%
Risk-based capital:
Tier 1 ...... 46,225 23.35 -- 6.00
Total ....... 48,712 24.61 8.00 10.00
Actual
---------------
Amount Ratio
------ -----
Consolidated
- ------------
Tangible capital .... $ 61,598 13.04
Tier 1 (core) capital 61,598 13.04
Risk-based capital:
Tier 1 ...... 61,598 30.66
Total ....... 64,098 31.90
54
<PAGE>
(16) Holding Company Financial Information
The Holding Company began operations on December 26, 1995 in conjunction with
the Bank's mutual-to-stock conversion and the Company's initial public offering
of its common stock. The Holding Company's statements of financial condition as
of December 31, 1996 and 1995 and related statements of income and cash flows
for the year ended December 31, 1996 and for the period from inception (December
26, 1995) to December 31, 1995 are as follows (the Holding Company did not have
any income or expenses for the period from December 26, 1995 to December 31,
1995):
Statements of Financial Condition
At December 31,
---------------
1996 1995
---- ----
(in thousands)
Assets
Cash and cash equivalents ................................ $ 469 21,752
Securities available for sale* ........................... 13,956 --
Loan receivable from subsidiary .......................... 3,904 4,338
Accrued interest receivable .............................. 163 --
Investment in subsidiary ................................. 46,312 49,925
Other assets ............................................. 85 --
------ ------
Total assets ............................. $ 64,889 76,015
====== ======
Liabilities and Shareholders' Equity
Liabilities:
Security sold under agreement to repurchase** .... $ 3,000 --
Other liabilities ................................ 371 --
------ ------
Shareholders' Equity ..................................... 61,518 76,015
------ ------
Total liabilities and shareholders' equity $ 64,889 76,015
====== ======
* The Holding Company's securities available for sale consist of U.S. Government
Agency and mortgage backed securities with a weighted average maturity of 5.0
years.
** Weighted average rate at December 31, 1996 is 5.60% with a maturity date of
March 26, 1997.
55
<PAGE>
(16) Holding Company Financial Information, Continued
Statements of Income
For the Year Ended December 31, 1996, and for the
Period From Inception (December 26, 1995) Through December 31, 1995
1996 1995
---- ----
(in thousands)
Interest income ............................. $ 1,128 --
Interest expense .............................. 2 --
----- -----
Net interest income ................... 1,126 --
Non interest expense .......................... 309 --
----- -----
Income before income taxes and equity
in undistributed earnings (loss) of subsidiary 817 --
----- -----
Income tax expense ............................ 328 --
----- -----
Income before equity in undistributed
earnings (loss) of subsidiary ................ 489 --
Equity in undistributed (loss) earnings
of subsidiary ................................ (4,325) 857
----- -----
Net income (loss) ............................. $ (3,836) 857
===== =====
56
<PAGE>
(16) Holding Company Financial Information, Continued
Statements of Cash Flows
For the Year ended December 31, 1996, and for the Period From Inception
(December 26, 1995) Through December 31, 1995
1996 1995
---- ----
(in thousands)
Cash flows from operating activities:
Net income (loss) ................................ $ (3,836) 857
Adjustment to reconcile net
income (loss) to net cash provided
by operating activities:
Equity in undistributed loss
(earnings) of subsidiary ..................... 4,325 (857)
Increase in other liabilities .................. 371 --
Increase in accrued interest receivable ........ (163) --
------- -------
Net cash provided by operating activities 697 --
------- -------
Cash flows from investing activities:
Decrease (increase) in loans receivable
from subsidiary ................................. 434 (4,338)
Investment in common stock of subsidiary .......... -- (26,090)
Purchases of securities available for sale ........ (19,985) --
Proceeds from principal paydowns and
maturities of securities available for sale ..... 3,984 --
Proceeds from sales of available for sale
securities ...................................... 1,795 --
------- -------
Net cash used in investing activities ... (13,772) (30,428)
------- -------
Cash flows from financing activities:
Net increase in borrowed funds .................... 3,000 --
Net proceeds from issuance of common stock ........ -- 52,180
Purchase of treasury stock ........................ (11,208) --
------- -------
Net cash provided by (used in)
financing activities .................. (8,208) 52,180
------- -------
Net increase (decrease) in cash and cash equivalents ...... (21,283) 21,752
Cash and cash equivalents:
Beginning of period ............................... 21,752 --
------- -------
End of period ..................................... $ 469 21,752
======= =======
These financial statements should be read in conjunction with the Company's
consolidated financial statements and notes thereto. 30
57
<PAGE>
CORPORATE AND STOCKHOLDER INFORMATION
Company and Bank Address
11 Division Street
Amsterdam, New York 12010-4303
Telephone: (518) 842-7200
Fax: (518) 842-7500
Stock Price Information
The Company's stock is traded on The Nasdaq National Market System under the
symbol "AHCI". The table below shows the range of high and low bid prices since
the Company's common Stock began trading on December 27, 1995. The information
set forth in the table below was provided by The Nasdaq Stock Market. Such
information reflects interdealer prices, without retail mark-up, mark-down or
commission, and may not represent actual transactions.
High Low
1995 Fourth Quarter (1) $10.500 $ 9.500
1996 First Quarter 10.500 9.375
1996 Second Quarter 10.000 9.375
1996 Third Quarter 10.625 9.500
1996 Fourth Quarter 11.750 10.000
(1) Reflects the period from December 27, 1995 through December 31, 1995
- -------------------------------------
No cash dividends have been paid on Ambanc Holding Co., Inc. common stock to
date. For information regarding restriction on dividends, see Note 2 to the
Notes to Consolidated Financial Statements.
As of April 9, 1997, the Company had approximately 1,225 stockholders of record
and 4,392,023 outstanding shares of Common Stock.
Investor Relations
Stockholders, investors and analysts interested in additional information may
contact:
Harold A. Baylor, Jr.
Ambanc Holding Co., Inc.
11 Division Street
Amsterdam, New York 12010-4303
(518) 842-1445
Annual Report on Form 10-K
Copies of Ambanc Holding Co., Inc.'s Annual Report for year ended December 31,
1996 on Form 10-K filed with the Securities and Exchange Commission are
available without charge to stockholders upon written request to:
Investor Relations
Ambanc Holding Co., Inc.
11 Division Street
Amsterdam, New York 12010-4303
58
<PAGE>
Annual Meeting
The annual meeting of stockholders will be held at 10:00 a.m., Amsterdam, New
York time, on Friday, May 23, 1997 at the Best Western, formerly the Holiday
Inn, located at 10 Market Street, Amsterdam, New York.
Stock Transfer Agent and Registrar
Ambanc Holding Co., Inc.'s transfer agent, American Stock Transfer & Trust,
maintains all stockholder records and can assist with stock transfer and
registration address changes, changes or corrections in social security or tax
identification numbers and 1099 tax reporting questions. If you have questions,
please contact the stock transfer agent at the address below:
American Stock Transfer & Trust
40 Wall Street, 46th Floor
New York, New York 10005
Telephone: (718) 921-8290
Amsterdam Savings Bank, FSB Offices
Corporate 11 Division Street
Amsterdam, N.Y. 12010
(518) 842-7200
Amsterdam Route 30N
Amsterdam, N.Y. 12010
Price Chopper Supermarket
Sanford Farms Plaza
Amsterdam, N.Y. 12010
Ballston Spa Grand Union Plaza, Rte. 50
Ballston Spa, N.Y. 12020
Clifton Park Village Plaza
Clifton Park, N.Y. 12065
Fort Plain 19 River Street
Fort Plain, N.Y. 13339
Gloversville Arterial at Fifth Avenue
Gloversville, N.Y. 12078
Latham Price Chopper Supermarket
873 New Loudon Road
Latham, N.Y. 12110
Schenectady Price Chopper Supermarket
1640 Eastern Parkway
Schenectady, N.Y. 12309
Operations Center 35 East Main Street
Amsterdam, N.Y. 12010
59
<PAGE>
DIRECTORS AND OFFICERS
Board of Directors Year
(Ambanc Holding Co., Inc. and appointed
Amsterdam Savings Bank, FSB) to Bank Board
- ----------------------------------------------------------------- --------------
Paul W. Baker, Chairman of the Board 1963
Robert J. Brittain, President and Chief Executive Officer 1988
Lauren T. Barnett, Barnett Agency, Inc. 1966
John J. Daly, Alpin Haus 1988
Robert J. Dunning D.D.S., Dentist 1972
Lionel H. Fallows, Retired, Lieutenant Colonel 1981
Marvin R. LeRoy, Alzheimers Association, Northeastern NY Chapter 1996
Charles S. Pedersen, Independent Manufacturers' Representative 1977
Carl A. Schmidt, Jr., Sofco, Inc. 1974
William A. Wilde, Jr., Amsterdam Printing and Litho Corp. 1966
Executive Officers of Ambanc Holding Co., Inc.
- ----------------------------------------------
Robert J. Brittain, President/Chief Executive Officer
Harold A. Baylor, Jr., Vice President/Treasurer
Robert Kelly, Vice President/General Counsel/Secretary
Executive Officers of Amsterdam Savings Bank, FSB
- --------------------------------------------------
Robert J. Brittain, President/Chief Executive Officer
Harold A. Baylor, Jr., Vice President/Treasurer
Robert Kelly, Vice President/General Counsel/Secretary
Nancy S. Virkler, Vice President of Operations
Richard C. Edel, Vice President
Cynthia M. Proper, Vice President/Director of Lending
Michelle G. Brown, Vice President/Director of Human Resources
60
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary
Percent State of
of Incorporation
Parent Subsidiary Ownership or Organization
Ambanc Holding Co., Inc. Amsterdam Savings Bank, FSB 100% Federal
Ambanc Holding Co., Inc. ASB Insurance Agency, Inc. 100% New York
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1996 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> 12-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,336
<INT-BEARING-DEPOSITS> 2,051
<FED-FUNDS-SOLD> 4,500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 200,539
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 251,532
<ALLOWANCE> 3,438
<TOTAL-ASSETS> 472,421
<DEPOSITS> 298,082
<SHORT-TERM> 58,280
<LIABILITIES-OTHER> 4,041
<LONG-TERM> 50,500
0
0
<COMMON> 54
<OTHER-SE> 61,464
<TOTAL-LIABILITIES-AND-EQUITY> 472,421
<INTEREST-LOAN> 20,557
<INTEREST-INVEST> 10,921
<INTEREST-OTHER> 870
<INTEREST-TOTAL> 32,348
<INTEREST-DEPOSIT> 12,424
<INTEREST-EXPENSE> 16,435
<INTEREST-INCOME-NET> 15,913
<LOAN-LOSSES> 9,450
<SECURITIES-GAINS> (102)
<EXPENSE-OTHER> 13,148
<INCOME-PRETAX> (5,765)
<INCOME-PRE-EXTRAORDINARY> (5,765)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,836)
<EPS-PRIMARY> (0.81)
<EPS-DILUTED> (0.81)
<YIELD-ACTUAL> 3.66
<LOANS-NON> 3,123
<LOANS-PAST> 725
<LOANS-TROUBLED> 1,031
<LOANS-PROBLEM> 7,397
<ALLOWANCE-OPEN> 2,647
<CHARGE-OFFS> 8,718
<RECOVERIES> 59
<ALLOWANCE-CLOSE> 3,438
<ALLOWANCE-DOMESTIC> 3,438
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
